Kerman Telephone Co. v. Public Utilities Commission
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This original proceeding involves a protracted legal battle between several rural telephone companies and the Public Utilities Commission (“Commission”). Petitioners are telephone corporations that provide telephone service in rural areas. After the Rural Telephone Bank (“RTB”) had just dissolved and redeemed all shares of stock it had issued. Many telephone companies, including Petitioners, owned RTB stock. The Commission had clarified in a 2006 decision that all gains on the sale of public utility company assets that were never in rate base accrue to company shareholders. Relying on this decision, the companies that never had stock in rate base so stated in the application and did not disclose any of their redemption proceeds. The Commission penalized the companies in the amount of $2,752,000 for violating Rule 1.1. The companies challenged the decision in an administrative appeal, but the Commission denied rehearing.
The Fifth Appellate District annulled penalty decision and the decision denying rehearing. The court agreed that Petitioners lacked fair notice of their obligation to disclose their redemption proceeds in the 2007 application. The court explained that Petitioners’ redemption proceed amounts were irrelevant to a ratemaking determination because Petitioners’ shares were never in rate base. All gains or losses on the redemption accrued to Petitioners’ shareholders, not the ratepayers. No other allocation was legally allowed. The Commission should have instructed Petitioners to disclose their redemption proceeds in the Application if that is what the Commission wanted from Petitioners. But the Commission did not give fair notice to Petitioners of this disclosure requirement and penalized them for essentially failing to intuit the disclosure requirement.
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