Opinion ID: 1926458
Heading Depth: 1
Heading Rank: 3

Heading: The Commission's Determinations

Text: The Public Service Commission used the generally accepted approach in determining whether South Central Bell's application for a rate increase and additional revenues has merit. The Commission selected the calendar year of 1975 as the test year. After considering thousands of pages of testimony, exhibits, tables, cross-examination, data requests, and data responses the Commission made its determinations. It found that during the test year the utility had revenues of $72,017,000, an average rate base of $828,280,000 and an actual rate of return of 8.7%. Because the Commission had previously determined that a rate of return of 8.55% to 9.01% would be a fair rate of return for South Central Bell, it concluded that no rate change was warranted because the actual rate of return earned during the test year was within this range. We will discuss later the method used by the Commission to determine that the fair rate of return was 8.55% to 9.01%. In arriving at the figures it used to make the final calculation of the actual rate of return, the Commission made a series of adjustments to the data furnished by South Central Bell from its books. Adjustments to the rate base included reductions to account for overstatement of materials and supplies paid for, overstatement of federal income taxes paid, sums advanced by customers, accumulated deferred income taxes and unamortized tax credits, and overstatement of intrastate plant. Among the Commission's adjustments to revenues and expenses was a requirement that research and development costs be capitalized rather than treated as a current expense, flow through of deferred state income taxes, reduction of test year income tax expense, and reduction of overstated intrastate operations expenses. Two of the Commission's adjustments are subjects of dispute in this Court. The other questions presented by the appeals concern the Commission's calculation of the rate of return and its failure to increase the utility's required revenues to offset attrition of the rate of return. The Commission contends that the district court erred in reversing its adjustment of research and development costs and in ordering a rate increase to offset attrition. South Central Bell argues that the district court erred in affirming the Commission's findings that the appropriate capital structure for rate making purposes is the Bell System capital structure; that the proper cost of debt is that of the Bell System; that the proper cost of equity is 10.5-11.5%; that the Commission's separations of interstate plant and expenses from intrastate rate base and expenses were proper. South Central Bell also contends that the increase in rates to offset attrition is inadequate and should be increased to allow an additional $21,000,000-$26,000,000 in annual revenues over the amount awarded by the district court.