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General Telephone Co. v. Arkansas Public Service Commission
Citations: 272 Ark. 440; 616 S.W.2d 1; 1981 Ark. LEXIS 1294Docket: 80-307
Court: Supreme Court of Arkansas; May 11, 1981; Arkansas; State Supreme Court
The Public Service Commission (PSC) approved a rate increase for General Telephone Company of the Southwest (GTSW) that was lower than the amount requested. GTSW appealed this decision to the circuit court, which affirmed the PSC's order. GTSW now appeals to a higher court, arguing that there was insufficient evidence to support the PSC’s application of 'double leverage' in determining its rates. GTSW sought an increase of $1,893,525 but the PSC approved only $1,498,424. The PSC employed the 'double leverage' concept, previously validated by the court in earlier cases, to assess GTSW’s cost of equity capital. The parent company, GTE, owns GTSW and has a mix of utility and non-utility ventures, with a significant portion of GTE's income derived from public utilities. The PSC's witness, Phillip C. Fry, a financial analyst, provided testimony on the rate of return for GTSW, determining it to be 8.5089 using a weighted cost of capital approach. He selected comparable companies from Standard and Poor's stock guide, focusing on gas and electric utilities. The court emphasizes that its review will consider only the evidence favorable to the PSC and that it will focus on whether substantial evidence supports the PSC's decision rather than the methodology employed. The court concludes that 'double leverage' is a valid method for determining the required rate for utilities. Appellant acknowledges the appropriateness of 'double leverage' but contends it is unfair in the context of GTE's corporate structure and that relying solely on utility comparables is unjust. However, the legal framework established by the landmark cases Bluefield Waterworks Improvement Co. v. Public Service Commission and Federal Power Commission v. Hope Natural Gas Co. remains binding. These cases affirm that a public utility is entitled to rates that allow it to earn a return on its property value equivalent to returns on similar-risk investments but not on speculative ventures. The court concludes that the appellant has not demonstrated that the Public Service Commission's (PSC) order contradicts the principles set forth in Bluefield or Hope. Previous decisions supporting this framework include Southwestern Bell Telephone Co. v. Public Service Commission and Public Service Commission v. Lincoln-Desha Telephone Co. The court found substantial evidence in witness Fry's testimony, leading to the affirmation of the trial court's decision upholding the PSC's order. Hays and Holt, JJ. did not participate in the decision.