Indiana Bell Telephone Co., Inc. v. OUCC

• Decision Date: 14 October 1999
• Docket Number: No. 93A02-9801-EX-22.,93A02-9801-EX-22.
• Citation: 717 N.E.2d 613
• Parties: INDIANA BELL TELEPHONE COMPANY, INCORPORATED d/b/a Ameritech Indiana, Appellant, v. OFFICE OF UTILITY CONSUMER COUNSELOR, Appellee/Cross-Appellant, v. Indiana Utility Regulatory Commission, Smithville Telephone Company, Inc., TCG Indianapolis, Indiana Cable Telecommunications Association, Inc., AT&T Communications of Indiana, Inc., Worldcom Inc., d/b/a LDDS Worldcom, MCI Telecommunications Corporation, Sprint Communications Company, L.P., United Telephone Company of Indiana, United Senior Action of Indiana, Inc., Citizens Action Coalition of Indiana, Inc., American Association of Retired Persons, Inc., Shared Technologies Fairchild Telecom, Inc., LCI International, Inc., and Time Warner Communications of Indiana L.P., Appellees.
• Court: Indiana Appellate Court

717 N.E.2d 613

INDIANA BELL TELEPHONE COMPANY, INCORPORATED d/b/a Ameritech Indiana, Appellant, v. OFFICE OF UTILITY CONSUMER COUNSELOR, Appellee/Cross-Appellant, v. Indiana Utility Regulatory Commission, Smithville Telephone Company, Inc., TCG Indianapolis, Indiana Cable Telecommunications Association, Inc., AT&T Communications of Indiana, Inc., Worldcom Inc., d/b/a LDDS Worldcom, MCI Telecommunications

Corporation, Sprint Communications Company, L.P., United Telephone Company of Indiana, United Senior Action of Indiana, Inc., Citizens Action Coalition of Indiana, Inc., American Association of Retired Persons, Inc., Shared Technologies Fairchild Telecom, Inc., LCI International, Inc., and Time Warner Communications of Indiana L.P., Appellees.

No. 93A02-9801-EX-22.

Court of Appeals of Indiana.

October 14, 1999.

Sue E. Stemen, Ameritech Indiana, Teresa E. Morton, Stanley C. Fickle, Mark A. Lindsey, Barnes & Thornburg, Indianapolis, Indiana, Attorneys for Appellant.

Anne E. Becker, Timothy M. Seat, Indiana Office of Utility Consumer Counselor, Indianapolis, Indiana, Attorneys for Appellee/Cross-Appellant.

Michael A. Mullett, Mullett & Associates, Indianapolis, Indiana, Attorney for Appellees.

OPINION

MATTINGLY, Judge

Indiana Bell Telephone Company, Inc. d/b/a Ameritech Indiana ("Ameritech") appeals the Final Order on Interim Relief entered by the Indiana Utility Regulatory Commission (the "Commission") on December 30, 1997. The Office of Utility Consumer Counsel (the "OUCC")¹ cross-appeals.² This case requires our interpretation of the Commission's authority and responsibility under Ind.Code § 8-1-2.6-1 et seq. ("the Alternative Regulation Statute"), which was enacted to promote competition in the provision of telephone services. We consolidate and restate the issues raised on appeal as follows:

1. Whether the Commission erred by adopting a new alternative ratemaking method without providing the required notice and hearing to interested parties and without finding that the alternative ratemaking method meets specific statutory requirements;

2. If the Commission erred by adopting a new alternative ratemaking method, how Ameritech's interim rates should be determined following the expiration of an earlier alternative regulation agreement;

3. Whether the Commission erred in denying the OUCC's request to make Ameritech's interim rates subject to retroactive change and possible refund upon further review; and

4. Whether the Commission's Final Order requiring Ameritech to provide certain telecommunications infrastructure investments as it agreed to do under an earlier alternative regulation agreement is contrary to law.

We affirm in part and reverse and remand in part.

FACTS AND PROCEDURAL HISTORY

In 1985, the legislature enacted Ind. Code § 8-1-2.6-1 et seq. In this statute, the legislature noted that competition in the provision of certain telephone services had become commonplace in Indiana and that the traditional regulatory policies and practices of the Commission were not designed to deal with such a competitive environment. The legislature authorized the Commission to:

formulate and adopt rules and policies as will permit the [C]ommission, in the exercise of its expertise, to regulate and control the provision of telephone services to the public in an increasingly competitive environment, giving due regard to the interests of consumers and the public and to the continued availability of universal telephone service.

See Ind.Code § 8-1-2.6-1(5).

Ameritech provides various telecommunications services to Indiana consumers and has been subject to regulation by the Commission. From June 30, 1994 through December 31, 1997, Ameritech was subject to reduced regulation by the Commission. This reduced regulation was the result of the Commission's declination of its jurisdiction over Ameritech upon approval of a negotiated settlement agreement commonly known as Opportunity Indiana. This agreement, which was approved by the Commission on June 30, 1994, established a temporary alternative regulatory structure for Ameritech as provided by Ind. Code § 8-1-2.6-1 et seq.³

Opportunity Indiana classified Ameritech's telecommunications offerings into three distinct categories: 1) basic telephone service, referred to as "Basic Local Service" or "BLS"; 2) discretionary services, referred to as "BLS-Related Services": and 3) competitive services, referred to as "Other Services."⁴ The alternative regulation plan provided for different levels of regulatory oversight for each of the three categories of service. Opportunity Indiana instituted certain price caps for BLS and BLS-Related Services, fixing the maximum prices which Ameritech could charge for services in those categories.⁵ It also allowed Ameritech to introduce new services and corresponding rules in the Other Services category. Prices in the Other Services category were not made subject to regulatory oversight, as it was assumed that competitive market forces would regulate the prices for these new service offerings.

The Opportunity Indiana settlement required Ameritech to cut its revenue by $57 million per year for the term of the agreement through a series of reductions in specified charges. Ameritech agreed to invest $20 million per year for the years 1994 through 1999 to provide digital switching and transport facilities to every interested school, hospital, and major government center in its service area on a non-discriminatory basis. Ameritech also agreed to invest $5 million per year for the years 1994 through 1999 in the Corporation for Educational Technology or a similar non-profit corporation to fund information processing and telecommunications equipment.

Under Opportunity Indiana, the reduced level of Commission regulation was limited to a term of three and a half years. The plan specifically provided for a "transitional regulatory framework" with a definite expiration date of December 31, 1997. The plan also provided an eight-month window between May 1, 1997 and December 31, 1997 for Ameritech to petition the Commission to establish a new alternative regulatory structure to take effect following the expiration of Opportunity Indiana. The agreement was silent as to what would happen to Ameritech's rates upon the expiration of the agreement.

On May 1, 1997, Ameritech filed a petition as provided by Ind.Code § 8-1-2.6-1 et seq. to establish an alternative regulatory framework to take effect following the expiration of Opportunity Indiana. Ameritech's petition also requested that, if the Commission could not enter an order on Ameritech's petition by December 31, 1997, the Commission extend the alternative structure agreed to in Opportunity Indiana pending issuance of a final order.

Thirteen entities, mostly consumer groups and competitors of Ameritech, intervened in the Commission's proceeding. The OUCC participated on behalf of the public. After the parties failed to agree on a procedural schedule which would permit the Commission to complete a permanent regulatory structure before Opportunity Indiana expired, the Commission ordered Ameritech to proceed separately on the issue of interim relief (i.e., the regulatory structure that would apply after the expiration of Opportunity Indiana and until the Commission's final order on Ameritech's petition for an alternative regulatory framework). From that point, Ameritech's original petition for relief under the Alternative Regulation Statute was bifurcated and has proceeded on two tracks: 1) the regulatory structure to replace Opportunity Indiana, referred to as "permanent relief"; and 2) the interim regulatory structure for Ameritech during the period between December 31, 1997 and the Commission's entry of an order on permanent relief. This appeal involves the interim regulatory structure only.

During a second hearing held September 30-October 2, 1997,⁶ the OUCC presented evidence that interim relief was not appropriate because Ameritech had failed to establish that any financial harm it might experience if it were required to return to traditional rate regulation would justify interim relief. The presiding administrative law judge for the Commission informed the parties that the schedule for filing briefs and proposed orders on Ameritech's request for interim relief would be set forth in an order to be issued on October 15, 1997.

Instead of providing a briefing schedule on that date, the Commission entered a "Preliminary Order on Interim Relief" denying Ameritech's request for interim relief. The Commission found that "at least on an interim basis, some form of relaxed regulation is called for," but that continuing the maximum prices, or price caps, for BLS which were effective under Opportunity Indiana would not serve the public interest. R. at 1345-46. The Commission found that "[n]otwithstanding our belief that the evidence of record is sufficient for us to devise some form of interim alternative regulatory relief, we have reluctantly concluded that we, the parties, and the public at large would be better served if the parties would present additional testimony" on the appropriate interim alternative regulation plan. Id. at 1347. The Commission's Preliminary Order also set forth a list of elements almost identical to those found in Opportunity Indiana, which the Commission found could be part of the interim regulatory framework for Ameritech. Finally, the Commission set a public hearing for November 17, 1997 and provided the parties the opportunity to file additional testimony and post-hearing briefs.⁷

On October 29, 1997, Ameritech declined to file another request for interim relief, arguing that it had not requested a rate change in its petition and that the issue of a change in price caps for BLS was significant and could not be addressed properly in the expedited time frame provided. Ameritech also suggested that evidence concerning the appropriate level for BLS price caps could...