Title: Consumers' Counsel v. Pub. Util. Comm.

State: ohio

Issuer: Ohio Supreme Court

Document:

OPINIONS OF THE SUPREME COURT OF OHIO                               
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Thomas J. Moyer.                                                                 
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Office of Consumers' Counsel, Appellant, v. Public Utilities                     
Commission of Ohio et al., Appellees.                                            
[Cite as Consumers' Counsel v. Pub. Util. Comm. (1994),                          
Ohio St.3d      .]                                                               
Public Utilities Commission -- Application for rate increase by                  
     small telephone company -- R.C. 4927.04(B) and the                          
     commission's alternative regulations permit the commission                  
     to set small company rates without a hearing -- Ratepayers                  
     have right to protect interest they may have in just and                    
     reasonable rates under R.C. 4905.22 by filing a complaint                   
     under R.C. 4905.26.                                                         
     (No. 93-1710 -- Submitted May 25, 1994 -- Decided                           
September 14, 1994.)                                                             
     Appeal from the Public Utilities Commission of Ohio, No.                    
92-2336-TP-AIR.                                                                  
     On August 15, 1991, the appellee Public Utilities                           
Commission of Ohio adopted alternative regulatory requirements                   
for small local exchange telephone companies.  In the Matter of                  
the Commission Investigation into the Implementation of                          
Sections 4927.01 to 4927.05, Revised Code, as They Relate to                     
Small Local Exchange Companies (Aug. 15, 1991), PUCO No.                         
89-564-TP-COI ("89-564").  The commission adopted the                            
alternative regulatory requirements pursuant to R.C.                             
4927.04(B), which provides:                                                      
     "Upon the application of any telephone company having                       
fewer than fifteen thousand access lines, the public utilities                   
commission may, by order, exempt such company, with respect to                   
any public telecommunications service it provides, from any                      
provision of Chapter 4905. or 4909. of the Revised Code that is                  
specified and requested in such application, except sections                     
4905.20, 4905.21, 4905.22, 4905.231, 4905.24, 4905.241,                          
4905.242, 4905.243, 4905.244, 4905.25, 4905.26, 4905.30,                         
4905.32, 4905.33, 4905.35, and 4905.381 of the Revised Code; or                  
may establish alternative regulatory requirements to apply to                    
such company and service, provided the commission finds that                     
the alternative requirements are in the public interest."                        
     The alternative regulatory requirements provide an                          
exception to many of the procedures associated with traditional                  
rate-base/rate-of-return regulation found in R.C. Chapters 4905                  
and 4909, and are generally intended to streamline the                           
regulatory ratemaking process in the increasingly competitive                    
telecommunications industry.  In summary, the alternative                        
regulatory requirements provide:                                                 
     (1)  The telephone company notifies commission staff and                    
the OCC of its intent to file an application to increase its                     
rates and of the ratemaking methodology it intends to employ.                    
     (2)  After commission analysis the company may file a                       
formal rate-increase application, which need not conform to the                  
staff's analysis.  The company must also give notice of the                      
filing of an application to affected municipal authorities and                   
to customers.                                                                    
     (3)  The commission must then issue an entry accepting the                  
application, which triggers the release and docketing of the                     
staff's initial analysis and makes its workpapers available to                   
the public.  The entry also sets dates for a public forum and a                  
subsequent settlement conference.  The purpose of the forum, to                  
be held in the local exchange area, is to explain the proposed                   
increase to the public and allow the public to testify as to                     
concerns about the proposed increase and the adequacy of the                     
service.  The purpose of the settlement conference is to permit                  
the company, commission staff, and intervening parties to reach                  
a consensus on the methodology used, the amount of the                           
increase, and the rate design.                                                   
     (4)  If no agreement is reached at the settlement                           
conference, the matter is scheduled for hearing.                                 
     (5)  If the company and any one intervenor, or the company                  
and the commission's staff reach agreement as to all issues,                     
the agreement shall be reduced to writing and docketed with the                  
commission.  Non-signatory parties, or other interested persons                  
who did not intervene, may file written objections to the                        
agreement with the commission.                                                   
     (6)  If no objections are filed, the agreed-upon rates                      
become effective automatically thirty days after the agreement                   
is filed, unless the commission orders otherwise.                                
     (7)  If objections are filed, the commission issues an                      
order approving the agreement and implementing the rates no                      
sooner than the forty-sixth day after the agreement is filed or                  
suspends the effective date of increase based on the objections                  
filed or its own motion.                                                         
     (8)  If the effective date is suspended, the commission                     
may subsequently issue an order accepting the agreement or it                    
may reject the agreement and set the matter for hearing, at                      
which the company will bear the burden of proving the proposed                   
increase to be reasonable.                                                       
     Provisions of the Revised Code retained under the                           
alternative regulatory requirements include R.C. 4905.22 (the                    
right to necessary and adequate service and just and reasonable                  
charges) and 4905.26 (the right to file a complaint [upon                        
reasonable grounds] to contest, inter alia, the adequacy of                      
service and the reasonableness of rates).                                        
     Intervening appellee McClure Telephone Company filed an                     
application to increase its rates under the alternative                          
regulations and also requested, pursuant to R.C. 4927.04, that                   
it be exempted from complying with R.C. Chapter 4909, as                         
necessary, and specifically from Ohio Adm. Code Chapter 4901-7                   
and R.C. 4909.18(A) through (E).  (The latter are the                            
voluminous standard filing requirements under the traditional                    
ratemaking procedure.)  The commission granted the exemption                     
and the case was processed under the alternative requirements.                   
The commission's staff and the company reached an agreement                      
resolving all issues in the matter; OCC filed objections; the                    
commission's staff and the company filed responses; and OCC                      
filed replies.  In reviewing the stipulation, the commission                     
stated that it had "established this procedure of allowing                       
objections and responses to enable the parties to advance their                  
positions before the Commission.  The Commission will consider                   
the positions and arguments raised by the parties in their                       
filings as to both fact and law."  No evidentiary hearing was                    
held.                                                                            
     The commission rejected OCC's objections, relying on the                    
written responses of its staff and the company, and ultimately                   
approved the agreement, finding that it was supported by the                     
record and was in the public interest.  Specifically, the                        
commission found that the alternative regulatory treatment for                   
McClure permitted the commission to process the rate-increase                    
application in four months, rather than the customary nine (or                   
more) months, and that the process removed the traditional                       
"rate case expense" from the rates being set.                                    
     The commission denied OCC's application for rehearing.                      
OCC appealed to this court as a matter of right.                                 
                                                                                 
     Robert S. Tongren, Consumers' Counsel, David C. Bergmann                    
and Andrea M. Kelsey, Associate Consumers' Counsel, for                          
appellant.                                                                       
     Lee Fisher, Attorney General, James B. Gainer and Ann E.                    
Henkener, Assistant Attorneys General, for appellee.                             
     J. Raymond Prohaska, for intervening appellee McClure                       
Telephone Company.                                                               
                                                                                 
     Per Curiam.  We affirm the commission's order for the                       
following reasons.                                                               
     In its first proposition of law, OCC argues that the                        
commission was without authority to adopt the alternative                        
regulatory requirements on its own initiative, citing the                        
language of R.C. 4927.04(B), which provides that alternative                     
regulations may be established "[u]pon the application of any                    
telephone company having fewer than fifteen thousand access                      
lines."  (Emphasis added.)  In its second proposition of law,                    
OCC argues that because the commission lacked authority to                       
adopt alternative regulatory requirements on its own                             
initiative, the requirements adopted in PUCO No. 89-564-TP-COI                   
are actually procedural rules promulgated under R.C. 4927.04(D)                  
which are invalid because they exceed statutory authority.                       
     These issues were not stated in OCC's application for                       
rehearing.  R.C. 4903.10 provides, in part, that an application                  
for rehearing "shall be in writing and shall set forth                           
specifically the ground or grounds on which the applicant                        
considers said order to be unreasonable or unlawful.  No party                   
shall in any court urge or rely on any ground for reversal,                      
vacation, or modification not so set forth in said                               
application."   We have held that setting forth specific                         
grounds for rehearing is a jurisdictional prerequisite for our                   
review.  Cincinnati Bell Tel. Co. v. Pub. Util. Comm. (1984),                    
12 Ohio St.3d 280, 290, 12 OBR 356, 365, 466 N.E.2d 848, 857,                    
appeal dismissed (1986), 476 U.S. 1166, 106 S.Ct. 2884, 90                       
L.Ed.2d 972; Akron v. Pub. Util. Comm. (1978), 55 Ohio St.2d                     
155, 161-162, 9 O.O.3d 122, 125-126, 378 N.E.2d 480, 485;                        
Cincinnati v. Pub. Util. Comm. (1949), 151 Ohio St. 353, 39                      
O.O. 188, 86 N.E.2d 10, paragraph seventeen of the syllabus;                     
and Travis v. Pub. Util. Comm. (1931), 123 Ohio St. 355, 9 Ohio                  
Law Abs. 443, 175 N.E. 586, paragraph six of the syllabus.                       
     OCC does not contend that these propositions of law were                    
specifically raised on rehearing.  Rather, it argues that the                    
commission does not have jurisdiction to consider such issues                    
and, thus, that they may be raised for the first time on                         
appeal.  An administrative agency such as the commission may                     
not pass upon the constitutionality of a statute.  Cleveland                     
Gear Co. v. Limbach (1988), 35 Ohio St.3d 229, 520 N.E.2d 188;                   
Atwood Resources, Inc. v. Pub. Util. Comm. (1989), 43 Ohio                       
St.3d 96, 100-101, 538 N.E.2d 1049, 1053.  However, nothing                      
precludes the commission from passing upon the proper                            
application or construction of a statute, which is the issue                     
here.  OCC's failure to contest the commission's construction                    
of R.C. 4927.04(B) on rehearing is fatal.                                        
     OCC also argues that these propositions of law are related                  
to allegations of error raised on rehearing and that it has                      
"substantially complied" with R.C. 4903.10.  This argument                       
ignores the strict specificity test recognized by this court in                  
Cincinnati, supra:                                                               
     "It may fairly be said that, by the language which it                       
used, the General Assembly indicated clearly its intention to                    
deny the right to raise a question on appeal where the                           
appellant's application for rehearing used a shotgun instead of                  
a rifle to hit that question."  151 Ohio St. at 378, 39 O.O. at                  
199, 86 N.E.2d at 23.                                                            
     In its third proposition of law, OCC argues that the                        
retention of R.C. 4905.22 under the "exemption" language of                      
R.C. 4927.04(B), and the retained applicability of that section                  
under the commission's alternative regulations, give ratepayers                  
a substantive right to "just and reasonable" rates and a right                   
to fully participate in the ratemaking process to protect their                  
interests.  Although OCC states that such right would not                        
necessarily require an evidentiary hearing, but only a fair                      
fact-finding process, it effectively seeks an evidentiary                        
hearing to resolve the factual issues presented by its                           
objections below.                                                                
     Relying primarily on the MCI cases, infra, appellee argues                  
that an evidentiary hearing is not required in this case and                     
that the "objection and comment" procedure employed is a valid                   
basis for resolving the factual issues raised by OCC and for                     
approving the rates in the stipulation.                                          
     1.  Right to an evidentiary hearing.                                        
     We have repeatedly held that the right to participate in a                  
ratemaking proceeding is statutory, not constitutional, and                      
that absent express statutory provision, a ratepayer has no                      
right to notice and hearing under the Due Process Clauses of                     
the Ohio and United States Constitutions.  MCI                                   
Telecommunications Corp. v. Pub. Util. Comm. (1988), 38 Ohio                     
St.3d 266, 269, 527 N.E.2d 777, 780; MCI Telecommunications                      
Corp. v. Pub. Util. Comm. (1987), 32 Ohio St.3d 306, 310, 513                    
N.E.2d 337, 342; Armco, Inc. v. Pub. Util. Comm. (1982), 69                      
Ohio St.2d 401, 409, 23 O.O. 3d 361, 366, 433 N.E.2d 923, 928;                   
Cleveland v. Pub. Util. Comm. (1981), 67 Ohio St.2d 446, 453,                    
21 O.O. 3d 279, 283, 424 N.E.2d 561, 566; Committee Against MRT                  
v. Pub. Util. Comm. (1977), 52 Ohio St.2d 231, 239, 6 O.O. 3d                    
475, 480, 371 N.E.2d 547, 552 (P. Brown, J., dissenting).                        
Cincinnati v. Pub. Util. Comm. (1978), 55 Ohio St.2d 168, 9                      
O.O. 3d 130, 378 N.E.2d 729, certiorari denied (1979), 440 U.S.                  
912, 99 S.Ct. 1225, 59 L. Ed. 2d 461, which OCC cites as                         
implicitly recognizing a ratepayer's right to due process in                     
commission proceedings, involved a hearing required by statute;                  
the court's reasoning in that case was consistent with Ohio                      
Bell Tel. Co. v. Pub. Util. Comm. (1937), 301 U.S. 292, 57                       
S.Ct. 724, 81 L.Ed. 1093, that in such circumstances the                         
hearing afforded must be "fair and open."                                        
     At common law, a utility had the same right as other                        
businesses to set the rate for its services.  Its customers had                  
no substantive right to a fixed rate, and thus had no                            
procedural rights in the ratemaking process.  See Sellers v.                     
Iowa Power & Light Co. (S.D. Iowa 1974), 372 F.Supp. 1169,                       
1172.  With the advent of regulation, ratemaking became solely                   
a legislative function and, absent express statutory provision,                  
ratepayers had no right to participate in that process through                   
the ballot box.  See Rivera v. Chapel (C.A. 1, 1974), 493 F.2d                   
1302, 1304; Georgia Power Co. v. Allied Chem. Corp. (1975), 233                  
Ga. 558, 559, 212 S.E.2d 628, 630; Pub. Util. Comm. of                           
California v. United States (C.A. 9, 1966), 356 F.2d 236, 241;                   
Franchise Tax Bd. v. Superior Court (1951), 36 Cal.2d 538, 549,                  
225 P.2d 905, 911.                                                               
     Under Ohio's traditional ratemaking process, the General                    
Assembly provides for quasi-judicial ratemaking hearings in                      
which ratepayers in general (R.C. 4909.18, 4909.19, 4903.221)                    
and OCC in particular (R.C. 4911.02) may participate.  However,                  
by enacting R.C. 4927.04(B), the General Assembly delegated                      
authority to the commission to exempt small telephone companies                  
entirely from the traditional ratemaking procedure, in which                     
case the process could be entirely legislative, and ratepayers                   
would have no opportunity to participate, or to promulgate                       
alternative regulations, which, at least in this case,                           
presented some opportunity to participate, short of an                           
evidentiary hearing.                                                             
     That the intent of R.C. 4927.04(B) is to dispense with the                  
notice and hearing requirements in the ratemaking process for                    
small telephone companies is evident from the legislative                        
history of Am. Sub. H.B. No. 563.  J.R. Prohaska testified on                    
behalf of the Ohio Telephone Association that:                                   
     "The small companies, like others, would still have to                      
render adequate service [a reference to R.C. 4905.22], still                     
have to have reasonable rates [a reference to R.C. 4905.22],                     
still be subject to complaint procedures [a reference to R.C.                    
4905.26], but would be spared the expense of needless                            
paperwork, procedures and hearings.")                                            
     Also, the Legislative Service Commission bill analysis                      
stated:                                                                          
     "The bill does not expressly require notice or hearing or                   
other procedural provisions in the case of such an application                   
[under R.C. 4927.04(B)]."                                                        
     Therefore, we find OCC's construction of R.C. 4905.22 is                    
inconsistent with the intent of R.C. 4927.04(B) and the                          
commission's alternative regulations, which expressly do not                     
require hearing under the circumstances involved in this case.                   
     2.  The MCI cases and the "notice and comment" procedure.                   
     Both OCC and the commission assume that the alternative                     
regulatory requirements provide for quasi-judicial fact-finding                  
and an order by the commission.  On this basis, OCC argues that                  
the record below contains no evidence, that the record is                        
insufficient to support the commission's decision (see R.C.                      
4903.13), and that the case must be remanded for evidentiary                     
hearing upon which a proper order may be based.  The commission                  
apparently assumes that the "objection and comment" procedure                    
is a sufficient basis to make a factual determination as to the                  
reasonableness of the rates set, and that that procedure                         
provides a sufficient basis for this court's review under R.C.                   
4903.13 (under which the court must ascertain if the                             
commission's order is supported by the manifest weight of the                    
evidence).  It relies on the MCI cases, supra, in which this                     
court, at least in part, based its affirmance of the order upon                  
a similar process.                                                               
     The MCI cases were appeals resulting from a                                 
commission-initiated investigation into the reconfiguration of                   
the telecommunications industry after the divestiture of AT&T.                   
The investigation specifically concerned the charges that                        
telephone companies would have to pay for access to Ohio Bell's                  
system in order to provide long distance calling, and the                        
distribution of excess revenues collected under the plan.  The                   
commission held an initial hearing in the case, as required by                   
R.C. 4905.26, and in its initial order found that ongoing                        
issues would be addressed by a notice and comment procedure.                     
MCI did not appeal the initial order contesting the procedure,                   
but argued in the 1987 and 1988 appeals that an evidentiary                      
hearing should have been held on the subsequent issues and that                  
the commission's resulting orders were not supported by                          
evidence of record.  A majority of this court held that MCI was                  
not constitutionally entitled to a hearing and that the initial                  
hearing satisfied the statutory hearing requirement.  The                        
majority went on to affirm the commission based on the totality                  
of the record before it, which included the evidence adduced at                  
hearing as well as the subsequent comments received.                             
     The dissent in each case argued that the commission, as a                   
creature of statute, had no authority to set rates through the                   
quasi-legislative "notice and comment" procedure and that,                       
because no hearing was held on the issues, there was no                          
evidence upon which to base the commission's order.                              
     While MCI struggled with the statutory hearing                              
requirement, there is no such dilemma here.  R.C. 4927.04(B)                     
and the commission's alternative regulatory requirements issued                  
thereunder now permit essentially quasi-legislative                              
ratemaking.  Under such a method of ratemaking, as found in                      
this case, there is no evidence to support the commission's                      
determination, and no evidence by which we may perform our                       
review under R.C. 4903.13.  If we were to affirm the rates set                   
in this case as reasonable, we would be doing so upon the basis                  
of the untested assertions of the commission's staff and the                     
telephone company's attorney.                                                    
     Therefore, we interpret  R.C. 4927.04(B) and the                            
commission's alternative regulations as permitting the                           
commission to set small company rates without a hearing.                         
Ratepayers have the right to protect the interest they may have                  
in just and reasonable rates under R.C. 4905.22 by filing a                      
complaint under R.C. 4905.26.  This procedure is analogous to                    
ratepayers' rights when the commission approves a new service                    
and its rates under R.C. 4909.18.  The process satisfies the                     
intent of R.C. Chapter 4927 to streamline the regulatory                         
process in order that companies can respond more quickly to                      
competitive pressures (by earlier approval of rates), and it                     
also benefits consumers by eliminating rate case expense.                        
     OCC contends further that assuming arguendo the                             
commission's alternative regulations resulted in an adequate                     
record being made, that its determination was not supported by                   
that record, and that the resultant rates were unjust and                        
unreasonable.  Specifically, OCC argues that ratepayers are                      
improperly bearing the cost of a $1,561 unregulated loss (which                  
was considered in computing net income), that ratepayers are                     
supporting an exorbitant salary for the company's manager, and                   
that ratepayers are subsidizing the manager's personal use of                    
the company vehicle.                                                             
     As stated above, the commission's determinations as to                      
these issues are based upon the untested comments and responses                  
of its staff and the company.  There is no evidence by which                     
the court may consider the reasonableness of the commission's                    
determinations, i.e., whether the commission's determinations                    
are supported by the manifest weight of the evidence.  OCC's                     
recourse is not through remand in this proceeding, but through                   
a complaint case pursuant to R.C. 4905.26.                                       
     The order of the commission is, accordingly, affirmed.                      
                                    Order affirmed.                              
                                                                                 
     Moyer, C.J., A.W. Sweeney, Douglas, Wright,  Resnick, F.E.                  
Sweeney and Pfeifer, JJ., concur.