Opinion
No. 81-481
Decided December 9, 1981.
Public Utilities Commission — Water service companies — Rate increase — Rate of return determination — Use of parent company's consolidated capital structure reasonable and lawful.
APPEAL from the Public Utilities Commission of Ohio.
Appellant, Ohio-American Water Company ("Ohio-American"), is an Ohio corporation engaged in the business of providing water service to approximately 35,000 customers in Marion, Ashtabula, Seneca and Lawrence counties. Appellant also is a wholly-owned subsidiary of the American Water Works Company, Inc., based in Wilmington, Delaware.
On December 14, 1979, Ohio-American filed a "Notice of Intent to File an Application for an Increase in Rates" with appellee, the Public Utilities Commission of Ohio ("commission"). Ohio-American sought an increase in rates for its entire service area. On March 14, 1980, the commission accepted Ohio-American's application for an increase in rates and its staff conducted an investigation, as required by R.C. 4909.19. After the staff filed its written report, a public hearing was held upon the application. This public hearing began on October 29, 1980, and continued to November 4, 1980.
In his testimony before the commission, appellant's expert witness indicated that appellant sought a rate of return of 11.05 percent. Also of significance to this appeal was appellant's contention that the requested rate of return should be based solely upon an evaluation of its own capital structure.
The commission's staff witness recommended a rate of return of between 9.04 and 9.29 percent and further recommended that this return be based upon a cost of capital analysis which consolidated Ohio-American's capital structure with that of its parent company.
Following the public hearing, the commission approved a rate of return of 9.04 percent, based upon an analysis of the consolidated capital structure of the American Water Works Company, appellant's parent company.
Appellant's application for rehearing was denied and this cause is now before this court upon an appeal as a matter of right.
Messrs. Bricker Eckler, Ms. Sally W. Bloomfield and Mr. David V. Stivison, for appellant.
Mr. William J. Brown, attorney general, Mr. Marvin I. Resnik, and Ms. Marsha Rockey Schermer, for appellee.
The only issue presented herein is the reasonableness of the commission's decision to use a consolidated capital structure in determining an appropriate rate of return for Ohio-American.
Appellant contends, generally, that the commission's decision is unreasonable for two reasons. First, appellant argues that the commission has adopted a per se rule that whenever an applicant utility is a wholly-owned subsidiary, a consolidated capital structure will be used; and, second, the commission, in making its determination, relied upon prefiled staff testimony which was either recanted by the witnesses during cross-examination or rebutted by Ohio-American's own experts.
Appellant's first argument must fail simply because there is absolutely no evidence that the commission has abrogated its statutory responsibilities. Moreover, this court has recently held that it is permissible for the commission to use a consolidated capital structure in determining a fair and reasonable rate of return. See Ohio Water Service Co. v. Pub. Util. Comm. (1980), 61 Ohio St.2d 308; Ohio Suburban Water Co. v. Pub. Util. Comm. (1980), 62 Ohio St.2d 17, certiorari denied (1980), 449 U.S. 876; and Ohio Water Service Co. v. Pub. Util. Comm. (1980), 64 Ohio St.2d 12; cf. Franklin Co. Welfare Rights Org. v. Pub. Util. Comm. (1978), 55 Ohio St.2d 1, at 6; and Akron v. Pub. Util. Comm. (1978), 55 Ohio St.2d 155.
With regard to appellant's second argument, it is clear that there is a disagreement between appellant's witness and the commission's staff witness as to the appropriate capital structure to be used in determining Ohio-American's cost of capital. It is equally clear that there exists a conflict between the interpretation which appellant places upon the evidence presented at the public hearing and that which the commission places thereon. However, this conflict does not justify a reversal of the commission's order. "The function and jurisdiction of this court in an appeal from an order of the commission is limited. Under R.C. 4903.13, our task is to affirm an order of the commission if it is not unreasonable or unlawful. *** Our function is not to weigh the evidence or to choose between alternative, fairly debatable rate structures." Cleveland Elec. Illuminating Co. v. Pub. Util. Comm. (1976), 46 Ohio St.2d 105, 108. To adopt appellant's contentions would require this court to conduct a de novo review of the commission's order. This we may not do. See Masury Water Co. v. Pub. Util. Comm. (1979), 58 Ohio St.2d 147.
This court is of the opinion that use of the consolidated capital structure of the American Water Works Company for determining the rate of return for appellant is both reasonable and lawful. Accordingly, the order of the commission is affirmed.
Order affirmed.
CELEBREZZE, C.J., W. BROWN, SWEENEY, LOCHER, HOLMES, C. BROWN and KRUPANSKY, JJ., concur.