# FILED

October 1, 199 7

Cecil W. Crowson Ap pellate Cou rt Clerk 

## IN THE COURT OF APPEALS OF TENNESSEE MIDDLE SECTION AT NASHVILLE

BELLSOUTH TEL ECOMMUNICATIONS, INC. ) d/ b/ a SO UTH CENT RAL BEL L TEL EPHONE ) COMPANY, ) ) Petition er/A ppella nt, ) Public Ser vice ) Comm issi on VS. ) No. 95-03383 ) H. LYNN GREER, Chai rman, SARA KYLE, ) Appeal No. Director, and ME LV IN J. M AL ON E, Director, ) 01A01-9601-BC-00008 Constit uting t he Tennessee Regula tory Author ity, ) ) Respondents/App ellees. )

BE LL SO UT H T EL EC OM M UN ICA TIO NS , IN C., ) ) Public Ser vice Petitioner, ) Comm issi on ) No. 95-02614 VS. ) ) Appeal No. TENNES SEE P UBLI C SERV ICE COMMISS ION, ) 01A01-9602-BC-00066 ) Res pon dent. )

STATE OF TEN NESSE E, on rel ations of ) BE LL SO UT H T EL EC OM M UN ICA TIO NS , IN C., ) ) Petition er/A ppella nt, ) Dav idson C hancery ) No. 95 -2965-II VS. ) ) KEITH B ISSELL, STEV E HEW LETT, and ) Appeal No. SA RA KY LE, in their cap acity as Co mm issioners ) 01A01-9601-CH-00016 of the Tennes see Publi c Service Comm issi on, ) ) Respondents/App ellees. )APPEAL FR OM THE TENNESSEE P

UBLIC SERVICE C OMMISSION NASHVILLE, TENNESSEE

For BellSouth Te l ecommunic ations, Inc. : Guy M. Hicks, III Bennett L . Ross Nashville, Tennessee James G. Harra

lson Atlanta, Georgia

For AT &T Comm

unications o f the South Central States, Inc. : Val Sanford John Knox Wa

lkup Gullett, Sanford, Robinson & M artin Nashville, Tennessee For Tennessee Public Service Comm. : Charles W . Burson Attorney General & Reporter Michael E. Moore Solicitor General Michael W . Catal ano Associate Solicitor General Nashville, Tennessee

For Tennessee Consumers : Charles W . Burson Attorney General & Reporter Michael E. Moore Solicitor General L. Vincent Williams Consumer A dvocate Nashville, Tennessee



## VACATED AND REMANDED

WILLIAM C. KOCH, JR., JUDGE1 T he details of these early efforts are r ecounted in Tennesse e Cable Te levisio n Assoc. v

. Tennessee Pub. Serv. Comm’n, 844 S.W.2d 151, 155-58 (Tenn. Ct. App. 1992).

2 Tenn. Comp. R. & Reg s. r. 1220-4-2-.55 (1993). This rule was revised again in June 1995. -3- 

## O P I N I O N

This consolidated appeal of three separate proceedi ngs involves t

he effor ts of BellSouth

Telecom munication s, Inc. to take advantage of the 1995 l egislation easing the tr aditio nal regulatory burdens on telecommunications service providers. After making significa

nt adjustme nts in BellS outh’s reported oper ating resu lts, the Tennessee Public Se

rvice Com

mission dete

rmined tha

t Bell South’s current earned rateof return exceededits authorized rate of return and that BellSouth

was rec eiving $56.285 million in excess revenues. The Commission directed BellSouth to reduce its rates by $56.285 mi llion and set the initial ra tes in the c ompany’s pr

ice regul ation plan according ly. On this app eal, Be llSouth and a nother inte

rvening party take

issue withthe procedures employed by t he Commiss ion to conside r and act upon BellSouth’s applicati on for a price regulation plan. We have dete rmined tha

t these proceedin gs were not

preempte d by th e federa l Telec ommunicat

ions Act of

1996. We ha ve also determin ed that the Genera l Assembl y did not give t he Commiss ion author ity to adjust Be llSouth’s r eported ope

rating re sults and tha

t the Comm

ission shouldhave conve ned a conte sted case hearing when BellS outh took issue with the Commission’s decision toadjust its r epor ted operat ing resul ts. Accordin gly, we vacate th e Commissi on’s Januar y 23, 1996 or

der and al l earlie

r relate d orders.

I.

Almost ten years ago, the T ennessee P ub lic Serv i ce Commi ssion began i ts efforts to moderni ze Tenne ssee’s te lecommuni cations net work and t

o explore l ess cumbe rsome way s to regula te the tel ephone com

panies unde

r its juris diction. 1 The Commission’s work culminated in its first regulatory reform rule that t ook effec t on January 10, 1 993. 2 One day la ter, Be llSouth Te lecommuni cations, Inc. fi led its conditi onal elect ion to op erate under this rule

.
On August 20, 1993, the Commission entered an order governing BellSouth’s rates from 1993 through 1995. See In re Earn ings Investiga tion of South C entral Be ll TelephoneCo., 199

3-1995, Docket N o. 92-13 527. Based on the results of an3 The Commission specific ally de clined to follow its s taff recommenda tion favo ring for ecasts because the company’s actual e arnings h ad been below the

foreca sted ear

nings. The Commission noted that “[c]ontinu ation of a policy similar to that which we star

ted in 1990

could, if foreca sts continue to be missed, result in rate decreases for compa nies that need rate inc rease s, and ra te increases for companies that are ove rearning.” In re Earnings Investig ation of Sou th Central B ell Telephone Co., 1993-1995, Docket No. 92-13527, at 7.

4 The Consumer Advocate Division in the Office of the Attorney Gene ral andReporter was created in 1994 for

the purpo se of re

present ing the inte

rests of Tennessee’s c onsumers befo re the Commission. Tenn. Code Ann. § 65-4-118(c) (Supp. 1996).

5 The Form PSC-3.01 report is a monthly report containing a telephone company’ s intrasta

te operating results in ac co rdance with rules and forms established by the Commission. See Tenn. Comp. R. & Regs. r. 1220-4-1-.10(2)(a)(1), - .10(3)(a)(1988). -4- earnings investigation that had been comm enced in 199 2, theCommission concluded thatarange of return on B ellSouth’ s rate ba se of 10.65% to 11.85% w ould be just a nd reasonable. The Comm

ission adopted BellSouth’s recommendation that future rate adjustment s and defer

red reve nue accoun

t contribut

ions should be based on the company’s actual fi rst-year results, as opposed toprojectio ns. 3 It also determined that there would be no rat e adjus tment for 1993 becaus e BellSouth’s fore casted ra te of return for 19 93 fell wi thin the appr oved range . This c ourt approv ed the Commission’s order in a

ll respects. American Assoc. of Retired Persons v. Tennessee Pub. Ser v. Comm ’n, 896 S.W.2d 127 (Tenn. Ct. App. 1994).

In Decemb er 19 94 , the Cons umer Advo cate 4 requeste d the Commi ssion to resolve what h e considered to be inappropriate expense allocations in BellSouth’s FormPSC-3. 01 reports. 5 When the Commission did not respond, the Consumer Adv ocate filed a petition on Janu ary 23, 199 5 requesti ng the Comm ission to
commence an investig ation into B ellSouth’ s earnings. In Marc h 1995, the Commission

announced t

hat it was commencing another earnings i nvestigatio n with regard toBellSouth

.
In the meant

ime, tw o competingtelecomm unications b ills were introduced in the first ses sion of

the Ninety-Ninth General Assembly that had convened in January 1995. The a vow ed purpose of both bills was to ease the traditional regulatory constraint s on local te lephone com panies and t

o permit gr

eater c ompetition f

or local telecomm unications services . Filed c oncurrent ly with these bills was a bill to replace the Commission

with a ne w regula

tory entity . On May

26, 1995, t

he Gover nor signed a bill rep lacing the Commissi on with the T ennessee R egulatory A

uthority6 Act of May 24, 1995, ch. 305, 1995 Tenn. Pub. Acts 450.

7 Act of May 25, 1995, ch. 408, 1995 Tenn. Pub. Acts 703, codified at Tenn. Code Ann. §§ 65-4-101, -123 & -124, 65-4-201, -203, -207, and 65-5-208 to -213 (Supp. 1996).

8 Tenn. Code Ann. §§ 65-5-207, -208, -209(f), (h) (Supp. 1996).

9 Tenn. Code Ann. § 65-4-124(a).

10 Prior to 1995, the Commission could not permit new competitors to enter a market already served by another provider unless it found that the current se rvice was “inadequate to meet the reasona ble needs of the public.” Tenn. Code Ann. § 65-4-203(a) (Supp. 1996). The 1995 legislation exempts telecommunications service providers from this requirement. Tenn. Code Ann. § 65-4- 203(c). The 1995 legislation also permits new competitors to enter a market if they demonstrate that th ey will adhere to the applicable legal requirements and tha t they possess sufficient manag erial , financial, and technical abilities to provide the service. Te nn. Code Ann. § 65-4-201(c).

11 Tenn. Code Ann. § 65-5-209.

12 Tenn. Code Ann. § 65-5-212, -213. For the purposes of this progr

am, a “small busine ss” is one with annual gross revenues of less than $4,000,000. Tenn. Code Ann. § 65-5-212. -5- effecti ve July 1, 1996. 6 Two wee ks later, the Gover nor signed a

nother bill dramatic ally altering the regulation of local telephone companies and opening u p the local tele communica

tions marke

t to unprec edented opp ortunities for competition. 7
The expr essed goal of the new

regulator y structur e was to foster the

developme nt of an ef

ficient, technologic ally advanced, statewide system of telec om munication s services by permitt ing competi tion i n al l t elecommu nications services markets, and by perm itt in g alternat ive forms of re gul ation for t elecommu nications services an d telecommu nication s services provider s. See Tenn. Code Ann . § 65-4-123 (Supp. 1996). In broad ter ms, the 19 95 legislat

ion setout to acco mplish this go al in five ways. First , it mandated the universal avail a bility of basic t

elephone se

rvice at afforda

ble rates and froze

basic and n onbasic telephone rates for four years. 8 Second, it requir ed incumbe ntlocal tel ephone companies to make av ailable no n-discrim inatory int

erconnec tion to th eir public networks to other pr

oviders. 9 Third, it

eased the tradit

ional limit ations on the

ability of new provi ders to ent

er the ma rket. 10 Fourth, it provided a transiti on procedur e to
ena ble existing local telephone companies to take advantage of the newly relax e d regulatory environme nt. 11 Fifth, it established a five-year, $10 million loan guarantee programto induce small and minority businesses to enter the teleco mmunicat ions market. 1213 Tenn. Comp. R. & Regs. r. 1220-4-2-.55 (1995). -6- The transition

procedur e for exi sting local tel ephone companies was designed to be simple an d expediti ous. It r equires a n existing loc al telepho ne company desiring to take advantage of the new regulator y environment to file a

n applicat ion for a price regulation plan and envisions that the Comm issio n will ac t on the applicati on within ni nety days

. See Tenn. C ode Ann. § 65-5-209( c). It requires the Commission

to base its de cision whether to gra nt the appli cationon an audit o f the applicant’s most recent Form PSC-3.01 report. See Tenn. Code Ann. § 65-5-209(c), -209(j).

Tenn. Code Ann. § 65-5-209( c) state s that the c ompany’s rates e xis ting on June 6, 1995 will be

the initial rates under its price regulation plan if the company’s earned rateof retur

n on its most recent Form PSC -3.01 re port is less than its cur

rent authorized fair ra

te of retur n existing w hen the appl ication w as filed. The stat ute also empowers the Commi ssion or Au thority to initi ate a co ntested ra te-making proceedin g if the audit of the Form PSC-3.01 report re veals tha t the company’s earned rate o f return is greate r than its c urrent authorized f air rate of retur n. Conversely, the statute permits the company to request a contested rate-ma king hearing if the audi t reveals that its ea rned rate of retur n is less t

han its cur

rent authoriz ed fair rate of

return.

The Commission’s revised r egulatory r

eform ru les took ef

fect one week after the Governor signed the telecommunications reformlegislatio n. 13 On June 20, 1995, BellSouth

filed its a

pplication f

or a pric e regulat

ion plan. On

July 24, 1995 , the Commission permitted AT&TCommunica tions of the

South Cent

ral Stat es, Inc. to intervene in the proceeding. Approximately two weeks lat er, th e Commissi on dire cted its staff to conduct the audit of BellSouth’s most recent Form P SC-3.0 1 report in a ccordance wi th Tenn. Cod e Ann. § 65-5 -209(c), (j).
On August

17, 1995, t

he Commission ’s staff

issued the r

esults of it s audit of BellSouth’s Form PS C-3.01 r eport for the twel ve-month

period ending on December 31, 1994. At t

h e outset, the staff

determin ed that, except for four minor discrepa ncies, BellSouth’s December 1994 report accurat ely refl ected the company’s books and recor

ds, that it reflec ted the Com

mission’s pr

eviously ord ered rat

e-making adjustment s, and that it complied with the generally accepted accounting principles14 Tenn. Code Ann. § 65-5-209(c) requ ired an a udit of the existing te

lephone c ompany’smost recent Form PSC-3.01 reportavailab le when the company filed its application for a price re gulation plan. When BellSouth filed its application for a price regulation p lan, it had already filed a Form PSC-3.01 report f

or the twe lve monthsending on

March 31 , 1995. Thi s report, as opposed to the report f or the twe lve monthsending on

Decemb er 31, 19 94, was Be llSouth’s mo st rece

nt repor t. -7- as adopt ed in P art 32 of the Uniform System of Accounts. Accordingly, the staff concluded that BellSouth’s correctedrate of r eturn for 1994, as ta

ken from i ts books, was 10.21%.

Even though Bell South’s cor rected rate of return for 19 94 was les s than its authorized rate of re turn in the Commi ssion’s Aug ust 20, 1993 o rder, t he Commission’s staff decided that BellSouth’s audited rate of r eturn should

be adjusted to reflec t “out-of- period and n on-recur ring items ” and “kn own char ges” occur

ring during the audit period. Accordingly, the staff concluded that BellSouth’s adjusted rateof return for 1994 was 12.29% and that this adjusted rate of return “ more accurat ely reflec ts the ear

nings potential o f the rat

es in effect

at the end of the audi t period.” Since this adjuste d rate of return e xceeded B ellSouth’ s current ly authorized rateof return, the staff recommended thatthe Commission initiate a contested ratemaking proceedi ng under T enn. Code Ann. § 65- 5-209(c) to establis h the initial rates for Bell Sou th’s price regulatio n plan.

The staff’s August 17, 1995 report and recommendations pro voked a swi ft and strong reaction fro m BellSout h. On Septe mber 12, 1995, the c ompany file d a petition for a declaratory orde

r pursuant to Tenn. Code Ann. § 4-5-223(a) (1991) ques tioning the staf f’s authority to recommend adjustments to its corrected Form PSC -3.01 report
. In the meant

ime, the Commission

rejecte d the August

17, 1995 re

port beca use it was based on an incor

rect For m PSC-3. 01 report 14 and directed its staff to audit the proper Form PSC-3.01 report.

On Septembe

r 15, 1995, the Commi ssion’s sta ff issued i ts second audi t report - this time covering BellSouth’s Form PSC-3.01 report for the tw elve months ending on March 31 , 1995. Thi s report e mployed the same audi t methodology used in the August 17, 1995 report. The staff made three corr ections to BellSouth’s Form PSC3.01 report a

nd then conc lu ded th at the cor rected r eport acc urately r

eflecte d the company’s books and re cords and the Com mission’s pr

eviously ordered rate-mak ing adjustment s an d that it complied with the generally accepted accounting principles15 BellSouth had repo rted a 10 .20% ear

ned rate of retur n on its Form

PSC-3.01 re

port a n d contested the corrections made by the Commission’s staff. We need not resolve this dispute here.

16 The Commission entered an order on November 9, 1995 formally denying BellSouth’s petition for a declaratory order. B ellSouth f ile d a Tenn. R. App. P. 12 petition in this court on January 5, 1996, seeking appellate review of this order. BellSouth Telecommunications, Inc. v. Greer, App. No. 01A01-9601-BC-00008. -8- as adopted i n Part 32 of the Unifo rm System of Accou nts. As a

result of its
corre ctions, th e staff c oncluded tha t BellSout

h’s corre cted rate

of retur n for the twelve mont hs endin g on March 3 1, 1995 was 10.30%. 15

The staff ag ain recom

mended ma

king “ adj ustments” t

o the results in BellSouth’s Form PS C-3.01 r eport. It recomm

ended fif teen “out-of

-period” adjustment s to remove

items re corded on

BellS outh’s books du

ring the tw elve months ending on Ma

rch 31, 199 5 that appli ed to months p rior to April 1 994 and for items recorde d outside the audit peri od that appli ed to theaudit p eriod. It recommended nine additi onal a djustme nts for abnormal or unusual expenses that
were not expect

ed to occur. Finally, it recommen ded twelve a djustmen ts for “kno wn changes” reflec ting theannualize d cost of rate c hanges or vo lume chang es occurr ing durin g the period

covered b y the Form

PSC-3. 01 report. As a re sult of thes e adjustment s, the Commission’s staf f co ncluded tha

t BellSout

h’s adjuste d rate of return was 12.74%. Since this adjustedrate of return exceeded BellSouth ’s currently authorized rate of r

eturn, the staff

again rec ommended t

hat theCommission

initiate a conteste d rate-m aking proce eding to est ablish Bel lSouth’s initial rat es.

On September 20, 1995, the Commission acce pted its staff’s Septembe r 15, 1995 report and convened a contested case proceeding to setBellSouth ’s initial rates. Approximatel y one m onth later , it also c onvened a c ontested ca se procee ding to conside r BellSouth ’s petition for a dec laratory

order con cerning the

staff’s audit methodologyand directed that the proce eding be con solidated w ith the pendi ng contes ted r ate-mak

ing procee ding. The

consolidate d proceedi ng commenc ed on November

1, 1995. After denying BellSouth’s req u est for a declara tory order without p ermittingBellSouth to introduce proof substantiating its challenge to the staff’ s aud itmethodology a

nd conclusio ns, 16 the Commi ssion proce eded with the proo f establishin g a fair rate of return for BellSouth. On N ovemb e r 7, 1995, the Commission

determin ed that Be llSouth’s rate of return should be 10.35% and, based17 The Commission allocated $21.5 million to reduce IntraLATA long distancemessage toll rates, $27.4 million to eliminate the $1.50 residential touchtone rates, a nd $7.4 million to eliminate the $1.00 zone charge. The Commission also di rected B ellSouth to waive the service connection charges for computer lines at schools and libraries and to provide a flat-rate optionto customers who have expressed a desire to be included in Metro A rea Calling.

18 BellSouth

had already appealed from an Oc tober 16, 1995 order entered by the Chancery Courtof Davidson County dismissing its petition for a writ of mandamus to compel the Commission to implement its price regulation plan. State ex rel. Bell South Tele communic

ations, Inc. v. Bissell, App. No. 01A01-9601-CH-00016. This appeal and the appeal fr om the Commiss ion’s denial of BellSouth’s petition for a declaratory order, BellSouth Telecom municatio ns, Inc. v. Greer, App. No. 01A01-9601-BC-00008, were consolidated wi th the appeal from the Commission’s Jan uary 23, 1996 order. Later, on BellSouth’s motion, we dismissed the appeal in the mandamus case on the grounds of mootness but reserved taxing costs pending the resolution of this appeal. State ex rel. Bell South Telecom municatio ns, Inc. v. Bissell, App. No. 01A01-9601-CH-00016 (Tenn. Ct. App. May 3, 1996). -9- on the adjustm

ents in its st aff’s S eptember 15, 19 95 repor

t, direc ted BellS outh to reduce its rates by $5 6.285 mil lion.

On November

20, 1995, t

he Commiss io n resum ed its hearing to consider
recomme ndations from BellSouth, the Consumer Advocate , and AT &T conce rning the most appropriate way to reduce BellSouth’s rates by $56.285 million. On January 23, 1996, the C ommission e ntered an order for mall y deter mining that BellSouth’s rate of r eturn should

be 10.35% and, ther

efore, that Bell South was earning $56 .285 millionin excess r

evenues. The Comm

ission prescribed cha

nges in Bel lSouth’s r ate designto elimi n ate these excess revenues 17 and determined that BellSouth’s rates would be affordable for the purpose of Tenn. Code Ann. § 65-5-2 09(c) once these reductio ns were in pl ace.

On Februar

y 14, 1996, BellSouth

filed a T enn. R. App. P. 12 petition to review the Commissi on’s Janu ary 23, 199 6 order. BellSouth Telecommunications, Inc. v. Tennessee Pub. Ser

v. Comm ’n, App. No. 01A 01-9602-BC -00066. O n Februar y 27, 1996, this court stayed the Commission’s January 23, 1996 order and, in orders filed
on Februar

y 27, 1996 and Marc h 30, 1996, consolidated this appeal with two other related appeals by BellSouth. 18 On April 3, 1996, we clarified our earlier stay order by stating tha

t it applied

to bo th the rate reductions ordered by the Commission as well as the implem

entation of

BellSouth ’s price regulation plan. O n this appea

l, both BellSout h and AT&T take issue with numerous aspects of the procedure an d reasoningemployed by the Commission to dispose of BellSouth’s application for a price re gulation pla

n under Tenn. Code A

nn. § 65-5- 209.19 The Commission ceased to exist on June 30, 1996. Whi le the General Assembly provided

transition provisions with regard to the Commission’s rules, employ ees and property, see Tenn . Code Ann. § 65-1-301 to -306 (Supp. 1996), it did not add ress the stat us of regulatory proceedings pending before the Commission or of pending judicial proceedings involving actions of the Commission. The members of the Authority did not succeed to the offices of the members of the Commission. However, the Authority has assumed the regulatory power formerly possessed

by the Commission with regard to the matters at issue on this appeal. Accordingly, on July 16, 1996, we substituted the members of the Authority in place of the members of the Commission.

20 Preemption may result from action by Congress itself or by action of a feder al agency acting within the scope of its authority. City of New York v. F.C.C., 486 U.S. 57 , 63-64, 1 08 S. Ct. 1637, 1642 (198 8); Louisiana Pub. Serv. Comm’n v. F.C.C., 476 U.S . 355, 369, 10 6 S. Ct. 1890, 1 898-99 (1986). Federal agencies must declare the ir intent to preempt state law with som e specificity. Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 309 n.12, 108 S. Ct. 1145, 1155 n.12 (1988). -10- II. P REEMPTION BY THE T ELECOMM UNICATIONS A CT OF 1996

As a threshol d matter, we take up AT&T ’s assert ion that this appeal shou ld be remanded to enable the Authority to determine whether the federal Telecom munication s Act of 199 6 preempts state law authorizi ng BellSout h to begin operatingunder a pr

ice regul ation plan. 19 AT&T claims tha

t th e preem ption issue shouldbe addresse d before t he approval of

BellSouth ’s price regulation plan beca use the interconne ction provis ions in state law diff

er from those in the Telecom munication s Act of 199 6 and becau se state l aw conta ins no p rovis ion for modifying a price reg ulat ion plan once it has been approved. We have determined thatthe possibili ty of pree mption is not so press ing that it r equires a remand tothe Authority for furt

her proce edings.

A.

Our federal system of g overnment

recogniz es the dual

sovereignt

y of the federal governmentand the var ious state gov ernments. Printz v. United Sta tes,
___ U.S. ___, ___, 1 17 S. Ct. 2365, 2376 (1997); Gregory v. Ashcroft, 501 U.S. 452, 457, 111 S. Ct. 2395, 23 99 (1991 ). The stat es possess so vereignty

within their particular spheres concurre nt with the federal governm ent subject

only to the li mitations imposed by the Supremacy Clause, U.S. Const. a rt. VI, cl. 2. Tafflin v. Levitt, 493 U.S. 455, 458, 1 10 S. Ct. 792 , 795 (199 0).

The Supremac y Clause pr ovides Congr

ess with th e power t

o preempt s tat e law. 20 The cour

ts are, however , reluctant to presume that preemption of state law has-11-

occurre d. Building & Constr. Trades Coun cil v. A ssociated B uilders & C ontractors of Massachu setts/Rho de Island , Inc., 5 07 U.S. 218, 224, 1 13 S. Ct. 1190, 1194 (1993); Exxon Co rp. v. G overnor of Maryl and, 437 U.S. 117, 132, 9 8 S. Ct. 2207, 2217 (1978). Thus, the courts work from the assumption that the historic powers of the states are not displaced by a federal statute unl ess that w as the clear a nd manifes t intent of Congres s. California D iv. of Labor Standard

s Enforce ment v. Dillingham Contr., N.A., ___ U.S. ___, ___, 117 S. Ct. 832, 838 (1997); BFP v . Resolu tion Trust Corp., 511 U.S. 531, 544, 1 14 S. Ct. 1757, 1765 ( 19 94); L ouisiana Pub. Serv. Comm’n v. F.C.C., 476 U.S. at 368, 106 S. Ct. at 1898.
Preempt ion occurs when there is an outright or actual conflict between federal and state law. Freightliner Corp. v. Myrick, 514 U.S. 280, 287, 115 S. Ct. 1483, 1487 (1995); Louisia na Pub. Serv . Comm’n v. F.C.C., 476 U.S. at 368, 106 S. Ct. at 1898. Itcan also occur by implication when compliance with both f ederal a nd state la

w is impossible

or when state law obstructs the accomplishment of Congress’s objective s. Boggs v. Boggs,

___U.S. ___, ___, 117 S. Ct. 1754, 1760-61 (1997 ); CSX Transp ., Inc. v. East

erwood, 507 U.S. 658, 663, 113 S. Ct. 1732, 1737 (1993); California F ed. Sav. & Loan A ss’n v. G uerra, 479 U.S. 272, 281, 107 S. Ct. 683, 689 (1987). Preempt ion may also a

rise when Congr

ess’s legi slationis so pervasive that it leaves
no room for sta te legisl ative acti on. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S. Ct. 2608, 2617 ( 1992); Louisia na Pub. Serv . Comm’n v. F.C.C., 476 U.S. at 368, 10 6 S. Ct. at 189 8.
Preempt ion is basical ly a quest ion of Con gression al intent

. Barnett B ank of Marion County, N

.A. v . Nelson,

___ U .S. ___, ___, 116 S. Ct. 1103, 1107 (1996); HawaiianAirlines, Inc. v. Norris, 512 U.S. 246, 252, 114 S. Ct. 2239, 2243 (1994); R.J. Reynolds To bacco Co. v. Dur ham Count y, 479 U.S. 130, 140, 107 S. Ct. 499, 506 (1986). This inte nt must be r eflecte d in the text and structure of the federal statute. Ingersoll- Rand

Co. v. McClend

on, 498 U.S. 133, 138, 111 S . Ct. 478, 482 (1990); Shaw v. Delta Air Lin es, Inc., 463 U.S. 85, 95, 103 S. Ct

. 2890, 2899 ( 1983). T he best evidence of preem

pt ive intent

is an expre ss preempt ion claus e. CSX Transp ., Inc. v. East

erwood, 507 U.S. at 664 , 113 S. Ct. at 17 37. Howeve r, in the absence o f explicit preempti on language , the cour ts must alsoexamine t

he structu re and purpose of the federal stat ute for imp licit preem ptory in tent. De Buono v. NYSA-ILA Medical & Clinical Se rvs. Fun d, ___ U.S. ___, ___, 117 S. Ct. 1747, 1751 ( 1997); Barnett21 The Telecom municatio ns Act of 1 996 “pro motes comp etition and reduce s regul ation in order to secure lowe r prices and higher quality services for American telecommunications consumers andto encouragethe rapid development of new telecommunications technologies.” House Rpt. No. 104-204, 104t h Con g., 2d Sess. 47, reprinte d in 1996 U.S.C.C.A.N. 10, 11. One of the principal ways it accomplishes its goal is to impose a ge n eral dut y of inter

connec tion on all telecommunicat ions carriers thereby requi ring loca l telepho ne compa

nies to of fer com petitors a ccess to part of their networks. 47 U.S.C.A. § 251 (West Supp. 1997); House Rpt. No. 104- 204, 104th Cong., 2d Se ss. 48, reprinte d in 1996 U.S.C.C.A. N. 10, 11. Tenn. Cod e Ann. § 65 -4-123 st

ates a similarpurpose, and Tenn. C ode A nn. § 65-4-124(a) (Supp. 1996) imposes a similar duty of interco nnection

on local t elephone companie s. -12- Bank of Marion County, N.A. v. Nelson, ___ U.S. at ___, 116 S. Ct. at 1108; FMC Corp. v. Holliday, 498 U.S. 52, 56-57, 111 S. Ct. 403, 407 (1990).

The courts begin thei r inquiry wi th the pres umption that Congress di d not intend to preempt state law. Building & Constr. Trades Council v. Associated Builders & Contracto rs of Massac husetts/R hode Island, In c., 507 U.S. at 224, 113 S. Ct. at 1194. The proper approach is to reconcile the federal and state laws, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 127, 9 4 S. Ct. 383, 389- 90 (1973), rather tha

n to seek out

conflict where none

clearly exi sts. Exxon Corp. v. Governor of Maryland

, 437 U.S. at 130, 98 S. Ct. at 2216. Stat e law shou l d be displaced by federal law onlyto the ext ent there is a conflict. Dalton v. Little Rock Family Plann ing Servs ., ___ U.S. ___, ___, 116 S. Ct. 1063, 1064 (1996).

B.

AT&Tasserts that the case should be remanded to the Authority to consider whether the Telecommunications Act of 1996 preempts state law because the federal Act’s interconne ction provis ions diffe r from their sta te law counterparts. However, the mere exi s tence of a fede ral regul atory program does not imply preemption of similarstate laws. Englishv. Gen eral Electric Co., 496 U.S. 72, 87, 110 S. Ct. 2270, 2279 (1990). T

hus, AT &T must demonstrate something more if its preempti on argument i s to succee d.

The goals of the

federal Telecom munication s Act of 1 996 and Ten nessee’s 1995 telecommunications legislation are similar. 21 Neither the federal Act nor

the regulation s promulgated b y the Fede ral Comm unications C ommission pur suant to th e Act contain ex

plicit pre emption pro vision s. In fact, the Act specifically states that “[t]his A ct and the a

mendments made by thi s Act shal l not be cons trued to mo dify,22 See also 47 U.S.C.A. § 251(d)(3) (West Supp. 1997) which directs the Federal

Communications Commission not to promulgate regulations that prevent state commissions from enforcing local regulations, orders, or policies (1) that esta blish loca l telepho ne compa

nies’ ac cess andinterconnection obligations, (2) that are “consistent” with the 47 U.S.C.A. § 251, and (3) that do not substantially prevent the implementation of the requirements of 47 U.S.C.A. § 251 or the Telecommunications Act of 1996. -13- impair, or superse de Feder al, Sta te, or local law unless expr

essly provided in such Act
or amendment s.” Teleco mmunicati ons Act of 1996, § 601( c)(1), 47 U.S. C.A. § 152 note (West Supp. 1997). Congress included this provision to prevent “affected parties from a sserting th at the bill impliedly pr e-empts o ther law s.” Hous e Conference Report N o. 104-458, 104th Cong. , 2d Sess. , 20 1, reprint ed in 1996 U.S.C.C.A.N. 124, 215. Withspecificreference to the i nterconne ction issue, the Act also s tates tha

t it should not be construe d to prohibit state com missions fr

om enforcin g or promulgating regulations or from imposing additional requirements that “are necessar

y to furthe

r competi tion in the provi sion of tele phone excha

nge service
or exchange a

ccess” a s long as the y are “not inconsisten

t ” w ith the Act. See 47 U.S.C.A. § 261(b), (c) (West Supp. 1997). 22

The Telecom

munication s Act of 1 996 contains no explicit preempti on language and does not c ontain provi sions that a re inoutright

or actual conflict w ith state law. Accordingly, AT&T ’s preemption argument ca n succeed only if it can demonstra

te that Congress’s regulatory statutes ha ve complet

ely occupied t

he field, thatit is impossible

to comply w ith the req

uirements of

both the federal and s tate law,
or that the state law somehow ob structs the

accompli shment of t

he objecti ves of the Telecom munic ations Act of 1996. AT&T has failed on a ll counts. Nothing in t

he text or str ucture of the Act s upports its un focused pr eemption c laims.
Congress plainly did no t desire to displace local tele communic ations regulatio n when it enacted the Telecommunications Act of 1996. The Act itself makes it clea r thatstate com

missions pla

y a pivotal r

ole in implementing tel ecommunic ations policy. They prov ide a for um for re solving disputes bet ween exi sting local

telephone companies and their competitors seeking access to an existing telephone n etwork

. See 47 U.S.C.A. § 252. B y the same token, the t ext of the Actand Tennessee’s telecomm unications statutes do not suggest that telephone companies will be una

ble to comply wi th the requ irements of both or that compl iance wi th the state statutes w ill somehow ob struct the

objective s of the T elecommu nications A ct of 1996.-14- AT&Thas alre ady invoked t he remed ies befor e the Authority

made ava

ilable by 47 U.S.C.A. § 252. In M arch 1996, it initiated i nterconne ction negoti ations wit h BellSouth. One month later, it request

ed BellSo uth to provide informat

ion
conc erning BellSouth’s costs for providing certain telecommunications services

. After BellSouth

declined t

o provide the

informat ion on the gr

ou nd t hat it wa s not releva nt to the interc onnection ne gotiations, AT&T filed a petition in Ma

y 1996 requestingthe Authority to resolve the dispute o ver the issue of access to the requested informati on. As far as this record shows, this proceeding remains before the Authority . This type of proc eeding, and others like it, p rovide the parties with an appropria te forum to a

ir out and r

esolve mor

e clear ly defined issues conc erning the possiblepreemptive effect of specif ic provision s of the T elecommu nications Act of 1996 or of the

Federal Communica

tions Commi ssion’s re gulations.

III. P RICE R EGULATION P LANS U NDER T ENN . C ODE A NN . § 65-5-209

The determinative issues on this appe al involve t he Commission ’s proces s for considerin g BellSouth’s application for a price regulation plan. Bel lSo uth essentia lly asserts that the C ommission and its staff

exceede d the plain m andate of Tenn. C ode Ann. § 65-5-209. For its part, AT&T argues that t he Commission did not go far enoughin fashioni ng the details of BellSouth ’s price regulation plan. The res olution of these issue s require s us to constr ue Tenn. Code Ann. § 65-5-209 and otherrelated statutes enacted b y the Gene ral A ssembl y in 1995 to foster the development of an
e fficient , technologic ally advanc ed, state wide system of telec ommunicat i ons i n Tennessee.

A.

The search f

or the mea

ning of stat

utory langua ge is a judic ial functi on. Roseman v. Rosem an, 890 S.W.2 d 27, 29 (T enn. 1994) ; State ex rel. Weldon v. Thomason , 142 Tenn. 527, 540, 221 S.W. 491, 495 (1920). Courts mus tascerta in and give the fullest possible effectto the stat ute without

unduly restr

icting it or

expanding it beyon d its int ended sco pe. Perry v. Sentr y Ins. Co., 938 S.W. 2d 404, 406 ( Tenn. 1996); Kultura, Inc. v. South ern Leasin g Corp., 923 S.W.2d 536, 539 (Tenn. 1996). Atthe same t

ime, cou rts must av oid inquiringinto the re asonablene ss of the sta tute-15-

or substituting t

heir own p olicy judgments for tho se of thelegislat ure. State v. Grosvenor

, 149 Tenn. 158, 167, 258 S. W. 140, 142 (1924); State v. Henley, 98 Tenn. 665, 679-81, 41 S.W. 352, 354-55 (1897); Hamblen County Educ. Ass’n v. Hamblen County Bd. o

f Educ., 892 S.W.2d 428, 432 (Tenn. Ct. App. 1994).

When approachi ng statutory t ext, courts must also presume that the legislature says in a statute what it me ans and mea ns in a statute wh at it says there. Connectic ut Nat’lBank v. Germain

, 503 U.S. 249, 253-54 , 112 S. C t. 1146, 11 49 (1992); Worley
v. Weigel’s, Inc ., 919 S.W. 2d 589, 593 (Tenn . 1996). Accordi ngly, we must construe statutes as they are written, Jackson v. Ja ckson, 186 Tenn. 337, 342, 2 10 S.W. 2d 332, 334 (1948), a

nd our search for the meaning of s tatutory la nguage must

always be gin withthe statu te itself. Neff v. CherokeeIns. Co., 704 S.W. 2d 1, 3 (Tenn. 1986); Pless
v. Franks, 202 Tenn. 630, 635, 3 08 S.W. 2d 402, 404 ( 1957); City of Nas hville v

. Kizer, 194 Tenn. 357, 364, 250 S.W.2d 562, 564-65 (1952).
Statutory terms draw their meaning fro m the conte xt of the en tire statu te, Lyons
v. Rasar, 872 S.W. 2d 895 , 897 ( Tenn. 199 4); Knox County ex rel. Kessel v. Lenoir City, 837 S.W. 2d 382, 387 ( Tenn. 199 2), and from the sta tute’s gen eral purpo se. City of Lenoir City v. State ex rel. City of Lo ud on, 571 S.W.2d 297, 299 (Tenn. 1978); Loftin v. Langsd

on, 813 S.W.2d 47 5, 4 78 (Tenn. Ct. App. 1991). W e give thes e words t hei r natural an d ordinar y meaning , State ex rel. Metropolitan Gov’t v. Spicewood

Creek Waters hed Dist., 848 S.W.2d 60 , 62 (Te nn . 1993), unless the legislature used them in a special ized, techn ical sense

. Cordis Corp. v. Taylor, 762 S.W.2d 138, 139-40 (Tenn. 1988).

The legislativ e process does not alw ays produce precisely drawn la

ws. When the words of

a statute are ambi guous or when it is just not clear what the legislature had in min d, courts may look bey ond a statut e’s text f or relia ble guides to the statute’s meani ng. We conside r the stat ute’s histo rical background, th e conditions giving rise to the stat

ute, and t he circum stances c ontempora neous with the statute’s enactme nt. Still v. Fir st Tenn. Ban k, N.A., 900 S.W.2d 28 2, 284 (Tenn

. 1995 ); Mascari v. Rain es, 220 Tenn. 23 4, 239, 415 S.W. 2d 874, 876 ( 1967); Davis v. Aluminum

Co. of Am., 204 Tenn. 135, 143, 3 16 S.W.2d 24, 27 (1958). We also resort to legisl ative history

. Storey v. Bradford Furniture Co. (In re Storey), 910 S.W. 2d23 Some cou rts have even cited a statute’s legislative history to buttress their interpretation

when a statute is not ambiguous. See, e.g., Worley v. Weigel’s, Inc., 919 S.W.2d at 593; VanArsdall v. State, 919 S.W.2d 626, 632 (Tenn. Crim. App. 1995). -16- 857, 859 (Tenn . 1995); Universi ty Computing Co. v. Olsen, 677 S.W. 2d 445, 447 (Tenn. 1984); Chapman v. Sullivan County, 608 S.W.2d 580, 582 (Tenn. 1980). 23

Courts consult leg islative hi story not to delve into the personal, subjective motives of

individual le gislators, but rather to ascer tain the meani ng of the w ords in the statute. The subjective beliefs of legislators can never substitute f

or what w as, in fact, enacted. Thereis a distinc tion betwe en what th e legislat ure intende d to say in the law and what various legislator s, as indiv idua ls, expe cted or hope d the consequences of the law wou ld be. The answer to the form er questio n is what c ourts pursue when th e y consult le gislative history; the latter que stion is not w ithin the courts’ dom ain.
Relying on legislat

ive history is a step to be taken cautious ly. Piper v. ChrisCraft Indus., Inc., 430 U.S. 1, 26, 97 S . Ct. 926 , 941 (1977) ; North & South R ivers Watershed

Ass’n, Inc. v. Town of Scituate, 949 F .2 d 552, 556 n.6 (1st Cir. 1991). Legislat ive records a

re not alw ays distin gu ished for t heir cand or and acc uracy, Schwegma nn Bros. v. Calver t Distille rs Corp., 341 U.S. 384, 396, 71 S. Ct. 745, 751 (1951) (Jackson, J., concurring), and the more t ha t courts ha

ve come torely on legislativ e history, t

he less reliable it has become. Rather than reflecting the issues actuallydebated by the legisla ture, le gislative history fre quently cons i sts of selfserving statemen

ts favora ble to part icular int erest gro ups p repared an d included in the legislativ e record so lely to influence the courts’ in terpreta tion of the statute. National Small Shipment s Traffic Conf., Inc. v. Civi l Aeronau tics Bd., 618 F.2d 819, 828 (D.C. Cir. 1980); ANT ONIN S CALIA , A M ATTER OF I NTERPRET ATION : F EDERAL C OURTS AND THE L AW 34 (1997); W . David Slawson, Legislativ e History and the Need to B ring Statutory Interpret ation Under theRule of Law, 44 Stan. L. Rev. 383, 397-98 (1992); Kenneth W. Starr, Observati ons About the Use of Legisl ative Hist ory, 1987 Duk e L. J. 371, 377; Note, Why Lear ned Hand W

ould Never

Consult Le gi slati ve Histor y Today, 105 Harv. L. Rev. 1005, 1018-19 (1992).

Even the statements of sponsors during legislative debate should be evaluated cautiously. 2A Norman J. Sin ger, Statutes and Statutory Con struction § 48:15 (rev

.-17-

5th ed. 1992). These commen ts cannot al ter the plai n meaning of a statut e., D. Canale & Co. v. Celaur o, 765 S.W. 2d 736, 738 ( Tenn. 198 9); Elliott C ran e Serv. , Inc. v. H.G. Hill Stores , Inc., 840 S.W. 2d 376, 379 (T enn. Ct. App. 1992) , becaus e to d o so would be

to open the d oor to the in advertent , or per haps planned , underminin g of sta tutory l anguage. Regan v. Wald, 468 U.S. 222, 237, 1 04 S. Ct. 3026, 3035 (19 84). C ourts hav e no authority to adopt interpretations of statutes gleaned solely from l egislative history tha

t have no sta

tutory ref erence p oints. Shannon v. Unit

ed States, 512 U.S. 573, 583, 1 14 S. Ct. 2419, 24 26 (1994). Accordi ngly, when a sta

tute’s textand legisla

tive history disa

gree, th e text cont

rols. StrombergMetal

Works, Inc. v. Pres s Mechanic al, 77 F.3d 928, 931 (7th Cir. 1996).

B

. T HE S COPE OF A T ENN . C ODE A NN . § 65-5-209 A UDIT

The p ivotal disput

e between BellSout

h and the Co mmission inv olves the sc ope and purpose of the audit r equired by

Tenn. C ode Ann. § 65-5-209. BellSouth , citing the statute, asserts that the audit’s sole purpose is to verify the accuracy of its most recent Form PS C-3.01 r

eport. T he Commiss ion, citin g a portion of the statute’s leg islative

history, r

esponds that

the audit is more akin

to a tradi tional ear

nings investigati on and that its audit powe r under T enn. Code

Ann. § 65-5-209 includes the power to reduce a company’s rate of returnand to order the comp any to reduc e its rates. We turn first to the statute itself for an answer to this dispute.

1.

The 1995 telecommunications reform legislation requires the Commi ssion to setthe initial

rates of any incumbent

local telephone company that applies for a price regulation

plan. Tenn. Co de Ann. § 65-5-209(c ) require s that these initial ra tes must be the same a s t he ap plicant’s existing rates if the rate of return on the company’s most recent F orm PSC- 3.01 repor t is equal to or less tha

n the compa

ny’ s cu rrently author ized rate o f return. The comparison of the company’s existing rate of return withits currently auth o rized ra te of ret urn must be precede d by a staff audit of the company’s most

recent F orm PSC- 3.01 report c onducted in a ccordanc e with T enn. Code Ann. § 65-5-209(j).24 Tenn. Code Ann. § 65-5-209(c) envisions that the process will be completed within nine

ty days after the company files its application for a price regulation plan.

25 The term “au dit” appe ars only t wice in Title 65 of the TennesseeCode Annotated. Other than Tenn. Code Ann. § 65-5-20 9, it appe ar in Tenn. Code Ann. § 65-15-201 (Supp. 1996) which relates to “safety management audits” for motor c arriers. -18- Tenn. Code Ann. § 65-5-209( j) states that the pur

pose of the audi t is “to assure thatthe Tenne ssee Regul ato ry Authori ty 3.01 re port accu rately r eflects . . . th e incumbent

local exchange telephone co mpany’s ac hieved re sults.” T he audit mus t verify thatthe compa

ny reporte d its achie ved result s “in acco rdance w ith genera lly accepted accountingprinc iples a s adopted in Part 32 of the Uniform System

of Accounts.” It must also verify that the company’s reported achieved results reflect “the ratemak

ing adjustment s to operat ing revenue s, expenses a

nd rate ba se used in the authority’ s most rec ent order applicabl e to the incumbent l ocal excha nge telephone company.”

Since Tenn. Co de Ann. § 65-5-209(a) directs the Commission to set an incumbent local te lephone company’s initial rates “[u]sing the procedures estab lishe d in this sect ion,” the statute is the sole source of

the Commi ssion’s auth ority to ado pt
aprice regul ation pl an. It envision s an expedit ious, 24 three-ph ase proceedi ng. The purposeof the fir st phase is to verify the accuracy of the informat ion contained in the company’s most recent Form PSC-3.01 repo rt. See Tenn. Code Ann. § 65-5-209(j). The purpose of the second phase is to compare the company’s reported rate of return withits current ly autho rized rate of return. See Tenn. Code Ann . § 65-5-20 9(c). No further proceedi ngs are re quired if t he company ’s rate

of return based on its audited achieved results in its most re cent Form PSC-3. 01 report i s equal to or less than it s currentl y authorize d rateof return. See Tenn. Code Ann . § 65-5-20 9(c). However,
athird phase is required if the company’s rate of return exce e ds its curr ently authorized rate of return. The purpose of t he third pha se is to set the company’s initial ra tes in a tr aditional, rate-setting proce eding.

Tenn. Code Ann. § 65-5-209 contains no specific language suggesting that the first or second p hases of th e procee ding have any of the attributes of a traditional ratesetting proceedin g. The audit is conducted by the Commission’s staff, and the staff has no specifi c statutor

y authority to make or recommend reductions in a company’s rateof retur

n. The t erm “aud it” does not

appear in

any other s ta tute or ru le in conjunction with the C ommission’ s rate-s etting autho rity. 2526 The staf f audit re port dated Septembe

r 15, 1995 explainsthat the Staff has followed

the statements of the sponsors of the Bills that became the new law by auditing the Company’s financial records for the twelve months ended March 31, 1995, t

o determ ine if the amounts on

the TPSC 3.0 1 Report: * are accurately taken from the company’s books a nd record s; * accura

tely r efl ect any C ommission or dered r ate making ad

justments; * do not inc lu de unusual or abnormal financial occurr ences; * were calcula

ted following prope

r accou nti ng rules an d procedures fo rsepara

ting the c ompany’sintersta te andintrastate operations, as well as, its regulated and nonregulated ope

rations; * accura

tely reflect a l lowable charges from affiliated companie s. Thesepoints wer

e taken f rom a memo

by Dr. Chr

is Klein, D irector of th e UtilityRate Division, and Mike Gaine s, Manag er of the Telecommunications Section, to PSC Chairman Keith Bissell in response to a letter from Senator Rochelle. This memo, and the tran scripts of the “legislative intent” statements read by Senator Rochelle and Representative Purcell on the Senate a nd House flo ors, are attached as Appe

ndices B, C, and D to t

his Report

. -19- The textual an alysis of T enn. Code Ann. § 65- 5-209 suggest s that neith er the Commission

nor its staff

has the pow er to adjus t any of the fig ures conta ined in the applicant’s Form PSC-3.01 report as long as these re ports are correct , based on required auditing principles, and consistent with the C ommiss ion’s previ ously ordered rate-m aking adjustment s. The Commission, however, argues that the term “audit” can mean more than simply a “m

ethodical examinati on of

records w ith intent to verify their accuracy.” See National Health Co rp. v. Snodgras s, 555 S.W. 2d 403, 405 (Tenn. 1977). It asserts that an audit under Tenn. Code Ann. § 65-5-209 includes investigati ng, deciding whether reported achieved results are accu ra te, and determini ng t he weight t o be given these reported results. Citing a staff memorand

umthat was read into t

he legislativ e record , the Commission insists that its Tenn. Code Ann. § 65-5-209 a uthority to a

udit include s the authority t o determi ne whether the amounts reported

on the Form

PSC-3. 01 “do not inc lude un usual or abnormal fi nancial o ccurrences,” i ncludin g “known ch arges.” 26

Tenn. Code Ann

. § 65-5-209 doe s not specif ically aut horize ad justments f

or “unusual or abnorm al financ ial oc currenc es.” Nonetheless, because the General Assembly

may have meant something different when it used the term “ aud it,” we have reviewe d the legisl ative histo ry of Te nn. Code A nn. § 65-5- 209 to det ermine27 Senate Bill No. 891/House Bill No. 695, Section 6. -20- whether the Gene

ral Assembly used the

term “a udit” in its com mon, ordinary meaning.

2.

The original su

bstance of

the telec ommun i cations reform legislation was far differe ntfrom the substance o f the legis lation that eve ntually b ecame la

w. The original legislatio n contained no procedur

e for re -examin ing an incumbent local telephone company’s rates. Instead, it simply pr ovided that the company’s “rates, terms and conditio ns for the s ervices p rovided on February 1, 1995" wer e just and reasonabl e and thatthese ra tes would b e the comp any’s initi al rates

. 27 This provi sion encountered immediat

e opposition f

rom theConsumer Advocate and other consumer groups because t

hey believe d that it w ould enable BellSouth

to earn bet ween $350 and $800 million in excess re venues.

The concern a

bout excess revenues was the f ocus of the

debate on A

pril 11, 1995, when the Sen ate State and Lo c al Gover nment Comm

ittee cons idered the

bill and a proposed amendment containing what would laterbecome T enn. Code Ann. § 65-5-209. Several committee members expressed concern about using BellSouth’s existing rates because

the Commission had not reviewed the company’s rate of return since 1992. The

Consumer Advocate

pointed out th at the pr

oposed ame ndment substituted an “audit o f . . . [the Form PSC-3.0 1 report] . .

. for an earnin gs review.” Whitfiel d Burcham , the for mer dire ctor of the

Commission ’s Utilit

y Rate Di vision who appeared on behalf

of the Am

erican A ssociation o f Retire d Persons, echoed the ConsumerAdvocate’s concern about the e fficacy of an audit

of theForm PS C-3.01 report. He state d that “we believe th at if you ha

ve an evidentiary hearing, there’s a high probability that the evidence will show that the telephone company’s prices need to be adjuste d.” The se statem ents pr ompted Senator C ohen, the chair of the committee, and Senator Gilbert to suggest that there should be a fu ll rate rev iew before BellSouth ’s initial rates shoul d be set. A BellSouth representative responded to this suggesti on by statin g tha t “[w]e don’t feel that a rate hearing is necessary because we are ea rning with in the aut horized ran ge.”-21- The Senate S tate and L ocal Gove rnment Com

mittee co nvened on A

pril 18, 1995 to continue its consid eration of t he bill. T he hearin g again foc used on the advisabilit

y of conducti ng a

“full-blo wn rate hearing” before a pproving BellSouth’s initial rates. The Commission’s General Utility Counsel described an audit of th e Form PSC -3.01 re

port as fol lows: in order to au dit the 3.0 1 statemen t . . . it’s not just a matter of adding u p math on a s ingle sh eet of paper. It’s knowing thatthey [the company] h ave ac curately reported those figures to us. So that we will send our auditors on site, they’lllook at all the items a s repo rt ed on the company’s books and corre late th at with the statement. And that’s what we mea n by a full audit . . . When the staff concludes their audit, and they may find some discrepancies or some items that need to be corrected, that ’ll b e re-pr esented to the Commission

for appro val in a con

tested ca se forma

t .

. . The current Director of the U tility Rate

Division a

lso informed the Committee that the Commission’s staff had already commenced an audit of BellSouth and that they intended to proceed withthe audit nomatter which telec ommunicat ions bill pass ed. He explained that an aud

it of a For m PSC-3. 01 report w as an “hist orical au dit” of the company’s earnings for the preceding twelve months and that the s taff pl anned to complete i ts work in Se ptember 19 95.

CommissionerSteve Hewlett also pointed out to the Committee that“looking at the backup on a 3.01 is significantly different than a full blown audit.” Mr

. Burchamrepeated that

the Form PS C-3.01 r

eport, which he desi gned, “w ouldn’t give you a repre sentative pictu re of the fu ture.” In addition, he pointed out that he had objected to similar language in the Commis sion’s proposed rule and that he had attempted “to get the

Commission

to change t

hat lang uage , and we were unsuccessf

ul in doing that; and we thi nk this language here is so restri ctive that , really, you’re not

going to get a

n earnings investigati on.” The Consumer Advocate agreed with Mr. Burcham . He pointed out again that the Form PSC 3.01 report “doesn’taccurately state what prices should be in the future” and that “the rate review
on ly goes forward if you meet certain tests, and the test is whether or not the PSC 3.01 is within t

he range. If it’s w ithin therange, the different ranges, then there’s no earnings review.”28 See Amendment No. 2 to Amendment No. 2, Senate Journal of the Ninety-Ninth General

Assembly of the State of Tennessee, First Session, 1157-58 (1995) (“Senate Journal” ). -22- When the Senat

e State a nd Local G overnment

Committe e consider

ed the bill againon April 25, 1995, Chairman Cohen offere d an amendm ent requir

ing the continuatio n of rate h earings f or basic te lephone ser

vices thro ugh 1996. Sena tor Rochelle, the bill’s sponsor, opposed this amendmen t o n the ground t hat “rate of return regulation . . . encourages everybody t o be fat; i t encourages monopolis tic practice s; it encourages lack of innovation.” After tabling Chairman Co hen’ s amendment, the Commi ttee appr oved the bill

as amen ded for pa ssage by a 6to 3 vote.

The debate over the need for a fu ll -blown ra te hearin g before p ermitting incumbent

local tel ephone com

panies to ope

rate under a price regulation plan continued on the Senat

e floor on M ay 11, 1995 when the bill came up f

or third an d final reading. Senator Rochelle offered an amendme nt to the b ill containing what would later become Tenn. C ode Ann. § 65-5-209( j) 28 and explained that “[t]here was
aconcern t

hat they [t he incumbe ntlocal telephone companies ] could cook the books, and what this does is express ly state tha t the Comm

ission shall conduct an a

udit of the audit to verify that the fi gures are correct .” Aft

er the Senate table d Senator Cohen’s motion to invite Mr. Burcham to address them co ncerning Senator Rochelle’s amendmen

t, Senat or Rochel le reitera ted that the purpose of his amendmentwas to “[ set] out ve ry exactl y that the P

ublic Ser vice Comm

ission has the

. . . power to do a full bl own audit of that audit [ the Form PSC-3. 01 report] to make
sure they’ve be en given cor rect fig ures.” He also st ated cate gorically that this amendment “doesn’t address rat e setting . This addres ses audit ing of an au dit.”
Upon hearing Senator Rochelle’s explanation of his proposed am e ndment, othersenators, including Senators Cohen, Cooper , and Gil bert pointe d out that the amendmentwould per

mit the Com

mission to ma

ke sure that the numbers are correct but not to go b ehind th e numbers. These senators ass erted tha t the Comm

ission shouldconduct a t

raditiona l earnings i nvestigatio n before a pproving an i ncumbent local telephone company’s initial ra tes. Se nator Roc helle opposed thes e suggestion s
on the ground t

hat therate hea

rings dema

nded by these senators would be a “three-29 Senate Journal, at 1159.

30 Amendment No. 8 was tabled by a vote of 18 to 15. See Senate Journal, at 1160.

31 Amendment No. 9 failed by a vote of 13 to 16. See Senate Journal, at 1164-65.

32 Amendment

No. 18 fa iled unde r Senate Rule 39(3) by a

vote of 11 to 19 to 1. See Senate Journal, at 1167. -23- year ordeal.” The Senate finally adopted Senator Rochelle’s amendment on a voice vote. 29

The adoption of Senat or Rochel l e’s amen dment did not end the ma

tter. T he Senate considered and defeated three othe r amendments that wo uld havereplace d the audit of t he Form P SC-3.01 report w ith a more traditiona

l rate pr oceeding. One
am endmen twould have

authorize d the Commi ssion to conduc t a contest ed case proceedin g “to determin e the justne ss and rea sonablenes s of the exi sting rate s” and to “make ap propriate

adjustme nts to arri ve at just and reason able rates.” 30 Another amendmentwas to the same effect

. 31 The thir

d amendme nt would hav e required the Commission

to “make public the anticipated revenues and profits each providerwill make under such plan .” 32

Senator Rochelle opposed eac h of these a

mendments on the ground that they
were motivated by the “greed” of BellSouth’s competitor s who desir ed to delay the company’s ability to c ompete in a less regul ated mar

ket. He disagree d with Sen ator Gilbert’s observation that it would make “bet te r sense to have a full evidentiary hearing b efore we turn t hose marke t forces loo se.” When asked by Senator Gilbert to point out the language in his amendm

ent that pe

rmitted th e Commissi on to adjust the rate “if

there is a problem w ith the audi tor that thi ngs havenot been stated as they should have be en stated, ” Senator Rochelle responded: [W]e’re using the existing rules that have already been adopted by th e PSC and that gives them the ability to set the rates

. It wouldn’ t be in the bill. We’re using existin g practice s, rules, and statute s. In response to Senator Rochelle’s explanation, Senator Gilbert then pointed out tohis colleague s that

We’re passing a

statutory scheme thatmay be interpreted to override

every one

of tho se existing rules. Let me tel l you why he ca

n’t point to a

ny language

in subs ection (c) thattells you tha

t the PSC will cha

nge . . . the rates if they findout through their audit tha t something’ s wrong,33 Senate Journal, at 1168.

34 Amendment

No. 17, § 1, 2 House Journal of the Ninety-Ninth General Assembly of the State of Tennessee, First Session, 1847 (1995) (“House Journal”).

35 Amendment No. 17, § 15, House Journal, at 1858.

36 Amendment No. 17, § 17, House Journal, at 1859-60. -24- because there isn’ t any language in that se ction th at allows them to do tha

t. Senator Roch elle ende d the colloqu y by pointing out that the C ommission c ould adjust the rate s if

it determined thatBellSouth’s earnings were above the company’s authorized rate of return. The Senate therea fter approved the ame nded versio n of Senate Bill No. 891 by 24 to 8 to 1 vot e and sent t he bill to the

House of Represe ntatives. 33

The House lea

dership w as not satis fied wit h the Sena

te’s version of the bill. Accordingly, when Senate Bill 891 came on for third and final reading on May 24, 1995 , Represe ntative Pu rcell, one of the b ill’s Hous e sponsors, convinced hi s colleagues to adopt an amendment that added several new provisions to the Senate’s version of the bil l. Th is ame ndment cont ained the r estated ve

rsion of the telecomm unications policy that

now ap pears in T enn. Code Ann. § 65- 4-123, 34 the provision requiringth e General Assembly to review the implementation of the Act every two years that

now appea

rs in Tenn. Code Ann. § 65-5-211 (Supp. 1996), 35 and the provisions c reating a $10 million sma ll and minor

ity teleco mmunicati ons business assistanc e program that now appear i n Tenn. Code An n. §§ 65-5 -212, - 213. 36

The House am

endment did

not alter t he portions o f the Sena te amendm

ent containingTenn. C ode Ann. § 65-5-209( c) and add ing the la nguage that

was to become Tenn. Code Ann. § 65-5-209(j). In fact, the diff erences betweenan earnings investigati on and an audi t of a Form PSC-3.01 report

that had pr

eoccupied

the Senat e
were never me ntioned duri ng the House discussion

of the bill . In his c losing remarks afte r the House

cut off f urther de bate on the

bill, Re presenta tive Purc ell t old hi s colleague s: I need to, a

t thi s point, with your indulgence, read three brief statemen

ts into the r

ecord for legislativ e intent purposes as this bill

leaves thi s Hous e and g oes to the Senate. The first was reques ted by the AARP. Th e audit37 Representative Purcell is referring to an April 13, 1995 memorandum from Chris Klein and Mike Gaines to Chairman Keith Bissell. The memorandum de scribes the intended scope of the compliance audit that had already been initiated by the Commission i n March 1995. The Commission’s sta ff l ater cited this memorandum as authority for the scope of the audit of BellSouth’s most recent Form PSC-3.01 report on which its September 15, 1995 report

was based.

38 Represen tative Purcell’s description of the scope of the compliance audit wa s drawn complete ly from the April memorandum writte

n by Messr s. Klein and

Gaines. The ver sion of his remarks appearing in the House Journal contains minor, nonsubstantive differences with his actual remarks on the House floor. See House Journal, at 1865.

39 See House Journal, at 1864. The Hous e Journal infers that Representative Purcell’s rema rks followedthe final vote on the bill; however, the tapes of the legislative debates show to the contr ary. -25- provisions in this bill w ere requ ested by the AARP, and it was their hope that we would, as a matter of l egis lative intent, make it c lear wha

t we mea n. And so, let me sa

y on the subject of

Section 13 , legisla

tive intent is tha

t this bill establishes a process by which consumers a re assured afforda ble rates. To achieve this, the bill provides that the rates of incumbent local exchange companies will be based on an audi t o f the comp any’s act ual achie ved result s and not on a s peculativ e forecast. An audit consi stent with

the provisi ons of this bi ll is currentl y being perf

ormed by the

TPSC st aff by the ir compliance unit

of SCB’ s TPC 3. 01 form. As state d by Dr. Chris Klein, Director of the P SC’s Ut ility Rate Division, in aletter sent earlie

r th is ye ar, 37 the TPS C 3.01 for m is a monthly reportshowing monthly, yea r-to-dat e, and tw elve month-to-d ate financia

l informa

tion includin g rate of return , adjusted to reflect the Commission’s prior ratemaking decision. The comp li anc e audit ver ifies that the am ount s shown on the TPSC 3.01, (1) are actually taken from the compa

ny’s books and

records; (2) acc urately reflect any Commission order of rate m aking adjust ments; (3) do not include u nus ual or abnormal financial occurre nces; (4) were calculated following proper accountingrules and pro cedur es for se parating t

he company’s interstat e and intra state oper ations, a s well as its regulated and non-regulated oper a tions; and f inally, ac cur ately reflect allowable charges from affiliated companies

. S ection13 makes c lear that this TPS C 3.01 compliance audit of ac tual achie ved result s and witho ut specul ativ e forecas ts will be complete d, and af

fordable rates will be set pursuant to Section 10 (c) and (j) of thi s bill. 38 See House Jour

nal, at 18 65. The

House the n passed Senate Bill No. 891 by an 89 to 8 vote. 3940 See Senate Journal, at 1631.

41 See Senate Journal, at 1631-32. -26- The bill contai ning the House amendments was returned to the Senate and was called up for cons ideration on May 25, 1 995. On this occas ion, Sena tor Roche lle read the same s tatement

that Representative Purcell had readthe previous day. When asked to explain how the amended bill would assure affordable telephone service, Senator Rochelle r

eplied
we have rea

d . . . f or legisla tive intent

purposes, the language requested that helpe d everybody understand that the authorityof

the Consume

r Advoca te and the a

uthority of the PSC and such as that remains in place and is there to . . . help insure that

all reports, audits and such as that are based on actual figures, not speculative forecasts and such as that. So I woul d refer

you to thestatemen

t of legisla

tive intent, and to the la

nguage that ’s previous ly b ee n in the bill, plus t

he language

in Amendm

ent No. 2 to 2. When asked how the House’s version of the bill differed from the Senate’ s version, Senator Rochelle explained that the principal change was the crea tion of the f

und for small and min ority busine sses and tha t “there are langu age change s, of cour se, but they were c hanges that

were w orked out

with the AARP, they were a fter cons ultation withthe AARP, Mr. Burcham , and these other f ol ks.” The

Senate pr

oceeded to
concur in the House amendments by a 23 to 10 vote. 40 Both S enator Ro chelle an d Senator Gilbert , who had

voted agai nst the bill and the House am

endments, requested that Senato r Rochelle’s statements concerning the scope of the audit of the Form PSC-3. 01 report b e included verbatim in the Sena te Journal

. 41

3.

The legislativ e hi s tory of Tenn. Code Ann. § 65-5-209 reveals several significa ntmilestone s in the formu lationof this sta tute. T he original

version of

the bill contained no procedur e of any sor

t for rev iewing incumben t local te lephone companies ’ rates. The bill’ s critics objected t o this omissio n because they believed thatit would en able the te lephone com panies to earn exc essive prof its and argued that the Commission

should hold one

last “full blow n” traditi onal earnings investig ation before the competiti ve market forces were tur ned loose. The bill’ s proponents opp osed this suggestion a nd proposed i nstead that the Commi ssion audit th e telephone companies’ most recent Form PSC-3.01 report. Their adversaries asserted-27-

thatthis proposal did not go fa r enough bec ause auditi ng the Form PSC-3.01 report would not prov ide a repr

esentative

picture of

the compa

nies’ futu re earni ngs. The only concession

th a t the bill’ s proponents were w illing to ma ke was to s pecifica

lly empower the Commi ssion to satisfy it self that the inform ation on the Form PSC -3.01 reportwas acc urate. The oppone nt s tried repeate dly to convinc e their le gislative colleagues to require

one last tradition al r ate-setting proceeding. When they were rebuffed three tim

es, they a bandoned the ir

efforts to amend the

bill and re sorted to the tactic of i ncluding a statement in the legislative record containing an interpretationof the legislation similar to the position that their col leagues had repeatedly declined to adopt

.
The stateme nts concer

ning the scop e of the a

udit read i nto the rec ord by Senator Rochelle and Repre sentative Purcell are inc onsisten t with the language of Tenn. C ode Ann. § 65-5-209. By its own terms, this statute, not the Commission’s
o therstatutes and regulations, governs the manner in which the Commission mu s t considerand act upo n applica tions fo r price regul ation pl ans. T he Commission’s power s under Ten n. Code Ann. § 65-5- 209 are mor e limited t

han its pow ers in the context of a trad itional ea rnings inves tigation, as long as the company’s rate of return on its For m PSC-3.01 rep ort is les s than its currently authorize d rate of retu rn.

The Commission , like any oth er admi nistrative

agency, must confor

m its actions to its enabl ing legisla tion. Tennesse e Pub. Se rv. Comm’n v. Southern Ry., 554 S.W.2 d 612, 613 (T enn. 1977) ; Pharr v . Nashvill e, C. & St. L. Ry., 186 Tenn. 154, 161, 208 S.W.2d 10 13, 1016 (1948). It has no authority or powerexcept tha t found in the statu tes. Tennessee -Carolina T ransp., I nc. v. Penteco st, 206 Tenn. 551, 556, 334 S.W.2d 950, 953 (1960). While its statutes a re reme dial and shou ld be interpreted liberally , see Tenn. Code Ann . § 65-4-106 (S upp. 1996), they should not be construed so broadly a s to permit the Commi ssion to exer cise author

ity not specific ally granted by law. Pharr v. Nashville, C. & St. L. Ry., 186 Tenn. at 161, 208 S.W.2 d at 1016.

Both the language of Te nn. Code A nn. § 65-5-209 and its legislative history confirmthat the

Genera l Assembl y establishe d a three- phase proc ess for c onsidering applicati ons for a price reg ulation plan. The fir st and seco nd phases inv olve verifying the accurac y of the inf

ormation i n the app lic ant’s For m PSC-3. 01 report a

nd-28-

comparingthe applic ant’s rep orted rat e of retur n with its c urrently a

uthorized rate of return. During the se phases, the Commi ssion and its staff ar e empowe

red to audi t the applicant’s most r ecent Fo rm PSC-3.01 report for three purposes: (1) to verify that the informat

ion on the re

po r t accurately reflects the information in the applicant’s books and records, (2) to verify that the report was prep ared consi stently wi th generall y accepte d accountin g principle s, and (3) to ve rify that the applicant’s calculat ions reflected the Commission’s previously issued orders. The Comm ission’ s authorityto adjust the

figures on

the Form PSC-3. 01 report i s limited toc orrecti ng
errors with rega

rd to these three categories. The Commission may only adjust an applicant’s rate of r

eturn aft er it dete rmines tha

t the rate of return rep orted on the applicant’s most recent Form P SC-3.01 report e xceeds the applicant ’s currently authorize d rate of

return.

The Commission exceeded its authority under Tenn. Code Ann. § 65-5-209(c) & (j) by adjusting the

figures in BellSouth ’s Form P SC-3.01 report to c ompensate for out of period items, abnormal or unusual expenses, and known charges. It had alreadyconcurred with its staff’s conclusion that the rate of return on BellSouth’s correctedForm PSC-3.01 report was 10 .30%. Since this rate of r eturn did not

exceed BellSouth’s currently auth o rized ra te of ret urn of betw een 10.65 a

nd 11.85%, the Commission

shouldhave found that BellSouth’s existing rates were affordable under Tenn. Code A nn. § 65-5-209(a ) and should h ave approv ed BellSo uth’s applic ation for a p rice re gula tion plan based on BellSouth’s rates existing on June 6, 1995 as required by Tenn. Code Ann. § 65-5-209(c).

C. B ELL S OUTH ’ S R IGHT TO A C ONTESTED C ASE H EARING

BellSouth

also asser

ts that the Commission should have granted its request for
acontested case hea

ring to cha

llenge the legal and f

actual ba sis for

the adjustm

ents to BellSou th’s Form

PSC-3. 01 report. The Comm ission respo nds that Be llSouth is not entitled toa conteste d case hea ring because t

he first two phase s of a Te nn. Code Ann. § 65- 5-209 proceeding are essentially an audit, and an audit is not a contested
case. The Comm

ission overlooks two signif icant points . First, BellSouth desired to challenge th e C ommission’ s interpretation and us e of its sta ff’s audi t. Seco nd, the Commission’ s use of the

audit aff ected Be llSouth’s l egal right s and privil eges.-29- The Commission

relies on National He alth Corp. v. Sn odgrass, 555 S.W. 2d 403 (Tenn. 1977) to suppor t its argum

ent; howe ver, this case is signific antly diff erent from the o ne b efore us. In National He alth Corp. , the state comptroller audited several related intermediat e care facilities to determine whether their charges were consistent

with fede ral and sta

te law. After

the auditor s concluded

that the c ompany had overcharged the State, the Departmen t of Pu blic Hea lth informed Nation al Heal th Corp. thatit intended

to withhold aportion of i ts next reg ularly sch eduled paym ent to offset the over charge. Instead of proceedi ng against t

he Depar tment of P

ublic Health, National

Health C orp. sought

judicial review of the comptroller’s audit under the Unifo rm Administrative Procedur es Act.

The Chancer

y Court for

Davidson

County dismissed National Health Corp.’s petition for rev iew u nder Tenn. Code Ann. § 4-5- 322 (Supp. 1996) based on its conclusio n that the comptr oller’s a udit repor

ts were not contest

ed cases, and the Tennessee Supreme Court affirmed the decisi on. The cour

t concluded

that the a udit was not a c ontested ca se becaus e an audit

in and of itself, does not

determine any legal rights, duties or privilege s of any party to the audit. It is merely a report of factual material, with recommendations of the a uditor. If some acti on is taken o r decision is made by a

st ate official based on the au dit repo rt, the d ecision ma de or actiontaken may consti tute a “c ontested ca se,” but n otthe audit or thereport based on the audit , which a t most woul d be only “evidence” to support the decision or

action taken. National He alth Corp. v. Snodgrass , 555 S.W. 2d at 405-06.

BellSouth

has the right to have its application for a pri ce regulat ion plan considered in accord ance wit h Tenn. Code Ann . § 65-5-20 9. It also ha s the right t o base its initial rates on its existing rates if its earned rate of r eturn does not excee d its currentl y authorize d rate of return. The Comm

ission’s dec ision t o trigger a ratesetting proceedi ng by adjustin g the figur es on BellSout

h’s Form PSC-3.01 report affected BellSouth’s rights. While the Commission permittedBellSouth to present legal arguments concerni ng its author ity to adjust its Form PS C-3.01 r eport, it did not provideBellSouth

with an opp ortunity t o prove that the staff

’s findings or conclusions with regard to the “out-of-p eriod a djustments,” “abnormal or unusual
e xpense s,” and “known charges” were factually incorrect. G iven the interests at42 AT&Tmade a similar ar gument wit

h regard to t he Commission’s approval of the price regulation plan for United Telephone Southeast , Inc. Th

is court d id not rea ch the sub stance o f this argument because a majority of the panel that heard the case conclude d that the court lacked jurisdiction o v er the appeal. AT&T Commun ications o f the South

Central Sta tes, Inc . v. Gree r, App. No. 01A01-9512-B C-0055 6, 1996 WL 697945, at 7 (Tenn. Ct. App. Dec. 6, 1996) (No Tenn. R. App. P. 11 application filed). -30- stake, the Commi ssion shouldhave permitted BellSouth to prove that the suggested adjustment s were inc orrect or

not supporte d by the fac ts.

IV. R EVIEW OF A LL B ELL S OUTH ’ S R ATES AND T ARIFFS

AT&Talso argue s that the Commission did not compl ete its ta sk because it failed to review each of BellSouth’s rates and tariffs to determine whether they were afforda ble and non-discri minatory. 42 We need n ot address this issue in light of our holding that the C ommission sho ul d have ap proved BellSouth’s application for a price regulatio n plan bas ed on the ra tes in exist

ence on June

6, 1995. S ince the Co mmission

had alrea

dy determi ned that the se rates and tarif fs were jus t an d reasonabl e and nondiscr

iminatory, it is not re quired to m ake this determinat ion again absent some

specificreason to d o so.

V.

In summary, we vaca

te the Com

mission’s Ja

nuary 23, 1 996 order and all related earlier

orders w ith regar

d to BellSo uth’s appli cation for a pri ce regula tion plan. Since the

Commission

has adopted

its staff’s conclusi on that Bel lSouth’s r ate of return r eported on i ts Form PS C-3.01 r eport for the twelve months ending March 31, 1995 is less than its current authoriz ed rate of return, we rem and the ca se to the Tennessee Regulator

y Authorit

y withdirection s to approve BellSouth ’s applica

tion for a price r egulation pl an. In li ght of our c onclu si on that the C ommission di d not have the authority t

o adjust the a

ctual res ults on Bell South’s Fo rm PSC- 3.01 repor t,
we need not co nsider the remainin g issues ra

ised by BellSou th and AT &T. T hese issues an d all othe r issues rai sed by th e parties are according ly pretermi tted.

We tax the costs of this appe al which i ncludes BellSouth Telecom munication s, Inc. v. Gre er, App. No

. 01A01-9601- BC-00008 a nd BellSouth Telecom

munication s,-31-

Inc. v. Tennessee Pu b. S erv. C omm’n, App. No . 01A01-9 602-BC-00 066 to the Tennessee Regulator

y Authorit

y. We ta x the costs o f the appe al in State ex re l. BellSouth Telecommunications, Inc. v. Biss ell, App. No

. 01A01-9601- CH-00016 t o BellSouth

Telecom munication s, Inc. and

its surety for whic h execution , if nec essary, may issue.

______ _________

__________

_ WILLI AM C. KOCH, JR., JU

DG E CONCUR:

_________________

________________ SAMUEL L. LEWIS, JUDGE

_________________

________________ BEN H. CANTRELL, JUDGE