Citizens' Utility Ratepayer Bd. v. State Corp. Com'n of the State of Kan.

• Decision Date: 08 August 1997
• Docket Number: 78822,78823 and 78834,Nos. 78548,s. 78548
• Citation: 943 P.2d 494,24 Kan.App.2d 222
• Parties: CITIZENS' UTILITY RATEPAYER BOARD, Appellant, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee. MULTIMEDIA HYPERION TELECOMMUNICATIONS and Kansas City Fiber Network L.P., Appellants, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee. CMT PARTNERS, TOPEKA CELLULAR TELEPHONE COMPANY, INC., and Airtouch Cellular Of Kansas, Inc., Appellants, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee.
• Court: Kansas Court of Appeals

Page 494

943 P.2d 494

24 Kan.App.2d 222

CITIZENS' UTILITY RATEPAYER BOARD, Appellant, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee.

MULTIMEDIA HYPERION TELECOMMUNICATIONS and Kansas City Fiber

Network L.P., Appellants, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee.

CMT PARTNERS, TOPEKA CELLULAR TELEPHONE COMPANY, INC., and Airtouch Cellular Of Kansas, Inc., Appellants, v. The STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee.

Nos. 78548, 78822, 78823 and 78834.

Court of Appeals of Kansas.

Aug. 8, 1997.

Review Granted Oct. 1, 1997.

Syllabus by the Court

1. A petition for reconsideration under K.S.A.1996 Supp. 66-118b and K.S.A.1996 Supp. 77-529(a) of a Kansas Corporation Commission (KCC) order must be sufficiently specific to inform the KCC and other parties where mistakes of law and fact were made in the order and of the manner in which the order is claimed to be erroneous or unlawful.

2. Requiring a telecommunications carrier that provides intrastate services to contribute to the Kansas Universal Service Fund does not constitute regulation or an exercise of jurisdiction by the KCC.

3. The concept of "revenue neutrality" in K.S.A.1996 Supp. 66-2005(c) and K.S.A.1996 Supp. 66-2008(a) is inconsistent with the provisions of the Federal Telecommunications Act of 1996 and with the public policy of Kansas as expressed in K.S.A.1996 Supp. 66-2001.

4. In order to ensure that all Kansans have access to universal service at affordable rates, the KCC must be able to perform an audit or earnings review of incumbent local exchange companies to determine the cost of providing universal service and an affordable rate for universal service.

5. The size of the Kansas Universal Service Fund must be based on the concept of universal service and the cost of providing universal service.

6. The statutory prohibition against audits in K.S.A.1996 Supp. 66-2005(u) and the concept of revenue neutrality are clearly inconsistent with the KCC's obligation under Kansas law to insure just and reasonable rates and charges for Kansas consumers.

Walker Hendrix and Allen Brady Cantrell, Topeka, consumer counsel for appellant Citizens' Utility Ratepayer Board.

Mark P. Johnson, Lisa C. Creighton, and Amy E. Bauman, of Sonnenschein Nath & Rosenthal, Kansas City, MO, for appellants Kansas City Fiber Network L.P. and Multimedia Hyperion Telecommunications.

Marc E. Elkins and Lisa J. Hansen, of Morrison & Hecker L.L.P., Kansas City, MO, for appellants CMT Partners, Topeka Cellular Telephone Company, Inc. and Airtouch Cellular of Kansas, Inc.

Eva Powers, Marianne Deagle, Susan Stanley, and Janette Corazzin, Assistant General Counsels, Kansas Corporation Commission, Topeka, for appellee.

Michael C. Cavell, William R. Drexel, and Lori A. Fink, Topeka, for intervenor Southwestern Bell Telephone Company.

Mark E. Caplinger and James M. Caplinger, of James M. Caplinger, Chartered, Topeka, and Thomas E. Gleason, Jr., of Gleason & Doty, Chartered, Ottawa, for intervenors State Independent Alliance and Independent Telecommunications Group, Columbus et al.

Before KNUDSON, P.J., and GERNON and PIERRON, JJ.

KNUDSON, Judge:

This consolidated appeal is brought by the Citizens' Utility Ratepayer Board (CURB) and various telecommunication providers from orders of the Kansas Corporation Commission (KCC) implementing the Kansas Telecommunications Act, K.S.A.1996 Supp. 66-2001 et seq. (Kansas Act). The Kansas Act was enacted to both complement and comply with the Federal Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56 (1996) (Federal Act).

Appellant CURB represents residential and small commercial ratepayers in this proceeding. See K.S.A. 66-1223.

Appellants Kansas City Fiber Network L.P. and Multimedia Hyperion Telecommunications are providers of private line and competitive access services in Kansas and have filed a joint brief. We will, hereafter, refer to these appellants collectively as KCFN.

Appellants CMT Partners, Topeka Cellular Telephone Company, Inc., and AirTouch Cellular of Kansas, Inc., are providers of commercial mobile radio service (cellular telephone service) and have filed a joint brief. We will, hereafter, refer to these appellants collectively as CMT.

There have been numerous intervenors in this proceeding. However, the only intervenors to file briefs are the State Independent Alliance, the Independent Telecommunications Group, Columbus et al., and Southwestern Bell Telephone Company (SWBT). SWBT is the largest local exchange carrier providing local telephone service in Kansas.

CURB's appeal is from the final orders entered by the KCC on December 27, 1996, and February 3, 1997. KCFN's and CMT's appeals are from the same orders and reach this court by transfer from Shawnee County District Court. Although initially one or more of the parties expressed concern as to this court's jurisdiction, the issue was not briefed, and we conclude this court has jurisdiction pursuant to K.S.A.1996 Supp. 66-118a(b).

Multiple issues are raised on appeal, but at the heart of the controversy is whether the Kansas Act and the KCC's orders implementing that Act violate or are inconsistent with the Federal Act. We conclude the KCC's final orders are not in compliance with the Federal Act and must be set aside.

Background of Telecommunications Regulation

Our review begins from the period following the court-ordered divestiture of local operating companies by American Telephone and Telegraph Company (AT & T) in United States v. American Tel. and Tel. Co., 552 F.Supp. 131 (D.D.C.1982), aff'd 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983).

The following information provides a history of telephone regulation in Kansas and the opposing perspectives regarding the role of the KCC. See Moline & Drexel, The TeleKansas Debate: Incentive Regulation or Deregulation?, 4 Kan.J.L. & Pub. Pol'y 41 (Winter 1995).

After divestiture, SWBT came before the KCC with a rate application on January 1, 1984. Under this application, the KCC approved local rates for basic telephone service that have remained unchanged up to the present time. In 1990, an alternative regulatory plan called TeleKansas was agreed upon between the KCC and SWBT. Under that plan, the KCC abandoned historic rate-based regulation in favor of price regulation. SWBT agreed not to increase basic rates and agreed to expend an additional $140 million to modernize its infrastructure within Kansas. TeleKansas was intended to provide SWBT with price flexibility not afforded by traditional rate-based regulation. The plan was not without skeptics, who voiced concerns that SWBT's profits would not be subject to KCC scrutiny. The KCC and SWBT agreed TeleKansas would conclude in 1995 with a review of SWBT's earnings. Interested parties and the KCC would then assess the benefits and costs of price regulation versus traditional rate-of-return regulation and reconsider the regulatory scheme that best promoted quality telecommunication service and a first-rate infrastructure in Kansas.

In 1993, SWBT wanted the KCC to agree to continue with price regulation after TeleKansas expired. The KCC was reluctant to do so without investigating SWBT's earnings. After SWBT was unable to reach agreement with the KCC, it was instrumental in persuading the Kansas Legislature in 1994 to extend TeleKansas until March 1, 1997. See K.S.A.1996 Supp. 66-1,197.

This prevented the KCC from investigating SWBT's earnings, while continuing the caps on basic local service. Additionally, this legislation required SWBT to spend an additional $64 million on infrastructure within the state of Kansas. No rate reductions were imposed.

The 1994 legislature also adopted S.Con.Res. 1627 (L.1994, ch. 371), which directed the KCC to proceed as follows:

"Be it further resolved: That the Corporation Commission shall upon passage of this resolution open one or more generic dockets to investigate the level of competition for each regulated or flexibly regulated telecommunications service under its jurisdiction. In addition the commission should:

(a) Periodically assess the level of competitiveness of such services and emerging services with the intent of encouraging development of effective competition for telecommunications services where feasible, including the removal of existing barriers to entry;

(b) establish a classification system for telecommunications services based on the degree of competition faced by providers of the particular service;

(c) establish standards and procedures by which the rates, terms and conditions of telecommunications services are regulated in accordance with their classification as in clause (b) above;

(d) ensure that regulated services will not subsidize competitive or unregulated services;

(e) define universal service, determine the extent to which it has been achieved in every region of the state and establish appropriate policies to insure universal service in high-cost areas of the state (f) define criteria for provision of 'basic telephone service' and the availability and provision of such service in a competitive environment;

(g) develop a procedure for ensuring the quality of telecommunications services; and

(h) define 'lifeline telephone service' and specification as to the appropriate means of funding the provision of such service."

In compliance with the above resolution, in April 1994, the KCC established docket 190,492-U, In the Matter of a General Investigation into Competition within Telecommunications Industry in the State of Kansas. Phase I of the docket dealt with the probable direction of the industry and the role of the KCC to promote competition and insure quality service and products for the consumer at affordable and reasonable costs. An order on Phase I of the docket was issued in May 1995 that determined three major features of the current regulatory structure should be modified:

"I. Universal...