Teleconnect Co. v. Iowa State Commerce Com'n, 86-514

• Decision Date: 15 April 1987
• Docket Number: No. 86-514,86-514
• Citation: 404 N.W.2d 158
• Parties: TELECONNECT COMPANY, Appellee, v. IOWA STATE COMMERCE COMMISSION, Appellant, AT & T Communications of the Midwest, Inc. and Northwestern Bell Telephone Company, Intervenors-Appellants.
• Court: Iowa Supreme Court

Page 158

404 N.W.2d 158

TELECONNECT COMPANY, Appellee, v. IOWA STATE COMMERCE COMMISSION, Appellant AT & T Communications of the Midwest, Inc. and Northwestern Bell Telephone Company, Intervenors-Appellants.

No. 86-514.

Supreme Court of Iowa.

April 15, 1987.

Susan Allender, Patrick J. Nugent, and David J. Lynch, Des Moines, for appellant Iowa State Commerce Commission.

Mark McCormick, Dennis J. Nagel, and Donald G. Henry of Belin, Harris, Helmick, Tesdell, Lamson, Blackledge & McCormick, P.C., Des Moines, for intervenor-appellant AT & T.

William K. Schaphorst and Richard W. Hoffmann, Des Moines, for intervenor-appellant Northwestern Bell.

Thomas M. Collins, Richard C. Garberson, Allan W. Vestal, and David D. Vestal of Shuttleworth & Ingersoll, P.C., Cedar Rapids, for appellee.

Considered en banc.

LAVORATO, Justice.

In this judicial review proceeding, the respondent, Iowa State Commerce Commission (commission), and two intervenors, AT & T Communications of the Midwest, Inc. (AT & T) and Northwestern Bell Telephone Company (NWB), appeal from the district court's ruling that invalidated the commission's rules relating to access charges to be paid by the petitioner, Teleconnect Company (Teleconnect), and other long-distance telephone companies for the local connections and services necessary to make a long-distance call. Because the district court erred in concluding the commission acted unreasonably, arbitrarily, or capriciously in promulgating the rules, we reverse.

As a result of a federal antitrust action, AT & T was required to divest itself of its Bell Operating Companies (BOCs), including NWB. United States v. American Tel. & Tel. Co., 552 F.Supp. 131 (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). Since the effective date of divestiture, January 1, 1983, BOCs have been prohibited from providing long-distance service outside specified, geographically based exchange areas. All intrastate, interexchange long-distance service is now provided by interexchange utilities (IEUs) such as AT & T, Teleconnect, and other competitors. The IEUs can link each end of long-distance calls to and from their customers through the customers' telephone connections to local exchange utilities (LEUs) like NWB and small independent local telephone companies.

Prior to the divestiture of AT & T and the BOCs, AT & T compensated LEUs like NWB for the use of the LEUs' facilities through settlement agreements. The settlement agreements ended with the divestiture. Pursuant to its rule-making authority in Iowa Code chapters 17A and 476, the commission initiated rule-making proceedings to adopt access charge rules, which are the subject of this appeal, to replace the settlement agreements.

Rule-making procedures on the access charges were begun by commission order on May 6, 1983. Written comments were received from the public, and an oral comment proceeding was held on July 11, 1983.

On September 23, 1983, the commission promulgated rules on access charges on an emergency basis, effective December 1, 1983. The rules were intended to compensate the LEUs providing exchange services for the cost of providing access to the intrastate interexchange network. The rules instituted a two dollars per month charge on each residential line, a six dollars per month charge on each business line, and a three cents per minute per call charge to each IEU. At the same time, the commission continued the rule-making proceeding to take written comments from the public no later than November 2, 1983.

On November 4, 1983, the commission rescinded the emergency rules adopted on September 23 with the exception of the three cents per minute per call charge and adopted new emergency rules to be effective January 1, 1984. Again, the commission continued the rule-making proceedings to allow an opportunity for written and oral comments. The deadline for the filing of written comments was set for December 14, 1983, and a hearing for receiving oral comments was scheduled for December 20, 1983.

On November 10, 1983, the commission initiated different rule-making proceedings to clarify the distinction between the emergency rules adopted on November 4, which did not provide for the two dollars and six dollars per month charges, and the new proposed rules which did provide for such monthly charges. The rules, as finally adopted on February 24, 1984, include the three cents per minute charge but do not include the two dollars and six dollars per month charges.

Teleconnect's petition for judicial review, challenging the emergency rules effective January 1, 1984, was filed December 30, 1983, pursuant to Iowa Code section 476.13 (1983). Teleconnect challenged the commission's rules because the access charges set were the same for all IEUs, rather than being adjusted downward for companies, like itself, receiving access service inferior to that provided AT & T.

Because of technical limitations in the exchange connections, which had been designed in a monopolistic setting, the access service made available to Teleconnect and other competitors is inferior in various respects to the access service available to AT & T. Disadvantages of the inferior access include the following: it cannot be used for long-distance calling via unmodified rotary dial telephones, the long-distance caller must dial more than twice the number of digits than an AT & T customer, the connection is slower, and the fidelity and volume are not as good as on AT & T accessed calls.

The thrust of Teleconnect's challenge is stated in paragraphs 3 and 4 of its petition:

3. [The commission] has heretofore entered Orders (copies are attached and made a part hereof) allowing the Local Operating Companies (primarily Northwestern Bell Telephone Company, but including all other Local Operating Companies) to charge a 3 cents per minute long-distance access charge to any long-distance company utilizing the Local Operating Companies lines or facilities.

4. The rule as promulgated treats all long-distance companies the same and provides for the same 3 cents per minute charge to all such providers. It is this portion of the rule to which the Petitioner objects and seeks relief for the reason that the Local Operating Companies provide long-distance access to AT & T that is much superior to the long-distance access provided to Petitioner, (and all others) and thus to charge AT & T and Petitioner the same amount is discriminatory, unfair, unjust and an abuse of the powers placed with the Commission.

The same day the petition was filed the district court ordered a stay of the operational effect of the new rules with respect to Teleconnect. When notified of the stay, which was ordered ex parte and without bond, the commission moved to dissolve it. Subsequent to the district court's refusal to dissolve the stay, the commission brought an interlocutory appeal, and we reversed the order of the district court granting the stay. See Teleconnect Co. v. Iowa State Commerce Comm'n, 366 N.W.2d 511, 514 (Iowa 1985). The issues raised by the dismissal of Teleconnect's petition for judicial review of a separate commerce commission action were addressed by us in Teleconnect Co. v. Iowa State Commerce Comm'n, 366 N.W.2d 515 (Iowa 1985) (district court's dismissal of administrative appeal affirmed).

On February 6, 1984, AT & T filed its petition to intervene and, on February 16, 1984, NWB filed its petition to intervene.

On March 14, 1984, the district court allowed an amendment to Teleconnect's petition to include the commission's February 24 final order adopting the rules. See 250 Iowa Admin.Code 22.14 (1984) (current version at 199 Iowa Admin.Code 22.14 (1986)).

After hearing, the district court ruled that the commission's action in promulgating the rules violated Iowa Code section 17A.19(8)(g) in that it was "unreasonable, arbitrary or capricious." The court remanded the matter to the commission with directions to adopt access charge rules implementing a favorable access charge differential for users, like Teleconnect, of Feature Group A (inferior) access.

On appeal, the commission and intervenors raise a number of issues. We pass all but the one that is dispositive of this appeal: whether the district court erred in finding that the commission's action in promulgating the access charge rules was unreasonable, arbitrary, or capricious.

I. Scope of Review.

Judicial review of acts of the commission is provided for in Iowa Code section 476.13 (1983), which implements Iowa Code chapter 17A. Community Action Research Group v. Iowa State Commerce Comm'n, 275 N.W.2d 217, 218 (Iowa 1979). Under the Iowa Administrative Procedure Act there are three types of administrative actions: (1) informal agency adjudication; (2) contested case, sometimes called formal adjudication; and (3) rule-making. Id. at 219. This judicial review proceeding arises out of an exercise of the commission's rule-making powers granted under Iowa Code sections 17A.3, 17A.4, and 476.2.

When the district court exercises the power of judicial review conferred by section 17A.19(8), it functions in an appellate capacity to correct errors of law on the part of the agency. Barnes v. Iowa Dep't of Transp., 385 N.W.2d 260, 263 (Iowa 1986); LeFebure Corp. v. Iowa Dep't of Job Serv., 341 N.W.2d 768, 770 (Iowa 1983); Iowa Pub. Serv. Co. v. Iowa State Commerce Comm'n, 263 N.W.2d 766, 769 (Iowa 1978). In our review of such action by the district court, we merely apply the standards of section 17A.19(8) to the agency action to determine whether our conclusions are the same as those of the district court. Barnes, 385 N.W.2d at 263; LeFebure, 341 N.W.2d at 770.

The district court determined that the commission's actions in promulgating its rules concerning intrastate access charges violated Iowa Code section 17A.19(8)(g) in that they were "unreasonable, arbitrary or capricious." Section 17A.19(8)(g...