PUBLIC UTILITY RATES: CINCINNATI BELL TELEPHONE CO. V. KENTUCKY PUBLIC SERVICE COMMISSION (COA 2/2/2007)

CINCINNATI BELL TELEPHONE CO. V. KENTUCKY PUBLIC SERVICE COMMISSION
PUBLIC UTILITY REGULATION: Rate increase refund
2004-CA-002659
PUBLISHED: REVERSING; COMBS
DATE RENDERED: 2/9/2007

Three telecommunications companies appeal an order of the Franklin Circuit Court that had affirmed an order of the Kentucky Public Service Commission (PSC). 

At issue is the validity of a refund ordered by the PSC. The  telecommunication companies had collected sums of money from independent payphone service providers pursuant to a rate established in prior PSC proceedings.  The PSC order being appealed required a refund of a portion of those funds from the payphone providers. After our review of the extensive record and briefs of each of the parties, COA reversed.

These appeals involve a complex combination of directives issued by the Federal Communications Commission pursuant to the Telecommunications Act of 1996 and the proceedings undertaken by the PSC in response.  The local exchange carriers were able to subsidize the costs of providing their own payphone service to the public with revenues derived from their other services, thus generally stifling the ability of independent payphone service providers to compete. Consequently, the payphone market remained relatively static.

The FCC focused on the disproportionate competitive advantage enjoyed by many of the entrenched local exchange carriers and issued administrative orders commonly referred to as the Payphone Orders.  The appellants contended that the Commission’s January order
adjusting the payphone line rate failed to take into account the Subscriber Line Charges (SLC) billed to its members. If the local exchange carriers were permitted to collect this
additional, federally imposed charge, then the local exchange carriers would recover more than their costs of providing the payphone line in violation of the FCC’s orders.

The PSC agreed that KPA members had overpaid for the payphone lines based on the Wisconsin Order. However, it rejected KPA’s demand for a refund of the amounts that its members had paid for the SLC.

On appeal, Cincinnati Bell, Alltel, and BellSouth (the companies) contend that the circuit court erred by affirming the order of the PSC directing the companies to refund sums that exceeded the proper rate as prescribed by the FCC’s Wisconsin Order. COA agreed.  It was neither reasonable nor legal for the PSC to order a retroactive rate change based upon an arguable state policy that had never been articulated as a matter of fact at that point. It cannot retroactively conjure up a state policy that had never come into being in order now to assert an expedient but fallacious basis for a retroactive rate change.

Based upon the constraints of the filedrate doctrine, that rate could not be altered retroactively by the PSC.  Since the PSC’s refund order clearly did not conform either to Kentucky statutory authority or to its own policies, and since no federal directive superseded those statutory requirements, the order must be reversed.

By Michael Stevens.

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