IN THE MATTER OF SWITCHED ACCESS RATES FOR US WEST

• Decision Date: 08 November 2000
• Docket Number: No. 21168.,21168.
• Court: South Dakota Supreme Court
• Parties: In the Matter of the ESTABLISHMENT OF SWITCHED ACCESS RATES FOR U.S. WEST COMMUNICATIONS, INC. U.S. West Communications, Inc., Petitioner and Appellant, v. AT & T Communications of the Midwest Inc., Sprint Communications Company, L.P., MCI Telecommunications Corporation, Telecommunications Action Group and Dakota Telecommunications Group, Intervenors and Appellees.

618 N.W.2d 847

2000 SD 140

In the Matter of the ESTABLISHMENT OF SWITCHED ACCESS RATES FOR U.S. WEST COMMUNICATIONS, INC.

U.S. West Communications, Inc., Petitioner and Appellant, v. AT & T Communications of the Midwest Inc., Sprint Communications Company, L.P., MCI Telecommunications Corporation, Telecommunications Action Group and Dakota Telecommunications Group, Intervenors and Appellees.

No. 21168.

Supreme Court of South Dakota.

Argued September 19, 2000.

Decided November 8, 2000.

Thomas J. Welk and Tamara A. Wilka of Boyce, Murphy, McDowell & Greenfield, Sioux Falls, SD, Attorneys for petitioner and appellant.

John S. Lovald of Olinger, Lovald, Robbennolt and McCahren Pierre, SD, Attorneys for appellee AT & T.

Thomas H. Harmon of Tieszen Law Office, Pierre, SD, Attorney for appellee Sprint.

Andrew Jones, Kansas City, MO, Attorney for appellee Sprint.

David A. Gerdes of May, Adam, Gerdes and Thompson, Pierre, SD, Attorneys for appellee MCI.

Robert C. Riter, Jr. of Riter, Mayer, Hofer, Wattier & Brown, Pierre, SD, Attorneys for appellee Tele. Action Group.

Rolayne Ailts Wiest, Special Assistant Attorney General, Pierre, SD, Attorney for appellee PUC.

SABERS, Justice

[¶ 1.] The South Dakota Public Utilities Commission (PUC) approved an incremental rate increase for U.S. West's switched access service over a three-year period. The circuit court affirmed. US West appeals. We affirm.

FACTS

[¶ 2.] Essential to the operation of the telecommunications systems is the switched access service. This "noncompetitive service" facilitates communication between consumers who have chosen different providers for their telephone services. In application, a switched access service rate is charged to the "resell" carrier for originating and terminating access to customers who employ a different carrier.¹ Obviously, this rate has a direct effect on the profits of resell carriers.

[¶ 3.] Historically, U.S. West had foregone revenues from the switched access service it provided to long distance carrier companies. In 1994, U.S. West petitioned the PUC for price regulation and, on March 30, 1994, began charging 3.14 cents per minute for intrastate switched access transactions.

[¶ 4.] On June 12, 1995, U.S. West entered into a stipulation with the PUC and agreed that the rates charged for switched access services would be determined by a price regulation plan² and not by rate of return regulation.³ Furthermore, a price ceiling was to be determined by "using the switched access rules found in ARSD 20:10:27 through 20:10:29." The duration was also addressed:

The Parties agree ... that this price regulation plan should remain in effect until such time as the Parties shall mutually agree to its termination, revision or amendment. Either U.S. West or the [PUC] may unilaterally terminate this price regulation plan if any authority of the [PUC] necessary for the effective administration of this Stipulation are preempted by federal legislation or federal regulatory order or rule; or by any order of the [PUC] that substantially alters the pricing flexibility provided for in this Stipulation....

[¶ 5.] In 1996, U.S. West determined that it could no longer afford to provide this service at 3.14 cents per minute. US West conducted a cost study and filed it for approval with the PUC on June 24, 1996. The study supported a rate increase of 6.6 cents per minute for switched access service. Later, on June 13, 1997, pursuant to SDCL 49-31-12.4, U.S. West implemented a rate of 6.4 cents per minute.

[¶ 6.] On July 30, 1996, the following companies were allowed to intervene: Sprint Communications Company; MCI Telecommunications Corporation; Express Communications, Inc., AT & T Communications of the Midwest, Inc.; Telecommunications Action Group (TAG)⁴; and Dakota Cooperative Telecommunications, Inc. Express Communications, Inc. later withdrew from the action.

[¶ 7.] A hearing was held before the PUC on October 9-10, 1996. During this hearing, U.S. West presented a second cost study report, which supported a rate increase for switched access service of 6.4 cents per minute, down two-tenths of a cent from its first cost study report. Three PUC staff members proposed a rate of 6.15 cents per minute and U.S. West acceded. US West then sought approval from the PUC for that rate.

[¶ 8.] In a 2-1 vote, the Commission reopened the record on December 19, 1996 based, in part, on its determination that the numbers presented by U.S. West were not verified.⁵ AT & T's motion to disapprove the rate increase and close the docket was granted on January 27, 1997. US West appealed. In reversing and remanding, the circuit court stated that "[t]he Commission did not find that it's own staff's witnesses were unreliable, unbelievable or not credible." [¶ 9.] Based on the circuit court's reversal, U.S. West implemented the rate of 6.4 cents per minute on June 13, 1997.⁶ On July 3, 1997, the PUC issued an Order to reopen the record and specifically rejected the analysis of the PUC staff members. It determined that U.S. West's responses to data requests were not obtained under oath and its cost study calculations were not independently verified by the PUC staff for accuracy or validity. Based on those determinations, the PUC ordered its staff to conduct an on-site investigation and file its own report. It also required that any additional evidence received be verified by U.S. West employees.

[¶ 10.] On December 1, 1997, U.S. West implemented the rate of 4.14 cents per minute.

[¶ 11.] On September 23, 1998, the PUC found that because the rate increase to 6.15 cents per minute was more than a 100 percent increase, it would constitute a "rate shock" if implemented immediately.⁷ It also determined that the increase in access charges would result in a 58.1% decrease of net income to some TAG members.⁸ Consequently, the PUC ordered that the rate increase be implemented in increments, as follows:

June 13, 1997 $0.0364 December 1, 1997 $0.0414 June 1, 1998 $0.0465 December 1, 1998 $0.0515 June 1, 1999 $0.0565 December 1, 1999 $0.06095.

The PUC also ordered that U.S. West refund or credit its switched access customers the difference between the rate U.S. West implemented on June 13, 1997 (6.4 cents) and the rate the PUC approved effective on the same date (3.64 cents) with 9.62% interest per annum.⁹ US West appealed to the circuit court.

[¶ 12.] The circuit court affirmed the PUC's decision but remanded for reconsideration of two confidential exhibits 154 and 160. After reconsideration, the PUC entered amended findings of fact and conclusions of law consistent with its second decision. The circuit court affirmed. US West appeals.

STANDARD OF REVIEW

[¶ 13.] SDCL 1-26-36 requires this court to afford "great weight to the findings made and inferences drawn by [the PUC] on questions of fact." It further allows this court to

[R]everse or modify [a PUC] decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions or decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Clearly erroneous in light of the entire evidence in the record; or

(6) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Accordingly, we review the administrative agency's decision without regard to the circuit court's decision.¹⁰ US West Communications, Inc., 505 N.W.2d at 122 (citation omitted). However, questions of law, including statutory interpretation, are reviewed de novo. Id. (citation omitted).

[¶ 14.] Interpretation of a contract is a question of law, which is reviewed de novo. Hayes v. Northern Hills General Hosp., 1999 SD 28, ¶ 62, 590 N.W.2d 243, 254. If the meaning of the contract language is plain and unambiguous, construction is not necessary. However, if the contract language is ambiguous, the rules of construction apply. See Alverson v. Northwestern Nat'l Cas. Co., 1997 SD 9, ¶ 8, 559 N.W.2d 234, 235

. "Whether the language of a contract is ambiguous is ... a question of law." Enchanted World Doll Museum v. Buskohl, 398 N.W.2d 149, 151 (S.D.1986) (citation omitted).

[¶ 15.] 1. WHETHER THE PUC EXCEEDED ITS AUTHORITY IN ORDERING THE INCREASED SWITCHED ACCESS SERVICE RATE IN INCREMENTS.

[¶ 16.] "Administrative agencies have only such adjudicatory jurisdiction as is conferred upon them by statute." Kjerstad v. Ravellette Publications, Inc., 517 N.W.2d 419, 423 (S.D.1994).

[¶ 17.] US West claims that there is no express statutory authority authorizing the PUC to order that the increased switched access rate be implemented in increments. Although that is true, it is also true that there is no express statutory authority prohibiting incremental rates. It asserts that SDCL 49-31-4 authorizes the PUC to set "the rate" or "the price" or "a rate" or "a price," but it does not authorize the PUC to set a "series of staged rates or prices." US West also argues that the stipulation only permits it to set the price below the ceiling and that the stipulation denies such authority to the PUC. We disagree.

[¶ 18.] SDCL 49-31-4 clearly provides that "[a]ny charge established for the provision of telecommunications services shall be fair and reasonable." It further requires the PUC to "determine and approve individual prices to be charged for a noncompetitive service[.]" Therefore, the PUC has statutory authority to set the rates charged by U.S. West for its switched access service. This statutory authority is recognized and incorporated into the stipulation agreement entered into between the parties.

[¶ 19.] The statutes and the stipulation entered into expressly guide the PUC in setting the rate. In order to set a "fair and reasonable price," the PUC is required to "determine and consider" five factors:

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