Opinion ID: 1338206
Heading Depth: 1
Heading Rank: 4

Heading: cost of short term debt

Text: In determining Southern Bell's cost of capital, the Commission determined the cost of short term debt to Southern Bell to be 5.72%. In making this determination, the Commission adopted the figure which was proposed by staff witness Hammond, without further explanation. Southern Bell argued before the lower court that the Commission had erred in the manner in which it determined the cost of short term debt. Southern Bell contended that the figure which the Commission adopted represented the cost of short term debt as of March 31, 1976, the last day of the test year period. Southern Bell argued that the Commission should have used the overall average of the high and low short term interest rates throughout the entire test year period. The lower court found for Southern Bell, and the Commission and the Attorney General filed exceptions. It is unclear from the record how the Commission staff arrived at the 5.72% cost of short term debt which the Commission adopted. We agree, however, with the lower court's conclusion that if the cost figure represents the use of a spot date, i. e. March 31, 1976, the acceptance of such figure would have been arbitrary and capricious. In Re General Telephone Co. of the Southeast , 13 P.U.R. 4th 24 (S.C.P.S.C. 1976), the Commission acknowledge that due to the unique nature of short term debt instruments, a proper determination of the cost rate for short term debt involves consideration of numerous factors, such as the average prime rates over the test period, and compensating balance costs associated with bank borrowing. We affirm the lower court's order remanding the case to the Commission for reconsideration of the cost of short term debt based upon that cost through the entire test year period and not as of any particular date. As indicated hereinabove, the exceptions filed by the Attorney General and the Commission involve comparatively small amounts in the overall corporate structure of Southern Bell. The rulings are important as a matter of precedent in future hearings. It is obvious that the amounts involved are not sufficient to warrant a change in the rate issue. In Summary, we hold that Southern Bell has not carried the burden of proof imposed upon it by § 58-9-1450 of the Code, quoted hereinabove. Accordingly, Southern Bell's exceptions are overruled. The case is remanded to the Court of Common Pleas for return to the Commission for additional determinations on the three issues raised by the exceptions of the Attorney General and the Commission. The exceptions of the Attorney General and the Commission are also overruled. Affirmed. LEWIS, C.J., and RHODES, J., concur. NESS and GREGORY, JJ., concur and dissent.