Office of Reg. Staff v. Public Serv. Com'n

Decision Date25 June 2007
Docket NumberNo. 26354.,26354.
PartiesOFFICE OF REGULATORY STAFF, Appellant, v. SOUTH CAROLINA PUBLIC SERVICE COMMISSION, South Carolina Telephone Association, and Verizon South, Inc., Respondents. South Carolina Cable Television Association and Southeastern Competitive Carriers Association, Appellants, v. South Carolina Public Service Commission, South Carolina Telephone Association, and Verizon South, Inc., Respondents.
CourtSouth Carolina Supreme Court

Florence P. Belser, of Office of Regulatory Staff, Frank R. Ellerbe, III and Bonnie D. Shealy, both of Robinson, McFadden, and Moore, of Columbia, for Appellants.

F. David Butler, of South Carolina Public Service Commission, M. John Bowen, Jr., Margaret M. Fox, Robert T. Bockman, all of McNair Law Firm, P.A., of Columbia, and Steven W. Hamm, of Richardson Plowden Carpenter & Robinson, of Columbia, for Respondents.

Justice BURNETT:

Appellants, the Consumer Advocate for the State of South Carolina,1 South Carolina Cable Television Association (SCCTA) and Southeastern Competitive Carriers Association (SECCA) bring this action challenging the Public Service Commission's (Commission) implementation of the Universal Service Fund (USF). The trial court concluded the Commission's decisions regarding the State USF are supported by substantial evidence in the record. We affirm in part and reverse in part.

FACTUAL/PROCEDURAL BACKGROUND

The concept of a USF originated when the United States Congress passed the Telecommunications Act of 1996, 47 U.S.C. § 609 (2002). The Telecommunications Act was intended, in part, to promote an initiative of "universal service." Congress hoped that a nationwide telecommunications policy of "universal service" would ensure access to basic telephone service at affordable rates for all Americans.2 Congress did so by mandating that the new system of universal service be "explicit," i.e., not dependent upon implicit subsidies. 47 U.S.C. § 254(e) (2002). The Telecommunications Act provides "[e]very telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service." 47 U.S.C. § 254(d) (2002). In furthering the goal of nondiscriminatory universal service, Congress gave the states authority to adopt approaches for encouraging universal service.

With the enactment of S.C.Code Ann. § 58-9-280(E) (Supp.2006), the South Carolina General Assembly authorized the Commission to establish a USF for South Carolina. The Commission held three proceedings to address implementation strategies for the fund. The first proceeding established the size of the USF as directed by S.C.Code Ann. § 58-9-280(E). In re Proceeding to Establish Guidelines for an Intrastate Universal Service Fund, Or. No. 97-753 (S.C. Pub. Serv. Commn. Sept. 3, 1997). The second proceeding determined the appropriate cost models and sizing of South Carolina's USF.3 In re Proceeding to Establish Guidelines for an Intrastate Universal Service Fund, Or. No. 98-322 (S.C. Pub. Serv. Commn. May 6, 1998). The Commission selected a forward-looking cost proxy model for non-rural companies and the Benchmark Cost Proxy Model as the state forward-looking cost model for Bell-South, GTE, and Sprint/United. The Commission adopted the South Carolina Telephone Coalition's (SCTC) embedded cost model for rural local exchange carriers.4 In the third proceeding, the Commission addressed various outstanding issues relating to the implementation of the fund.5 In re Proceeding to Establish Guidelines for an Intrastate Universal Service Fund, Or. No. 2001-419 (S.C. Pub. Serv. Commn. June 6, 2001).

Appellants now challenge the Commission's findings arising out of these proceedings.

ISSUES

I. Did Appellants bring a timely appeal of Commission Orders 98-322, 97-753, and 97-9426?

II. Is the USF, as established and implemented by the Commission, "specific, predictable and sufficient" in accordance with Section 254(f) of the Federal Telecommunications Act and does the fund comply with S.C.Code Ann. § 58-9-280(E)(4)?

Is Section 254(f) of the Federal Telecommunications Act violated because the State USF burdens federal universal support mechanisms?

III. Does the State USF bar competitive entry in violation of Section 253 of the Federal Telecommunications Act?

IV. Does the State USF fail to match costs and revenues in violation of S.C.Code Ann. § 58-9-280(E)?

V. Did the Commission allocate 25% of network costs to federal jurisdiction, and if the Commission did not make such an allocation, did it violate FCC regulations?

VI. Does the evidence in the record support the Commission's finding that intrastate access charges are priced above cost and provide a significant implicit subsidy to basic local service?

LAW/ANALYSIS

The findings of the Commission are presumptively correct and have the force and effect of law. Therefore, the burden of proof is on the party challenging an order of the Commission to show it is unsupported by substantial evidence and the decision is clearly erroneous in view of the substantial evidence on the whole record. Heater of Seabrook, Inc. v. S.C. Pub. Serv. Comm'n, 332 S.C. 20, 27 n. 4, 503 S.E.2d 739, 742 n. 4 (1998). Substantial evidence is something less than the weight of the evidence and the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence. Palmetto Alliance, Inc. v. S.C. Pub. Serv. Comm'n, 282 S.C. 430, 432, 319 S.E.2d 695, 696 (1984).

Because Appellants have failed to prove the Commission's implementation of the State USF is clearly erroneous, we affirm.

The Commission's orders are meticulous in their factual determinations and decisions regarding the appropriate methods for implementing the State USF. The orders issued by the Commission throughout its consideration of the USF show careful consideration of numerous proposals on the fund's implementation. See e.g., Or. No. 97-753 (Sept. 3, 1997); Or. No. 97-942 (Dec. 31, 1997); Or. No. 98-322 (May 6, 1998); Or. No. 2001-419 (June 6, 2001). The orders alone and the orders for which the Commission considered motions for reconsideration have presented an insurmountable hurdle for Appellants in refuting the Commission's conclusion substantial evidence supports its decisions in developing the intricacies of the fund. Before addressing Appellants' specific legal arguments, we discuss these orders to show how the Commission arrived at its decisions regarding the fund and to illuminate the evidence considered by the Commission in arriving at its decisions.

Order No. 98-322 is especially illustrative of the Commission's decision-making process. Under the Federal Telecommunications Act states faced an April 24, 1998 deadline to submit to the Federal Communications Commission (FCC) a cost model for calculating federal support for non-rural incumbent local exchange carriers serving rural, insular and high cost areas. States failing to select a study satisfying FCC criteria, or states failing to submit a study, would be required to follow the FCC's cost model for federal universal service. Not only did the Commission attempt to adopt a model consistent with the FCC guidelines,7 it elected to adopt the FCC's criteria in establishing the intrastate USF.8 In Order 98-322, the Commission primarily considered which cost proxy model to adopt.9 In particular, the Commission evaluated the pros and cons of the Benchmark Cost Proxy Model Version 3.1 (BCPM 3.1) and the Hatfield Model Version 5.0a (HM 5.0a). The Commission meticulously weighed the characteristics of each model. One consideration was which model more accurately locates customers in rural and other high cost areas. Locating customers in high cost areas is an essential function in estimating the requisite amount of funding for the state universal service plan. The Commission ultimately selected the BCPM 3.1, in part, because it found the HM 5.0a geocoding process inferior in large rural areas. Furthermore, the Commission carefully weighed the testimony of various cost experts. For example, in selecting the BCPM 3.1, the Commission found its network to be superior to that of the HM 5.0a. A witness for AT & T testified that the HM 5.0a followed standard engineering design rules.10 The Commission, however, determined the AT & T witness could not substantiate his claim and considered testimony of other witnesses who agreed that the BCPM 3.1 followed standard engineering practices. Id.

The Commission also painstakingly addressed the arguments of the parties on their motions for reconsideration. See e.g., In re Proceeding to Establish Guidelines for an Intrastate Universal Service Fund, Or. No. 98-201 (S.C. Pub. Serv. Commn. March 17, 1998); In re Proceeding to Establish Guidelines for an Intrastate Universal Service Fund, Or. No. 2001-704 (S.C. Pub. Serv. Commn. Aug. 31, 2001). For example in Order No. 2001-704, the Commission carefully considered the arguments of the Consumer Advocate, an Appellant in this case. In that order the Commission noted it had held extensive proceedings in the five previous years addressing guidelines for the USF, cost models, and methodologies. On the cost methodology issue alone, the Commission heard the testimony of over twenty economic, engineering, and cost experts. The Commission went on to carefully consider the Consumer Advocate's arguments, which are raised again on appeal and discussed below. We turn now to the issues raised by Appellants.

I.

SCCTA, SECCA, and the Consumer Advocate have timely appealed Commission Order 98-322, which addressed the cost studies to be employed by the Commission in sizing South Carolina's USF. Commission Order No. 98-322 is not a final...

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