Northwest Public Communications Council v. Public Utility Commission

100 P.3d 776, 196 Or. App. 94, 2004 Ore. App. LEXIS 1471

• Court: Court of Appeals of Oregon
• Decided: November 10, 2004
• Docket: 02C-12247; A119640
• Status: Published

Opinions

EDMONDS, P. J.

Appellant Northwest Public Communications Council is an organization of businesses that provide pay telephone service to the public. The businesses use the telephone lines and other services of regulated local exchange carriers (LECs) to carry out their activities.¹ Appellant appeals a decision of the trial court that affirmed an order of respondent Oregon Public Utilities Commission (PUC) setting the rates that respondent Qwest Corporation (Qwest), a regulated LEC, charges appellant’s members for payphone services² in Oregon. We reverse and remand.

Appellant challenges the PUC’s final order in Docket UT-125 and its order on reconsideration of the payphone aspects of that final order. In Docket UT-125 the PUC evaluated the rate schedule that Qwest filed for all of its regulated intrastate services, not just those relating to payphones. Under state law, the PUC’s responsibility was to determine, after a hearing, whether Qwest had proved that its proposed rates were just and reasonable, and, if they were not, to adjust the rates so that they were. See ORS 759.180(1). In making that determination, the PUC followed the traditional procedure for reviewing a regulated utility’s rate schedule. In the first phase of the proceeding, it established the rate of return that Qwest was entitled to receive on its property that is used or useful for providing regulated services in Oregon (Qwest’s rate base). In the second phase, the PUC evaluated the rates that Qwest proposed for its various services and made appropriate adjustments so that, as a package, they would provide it the opportunity to earn that return. One consequence of following the traditional method is that reducing the rates for one service is likely to require raising the rates for another. That is necessary in order to provide Qwest an opportunity to earn the intended rate of return on its rate base as a whole. Thus, the rates for one service may be greater than Qwest’s costs while the rates for another maybe less. When that happens, the first service is said to subsidize the second.

In its final order, the PUC adopted Qwest’s proposal for the rates that a payphone service provider (PSP), such as appellant’s members, will pay for the use of a payphone access line (PAL). It agreed with Qwest that those rates should be essentially the same as the rates that Qwest charges for a business phone line. As well as paying for a PAL, a PSP will also need to use Qwest’s CustomNet call screening service, which permits a PSP to avoid fraudulent use of the payphone.³ The PUC approved Qwest’s proposed rate for CustomNet without examining Qwest’s cost of providing the service. Although a majority of Qwest’s lines that have CustomNet service are PALs, the service is available for other lines as well, and 37 percent of lines with CustomNet serve customers other than PSPs.⁴

Appellant does not challenge the rates for PALs and CustomNet under Oregon law. Rather, it argues that federal law requires the PUC to use a different rate-setting method for payphone services instead of the traditional method that the PUC used. Appellant relies on 47 USC section 276 (section 276), as amended by the Telecommunications Act of 1996 (the Act), and on orders that the Federal Communications Commission (FCC) has issued pursuant to section 276. Section 276 and those orders, according to appellant, have fundamentally changed the method for setting rates for payphone services that Bell operating companies (BOCs), including Qwest, provide to PSPs.⁵ The fundamental shift is that section 276 requires the PUC to focus on a BOC’s cost of providing the specific payphone service at issue rather than on its total rate of return, thereby allowing PSPs to compete with the BOC’s own payphones on a more equal footing. According to appellant, the PUC erred because it failed to apply the FCC’s approach.

We begin our analysis by examining the overall purpose of the Act, which is to promote competition in the telecommunications industry. Section 276 describes its specific purpose as “to promote competition among payphone service providers and promote the widespread deployment of payphone services to the benefit of the general publicf.]” Section 276(b)(1). For many years, LECs were the sole providers of payphone services. The traditional regulatory approach permitted them to subsidize their payphone services from their earnings on other services, a practice known as cross-subsidization. Section 276 prohibits such cross-subsidization for LECs that are also BOCs. Section 276(a) provides:

“After the effective date of the rules prescribed pursuant to subsection (b) of this section, any Bell operating company that provides payphone service—

“(1) shall not subsidize its payphone service directly or indirectly from its telephone exchange service operations or its exchange access operations; and

“(2) shall not prefer or discriminate in favor of its payphone service.”

As the District of Columbia Circuit Court of Appeals has explained, this section “is designed to replace a state-regulated monopoly system with a federally facilitated, competitive market.” New England Public Communications v. F.C.C., 334 F3d 69, 77 (DC Cir 2003).

Section 276(b) requires the FCC to prescribe regulations to implement the statute in ways that will achieve five specific goals. One of those goals is to provide nonstructural safeguards to prevent cross-subsidization that, at a minimum, include the standards that the FCC had previously adopted for certain new telecommunications services and that are known as the Computer III standards. Section 276(b)(1)(C). Finally, section 276(c) provides that, “[t]o the extent that any State requirements are inconsistent with the Commission’s regulations,” the regulations preempt those state requirements.

The FCC has not promulgated regulations under section 276 in accordance with the procedures described in 5 USC section 553. However, it has issued several detailed orders to resolve issues under the section, two of which directly apply to this case. The first is an order of the FCC’s Common Carrier Bureau (CCB), In the Matter of Wisconsin Public Service Commission, CCB/CPD No. 00-1 (2000) (the Wisconsin Order).⁶ At the time of the PUC’s decisions in this case, the Wisconsin Order was the most recent statement of the FCC’s position, but it was under appeal to the full commission. Shortly after the PUC issued its decision on reconsideration in this case, the full commission issued the second order, its decision on the appeal, In the Matter of Wisconsin Public Service Commission Order, Bureau/CPD No. 00-01 (2002) (the New Services Order). The FCC modified the Wisconsin Order in some respects but generally affirmed it. The District of Columbia Circuit subsequently affirmed the New Services Order on judicial review. New England Public Communications, 334 F3d at 79.

Before the PUC, appellant relied on the Wisconsin Order to support its position regarding the effect of section 276. On appeal, it relies both on that order and on the New Services Order. Qwest and the PUC counter that, for at least two reasons, those orders are not a statement of the law that either the PUC or we must follow. First, they point out that only the Wisconsin Order existed at the time that the PUC acted and that the New Services Order modifies the Wisconsin Order in some respects. From those premises, they conclude that the Wisconsin Order was not the final word on the issues that it discussed and that the PUC did not err in refusing to rely on it. They also argue that, because the PUC had no opportunity to consider the New Services Order, it cannot have erred by failing to follow it. The problem with those arguments is that they ignore the preemptive effect of section 276.

The District of Columbia Circuit Court of Appeals treats the FCC’s orders under section 276 as binding on every state, and so do we. In affirming the New Services Order, the court stated that the “Commission implemented section 276 in a series of orders,” including the New Services Order. New England Public Communications, 334 F3d at 71. It further explained that that order “establishes a rule that affects payphone line rates in every state,” rather than being limited to Wisconsin, as Qwest and the PUC assert. Id. at 75. The PUC must reconsider its order in light of the New Services Order and other relevant FCC orders.⁷

Reversed and remanded with instructions to remand to the PUC for reconsideration.

1 The record and the parties’ briefs contain a number of acronyms, not all of which are discussed or explained in the briefs. Although we were able to determine the meaning of each relevant acronym, it would have been helpful if the parties had provided a separate list for our reference.

2 We will use “payphone services” to refer both to telephone lines and to other services when that usage is clear from the context of our discussion.

3 For example, the service will prevent customers from making long distance calls at the local call rate.

4 Qwest’s own payphone lines receive CustomNet service. It is not clear from the order whether the PUC treated Qwest as a PSP in making this calculation, whether Qwest’s payphone lines are included in the 37 percent that are not PSP lines, or whether they are excluded from the calculation entirely.

5 BOCs are those LECs that were part of the former Bell System, which provided the great majority of local telephone service throughout the country, and their successors. They are listed in 47 USC section 153(4)(A) as they existed at the Act’s adoption. Section 276 applies primarily to BOCs, not to other LECs.

6 We describe the FCC orders by the names that the parties use for them.

7 The concurrence describes a number of specific problems that it finds in the PUC’s order. Although we do not find it necessary to consider those issues at this time, we do not necessarily disagree with the concurrence’s discussion.