Southern New England Telephone Co. v. Dept. of Public Utility Control

• Citation: 261 Conn. 1,803 A.2d 879
• Decision Date: 23 July 2002
• Docket Number: (SC 16539).
• Court: Supreme Court of Connecticut
• Parties: SOUTHERN NEW ENGLAND TELEPHONE COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL

261 Conn. 1

803 A.2d 879

SOUTHERN NEW ENGLAND TELEPHONE COMPANY v. DEPARTMENT OF PUBLIC UTILITY CONTROL

(SC 16539).

Supreme Court of Connecticut.

Argued March 22, 2002.

Officially released July 23, 2002.

Sullivan, C.J., and Katz, Palmer, Vertefeuille and Zarella, Js. Ralph G. Elliot, with whom was Michael C. D'Agostino, for the appellant (plaintiff).

Tatiana D. Eirmann, assistant attorney general, with whom, on the brief, was Richard Blumenthal, attorney general, for the appellee (defendant). Robert P. Dolian, with whom, on the brief, were Robert J. Sickinger and Juliet Bonazolli, for the appellee (intervening defendant MCI WorldCom, Inc.).

Everett E. Newton, with whom was Jennifer D. Janelle, for the appellee (intervening defendant CTC Communications Corporation).

Opinion

KATZ, J.

The plaintiff, Southern New England Telephone Company, appeals¹ from the trial court's judgment dismissing its appeal from the decision of the defendant, the department of public utilities control (department), ordering the plaintiff to file a proposed tariff for certain enhanced provisioning services (enhanced services), which the plaintiff offers to competitive local exchange carriers (competing carriers), that is consistent with prior department rate setting guidelines and to impose the same charges for such services on the plaintiff's own retail customers. The plaintiff claims² that the trial court improperly determined that: (1) the department properly had exercised jurisdiction under state law, pursuant to General Statutes §§ 16-247b (a)³ and 16-247f (a),⁴ and under federal law, pursuant to 47 U.S.C. §§ 251 (c) (3)⁵ and 252 (d) (1) (Sup. 1999),⁶ over the petition by competing carriers claiming that the plaintiff charged the carriers excessive and discriminatory rates for the enhanced services; and (2) the department had not set rates and, accordingly, had not exceeded its statutory authority by ordering the plaintiff to submit the tariff, despite the fact that the department had rejected the competing carriers' claim that the enhanced services were "necessary" within the meaning of § 16-247b (b).⁷ We affirm the judgment of the trial court.

The record contains the following relevant facts and procedural history. The department is a state agency authorized pursuant to title 16 of the General Statutes and the federal Telecommunications Act of 1996 (1996 federal act); 47 U.S.C. § 151 et seq. (Sup. 1999); to regulate and supervise the operation of public service companies in Connecticut. The plaintiff is a public service company within the meaning of General Statutes § 16-1 (a) (4) and (23)⁸ and an incumbent local exchange carrier (incumbent carrier) in the state. State and federal law impose substantial obligations on the plaintiff as an incumbent carrier to share infrastructure facilities and wholesale services with competing carriers.

Prior to November, 1998, the plaintiff received requests from numerous competing carriers for certain service alternatives beyond those offered as part of the plaintiff's baseline ordering and provisioning processes. These services consisted of "pre due date service confirmation," "expedite service," "coordinated cutover service," and "out of hours service."⁹ The plaintiff initially satisfied these requests on an ad hoc basis. In November, 1998, the plaintiff informed competing carriers that it was making the enhanced services generally available. Because the plaintiff considered these services enhancements to its baseline services, it determined that it could set the rates and conditions by which competing carriers could obtain these services, and, accordingly, executed with competing carriers desiring the services a memorandum of understanding reflecting those terms. The plaintiff charged the competing carriers the following nonrecurring charges for the services: $489.53 for pre due date confirmation; $656.73 for expedite service; $378 for out of hours service; and $394.85 for coordinated cutoff service. The plaintiff offered these enhanced services to its own retail customers at either no cost or on a time and materials basis.

MCI Worldcom, Inc. (MCI), a competing carrier, attempted unsuccessfully to negotiate, on behalf of its subsidiaries, alternative terms to those set forth in the plaintiff's memorandum of understanding for the enhanced services. As a result, in February, 1999, MCI filed a petition for a declaratory ruling with the department, requesting that the department assert jurisdiction over the nonrecurring charges assessed by the plaintiff for the enhanced services. Several other competing carriers filed petitions with the department in support of MCI's petition.¹⁰ The competing carriers claimed that these services were necessary for the provision of telecommunications services and not mere enhancements to the plaintiff's baseline service, as the plaintiff had asserted. Accordingly, in the competing carriers' view, the rates for such services must be tariffed and approved by the department pursuant to its authority under § 16-247b (b), which authorizes the department to "determine the rates" for such "necessary" services.¹¹ See footnote 3 of this opinion. The competing carriers further contended that the rates that the plaintiff charged for the services were excessive and not cost-based. They claimed that the plaintiff's actions impaired their ability to compete because the plaintiff had discriminated against them by providing the same services to its own customers at little or no cost. The competing carriers pointed to recent amendments to § 16-247b (b), claiming that those changes require the plaintiff to provide nondiscriminatory pricing for unbundled¹² network elements¹³ "based on their respective forward-looking long-run incremental costs, consistent with the provisions of 47 U.S.C. § 252 (d) [Sup. 1999]."¹⁴ See Public Acts 1999, No. 99-222. To remedy these concerns, the competing carriers requested, inter alia, that the department require the plaintiff to submit a tariff of rates, subject to the department's approval, along with a cost study substantiating the rates that it charged for each enhanced service.¹⁵

In response to these claims, the plaintiff first contended that it had acted appropriately in all respects regarding its offering of the services pursuant to its memoranda of understanding and that its current rates were reasonable. Although the plaintiff conceded that it intended ultimately to file the executed agreements with the department, along with a cost study supporting its final rates, it contended that the department lacked jurisdiction over the enhanced services. Specifically, the plaintiff asserted that the only provisions under state and federal law that authorize the department to determine rates limit the exercise of that authority to claims implicating network elements or services that constitute necessary telecommunications services. Because, in the plaintiff's view, the enhanced services were neither necessary nor telecommunications services, the services fell beyond the department's purview. The plaintiff contended that, in the absence of such authority, it should be free to charge what the market for such services will bear. With respect to the claim of discriminatory treatment, the plaintiff asserted that its obligation not to discriminate meant only that it could not arbitrarily treat competing carriers differently, which it had not done. The department determined that the features and functions that constitute the enhanced services are not "essential" or "critical" services, but, rather, telecommunications services of a premium nature. Nonetheless, it concluded that the enhanced services were subject to the department's jurisdiction. The department reasoned that as both a public service company and a telephone company; see footnote 8 of this opinion; the plaintiff's services fall within its jurisdiction. It also noted the department's broad grant of statutory authority pursuant to § 16-247f (a) to "regulate the provision of telecommunications services in the state in a manner designed to foster competition and protect the public interest." The department further determined that § 16-247b (a); see footnote 3 of this opinion; both authorizes the department to determine which unbundled functions of a telecommunications company's network that are being used for telecommunications services are capable of being tariffed and bars the plaintiff from discriminating in providing those functions. Moreover, the department noted that it was vested with authority, pursuant to the 1996 federal act; 47 U.S.C. §§ 251, 252 (Sup. 1999); to ensure that all incumbent local exchange carrier interconnection and network element services are reasonable. Finally, the department noted that the plaintiff had proposed to file the executed agreements with the department, and that these arrangements were subject to the department's jurisdiction.

The department, therefore, addressed the merits of the competing carriers' claims. It agreed with the competing carriers that the plaintiff's rates were excessive. It noted that, in prior decisions, the department had determined that costs must be calculated based on a particular forward-looking methodology, total service long run incremental cost (long run cost).¹⁶ It also had determined previously that this methodology failed to account for certain costs that the plaintiff was entitled to recover and, accordingly, the plaintiff had been permitted to set rates based on a 25 percent level of contribution¹⁷ to recover those costs. In light of those prior decisions, the department concluded that the plaintiff must propose rates calculated pursuant to the long run cost methodology plus a reasonable markup, which, in light of the fact that the enhanced services were not essential, could not exceed 25 percent. The department therefore ordered the plaintiff to submit a tariff for approval that satisfied these, as...