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Harrisonville Telephone Co. v. Illinois Commerce Commission

May 23, 2003

HARRISONVILLE TELEPHONE COMPANY, MOULTRIE INDEPENDENT TELEPHONE COMPANY, LEAF RIVER TELEPHONE COMPANY, MONTROSE MUTUAL TELEPHONE COMPANY, NEW WINDSOR TELEPHONE COMPANY, ONEIDA TELEPHONE EXCHANGE, VIOLA HOME TELEPHONE COMPANY, WOODHULL COMMUNITY TELEPHONE COMPANY, AND ILLINOIS INDEPENDENT TELEPHONE ASSOCIATION, PETITIONERS,
v.
ILLINOIS COMMERCE COMMISSION, RESPONDENT.



Appeal from an Order of the Illinois Commerce Commission. Nos. 00-0233 & 00-0335 (Consolidated)

The opinion of the court was delivered by: Justice Kuehn

PUBLISHED

The petitioners appeal from an original order and from an order on rehearing, both entered by the Illinois Commerce Commission. The original order was entered on September 18, 2001, and the order on rehearing was entered on March 13, 2002. At issue in this matter is the establishment of a state universal service fund for small rural telephone companies.

FACTS

Following the restructuring of the telecommunications industry in the 1980s, the federal and state governments enacted legislation designed to keep the playing field level for rural telephone companies and to ensure that telephone service was universally available and affordable. In keeping with this policy of keeping service available and affordable, various funding sources were established. Funding was essential to the support of these rural carriers, who often had very high costs in providing service to citizens of the rural setting. In fact, oftentimes, the costs to provide telephone service in these rural areas exceed the revenue derived from providing those services. These funds are distributed by both the federal government and the state government.

On May 7, 1997, the Federal Communications Commission (FCC) established a federal universal service fund, providing essential support to small local exchange carriers to assist these companies in meeting a portion of their high costs of providing telephone service to the public in rural areas. On March 17, 2000, the Illinois Independent Telephone Association filed a petition with the Illinois Commerce Commission (Commission) requesting that Illinois establish its own universal service support fund for rural telephone companies pursuant to a recently passed Illinois statute contemplating its establishment. Thereafter, the Commission ordered its own investigation. The dockets were consolidated on May 10, 2000.

On September 18, 2001, the Commission entered an order that established an Illinois universal service fund for the first time. This universal service fund support is to be provided to companies whose economic costs of doing business of providing the group of services that constitute universal service exceed the affordable rate established by the Commission for the supported service, less any federal monies received for the same provision of service. A finding in this order established that the aggregate costs of providing services for all access lines in the areas serviced by the rural telephone carriers, after accounting for federal similar support, exceeded a Commission-established affordable rate of $22.23 per month by as much as $73.5 million or as little as $29.9 million. However, the rural telephone companies were not seeking these economic costs amounts but were seeking funds based upon the appropriate rate of return that each company was entitled to earn. The amount sought by the rural telephone companies was $12,799,298, with some minor adjustments. After reviewing all of the evidence presented, the Commission determined that a proposal set forth by Verizon North, Inc., and Verizon South, Inc. (Verizon), best served the competing needs in that it utilized the affordable rate and the economic costs gap in reaching a determination on each company's funding needs. Utilizing an affordable rate of $22.23 monthly, suggested by Verizon, would reduce the subsidy amount sought by the rural telephone carriers by $6.2 million. Under this proposal, each rural telephone company would be required to demonstrate the need for funding through the use of the $22.23-per-month affordable rate and the current rate for telephone services that each company charged. In this order, the Commission also determined that the list of Illinois-supported telephone services should mirror the FCC-supported services list but that it would only consider funding for each primary access phone line-not for every access line in homes and businesses. It reached this determination by concluding that the "voice grade access to the network" category of lines eligible for federal funding only included a primary residential line and a single business line, stating, "[D]iscretionary services should not be supported by the *** fund." The order established an initial universal service fund in the amount of approximately $6.6 million.

The Illinois Independent Telephone Association, along with other petitioners, filed a timely application for rehearing. On October 31, 2001, the Commission granted rehearing on four of the issues raised. Two of the issues involved alleged mathematical errors. The third issue involved the number of access lines considered. The fourth issue questioned the Commission's decision to disallow a phase-in of rate increases or a transition plan to the "affordable rate." The order upon rehearing was entered on March 13, 2002. The Commission corrected its mathematical errors, increased the initial universal service fund size to $8,420,271, and utilized $20.39 monthly as the "affordable rate." No change was made to the original conclusion that the access lines considered would not include secondary business and residential lines. The order on rehearing resolved the final issue by approving a three-to-five year transition plan based upon the level of an individual company's existing rates. That determination meant that initial fund size would be $10,535,634, and the final fund size at the conclusion of the transition would be $8,695,055.

The Illinois Independent Telephone Association appeals from this March 13, 2002, order on rehearing. The Illinois Independent Telephone Association raises the following issues:

1. The Commission should not have denied universal service fund support for all access lines.

2. There was no evidence to support the level of funding included in the initial universal service fund.

Additionally, several rural telephone companies *fn1 raise the following additional concerns on appeal:

1. The finding that the rural telephone companies are entitled to earn an appropriate rate of return is inconsistent with the reduction of the amount of each company's funding by the percentage of secondary lines the company serves.

2. The conclusion that all access lines should not be included in determining funding amounts is in violation of federal law.

3. The Commission's order is in violation of an Illinois statute requiring telephone companies to provide advanced telecommunications services to at least 80% of their customers by January 1, 2005.

4. The affordable rate should not have been set below the current rate.

Harrisonville Telephone Company (Harrisonville) separately appeals and raises the following issues:

1. The Commission's adoption of Verizon's average rate as the "affordable rate" was not supported by substantial evidence.

2. The interpretation of "economic costs" as being synonymous with "forward looking" costs was erroneous.

3. The Commission's denial of Harrisonville's interlocutory appeal of an evidentiary matter was erroneous.

Finally, Moultrie Independent Telephone Company (Moultrie) filed a separate appeal of Commission rulings regarding sale and lease transactions undertaken by Moultrie and the impact those transactions and Moultrie's business structure had upon the method of determining the funding to which Moultrie was entitled.

STANDARD OF REVIEW

Because the Commission is an administrative agency, the judicial review of its orders is somewhat limited. Illinois Power Co. v. Illinois Commerce Comm'n, 316 Ill. App. 3d 254, 258, 736 N.E.2d 196, 200 (2000). On appeal, a court should only reverse such an administrative order if it reaches one of the following conclusions:

1. The Commission's findings are not supported by substantial evidence in the record.

2. The Commission acted beyond its authority.

3. The order violates a state or federal statute or constitution.

4. The proceedings were in violation of the state or federal constitution or laws to the petitioner's prejudice.

Illinois Bell Telephone Co. v. Illinois Commerce Comm'n, 203 Ill. App. 3d 424, 433, 561 N.E.2d 426, 433 (1990).

Because of the agency's familiarity with its own statutes and regulations, the Commission's statutory interpretation would normally be granted extreme deference on appellate review. Local Union Nos. 15, 51, & 702, International Brotherhood of Electrical Workers v. Illinois Commerce Comm'n, 331 Ill. App. 3d 607, 613-14, 772 N.E.2d 340, 345 (2002). However, we are not necessarily bound by its statutory interpretation. Archer-Daniels-Midland Co. v. Illinois Commerce Comm'n, 184 Ill. 2d 391, 397, 704 N.E.2d 387, 390 (1998). If the Commission fails to abide by its own rules and standards, then its order relative to that particular issue can be reviewed de novo. Illinois Bell Telephone Co. v. Illinois Commerce Comm'n, 327 Ill. App. 3d 768, 775, 762 N.E.2d 1117, 1122 (2002).

ANALYSIS

Background

The Public Utilities Act (220 ILCS 5/1-101 et seq. (West 2000)) provides for the general supervision of all public utilities by a statutorily created commission, the Illinois Commerce Commission. 220 ILCS 5/2-101, 4-101 (West 2000). The power and authority of the Commission comes strictly from this statutory enactment, and the Commission cannot by its own actions extend its jurisdiction. Regional Transportation Authority v. Illinois Commerce Comm'n, 118 Ill. App. 3d 685, 694, 455 N.E.2d 172, 178 (1983). Furthermore, the Commission can only determine facts and enact orders concerning the matters specified in the Public Utilities Act. Lowden v. Illinois Commerce Comm'n, 376 Ill. 225, 230, 33 N.E.2d 430, 433-34 (1941). Telephone companies are, by definition, "public utilities." 220 ILCS 5/3-105, 13-101 (West 2000).

On May 7, 1997, the FCC established a federal universal service fund to partially fund the expenses of small rural telephone companies. *fn2 47 C.F.R. ยงยง54, 36 (1998). Because only a portion of a rural company's costs was covered by the federal universal service fund, the State of Illinois enacted similar legislation. The Illinois legislature amended section 13-301 of the Public Utilities Act, effective August 20, 1999, to authorize the Commission to investigate the necessity for an establishment of one or more Illinois universal service funds to provide additional support for rural telephone companies. 220 ILCS 5/13-301 (West Supp. 1999). The federal and state funds cannot be duplicated, in that any Illinois-authorized support must be reduced by the amount of federal funds each telephone company receives. 220 ILCS 5/13-301(d) (West Supp. 1999). The source of these Illinois funds is "all local exchange and interexchange telecommunications ...


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