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24936 - Porter v. SCPSC

Shearouse Adv. Sh. No. 14
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court



Philip S. Porter,

Consumer Advocate for

the State of South

Carolina, Appellant,

v.

South Carolina Public

Service Commission and

BellSouth -

Telecommunications.,

Inc., Respondents.



AT&T Communications

of the Southern States,

Inc., Petitioner,

v.

Public Service

Commission of South

Carolina and BellSouth

Telecommunications,

Inc., Respondents.

South Carolina Cable

Television Association, Appellant,



v.

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PORTER v. SCPSC





Public Service

Commission of South

Carolina and BellSouth

Telecommunications,,

Inc., d/b/a Southern

Bell Telephone and

Telegraph Company, Respondents.



Appeal From Richland County

J. Ernest Kinard, Jr., Judge

opinion No. 24936

Heard October 7, 1958 - Filed April 19, 1999



REVERSED



Philip S. Porter, Nancy Vaughn Coombs, and Elliott

F. Elam, Jr., of S.C. Dept. of Consumer Affairs, of

Columbia, for appellant Consumer Advocate.



Frank R. Ellerbe, III, of Robinson, McFadden &

Moore, of Columbia; and Christopher W. Savage, of

Cole, Raywid & Braverman, of Washington, D.C.,

for appellant South Carolina Cable Television

Association.



Caroline N. Watson, Robert A. Culpepper, and

Harry M. Lightsey, 111, of BellSouth

Telecommunications, Inc.; William F. Austin, of

Austin, Lewis & Rogers; Dwight F. Drake, of

Nelson, Mullins, Riley & Scarborough; and Steven

W. Hamm, of Richardson, Plowden, Carpenter &

Robinson, all of Columbia; and John Hamilton

Smith, of Charleston, for respondent BellSouth

Telecommunications, Inc.



F. David Butler, of S.C. Public Service Commission,




PORTER v. SCPSC





of Columbia, for respondent Public Service

Commission.





MOORE, A.J.: This is a rate case. Respondent BellSouth

Telecommunications, Inc. (Company) applied for approval of a proposed

Consumer Price Protection Plan (the Plan) as an alternative means of

regulation pursuant to S.C. Code Ann. § 58-9-575 (Supp. 1997).

Respondent South Carolina Public Service Commission (PSC) approved the

Plan with some modifications. Appellants, the Consumer Advocate and

South Carolina Cable Television Association, appealed to the circuit court

claiming the Plan as approved did not meet the requirements of § 58-9-

575. The circuit court affirmed. We reverse.





FACTS



Background



In response to increased competition and the availability of new

technology in telephone services, Company has sought alternatives to

traditional regulation. In South Carolina Cable Television Ass'n. v. Public

Serv. Comm'n, 313 S.C. 48, 437 S.E.2d 38 (1993), we considered an

Earnings Sharing Plan that was approved by the PSC as an alternative to

traditional rate-of-return regulation for local telephone companies. The

Earnings Sharing Plan basically allowed a local exchange carrier to earn

more than the traditional rate of return if it shared earnings over a

certain benchmark with consumers. We reversed, finding the PSC had no

statutory authority to adopt an alternative regulatory scheme.





Following the Cable Television decision, the legislature enacted º 58

9-575 which allows an exception to the rate-of-return regulation required

under S.C. Code Ann. § 58-9-570 (1976). It provides in pertinent part:



§ 58-9-575. Alternative means of regulating telephone utilities.



(A) Notwithstanding the provisions of section 58-9-570, in

fixing rates and charges for a local exchange telephone utility,

the commission may, upon the request of the telephone utility

or upon the commission's own motion, consider in lieu of the

procedures provided in this chapter, alternative means of

regulating the telephone utility. If the commission determines

that a local exchange telephone utility is subject to competition



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PORTER v. SCPSC





with respect to its services, the commission may implement

regulatory alternatives including, but not limited to, equitable

sharing of earnings between a local exchange telephone utility

and its customers, consistent with the provisions of section 58

9-330.

(B) The commission shall review and may authorize

implementation of an alternative regulatory plan under

subsection (A) if it finds after notice and hearing that the

substantial evidence of record shows that the plan:

. . .

(6) includes effective safeguards to assure that rates for

noncompetitive services do not subsidize the prices charged for

competitive services. In determining whether a service is

competitive, the commission shall consider, at a minimum, the

availability, market share, and price of comparable service

alternatives;

(7) assure that rates for noncompetitive services are just,

reasonable, or not unduly discriminatory and provide a

contribution to basic local telephone service....

(Emphasis added).





The Plan



The Plan approved by the PSC in this case divides Company's

services into three categories subject to separate price controls as follows:



1) Basic services. This category includes basic local exchange

service to residential and small business customers. Prices charged are

capped for five years then subject to controlled increases based on a

specific formula related to an inflation-based index.



2) Interconnection services. This category includes services that

allow other telecommunications providers to interconnect to Company's

network to originate or terminate a call. Prices charged are capped for

three years then subject to controlled increases based on a specific formula

related to an inflation-based index.



3) Non-basic services. This category includes all other services.

Prices charged are limited to an increase of 20% in a twelve-month period.

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PORTER v. SCPSC





In addition to these category-specific pricing rules, one general

pricing rule applies. All prices will equal or exceed Company's long-run

incremental cost (LRIC) of providing the service except: 1) a service may

be priced below LRIC in order to meet public interest goals such as

universal service; or 2) the PSC may approve a price below LRIC for a

particular service on a case-by-case basis.





Company concedes the Plan does not categorize services according to

whether they are competitive or noncompetitive (monopoly) services, nor

did the PSC make such findings before approving the Plan. Company

claims its general pricing rule requiring all prices to equal or exceed LRIC

assures there will be no cross-subsidization, therefore eliminating the need

to divide services into competitive and noncompetitive categories.





DISCUSSION



Appellants contend § 58-9-575(B) requires a division of services into

competitive and noncompetitive in order to ensure prices for monopoly

services do not subsidize prices for competitive services. We agree.





Subsection (B)(6) of § 58-9-575 authorizes the PSC to approve an

alternative regulation plan if it:



includes effective safeguards to assure that rates for

noncompetitive services do not subsidize the prices charged for

competitive services. In determining whether a service is

competitive, the commission shall consider, at a minimum, the

availability, market share, and price of comparable service

alternatives.





We find the underscored language of this subsection indicates the

legislature's intent that the PSC control cross-subsidization by identifying

which of the regulated company's services are competitive. Had the

legislature intended to leave the means of assuring against cross

subsidization to the PSC's discretion, it would not have mandated

consideration of minimum factors to identify a service as competitive. See

Ballard v. Ballard, 314 S.C. 40, 443 S.E.2d 802 (1994) (Court is

constrained to avoid construction that would read provision out of statute).

While the Plan's pricing rules may in fact assure against cross

subsidization, without identifying which services are competitive and which

noncompetitive, the Plan does not allow for the type of oversight

envisioned by § 58-9-575.

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PORTER v. SCPSC





Further, subsection (B)(7) requires that an alternative regulation

plan:



assure[ ] that rates for noncompetitive services are just,

reasonable, or not unduly discriminatory and provide a

contribution to basic local telephone service.





Here the statute requires a distinct consideration of noncompetitive

services which clearly cannot be accomplished without first identifying

which services are noncompetitive.





The PSC found subsection (B)(7) was satisfied without identifying

noncompetitive services because prices for all the services were just and

reasonable. It based this conclusion on the fact that all current rates had

been previously approved, and these rates were subject to specific caps

under the Plan and would be further monitored by the PSC. We question

this assumption in light of the fact that prices for "non-basic" services,

which perhaps include some noncompetitive services, are not capped at

current rates but may increase up to 20% annually. If the PSC does not

identify which services are noncompetitive, it cannot make a distinct

determination that such an increase is appropriate for a noncompetitive

service. Accordingly, the approved plan does not comply with subsection

(B)(7) which requires a separate evaluation of noncompetitive services.





Appellants further contend the reference in (B)(7) to "just" and

11reasonable" rates for noncompetitive services means the price for a

noncompetitive service must be controlled by the traditional rate-of-return

standard under S.C. Code Ann. § 58-9-570 (1976).1 We disagree. Section

58-9-575 specifically exempts an alternative regulation plan from rate-of-

return regulation under § 58-9-570.2 The general reference in subsection

(13)(7) to just and reasonable rates does not remove noncompetitive rates


1 The term "just and reasonable" in rate cases originates from § 58-9-570

which provides: "In determining just, reasonable and sufficient rates the

Commission shall give due consideration to [certain enumerated factors]. . .

. But the rates so fixed shall not be higher than necessary to give a fair

return to the stockholders." See also Cable Television, 437 S.E.2d at 39 ("The

just and reasonable rate is set by balancing the interests of the ratepayers

and the right of the utility to earn a fair return.").





2 Section 58-9-575 begins with the phrase, "Notwithstanding the

provisions of § 58-9-570. . . ."

p.19


PORTER v. SCPSC





from this exemption but merely requires the PSC to exercise particular

scrutiny of the rates for noncompetitiv6 services.





Further, the main thrust of the legislature's concern expressed in

§ 58-9-575 regarding noncompetitive services is that they not subsidize

competitive services. Requiring that noncompetitive services remain

subject to rate-of-return regulation would not necessarily further this goal

and would perhaps defeat the flexibility of an alternative regulation plan.

Accordingly, we decline to adopt appellants' restrictive construction of

(B)(7).





Finally, appellants contend § 58-9-575(A) requires the PSC to

identify Company's competitive services to determine if Company qualifies

for an alternative regulation plan. We agree.







As a threshold condition for allowing an alternative regulation. plan,

subsection (A) of § 58-9-575 provides in pertinent part:



If the commission determines that a local exchange telephone

utility is subject to competition with respect to its services, the

commission may implement regulatory alternatives....





The PSC found Company was "subject to competition" based on Company

witnesses who testified there was competition for several of the services

provided by Company.





Appellants contend the phrase "subject to competition" must be read

together with subsection (B)(6) which enumerates factors to determine

what services are "competitive." -They contend the PSC did not properly

assess Company's qualification for an alternative regulation plan because

it failed to identify competitive services based on the enumerated factors:

availability, market share, and price of comparable service alternatives.





We agree with appellants an evaluation whether Company is "subject

to competition" must be based on the enumerated factors. A plain reading

of the phrase "subject to competition with respect to its services" indicates

a company must have competitive services to qualify for alternative

regulation. Competitive services, in turn, are defined by the enumerated

factors in subsection (B)(6). Therefore, these enumerated factors must be

applied in determining if Company is subject to competition under

subsection (A). See Wright v. Colleton County School Dist., 301 S.C. 282,

391 S.E.2d 564 (1990) (Court need not look beyond words of statute to

p.20


PORTER v. SCPSC





discern legislative intent apparent on its face).





CONCLUSION



The PSC possesses only the authority given it by the legislature.

Cable Television, supra. Section 58-9-575 does not authorize'the PSC to

approve an alternative regulatory plan without identifying competitive and

noncompetitive services. Because the PSC failed to make the requisite

findings regarding competitive and noncompetitive services, the circuit

court order affirming the PSC's order is REVERSED.





WALLER, A.J., Acting Associate justices John L. Breeden,

Jr., Jasper M. Cureton, and George T. Gregory, Jr.

p.21