Rates and Charges of U.S. West Communications, Inc., Matter of

• Decision Date: 11 December 1995
• Docket Number: No. 21232,21232
• Citation: 909 P.2d 716,1996 NMSC 2,121 N.M. 156
• Parties: In the Matter of the RATES AND CHARGES OF U S WEST COMMUNICATIONS, INC. ATTORNEY GENERAL OF the STATE OF NEW MEXICO, Appellant, v. NEW MEXICO STATE CORPORATION COMMISSION, Appellee, and U S West Communications, Inc., a Colorado corporation, Intervenor.
• Court: New Mexico Supreme Court

Page 716

909 P.2d 716

121 N.M. 156

In the Matter of the RATES AND CHARGES OF U S WEST COMMUNICATIONS, INC. ATTORNEY GENERAL OF the STATE OF NEW MEXICO, Appellant, v. NEW MEXICO STATE CORPORATION COMMISSION, Appellee and U S West Communications, Inc., a Colorado corporation, Intervenor.

No. 21232.

Supreme Court of New Mexico.

Dec. 11, 1995.

[121 N.M. 159] Tom Udall, Attorney General, Carol A. Clifford, Susan G. White, Assistant Attorneys General, Santa Fe, for Appellant.

Tom Udall, Attorney General, Carol A. Baca, Assistant Attorney General, Santa Fe, for Appellee.

Barry L. Hjort, Albuquerque, for Intervenor.

OPINION

FROST, Justice.

1. Appellant Attorney General of the State of New Mexico (AG) brought this removal action before this Court pursuant to Article XI, Section 7 of the New Mexico Constitution. In this action we review portions of two orders issued by Appellee New Mexico State Corporation Commission (Commission), concerning a rate application filed by Intervenor U S WEST Communications, Inc. (U S WEST). We affirm the orders of the Commission.

I. FACTS

2. U S WEST is the local telephone service provider for a multistate region that includes New Mexico. U S WEST replaced Mountain States Telephone and Telegraph Company, after the divestiture of the Bell operating companies from AT & T on January 1, 1984. The Commission regulates U S WEST's operations in New Mexico. Because U S WEST is a regulated monopoly utility, it must obtain Commission approval for the rates it charges for its services. These services are numerous and diverse, and include basic local service, pay telephones, and intrastate long distance. However, U S WEST does not publish the White and Yellow Pages; U S WEST's unregulated affiliate, U S WEST Direct (USWD), ¹ publishes these directories.

3. The Commission regulates telephone rates under a grant of authority in our State Constitution, which provides that, "in the matter of fixing rates of telephone and telegraph companies, due consideration shall be given to the earnings, investment and expenditure as a whole within the state." N.M. Const. art. XI, § 7. The Constitution also requires that, in considering rates, "[t]he [C]ommission shall include in that consideration the earnings, investment and expenditures derived from or related to the sale of directory advertising and other directory listing services." Id. An amendment added this latter language on November 2, 1982, shortly after this Court reached the same result judicially. See Mountain States Tel. & Tel. Co. v. Corporation Comm'n (In re Rates & Charges of Mountain States Tel. & Tel. Co.), 99 N.M. 1, 4-5, 653 P.2d 501, 504-05 (1982) (per curiam) [hereinafter Mountain States 1982 ], overruling Corporation Comm'n v. Mountain States Tel. & Tel. Co. (In re Mountain States Tel. & Tel. Co.), 84 N.M. 298, 502 P.2d 401 (1972).

4. On August 28, 1992, U S WEST filed its application with the Commission asking for a review of its revenue requirement and rate of return and requesting an adjustment of various rates and charges. The Commission bifurcated the proceedings on the application into (1) a revenue requirement determination and (2) a rate-design phase, in which revenue is allocated among classes of services. Each phase consisted of public hearings at which many parties presented evidence, including U S WEST, the Commission's staff (Staff), ² the AG, and various intervenors and interested citizens.

5. In the first phase, the Commission determined the total revenue requirement, which is the amount of money that will (1) cover U S WEST's operating costs and (2) "provide an opportunity to earn a reasonable rate of return on the property devoted to the business." Charles F. Phillips, Jr. The Regulation of Public Utilities 168 (2d ed. 1988). U S WEST, as a monopoly, faces less business risk than businesses in competitive sectors. As business risk decreases, so does the expected rate of return to which a regulated business is entitled. Consequently, U S WEST's "reasonable rate of return" is less than a reasonable rate of return for an otherwise-similarly-situated unregulated business in a competitive environment.

6. As stated above, the New Mexico Constitution requires that the Commission consider "the earnings, investment and expenditures derived from or related to the sale of directory advertising and other directory listing services." N.M. Const. art. XI, § 7. Consequently, even though USWD is a separate, unregulated business entity, as U S WEST's affiliate, its "earnings, investment and expenditures" must be considered in determining U S WEST's revenue requirement. The Commission decided to impute a fixed amount of USWD's revenue to U S WEST. In other words, the Commission presumed that a portion of USWD's revenues benefit U S WEST because of their affiliate relationship. This imputation had the effect of lowering U S WEST's revenue requirement. Thus, the amount U S WEST received from USWD in the form of an imputation reduced the amount that the Commission estimated U S WEST to need to recover from ratepayers.

7. By order issued April 8, 1993, the Commission determined that a just and reasonable revenue requirement by U S WEST is $7,731,000, increased by $1,256,000 a year for each of the next four years. In addition, the Commission adopted a directory-advertising revenue imputation from USWD to U S WEST of $12,647,000. The AG challenged that portion of the order which fixed the imputation. The AG proposed a higher imputation, using different formulae for making the calculation, and argued that the Commission erred by not adopting its recommendation.

8. In the second phase of the proceedings, the rate-design phase, the Commission determined the sources of funds to satisfy the total revenue requirement. U S WEST submitted a proposed rate design that specified how much it could charge for each service, such as pay telephones. The Commission reviewed this proposal, approving some proposed rates and rejecting others. For example, the Commission rejected U S WEST's proposal to increase the rate for pay telephones from twenty-five cents to thirty-five cents. Based on its evaluations of U S WEST's proposed rates, the Commission set the allowable rates U S WEST could charge for individual services. As a result, U S WEST was left with a revenue shortfall. In other words, the specific rates approved by the Commission were insufficient to cover the total revenue requirement allowed by the Commission in the first phase of the proceedings. This remaining shortfall, which totalled $3,242,000, was the residual revenue requirement.

9. The Commission decided to make up for this shortfall by increasing the rates charged to certain customers for certain services. Specifically, on May 7, 1993, the Commission issued an order which, among other things, spread the residual revenue requirement equally across the dial tone line rate of all residential and business customers, except Low Income Telephone Assistance Program customers. The dial tone line rate is the charge that customers pay for their basic telephone service. The Commission's order had the effect of increasing for the first year each residential and business customer's basic service charge by approximately forty-nine cents. The AG challenged the Commission's decision to spread the residual revenue requirement as improper and unsupported by the evidence.

II. STANDARD OF REVIEW

10. In removal actions from the Commission, this Court "shall have the power and it shall be its duty to decide such cases on their merits." N.M. Const. art. XI, § 7. "Our scrutiny, therefore, is more exacting than that normally accorded administrative decision-making." Burlington N. R.R. v. Corporation Comm'n (In re Burlington N. R.R.), 107 N.M. 582, 583, 761 P.2d 855, 856 (1988); see also id. at 583 n. 2, 761 P.2d at 856 n. 2 (explaining traditional administrative review). Under the proper standard of review, this Court may weigh the evidence to arrive at an independent determination whether the Commission's order is just and reasonable. Atchison, T. & S.F. Ry. v. Corporation Comm'n (In re Atchison, T. & S.F. Ry.), 99 N.M. 205, 207, 656 P.2d 868, 870 (1982). In other words, the Court independently determines whether "it is more likely than not that the Commission's order is just and reasonable." Burlington N. R.R., 107 N.M. at 584, 761 P.2d at 857. Both satisfactory and substantial evidence must support the Commission's order. Mountain States 1982, 99 N.M. at 6, 653 P.2d at 506. "The term 'satisfactory' implies a weighing procedure." Id. For judicial review of an administrative agency's decision, "[s]ubstantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Behles v. New Mexico Pub. Serv. Comm'n (In re Timberon Water Co.), 114 N.M. 154, 156, 836 P.2d 73, 75 (1992).

11. However, this Court is not a rate-making body. Mountain States 1982, 99 N.M. at 7, 653 P.2d at 507. Our prior decisions have established the principle that the Commission has a wide degree of discretion in its rate-making authority. In fact, "[i]t is difficult to conceive of a more clear and all-inclusive grant of power to a governmental agency." Mountain States Tel. & Tel. Co. v. New Mexico State Corp. Comm'n, 90 N.M. 325, 331, 563 P.2d 588, 594 (1977) [hereinafter Mountain States 1977 ]. Although we do not presume that the Commission's decision is correct and the Commission's findings do not bind us, "[w]e recognize the expertise of the Commission in public utility management." Burlington N. R.R., 107 N.M. at 584, 761 P.2d at 857. Our review is not de novo. Id. In its brief, the Commission brings to our attention an earlier decision of this Court that suggests that our review is de novo. Village & Citizens of Grenville v. State Corp. Comm'n, 53 N.M. 259, 260, 206 P.2d 259, 260 (1949). That case is contrary to the weight of New Mexico authority, and, to the extent that it...