Southwestern Bell Telephone Co., Application of

• Decision Date: 18 June 1984
• Docket Number: No. 56717,56717
• Parties: In the Matter of the Application of SOUTHWESTERN BELL TELEPHONE COMPANY.
• Court: Kansas Court of Appeals

Page 304

685 P.2d 304

9 Kan.App.2d 525

In the Matter of the Application of SOUTHWESTERN BELL TELEPHONE COMPANY.

No. 56717.

Court of Appeals of Kansas.

June 18, 1984.

Review Denied Oct. 2, 1984.

Syllabus by the Court

1. K.S.A. 66-118a confers appellate jurisdiction on the court of appeals for review of orders and decisions of the KCC arising from a rate hearing requested by a public utility or requested by the KCC when a public utility is a necessary party. If a tariff is so closely related to the prior rate hearing as to be deemed "arising from" the rate hearing, appellate jurisdiction lies with the court of appeals. When the tariff issue was at one time within the rate case and the tariff determines only the manner of collection of a revenue requirement previously set by the rate case, there is sufficient nexus between the tariff and the rate case to establish jurisdiction under K.S.A. 66-118a.

2. K.S.A. 66-118b requires that an application for rehearing by the KCC set forth the specific grounds upon which the applicant considers the order to be unlawful and unreasonable. The allegation of grounds must be sufficiently specific and direct to apprise the KCC and opposing parties of the actual points relied on. Any ground not set forth in the application for rehearing cannot be relied upon in judicial review proceedings. It is not necessary that in an application for judicial review the grounds upon which the applicant considers the order to be unlawful or unreasonable be stated in precisely the same language used in the application for rehearing; however, any ground not specifically and directly alleged in the application for rehearing may not be raised in an application for judicial review. A general or mere allegation in the application for rehearing of unlawfulness or unreasonableness is insufficient to raise an issue for judicial review.

3. To preserve issues for judicial review, K.S.A. 66-118b does not require the reassertion, at the hearing on the application for rehearing, of all grounds asserted in the application.

4. Upon judicial review of a tariff order of the KCC, it is held that, under the circumstances related in the opinion, (1) this court has jurisdiction for judicial review of the tariff order, and (2) the order of the KCC is lawful and reasonable, and is affirmed.

George E. Erickson, Jr., Topeka, and Thomas H.W. Sawyer, Chicago, Ill., general attorney, for applicant AT & T Information Systems, Inc.

Lawrence A. Dimmitt and Michael C. Cavell, Topeka, for respondent Southwestern Bell Telephone Co.

Eva Powers, Asst. General Counsel, and Brian J. Moline, General Counsel, Topeka, for respondent Kansas Corp. Com'n.

Before ABBOTT, P.J., and REES and BRISCOE, JJ.

BRISCOE, Judge.

Southwestern Bell (SWB) filed a tariff application with the Kansas Corporation Commission (KCC) on October 27, 1983. The proposed tariff would enable SWB to recover its capital investment in embedded complex inside wire. American Telephone and Telegraph Information Systems (ATT-IS) intervened in the tariff proceeding and now seeks review of the KCC order approving the tariff.

Years of negotiations and litigation between the United States on one side and Western Electric Company, Inc., and American Telephone and Telegraph Company (AT & T) on the other, led to district court approval of a consent decree in 1982 which required AT & T to divest from itself the 22 Bell Operating Companies (BOC). See United States v. American Tel. and Tel. Co., 552 F.Supp. 131, 135-140 (D.D.C.1982), aff'd sub nom, Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983). For purposes of this case, it is only necessary to understand that two lawsuits were involved. The first, filed in the United States District Court for the District of New Jersey in 1949, resulted in a 1956 consent decree which did not include divestiture or other structural changes. A second antitrust action was filed in the United States District Court for the District of Columbia in 1974, and, in 1982, a consent decree was proposed. This consent decree is referred to as the Modification of Final Judgment (MFJ), which references the 1956 consent decree, although the two decrees have little in common. The New Jersey case was then consolidated with the action in the District of Columbia for court approval of the consent decree.

In United States v. American Tel. and Tel. Co., 552 F.Supp. 131, the parties were ordered to submit to the court a modified decree and to submit to the Department of Justice a plan of reorganization (POR). 552 F.Supp. at 226. Subsequently, in United States v. Western Elec. Co., Inc., 569 F.Supp. 1057 (D.D.C.1983), summarily aff'd California v. U.S., 464 U.S. 1013, 104 S.Ct. 542, 78 L.Ed.2d 719 (1983), the court reviewed the POR previously approved by the Department of Justice [see also United States v. Western Elec. Co., Inc., 569 F.Supp. 990 (D.D.C.1983) ], and after limited modification the court also approved the POR. Within the POR was provision for the BOC's to retain inside wiring. On subsequent motions for reconsideration and clarification, the court specifically addressed the inside wiring issue.

"Several intervenors ask the Court to reconsider its approval of the assignment of the so-called Account 232 to the Operating Companies and to assign the Account instead to AT & T. That request will likewise be denied. In-place wiring, which is a principal item in Account 232, is as much a 'bottle-neck' as are the subscriber access lines. To assign such wiring to AT & T would be to insert AT & T-controlled facilities between the Operating Companies and the subscribers, and such an assignment would thus be entirely inconsistent with the basic purposes of the decree.

"Account 232 also includes the capitalized labor costs associated with the installation and testing of customer premises equipment, and a theoretical case could be made that, since under the plan embedded CPE is being assigned to AT & T, so should be this portion of Account 232. However, the Court was and is persuaded by AT & T's argument, for the reasons stated in AT & T's Response to Objections at 154-55, that there is no practical way to separate out the various handling costs. The provision made in the plan of reorganization regarding Account 232 is consistent with the decree and otherwise reasonable, and there is no basis for reconsidering the Court's approval of the plan in this regard." 569 F.Supp. at 1129.

Thus, at the time of divestiture on January 1, 1984, AT & T owned the complex Customer Premises Equipment (CPE) and the local BOC's owned the embedded complex inside wire (CIW), as well as the capitalized investment associated with its installation in years prior to 1981.

Customer Premises Equipment (CPE) is defined for purposes of the MFJ as "equipment employed on the premises of a person (other than a carrier) to originate, route, or terminate telecommunications, but does not include equipment used to multiplex, maintain or terminate access lines." 552 F.Supp. at 228.

Embedded Complex Inside Wire (CIW) as defined in the course of these proceedings is "wire which connects stations to switching or common equipment used in complex terminal equipment arrangements such as key telephone and private branch exchange (PBX) systems." The attorney for SWB offered a more graphic description of the CIW as "the transmission path for the communications from the mouthpiece of the talker into the eventual network for completion over the public network itself."

The problem lies in SWB's recovery of its investment in CIW prior to 1981 when SWB was required by federal regulation to capitalize its investment in CIW. In 1981, under FCC direction, SWB began expensing CIW costs in the year incurred. The capitalized investment from prior years, Account 232, was to be amortized over a ten-year period, ending in 1991. This translates to a depreciating base of investment requirement of $5,742,000 annually in Kansas, currently recovered by station line charges. The tariff amount is less, $5,657,635, because SWB will no longer perform maintenance. After divestiture, SWB will no longer have station line information; therefore, the sum must be collected in another manner.

SWB's solution in Kansas was a General Exchange Tariff Application filed October 27, 1983, which proposes billing owners of CPE who use CIW at a rate per access line. The significant changes are from customer billing to owner billing and from charges based on number of station lines to number of access lines. AT & T and ATT-IS petitioned and were granted permission to intervene.

At a hearing before the KCC, the parties outlined their positions.

Because SWB will no longer have station line information after divestiture, SWB proposed billing owners of CPE who use CIW at a rate of $5.60 per access line. Existing CPE was transferred to AT & T on January 1, 1984, so the "owner" for all practical purposes is ATT-IS. Other vendors could also be "owners" and ATT-IS could sell its CPE. According to SWB, the CPE owner should be billed because the CIW is an integral part of that system.

SWB briefly presented two other alternatives: (1) the Mountain Bell Plan where customers continue to be billed directly on the basis of the number of station lines in existence on December 31, 1983, with the disadvantage of a potential revenue shortfall; and (2) the amortization of Account 232 over the general body of ratepayers, an alternative adopted in Texas.

ATT-IS objected to the undue burden on small customers, unnecessary administrative costs, and increased overhead for ATT-IS, which ATT-IS contends is inherent in the SWB tariff proposal.

ATT-IS offered as alternatives: (1) the Texas proposal of absorbing these costs as part of the overall rate structure, (2) access line charges imposed directly on customers, and (3) the Mountain Bell Plan of billing customers on station line charges fixed on a certain date. ATT-IS...