State ex rel. Coffman v. Public Service

• Decision Date: 28 September 2004
• Docket Number: No. WD 63092.,No. WD 63075.,No. WD 63096.,WD 63075.,WD 63092.,WD 63096.
• Court: Missouri Court of Appeals
• Parties: STATE of Missouri ex rel., Acting Public Counsel John COFFMAN, Appellant-Respondent, Missouri Independent Telephone Group, Plaintiff, Southwestern Bell Telephone L.P., Respondent-Appellant, Brooks Fiber Communications of Missouri, Inc., MCI Metro Access Transmission Services, LLC., and MCI Worldcom Communications, Inc., Defendants, and Nu Vox Communications of Missouri, Inc., Respondent, v. PUBLIC SERVICE COMMISSION of the State of Missouri, a State Agency and its Members Kelvin Simmons, Connie Murray, Sheila Lumpe, Steve Gaw, and Bryan Forbis in their Official Capacity, Respondent-Appellants.

154 S.W.3d 316

STATE of Missouri ex rel., Acting Public Counsel John COFFMAN, Appellant-Respondent,

Missouri Independent Telephone Group, Plaintiff, Southwestern Bell Telephone L.P., Respondent-Appellant, Brooks Fiber Communications of Missouri, Inc., MCI Metro Access Transmission Services, LLC., and MCI Worldcom Communications, Inc., Defendants, and Nu Vox Communications of Missouri, Inc., Respondent, v. PUBLIC SERVICE COMMISSION of the State of Missouri, a State Agency and its Members Kelvin Simmons, Connie Murray, Sheila Lumpe, Steve Gaw, and Bryan Forbis in their Official Capacity, Respondent-Appellants.

No. WD 63075.

No. WD 63092.

No. WD 63096.

Missouri Court of Appeals, Western District.

September 28, 2004.

Motion for Rehearing and/or Transfer to Supreme Court Denied November 23, 2004.

Application for Transfer Denied March 1, 2005.

Michael Francis Dandino, Jefferson City, for Appellant.

Carl James Lumley, Clayton, for Nu Vox, Brooks Fiber, MCI Metro, MCI WorldCom.

Paul Gerard Lane, St. Louis, for SWB Telephone.

William Keith Haas, Jefferson City, for PSC.

Craig Steven Johnson, Jefferson City, for Independent.

Before RONALD R. HOLLIGER, ROBERT G. ULRICH and JAMES M. SMART, JR., JJ.

JAMES M. SMART, JR., Judge.

The Office of Public Counsel appeals the circuit court's affirmance of a Public Service Commission decision that reclassified certain Southwestern Bell services in specific exchanges as "competitive," thereby decreasing regulation over their pricing. The Office of Public Counsel is joined in the appeal by several private telecommunications companies who intervened below. The Public Service Commission and Southwestern Bell appeal the circuit court's reversal of the Commission's decision that other Southwestern Bell services converted to "competitive" status by operation of law in 1999. We affirm the Commission's decision as to question one and reverse and remand as to question two.

Factual and Procedural Background

In 1996, the Missouri Legislature passed Senate Bill 507 authorizing "alternative local exchange telecommunications companies" to begin providing basic local telecommunications service in competition with "incumbent local exchange telecommunications companies," such as Southwestern Bell. That bill included provisions to ensure a level playing field for all providers by allowing incumbent local exchange companies the opportunity to gain freedom from traditional rate-of-return regulation. The intent of the legislation was to "bring the benefits of competition to all customers[,] to ensure that incumbent and alternative local exchange telecommunications companies have the opportunity to price and market [their] services to all prospective customers in any geographic area in which they compete[, and to] promote the goals of the federal Telecommunications Act of 1996...." § 392.200.4(2), RSMo.2000. The stated goal of the federal Telecommunications Act of 1996 is "to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." Public Law 104-104 (S.652), 110 Stat. 56, February 8, 1996.

Senate Bill 507 first introduced the classifications of "alternative local exchange telecommunications companies" (ALECs) and "incumbent local exchange telecommunications companies" (ILECs) in Missouri.¹ Those classifications were adapted from the federal Telecommunications Act of 1996. Southwestern Bell Telephone (SWB) qualifies as a "large incumbent local exchange company," whereas the newer companies are classified as "alternative local exchange companies" (also sometimes referred to as competitive local exchange companies or CLECs). As part of that bill, section 392.245 allows the Public Service Commission to reclassify an incumbent local exchange telephone company as "price-cap regulated" under specific conditions.

In 1997, SWB sought and, following a hearing, was granted reclassification as a "price-cap" regulated company. It had previously been regulated as a "rate-of-return" company under section 392.240. Being reclassified as price-cap regulated reduced the amount of regulation over SWB's prices. Additionally, the price-cap statute, section 392.245, includes a procedure whereby the individual services of a price-cap regulated company can achieve "competitive" status on an exchange-by-exchange basis. "Competitive" services are subject to the lowest degree of price regulation.

This case arose in March 2001,² when the Commission opened an investigation into whether any of SWB's services in any of its exchanges could be reclassified as "competitive" based on a finding of "effective competition" from the alternative companies. Under section 392.245.5, the Commission is required to make such a review no later than five years following the first certification of an alternative provider in any specific exchange.³ In addition to SWB, the Office of Public Counsel⁴ participated in the case. Also, several alternative local exchange telecommunications companies intervened in the case. The Commission held an evidentiary hearing beginning in September 2001.

Following the hearing, the Commission issued its Report and Order on December 27, 2001, in which it found that certain SWB services in certain SWB exchanges should be reclassified as "competitive" based on a finding that there is "effective competition" from the alternative companies in those exchanges for those services. Those services are SWB's core business services and related services in the Kansas City and St. Louis exchanges; SWB's core residential services and related services in the Harvester and St. Charles exchanges; and Common Channel Signaling/Signaling System 7 ("SS7") and Line Information Database ("LIDB") services in all of SWB's Missouri exchanges.

The Commission also found that other SWB services that had earlier been classified as "transitionally competitive" had converted to "competitive" status in 1999 by operation of law. Those services consist of intraLATA⁵ private line/dedicated services, intraLATA toll services, Wide Area Telecommunications Services ("WATS") and 800 services, special access services, and certain operator services. The competitive classification applied to these specific services in all exchanges. SWB's other services in the vast majority of its exchanges throughout Missouri were found not to be subject to "effective competition" and remain price-cap regulated.

The Office of Public Counsel and the intervenors appealed the Commission's decision to the Cole County Circuit Court. The circuit court affirmed the finding of "effective competition" and the reclassification of those specific services, but reversed the Commission's determination that the old "transitionally competitive" services became "competitive" by operation of law. The court reasoned that those services fell under the new "price-cap" regulations when SWB became a "price-cap regulated" company in 1997, and that an "effective competition" analysis was necessary before those services could be reclassified as "competitive." The court specifically found that the two statutory schemes are "directly inconsistent."

Public Counsel and the intervenors now appeal the circuit court's affirmance of the Commission's reclassification (pursuant to section 392.245) of certain SWB services as "competitive" based upon a finding of "effective competition." SWB and the Commission appeal the circuit court's reversal of the Commission's ruling that certain other services of SWB (as to all exchanges) were automatically reclassified from "transitionally competitive" to "competitive" by operation of law in 1999.

Standard of Review

On appeal, this court reviews the Commission's decision, not that of the circuit court. State ex rel. GS Tech. Operating Co., Inc. v. The Pub. Serv. Comm'n, 116 S.W.3d 680, 687 (Mo.App.2003). Our function is two-fold: we must first determine whether the decision is lawful and then whether it is reasonable. MO. CONST. art. V, § 18; AT&T Communications of Southwest, Inc. v. Public Serv. Comm'n, 62 S.W.3d 545, 548 (Mo.App.2001). The appellants bear the burden of showing that the decision is either unreasonable or unlawful. See § 386.430.

In determining whether the order is lawful, we exercise unrestricted, independent judgment and correct any erroneous interpretations of law. State ex rel. Sprint Spectrum L.P. v. Mo. Pub. Serv. Comm'n, 112 S.W.3d 20, 24 (Mo.App.2003); GS Tech., 116 S.W.3d at 687. Lawfulness is determined by whether statutory authority for the order exists, and all legal issues are reviewed de novo. State ex rel. AG Processing, Inc. v. Pub. Serv. Comm'n, 120 S.W.3d 732, 734 (Mo. banc 2003).

If the order is lawful, we must then determine whether it is reasonable. Sprint Spectrum, 112 S.W.3d at 24. Reasonableness depends on whether the order is supported by competent and substantial evidence on the whole record; whether the decision was arbitrary, capricious, or unreasonable; or whether the Commission abused its discretion. Id."The decision of the Commission on factual issues is presumed to be correct until the contrary is shown and we are obliged to sustain the Commission's order if it is supported by substantial evidence on the record as a whole." State ex rel. Atmos Energy Corp. v. Pub. Serv. Comm'n, 103 S.W.3d 753, 759 (Mo. banc 2003). See Lagud v. Kansas City Bd. of Police Comm'rs, 136 S.W.3d 786, 791 (Mo. banc 2004) (holding that the standard of review set forth in Hampton v. Big Boy Steel Erection, 121 S.W.3d 220 (Mo. banc 2003), a workers' compensation review, is applicable to other administrative proceedings, as well).

"Effective Competition"

Appellants Office of Public Counsel and the intervenors (hereafter collectively referred to as "Public Counsel" for convenience) argue on appeal that the Commission's decision to reclassify certain SWB services (business...