U.S. v. RCA Alaska Communications, Inc.

• Citation: 597 P.2d 489
• Decision Date: 21 June 1978
• Docket Number: No. 3772,3772
• Parties: UNITED STATES of America, Alaska Public Utilities Commission, and Office of Telecommunications of the Office of the Governor, State of Alaska, Petitioners, v. RCA ALASKA COMMUNICATIONS, INC., Respondent.
• Court: Supreme Court of Alaska (US)

Page 489

597 P.2d 489

UNITED STATES of America, Alaska Public Utilities Commission, and Office of Telecommunications of the Office of the Governor, State of Alaska, Petitioners, v. RCA ALASKA COMMUNICATIONS, INC., Respondent.

No. 3772.

Supreme Court of Alaska.

June 21, 1978.

On Rehearing May 18, 1979.

Alexander O. Bryner, U. S. Atty., Anchorage, for Department of Defense, United States of America, petitioner.

Timothy G. Middleton, Wohlforth & Flint, Anchorage, for Alaska Public Utilities Commission, petitioner.

B. Richard Edwards, Anchorage, and John W. Pettit, Hamel, Park, McCabe & Saunders, Washington, D.C., for Office of Telecommunications of the Office of the Governor, State of Alaska, petitioner.

Richard O. Gantz, Hughes, Thorsness, Gantz, Powell & Brundin, Anchorage, and Donn T. Wonnell, Anchorage, for RCA Alaska Communications, Inc., respondent.

Lucinda J. McBurney and Margie MacNeille, Alaska Legal Services Corp., Anchorage, for Shirley Clubine, amicus curiae.

Hugh W. Fleischer, and Patrick L. Gileau, Anchorage, for Alaska Public Interest Research Group, amicus curiae.

Before BOOCHEVER, C. J., and RABINOWITZ, CONNOR, and BURKE, JJ.

OPINION

RABINOWITZ, Justice.

This matter comes before the court on three separate petitions for review filed by the United States of America, the Office of Telecommunications of the Office of the Governor of the State of Alaska, and the Alaska Public Utilities Commission.

In June 1977, respondent RCA Alaska Communications, Inc. (RCAA) requested interim rate relief for its intrastate long distance telephone service by filing a tariff advice letter with the Alaska Public Utilities Commission (APUC). This requested interim rate relief, if granted, would result in an increase of 87% Across the board in all existing intrastate long distance telephone rates and was calculated to yield $18,500,000 annually in additional revenues. Extensive hearings on the requested interim rate increases were held in late August and early September 1977. In November 1977, the APUC entered an order denying RCAA's application for interim rate relief. On December 2, 1977, RCAA filed a tariff advice letter TA 112-981 requesting a permanent rate increase of 95% And an intrastate rate of return of 5.720%.

In its order denying the rate increase, the APUC concluded that the test enunciated in Alaska Public Utilities Commission v. Greater Anchorage Area Borough, 534 P.2d 549 (Alaska 1975), (hereinafter referred to as APUC v. GAAB or GAAB ) is relevant to the resolution of preliminary injunction issues but that the GAAB test is not the standard the APUC will apply in deciding utility requests for interim rate relief. ¹

After the order of the APUC was entered, RCAA, in December 1977, filed an injunctive action in the superior court. A hearing was held on the same day as the suit for injunction was initiated. At the conclusion of the hearing, the superior court granted RCAA the injunctive relief it sought by entering a preliminary injunction, the effect of which authorizes RCAA to receive an 87% Increase in its long distance toll rates within Alaska. The superior court's grant of injunctive relief in RCAA's favor was, in turn, stayed by Justice Burke, pending filing of petitions for review from the superior court's grant of injunctive relief.

In his formal order granting RCAA the injunctive relief, Judge Carlson made, in part, the following findings:

That RCA Alascom has established sufficient cause for the issuance of a Temporary Restraining Order and a Preliminary Injunction and a Preliminary Injunction will issue. The Court finds that RCA Alascom has demonstrated a reasonable probability that a significant part of its projected intrastate expenses will be part of the final rate base for a permanent rate increase and under the applicable law the Alaska Public Utilities Commission was obligated to consider the intrastate return in determining whether the intrastate expenses of the company exceeded the intrastate revenues. The court finds that RCA Alascom has established a prima facie case that said expenses did exceed said revenues and that the intrastate rates of RCA Alascom result in a negative rate of return and are confiscatory. The court finds that the Commission acted unreasonably in completely denying RCA Alascom's requested rate increase for intrastate services.

The superior court, in its oral decision, granted RCAA interim relief and articulated the following factor which influenced its decision:

It's clear to me that the amount of expenses which RCA says it is incurring to provide intrastate service will in fact be part of its rate base when the final decision of the commission is made, whenever it is made. And therefore RCA is entitled to relief. ²

Upon preliminary study and evaluation of the instant petitions for review, we decided to grant review and entered an order to that effect. In addition, this order provided:

The case is remanded to the Superior Court with directions to make detailed and explicit findings of fact and conclusions of law in accordance with the decision in APUC v. GAAB, 534 P.2d 549 (Alaska 1975). In making its findings and conclusions the Superior Court must consider the full record of the proceedings before the Alaska Public Utilities Commission.

The stay of the Superior Court's injunction entered by Justice Burke on December 19, 1977, remains in effect. ³

After the matter was remanded to the superior court, the superior court considered the full record before the APUC and then filed additional findings of fact and conclusions of law. The overall legal conclusion of the superior court was that the APUC erred in ruling that "its scope of considerations was of the whole company's operations." In this regard, the superior court reasoned that revenue from RCAA's interstate ratepayers may not be used to subsidize services to intrastate ratepayers by virtue of "the regulations of the Commission and constitutionally."

Of the superior court's supplemental findings, the following are the most significant:

2. RCAA has adduced written evidence and oral testimony which shows that it has allocated its property costs, revenues, expenses, taxes and reserves in accordance with the principles and practices set forth in the February, 1971 edition of the Separations Manual published by the National Association of Regulatory Utility Commissioners. (I. e., Ozark methodology)

3. RCAA has adduced written evidence and oral testimony which shows that for the two years ended December 31, 1976, it has sustained a net operating loss on its intrastate telephone utility operation of over $300,000 and $4,000,000 respectively.

8. The evidence before the Alaska Public Utilities Commissioner shows that if RCAA receives the full rate increase of 87% Across the board on all of its intrastate services, RCAA will receive therefrom a rate of return on its intrastate rate base of less than 5%. ⁴

Based, in part, on the foregoing, the superior court filed the following conclusions of law under which it had granted RCAA interim rate relief:

1. The adequacy of RCAA's current rates must be evaluated with reference to RCAA's allocated intrastate property costs, revenues, expenses, taxes and reserves and not with reference to RCAA's total company results of operation. Allocation of these rate-making items is properly accomplished, for this proceeding, only in accordance with the principles and practices set forth in the February, 1971 edition of the Separations Manual published by the National Association of Regulatory Utility Commissioners.

2. RCAA has made a serious and substantial showing that, on an allocated basis and with reference to its intrastate operations, expenses, and investment, its existing intrastate rates are confiscatorily low.

3. RCAA's existing rates will remain in effect for an unreasonably long period of time pending final Alaska Public Utilities Commission determination of proper permanent rates.

4. If an interim rate increase is not granted, RCAA will continue to suffer irreparable harm.

6. As the evidence stands on this record, to award RCAA a full interim increase of 87% Across the board on all of its intrastate services will not enable RCAA to earn an excessively high rate of return on its intrastate operations.

7. RCAA has satisfied all the elements required in order to secure an interim rate increase. Accordingly, RCAA is entitled to its requested 87% Across the board interim and refundable rate increase on intrastate services.

Concerning the question of protecting ratepayers of the interim rate increases it was ordering, the superior court, found:

7. There are several methods to protect the economic interests of those persons who would pay the increased rates if the permanent rate increase is less than the interim rate increase. The least expensive method and the method of refund most likely to reach the individuals and groups of ratepayers who may have paid refundable rates is for the Alaska Public Utilities Commission to order a reduction of rates from the permanent rates which are established for a period of time similar to the period over which the excess rates may have been collected sufficient for reimbursement.

In its conclusions of law, the superior court adopted the method set forth as a mechanism for refunding "excess revenues" in order to protect consumers paying the higher interim rates. ⁵

In APUC v. GAAB, 534 P.2d 549 (Alaska 1975), we held that the following requirements must be met before the superior court can intervene and overrule or modify an order of the APUC affecting utility rates. First, the utility must make a serious and substantial showing that the existing rates are so low as to be confiscatory. Second, the utility is obligated to show that no date has been set by the Commission for a prompt final hearing, and that the existing confiscatory rates are likely to remain in force for an unreasonable period of time before the...