Southwestern Bell Telephone Co. v. Public Utility Com'n of Texas

Decision Date12 August 1987
Docket NumberNo. 3-86-108-CV,3-86-108-CV
Citation735 S.W.2d 663
CourtTexas Court of Appeals

Robert J. Hearon, Jr., Graves, Dougherty, Hearon & Moody, Austin, for appellant.

Jim Mattox, Atty. Gen., Steven Baron, Asst. Atty. Gen., Austin, for PUC.

Jim Mattox, Atty. Gen., W. Scott McCollough, Asst. Atty. Gen., Austin, for State Purchasing & General Services Com'n.

Steve Bickerstaff, Bickerstaff, Heath & Smiley, Austin, for intervenors Amerisystems, Inc. and Realcom Communications Co.


POWERS, Justice.

Southwestern Bell Telephone Company appeals from a district-court judgment that dismisses for want of subject-matter jurisdiction the company's suit against the Public Utility Commission, in which numerous other litigants had intervened. We will affirm the judgment.


The Commission regulates "public utilities" through the agency's administration of the various statutory provisions that constitute the Public Utility Regulatory Act ("PURA"), Tex.Rev.Civ.Stat.Ann. art. 1446c (Supp.1987). Bell holds a certificate of convenience and necessity issued by the Commission, under that statute, and falls within the agency's regulation with respect to the "telecommunications" services that Bell provides, including a kind of service known as "local exchange service."

The term "local exchange service" is not defined in PURA. It is, however, a determinant by which a "specialized communications common carrier" may be excluded from the statutory definition of "public utility" and thereby fall outside the scope of the Commission's regulation under PURA. If a "specialized communications common carrier" does not provide a "local exchange service" then it is not subject to PURA or the Commission's regulation. See PURA §§ 2 and 3(c)(2). The term "local exchange service" not being defined in PURA, the Commission exercised its rulemaking power to define the term for regulatory purposes:

Local exchange service--Telecommunication service provided within service areas in accordance with the local exchange tariffs. It includes the use of exchange facilities required to establish connections between customer access lines within the exchange and between customer access lines and the long distance facilities serving the exchange.

16 Tex.Admin.Code § 23.61(a)(18) (1986). Bell supplies local exchange service as a part of its general telecommunications system.

Bell learned that a variety of individuals and businesses had begun to install and utilize "switching systems" serving rather small and distinct areas within the geographical area assigned to Bell in its certificate of convenience and necessity. Through these "switching systems," a multitude of telephone users gained access to Bell's lines serving the individual or business that provided the system, and thence to Bell's general telecommunications system and the integrated network of which it is a part. For example, a landlord might install and maintain a "switching system" for the tenants in his large office building or complex, placing therein his own lines connecting his tenants' telephones to his "switching system" and thence to Bell's system to which the landlord subscribed. While akin to the switchboard in an ordinary office situation, these systems (sometimes referred to as "shared tenant systems") were distinctive in their greater magnitude and in the fact that the systems oftentimes included other services in addition to voice communications, such as word processing, security-voice mail, and environmental control. Concerning the greater magnitude of these systems, Bell alleged, for example, that one provider supplied the equivalent of 3,800 access lines, a magnitude of service that exceeded the access lines provided by 45 of the 71 telephone companies in the State that held certificates of convenience and necessity issued by the Commission and fell within its regulation.

The Commission rule, quoted above, does not clearly include these switching systems within its definition of "local exchange service." At the present time, the providers of switching systems are therefore not required to obtain from the Commission certificates of convenience and necessity, nor are they subject in any other way to the Commission's regulation of "public utilities." Bell petitioned the Commission to amend its rule defining "local exchange service" (and another rule) to make it plain that the "switching systems" amounted to a "local exchange service," in order to bring those providing the systems within the PURA definition of "public utility" and thus within the Commission's regulation. See PURA §§ 2 and 3(c). The initiation of a rulemaking proceeding in this manner is authorized by the terms of the Administrative Procedure and Texas Register Act ("APTRA"), Tex.Rev.Civ.Stat.Ann. art. 6252-13a, § 11 (Supp.1987). 1 The provisions of APTRA apply to the Commission to the extent they are not in conflict with the provisions of PURA. PURA § 4.

After completing the requisite public hearings, the Commission determined that it would not amend its rules in accordance with Bell's request. Instead, it invited Bell to have the relevant issues determined in a tariff-revision proceeding initiated by Bell. In a "final order" that terminated the rulemaking proceeding, the Commission set out the rationale upon which its decision was based:

1. In many cases, there were provided over the same lines word-processing, security-voice mail, and environmental-control services in addition to voice communication. These commingled services do not presently fall within the definition of "local exchange service" established by the Commission's rule even though the voice-communication element might do so standing alone.

2. Whether any particular system constitutes a "true utility service" falling within the Commission's regulation must be determined on a case-by-case basis after "examining the nature of the new service and determining whether it falls within the ambit of appropriate definitions of the PURA."

3. "The Commission is concerned about the impact these services might have on the local exchange telephone customers and, ultimately, the general body of ratepayers" who do not use the unregulated services. This administrative "concern" refers to the evidentiary showings made in the rulemaking proceeding initiated by Bell in support of its contention that regulated telecommunications utilities were required to install lines and other facilities that lay dormant and redundant to the extent "switching services" were provided by the unregulated individuals and businesses, but essential and required, nevertheless, in case the unregulated individuals and businesses failed or ceased to provide the equivalent of a "local exchange service." The redundant ("stranded") investment combined with the "shrinkage" in the customer base of the regulated telecommunications facilities "could lead to higher rates for" the great majority of telephone customers who did not utilize the unregulated services.

4. Bell's petition for amendment of the Commission's rules, in the proceeding under APTRA § 11, would be denied, but the company should develop and urge its contentions by "filing a ... proposed tariff which would address" the issues involved, such as "advance notice, planning for investment purposes, potential stranded investment and whether the [unregulated] service should be considered a discrete service for tariff purposes." The tariff-revision proceeding would be "the best vehicle to resolve the issues and make a determination as to whether the concerns voiced by [Bell] are valid."

Its request for an amendment of the Commission's rules having been denied, Bell filed its lawsuit in district court. In the company's first amended original petition, it set out the general controversy as we have outlined it above and complained of the Commission's decision not to amend its rules so as to bring the unregulated activities within the agency's regulation. Alleging that the unregulated activities injured Bell in its revenues, its investments, and in the rights and privileges conferred by its certificate of convenience and necessity, the company requested that it have the following relief after final hearing in the district court:

1. A permanent injunction restraining "the Commission from refusing ... to enforce the provisions of PURA which require providers of local exchange telephone service to obtain certificates of convenience and necessity."

2. A writ of mandamus or other effective writ "directing the Commission to perform its duty to treat all those who provide local exchange telephone service as retail public utilities under [PURA § 49]."

3. A declaratory judgment to the effect that the activities of which Bell complains, as recounted above, "constitute the provision of retail public utility service within the meaning of PURA and the Commission's rules and therefore require such providers to obtain a certificate of convenience and necessity...."

4. "[A]n order reversing the act of the Commission in its final order in [the rulemaking proceeding initiated by Bell] and remanding this proceeding to the Commission for the entry of an appropriate order consistent with the judgment of this Court that [the] actions [in controversy] constitute the provision of a retail public utility service."

Bell's argument reduces to a claim that the trial court had jurisdiction to construe the Commission's rule (defining "local exchange service") so that it would include the "switching systems" described previously, and to require the Commission to enforce the rule accordingly. Bell concedes the text of the rule is ambiguous in this respect; and, it is undisputed that the Commission has refused to amend its rule, electing instead to determine on a case-by-case basis whether any particular ...

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