MCI Telecommunications Corp. v. Public Utilities Com'n of Ohio

• Decision Date: 09 September 1987
• Docket Number: No. 86-861,86-861
• Citation: 513 N.E.2d 337,32 Ohio St.3d 306
• Parties: MCI TELECOMMUNICATIONS CORPORATION, Appellant, v. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees.
• Court: Ohio Supreme Court

Page 306

32 Ohio St.3d 306

513 N.E.2d 337

MCI TELECOMMUNICATIONS CORPORATION, Appellant, v. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees.

No. 86-861.

Supreme Court of Ohio.

Sept. 9, 1987.

This case is before this court on a direct appeal by appellant, MCI Telecommunications Corporation ("MCI"), from an order issued by the appellee Public Utilities Commission of Ohio ("PUCO"). This case arises from the PUCO's ongoing proceedings to reconfigure the Ohio telecommunications industry following the 1982 court-ordered divestiture of American Telephone & Telegraph Company ("AT & T").

On August 11, 1982, the United States District Court for the District of Columbia ordered the divestiture of the Bell Operating Companies ("local operating companies") from AT & T. United States v. American Telephone & Telegraph Co. (D.D.C.1982), 552 F.Supp. 131, affirmed sub. nom. Maryland v. United States (1983), 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472.

The district court's decision ordered the local operating companies to provide nondiscriminatory equal access services (the provision of facilities to originate and terminate long distance interexchange telephone traffic) to all interexchange telephone carriers. The local operating companies were authorized to impose appropriate charges for such access services. Prior to divestiture, the local operating companies were allocated revenue for long distance interconnection service by an AT & T intra-company toll settlement process.

The district court concluded that the Federal Communications Commission ("FCC") has the responsibility for setting post-divestiture access charges for interstate interexchange service, while the various state regulatory commissions have the responsibility for setting post-divestiture access service charges for intrastate interexchange service.

By orders issued on February 28, 1983 and August 22, 1983, the FCC adopted an interstate access charge plan which included a combination of interexchange carrier and end-user charges. Local exchange companies (the Bell local operating companies and other independent operating companies) were ordered to file interstate access tariffs with the FCC by October 3, 1983, to become effective on January 1, 1984. The FCC urged adoption of a similar access charge plan at the intrastate level.

On April 6, 1983, the PUCO initiated an investigation regarding the establishment of charges for intrastate access by telephone companies engaged in providing local exchange service in Ohio. In re Commission Investigation Relative to Establishment of Intrastate Access Charges, PUCO No. 83-464-TP-COI.

On August 24, 1983, the PUCO issued a finding and order in PUCO No. 83-464-TP-COI ("August 24, 1983 order"). The August 24, 1983 order contained an access charge proposal developed by the staff of the PUCO, and scheduled a public hearing to address the merits of the staff's proposal.

On October 19, 1983, the FCC suspended until April 3, 1984, the interstate access charge tariffs which were to have taken effect January 1, 1984, citing the importance of the issues involved and the existence of substantial legal questions.

The PUCO issued an interim opinion and order on December 20, 1983, in PUCO No. 83-464-TP-COI, which approved an interim arrangement to maintain the status quo for local exchange companies providing access services in Ohio until such time as the PUCO established a final access charge methodology. The interim arrangement was to be in effect no longer than April 3, 1984.

On April 3, 1984, the PUCO issued a second interim opinion and an order in PUCO No. 83-464-TP-COI. Referring to continuing FCC suspensions of interstate access tariffs and other ongoing related FCC proceedings, the PUCO extended the Ohio interim arrangements until June 13, 1984, and stated that it would continue to monitor the situation.

On May 15, 1984, the FCC issued an order directing that the interstate access service tariffs would become effective on May 25, 1984.

On May 21, 1984, the PUCO issued an opinion and order in PUCO No. 83-464-TP-COI ("May 21, 1984 order") which established the basic mechanism for determining access charges for intrastate interexchange service in Ohio. The essential elements of the PUCO's mechanism were as follows:

1. Ohio intrastate access charges would "mirror" the interstate access charges set by the FCC except for end-user charges. The mirroring would be constant and all rate changes approved by the FCC would be automatically implemented in Ohio, unless the PUCO specifically ordered otherwise.

2. Each local exchange company would be guaranteed access charge revenue equal to the revenue it had received during 1983 under the defunct AT & T toll settlements process. Each month, the total of the company's actual access service revenue plus its intra-company long distance service revenue would be compared to the company's revenue requirement.

3. The residual revenue requirement (positive or negative) of each local exchange company would be pooled with the residual revenue requirements of all other local exchange companies. If a local exchange company had a negative residual revenue requirement (i.e., it received surplus revenues during a month), then its surplus revenue would be contributed to the pool. If a local exchange company had a positive residual revenue requirement (i.e., it received insufficient revenues to satisfy its monthly revenue requirement), then it would receive money from the pool to make up its deficiency.

4. If the pool funds were sufficient to satisfy the aggregated residual revenue requirements of all local exchange companies, further funding of the pool would be unnecessary. Any funds remaining in the pool at the end of any quarter would be distributed to local exchange companies and to interexchange carriers, on a pro rata basis. The local exchange companies would receive a proportionate distribution from the surplus based on the ratio calculated by dividing their total quarterly intra-company toll revenues by the total of all access charges for that quarter. The remaining surplus funds would be distributed to interexchange carriers in proportion to each carrier's total access charge payments during the quarter.

5. If the pool did not have sufficient funds to meet the aggregated residual revenue requirements of all local exchange companies, the deficiency would be recouped by assessing all interexchange carriers a "carrier presence charge" ("CPC").

6. The pool for collection and distribution of residual revenues would be administered by a six-member Ohio Telephone Advisory Board ("OTAB"), comprised of three local operating company representatives and three interexchange carrier representatives. The OTAB was directed to make recommendations to the PUCO as to how best to develop accurate cost data for access services.

The May 21, 1984 order stated that adoption of the mirroring mechanism was to be the beginning of the Ohio transition to cost-based pricing for interexchange access service. In addition, however, because the record in the case did not contain properly supported and verifiable cost-based data, the PUCO stated that the interim mechanism was designed to ensure that local exchange companies would be made whole without a need for significant increases in local exchange rates which could have an adverse effect on the goal of universal telephone service. The interim mechanism was intended to remain in place only until verifiable data became available to the PUCO from which to develop cost-based rates.

On July 19, 1984, the PUCO issued an entry on rehearing which made some clarifications and modifications of the May 21, 1984 order, but deferred any specific resolution of issues as to disposition of any possible pool surplus.

By a second entry issued on July 19, 1984, the PUCO opened a Subfile A docket in PUCO No. 83-464-TP-COI ("Subfile A") to consider proposals and recommendations which might be submitted by OTAB or any other interested party with regard to the administration and operation of the pool.

Contrary to the expectations of some parties to PUCO No. 83-464-TP-COI, local exchange companies did not experience significant revenue shortfalls under the interim access charge mechanism. In fact, the pool began to generate a substantial surplus balance. On October 4, 1985, the OTAB reported to the PUCO that the pool surplus exceeded $50 million.

On October 15, 1985, the PUCO issued an entry in Subfile A requesting proposals from participants in the access charge pool for a specific plan for distribution of current and future pool surpluses. The proposals and reply comments submitted in response to that entry evidenced a wide divergence of positions and conflicting opinions as to the source(s) of the surplus funds, and as to the class(es) of parties entitled to repayment or reimbursement from the surplus. Some local exchange companies recommended that the surplus funds should be distributed to offset increases in their costs of providing service, while others proposed a proportionate rate reduction. The interexchange carriers claimed the surplus funds since they had obviously paid excessive rates for their access service.

On December 18, 1984, the PUCO issued an entry establishing a Subfile B docket in PUCO No. 83-464-TP-COI ("Subfile B"), which requested proposals for the development of cost-based rates and the systematic transition from the interim pooling arrangement to a new environment of company-specific, non-subsidized access service tariffs. Again, the proposals and reply comments submitted in response to that entry evidenced a wide divergence of opinions, positions and recommendations as to the appropriate methodologies which should be adopted.

On February 11, 1986, the PUCO issued a supplemental finding and order ("February 11, 1986 order") which acted upon the pending issues in Subfile A and Subfile B. The February 11, 1986 order adopted...