BellSouth Telecommunications, Inc. v. Greer
| Decision Date | 01 October 1997 |
| Citation | 972 S.W.2d 663 |
| Parties | BELLSOUTH TELECOMMUNICATIONS, INC. d/b/a South Central Bell Telephone Company, Petitioner/Appellant, v. H. Lynn GREER, Chairman, Sara Kyle, Director, and Melvin J. Malone, Director, Constituting the Tennessee Regulatory Authority, Respondents/Appellees. BELLSOUTH TELECOMMUNICATIONS, INC., Petitioner, v. TENNESSEE PUBLIC SERVICE COMMISSION, Respondent. STATE of Tennessee, on relations of BELLSOUTH TELECOMMUNICATIONS, INC., Petitioner/Appellant, v. Keith BISSELL, Steve Hewlett, and Sara Kyle, in their capacity as Commissioners of the Tennessee Public Service Commission, Respondents/Appellees. |
| Court | Tennessee Court of Appeals |
Guy M. Hicks, III, Bennett L. Ross, Nashville, James G. Harralson Atlanta, for BellSouth Telecommunications, Inc.
Val Sanford, John Knox Walkup, Gullett, Sanford, Robinson & Martin, Nashville, for AT & T Communications of the South Central States, Inc.
Charles W. Burson, Attorney General and Reporter, Michael E. Moore, Solicitor General, Michael W. Catalano, Associate Solicitor General, Nashville, for Tennessee Public Service Comm.
Charles W. Burson, Attorney General and Reporter, Michael E. Moore, Solicitor General, L. Vincent Williams, Consumer Advocate, Nashville, for Tennessee Consumers.
This consolidated appeal of three separate proceedings involves the efforts of BellSouth Telecommunications, Inc. to take advantage of the 1995 legislation easing the traditional regulatory burdens on telecommunications service providers. After making significant adjustments in BellSouth's reported operating results, the Tennessee Public Service Commission determined that BellSouth's current earned rate of return exceeded its authorized rate of return and that BellSouth was receiving $56.285 million in excess revenues. The Commission directed BellSouth to reduce its rates by $56.285 million and set the initial rates in the company's price regulation plan accordingly. On this appeal, BellSouth and another intervening party take issue with the procedures employed by the Commission to consider and act upon BellSouth's application for a price regulation plan. We have determined that these proceedings were not preempted by the federal Telecommunications Act of 1996. We have also determined that the General Assembly did not give the Commission authority to adjust BellSouth's reported operating results and that the Commission should have convened a contested case hearing when BellSouth took issue with the Commission's decision to adjust its reported operating results. Accordingly, we vacate the Commission's January 23, 1996 order and all earlier related orders.
Almost ten years ago, the Tennessee Public Service Commission began its efforts to modernize Tennessee's telecommunications network and to explore less cumbersome ways to regulate the telephone companies under its jurisdiction. 1 The Commission's work culminated in its first regulatory reform rule that took effect on January 10, 1993. 2 One day later, BellSouth Telecommunications, Inc. filed its conditional election to operate under this rule.
On August 20, 1993, the Commission entered an order governing BellSouth's rates from 1993 through 1995. See In re South Central Bell Telephone Co., 1993-1995, Docket No. 92-13527, 1993 WL 564240. Based on the results of an earnings investigation that had been commenced in 1992, the Commission concluded that a range of return on BellSouth's rate base of 10.65% to 11.85% would be just and reasonable. The Commission adopted BellSouth's recommendation that future rate adjustments and deferred revenue account contributions should be based on the company's actual first-year results, as opposed to projections. 3 It also determined that there would be no rate adjustment for 1993 because BellSouth's forecasted rate of return for 1993 fell within the approved range. This court approved the Commission's order in all respects. American Assoc. of Retired Persons v. Tennessee Pub. Serv. Comm'n, 896 S.W.2d 127 (Tenn.Ct.App.1994).
In December 1994, the Consumer Advocate 4 requested the Commission to resolve what he considered to be inappropriate expense allocations in BellSouth's Form PSC-3.01 reports. 5 When the Commission did not respond, the Consumer Advocate filed a petition on January 23, 1995 requesting the Commission to commence an investigation into BellSouth's earnings. In March 1995, the Commission announced that it was commencing another earnings investigation with regard to BellSouth.
In the meantime, two competing telecommunications bills were introduced in the first session of the Ninety-Ninth General Assembly that had convened in January 1995. The avowed purpose of both bills was to ease the traditional regulatory constraints on local telephone companies and to permit greater competition for local telecommunications services. Filed concurrently with these bills was a bill to replace the Commission with a new regulatory entity. On May 26, 1995, the Governor signed a bill replacing the Commission with the Tennessee Regulatory Authority effective July 1, 1996. 6 Two weeks later, the Governor signed another bill dramatically altering the regulation of local telephone companies and opening up the local telecommunications market to unprecedented opportunities for competition. 7
The expressed goal of the new regulatory structure was
to foster the development of an efficient, technologically advanced, statewide system of telecommunications services by permitting competition in all telecommunications services markets, and by permitting alternative forms of regulation for telecommunications services and telecommunications services providers.
See Tenn.Code Ann. § 65-4-123 (Supp.1996). In broad terms, the 1995 legislation set out to accomplish this goal in five ways. First, it mandated the universal availability of basic telephone service at affordable rates and froze basic and non-basic telephone rates for four years. 8 Second, it required incumbent local telephone companies to make available non-discriminatory interconnection to their public networks to other providers. 9 Third, it eased the traditional limitations on the ability of new providers to enter the market. 10 Fourth, it provided a transition procedure to enable existing local telephone companies to take advantage of the newly relaxed regulatory environment. 11 Fifth, it established a five-year, $10 million loan guarantee program to induce small and minority businesses to enter the telecommunications market. 12
The transition procedure for existing local telephone companies was designed to be simple and expeditious. It requires an existing local telephone company desiring to take advantage of the new regulatory environment to file an application for a price regulation plan and envisions that the Commission will act on the application within ninety days. See Tenn.Code Ann. § 65-5-209(c). It requires the Commission to base its decision whether to grant the application on an audit of the applicant's most recent Form PSC-3.01 report. See Tenn.Code Ann. § 65-5-209(c), -209(j).
Tenn.Code Ann. § 65-5-209(c) states that the company's rates existing on June 6, 1995 will be the initial rates under its price regulation plan if the company's earned rate of return on its most recent Form PSC-3.01 report is less than its current authorized fair rate of return existing when the application was filed. The statute also empowers the Commission or Authority to initiate a contested rate-making proceeding if the audit of the Form PSC-3.01 report reveals that the company's earned rate of return is greater than its current authorized fair rate of return. Conversely, the statute permits the company to request a contested rate-making hearing if the audit reveals that its earned rate of return is less than its current authorized fair rate of return.
The Commission's revised regulatory reform rules took effect one week after the Governor signed the telecommunications reform legislation. 13 On June 20, 1995, BellSouth filed its application for a price regulation plan. On July 24, 1995, the Commission permitted AT & T Communications of the South Central States, Inc. to intervene in the proceeding. Approximately two weeks later, the Commission directed its staff to conduct the audit of BellSouth's most recent Form PSC-3.01 report in accordance with Tenn.Code Ann. § 65-5-209(c), (j).
On August 17, 1995, the Commission's staff issued the results of its audit of BellSouth's Form PSC-3.01 report for the twelve-month period ending on December 31, 1994. At the outset, the staff determined that, except for four minor discrepancies, BellSouth's December 1994 report accurately reflected the company's books and records, that it reflected the Commission's previously ordered rate-making adjustments, and that it complied with the generally accepted accounting principles as adopted in Part 32 of the Uniform System of Accounts. Accordingly, the staff concluded that BellSouth's corrected rate of return for 1994, as taken from its books, was 10.21%.
Even though BellSouth's corrected rate of return for 1994 was less than its authorized rate of return in the Commission's August 20, 1993 order, the Commission's staff decided that BellSouth's audited rate of return should be adjusted to reflect "out-of-period and non-recurring items" and "known charges" occurring during the audit period. Accordingly, the staff concluded that BellSouth's adjusted rate of return for 1994 was 12.29% and that this adjusted rate of return "more accurately reflects the earnings potential of the rates in effect at the end of the audit period." Since this adjusted rate of return exceeded BellSouth's currently authorized rate of return, the staff recommended that the Commission initiate a contested rate-making...
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