T h e M e mb e r s o f T E X A L T E Lw h o c la im aninte r e s t i nth is p r o c e e d in g include 1 Al ph e us; Bestlin e Commun ic a tio ns ; Ca pit a l T e le c omm

un ic a tio ns , Inc .; D PITe le c onne c t; Gra n d e Co mm

un ic a ti o n s ; H un tl e ighT e le c o m; L o g is Co mm un ic a ti o n s ; M c L e o d

U
. S. A .; Meriplex Com munic at ions; NovoL ink Comm unications, Inc.; Tex-L ink Comm unications, Inc.; TeleN etwork; TRC Telec ommunications, I nc.; and Adva ntag e Te lecom. Be cause the lan gu age of this section has not mater ially chang ed, we cite to the cur rent 2 version for

convenie nce. 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 7 -00 405 -CV

TEX AL TEL , A ppe lla nt

v. P ubl ic Utility Com m ission of T exas , Appellee

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 200TH JUDICIAL DISTRICT NO. D-1- GN-06- 0042 29 , HO NORAB LE W. JEANNE MEURER , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N
TE X A L T E L , a

tr a d e a s s o c iati o no f

c o mp e ti ti v e te le c o mm

un ic a ti o np r o viders that do bu sin e ss i n T e xas, fil ed suit ag ainst the Public Utili ty Commi ssion challeng ing 1 th e C o m m i s s i o n ’s Au gu s t1 7 , 2 0 0 6 “O rd er E s t ab l i s h i n g R ev i s edW e i g h t edS t at ew i d e A v er age Composit e Usa g e Sen s i tive Intrastate Switche d Acc ess Rates” pur suant to section 52.155 of the Public Utilit ies Regulatory Ac t and the ve rsion of P.U.C. Subst antive Rule 26.223 in eff ect at the time. See T ex . Ut i l. Code Ann. § 52.155 (West 2007), 25 Tex. Reg. 6978 ( 2000) 2Our s ub se qu e nt r e fe re nc e s to ru le 26 .2 33 are to t he ve rs ion

the n in e ff e c t. 3 In keepingwith its charac terization of the Commiss ion’s actions as a de facto ru l em ak i n g, 4 TEXAL TEL

sty led its suit a declar atory -judg ment action under Texas Governm en t C o de sec tion 20 01 .0 38 , b ut p le d in t he a lte rn a tiv e tha t it wa s se e kin g jud ic ia l r e vie w f ro m a c on te ste d- c a se proce edingunder Te x as Gover nment Code section 2001.171 and unde r the district cour t’s inhere nt jur isd ic tio n to re vie w a g e nc y or de rs re g ard ingdu e -p ro c e ss v iol a tio ns . Followingthe eve nts g iving rise to this appeal, rule 26.223 w as ame nded to be e ffe ctive on Septem b er 4 , 2 0 0 6 , 31 Tex. Reg. 7123, a nd on J une 20, 2007, 32 Te x . Reg . 3584, and the pa rties indicate that the Commission has since established a vera g e switche d-a c c e s s r a te s u n d e r th e new r ules that superse de those TEX AL T E L challeng es her e. TEXA L TEL limit s its complaint to t he rates established under

the prior r

ule (or “ de facto ru le makin g ” ) duri ng the pe ri od in whic h th e y

we re in e ff e c t. The c ourt also denied a plea to the jurisdict ion asserte d by the Commiss ion. The 5 C o m m i s s i o nd o es n o tap p ea l th i s ru l i n g. 2 (codifie d at 16 Tex . Admin. Code § 26.233). TEXAL TEL contends that the Commission deviated 3 from its own rate -setting methodology presc ribed in rule 26.223, th er eb y actingarbitra rily and
c a pr icious ly , ma

kin g “ an il le g a l de facto ru le c ha ng e ” and vio latin g TE XA L TE L ’s du e pr oc e ss ri g hts
. The pa

rt i es filed cross-motions for summary judgme nt. The district court g rante d the 4 C o m m i s s i o n ’ s m o t i o n , d e n i e d T E X A L T E L ’s , and re ndere d judgme nt for the Commission. 5 TE XA L TE La

pp e a ls. We w ill a ff

ir m th e dis tr ic t c ourt ’s jud g me nt. Be fore turning to TEXAL TEL ’s spec ific complaint, i t is helpful to review the statut or y and re g ula tor y c on te xt i n wh ic h the c omp la int ari se s. Th e Commis sio n ha s jur isd ic tio n to regulate switche d-ac cess c harg es—the wholesale rate s paid by long distanc e telephone companies to l oc a l te le ph on e c omp anie s for a c c e ss to the loc a l te le ph on e c omp any ’s e nd us e rs —a pp lic a ble to lon g -d ist anc e int

ra state cal ls . U nd e r P UR A s e c tio n 5 2. 15 5, te le c omm un ic a tio n util iti e s th a t ho ld
a c e rt if ic a te of op e ratin g a

uth or ity or a ser vi ce p ro vid e r c e rt if ic a te of op e ra tin g a uth or ityT h e s e r a te e le me n ts w e r e o r ig in a ti n g an d te r mi n a ti n g c ar

r ie r c o mm o n line (CCL ), 6 local switch i n g (L S), switched tra nsport (TR), tande m switching ( TS), and tande m switched transport (T ST). 16 Tex. Admin. C ode § 26.223(b) , (f) (1). 3 (Competitive L ocal Exchang e Carr iers, or CL ECs) may char g e intrastate switched-a cce ss rates that are no g reater than the preva iling rate cha rg ed by the holder of

the ce rtifi ca te of c onvenienc e and nec essity

or the holder

of a c ertificate of o p erating a uthority under PURA cha

pter 65 (Incumbent L ocal Exchang e Carr iers, or I L ECs) in whose ter ritory the ca ll originates or ter

minates
un le ss ( 1) the CL EC o btai ns Co mm iss ion a pp ro va l to c ha

rg e a highe r r a te , o r ( 2) “ su

bje c t to commiss io n

r e v ie w , th e [C L E C] e s ta

b li s h e s s ta te w id e a v e rag e composite orig inating a nd terminating intrastate s wi t ched a cce ss rates ba sed on a r easona ble appr ox imation of traff ic orig inating a

nd terminatingbetwee n all [I L ECs] in this S tate.” T ex. Util . C o d e Ann. § 52.155(a ). TEXA L TEL terms the rates CL ECs can c harg e under the latter e x ception “sa fe ha rb o r” ra t es . Section 52.155 fu rt he r p ro vid e s th a t “ [n]otwi ths tand ing any oth e r p ro vis ion

of thi s ti tle , th e c omm iss ion ha s a ll jurisdiction necessa

ry to enforc e this titl e.” Id. § 52.155(b). The Commission enacted r ul e 26.223 to implement PUR A sec tion 52.155. See 1 6 T ex . Ad m i n . C o d e § 2 6
. 2 2 3 (a ). Of re l ev an ce h er e, th e C o m m i s s i o np re s cr i b eda m et h o d o l o gy fo r es t abli shing the “re asonable approximation” of traff ic orig inating a

nd terminatingbetwee n all I L ECs in

th e s tate th a t w a s to b e th e b a s is f o r th e “ s a f e h ar b o r ” r a te s CL E Cs c o u ld

c h ar g e. S e e id. § 26.2 23 (c ). With in t hir ty da y s o f t he ru le ’s June 30 , 2 00 0 e ff e c tiv e date , a ll I L ECs
wer e re quired t o fi l e with the Commi ssion their “cur rent tar iffed r ate” for se vera l differ ent
c a te g or ie s o f o ri g inatin g and te rm inatin g ra

te e le me nts and “[t] h e t o t al actual orig inating a nd 6 te rm inatin g MO Us [minute s o f u se ] fo r the mos t re c e nt 12 mon th pe ri od ” fo r t he same rate e le me nts
.4

S e e id. § 26.223(f) (1). B ased on the se filing s by the I L ECs, the Commi ssion was requir ed, wi th i n 6 0 d ay s o f th e ru l e’ s ef fe ct i v e d at e, t o “e s t ab l i s hwe i gh t eds t at ew i d e a v er age co mp o s i t e u s age sensitive intrastate switche d acc ess rates” for eac h ori gi n at i n g and ea ch ter minating r ate e lement cate g ory . See id. § 26.223(d)( 1). The rule then pre scribed a mathematica l calculation through which the Commiss ion would determine state wide total revenue for each rate ele ment and statew ide total actua l MOUs for e ach r ate e lement, and divide the former by the latter to y

ield a “w eig hted statewide
aver ag e composite usag e sensitive intrastate switched a cce ss rate” for e ach r ate e lement. See id.

Un de r t he ve rs ion

of the ru le a t is su e , I L ECs we re the reaft er r e qu ir e d to fi le biennially , by J une 1 of t hat y ear , their “curre nt tariff ed rate” for each of the same orig inating a nd terminating rate element categ ories required in their or igina l filings, “[t]he curre nt orig inating a nd terminating tariff

ed rate (s) for any other usag e sensitive intrastate switched acc ess rate element( s),” and “[t]he total actual orig inating a nd terminating MOUs of the most rece nt 12 month period” for
eac h of those rate eleme nts. See id. § 2 6. 22 3(f)(2)
. I n tu rn, the Commis sio n w a s r e qu ir e d to

“ re -c a lc ulate the we ig hte d s tate wi de ave ra g e c omp os ite us a g e se ns iti ve int ra state sw itc he d a c c e ss rate s biennially

based upon the submissi on of t h e [I L ECs] as re quired in subsec tion (f) . . . [to] become eff

ective N ovember

1 of that y ear .” See id. § 26.223(d)( 2)(A)
. In a dd iti on

to r e qu irin g t hi s bie nn ia l r e c a lc ulatio n, the su bs e c tio n o f t

he ru le g ov e rn ing“ re c a lc ulatio n” fu rt her pro vi de d th a t an I L EC c ou ld p e tit ion fo r t he Commis sio n to
rec alculate the weig hted statewide av e r a g e c o mp o s it e u s a g e s e n s it iv e in tr a s ta te switched- acc ess rates “at a ny time b u t n ot sooner than the most re cent r eca lculation.” See id. § 26.223(d)( 2)(B ). The subsection furthe r provided:Project to Dev elop COA/SPCOA Statew i de A ve rage Switched Ac cess Rate s for 7 Novembe r 2006 Publication Pursuant t o PURA §52.155 a n d PUC Subst. R. § 26.223 , Project No. 32679 (“ Project No. 32679" ). 5 As provided in subsection (f) of this sec tion [ g overningthe ty pes of f ilings re quired of I L ECs, discussed abov e, ] t h e comm ission may also requir e . . . submissions by [ I L E C s ] f

o r r e- ca l cu l at i o no f t h e w ei gh t eds t at ew i d e a v er age co mp o s i t e u s age se ns iti ve int

ra state swit c he d a c c e ss r a te s as appropriate because of significant c ha nges in us age se ns iti v e switc hed access ra te s or in response to the reque st of aff ecte d parties, a s specifie d in subparagraph ( B) of this para g raph.
See id. § 26.223(d)( 2)(C) ( emphasis adde d).

The pre s e n t c a

u s e ar o s e in

c o n n e c ti o nw it

hth e Co mm is s io n ’ s 2 0 0 6 b ie n nial
rec alculation. In May

2006, the Commiss ion initi ated Projec t No. 32679 to rec alculate the 7
av e r a g e intr a s tate s w it c h e d

- a c c e s s r at e s th a t c o u ld b e c h ar g e d

b y th e CL E Cs un ti l t

h e n e xt
re- calc ulation, the n schedule d to occur in 2008. The Commissi on reque sted filings f rom I L ECs, due Ju n e 1 , c o n c e r

n in g th e ir c ur r e n t t ar if f e d r a te s an d th e ir M O U d a ta

f o r th e tw e lv e - mo n th

p e riod endingMarc h 31, 2006. See id. § 26.223(f) (2).

In it s Augus t 17 , 20 06 Or de r, the Commis sio n a do pte d state wi de ave ra g e int ra state switched-a cce ss rates b as ed on I L ECs’ tariff ed rates as of August 10, 2006 , rathe r than the e arlier J une 1, 2006 cut-off that the rule c ontemplated for the biennial re calc ulation. See id. § 26.223(f) (2). The Commission apparently used the same twelve months of historical MO U i n fo rm at ion in the calc ulation, however . The Commissio n took this action in response to conc erns r eg ardingthe impact of the 20 05 te le c omm

un ic a tio ns de re g ulatio n le g isl a tio n o n th e tari ff e d s wi tc he d- a c c e ss t

hat c e rt a in larg e I L ECs c ould char g e. As the Commission ex plained in its Order , “PURA §§ 65.202 and 65.203 mandate that on J uly

1, 2006, transitioning [I L ECs] reduc e their or iginating a nd terminating6

pe r- min ute -o f- us e sw itc he d- a c c e ss r a te s b y c e rt a in p e rc e nta g e s o f t he dif fe re nc e be tw e e n th e ir interstate a

nd intrastate r ates in eff

ect on J une 30, 2006,” with further reduc tions by J uly 1, 2007, and still further

reduc tions unti l the rates wer e reduce d to parity with interstate rates by J uly 1, 2008 or 2009. SeeTex . Util. Code Ann. §§ 65.202, .203 (West 2007). Consequently , if the Commissi on had base d its biennial reca lculation of statewide aver ag e int ra state switched- acc ess rates on the June 1, 20 06 tari ff

e d r a te s a s o rd ina

ri ly c on te mpl a te d b y the ru le , I L ECs that we re tr ans iti on ingto dere g ulation would incur sig nificant re du ct ions to their own tariff ed switche d-ac cess r ates on J uly 1, 2006, 2007, and 2008, y et the re calc ulated ave rag e switche d-ac cess r ates made the basis of the CL EC’ s sa fe -h arb or

ra te s d ur ingthe same perio d w ou ld b e ba se d o n th e I L ECs ’ s ub sta nti a lly highe r, June 1, 20 06 tari ff e d r a te s. The Commission j ustified this a ct i o n as supported by rule 26.223(d) (2)( C), wh ic hi tc o n s tr

u e d a s a u th o r i z i n g i tt o r e c a l c u l at e th e w e i g h t e d s t a t e w i d e av e r a g e c omp os ite usag e sensitive intrastate switched-a cce ss rates outsi d e t h e ordina ry two-y ear

cycle “ as appropr i at e b ecause of sig nificant c hang es in usag e sensitive switche d acc ess rates.” 16 Te x. Ad

min Cod e § 26. 22 3( d) (2 )( C)
. I t “c on c lud e [d] th a t th e rate re du c tio ns mand a te d b y PUR A §§ 65.202 and 62.203 are signific ant chang es in sw itched-a cce ss rates . . . a nd that a re calc ulation under the provisions of that rule is appr opriate at the prese nt time.” I t o rdered that the state wide
aver ag e rates be re calc ulated pursua nt to rule 26.223(f) “usingcurr ent (August 10, 2006) tariff ed rate s.” This had the e ffe ct of e nsuring that the a v er age s wi t ched-ac cess r ates it was e stablishing incorpora ted the Jul y

1, 2006 reduc tions in t he switche d-ac cess r ates of tr ansitioning I L ECs instead of the e arlier , highe r tarif fed r ates that these I L ECs could no longe r cha rg e.7 TEXAL TEL

complains that by using the I L ECs’ August 10, 2006 tariffe d rate s rather than the hig her June 1 rate s, the Commis sion “arbi trarily and ca priciously deviated f

rom its own
ru le s. ” Al tho ug h a c kn ow le dgin g t hat r ule 26 .2 23 (d )( 2) (B ) a

nd (C ) p e rm it the Commis sio n to “re -ca lculate the r ates at issue more fr equently than the ordina ry

two-y ear interval,” TEXAL TEL argues that the Commission “must use the e stablished methodology” set forth in rule 26.223( d)(1) and (f ). This methodolog y , TEXAL TEL insists , re q u i res “historical data.” The Commission stray ed fr o m this requireme nt, TEXAL TEL maintains, beca

use it relied instea d on “new forwa rd-lookingtariff

s.” The failure of an ag ency to f ollow the clea

r, unambig uous languag e of its own rules is arbitrar y and ca pricious, and will be r ever sed. Rodriguez v. Se rviceLloyds Ins. Co. , 997 S.W .2d 248, 254-55 (Te x . 1999). “We c onstrue administrative r ules, which h av e t h e same for ce a s statutes, in the same manne r as statutes.” Id. at 254. “Unle ss the rule is a mbiguous, we f

ollow rule’s clea r languag e.” Id
. W e d e f

e r t o ana g e n c y’ s i n t e r

p r e t a t i o nw h e r e t h e r e i s v a g u e n e s s , amb i g u i ty, or room for

policy deter minations in t he re g ulati o n, but we ca nnot defe r to an a dminist rative interpre tation that is plainly err oneous or inconsistent with the re g ulation. Id
. (q u o t i n g Pu bli c Ut il. Comm’n of Tex. v . Gulf States Util. Co. , 8 09 S.W. 2d 20 1, 20 7 ( Te x. 19 91 )) ; BF I W as te Sy s. of N

. Am., Inc . v. Martinez Env tl. Group. , 93 S.W .3d 570, 575 (Tex. App.—Austin 2002, pet. denied).

W e c o n c l u d e t h atth e C o m m i s s i o nd i d n o ts tra y fr o mru l e 2 6
. 2 2 3 ’s p l ai nl an gu age here . TEXAL TEL

conce des that rule 26.223 authorized the C ommissi on to “re -ca lculate the r ates at issue more f

reque ntly than the ordina

ry two-y ear interval.” The “ estab l i shed methodolog y ” of rules 26.223(d) (1) a

nd (f) , on which TEXA L TEL relies, r e q uired the Commission, as detailed above ,8

to utili ze I L EC’s “cur

rent tariff ed rate ” for sever al differ ent categ ories of or iginating a nd terminating rate elements when calc ulating the aver ag e switched-a cce ss r ates. In its August 17, 2006 Or der, the Commi ssion util ized I L EC tariffs in ef fec t on August 10, 2006. The Commi ssion’s interpretation of its ru le to p e rm it the us e of Au g us t 10 tari ff

s in a c a lc ulatio n e ff

e c tiv e on Au g us t 17 is n ot p la inl y
err oneous or inconsistent with the re quirement that it use “c urre nt tariffe d rate [s] .”

We o ve rr ule TE XA L TE L ’s iss ue and a ff ir m th e jud g me nt o f t

he dis tr ic t c ourt
.

____ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ____________ Bob Pembe rton, J ustice Be fore J ustices Patterson, Pury ear and Pember

ton Affir med Filed: Jul y

24, 2008