December 31, 1990

Honorable Bob Bullock Opinion No. JM-1280 Comptroller of Public Accounts Re: Gross receipts assessment for L.B.J. Office Building for telephone companies under secAustin, Texas 78774 tions 78 through 82 of article 1446c,V.T.C.S., the Public Utility Regulatory Act (RQ-2090)
Dear Mr. Bullock:
Sections 78 through 82ofarticle 1446c, V.T.C.S., the Public Utility Regulatory Act [hereinafter PURA], impose a regulatory fee on each public utility falling within the Public Utility Commission's [hereinafter PUC] jurisdiction for thepurpose ofdefraying the costs and expenses incurred by the commission inthe administration ofPURA. The fee is calculated as apercentage of the gross receipts from rates charged bypublic utilities toultimate consumers.

You ask a series ofnine questions regarding the application of the gross receipts fee to telecommunications carriers operating inTexas. Specifically, you ask whether andunder what circumstances the feemay be imposed upon certain telecommunications carriers, in light of the divestiture byAmerican Telephone & Telegraph Company [hereinafterAT &T] of Bell operating companies imposed in an antitrust consent decree entered by order of the federal courts. Essentially, you wish toknow which carriers are subject to the jurisdiction of the PUC and who is an "ultimate consumer" under certain circumstances forpurposes of section 78of PUPA.
Section 78 ofPURA imposes an assessment upon each "public utility" subject to the PUC's jurisdiction that is based upon the "rates" charged to the "ultimate consumers." Section 78of PURAprovides:

An assessment ishereby imvosed uvon each public utilitv within the commission's iurisdiction, includinu interexchanue telecommunications carriers. servina theultimate consumer eoual to one-sixth of onepercent of itsoross receints fromrates charsed the ultimate consumers in Texas forthe wurwose

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ofdefravina the costs and exnenses incurred inthe administration of this Act;. Thereafter the commission shall, subject to the approval of the Legislature, adjust this assessment to provide a level of income sufficient to fund the commission and the office of public utility counsel. -Y interexchange telecommunications carrier found dominant asto any service market under Section 100(b) or filing a petition under Section 100(f) of thisAct shall be required to reimburse the Office of Public Utility Counsel for the costs ofparticipation before the commission on behalf of residential ratepayers in.any of theproceedings under Section 100 of this Act to the extent found reasonable by the commission. Recovery of costs under this section by the Office of Public Utility Counsel shall not exceed $175,000 per annum. Nothina inthis Act or any other nrovision of law shall nrohibit interexchanae telecommunications carriers who do not vrovide local exchanue teleuhone service fromcollectina the fee imnosed under thisAct as anadditional item senaratelv stated on the customer bill as 'Utilitv Gross Receints Assessment*. (Emphasis added.)

You first ask:

What telephone companies should be paying this assessment -- does it apply to all telephone companies which may be subject to any facet of the PUC's jurisdiction, whether for ratemaking purposes or formore limited purposes?

You informus thatyou have advised all "long distance telephone companies" that they fall within the reach of section 78and are thereby subject to the assessment, but that several carriers disagree with your construction. We assume that there is no question that local exchange carriers (known as LECs) who provide local services to residential andbusiness subscribers fallwithin the ambit of the act. We assume that, with thephrase "long distance telephone companies," you refer to interexchange carriers (knownas IXCs) that offer either interLATA or intraLATA longdistance service. You state that the PUChas failed to take any consistent position on whether the assessment applies to all carriers subject to any facet of its jurisdiction or just to "dominant carriers" asdefined in section 3(c)(2)(B) of PURA. It issuggested that section 78

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reaches only those carriers over which the PUChas ratemakingauthority. Wedisagree.

InAttorney General Opinion H-811 (1976),this office
was asked, inter alla whether section 70 reached only those utilities over which'the PUChad ratemaking authority or whether itextended to any utility overwhich it exercised any type of jurisdiction. The opinion concluded:

The quoted language of section 78 is unqualified. Consequently, the Commission need not exercise any particular form of jurisdiction over a utility in order to assess the utility. Inour view, the term \Commission's jurisdiction' may best be defined by reference to article III of the Act, entitled 'Jurisdiction.' Therein the Commission isgiven jurisdiction overvarious utilities.

The relevant language of section 78has not been amended since the issuance ofAttorney General Opinion H-811, except for the addition of the phrase llincluding interexchange carriers."
Any doubt as to whether section 78now' reaches all interexchange carriers isresolved by examining the legislative history forSenate BillNo. 229,which was enacted in 1987. Prior to the enactment of that bill, section 78 provided that the assessment was l'imposedupon each public utility within the commission's jurisdiction serving the ultimate consumer." The bill added the phrase "including interexchange telecommunications carriers.*' Acts 1987, 70th Leg., ch. 414, 5 3 at 1950. Moreover, the bill amended subsections 3(c) and 18 (c) and (d) of PUHA, which had effectively provided that IXCsother than AT &Twere not "public utilities" forpurposes of section 3and not subject to the PUC's jurisdiction under section 18. Subsequent to the enactment of Senate Bill 229, IXCs other than AT &T became "public utilitiesIIforpurposes of conferring limited jurisdiction over them onthe PUC.
The *@Background"section of thebill analysis for the bill provides:

Current Texas law requires apublic utility to submit to the jurisdiction of the Public Utility Commission (commission). There are now at least 70 interexchange telecommunications carriers operating inthe state that do not fall under the definition of a public utility because they do not provide local

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exchange telephone service. Because they do not fall inthe category of apublic utility, they are not subject to regulations that carriers who provide local telephone service
are subject to. For examvle. wrier6 who provide local exchanae telenhone service must pav one-sixth of one nercent of the aross receints from rates charaed consumers to the PlJC,which isused todefray the exoen e incurred inrunnina the commission. (Emp:as sis added.)
BillAnalysis, S.B. 229, 70th Leg. (1987).

The l'Purpose*@

section of thebill analysis stated:

As proposed, S.B. 229 amends the Public Utility Regulatory Act by making interexchange telecommunications carriers public utilities, thereby placing them under the jurisdiction of the Public Utility Commission. S.B..229 also requires that the long distance rates be averaged statewide and that long distance carriers not discontinue service to any area of the state without permission of the PUC.

And finally, the qqSectionby Section Analysis" portion ofthe bill analysis described thebill inthe following way:

SECTION 1. Amends Section 3(c), Public

Utility Regulatory Act (PURA), Art. 1446c, V.T.C.S., todefine apublic utility as it affects telecommunications. Provides forthe term 'interexchange telecommunications carriers' to be substituted for the terms *specialized communications common carriers' and 'resellers of communications and other common carriers.' Provides that the commission's iurisdiction over those interexchanae telecommunications carriers who do not provide local exchanae telephone service will be limited to the extent defined in PURA. Strikes from the amendment to the definition of apublic utility any reference to the term 'dominant carrier' as defined in Section 3(c)(2)(b).

SECTION 2. Amends Sections 18(c) and (d), PURA, Art. 1446~.

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Subsection (clDrOVideS swecific iurisdiction of the commission over 'interexchm telecommunications carriers who donot Drovide local exchanae televhone spwic e.' Removes the reference to *dominant carriers.' Provides for the commission to conduct investigations regarding competition in the industry.
(c)(4)Requires the commission tomaintain statewide average rates orprices of message telecommunications service.
*i;)(5)Authorizes the commission to reclul that interexchanae telecommunications carriers mav not abandon or discontinue messaae telecommunications service inor to a local exchanae area unless the commission swecificallv soorders.
(d)Provides that an interexchange telecommunications carrier must maintain its tariffs or service lists on file with the commission.

SECTION 3. Amends Section 78. PURA. Article 1446~. V.T.C.S.. to recniire that interexchanae telecommunications carriers be included amoncl those Dublic utilities that must suwwort the Public Utilitv COmmiSSiOn throuah an assessment ofone-sixth of one percent of their aross receivts. (Emphasis added.)

We conclude that,with the enactment of Senate Bill 229 in 1987, the legislature clearly intended to confer jurisdiction, however limited, to the PUC over all interexchange
common carriers. Therefore, we conclude that the section 78 assessment reaches all local exchange carriers and all interexchange carriers operating inTexas.

Your second question asks:

Are local access charges subject to the assessment?
Section 78 imposes anassessment that iscalculated on thebasis of the "rates charged theultimate consumer." The phrase "ultimate consumer" isnotdefined anywhere in PURA, but the term "rate" is. Subsection (d)of section 3of PURA defines l'rate"andprovides:

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The term 'rate,' when used inthis Act, means and includes every compensation, tariff, charge, fare, toll, rental, and classification, or any of themdemanded, observed, charged, or collected whether directly or indirectly by any public utility for any service, product, or commodity described in Subdivision (c) of this section, and any rules, regulations, practices, or contracts affecting any such compensation, tariff, charge, fare, toll, rental, or classification.

Enduser access charges exacted upon residential and business subscribers by anLECs or IXC are "rates charged to theultimate consumer" forpurposes of the regulatory assessment imposed by section 78 of PUBA. You ask whether interexchange carrier access charges received by an LEC from an IXC are "rates charged to theultimate consumer." That they fallwithin thedefinition of VateNt isclear. The issue is whether the interexchange carrier, inpaying an access charge to a local exchange carrier is,an Qltimate consumer."
Prior to the divestiture, charges analogous to those aboutwhich you askwere held by the PUCnot to fall within the section 78assessment. InDocket 2054, 23P.U.C. Bull. vol. IV, No. 23, 2074 (1979), the PUC held,that charges imposed upon telegraph companies for access services provided by local telephone exchange companies were not charges imposed upon the @'ultimate consumer." See also Attorney General Opinion H-811.

You suggest that that administrative holding is no longer controlling because of the court-ordered divestiture. You suggest that, because the Bell operating companies are restricted primarily toproviding local exchange services and access to their local systems to interexchange carriers, while interexchange carriers areprohibited from providing local exchange service, an interexchange carrier is an "ultimate consumer" of the services provided to them in the identical way that residential andbusiness subscribers are ultimate consumers of the services provided to them. For two reasons, we disagree.
First, words ordinarily are given their plain meaning, unless the statute clearly shows that theywere used in some other sense. BiaHAuto Auction. Inc.v. Saenz Motors, 665 S.W.2d 756 (Tex. 1984); Tavlor v. Firemen‘s 8 Policemen's Civil Service Comm., 616 S.W.2d 187 (Tex. 1981). The ordinarymeaning of the phrase Vltimate consumer" refers to someone who is last inthe chain of sale oruse. See, e.g.,

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Alto. Bev. Code SS 16.01, 16.05, 64.01; Nat. Res. Code 5 113.081(a)(4). The final consumer in the chain created when someonemakes a long distance telephone call is the residential orbusiness subscriber who initiates the call.

There are three essential components of any long distance telephone call. First, the calling party places a call through the facilities of an LHC serving his area. Second, the originating LEC connects the call to an IXC that transports the call to its destination. Third, the IXC accesses the local network of the destination LHC to complete transmission of the call to itsdestination. See National Ass'n of Rea Util. Comm‘rs v. FC.C., 737 F.2d 1095 (D.C.Cir.), cert denied, 469 U.S. 1227 (1984). The interexchange access charge is imposed upon the interexchange carrier by both local exchange companies. These charges comprise part of the rate that interexchange carriers impose upon their customers. Ineffect, the access isVesold,l* as itwere, by the interexchange carrier to its customer. That the legislature understood that access by an IXC to local exchange companies isa resold service to the residential or business subscriber is evidenced by the legislative history of the statute that added section 151.323 of the Tax Code.1 This provision exempts telecommunications services fromthe reach of the sales and use tax. See BillAnalysis, H.B. 1949, 69th Leg. (1985).
Second, the section 78 assessment is imposed upon the interexchange carriers' gross receipts from its subscribers, which includes the charges passed through to their customers to recoup the access charges paid to local exchange carriers. If we were to conclude that interexchange carriers were %ltimate consumers" for purposes of the imposition of the interexchange carrier access charge, that chargewould be included twice in the total assessment imposed upon the telecommunications industry. There is no indication that the legislature intended such aresult.

1. Section 151.323 of the Tax Code provides inpart:
There are exempted from the taxes imposed by this chapter the receipts from the sale, use, or other consumption inthis state of:

. . . . (3)access to a local exchange telephone company's network by aregulated provider of telecommuncations services.
. . .

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Your third, fourth, fifth, sixth, and seventh questions
are as follows:

IfQuestion Two isanswered 'yes',are local access charges subject to the assessment on calls from:
(3)apoint in Texas to another point in Texas inadifferent LATA;
(4)apoint inTexas to another state:
(5)apoint inanother state to apoint in Texas; (6)apoint in Texas to another country; and
(7)apoint inanother country to a point inTexas?

Because of our answer to your second question, we need not address your third through seventh questions.

Your eighth question asks:

Under the Supreme Court case ofGoldbera Sweet, 488 U.S. 252, 109 S.Ct. 582, 112 L.Ed.2d 607 (1989), it is clear that Texas could constitutionally impose this assessment on the longdistance portion ofa call that originates inor isreceived inTexas so long as the call is billed to aTexas address. Should the assessment on longdistance calls be based on the formula approved by the court inGoldbera v. Sweet or, ifnot,what formula should be used?

InGoldbera v. Sweet, 488U.S. 252 (1989)the United Supreme Court held that the Illinois Excise Tax, which imposed an excise tax on interstate calls that separated local exchange costs from the costs associated with the actual use of the interstate interexchange carrier's line, did notviolate the commerce clause of theUnited States Constitution. The Illinois statute imposed a five percent tax on the gross charge of interstate telecommunications originated or terminated in Illinois and charged to an Illinois service address regardless ofwhere the telephone call isbilled orpaid. The statute imposed an identical fivepercent tax on intrastate telecommunications. Inorder toprevent actual multi-state taxation thatwould be violative of the commerce clause of the United States ConstiP. 6873Honorable Bob Bullock -Page 9 (JM-1280)

tution, the statute provided a credit to any taxpayer that haspaid atax inanother state on the same telephone call that triggered the Illinois tax.

We do notunderstand you to askwhether youmay promulgate administrative rules thatwould permit you to administer the section 78 assessment charge in a way that comports with theholding ofGoldberq. We understand you to askwhether any rules sodrafted would be constitutional. Youhave not submitted tous any specific proposed rules; therefore, anydiscussion by this office of anyhypothetical formulawould be speculative. This office does not answer hypothetical questions in the opinion process. Therefore, wedecline to answer your eighth question.

Your ninth question asks:

Does the assessment apply to activities such as 'billing and collection services* performed by local exchange companies on behalf of, and billed to, longdistance telephone companies?

The definition of "rate" set forth in section 3of PUPA includes '*services.lVSubsection (6)of section 3of PUPA defines lVservice** andprovides:
'Service is used in this Act in its broadest and most inclusive sense, and includes any and all acts done, rendered, or performed and any and all things furnished or supplied, and any and all facilities used, furnished, or supplied by public utilities in theperformance oftheir duties under this Act to their patrons, employees, other public utilities, and thepublic, aswell as the interchange of facilities between two ormore of them. Service shall not include the printing, distribution, or sale of advertising intelephone directories. Billing and collection services clearly fall within the definition of lVservices"and "services" falls within the definition of "rate." However, the section 78 regulatory fee may be imposed only on those t*rateslVcharged to "ultimate consumers." We assume that these service charges arepassed through to the IXC's subscribers. Because of our answer to your second question, we answer your ninth question inthe negative.

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SUMMARY
The assessment imposed by section 78 of article 1446c,V.T.C.S., the Public Utility Regulatory Act, reaches allpublic utilities subject to the jurisdiction of the act. Interexchange carriers are not "ultimate consumers" forpurposes of section 78, ifthe local access charges are passed through to their subscribers.

JIM MATTOX Attorney General ofTexas

MARY KELLER FirstAssistant Attorney General

I0UMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLKY Special Assistant Attorney General

RKNEA HICKS Special Assistant Attorney General

RICK GILPIN Chairman, opinion Committee
Prepared by JimMoellinger Assistant Attorney General

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