New York Law Review

Tag: Public Service Commission

  • Capital Telephone Company v. Pattersonville Telephone Company, 56 N.Y.2d 11 (1982): Antitrust Claim Not Barred by Prior Public Service Commission Determination

    Capital Telephone Company v. Pattersonville Telephone Company, 56 N.Y.2d 11 (1982)

    A determination by the Public Service Commission (PSC) dismissing a complaint under Public Service Law § 91 does not automatically bar a subsequent antitrust action under the Donnelly Act if the issues are not identical, were not necessarily decided by the PSC, and the complainant did not have a full and fair opportunity to litigate before the PSC.

    Summary

    Capital Telephone Company sued Pattersonville Telephone Company, alleging antitrust violations under New York’s Donnelly Act. Capital claimed Pattersonville was receiving preferential treatment from New York Telephone Company (NYT), allowing it to charge lower rates. Previously, Capital had filed a complaint with the Public Service Commission (PSC) regarding the same conduct, which the PSC dismissed. The New York Court of Appeals held that the PSC’s dismissal did not preclude Capital’s antitrust suit because the issues were not identical, the PSC’s decision was not necessarily determinative of the antitrust issues, and Capital did not have a full and fair opportunity to litigate its claims before the PSC. The court emphasized that the PSC’s role is regulatory, not antitrust enforcement.

    Facts

    Capital Telephone Company, a radio common carrier, competed with Pattersonville Telephone Company, which offered both radio and landline telephone services. Capital complained to the PSC that NYT was providing services to Pattersonville without charge and denying Capital a revenue-sharing arrangement. The PSC, after reviewing a report from its communications division, declined to issue an order requiring equal treatment. Subsequently, Capital sued Pattersonville, alleging conspiracy, violation of the Donnelly Act, and submission of below-cost tariff rates. Capital asserted an agreement between Pattersonville and NYT denied them equal treatment and violated state and federal antitrust law.

    Procedural History

    The trial court granted Pattersonville’s motion for summary judgment, dismissing the complaint. The Appellate Division modified the decision, denying the motion except for the federal antitrust claims. The Appellate Division granted leave to appeal to the New York Court of Appeals, certifying a question of law.

    Issue(s)

    1. Whether the PSC’s determination bars the entire action under principles of collateral estoppel (issue preclusion)?
    2. Whether the complaint challenges the propriety of tariffs, over which the PSC has exclusive original jurisdiction?
    3. Whether the technical nature of the issues requires abstention by the courts under the doctrine of primary jurisdiction?

    Holding

    1. No, because the issues before the PSC and the court are not identical, the issue was not necessarily decided by the PSC, and Capital did not have a full and fair opportunity to litigate the issue before the PSC.
    2. No, because the core issue is not the reasonableness of Pattersonville’s tariffs themselves, but whether NYT and Pattersonville unlawfully combined to give Pattersonville a cost advantage.
    3. No, at this stage. The court can defer to the PSC on specific issues if necessary after further development of the facts.

    Court’s Reasoning

    The Court of Appeals reasoned that collateral estoppel (issue preclusion) requires that the issue be identical, necessarily decided in the prior proceeding, and that the party had a full and fair opportunity to litigate. The court found the issues were not identical because the PSC complaint focused on discrimination under Public Service Law § 91, while the Donnelly Act claim focused on restraint of trade. As the court stated, “[d]iscrimination which may be justifiable under section 91 of the Public Service Law ‘may still be unlawful if it can be shown to have actually restrained competition’.” The PSC’s role is to determine if rates are unjust or unreasonable, not to enforce antitrust laws. The court noted that the PSC proceeding lacked a full evidentiary hearing and opportunity for Capital to contest the communications division’s report. The court also rejected the argument that the PSC had exclusive jurisdiction over tariff issues, stating that the antitrust claim collaterally involved the tariffs, but the core issue was an unlawful combination to reduce Pattersonville’s costs. Regarding primary jurisdiction, the court stated that it could defer to the PSC on specific issues after further discovery but that abstention was not required at this stage. The court emphasized the importance of coordinating the roles of courts and administrative agencies, quoting Hewitt v. New York, New Haven & Hartford R. R. Co., 284 NY 117, 124, concerning the doctrine of primary jurisdiction: “divergence of opinion between them not render ineffective the statutes with which both are concerned.”

  • Church of St. Francis De Sales v. Public Serv. Comm’n, 447 N.Y.S.2d 395 (1982): Defining ‘Exclusively Religious’ for Utility Rates

    Church of St. Francis De Sales v. Public Serv. Comm’n, 447 N.Y.S.2d 395 (1982)

    A parochial school that teaches both secular and religious subjects is considered ‘exclusively religious’ under Public Service Law § 76 and is entitled to the lower domestic utility rate because its primary purpose is religious education, even if secular subjects are part of the curriculum.

    Summary

    Several churches challenged the Public Service Commission’s (PSC) decision to deny them the lower ‘domestic’ utility rate for their parochial schools, arguing that their schools, which taught both secular and religious subjects, were ‘exclusively religious’ under Public Service Law § 76. The PSC argued that teaching secular subjects disqualified the schools. The Court of Appeals reversed the Appellate Division’s ruling, holding that the parochial schools were primarily religious because the teaching of religious beliefs pervaded all subjects, entitling them to the domestic utility rate. The court emphasized that the schools’ primary purpose was religious education, making them ‘exclusively religious’ despite the inclusion of secular subjects in the curriculum.

    Facts

    The petitioners were churches operating parochial schools where students received instruction in both religious tenets and secular subjects. These schools were located on church property and used classrooms for both types of instruction. Prior to 1979, the utility company billed the combined church and school operations at the lower ‘domestic rate,’ applicable to organizations conducted for religious purposes. In 1979, the utility informed the churches that the general service rate would be applied because the schools taught secular subjects, which the utility argued meant they were not ‘exclusively for religious purposes.’

    Procedural History

    The churches filed a complaint with the Public Service Commission (PSC), which ruled against them. The churches then commenced an Article 78 proceeding to annul the PSC’s determination. The Supreme Court granted relief to the churches. The Appellate Division reversed the Supreme Court’s decision and reinstated the PSC’s determination. The churches then appealed to the New York Court of Appeals.

    Issue(s)

    Whether parochial schools, which teach both secular and religious subjects, are operated ‘exclusively’ for religious purposes within the meaning of Public Service Law § 76, thus entitling them to the lower ‘domestic’ utility rate.

    Holding

    Yes, because the teaching of religious beliefs is the paramount objective and pervades all subjects, whether secular or religious, making the parochial schools primarily or ‘exclusively religious’ within the meaning of section 76 of the Public Service Law.

    Court’s Reasoning

    The Court of Appeals reasoned that while religious services are undoubtedly ‘exclusively religious,’ the term extends beyond just services. Religious organizations traditionally engage in various activities incidental to their religious goals. The court drew parallels to tax exemption statutes, which also use the term ‘exclusively religious’ and have been interpreted to include activities reasonably incidental to religious goals, such as a farm operated by a religious organization to feed its members. The court found that a school operated by a church to educate its children in a religious context is even more intimately related to religious objectives.

    The court rejected the argument that including secular subjects meant the facilities were partly devoted to nonreligious purposes. Instead, it emphasized that the teaching of secular subjects by a religious school is an integral part of the church’s belief that knowledge of the world should be conveyed and considered in a religious context. The court stated, “Partial or part-time use of a religious facility for nonreligious purposes does not make it any less religious unless, of course, the secular use is the predominant one.” The court adopted the ‘primarily or principally used for religious purposes’ test. Because the record showed that the teaching of religious beliefs was the paramount objective pervading all subjects, the court concluded that the schools were primarily or ‘exclusively religious’ and entitled to the domestic utility rate. The court quoted NLRB v. Catholic Bishop of Chicago, 440 U.S. 490, 503, stating that parochial schools’ primary reason for existence is “the propagation of a religious faith.”

  • Consolidated Edison Co. of New York, Inc. v. Public Service Commission, 47 N.Y.2d 94 (1979): Utility Advertising and First Amendment Rights

    47 N.Y.2d 94 (1979)

    A utility company does not have a First Amendment right to compel ratepayers to fund all of its informational advertising; the Public Service Commission (PSC) can disallow the inclusion of certain advertising expenses in the rate base if the advertising is not necessary for providing utility services.

    Summary

    Consolidated Edison challenged a Public Service Commission (PSC) decision that disallowed the inclusion of certain informational advertising expenses in the rates charged to customers. Con Ed argued that this violated its First Amendment rights. The New York Court of Appeals upheld the PSC’s decision, stating that while Con Ed has a right to express its views, the PSC is not obligated to force ratepayers to subsidize all of the utility’s communications. The court reasoned that the PSC has the authority to determine which costs are appropriately borne by ratepayers versus shareholders, and the PSC’s decision was not arbitrary or unsupported by evidence.

    Facts

    The Public Service Commission (PSC) disallowed Consolidated Edison (Con Ed) from including certain informational advertising expenses in the rates charged to its customers. The disallowed advertising was deemed not necessary for the provision of utility services and primarily served to enhance the utility’s image. Con Ed challenged this decision, arguing that it had a First Amendment right to have ratepayers cover the costs of all its informational advertising.

    Procedural History

    The Public Service Commission made the initial determination disallowing certain advertising expenses. Con Ed appealed this decision. The Appellate Division affirmed the PSC’s decision. Con Ed then appealed to the New York Court of Appeals.

    Issue(s)

    Whether a utility company has a First Amendment right to compel its ratepayers to bear the expense of informational advertising that the Public Service Commission deems unnecessary for providing utility services.

    Holding

    No, because while the Constitution provides a right to engage in certain activities free of governmental restrictions, it does not place a corresponding duty on the government to ensure the availability of all resources necessary to realize that freedom.

    Court’s Reasoning

    The court reasoned that while Con Ed’s advertising is entitled to First Amendment protection, the PSC did not restrain or restrict Con Ed’s ability to communicate. Instead, the PSC simply refused to allow ratepayers to bear the entire cost of the informational advertising, determining that the utility’s shareholders should cover the portion deemed unnecessary for the provision of utility services. The court emphasized that the PSC has a legitimate function in separating costs borne by ratepayers from those charged to shareholders. The court cited the principle that the Constitution does not generally obligate the government to ensure the availability of resources necessary to exercise a constitutional freedom, referencing Harris v. McRae, 448 US 297, and Norwood v. Harrison, 413 US 455, 462. The court found no evidence that the PSC’s ruling was arbitrary, capricious, or unsupported by substantial evidence, citing Matter of New York State Council of Retail Merchants v Public Serv. Comm. of State of N. Y., 45 NY2d 661, 671-672.

  • Matter of New York State Council of Retail Merchants, Inc. v. Public Service Commission, 45 N.Y.2d 661 (1978): Rational Basis for Phased Implementation of Time-of-Day Electricity Pricing

    Matter of New York State Council of Retail Merchants, Inc. v. Public Service Commission, 45 N.Y.2d 661 (1978)

    A public service commission’s decision to implement a new electricity rate structure gradually, starting with a specific class of consumers, is permissible if based on a rational justification, even if not solely cost-justified, provided the classification is reasonable under the circumstances.

    Summary

    The New York State Council of Retail Merchants challenged the Public Service Commission’s (PSC) approval of Long Island Lighting Company’s (LILCO) time-of-day electricity pricing for large commercial and industrial customers. The PSC initiated a case directing LILCO to propose time-of-day pricing, leading to the ‘Service Classification 2 — Multiple Rating Period’ (SC2-MRP) rate. The commission approved SC2-MRP, aiming for efficient resource use, but implemented it selectively due to high metering costs. The Court of Appeals reversed the Appellate Division’s annulment, holding that the selective implementation had a rational basis and was permissible, as the commission has expertise in weighing rate-fixing factors.

    Facts

    LILCO filed for a general rate increase, prompting the PSC to order the company to propose time-of-day electricity pricing. LILCO proposed SC2-MRP, supported by a marginal cost study. The PSC found marginal costs a reasonable basis for rate structures, but advocated gradual implementation. LILCO selected its largest commercial and industrial consumers (peak demand exceeding 750 kilowatts) for the initial phase. The PSC approved SC2-MRP, citing the need to address escalating construction and fuel costs. This was a novel approach to rate fixing in New York State.

    Procedural History

    The Public Service Commission approved LILCO’s proposed SC2-MRP rate. The Council of Retail Merchants’ request for a rehearing was denied. The Council then initiated an Article 78 proceeding, which was transferred to the Appellate Division. The Appellate Division annulled the commission’s determination. The Court of Appeals reversed the Appellate Division’s judgment and confirmed the commission’s order.

    Issue(s)

    1. Whether the Public Service Commission’s approval of LILCO’s time-of-day rate structure for a specific class of consumers constitutes unlawful inter-class price discrimination under Public Service Law § 65(2) and (3)?

    2. Whether the commission’s adoption and calculation of the SC2-MRP rate is supported by substantial evidence in the record?

    Holding

    1. No, because the phased implementation was based on a rational justification and the chosen classification of consumers was reasonable under the circumstances, justifying the commission’s decision.

    2. Yes, because the commission’s determination in approving LILCO’s SC2-MRP rate proposal represents a rational and reasonable step towards time-of-day pricing for electricity and finds substantial support in the record.

    Court’s Reasoning

    The Court reasoned that the Public Service Law (§ 66(14) and § 65(5)) expressly authorizes service classifications based on quantity and time of usage. While classifications necessitate differentiation, the key is whether undue discrimination occurs. Selective implementation was justifiable due to the high costs of wide-scale metering and the need for detailed consumer education. The selection of large commercial and industrial consumers was rational because they already had necessary meters and offered potential for usage responsiveness. The court emphasized deference to the commission’s expertise in balancing rate-fixing factors. The Court cited Erznoznik v. City of Jacksonville, 422 U.S. 205, 215; Dandridge v. Williams, 397 U.S. 471, 486-487; and Williamson v. Lee Optical Co., 348 U.S. 483, 489, noting equal protection analysis recognizes gradual progression. Regarding SC2-MRP, the court deferred to the commission’s expertise in complex, technical matters. It found sufficient evidence supporting the marginal cost study underlying the rate, rejecting challenges to the use of long-run marginal capacity costs and projected costs of future gas turbines. The court stated, “It is only when it can be shown that the exercise of judgment was without any rational basis or without any reasonable support in the record that the determination of the commission may be set aside.”

  • New Rochelle Water Co. v. Public Service Commission, 31 N.Y.2d 397 (1972): Authority to Prevent Actions Endangering Service

    New Rochelle Water Co. v. Public Service Commission, 31 N.Y.2d 397 (1972)

    A public service commission can prevent a utility company from actions, such as transferring funds to a parent company to cover losses of other subsidiaries, that imperil the utility’s capacity to maintain adequate service.

    Summary

    New Rochelle Water Company appealed a decision by the Public Service Commission (PSC) that restricted the water company’s ability to transfer funds to its parent company. The PSC’s order aimed to prevent the water company from draining its working capital, which was being used to cover losses incurred by the parent company’s other subsidiaries. The Court of Appeals affirmed the Appellate Division’s order, holding that the PSC had the authority to prevent actions that threatened the water company’s ability to provide adequate service, especially when sustained only by rate increases. The Court distinguished this case from People ex rel. New York Rys. Co. v Public Serv. Comm., noting that the PSC’s intervention here was a direct response to a threat to service, not an encroachment on internal managerial policies.

    Facts

    New Rochelle Water Company systematically withdrew earnings, reducing its working capital.
    These withdrawals were used to cover losses incurred by the parent company’s other subsidiaries.
    The Public Service Commission (PSC) determined that these withdrawals imperiled the water company’s capacity to maintain adequate service.
    The water company’s ability to maintain adequate service was sustained only by rate increases.

    Procedural History

    The Public Service Commission issued an order restricting the water company’s ability to transfer funds to its parent company.
    The Appellate Division affirmed the PSC’s order.
    The New Rochelle Water Company appealed to the New York Court of Appeals.

    Issue(s)

    Whether the Public Service Commission has the authority to prevent a utility company from transferring funds to its parent company when such transfers imperil the utility’s capacity to maintain adequate service.

    Holding

    Yes, because the systematic withdrawals of earnings and the reduction of working capital of the water company had, at the time of the commission’s order, imperiled the water company’s capacity to maintain adequate service. The order stops the drain of working capital by the water company’s payment out of cash to the parent company to cover losses by the parent’s other subsidiaries.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s order, emphasizing the PSC’s power to assure adequacy of service.
    The Court distinguished this case from People ex rel. New York Rys. Co. v Public Serv. Comm. (223 NY 373), which involved a less direct effort to protect the financial structure of a railroad company.
    The Court noted that the PSC’s intervention in this case was a direct response to a threat to the water company’s ability to maintain adequate service, sustained only by rate increases.
    The order aimed to prevent the drain of working capital caused by the water company’s payments to the parent company to cover losses of other subsidiaries.
    The Court emphasized that there was no abuse of discretion by the Appellate Division in declining to grant leave to serve an answer.
    The court stated, “the systematic withdrawals of earnings and the reduction therefore of the working capital of the water company had, at the time of the commission’s order, imperiled the water company’s capacity to maintain adequate service, sustained only by rate increases.”

  • In re Grand Jury Subpoenas, 27 N.Y.2d 233 (1970): Balancing Grand Jury Secrecy with Public Interest

    In re Grand Jury Subpoenas, 27 N.Y.2d 233 (1970)

    The decision to disclose grand jury minutes hinges on balancing the public interest in disclosure against the traditional reasons for maintaining grand jury secrecy, a determination left to the trial court’s discretion.

    Summary

    Following a grand jury investigation into bid-rigging by construction companies related to Consolidated Edison contracts, the Public Service Commission (PSC) sought access to the grand jury minutes to determine if Consolidated Edison’s rates reflected inflated costs due to the conspiracy. The New York Court of Appeals affirmed the lower courts’ decision to allow the PSC to inspect the minutes, holding that the public interest in ensuring fair utility rates outweighed the need for grand jury secrecy in this particular case, especially since the criminal proceedings had concluded and the traditional reasons for secrecy were no longer compelling.

    Facts

    The District Attorney of New York County investigated alleged bid-rigging among construction companies involved in contracts with Consolidated Edison. A grand jury indicted several companies and officers for conspiracy to rig bids. The defendants pleaded guilty and paid fines. Subsequently, the Public Service Commission (PSC) initiated an administrative proceeding to investigate costs incurred by Consolidated Edison under these contracts, seeking to determine if the utility’s rates reflected inflated costs due to the bid-rigging conspiracy.

    Procedural History

    The PSC moved for an order permitting it to inspect the grand jury minutes, which the District Attorney did not oppose. The trial court granted the motion. The contractors moved to vacate the inspection order, which was denied. The Appellate Division affirmed both orders. The contractors appealed to the New York Court of Appeals.

    Issue(s)

    Whether the lower courts abused their discretion by authorizing the Public Service Commission to inspect grand jury minutes after the conclusion of criminal proceedings related to the grand jury’s investigation.

    Holding

    No, because the public interest in determining whether a public utility’s rates were inflated due to a bid-rigging conspiracy outweighed the need for grand jury secrecy, especially since the criminal proceedings had concluded and the traditional reasons for secrecy were no longer compelling.

    Court’s Reasoning

    The Court of Appeals acknowledged that grand jury secrecy is not absolute and that courts have the discretion to permit disclosure of grand jury minutes under Section 952-t of the Code of Criminal Procedure. The court must balance the public interest in disclosure against the reasons for maintaining secrecy. The traditional reasons for grand jury secrecy include: preventing flight of potential defendants, protecting grand jurors from interference, preventing subornation of perjury, protecting innocent accused persons, and encouraging witnesses to testify freely.

    The court reasoned that in this case, the reasons for secrecy were no longer compelling because the criminal proceedings had concluded. The public interest in disclosure was significant because it would allow the PSC to determine if Consolidated Edison’s rates were inflated due to the bid-rigging conspiracy, potentially affecting millions of dollars in consumer charges. The court noted, “[C]harges to consumers arising from the decade-long conspiracy, involving millions of dollars, may depend upon the agency’s ascertainment of the degree of Consolidated Edison’s—and Brooklyn Union’s—involvement in the criminal conspiracy.”

    The court rejected the argument that disclosure would have a chilling effect on future grand jury witnesses, noting that the PSC is a governmental investigatory body with authority over the subject matter of the grand jury’s inquiry. The court also dismissed the argument that inspection is only granted to agencies involved in criminal law enforcement, citing cases where inspection was granted to town residents and other non-law enforcement entities. The court emphasized that the disclosure was limited to the PSC’s staff for investigation and preparation for public hearings. The court stated that, “[I]mplicit in the absence of objection on the part of the District Attorney is the lack of detriment in respect of any prospective criminal proceeding.”

  • Matter of General Telephone Co. of Upstate New York, Inc. v. Lundy, 17 N.Y.2d 373 (1966): Authority to Scrutinize Affiliate Transactions in Rate-Making

    Matter of General Telephone Co. of Upstate New York, Inc. v. Lundy, 17 N.Y.2d 373 (1966)

    A public service commission, in determining just and reasonable rates for a utility, has the implied authority to scrutinize transactions between the utility and its affiliates to ensure that costs passed on to ratepayers are not inflated, even without explicit statutory authority to regulate all affiliate contracts.

    Summary

    General Telephone Co. of Upstate New York, a subsidiary of GT&E, challenged a Public Service Commission order that disallowed certain rate increases. The Commission determined that General Telephone was being overcharged by its affiliated suppliers, also GT&E subsidiaries, and excluded these overcharges from the rate base and operating expenses. The New York Court of Appeals upheld the Commission’s decision, finding that the power to review affiliated transactions is implied in the Commission’s rate-making authority, despite the absence of explicit statutory authorization. The court reasoned that the Commission has a duty to protect ratepayers from excessive charges resulting from non-arm’s length transactions between affiliated entities.

    Facts

    General Telephone Co. of Upstate New York (GTC), a subsidiary of General Telephone and Electronics Corporation (GT&E), filed for rate increases with the Public Service Commission (PSC). The PSC conducted hearings and approved some increases but disallowed others. The PSC determined that GTC was being overcharged for goods and services by other GT&E subsidiaries. These subsidiaries included Automatic Electric Company (AE), General Telephone Directory Company, and Leich Electric Company (Leich). AE was a major manufacturer of specialized telephone equipment, with a significant portion of its sales to GT&E affiliates. Leich supplied standard telephone supplies, mostly to GT&E affiliates. The Directory Company specialized in yellow page advertising and telephone directories, with a majority of its business from affiliates. The PSC found the prices charged by these affiliates to GTC were excessive.

    Procedural History

    GTC filed an Article 78 proceeding to challenge the PSC’s order. The case was transferred to the Appellate Division, which confirmed the PSC’s determination. GTC appealed to the New York Court of Appeals based on constitutional grounds, arguing that the PSC should have credited the full amounts paid to its affiliated suppliers.

    Issue(s)

    1. Whether the Public Service Commission has the authority to investigate the reasonableness of prices charged to a utility by its affiliated suppliers when setting rates, even in the absence of explicit statutory authorization to regulate all contracts between affiliates.

    2. Whether it was an error to determine the telephone company was being overcharged, because it paid no more, and sometimes less, than independent telephone companies.

    3. Whether the Commission erred in using the “historical book value” of the affiliate in determining the net returns on investment, rather than the “acquisition cost.”

    Holding

    1. Yes, because the power to conduct such an inquiry and ascertain whether the prices were excessive may be fairly implied from the rate-making powers already granted by the Legislature to the Commission.

    2. No, because there is no constitutional requirement that prevailing market prices must be accepted as the standard for testing the reasonableness of operating costs.

    3. No, because the Public Service Law places the burden on the telephone company to show that the proposed rate change is just and reasonable, and the telephone company’s own expert witness provided data based on historical book value.

    Court’s Reasoning

    The Court reasoned that the PSC’s authority to determine “just and reasonable” telephone rates (Public Service Law, § 91, subd. 1; § 97, subd. 1) necessarily implies the power to scrutinize transactions between a utility and its affiliates. The Court cited Chicago & Grand Trunk Ry. Co. v. Wellman, 143 U.S. 339, 346, stating that the rate-making power cannot be “subservient to the discretion of [a utility] which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call operating expenses.” The Court emphasized the Commission’s duty to closely scrutinize transactions between affiliates, especially when those expenses arise out of dealings between affiliates. The court emphasized that in the absence of arms-length bargaining the commission must protect the utility’s rate payers.

    The Court rejected the argument that the prevailing market prices should be accepted as the standard, given the control GT&E had over its subsidiaries, stating “little, if any, weight can be accorded to price comparison.” The court stated, “comparative prices fixed in the * * * independent telephone market * * * as [a valid test] of the reasonableness of these affiliated transactions.”

    The Court dismissed the argument that the commission should have used “acquisition cost” instead of “historical book value” to determine the net returns on investment, stating that the petitioner failed to introduce comparable data. The Court stated, “In order to determine whether profits are fair rather than excessive, the commission must ascertain what similar enterprises are earning on a similar basis.”

    The Court held that there was no denial of equal protection because the Commission lacked the power to order a reduction in the prices charged by these suppliers to independent companies. If the same prices were charged to independent telephone companies, they could not be excluded from the rate base of independent companies. The court reasoned that it would be unfair to penalize a utility for a state of affairs over which it has no control, which would violate due process.