1 IN TH E SUPREME COURT O F THE ST ATE OF NEW MEXICO

2 Op in ion N um be r:

____ ____ ____ 3 F ili ng D at e: M ar ch 17, 201 6 4 N O. S -1 -S C -3 4933 5 NEW ME XICO E XCHANGE CARRIE R GROUP, 6 Appe llant, 7 v

. 8 NEW ME XICO PUBL IC REG ULATI ON COMMI SSI ON, 9 Appellee, 10 an d 11 SMITH BA GLEY , IN C. and 12 NAVAJO COMM UNICATI ONS COMPANY, 13 In te rv en or s. 14 CON SOLID ATE D WITH 15 N O. S -1 -S C -3 5036 16 NEW ME XICO E XCHANGE CARRIE R GROUP, 17 Appe llant, 18 v. 19 NEW ME XICO PUBL IC REG ULATI ON COMMI SSI ON, 20 Appellee,1 an d

2 SPRINT CO MMUNICATI ONS COMPANY, L.P.; 3 SPRINT S PECTRUM, L.P.; SMIT H BAGL EY, INC.; 4 CTIA , T HE WIRELES S A SSOC IATION ; T- MOBIL E 5 WES T LLC; an d NAVAJO CO MMUNICATI ONS 6 COMPANY, 7 In te rv en or s. 8 AP PE AL FR OM T HE N EW ME XIC O P U B L IC RE GUL ATION 9 COM MISS ION

10 Co m eau , Mal de ge n, Tem pl em an & In da ll , LLP 11 W illiam

Phelps Te m

plem an 12 Joseph Edw ard Manges 13 San ta Fe, NM 14 fo r Appe llant N ewMe xic o E xc ha nge Carr ie r G ro up

15 Ru sse ll R. F isk 16 Marg ar et

K en da ll Ca ff

ey -M oqui n 17 San ta Fe, NM 18 fo r Appe lle e N ewMe xic o P ubl ic Re gul at ionCo m m iss ion

19 Cu dd y

& McC art hy LL P 20 Patricia

Salaz ar I ves 21 San ta Fe, NM 22 Luk as , Nace, Gu ti erre z & Sa ch s, LLP 23 D av id L aF ur ia 24 McLea n, VA 25 fo r In te rv en or s S m ithBa gle y , I nc . a nd N av aj o C om m uni catio ns C om

pa ny1 Lewis Ro ca Ro th ge rb er LLP

2 Je ff re y H

. A lbr igh t 3 Alb uq ue rq ue , NM 4 fo r In te rv en or s S pr int , T -M obi le , a nd C T IA , T he W ir el es s A sso ci at ion1 OPIN ION

2 CHÁ VEZ , Just ice. 3 { 1} Inthi s op ini on w e ad dr es s tw o or de rs iss ue d by the N ewMe xic o P ubl ic 4 Re gul at ionCo m

m iss ion( PR C) tha t a ff

ec t the r ev enue s of

loc al te le phon e ne tw orks 5 includi ng rural telephone com panies that m ake up the New Mexico Exchange Carrier 6 Gr oup. The first order is an annual order that m ust be issued by the PRC on or bef ore 7 O ct obe r 1 e ac h y ear tha t a dopt s a Su rc ha rg e Ra te f or the suc ce ed ing y ear. T he 8 Surc ha rg e Ra te is pai d by co nsum er s of a ll te le phon e co m

m uni catio n se rv ic es , both 9 wire d and wirele ss. T he surcharge that is collected is placed in a St at e Rural 10 U niv er sa l S er

vic e Fund (F und) an d distr ibu te d to loc al te le phon e netw orks. W e w ill 11 refe r to this order as the “ Surcharge Rate Or der. ” On Se ptem ber 17, 2014, the PR C 12 issued th e Surc harge Ra te O rder, which adopted a 3% S urcharge R ate for calendar 13 y ear 2015

. 14 { 2} T he se co nd o rd er is a Ru le O rd er

that am en ds th e 2005 r

ule s w hic h se t f

orth 15 the procedures for a dm inistering and im plem enting th e F u nd. T he Rule O rder w as 16 iss ue d onN ove m

be r 26, 2014 ; the ru le c ha nge s be cam e ef fe ct ive on J anua ry

1, 201 5. 17 See 1 7 .1 1 .1 0 .6 NM AC . We b eg i n o u r a n al ys i s w i t h a d i s cu s s i o n o f t h e F u n d ’s 18 background , f

ol l owed by

a discussion of the issues on app eal re garding each order 19 an d our re as ons fo r re ve rs ing the P RC a nd r em an din g f or f urthe r pr oc ee din gs.2

1 I. THE STATE RURAL UNIVERSAL SE RVICE FUND 2 { 3} L ong- di st an ce t el ep ho ne carri ers rel y on lo cal tel ep ho ne ne two rk s on bot h e nds 3 of alon g- dis tanc e te le phon e ca ll to c om ple te the l ong dis tanc e ca ll. S om e of the se 4 loc al ne tw orks are ow ne d by I nc um be nt L oc al E xc ha nge Carr ie rs ( IL E Cs ), inc lud ing 5 num er ous rura l t el ep hone c om pa nie s th at

m ak e up the N

. M. E xc ha nge Carr ie r G ro up. 6 ILECs are own ers of

pu bl ic swi tc he d t el ep ho ne ne two rk s. See Jo hn Gasp ari ni , H el lo, 7 Co ngress? T

he Phone ’s F

or You : Faci li ta ting th e IP T rans iti on W

hil e M ov ing 8 Toward a Layers-Based R egulato ry Model , 67 Fe d. Com m . L .J. 117, 123 n. 25 ( 2014 ); 9 47 U

. S. C. § 25 1( h) ( 2012 ). Whe n som eo ne pla ce s a c al l, the c al le r’ s I L E C transpo rt s 10 the c al l t o th e lon g- dis tanc e carr ier ’ s ne tw ork, w hic h intur n tr an spor

ts the c al l f

or 11 so m e d is ta nc e b efo re t ran sf erri ng th e cal l t o a no th er ILEC on th e rece iv in g e nd

. See 12 Mar k D. Schn ei de r, Mar c A. Gol dm an , & Kath le en R. Hart ne tt , The USTA D ec isi ons 13 and the R ise and

F all of Te le phon e Co m

pe tit ion , 22 Comm . Law ., Sum m er 2004, at 14 1, 18. L ong- dis tanc e carr ie rs pay ac ce ss charg es to com pe nsa te IL E Cs fo r usi ng the ir 15 networks. The PRC r egulates acce ss charges th at ILE Cs rece ive for intras tat e lon g16 dis tanc e ca lls , and the F ed er al Co m m uni catio ns C om

m iss ion( FC C) r eg ula te s a cc es s 17 charges that IL EC s rece ive for int er sta te lo ng -d is ta nc e cal ls an d wi rel es s ca ll s. See 18 N MS A 197 8, § 63 -9 H -6 (I ) (2 013) ; se e als o 47 U. S. C. §§ 151, 614 (201 2); 47 C.F. R.3

1 § 61.26 (2012 ). 2 { 4} In199 6, the F CC r equir ed I L E Cs to low er

the ir a cc es s c ha rg es f

or int er sta te 3 service. How ever, to com pensate IL EC s for the re duction in access-c harge re venue, 4 th e FCC di rect ed pa ym en ts to ILECs f ro m a fed eral un iv ers al ser vi ce fu nd

. Se e In re 5 Fe d.-State Joi nt Bd. on Universal Serv. , 12 F.C.C.R. 8 77 6, 8 78 0- 86 (19 97 ), aff’d in 6 part, rev’d in part su b nom. T ex. Office of Pub. U

til. Counsel v. FC C , 183 F. 3d 3 93 7 (5th Cir. 1999 ). T he PRC did no t i mm ed iately follow the FC C’ s lead, and ins tead 8 continu ed to allow IL EC s t o ch ar g e h igh in trastate ac cess rate s, w hich m eant that 9 N ewMe xic o c ust om er s pa id m or e fo r intra sta te lon g dis tanc e ca lls than f or int er sta te 10 lon g di stanc e ca lls

. 11 { 5} How ever, ef

fe ct i v e July

1, 1999, the L egislature enacted the Rura l 12 T el ec om

m uni catio ns A ct of N ew Me xic o ( the A ct ), N MS A 197 8, §§ 6 3- 9H -1 to -1 4 13 (1999, as am ended through 2013 ), and directed th e PRC to establish and adm inister 14 a “ ‘ sta te r

ur al uni ve rs al se rv ic e fu nd, ’ ” S ec tio n 63 -9 H -6 (A ), w itha“ sur ch ar ge on 15 in tra st at e ret ai l p ub li c te le co m m un ic at io ns se rv ic es to be de te rm in edby the [PRC ]. ” 16 Se ct ion63- 9H -6 (B ). T he L eg isl at ur e de le ga te d br oa d auth or ity to the P RC ove r the 17 Fund. 18 T he [ PR C] sha ll:4

1 ( 1 ) es ta b l i s h e l i g i b i l i t y

c r i t e r i af o r p a rt i c i p a t i o n i n the 2 fund consi stent with federal law that ensure the availability of service at 3 affo rd ab le rat es . . . . ; 4 (2 ) pr ovi de fo r the c oll ec tio n of the sur ch ar ge on a 5 co m

pe tit ive ly ne utr al ba sis a nd f

or the a dm ini str at iona nd d isb ur se m en t 6 of

m one y f ro m the f und; 7 (3 ) de te rm ine tho se se rv ic es r equir ing supp ort fr om the 8 fund; 9 (4 ) pr ovi de f or the se pa rate a dm ini str at iona nd 10 disbu rsem ent of feder al universal service funds consist ent with feder al 11 law ; and 12 (5) esta b lish affordability benchm ark ra tes for local 13 re sid en tia l and b usi ne ss s er vic es that sh al l be uti liz ed in det er m ini ng the 14 le ve l of

sup port f ro m the f und. T he pr oc es s fo r de te rm ini ng s ubse que nt 15 ad

j us tm e n t s t o the be nc hm ar k sh al l be e sta

bli she d th ro ugh a ru le m ak ing

. 16 Section 63-9H-6(D ). 17 { 6} La ter in 2005 , the Ne w Mexico Le gislature am ended the A ct to require equal 18 ac ce ss c ha rges fo r in trasta te a nd i nte rs ta te c al ls, w hic h w er e to b e se t a t the r at e 19 es tabl is he d b y

th e FCC fo r in te rs ta te cal ls

. See § 63 -9 H -6 (I ) (r equir ing apha se -i n of 20 equal ch arges byMay 1, 2008). L ike the FCC, the Ne w Me xico Legislature 21 de te rm ine d th at

the I L E Cs ’ los t r ev enue f or intra sta te c al ls wou ld be r ep la ce d w ith 22 a co m

bin at ionof

( 1) li m ite d in cr ea ses in loc al r at es up t o an “ af fo rd ab ili ty 23 be nc hm ark ,” an d (2) s ub si dy paym en ts to ILECs fr om th e Fu nd

. See § 63-9H-6(A ),5

1 (D ), (K ). T he Fund is financed b y a su rcharge on intrastate retail telephone service, 2 whi ch te le co m

m un ic at io ns carri ers co ll ect fro m th ei r cu st om ers . See § 63-9H-6(B)

. 3 A ll te le phon e co m

pa nie s op er at ing in N ewMe xic o, w ir ed a nd w ir el es s a lik e, c ha rg e 4 the ir co nsum er s the Surc harg e Ra te , a nd the se m oni es a re pla ce d in to the F und an d 5 pa id ou t t o ILECs

. See 17.11.10.20 & 17.11.10.22 N MAC

. 6 { 7} T he PR C a dopt ed r eg ula tio ns i m

ple m en tin g th e 2005 A ct a m en dm en ts. 7 17. 11. 10. 8 to -3 0 N MA C ( 11/ 30/ 05, a s a m en de d th ro ugh 12/ 28/ 05)

. T he r eg ula tio ns 8 re qui re d the siz e of the Fund to be se t an nua lly an d to be “ equa l to th e su m of [ the 9 IL E Cs ’ ] r ev enue r equir em en ts .

. . plu s pr oj ec te d a dm ini str at ive e xpe nse s and a 10 prudent fund balance. ” 17.11.10. 19(A), (C) NM AC (c i t ation om itted). T he PRC 11 defined each I LE C’ s revenue requirem ent as t he am ount of revenue the I LE C lost as 12 a res ul t of th e in tra st at e acc es s ch arg es . See 17.11.10.19(E ) NMA C. The PRC then 13 de te rm ine d th at

the siz e of

e ac h I L E C’ s r ev en ue requ ir em en t— i. e. , sub sidy 14 pa ym en t— shou ld b e ca lc ula te d us ing the num be r of intra sta te a cc es s m inu te s th at the 15 ILEC reco rd edin 20 04

. Se e id. T he r eg ula tio n r em ai ne d un ch an ge d f ro m the e nd o f 16 2005 to 201 3, and eac h IL EC rec eived a subs idy paym ent based on an equation that 17 us edit s 2 00 4 a cces s m in ut es . Se e id. 18 { 8} T he P RC a lso appoi nte d S olix, In c. ( So lix ) to s er ve a s athi rd

party f und20 Historically the form ula has been represe nted arithm etically as “ ((H istorical 1 21 Rate Minus Allowa

ble Rate) Tim es m inut e s Tim es Collection Factor) M inus Im puted 22 Benchm ark Revenue. ” 17.11.10. 19(E) (2005). 6 1 adm ini str at or

pur suant t o S ec tio n 63 -9 H -6 (G ) an d 17

. 11. 10. 10 NMAC. So lix is 2 responsib le for the collection, adm inistration , and dis bursem ent of the Fund sub j ect 3 to th e PRC ’s su pe rv is io n a nd ap pr ov al

. See § 63-9H-6(G ); 17.11.10.12 N MAC

. 4 E ac h y ear So lix sub m its ar ep ort t o t he PRC th at of fe rs ar an ge of

opt ion s f or the 5 Fund s iz e an d th e Surc ha rg e Ra te fo r the fo llo w ing y ear as re qui re d by S ec tio n 63

- 6 9H -6 (M ), 17. 11. 10. 19( A ) N MA C, an d 17.1 1. 10. 12( E ) N MA C. T he P RC ha s th e 7 ul ti m at e res po ns ib il it y to de ci de th e am ou nt of t he Fu nd an d t he Su rch arg e Rat e. See 8 17. 11. 10. 19( B) & 17. 11. 10. 20( B) N MA C; se e als o § 63 -9 H -6(A), ( C)

. T he 9 re gul at ion s th at

gov er ne d th e adm ini str at ionof the F und fr om

200 4 up to an d 10 inc lud ing the S ur ch ar ge Rate O rd er at iss ue in this c as e re qui re s th e Fund s iz e to b e 11 “ equal to the sum of each [eligible IL EC ’ s] revenue requirem ent[]

. . . plus projected 12 adm inistrative expens es and a prudent fund balance.” 17.11.10.19(C) NMA C. 13 [T ] he r ev enue r equir em ent fo r each [ IL E C]

. . . sha ll be e qua l t o th e 14 [eligible IL EC ’ s] applicable [2004] intrastate acc ess m inutes m ultip lied 15 by

the dif fe re nc e be tw ee n th e al low ab le intra sta te a cc es s r at e . . . a nd the 16 [e lig ibl e IL E C’ s] his tor ic al intra sta t e ac ce ss r at e, w iththe pr oduc t of thi s 17 co m

put at ionm

ult ipl ie d by

the [ el igi ble I L E C’s] hist or ic al c oll ec tio n 18 factor, an d t hen reduced by the [eligible IL EC ’ s] im puted benchm ark 19 rev en ue . . . . 17

1 17.11.10.19(E ) N MAC (citation om itted). 2 { 9} H owe ve r, be ca use of the e xpansi on o f w ir el es s se rv ic es , e -m ai l, te xt 3 m es saging, soc ia l m ed ia , a nd o the r ne wint er ne t- ba se d vi de o and t el ep hone 4 co m m un ic at io ns , t he us e of wire d te le ph on e se rv ic es ha s d ecl in edsi gn ifi can tl y . See 5 Kev in W erb ach , R ef

le ct ion s on Net wo rk

T rans iti ons and Soc ial

Co ntr ac ts f

or t he 6 B road band W orld , 13 Colo. T ech. L. J. 45, 46, 57 ( 2015 ). In Ne w Me xico, there wa s 7 anappr oxi m at el y

40% de cl ine in ac ce ss m inu te s oc curr ing f ro m 200 4 th ro ugh 2012

. 8 O n N ove m

be r 27, 201 2, the P RC iss ue d aN oti ce of P ro pose d R

ule m ak ing to ad dr es s 9 poss ibl e am en dm en ts t o th e Fund rul es , to, a m ong oth er thi ngs, c ha nge the F und 10 fo rm ula to ap ply 201 2 a cc es s m inu te s in ste ad of 2004 ac ce ss m inu te s and t o e sta bli sh 11 a 3% sur ch ar ge ca

p. Whil e the PR C w as co nsi de ri ng the se ru le ch an ge s, in 2013 the 12 Governor signed into lawHouse Bill 5 8, Chapter 194, Sec tion 4 of N ewMexico 13 Laws of 2013, w hich am ended NMSA 1978 , Section 63-9H-6(J) (2005 ) and required 14 the PRC to “ establish a cap on the surcharge.” Sec tion 6 3-9H-6(J)

. 15 { 10} It

w as a ga ins t this ba ck dr op tha t the P RC iss ue d th e N ove m be r 26, 2014 Ru le 16 O rd er , w hic h se t the sur ch ar ge c ap an d am en de d the fo rm ula fo r ca lc ula tin g the Fund, 17 ef fe ct ive January

1, 201 5. T he r el ev an t de ta ils of the pr oc es s in vol ve d ina dopt ing 18 the Ru le O rd er

w ill be de sc ri be d inthe dis cu ssi on of the m er its of the N

. M. E xc ha nge8

1 Carr ier G roup’ s appeal of the Rule O rder. H owever , bec ause the am ended 2 re gul at ion s di d no t appl y to the Surc ha rg e Ra te O rd er , w e w ill f ir st d isc uss the m er its 3 of the N. M. E xchange Carrie r G roup’ s appeal of the Surc harge Rate Or der. 4 II. TH E S U R C HA R GE R A TE OR D ER C A SE ( N M P R C C ase N o. 14- 0027 9- 5 U T; N ew M ex ic o S up re m e C ou rtC ase N o. S -1 -S C -3 4933 ) 6 { 11} O n S ep te m

ber 17 , 201 4, athr ee to tw o m aj or ity of the P RC iss ue d th e 7 S u r c h a r g e R a t e O r d e r a d o p t i n g a 3 % S u r c h a r g e R a t e a n d a F u n d a m o u n t of 8 ap pr oxi m at el y

$21 m ill ionf

or c al en da r y ear 2015

. On ap pe al , the N

. M. E xc ha nge 9 Carr ie r G ro up c ont en ds tha t the S ur ch ar ge Rate Ord er is ar bitrary a nd c ap ri ci ous 10 be ca use the P RC did

not a dhe re to th e reg ul ation s ine xis te nc e at the ti m e of

it s 11 iss ua nc e of

the O rd er , but

r athe r an tic ipa te d w ha t i t m ig ht do wi th r es pe ct to 12 am ending the funding form ula and establish ing a surcharge cap in the Rule O rder 13 ca se . T he N

. M. E xc ha nge Carr ie r G ro up em pha siz es tha t ha d the P RC a dhe re d to the 14 ex ist ing r eg ula tio ns i t c oul d no t have ad opt ed a 3% S ur ch ar ge Rate be ca use doi ng s o 15 re sul ts i n apr oj ec te d de fi ci t of $3, 870, 813 at

the e nd o f 2015 —ac le ar vio la tio n of 16 17 .11 .10 .19 (C) NM AC, whi ch req ui res th e Fu nd to ha ve “ a p ru de nt fun d b al an ce.” 17 T he N

. M. E xc ha nge Carr ie r G ro up als o cont en ds tha t the S ur ch ar ge Rate O rd er is not 1 8 s up p o rt ed b y s ub s t an t i al ev i d en ce b ec au s e t h e F u n dad m i n i s t ra t o r ( So l i x ), t h e P RC ’s 1 9 Fun dA d v i s o ry

B o a r d , a n dt h e P R C ’ s o w nc o u n s e l a g r e e dt h a t a3

. 6 2 % S ur ch ar ge9

1 Ra te w as the ap pr opr ia te r at e an d w oul d r es ult in a Fund s iz e of

$25 , 057, 152 w itha 2 pr oj ec te d ne t ba lanc e of $32 7, 153 at

the e nd o f 2015

. 3 { 12} In response, the PR C contends that th e 2013 legis lative am endm ents to the Act 4 required the PRC to cap the Surchar ge Rate, and the 3% Surcharge Rate is supported 5 by sub stanti al e vid en ce be ca use the 3. 62% r at e re co m m en de d by So li x, the F und 6 Advisory

Board, and PRC general counsel w ould have been the high est in the hist ory 7 of t h e F u n d , w h i c h w o u l d c o n f l i c t w i t h t h e P R C ’ s r e s p o n s i b i l i t y u n d e r S e c t ion 63- 8 9H -6 (J ) to k ee p th e Surc ha rg e Ra te to a m ini m um . A s e vid en ce of

th e la tt er poi nt, 9 the P RC r ef

er s us to In re Im

ple m en tat ion of the Sta te R ural U niv er sal Se rv ic e F und , 10 N MP RC Ca se N o. 06- 0002 6- U T , f or e ac h of the or de rs se tti ng a

S ur ch ar ge Rate 11 be gin nin g inc al en da r y ear 2007

. Th e Surc ha rg e Ra te s f ro m c al en da r y ears 200 7 12 thr ough201 4 w er e as f oll ow s: 13 2007 = 3. 0% 14 20 08 = 2.5 % 15 2009 = 2. 15% 16 2010 = 2. 45% 17 2011 = 3. 00% 18 2012 = 3. 30% 19 2013 = 3. 45% 20 2014 = 3. 45% 21 U til iz ing thi s e vid en ce , the P RC a rg ue s th at “ the 3% sur ch ar ge r at e [i t a dopt ed f or 22 2015 ] is high er

t h an t h e med i an o f t h e s u rc h ar g e ra t es p re v i o u s l y s et b y t h e [ PR C],10

1 whi ch was 2 .72 5%, an d h ig he r th an th e av erag e of th os e rat es , wh ic h was 2.9 12 5%.” 2 { 13} A party

c ha lle ngi ng a PR C or de r m ust es ta bli sh tha t the or de r is “ ar

bitrary a nd 3 cap ri ci o u s , n o ts up p o rt ed b y s ub s t an t i al ev i d en ce , o u t s i d e th e sc o p e o f th e a g en cy’s 4 authority , or otherwise inconsistent with law. ” N.M . I ndus . E nergy Consumers v. 5 N.M

. Pub. Re gula tion Comm’ n , 200 7- N MS C- 053, ¶ 13, 142 N

. M. 533 , 168 P

. 3d 1 05 6 (i nte rn al quot at ion m ar ks and c itatio n om itt ed ); se e als o NMS A 1978, § 63-9H-13(B) 7 (1999). U nder NMS A 1978 , Section 63-9H-11 (2013), w e m ust up hold a PR C order 8 if the or de r subs tanti al ly

c om pli es w iththe A ct

. 9 { 14} The annual determ ination of t he Fund is governed by 17.11.10.19 NMA C as 10 it ex is te d b efo re t he 20 15 am en dm en ts

. See G en. T el. Co . o f Sw. v . C

orp. Comm ’n 11 ( In re G en . Te l

. Co

. o

f Sw. ), 198 2- N MS C- 106, ¶ 29, 98 N

. M. 749 , 652 P

. 2d 1 200 12 (s ta tin g th at

a n a ge nc y

is boun d by

it s e xis tin g r

ule s and r eg ula tio ns)

. “ T he 13 adm ini str at or [, S oli x, ] sha ll de te rm ine the a m ount of the f und an nuall y , sub

j ec t t o 14 [PRC ] ap pr ov al , on or b efo re Oct ob er 1 of each y ear . . . .” 17 .11 .10 .19 (A) NMAC 15 (2 005)

. “ T he a m ount of the fund sha ll be equa l to the sum of ea ch [e lig ibl e IL E C’ s] 16 re v enue requirem ents, ca lculated pursuant to this section

. . . plus projected 17 adm inistrative expens es and a prudent fund balance.” 17.11.1 0. 19 ( C ) N M A C ( 2005 ). 18 A lth oughthe L eg isl at ur e am en de d the A ct in 2013 to re qui re the P RC to es ta bli sh a11

1 cap on the surcharge, the required cap is the sub j ect of the Rule O rder c ase docketed 2 as 35, 036, not ca se no. 34, 933, the Surc ha rg e Ra te O rd er c as e. T he S ur ch ar ge Rate 3 O rd er w as iss ue d onS ep te m

be r 17, 201 4. F ina l c om m en ts i n th e Ru le O rd er

c as e 4 w er e not

due unt il Se pte m

be r 19, 201 4, a pu bl ic he ar ing w as not sc he dul ed

unt il 5 Oc tober 1, 2014, and the rec ord was not clo s ed u n t i l Oc t o ber 15, 2014. T he PRC 6 sti ll did

not ha ve al l of the ev ide nc e in the Ru le O rd er c as e, a nd the re fo re it

w as not 7 in a pos iti on t o m ak e a de ci sio n r eg ar din g w ha t c ap to im pose on the S ur ch ar ge Rate 8 in f uture y ears . Mo re ove r, th e pr os pe ct ive c ap is ir re le va nt t o th e Surc ha rg e Ra te 9 O rd er be ca use e ve n th e 2015 r

ule a m en dm en ts r equir e tha t the an nua l sur ch ar ge be 10 large enough to include “ a prudent fund balance.” Co m pare 17 .11 .10 .19 (C) NM AC 11 (2005) wi th 17.11.10.19(C) NMA C (2015). 12 { 15} H ist or ic al ly

S oli x ha d r ec om

m en de d th at th e PRC m ai nta in an annua l F und 13 ba lanc e of

appr oxi m at el y

$2 m ill ion , w hic h r ep re se nts the c ost of ope ratin g the Fund 14 fo r one m onth. I n 20 12, the P RC f or the f ir st t im e re

j ec te d S oli x’ s rati on al e fo r 15 m ai nta ini ng a Fund bal an ce of ap pr oxi m at el y $2 m ill ionbe ca use “ the r ule onl y c al ls 16 for a ‘ prudent’ contin gency .” Ac cordingly , f or calendar y ear 2013 the PRC approved 17 a 3. 45% Surc ha rg e Ra te —l es s than the 3. 5 to 3. 6% r at e sugg es te d by S oli x and the 18 PR C A dvi sory Bo ar d—whic h r es ult ed in a $1. 5 m ill iondol lar sur plu s to be gin12

1 ca le ndar y ear 2013

. T his w as the fi rs t tim e the Fund’ s sur plu s ha d be en le ss than $2 2 m ill ion

. The Fund sur

plu s to begin ca le ndar y ear 2015 w as pr oj ec te d to be $87 5, 660. 3 { 16} T he P RC ’ s j ust if ic at ionf or appr ovi ng a

3% Surc ha rg e Ra te f

or 201 5 w as the 4 2013 a m en dm en t t o th e A ct , a s w el l as th e fact tha t the 3% r at e is h igh er than th e 5 m ed ia n or a v e r a g e r a t e s s i n c e 2 0 0 8

. H o w e v e r , t h e a m e n d m e n t t o t h e A c t d o e s no t 6 spe ci fy af orm ula to be use d by

the P RC in ca lc ula tin g the e lig ibl e IL E Cs ’ r ev enue 7 req ui rem en ts , see 2013 N. M. L aw s, ch. 294, § 4; the am ended f orm ula is the subj ect 8 of the Ru le O rd er

c as e, no t th e Surc ha rg e Ra te O rd er c as e. I n a ddi tio n, the 201 3 9 am en dm en t t o th e A ct

doe s no t pr ohi bit

the PR C f

ro m inc lud ing in the a nnua l f und 10 a prud en t Fu nd balance, a s evidenced by the fac t that the PRC c ontin ues to have a 11 prud en t Fu nd ba la nc e req ui rem en t i n i ts rul es . See 17. 11. 10. 19( C) N MA C. W e do 12 not int er pr et the “ m ini m

um ” su rch arg e req ui rem en t i n S ect io n 6 3- 9H- 6( J) as a uth or ity 13 to o pe rate the F und at ade fi ci t. 14 { 17} It

is al so im

m at er ia l tha t the 3% S ur ch ar ge Rate is hig he r than th e m ed ian or 15 average of

previous Surcharge Rate s. Ne ver in the histo ry of s etting Surcharge Ra tes 16 ha d th e PR C a

ppr oved a Su rcharg e Ra te that r es ult ed in a pr oj ec te d de fi ci t. T he 17 record r eflec ts that surcharge rates of less than 3% we re a pproved b y

the PRC when 18 the be gin nin g F und ba lanc e w as w ell ove r $2 m ill ion —the a m ount

S oli x13

1 reco mm en d ed as a prudent Fund balance. Once the proje cted Fund balance w as 2 ap pr oxi m at el y$2 m ill ion , a s r ec om m en de d by

S oli x, the P RC appr ove d S ur ch ar ge 3 Ra te s of 3. 30% , an d tw ic e at 3. 45%

. T he P RC c onsi ste ntl y appl ie d th e 2005 ve rs ion 4 of Ru le 17. 11. 10 t hroughit s 20 13 S ur ch ar ge Rate O rd er . I n f ac t, in its 201 3 5 Surc ha rg e Ra te O rd er , the P RC c om m en te d th at

R u l e 1 7

. 1 1

. 1 0 w a s b e i ng r ee xa m ine d, 6 but be ca use the w orksho ps a ddr es sin g po te nti al r ule r ev isi ons w er e sti ll ongo ing , the 7 PR C w as not in a posit ion to know the re sul ts of the w orksho ps—tha t is, it w oul d no t 8 knoww ha t r

ule c ha nge s or sur ch ar ge c ap w oul d r es ult f ro m it s r ee xam ina tio n of

the 9 ru le s. 10 { 18} So lix re co m

m en de d a 3.6 2% Surc ha rg e Ra te fo r 2015 , w hic h wou ld re sul t i n 11 a pr oj ec te d surp lus of $327 , 153. A 3. 57% Surc ha rg e Ra te w as pr oj ec te d to r es ult in 12 a ne ar ly ze ro Fund ba lanc e. So lix pr oj ec te d th at a3% S ur ch ar ge Rate f

or 201 5 w oul d 13 result in a $3,870,813 deficit at the end of 2015

. Although the PRC A dviso ry Board 14 concurred in Solix’ s recom m endation, the PRC rej ected it, despite Solix’ s proje cted 15 deficit and the fact that the PRC had never b efore approved a Surcharge Rate that was 16 pr oj ec te d to r es ult in a Fund de fi ci t. W e ar e pe rs ua de d tha t the PR C S ur ch ar ge Rate 17 O rd er is ar

bitrary , not supp orte d by subs tanti al ev ide nc e, an d is ac le ar vio la tio n of 18 its ow n r

ule s, w hic h r equir e tha t the sur ch ar ge be larg e eno ugh to a llo wf or apr ude nt14

1 Fund balance. A ccordingly , w e re verse the PR C’ s Surcharge Rate O rder. 2 I I I . THE R

ULE OR DER CA SE ( NM PRC Ca s e N o . 1 2 -0 0 3 8 0 -U T; Ne w Mexico 3 Su pr em e C ou rtC ase N o. S -1 -S C -3 5036 ) 4 { 19} The P RC issued the Rule Or der on Novem ber 2 6, 2014, to be eff

ective January 5 1, 201 5. A m ong pr ov is io ns no t re le va nt t o th is a ppe al , the Ru le O rd er

se t a 3% 6 sur ch ar ge c ap a nd s w itc he d f ro m af ixe d c al cu la tio n ba se d onthe IL E C’ s 20 04 a cc es s 7 m inu te s to ar oll ing appr oa ch tha t uses an IL E C’ s “ intra sta te ac ce ss m inu te s f or the 8 cal en da r y ear t ha t i s t wo years p rio r to th e y ear f orwhi ch th e ca l c u l a t i o n i s m ad e.” 9 17.11.10.19(E ) NMA C. Ea ch y ear the PRC issues an order determ ining the Fund size 10 fo r th e upc om in g year. See 17. 11. 10. 19( A ) N MA C. U nde r the ne w ru le s th at w ill be 11 effe ctive in 201 7, an IL EC ’ s paym ent will b e based on its int rastate a ccess m inutes 12 fro m 20 15

. See 17.11.10.19(E ) N MAC

. 13 { 20} The N .M. Exchange Carrier Gr oup argues on appeal t hat the PRC w as arbitrar y 14 in i ts a dopt ionof

the a fo re m en tio ne d pr ovi sio ns fo r se ve ra l r ea sons . W e fi rs t a ddr es s 15 the c ont en tio n th at

the P RC pr ej udge d th e Ru le O rd er by virtue of its ad opt ionof the 16 Surcharge Rate O rder a pprovin g a 3% S urcharge R ate. Specif ically , the N .M. 17 E xc ha nge Carr ie r G ro up p oin ts t o para gr ap h 7 o f the S ur ch ar ge Rate O rd er w he re in 1 8 t h e P R C r e f

e r e n c e s t h e p e n d i n g r

u l e ma k i n g a n d s t a t e s t h a t t h e c h a n g e s “ ‘ will reduce 19 the paym ents from the Funds in 2015 .’ ” As addit ional evidence o f th e PRC’ s alleged15

1 pr ej udgm en t, the N

. M. E xc ha nge Carr ie r G ro up refe rs to astate m en t by one 2 co m m iss ion er that the S ur ch ar ge Rate O rd er w as “ j ust lay ing som e gr ound

w ork” f or 3 th e Ru le O rd er . B oththe S ur ch ar ge Rate O rd er a nd the c om

m iss ion er ’ s st at em en t 4 w er e m ad e be fo re the Ru le O rd er c as e w as sc he dul ed

to be c los ed

a nd be fo re the 5 publ ic hearing regarding the propos ed rule changes. If in f act the Surcharge Or der, 6 w hic h w as is su ed te n w ee ks p ri or to the Ru le O rd er , pr eo rd ai ne d th e re sul ts o f the 7 Ru le Orde r, th e Ru le Orde r sh ou l d b e se t as id e. See Prometheus Radio Project v. 8 FC C , 652 F. 3d 431, 453 (3d Cir. 2011 ) (setting aside an agency order w hen a draft 9 or de r ci rc ula te d be fo re the c om m en t pe ri od h ad

e xpi re d)

. A n a ge nc y

that i s 10 co nsi de ri ng r

ule c ha nge s m

ust m ai nta in an “ ope n- m ind ed a tti tud e” unt il the r

ule is 11 adopted so that interested parties can off er the benef

it of their expertise to the agency 12 th ro ug h c omm en ta ry . Nat’l Tour Brokers Ass’n v. United States , 591 F. 2d 8 96, 902 13 (D .C. Cir. 1978 ). 14 { 21} It

is dif fi cu lt to unde rs tand w ha t the P RC m eant by its langua ge in pa ra gr ap h 15 7 of the S ur ch ar ge Rate O rd er. W ith out inc lud ing the f

ootnot es , the langua ge 1 6 p r o v i d e s i n i t s e n t i r e t y: 17 G uided by

the statut or

y dir ec tiv e tha t the sur ch ar ge “ be he ld t o a 18 m inim

um ,” the [PR C] disapprov es the recom m ended incr ease, which 3 4 1 9 w o u l dr e s u l ti n t h e h i g h e s ts u r c h a r g e r a t e i n t h e h i s t o ry o f t h e F und. 5 20 Mo reo ve r, th e rec omm en da ti on of So li x i s b as edon “ bu si ne ss as u su al ,”16

1 ign or ing the 201 3 st at uto ry m an da te to es ta

bli sh a c ap on the sur ch ar ge 2 an d th e pe ndi ng r ule m ak ing that w ill be c om ple te d th is y ear. T he se 6 3 c h a n g e s wi l l r e du c e t h e p a ym e n t s f r o m t h e F u n d s i n 2 0 1 5

. Ac c o r d i n g l y, 4 the [ PR C] f

ind s tha t a pr oj ec te d Fund siz e of $21 , 186, 339 a nd a

3. 0% 7 5 surcharge for calendar y ear 2015 shoul d be approved at this ti m e. 6 (T he f ootnot es not ed

in thi s qu ota tio n have not be eninc lud ed in this opi nio n. ) It is 7 ev ide nt f

ro m the langua ge of the Surc ha rg e Ra te O rd er tha t the PR C d id n ot s et ac ap ; 8 it ap pr ove d a3% S ur ch ar ge Rate f or c al en da r y ear 2015

. I n a ddi tio n, the f orm ula 9 uti liz ed

by S oli x and a cc ep te d by

the P RC f

or de ci din g bo th the F und siz e an d the 10 Surc ha rg e Ra te f

or the 201 4 S ur ch ar ge Rate O rd er w as the f orm ula se t f orth i n th e 11 20 05 ve rs ionof

Ru le 17. 11. 10. 19( E ), not the f orm ula that w as pr opos ed

in the 12 ru le m ak ing c as e. How ev er , the P RC ’ s f ootnot e 6, w hic h a ddr es se s th e pe ndi ng 13 rulem aki n g , s t at es “ [t] o the extent that Rule 17.11.10 (includi ng 17 .11.10. 19(C) 14 N MA C) re qui re s the [P RC ] to ign or e the se c ha nge s to the F und, the [ PR C] f ind s go od 15 ca use f or avari an ce . ” F ootnot e 6 stro ngl y sug ge sts tha t (1) the P RC w as c onsi de ri ng 16 the pe ndi ng r

ule m ak ing w he n it de ci de d th e Surc ha rg e Ra te c as e, a nd ( 2) the P RC did 17 not f oll owthe e xis tin g r

ule s. 18 { 22} By

c ontra st, ay ear ea

rl ie r, w he n th e PR C ado pte d the Surc ha rg e Ra te fo r 2014 , 19 at ati m e w he n th e ru le m ak ing w as a lso pe nd in g, th e PR C m ad e it cl ear tha t the 20 rulem ak i n g p ro ce ed ing was not a consideration in setting th e 2014 rate. The PRC17

1 stated in its Surcharge Rate Or der t h at “ [i ]f r evision s to Rule 17.11.10 require a 2 ch an ge in the sur ch ar ge r at e, the [ Co m m iss ion ] c ana ddr es s th e ch an ge whe n th e 3 rev is io ns to th e ru le are i m pl em en te d.” 4 { 23} Although the language we have quot ed from the 201 4 Su rc harge Rate Or der 5 is tro ubl ing , the pr oc es s f oll ow ed by the P RC an d th e ev ide nc e tha t su ppor ts i ts 6 ad opt ionof

the Ru le O rd er p er sua de us tha t the P RC did not pr ej udge the r

ule 7 am en dm en ts. N one the le ss, w e agr ee w ith the N

. M. E xc ha nge Carr ie r G ro up tha t the 8 am endm ents are not suppo rted by subst antial evidence. 9 { 24} The rulem aking procee ding began on Novem ber 27, 2012 , whe n t h e PRC 10 iss ue d a Not ic e of

P ro pose d R

ule m ak ing to (1 ) co nsi de r ch an ge s to r es ide nti al a nd 1 1 b u s i n es s af

fo rd ab i l i t y b en ch m ar k s , ( 2 ) u p d at e t h e d at a f o r de t er m i n i n g a p ro v i d er ’s 12 reven ue re qui re m en ts t o 20 12 a cc es s m inu te s, ( 3) im ple m en t a

3% c ap on the 13 Surc ha rg e Ra te , a nd ( 4) e sta bli sh e xc ep tions t o th e sur ch ar ge c ap . O n January 23, 1 4 2013 , t h e P R C e n t e r e da n o r d e r v a c a t i n g th e r

u l e m a k i n g an dp r o c e du r a l s c h e dule 15 unde r the N oti ce of

P ro pose d R

ule m ak ing an d sc he dul ed the f ir st i n ase ri es of 16 w orksho ps f

or Apr il 8, 201 3. Th e or de r al so a ske d part ic ipants to be pr ep ar ed to 17 dis cu ss, am ong iss ue s no t r el ev an t t o th is c as e, w he the r the P RC sho uld ( 1) sub sti tut e 18 2012 intrastate acce ss m inutes for 200 4 m inutes in the form ula used to determ ine an18

1 eligible IL EC ’ s revenue requirem ents under Rule 1 7.11.10.19, and (2) establish a cap 2 on the S ur ch ar ge Rate

. Wri tte n c om m en ts w er e due by

Marc h 25 , 201 3. 3 { 25} T he PR C r ec ei ve d e le ve n se ts o f co m m en ts o n M ar ch25, 201 3. C om ca st 4 favor ed

a 3% su rch arge c ap be ca use ba se d onthe thi rt ee n st at es in w hic h C om ca st 5 operates that have sim ilar funds, ten states had surcharges under 3%, and eight states 6 ha d surc ha rg es be low2%

. V er iz on o pin ed that the PR C shou ld im

pose ac ap of

le ss 7 than 3% a nd tha t the sub sidy shoul d be ba se d onne ed

. N one of the r em ai nin g 8 co m m en ts f av or ed ac ap . J ust

thr ee day s be fo re the f

ir st w orksho p w as sc he dul ed , 9 G ove rn or

S usanaMart ine z sig ne d H ouse Bi ll 58 i nto lawr es ult ing in the 201 3 10 Am ended Act, which in relevant p art am ended Section 63-9H-6(J) to re quire the PRC 11 to est ab li sh a su rch arg e cap as p art of t he PRC’s ru le m ak in g. See 201 3 N

. M. L aw s, 12 ch

. 194 , § 4. 13 { 26} O n Ju ly

10, 201 3, the P RC issue d an or de r se tti ng w orksho p sc he dul es , 14 re qui ri ng d at a fr om

e lig ibl e IL E Cs , a nd s oli ci tin g c om m en ts r eg ar din g up da tin g 15 af fo rd ab ili ty

be nc hm ar

k r at es , c ha ngi ng the f

orm ula f or the de term ina tio n of

the 1 6 an n u a l f

u n d , a n d i m

p l e m e n t i n g t h e 2 0 1 3 a m e n d m e n t s t o t h e A c t b y c o n s i d er ing a 17 Surc ha rg e Ra te c ap . I n Augus t 20 13, the P RC r ec ei ve d an a dditi on al fourte ense ts 18 of co mm en ts , w ithsom e supp ortin g a3% c ap . F our w orksho ps w er e co nduc te d in19

1 2013 , w itha ddi tio na l c om m en ts f ile d th ro ugh January

24, 201 4. 2 { 27} T he P R C i s s u e das e c o n dN o t i c e o f P r o p o s e dR

u l e m a k i n g o n J u l y

2 3 , 2 0 14, 3 propos ing to am end the surcharge rules to, am ong o ther things , im plem ent a 3 % c ap 4 on the S urch arge Rate a nd t o be ginaf our -y ear tr an sit ionf

ro m usi ng 2 004 ac ce ss 5 m inu te s to using 2 012 ac ce ss m inu te s to c al cu la te the a nnua l S ur ch ar ge Rate

. T he 6 se co nd N oti ce of Pr opos ed Ru le m ak ing a lso r equir ed tho se w ho w an te d to c om m en t 7 on the pr opos ed

r ule am en dm en ts to fi le w ri tte n c om m en ts b y A ugus t 22 , 201 4, w ith 8 re spon se s to the c om

m en ts d ue no l at er

than S ep te m

be r 19, 2014

. A publ ic he ar ing 9 wa s scheduled for October 1, 2014 , and the record w as scheduled to clos e on October 10 15, 201 4. 11 { 28} T he N

. M. E xc ha nge Carr ie r G ro up c ont en ds tha t the pe rm an en t 3% sur ch ar ge 1 2 c ap i s n o t s up p o rt e d b y s ub s t a n t i a l e v i d e n c e b e c au s e t h e m a j o r i t y o f t h o s e w ho 1 3 c o m m e n t e d r e g a r d i n g t h e s e c o n d N o t i c e o f P r o p o s e d R u l e m a k i n g o p p o se d th e 3% 14 ca p, thu s pr ovi ng tha t the P RC a rb itr ar ily c om m itt ed it se lf to a 3% c ap be fo re the 15 Ru le O rd er ca se w as c om ple te

. W e ar e re qui re d to r ev ie wthe w hol e re co rd , 16 includi ng the evid en ce b o t h i n favor of and contrary to the PRC’ s decision, when 17 de te rm ini ng w he the r its de ci sio n is supp orte d by sub stanti al e vid en ce , w hil e loo kin g 18 atth e ev id en ce i n th e li gh t m os t fa vo rab le to th e PRC de ci si on . PN M G as Servs. v.20

1 N.M. Pu b . Util. C

omm ’n ( In re P NM G as S ervs . ), 2000 -N MSC- 012, ¶ 4, 129 N.M. 2 1, 1 P

. 3d 3 83. S ubst an tia l e vid en ce is “ suc h re le va nt ev ide nc e as a re as ona ble m ind 3 m ight accept as adequate to suppo rt a c onclusi on.” Rinker v

. State Corp. Comm ’n , 4 1973 -N MS C- 021, ¶

5, 84 N

. M. 626 , 506 P

. 2d 7 83. A ft er r ev ie w ing the re co rd in i ts 5 en tir ety , w e ar e pe rs uade d th at the P RC ’ s de ci sio n to im pose a3% c ap is not 6 supp orted by

subst antial evidence. 7 { 29} Th e P R C a c kn ow l e dg e s t hat i n r e sp on se t o t he se c on d N ot i c e of Proposed 8 Rulem aking, “ [m ] ost comm enters opp o se[d] the 3% ca p,” including th e N .M. 9 Exc ha ng e Carrie r Gro up , Mes cal ero Apac he Te le co m m un ic at io ns , Inc ., Navajo 10 Co m m uni catio ns, L a Jic ar ita , S ac re d W ind , the Att or ne y G en er al of

N ewMe xic o, 11 and the PRC staf

f. T he PRC cited T- Mobile W est, L LC as the only entitythat 12 supp orte d a 3% ca

p. H ow ev er , Co m ca st and V er iz on h ad pr ev iou sly

e xpr es se d th ei r 1 3 sup p o rt f

o r a 3 % o r l o w e r c ap . N o t w i t h s t a n d i n g t h e o v e rw h e l m i n g o p p o s i t i o n , the 14 PR C a dopt ed

the 3% S ur ch ar ge Rate c ap f or athr ee -y ear pe ri od, be lie vin g tha t “ the 15 ch an ge s to the A cc es s R ed uc tio n S uppo rt

f orm ula ” w oul d r es ult

in low er F und 16 pa ym en ts, le av ing suf fi ci en t “ he adro om

f or a ddi tio na l su

ppor t” pur suant t o 17 17. 11. 10. 25 N MA C, if the ne ed f or a ddi tio na l su

ppor t w as e sta bli she d. 18 { 30} O ur

r ev ie wis not as sim

ple as co m

pa ri ng the num

be r of e nti tie s inf

av or of the21

1 3% c ap w iththo se w ho e ith er oppo se the 3% ca p or take no p osi tio n onthe c ap . O ur 2 re vie wreq ui res us to l ook at the w hol e re co rd

a nd d et er

m ine w he the r the re is 3 ev id en ce t o s up po rt t he PRC’s d eci si on . Se e In re PNM Gas Serv s. , 2000-NMS C4 012, ¶ 4. I n th is c as e, the PR C sta te s in its or de r tha t the c ha nge in Fund f orm ula w ill 5 result in lower F und p aym ents, w hich will leave a balance suffici ent to address an 6 el igi ble ILEC’ s pr ove n ne ed s. T w o si gni fi cant p ro ble m s ari se f ro m thi s st at em en t. 7 Fi rs t, the PR C adm its tha t the “ tr ue suf fi ci en cy or ins uf

fi ci en cy of th e Acce ss 8 Reduction Supp ort is not k nown.” This is problem atic because S ection 63-9H-6(C) 9 requires the Fund to provid e “ a specific, predict ab le and sufficient suppo rt 10 m ec ha nis m ” fo r el igi ble IL E Cs

. Ina ddi tio n, paym en t t o e lig ibl e IL E Cs is to b e “ in 11 an am ount equal to the reduction in revenues that occurs as a re s u l t of reduced 12 intra sta te sw itc he d a cc es s c ha rg es . ” S ec tio n 63 -9 H -6 (K). Althoug h ac ap c er ta inl y 13 offer s specificity

and predictability , the Fu nd m ust stil l be sufficient, and the PRC 14 doe s no t po int

to an y ev ide nc e to est ab lis h that the ne wf orm ula pr ovi de s su ff

ic ie nt 15 supp ort. The record con tains a report filed b y Ke n Sm ith, an econom ist for the Sta ff 16 of the T el ec om

m uni catio ns B ur eau of

the U til ity

D ivi sio n, ind ic at ing that i n 20 12 17 IL E Cs w er e pr oc es sin g 12 5, 719, 653 total a cc es s m inu te s, w hic h a m ount ed to a 18 red uc ti on of a lm os t 4 0% i n t raff ic fro m 20 04

. Se e Sta

ff Co m m en ts on F

irs t W ork shop22

1 Issues and

Data Tables a t 7 ( A u g u s t 5 , 2 0 1 3 )

. A c c o r d i n g t o S m i t h , “ [m ] ovi ng t he 2 base to 201 2 m inutes coul d reduce the paym ents from the fund by approxim ately

8-9 3 m illion .” Id

. H ow ev er , the a cc ur ac y

of the da ta w as que sti ona

ble , a nd i n any

e ve nt, 4 PR C s ta ff

r ec om m en de d “ a fo ur -y ear pha se -i n of the 2012 m inu te s onape rc en ta ge 5 basis.” P RC staff also com m ented that projec ting th e dem and side of the form ula was 6 m ad e m or e co m

pli cate d by

H ouse Bi ll 58, a nd i t w as the re fo re vir tua lly im poss ibl e 7 to e sta bli sh the c ap be ca

use of th e un cert ai nty

of de m an d. P RC sta ff

w en t onto 8 re co m m en d a3. 5% c ap w itha ne m e r ge nc y e sc ap e cl au se be ca

use F und re ve nue s have 9 be e n de c l i ni ng annua l l y a nd S ol i x ne e de d t o pr ov i de r e a l i st i c F un d balance 10 pr oj ec tio ns. 11 { 31} The sec ond p roblem with the PR C's r eliance on lower ing fund paym ents based 12 on need is that th e PRC adm its that the su pport r equired by the Ac t does not require 13 a sh owi ng of n eed to qu al ify for Acc es s R educ ti on Supp or t be cau se Sect io n 6 3- 9H14 6( K ), w hic h pr ovi de s f or A cc es s R ed

uc tio n S uppo rt , is ind ep en de nt fr om the ne ed

15 based supp ort i n Section 63-9H-6(L ). A m ended Rule 17.11.10.25(A) allows an 16 eligible ILE C s erving in a h igh-cost area to petitio n “ for support from the fund when 17 suc h paym en ts ar e nee de d to e nsur e the w ide spr ea d a va ila bil ity a nd a ff or dabil ity of 18 re sid en tia l l oc al e xc ha nge se rv ic e in the hig h- co st are a of the state se rv ed

by the23

1 [e lig ibl e IL E C]

. ” H ow ev er , if the Fun d is not

“ equa l t o th e sum

of e ac h [ el igi ble 2 IL E C’ s] r ev enue r equir em en ts .

. . plu s pr oj ec te d a dm ini str at ive e xpe nse s and a 3 prudent fund balance” a s required by Rule 1 7.11.10.19(C) , ther e w ill not b e re sources 4 in the Fund from

which to supplem ent the funds of an eligib le IL EC that 5 de m onstrate s ne ed

. F or the se re as ons, w e ar e not sa tis fi ed tha t the re co rd in thi s c as e 6 supp orts the PRC statem ent that “ the changes to the Acce ss Red u ct i on Supp ort 7 fo rm u l a ” w i l l r e s u l t i n l o w e r F u n d p a y m e n t s , l e a v i n g s u f

f i c i e n t “ h e a dr oom

f or 8 additio nal supp ort” pursuant to 1 7.11.10.25 N MAC

. Perhaps the ac tual experience 9 dur ing c al en da r y ear 2015 w ill pro vi de the e vid en ce that su ppor ts the P RC Ru le 10 O rd er , but

the e vid en ce in the r ec or d be fo re us d oe s no t do so. 11 { 32} A lth ough we c onc lud e tha t the P RC ha s th e au tho ri ty to m odi fy

the f undi ng 12 form ula as part of its r

ulem aking authority

and it shou ld establish a surchar ge cap as 13 re qui re d by the 2013 A ct , w e re m an d this m atte r to the PR C f or f urthe r pr oc ee din gs. 14 The r ecord m

ust have subs tantial evidence t o supp ort a find ing that the newly adopted 1 5 fu ndi ng f

o rm u l ai s a d e qu a t e t o s a t i s f

y t h e r e qu i r e m e n t s o f

S e c t i o n 6 3

- 9 H

- 6 ( C ) a nd 16 (K) an d R

ule 17. 11. 10. 19( C) , a nd tha t the sur ch ar ge c ap ha s no t be ena rb itr ar ily 17 es ta bli she d. 18 IV. CON CLU SION24

1 { 33} W e re ve rs e the P RC ’ s S ur ch ar ge Rate O rd er in N MP RC Ca se N o. 14- 0027 9- 2 UT a n dal s o re v er s e t h e P RC ’s Ru l e Or d eri n NM PR C C as e N o . 1 2 -0 0 3 8 0 -U T. We 3 re m an d both m atte rs to the PR C fo r furthe r pr oc ee din gs c onsi ste nt w iththi s op ini on. 4 { 34} IT IS S O ORDERE D.

5

________ ____ ____ ____ ____ ____ __ 6 EDWA RD L. CH ÁV EZ , Just ice

7 WE CONCUR:

8 ___ ____ ____ ____ ____ ____ ____ ____ ____ 9 BA RBA RAJ. V IGIL, C hief Just ice

10 ___ ____ ____ ____ ____ ____ ____ ____ ____ 11 PE TRAJIMEN EZMA ES, Justice

12 ___ ____ ____ ____ ____ ____ ____ ____ ____ 13 CH ARLES W. DA NIEL S, Justice

14 JUD ITH K. NA KAM UR A, Justice, not p articipating