Qwest Corp. v. Nmprc, 29,228.

• Decision Date: 29 June 2006
• Docket Number: No. 29,228.,29,228.
• Citation: 143 P.3d 478,2006 NMSC 042
• Parties: In the Matter of the Investigation of Whether Qwest Corporation is in Compliance with the Investment Requirements of its Amended Alternative Form of Regulation Plan, QWEST CORPORATION, Appellant, v. NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee, and General Services Department of the State of New Mexico, Intervenor.
• Court: New Mexico Supreme Court

Page 478

143 P.3d 478

2006 NMSC 042

In the Matter of the Investigation of Whether Qwest Corporation is in Compliance with the Investment Requirements of its Amended Alternative Form of Regulation Plan QWEST CORPORATION, Appellant, v. NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee, and General Services Department of the State of New Mexico, Intervenor.

No. 29,228.

Supreme Court of New Mexico.

June 29, 2006.

Rehearing Denied September 19, 2006.

As Revised September 25, 2006.

COPYRIGHT MATERIAL OMITTED

Montgomery & Andrews, P.A., Thomas W. Olson, Sarah M. Singleton, Santa Fe, NM, Hogan & Hartson, L.L.P., Peter A. Rohrbach, H. Christopher Bartolomucci, Washington, D.C., for Appellant.

Margaret Caffey-Moquin, Santa Fe, NM, for Appellee.

Merrill, Arnone & Jones, L.L.P., Richard H. Levin, Santa Rosa, CA, for Intervenor.

OPINION

SERNA, Justice.

{1} The Public Regulation Commission (the PRC) regulates all telecommunication carriers in New Mexico. Pursuant to this authority, the PRC approved a five-year alternative form of regulation (AFOR) plan for Qwest Corporation, one such carrier. Qwest, PRC staff and other parties actively negotiated and endorsed the AFOR plan. During the plan's third year, the PRC investigated whether Qwest was in compliance with a key component of the AFOR plan: a commitment by Qwest to invest $788 million in its New Mexico telecommunications infrastructure. The PRC found Qwest was not in compliance and ordered Qwest to issue credits or refunds to customers in an amount equal to any shortfall at the end of the five-year plan. Qwest now appeals this order. Qwest argues that the credit or refund order is outside the PRC's statutory authority, is an improper form of retroactive remedy, is motivated by improper objectives, and is premature and speculative. The PRC avers that it had the statutory authority to approve Qwest's AFOR plan; the $788 million investment provision was a key compromise in the AFOR plan; Qwest failed to timely object to the investment provision at the time the plan was negotiated and approved, thereby waiving the ability to challenge it later; the Legislature has given the PRC broad authority to enforce its orders; and the credit or refund order is merely an incentive for Qwest to complete its investment commitment before the end of the five-year term.

{2} We agree with the PRC that it had the statutory authority to enter into the AFOR plan and add the credit or refund incentive for Qwest to invest the full $788 million in its telecommunications infrastructure. The credit or refund order is not an impermissible retroactive remedy, was not based on an impermissible purpose, nor was it premature or speculative.

{3} Qwest also argues that the PRC's order should be set aside because of procedural errors and errors in the PRC's compliance investigation findings. Because we find no error, we affirm.

I. FACTS

A. Utility Case No. 04-00237-UT: Qwest's Amended AFOR Plan and the AFOR Order

{4} On March 7, 2000, the Governor of New Mexico signed the Legislature's amendments to the New Mexico Telecommunications Act, NMSA 1978, §§ 63-9A-1 to -20 (1985, as amended through 2004). One of the purposes of these amendments was to eliminate rate of return regulation¹ and implement an alternative form of regulation for incumbent telecommunications carriers with more than fifty thousand access lines, such as Qwest. See § 63-9A-8.2(C) (2001).

{5} In January 2001, pursuant to the Act, PRC staff, Qwest Corporation, and other parties agreed to an AFOR plan to regulate Qwest for a period of five years from 2001-2006.² The plan included a commitment by Qwest to invest a total of $788 million over the five-year term, approximately $157.6 million per year, in its New Mexico infrastructure. This was approximately a 25 percent increase over Qwest's 1995-1999 investment. Qwest committed to a separate provision that required it to meet yearly quality of service standards, or potentially issue substantial credits to customers if these service standards were not met. The AFOR plan resolved and lead to the dismissal of eight pending PRC cases concerning Qwest³: Utility Case Nos. 3007, 3008, 2938, 2939, 3162, 2922, 3147, and 3429. As an incentive, if Qwest met its investment commitments and service standards during the first two years of the plan, then Qwest would be able to increase its price caps⁴ for residence basic exchange service, or 1FR.

{6} At hearings, Qwest executives acknowledged the inherent risks in the AFOR plan investment commitment and the distinctiveness of this commitment from the service standards. Charles Ward, then Qwest's Regional Vice President for the Eastern Region, testified,

[t]he total $788 million in infrastructure investments over the five-year term of the Plan severely limits Qwest's options to respond to the changing industry environment. If . . . the investment package for New Mexico does not realize gains, or if competition increases the company's exposure to cover its costs of investment, Qwest will be unable to change the amount invested in the state. . . .

The AFOR Plan puts Qwest at risk even beyond the $788 million commitment, because the Plan imposes rigorous service quality requirements.

A different Qwest executive testified to the background and status of the pending PRC cases and how the AFOR plan would resolve each one. As a result of the hearings and negotiations among all parties, the PRC issued a final order approving an amended version of Qwest's suggested AFOR plan, described in an amended joint stipulation, on March 8, 2001.

{7} In the AFOR order, the PRC noted that considerable time at the hearings was devoted to the amended AFOR plan reopener provisions, including section X.B.5.e, which "allows the [PRC] to modify the AFOR to ensure compliance with the AFOR's service standards or investment commitments if the [PRC] finds that the benefits and credits provided in the plan do not provide sufficient incentives." While the parties generally agreed that the PRC should retain the ability to reexamine any aspect of the AFOR plan during its five-year term, the PRC order cited the statutory and legal authority for this post-approval ability. The PRC noted the broad statutory authority given to it by the Legislature to determine any issues within its regulatory authority, see NMSA 1978, § 63-7-1.1 (1998), to conduct investigations to carry out its responsibilities, see NMSA 1978, § 8-8-4(B)(7) (1998), and to enforce its orders "by appropriate administrative action and court proceedings," Section 8-8-4(B)(5).

{8} After actively negotiating in favor of the AFOR plan terms, Qwest did not appeal the amended AFOR plan, the amended joint stipulation, nor the PRC's final order. See § 63-9A-14 (permitting aggrieved parties to appeal PRC final orders).

B. The PRC's Investigation Into Qwest's Infrastructure Investment, Case No. 04-00237-UT

{9} In the first year of the AFOR plan, Qwest invested $275.2 million in infrastructure, $117.6 million above the AFOR yearly average of $157.6 million. Having fulfilled the investment commitment and the service quality standards, Qwest's price cap for residence basic exchange service was raised from $10.66 to $12.25, under Section V.A.1.b of the AFOR plan. In the AFOR plan's second year, Qwest invested $68.1 million in its infrastructure. While this was a significant decrease from the previous year, the $343.3 million investment over the first two years was $28.1 million above the $315.2 million required over those two years. Pursuant to Section V.A.1.c, this level of investment and the fulfillment of other service quality standards entitled Qwest to a second residence basic exchange service price cap increase of $1.25. In the third year, Qwest invested $85.4 million, but was $45 million short of the expected cumulative investment of $472.8 million.

{10} PRC staff for the first time expressed concern over the decline in Qwest's infrastructure investment levels during the filing of Qwest's annual compliance report for year two and notice regarding the second residence basic exchange service price cap increase. As a result, pursuant to the reopener provision of the AFOR plan, the PRC opened a docket to explore whether Qwest would remain compliant with the AFOR investment obligation and what remedial measures might be necessary to ensure Qwest's compliance.

{11} Qwest argued that any investigation was premature and speculative, and that a remedial process was unnecessary. It argued that it was in substantial compliance after the third year because it had reached 90 percent of the investment target required after year three. In other words, Qwest was only $45 million short. Qwest also averred that the $788 million investment was (1) no longer necessary because it had succeeded in meeting and exceeding the AFOR plan service quality benchmarks, and (2) unfeasible because of the economic downturn in the telecommunications sector. Qwest submitted a status report which stated that significant, negative, and unanticipated changes in the telecommunications sector had occurred since the AFOR plan was entered into which "argues against expenditure of $788 million . . . as . . . originally projected." Nita Taylor, then Qwest's Director of Regulatory Affairs, reaffirmed the PRC's authority to revise the AFOR and reconsider the amount of the infrastructure investment or extend the period for Qwest to be compliant.

{12} The PRC concluded that the AFOR plan and order did not consider any "substantial compliance" standard for the investment commitment. Additionally, the PRC observed that if Qwest's investment continued at the pace of the first two quarters of year four, Qwest's total investment shortfall would be in the range of $220 million. The PRC also explained that there was no support for Qwest's position that the AFOR plan investment commitment was tied only to the service standards. Finally, the PRC asserted that while...