State v. Public Service Com'n of State, No. SC 86584.

• Court: United States State Supreme Court of Missouri
• Writing for the Court: Laura Denvir Stith
• Citation: 165 S.W.3d 160
• Parties: STATE of Missouri ex rel., SPRINT MISSOURI, INC., Appellant, v. PUBLIC SERVICE COMMISSION OF the STATE of Missouri, a State Agency, et al., Respondents.
• Docket Number: No. SC 86584.
• Decision Date: 12 July 2005

165 S.W.3d 160 STATE of Missouri ex rel., SPRINT MISSOURI, INC., Appellant,
v.
PUBLIC SERVICE COMMISSION OF the STATE of Missouri, a State Agency, et al., Respondents. No. SC 86584. Supreme Court of Missouri, En Banc. June 14, 2005. As Modified on Denial of Rehearing July 12, 2005.

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Brett D. Leopold, Kenneth A. Schifman, Overland, KS, for appellant.

David A. Meyer, Associate General Counsel, Dana K. Joyce, General Counsel, Jefferson City, for respondents.

LAURA DENVIR STITH, Judge.

Sprint Missouri, Inc. (Sprint) appeals a judgment of the Circuit Court of Cole County affirming a decision of the Missouri Public Service Commission (PSC). The PSC rejected Sprint's proposed tariff establishing increased rates for certain nonbasic telecommunications services it provides to its customers on the basis that the proposed tariff exceeded the eight percent annual increase in rates permitted by section 392.245.11.¹ The PSC was correct in holding that section 392.245.11 prohibited Sprint from increasing the rate it charged its customers by more than eight percent annually. Accordingly, the judgment is affirmed.

I. PSC REGULATION OF TELECOMMUNICATIONS RATES

The first PSC law regulating utilities was enacted in 1913. State ex rel. Util. Consumers Council, Inc. v. Pub. Serv. Comm'n, 585 S.W.2d 41, 47 (Mo. banc 1979). The purpose of such regulatory laws is to allow a utility to recover a just and reasonable return while at the same time protecting the consumer from the natural monopoly power that the public utility might otherwise enjoy as the provider of a public necessity. Id.

Sprint is a large telecommunications company providing local exchange telecommunications services in Missouri and, as such, is subject to regulation by the PSC. See secs. 392.245, 392.250. Such regulation is premised on the belief that, where monopoly power exists, "competition is inadequate

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to protect the public ... state regulation takes the place of and stands for competition ...". May Dep't Stores, Co. v. Union Elec. L. & P. Co., 341 Mo. 299, 107 S.W.2d 41, 48 (1937) (internal citations omitted). Accordingly, under applicable PSC regulations, telecommunications companies such as Sprint traditionally have been permitted to raise the rates they charge consumers only by filing tariffs with the PSC that permit them to receive a certain rate of return, which then go into effect unless challenged by the PSC as unjust or unreasonable. See sec. 392.240.

Beginning in 1996, however, Missouri enacted legislation authorizing non-traditional, alternative telecommunications companies to begin providing basic local telecommunications service in competition with existing companies. Companies, such as Sprint, that already provided local service as of December 31, 1995, were classified as "incumbent local exchange telecommunications companies," or ILECs. Sec. 386.020.22, .30. The newly permitted and potentially competitive companies were classified as "alternative local exchange companies," or ALECs. Sec. 386.020.1. As noted in State ex rel. Coffman v. Pub. Serv. Comm'n., 154 S.W.3d 316, 318 (Mo.App. W.D.2004), in order to permit existing service providers, or ILECs, to compete on a level playing field with the new entries into the local telecommunications area, or ALECs, Missouri enacted legislation that permits ILECs "the opportunity to gain freedom from traditional rate-of-return regulation" by enacting a system that would:

(3) Promote diversity in the supply of telecommunications services and products throughout the state of Missouri;

(4) Ensure that customers pay only reasonable charges for telecommunications service;

(5) Permit flexible regulation of competitive telecommunications companies and competitive telecommunications services;

(6) Allow full and fair competition to function as a substitute for regulation when consistent with the protection of ratepayers and otherwise consistent with the public interest;

Sec. 392.185 (emphasis added). Section 392.200.4(2) further expressly provides:

It is the intent of this act to bring the benefits of competition to all customers and to ensure that incumbent and alternative local exchange telecommunications companies have the opportunity to price and market telecommunications services to all prospective customers in any geographic area in which they compete.

Id. The legislature determined that the best way to permit such fair competition and to protect the ratepayer was to adopt a system permitting an ILEC to request that it be subject to "price cap regulation" under section 392.245 rather than traditional rate-of-return regulation under section 392.240 in geographic areas where the PSC certified that a competitive ALEC was operating in that area. Coffman, 154 S.W.3d at 318.

Of course, pursuant to section 392.245.1, the ILEC is still subject to the PSC's regulatory authority "to ensure that rates, charges, tolls and rentals for telecommunications services are just, reasonable and lawful." But, the PSC does so by means of "price cap regulation," which the statute defines as "establishment of maximum allowable prices for telecommunications services offered by an incumbent local exchange telecommunications company, which maximum allowable prices shall not be subject to increase except as otherwise provided in this section." Sec. 392.245.1.

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Section 392.245.3 states that an ILEC's initial maximum allowable price is the price in effect on December 31st of the year preceding the year in which it became subject to price cap regulation. Because Sprint became subject to price cap regulation on August 19, 1999, its initial maximum allowable price was the price in effect on December 31, 1998.

II. PRICE CAP REGULATION OF SPRINT'S RATES FOR MCA SERVICE

At issue here is Sprint's right to raise its maximum allowable price for a particular type of optional residential and business service called Metropolitan Calling Area, or MCA service, which allows consumers to call within an expanded metropolitan area for a set price per month. As this is a nonbasic telecommunications service, it is subject to price cap regulation under section 392.245.11, which provides in relevant part that:

[T]he maximum allowable prices for nonbasic telecommunications services of an incumbent local exchange telecommunications company may be annually increased by up to eight percent for each of the following twelve-month periods upon providing notice to the commission and filing tariffs establishing the rates for such services in such exchanges at such maximum allowable prices.

Id. The parties agree that this section...