Actual Expenses of Ohio Utility Are Considered in Computing Rates Even Though the Hypothetical Company Technique Is Used-General Tel. Co. v. Public Util. Comm’n

The Public Utilities Commission of Ohio established rates for plaintiff telephone company. In determining the gross annual revenues to which the company was entitled, the Commission allowed, as an item of expense, 112 thousand dollars less for federal income tax than the company would actually be required to pay during the year in question. The allowance for taxes was calculated by following the so-called “hypothetical company” formula as apparently required by a recent line of Ohio Supreme Court decisions. On direct appeal to the Ohio Supreme Court, held, order reversed, two judges dissenting. The utility company should be allowed to consider as an item of expense the federal income tax amount which it will actually have to pay, based upon its computed annual dollar return. Use of the “hypothetical company” method in calculating the allowable expense for income tax is contrary to the law of Ohio because it results in an arbitrary reduction in the determined fair rate of return to the utility. General Tel. Co. v. Public Util. Comm’n, 174 Ohio St. 575, 191 N.E.2d 341 (1963)