3-02-0738    _________________________________________________________________

							IN THE

							APPELLATE COURT OF ILLINOIS

							THIRD DISTRICT

							A.D., 2003

ILLINOIS BELL TELEPHONE 		  ) 

COMPANY,                        ) 

                                )                               

	Petitioner-Appellant,      )                       

					       )

	v.                         )                 

								  ) 

ILLINOIS COMMERCE COMMISSION,   )	Case Nos. 3--02--0738 and

AT&T COMMUNICATIONS OF ILLINOIS,)	3-02-0920 (Consolidated)

INC., TCG ILLINOIS, TCG CHICAGO,)	         

TCG ST. LOUIS, WORLDCOM, INC.,  )                     

MCLEODUSA TELECOMMUNICATIONS    )                   

SERVICES, INC., XO ILLINOIS,    )

INC., NORTHPOINT COMMUNICATIONS,)

INC., RHYTHMS NETCONNECTION AND )

RHYTHMS LINKS, INC., SPRINT     )

COMMUNICATIONS L.P., FOCAL      )

COMMUNICATIONS CORPORATION OF   )

ILLINOIS, and GABRIEL           )

COMMUNICATIONS OF ILLINOIS, INC.)

INC.,                           )

                                )

 	Respondents-Appellees.     )

________________________________________________________________

	JUSTICE SCHMIDT delivered the opinion of the court:

________________________________________________________________

	This is an appeal from a series of orders issued by the Illinois Commerce Commission (the Commission).  The orders set

forth parameters to which the petitioner, Illinois Bell Telephone

Company (d/b/a Ameritech Illinois), must adhere when allowing

competing local exchange carriers (CLECs) access to its local

network.  Petitioner takes issue with three mandates contained

within the orders.  

	The orders forced the petitioner to file a tariff relating to its local network.  Petitioner claims that the Commission

lacked the authority to order certain provisions contained within

the tariff.  Petitioner further claims that other aspects of the

orders, related to ensuring petitioner’s compliance with

performance goals, were arbitrary and capricious and not

supported in fact.  

	The CLECs and the Commission, respondents, believe the

Commission acted properly when issuing its orders.  

BACKGROUND

	In 1998, Ameritech Illinois (and its parent company,

Ameritech Corporation) and SBC Communications, Inc., began the

merger process.  Ameritech Illinois filed an application seeking

the Commission’s approval of the merger.  The Commission approved

the application in September of 1999 subject to certain

conditions.  These conditions were contained within the “merger

approval order” (merger order) which took effect on the merger

closing date of October 8, 1999.  The merger order was consented

to by Ameritech Illinois, SBC Communications, Inc., and the

Commission.

	The merger order contained language noting that “[e]xcept

where other termination dates are specifically established, all

conditions set out below shall cease to be effective and shall no

longer be binding in any respect three years after the Merger

Closing Date.”  At issue in this appeal is Condition 30, titled

“Performance Measuring, Benchmarks and Liquidated Damages,” which

did not specifically establish an alternative closing date. 

  	True to its title, Condition 30 directed petitioners to “establish performance measurements, benchmarks and provide for

liquidated damages.”  The merger order then described a process

through which these items would be established. Approximately 150

performance measurements divided into 3,000 categories were

established.  The liquidated damages established took the form of

automatic payments to be made to the CLECs and State of Illinois

in the event that performance standards were not met.  This plan

of determining performance measurements and then paying

liquidated damages for not meeting acceptable standards became

known as the “remedy plan.”  The remedy plan agreed to by

petitioners at the time the merger order was entered was premised

on a similar plan in effect in Texas.

	A system containing such a large number of performance

measurements broken down into an even greater number of

categories lends itself to random variations.  These random

variations may give the appearance of noncompliance with

performance standards when in fact compliance is occurring.  The

Texas remedy plan originally proposed contained a “k-table,”

which is a statistical mechanism put in place to prevent the

imposition of payments based solely on random variation.  

	Condition 30 further set forth a collaborative process by

which performance measurements, standards, benchmarks and

remedies could be adjusted.  The collaborative process included

representatives from Ameritech, the CLECs and the Commission. 

The final paragraph of Condition 30 allowed any participant in the collaborative process to recommend amendments to the remedy

plan. If a dispute over the recommended amendment could not be

resolved by the parties through the collaborative process, then

the party recommending the amendment could ask the Commission to

resolve the dispute.  

	Ameritech and the CLECs came to terms regarding many items

during the collaborative process but could not agree on the level

of payments Ameritech would be required to pay if it failed to

meet performance standards.   A joint petition was filed by

Ameritech and the CLECs asking the Commission to resolve this

dispute.  For the next 17 months, hearings were held, testimony

presented and multiple briefs filed by both parties.  Eventually,

the Commission ruled on the disputed items and entered a “final

order” on July 10, 2002.  

	The final order put in place the “revised remedy plan,”

which doubled the amount of liquidated damages set forth in the

merger order to be paid by Ameritech in the event it fails to

meet performance standards.  Moreover, the final order eliminated

the k-table, opting to set a standard 5% error rate to account

for the effect of random variation.

	The Commission also commented on the duration of the remedy

plan in the final order.  The Commission noted: 

		“The only conclusion that can be reached is

that Condition 30, and consequently the

Remedy Plan, expires in three years. ***

Additionally, no party has given us a legal basis for extending the deadlines included in

the Merger Order.  We are therefore left with

the conclusion that the Remedy Plan, as a

condition to merger approval, expires in

three years from the merger closing date, or

October 2002.” 

	The final order discusses who may avail themselves to the

revised remedy plan.  Commission’s staff recommended: 

		“Ameritech should also be required to revise

its existing tariff to reflect the changes

made pursuant to this Order.  This will

ensure that those carriers that do not have

an Interconnection Agreement with Ameritech

will have the benefit of the Remedy Plan. 

Additionally, Staff proposes that pending the

filing of such a tariff, the Modified Remedy

Plan ordered in this docket should be offered

to the CLECs that are currently using the

Plan through an 'opt-in.'

	In its analysis and conclusions section, the Commission

noted:

			“We also agree with Staff that Ameritech

should be required to file a tariff to

reflect the changes made pursuant to this

Order.  At present, Ameritech’s tariff and

Interconnection Agreements incorporate the current Remedy Plan.  The Performance Remedy

Plan in this Docket shall replace the current

Remedy Plan in Ameritech’s pertinent tariff,

and, it shall be incorporated into all

currently effective Interconnection

Agreements in the form of an Amendment to the

Interconnection Agreement.

			So the record is clear, the Revised Plan

attached hereto supercedes the previous

Remedy Plan, and, any 'opting in' by a

current or new CLEC should be followed with

an Amendment to the Interconnection

Agreement.”

	The final order then directs Ameritech to “file a tariff to

reflect the revisions to the Plan that are reflected in this

Order.”  

	When Ameritech filed its tariff, it included language in a

footnote stating that the tariff would expire on October 8, 2002,

which was the three-year anniversary of the merger approval

order.  On October 1, 2002, without notice to Ameritech, the

Commission entered an “Order on Reopening,” which directed the

chief clerk of the Commission to strike the footnote in

Ameritech’s tariff that indicated the tariff expired on October

8, 2002.  The petitioner filed an application for rehearing of

the order on reopening, which was denied.  This appeal followed.

STANDARD OF REVIEW

	The Illinois Commerce Commission is an administrative

agency, and judicial review of its orders is limited.  Illinois Power Co. v. Illinois Commerce Comm'n, 316 Ill. App. 3d 254, 736 N.E.2d 196 (2000).  The Commission’s findings of fact are prima facie correct and will not be overturned by a reviewing court unless they are against the manifest weight of the evidence,

beyond the statutory authority of the Commission, or violative of

constitutional rights.  People ex rel. Hartigan v. Illinois Commerce Comm'n, 148 Ill. 2d 348, 592 N.E.2d 1066 (1992).  However, the Commission’s interpretation of a question of law is

not binding on a court of review.  Archer-Daniels-Midland Co. v. Illinois Commerce Comm'n, 184 Ill. 2d 391, 704 N.e.2d 387 (1998).   The review of a question of law in an appellate court is de novo.  Continental Mobile Telephone Co. v. Illinois Commerce Comm'n, 269 Ill. App. 3d 161, 645 N.E.2d 516 (1994).	

 ANALYSIS

Doubling of the Remedies

	Petitioner contends that the Commission’s doubling of the

“remedies” is arbitrary, capricious and lacks evidentiary

support.  We note that petitioner violates Supreme Court Rule 341

(188 Ill. 2d R. 341) by not including a concise statement of the

applicable standard of review for each issue.  However, we take

petitioner’s statement, that the Commission’s actions lacked

evidentiary support, to mean petitioner is claiming such actions

were against the manifest weight of the evidence.  We disagree.

	After taking evidence and hearing arguments for 17 months, the Commission determined that original remedy amounts failed to

provide an adequate incentive to Ameritech to provide acceptable

levels of service to the CLECs .  This conclusion was based upon

evidence that performance deficiencies existed in “nearly half”

of the measured categories for a three-month period.  Moreover,

the assessments against Ameritech called for in the Texas remedy

plan did not influence Ameritech’s behavior whatsoever.  The

Commission found that “the Ameritech Plan will not provide

sufficient incentives for Ameritech to improve its service” and

that “the current system is not working and something must be

done to give Ameritech meaningful incentive to provide the CLECs

with service that is not substandard.”  

	Petitioner offers no argument to dispute evidence introduced

that it failed to meet performance standards or opinions that the

remedies called for in the original plan provided inadequate

incentive to meet performance standards.  Instead, petitioner

argues that doubling the remedies is punitive.  Petitioner

continues with hornbook law regarding prohibitions against

enforcing liquidated damages which are punitive.  Petitioner

notes that the merger approval order refers to the remedies as

liquidated damages more than 30 times but the final order refers

to the assessments for inadequate service as “payments.”   

	Petitioner contends that this is an impermissible attempt by

the Commission to change the nature of the remedy plan from one

put in place to ensure compliance with acceptable performance

standards to one merely seeking to punish the petitioner.  We disagree.

	While petitioner spends a great deal of time illustrating

the amount payments increased as a result of the new plan, it

offers no explanation as to why this amount is punitive and not

merely the amount necessary to provide Ameritech with an adequate

incentive to provide quality service. Despite petitioner’s

protestations to the contrary, there is ample evidence in the

record to support the Commission’s finding that increased

remedies were necessary to ensure that Ameritech would meet an

acceptable level of performance standards and that the increases

are not punitive in nature.   

Elimination of the k-table

	As stated above, the purpose of the k-table in the remedy

plan was to account for random variations associated with

monitoring the large number of performance standards.  The

Commission found “that Staff’s proposal, to set a standard 5%

Type 1 error rate for all individual tests and to eliminate the

k-table, is supported by the evidence and properly accounts for

the effect of random variation.”  Petitioner claims the record

does not support the deletion of the k-table and implementation

of a standard 5% error rate to account for random variation.  We

hold that there is sufficient evidence in the record to support

the Commission’s findings.

	Numerous witnesses, including Dr. Michael Kalb, Dr. Melanie

K. Patrick and Karen W. Moore all testified as to the inadequacy

of the k-table.  They opined that the use of the k-table allowed for repeated failures in service to occur.  The k-table

characterized such failures as random variations when in fact

they were clearly performance failures.  Ms. Moore stated, “[i]t

is possible, and in this case actually occurred, for a submeasure

to fail month after month after month, and never be remedied.”  

	Illinois courts give great deference to the Commission’s

decisions, as they are the judgments of an administrative body

with tremendous expertise in the field of public utilities and

with the qualifications to interpret specialized and highly

technical evidence.  United Cities Gas Co. v. Illinois Commerce Comm'n, 163 Ill. 2d 1, 643 N.E.2d 719 (1994).  We find there was ample evidence in the record to support the Commission’s decision

to eliminate the k-table and impose a standard 5% error rate to

compensate for random variation.

Commission’s Authority

	Petitioner contends that the Commission lacked the authority

to force it to file a tariff extending Condition 30 past the

three-year duration contained within the merger approval order. 

Petitioner challenges the Commission’s actions on numerous

grounds including due process, preemption, estoppel and that the

order is an arbitrary and capricious departure from the

Commission’s prior conclusions.

	The Commission’s final order makes it clear that “those

carriers that do not have an Interconnection Agreement with

Ameritech will have the benefit of the Remedy Plan.”   Thus, the

tariff Ameritech was forced to file allows any CLEC, whether currently doing business with Ameritech or one hoping to in the

future, to have the benefit of the remedy plan.  Ameritech claims

the Commission does not have the authority to make such an order. 

We agree.

	State law is preempted under the supremacy clause (U.S.

Const., art. VI, cl. 2) in three circumstances.  First, Congress

can define explicitly the extent to which its enactments preempt

state law.  Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (1983).  Second, in the absence of

explicit statutory language, state law is preempted where there

is a “scheme of federal regulation *** so pervasive as to make

reasonable the inference that Congress left no room for the

States to supplement it.”  Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 91 L. Ed. 1447, 1459, 67 S. Ct. 1146, 1152 (1947). 

Finally, state law is preempted to the extent that it actually

conflicts with federal law.  English v. General Electric Co., 496 U.S. 72, 110 L. Ed. 2d 65, 110 S. Ct. 2270 (1990). 

	Petitioner argues that the Commission’s order actually

conflicts with section 252 of the Telecommunications Act of 1996.

47 U.S.C. §252 (2000).  Section 252 of the Telecommunications Act

of 1996 (the Act) sets forth “procedures for negotiation,

arbitration, and approval of agreements” between CLECs and

incumbent local exchange carriers (ILEC) such as Ameritech. 47

U.S.C. §252 (2000). These agreements are known as interconnection

agreements.  The process set forth by section 252 of the Act is

very specific.  First the Act mandates that “upon receiving a request for interconnection, services, or network elements *** an

incumbent local exchange carrier may negotiate and enter into a

binding agreement with the requesting telecommunication carrier.”

47 U.S.C. §252(a)(1) (2000).  The Act places on incumbents the

duty to “negotiate in good faith the terms and conditions of such

agreements.”  47 U.S.C. §251(c)(1) (2000).    However, either

party to the negotiation may ask the appropriate state commission

to mediate any unresolved issues.  47 U.S.C. §252(a)(2) (2000). 

If negotiations and mediation do not produce an agreement, either

party can ask the state commission to undertake binding

arbitration.  47 U.S.C. §§252(b) through (d) (2000).  

	Once an agreement is reached, either through negotiation or

arbitration, the Act allows for a party to petition the Federal

Communications Commission to intercede if the state commission

fails to approve the agreement in a timely manner.  47 U.S.C.

§§252(e)(5) (2000). Finally, the Act allows any party aggrieved

by a Sstate commission’s decision to appeal the decision to a

federal district court.  47 U.S.C. §252(e)(6) (2000).

	Petitioner claims that the tariff it was ordered to file by

the Commission allows CLECs that do not have an existing

interconnection agreement to ignore this process as set forth in

section 252 of the Act.  Any CLEC could merely “opt-in” to the

tariff without having to negotiate, mediate or arbitrate with

Ameritech.  Moreover, if CLECs are allowed to merely opt in to

the tariff, Ameritech has lost its right of federal district

court review.  This, Ameritech claims, is an actual conflict between what has been ordered by the Commission and the process

prescribed  by federal law to create interconnection agreements.

We agree. 

	While various courts have held that section 252 of the Act

does preempt various actions taken by state regulatory

commissions (see MCI Telecommunications Corp. v. GTE Northwest, Inc., 41 F. Supp. 2d 1157 (D. Or. 1999); Verizon North, Inc. v. Strand, 309 F.3d 935 (6th Cir. 2002); Pacific Bell v. Pac-West Telecomm, Inc., 325 F.3d 1114 (9th Cir. 2003)), other courts have held certain actions taken by state agencies were not preempted

(see Michigan Bell Telephone Co. v. MCIMetro Access Transmission Services, Inc., 323 F.3d 348 (6th Cir. 2003); U.S. West Communications, Inc. v. Sprint Communications Co., L.P., 275 F.3d 1241 (10th Cir. 2002).  

	We find the factual situation present in Verizon North v. Strand most analogous to the case at bar and that court’s reasoning especially sound. In Verizon North v. Strand, the Michigan Public Service Commission (MPSC) forced Verizon to

publish a tariff that allowed CLECs to purchase services without

going through the negotiation and arbitration process called for

in section 252 of the Act. The court found that such an order

established a different route for competitors to obtain services

and network elements from incumbents.  Verizon North v. Strand, 309 F.3d at 939.  The order of the MPSC required the incumbent

local exchange carrier 'to file tariffs offering its network

elements and services for sale on fixed terms to all potential entrants without the necessity of negotiating an interconnection

agreement.'  Verizon North v. Strand, 309 F.3d at 939, quoting Verizon North, Inc. v. Strand, 140 F. Supp. 2d 803, 809 (W.D. Mich. 2000). (Emphasis omitted.)  The court continued, “[i]n this

way, the MPSC order permits competitors to purchase the services

and elements directly off of the tariff menu, obviating the need

to negotiate or arbitrate an interconnection agreement.” Verizon North, 309 F.3d at 939-40.  Because the MPSC order completely bypassed and ignored “the detailed process for interconnection

set out by Congress” in the Act, the court held it was

inconsistent with the provisions of the Act and therefore

preempted.  Verizon North v. Strand, 309 F.3d at 941.  

	We believe the order of the Commission in the case at bar

has the same effect of bypassing the process set forth in section

252 of the Act.  The Commission makes it clear that its order

“ensure[s] that those carriers that do not have an

Interconnection Agreement with Ameritech will have the benefit of

the Remedy Plan.”    The Commission does not have the authority

to allow a CLEC to take part in a remedy plan without first

taking part in the negotiation and arbitration process of section

252.  

	Respondents urge us to follow Michigan Bell Telephone Co. v. MCIMetro Access Transmission Services, Inc., 323 F.3d 348 (6th Cir. 2003).  However, in Michigan Bell v. MCIMetro, the CLEC seeking to take advantage of a term in a tariff had an existing

interconnection agreement with the ILEC and had already been through the section 252 process.  The court noted, “[t]his case

is not one where competing carriers were attempting to bypass the

negotiation process that creates interconnection agreements.” 

Michigan Bell v. MCIMetro, 323 F.3d at 360.  The condition in the tariff that was not present in the interconnection agreement the

CLEC was seeking to take advantage of merely allowed the CLEC to

fax orders to the ILEC instead of transmitting them via a

different electronic medium.  The court noted that “the parties

have complied with the Act by engaging in the negotiation and

review process.”   Michigan Bell v. MCIMetro, 323 F.3d at 360-61.

	Here, in ordering the tariff, the Commission allows a “new

CLEC” to “opt-in” to the remedy plan and “ensure[s] that those

carriers that do not have an Interconnection Agreement with

Ameritech will have the benefit of the Remedy Plan.”  Thus, we

find this situation much more analogous to that in Verizon North v. Strand where it was held the MPSC was prohibited from ordering an ILEC “'to file tariffs offering its network elements and

services for sale on fixed terms to all potential entrants

without the necessity of negotiating an interconnection agreement.”'  (Emphasis in original.)  Verizon North v. Strand, 309 F.3d at 939, quoating Verizon North, , 140 F. Supp. 32d at 89-009Inc..

	Not only did the Commission through its series of orders

impermissibly expand the scope of the Condition 30 remedy plan to

apply to CLECs with no interconnection agreements with the

Ameritech, it also impermissibly expanded its duration.  

	In its final order, the Commission stated that “[t]he only conclusion that can be reached is that Condition 30, and

consequently the Remedy Plan, expires in three years. ***

Additionally, no party has given us a legal basis for extending

the deadlines included in the Merger Order.  We are therefore

left with the conclusion that the Remedy Plan, as a condition to

merger approval, expires in three years from the merger closing

date.”  Ameritech was then directed to file a tariff consistent

with the language in the order.  When it did so, the Commission

struck language in the tariff noting it was only effective

through October 8, 2002.  

	In striking the language, the Commission stated that its

final order of July 10, 2001 “did not provide for any sunset or

automatic termination for that tariffed remedy plan.”  We believe

when the Commission used the words “the Remedy Plan *** expires

in three years from the merger closing date” it did set a sunset

and automatic termination date.  

	Moreover, we agree with petitioner that the Commission

violated due process by failing to give notice regarding the

order on rehearing.  Section 10--113(a) of the Public Utilities

Act (220 ILCS 5/10--113(a) (West 2000)) states:

			“Anything in this Act to the contrary

notwithstanding, the Commission may at any

time, upon notice to the public utility

affected, and after opportunity to be heard

as provided in the case of complaints,

rescind, alter or amend any rule, regulation, order or decision made by it.“ 220 ILCS 5/10-

-113(a) (West 2000). 

This court has held that section 10--113(a):

		“makes clear that the Commission’s power to

rescind, alter, or amend its own order can

only be exercised after providing notice by

means of a written complaint setting forth an

alleged violation of the Act, order or rule

of the Commission that is filed with the

Commission. [Citation.] }]  *** Further, an

opportunity to be heard must be provided by

holding a hearing at a fixed time and

place***.” Quantum Pipeline Co., v. Illinois Commerce Comm'n, 304 Ill. App. 3d 310, 319, 709 N.E.2d 950 (1999).  

Failure by the Commission to follow the statutory notice

procedures and right to be heard as set forth in section 10--113

violates a party’s procedural due process rights.  Quantum Pipeline Co., 304 Ill. App. 3d 310.  

	The July 10, 2001, order of the Commission stated the remedy

plan ended on October 8, 2002.  The October 1, 2002, order on

reopening deleted the October 8, 2002, remedy plan sunset date

contained in Ameritech’s tariff.  Not only did the Commission

fail to notify Ameritech of any hearing or proceeding upon which

the order on reopening was granted, it also summarily denied

Ameritech’s application for rehearing on the order on reopening. Clearly, the Commission’s actions violated Ameritech’s due

process rights.  

CONCLUSION

	We affirm the part of the Commission’s order that doubles

the remedies called for in the original “Texas” remedy plan and

which now constitute the revised remedy plan.  We find that the

Commission had no authority to allow CLECs that “do not have an

Interconnection Agreement with Ameritech” to “have the benefit of

the Remedy Plan” as such action subverts the negotiation and

arbitration process prescribed by section 252 of the

Telecommunications Act of 1996 (47 U.S.C. §252 (2000)).  Finally,

we hold that the order on reopening amended the Commission’s July

10, 2002, final order which found there was no legal basis to

extend the remedy plan past October 8, 2002.  By failing to

notify and provide Ameritech an opportunity to be heard regarding

this amendment, the Commission violated Ameritech’s due process

rights.   We therefore affirm part of the Commission’s order,

reverse part of the Commission’s order and remand this cause to

the Illinois Commerce Commission with directions to enter an

order consistent with this opinion and afford petitioner due

process.

	Affirmed in part and reversed in part; cause remanded with

directions.

	HOLDRIDGE and LYTTON, JJ., concur.