U.S. West Communications, Inc. v. Public Service Com'n of Utah

• Citation: 882 P.2d 141
• Decision Date: 29 July 1994
• Docket Number: No. 910408,910408
• Parties: 94 Ed. Law Rep. 951 U.S. WEST COMMUNICATIONS, INC., Petitioner, v. PUBLIC SERVICE COMMISSION OF UTAH; Brian T. Stewart, Chairman, James M. Byrne, Commissioner, and Stephen F. Meacham, Commissioner, Respondents, Division of Public Utilities and Committee of Consumer Services, Intervenors.
• Court: Supreme Court of Utah

Page 141

882 P.2d 141

94 Ed. Law Rep. 951

U.S. WEST COMMUNICATIONS, INC., Petitioner, v. PUBLIC SERVICE COMMISSION OF UTAH; Brian T. Stewart,

Chairman, James M. Byrne, Commissioner, and

Stephen F. Meacham, Commissioner, Respondents,

Division of Public Utilities and Committee of Consumer

Services, Intervenors.

No. 910408.

Supreme Court of Utah.

July 29, 1994.

R. Paul Van Dam, Atty. Gen., David L. Stott, Kent Walgren, Michael L. Ginsberg, Asst. Attys. Gen., Salt Lake City, for Public Service Com'n, Div. of Public Utilities, Comm. of Consumer Services.

Ted D. Smith, Salt Lake City, for U.S. West.

STEWART, Associate Chief Justice:

This is a companion case to Stewart v. Public Service Commission, No. 910405, slip op., 1994 WL 396516 (July 29, 1994) (Stewart ), ¹ also issued today, and it presents issues raised by U.S. West Communications, Inc. (USWC), that arise out of the same proceedings before the Public Service Commission which resulted in the Commission's Report and Order of June 19, 1991, and gave rise to the issues raised by the ratepayers in that case. We there held that the 12.2% rate of return authorized by the Commission was unlawful, that Utah Code Ann. § 54-4-4.1(2) is unconstitutional, that Utah Code Ann. § 54-4-4.1(1) incorporates cost-of-service criteria as a limitation on the types of incentive plans that may be adopted by the Commission, and that the Commission's incentive regulation plan in that case is invalid. A full statement of the underlying facts and related issues are set forth in Stewart.

On this petition for review, USWC argues that (1) the Commission erred in concluding that the stipulation precluded the Commission from allowing the proposed normalization adjustments; (2) the Commission's Order to upgrade and modernize the forty-one central Utah offices was not supported by adequate subsidiary findings of fact or by substantial evidence; and (3) the Order requiring USWC to make the fiber-optic and distance learning investments was not supported by adequate subsidiary findings or substantial evidence, and the Commission did not give USWC proper notice and a hearing before requiring it to make the investments.

I. STIPULATION AS TO USWC'S REVENUE REQUIREMENTS AND USWC'S PROPOSED NORMALIZATION OF ADJUSTMENTS

USWC, the Division, the Committee, and AT & T ² entered into a stipulation on October 30, 1990, that was intended to resolve all revenue requirement issues for the determination of just and reasonable rates. Issues on the rate of return on equity, capital structure, and depreciation were to be dealt with separately. The stipulation adopted the 1990 calendar year as the test year for determining USWC's revenue requirements, and it included Joint Exhibit 1 (JE-1), which set out in columns the actual results of intrastate operations for the first six months of 1990 and USWC's budget estimates for the 1990 calendar year. The stipulation stated that several of the columns in JE-1 would be updated monthly with additional actual data and that in hearings to be held in December 1990, an updated JE-1 would be submitted to "present nine months actual results on an annualized and normalized basis consistent with the annualization and normalization of six month's actual data in JE-1." ³ The stipulation also stated that the Commission's final order would "incorporate any change in revenue requirements resulting from ... updating JE-1 for at least 11 months actual test year results." ⁴ However, the stipulation identified twenty-three columns or adjustments in JE-1 that were not subject to later amendments based on updated financial results from USWC. In other words, the twenty-three specified adjustments were final figures that were not to be normalized.

The Commission held hearings on the stipulation in December 1990 and approved it with an updated JE-1 containing nine months' actual data in January 1991, as provided in the stipulation. On March 21, 1991, USWC provided the Division with financial results for all of 1990. On April 5, 1991, the Division filed a proposed amended JE-1 with twelve months' actual data, some of which updated some of the twenty-three columns which the stipulation provided would not be changed. ⁵ The proposed JE-1 also added four new adjustments, or columns, that USWC proposed to be made to the test year. The new adjustments resulted in a $6 million difference that would have reduced the Commission-ordered reduction in USWC's revenues. ⁶

The Committee objected to the proposed adjustments on the ground that the stipulation expressly excluded both new adjustments and the updating of the twenty-three columns specified in the stipulation. The Committee argued that the parties had, through the process of negotiation, compromised and bargained away other adjustments that they would have asserted in a fully litigated proceeding. The Committee also argued that it was unfair to allow USWC to present new adjustments favorable to its shareholders that neither the Division nor the Committee had time to review and verify. ⁷ USWC argued that the proposed adjustments were "normalization" adjustments that the stipulation contemplated.

In ruling that the stipulation precluded USWC's proposed adjustments, the Commission relied on paragraphs 6 and 7 of the stipulation. Paragraph 6 states:

Updates To JE-1. The parties agree that several of the columns in JE-1 shall be updated monthly with additional actual data. At the time of the December hearings, the parties will provide the latest updated JE-1 which will present nine months actual results on an annualized and normalized basis consistent with the annualization and normalization of six month's actual data in JE-1. The method of calculation shall be the same as in Exhibit JE-1. Subsequent monthly updates will be provided to the Commission.

Paragraph 7 provides, "All columns on JE-1 shall be updated, with the exception of [23 columns, i.e., columns 2-11, B, C, I, J, M-Q, S-U, and V]." The Commission held that the stipulation fixed the data in those twenty-three columns but allowed the data in the other columns to be updated when actual results for all twelve months of 1990 became known.

USWC asserts that the stipulation does not preclude consideration of its proposed adjustments because they are "normalization" adjustments. ⁸ USWC relies on language in paragraph 6 of the stipulation stating that nine months' actual results would be presented "on an annualized and normalized basis" and that this language evidences a clear intent by the parties "that the financial results for the last six months of 1990 would be subject to appropriate normalizing adjustments, and ... that the parties had the right, prior to the finalization of JE-1, to present such adjustments to the Commission for resolution."

Although the language of paragraph 6 of the stipulation provides for normalization and annualization of some data, USWC's argument ignores the express language in paragraphs 6 and 7 that the data in the twenty-three columns specified in paragraph 7 would not be updated. In view of that language, the Commission did not err in refusing to allow adjustments to those columns.

Although the stipulation does not directly address the issue of adding new columns to give effect to adjustments, the Commission did not err in refusing to allow USWC to introduce the new adjustments. As the Commission correctly pointed out in its Order, the stipulation represented "a compromise based on the best information then available." The Commission observed that each party gave up something in signing the stipulation and might have argued differently on some issues in a full rate hearing. Acceptance of USWC's proposed adjustments may well have affected the values of other agreed-upon adjustments and caused all other values to be reexamined. Under the circumstances, it would have been unfair to the other parties to allow the new, uncontemplated adjustments. Furthermore, if the Commission had allowed USWC to open the stipulation, the Commission might well have been forced to undertake a full-blown hearing on all issues. As the Commission stated in its Report, it was left with the choice of either accepting the stipulation unaltered, except as specifically permitted by its terms, or scrapping the stipulation and holding a full evidentiary hearing. The Commission found the latter alternative unacceptable because it would have been "tantamount to beginning the revenue requirement anew."

In view of the express language in the stipulation that some columns would retain fixed values, the Commission's interpretation of the stipulation is reasonable and supported by the language of the stipulation. We affirm the Commission's refusal to consider USWC's proposed normalization adjustments.

II. MODERNIZATION AND UPGRADING OF CENTRAL OFFICES

The Commission ordered USWC to upgrade forty-one central offices on the ground that "existing services are no longer adequate" and "the modernization plan is justified in that it brings telecommunication in Utah in line with present day service expectations." The Commission also found that there was "substantial evidence on the record that the modernization investments will benefit Utah in the near and long term future."

USWC argues that the Commission's Order to modernize is invalid because (1) the Commission did not set forth sufficient subsidiary findings to support its ultimate finding of inadequacy of service; (2) the inadequacy finding was not based on substantial evidence in the record; and (3) the Commission did not make a finding that the modernization would be economical or profitable. We address each argument in turn.

This Court has stressed that it is "essential that the Commission make subsidiary findings in sufficient detail that the critical subordinate factual issues are focused on and resolved in such a fashion as to demonstrate that there is a logical and legal basis for the ultimate conclusions." Milne Truck...