The state was right to reject US West’s 1995 request for a huge rate increase and to order the phone company instead to slash revenues by $91.5 million, the state Supreme Court ruled Wednesday.
The court, in a decision that elevates the Washington Utilities and Transportation Commission’s power to regulate public utilities, also upheld the commission’s refusal to let US West change its methods of depreciating equipment.
Voting 7-2, the justices rejected US West’s contention that the commission acted improperly and beyond its authority when it denied the company’s request to raise revenues by $204 million a year, phased in over four years. The increase would have doubled average residential telephone rates from $10.50 to $21.85 a month.
“This is nice Christmas present for our customers,” commission spokesman Steve King said. “It will mean a good-sized reduction in business rates” and in-state, long-distance toll rates, both of which will fall when the company cuts its revenues as ordered by the court.
The utility was disappointed with the ruling, including the court’s conclusion that the commission has wide discretion in setting phone rates and policies that affect investment for equipment and other infrastructure.
‘Unfortunately, the court’s decision is a setback for customers because it will make it harder for US West to provide the type of advanced telecommunications services they need,” said Scott McClellan, vice president for Washington.
The company will continue to work with the commission to set rates that are “fair and affordable to our customers, yet also enable continued and accelerated investment in the state’s increasingly important telecommunications infrastructure,” he said.
McClellan noted that the commission staff backs the company’s pending request for a $70 million rate increase. A decision is expected early next month.
Company lawyers argued in court that the commission’s order was fundamentally flawed because the commission failed to work into its calculations that US West must operate in a new, more competitive environment that came with federal deregulation of telecommunications.
The lawyers called the commission action arbitrary, capricious and unconstitutional.
Among other things, the lawyers said, the state incorrectly calculated the company’s operating expenses, unfairly included revenue from the Yellow Pages subsidiary in its profits, miscalculated how fast the company’s equipment depreciates and disregarded its cost studies.
State lawyers countered that the calculations were grounded in facts, rather than in the company’s own speculation about its potential losses due to competition.
In an opinion written by Justice Richard Guy, the court sided with commission lawyers, saying the commission’s staff had presented “substantial evidence” and “properly interpreted the law” in rejecting \the increase and ordering a decrease in revenues.
“US West has not shown any decision to be arbitrary or capricious or unconstitutional,” the court said.
Dissenting Justices Gerry Alexander and Richard Sanders agreed with the majority on all but one point. The two said the majority was wrong to have upheld a portion of the regulators’ order reducing US West’s return on equity by five-tenths of a percentage point “as a reaction to what it concluded was US West’s poor level of past service.” The two said the commission action amounted to levying a penalty, which, they said, it had no authority to do “under the guise of rate-making.”
The high court unanimously upheld the commission’s decision to deny a US West request to shorten its equipment depreciation schedule.