The New York Court of Appeals, affirming a lower court ruling (Rochester Telephone Corp. et al. v. New York Public Service Commission, 201 A.D.2d 31, 155 PUR4th 511 (N.Y.App.Div.)), has upheld the authority of state regulators to use a "royalty" to reduce rates for services provided by local exchange carriers (LECs). The royalty was designed by the New York Public Service Commission (PSC) to compensate ratepayers for transfers of
intangible assets to unregulated subsidiaries. The state high court concluded that the decision to impute a 2-percent royalty while setting rates for Rochester Telephone Corp., creating a rebuttable presumption of a 2-percent royalty in the future for other regulated utilities, was a rational means of achieving just and reasonable rates. The court said the PSC had shown that the carrier's name and reputation had value, and that its unregulated affiliates and subsidiaries did not pay for use of the company name and logo. The court also agreed with the PSC's broader finding in support of the rebuttable presumption: "A utility that permits its subsidiaries and affiliates to exploit valuable intangible assets for free, acts imprudently." The court noted that the PSC had envisioned situations in which individual utilities would be required to pay a different royalty percentage, or nothing at all, demonstrating an intent to ensure that each royalty is tailored to the individual circumstances of particular utilities. Rochester Telephone Corp. v. New York Public Service Commission, No. 233, Oct. 31, 1995 (N.Y.Ct.App.).
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