Opinion ID: 1433961
Heading Depth: 1
Heading Rank: 6

Heading: h(1 initial size of kusf

Text: K.S.A. 1996 Supp. 66-2008(a) provides: The initial amount of the KUSF shall be comprised of local exchange carrier revenues lost as a result of rate rebalancing pursuant to subsection (c) of K.S.A. 1996 Supp. 66-2005 and subsection (a) of K.S.A. 1996 Supp. 66-2007. Such revenues shall be recovered on a revenue neutral basis. The revenue neutral calculation shall be based on the volumes and revenues for the 12 months prior to September 30, 1996, adjusted for any rate changes. (Emphasis added.) K.S.A. 1996 Supp. 66-2005(c) provides: Subject to the commission's approval, all local exchange carriers shall reduce intrastate access charges to interstate levels as provided herein. Rates for intrastate switched access, and the imputed access portion of toll, shall be reduced over a three-year period with the objective of equalizing interstate and intrastate rates in a revenue neutral, specific and predictable manner. The commission is authorized to rebalance local residential and business service rates to offset the intrastate access and toll charge reductions. Any remaining portion of the reduction in access and toll charges not recovered through local residential and business service rates shall be paid out from the KUSF pursuant to K.S.A. 1996 Supp. 66-2008. Rural telephone companies shall reduce their intrastate switched access rates to interstate levels on March 1, 1997, and every two years thereafter, as long as amounts equal to such reductions are recovered from the KUSF. (Emphasis added.) K.S.A. 1996 Supp. 66-2007 provides in pertinent part: (a) All local exchange carriers and telecommunications carriers providing long distance service in Kansas shall reduce their statewide averaged basic long distance rates to reflect the net reductions in access charges; however, such carriers shall be allowed to increase long distance rates to reflect the KUSF funding requirements set forth in K.S.A. 1996 Supp. 66-2008. The KCC entered an order attempting to enforce these statutory mandates. The KCC ordered LECs to reduce intrastate access rates to interstate levels over a 3-year period, pursuant to 66-2005(c). The KCC ordered that the LECs be compensated for their lost revenue, due to the required access rate reduction, entirely from the KUSF. Thus, the KCC set the amount of the KUSF at $111.6 millionโthe total amount of revenue estimated to be lost by the LECs due to the access rate reduction. To fund the KUSF with this $111.6 million, the KCC ordered all intrastate telecommunications service providers to pay an assessment into the KUSF in an amount up to 14.1% of their intrastate retail revenues. Pursuant to 66-2008(b), the KCC authorized all providers who were required to contribute to the KUSF to pass the KUSF assessment on to their customers. The KCC established a method which SWBT, an LEC, must use if it decided to pass the KUSF assessment onto its customers. Under this method, SWBT could recover from each customer, over a 3-year period, a total of $3.21 per monthโ$2 per month the first year; $1 per month the second year; and the rest in the third year. In its Order on Reconsideration, the KCC clarified that the extra $3.21 charge was not a local service rate increase or rate rebalancing. Instead, the extra $3.21 charge per month was simply a method to pass on SWBT's assessment to SWBT's customers. The KCC did not order a local service rate increase or rate rebalancing. In analyzing the manner in which the KUSF should be funded, the KCC ordered that all of the LECs' lost revenue, due to the access rate reduction, should be recovered from the KUSF. CMT argues that this is contrary to 66-2005(c). According to CMT, the lost revenues, due to the access rate reduction, should first be recovered from an increase in local business and residential service rates or rate rebalancing, so that only the net or remaining lost revenue (revenue loss due to access rate reduction minus revenue regained due to increases in local rates) is recovered from the KUSF. In other words, CMT argues that the KCC improperly set the initial size of the KUSF at the same amount as the LECs' lost revenues, due to the access rate reduction, before some of the lost revenues were recovered through rate rebalancing by increasing local business and residential service rates, as required by 66-2005(c). Setting the initial size of KUSF in this way, CMT argues, results in the KUSF being much larger than that contemplated by the statute. In support of this argument, CMT cites 66-2008(a), which states that [t]he initial amount of the KUSF shall be comprised of [LECs'] revenues lost as a result of rate rebalancing pursuant to 66-2005(c) and K.S. A. 1996 Supp. 66-2007. (Emphasis added.) K.S.A. 1996 Supp. 66-2005(c) states: The commission is authorized to rebalance local residential and business service rates to offset the intrastate access and toll charge reductions. Any remaining portion of the reduction in access and toll charges not recovered through local residential and business service rates shall be paid out from the KUSF pursuant to K.S.A. 1996 Supp. 66-2008. Based on these statutes, CMT asserts that the Kansas Act intended for the LECs to only look to KUSF for that portion of lost revenues, due to the access rate reduction, which were not recovered from increases in local residential and business service rates or rate rebalancing. Contrary to the KCC's order, CMT argues that all of the LECs' lost revenues, due to the access rate reduction, should not be recovered from the KUSF. Instead, under 66-2008(a), the KUSF should be used to pay off the LECs' remaining or net lost revenues, due to the access rate reduction, after the LECs have recovered some of their lost revenues by increasing local residential and business service rates. Thus, CMT asserts that the Kansas Act dictates the initial size of the KUSF to be the net amount of LECs' revenues lost from the access rate reduction set against the LECs' revenues recovered from increases in local service rates (or the total revenues lost from rate rebalancing). According to CMT, the KCC's order which set the initial amount of the KUSF to be the LECs' gross revenues lost from the access rate reduction, without regard to any revenues recovered from local service rate increases, is contrary to the Kansas Act. In its Order on Reconsideration, the KCC stated that it had not ordered rate rebalancing (increases in local rates), although it was authorized to do so. Further, the KCC found that 66-2008(a) requires the initial KUSF amount to be comprised of revenues lost through access charge and toll reductions. According to CMT, the KCC's order is in error because it does not recognize that 66-2005(c) states that the initial size of the KUSF is to be the amount of revenues lost through access rate and toll reductions remaining after rate rebalancing (which includes increases in local service rates). CMT asserts that the KCC's view of the statute is a clear misreading of the statutory directions provided by the legislature in 66-2005(c). Because the KCC failed to require rate rebalancing and increase local rates, and because the KCC failed to take into account the recovery, from rate rebalancing, of some of the LECs' lost revenue, due to the access rate reduction, KCFN argues that the KCC set the initial amount of KUSF at an amount which contradicts the language of the Kansas Act and should be reversed. KCFN asks this court to reverse the KCC and instruct the KCC to order increased local rates and recalculate the KUSF initial amount using the proper methodology. In response, the KCC claims that under the Kansas Act, it had the authority to rebalance the reduction in access rates by increasing local residential and business service rates, but it was not required to do so. According to the KCC, all the Act required it to do was reduce the access rates. The KCC did this, but it decided not to rebalance the access rate reduction by increasing local rates. Instead, the KCC decided to allow the LECs to recover the entire amount of revenues lost, due to the access rate reduction, from the KUSF. In order to fund the KUSF, the KCC assessed all telecommunications providers up to 14.1% of their intrastate revenues. The KCC allows each provider to pass this assessment through to its customers by adding an assessment to each customer's bill. According to the KCC, this passed-through assessment is not a local rate increase. The KCC contends that it decided not to increase local rates for two reasons. First, residential ratepayers expressed strong opposition to rate increases during public hearings held in August 1996. Second, the KCC wished to retain maximum flexibility so as to reduce the financial impact a reduction in access rates would have on consumers. The KCC knew that if it increased local rates, so that the LECs could recover some of the revenues they lost due to the access rate reduction, then it would be precluded from performing an audit or earnings review with regard to local rates for any LEC electing price cap regulation. To avoid this restriction and retain flexibility to reduce the passed-through assessment (by reducing the LECs' KUSF assessment), the KCC decided to recover the lost revenue, due to the access rate reduction, exclusively through the KUSF. The KCC argues that such a determination was proper because 66-2008 requires the initial amount of the KUSF be comprised of the LECs' revenues lost as a result of the access rate reduction which the KCC did not rebalance or recover by increasing local rates. The KCC acknowledges that if it had authorized the LECs to increase local service rates, then the initial amount of the KUSF would have been smaller because the LECs' lost revenues, due to the access rate reduction, would have been decreased due to the increased local rates. However, since local rates were not increased, the KCC argues that the entire amount of the LECs' lost revenues, due to the access rate reduction, is appropriately recovered from the KUSF. As such, the KCC asserts that the determination of the initial size of the KUSF at $111.6 million complies with 66-2008. As the KCC specifically stated in its Order on Reconsideration: The Commission recognizes that confusion regarding the KUSF funding methodology exists and wishes to clarify the methodology set out in its Order. All providers of intrastate telecommunications services, including incumbent LECs, will be subject to the same KUSF assessment. K.S.A. 1996 Supp. 66-2008(b) authorizes all contributors to pass through the assessment to their customers. No company is required to pass the assessment through. However, if an LEC decides to pass the assessment through to its customers, the Commission established a method the incumbent LECs must use for doing so. Even if a company passes the assessment through in the form of higher prices for local service, the assessment does not constitute a local service rate increase. It remains a KUSF assessment, which may vary from year to year. Any wholesale discounts from local service prices will be based on the local service price without the KUSF assessment. As stated in the order, the Commission did not order rate rebalancing. Thus, local service rates remain the same as before the assessment, regardless of the manner in which the assessment is passed through. Since there was no increase in local rates or rate rebalancing, the entire amount of the LECs' lost revenue, due to the access rate reduction, is reflected in the initial size of the KUSFโ$111.6 million. SWBT asserts that there is no basis to conclude that the KCC's order, setting the initial amount of the KUSF at $111.6 million, is contrary to the Kansas Act. In rebuttal, CMT claims that $3.21 extra charge to local service customers is actually a local rate increase, as a part of rate rebalancing, and is not a pass-through of SWBT's KUSF assessment. In support of this position, CMT and KCFN cite the language of the KCC order which calls the extra charge a rate increase. In its December 27, 1996, order, the KCC authorized an estimated $3.21 per month rate increase for SWBT customers for the provision of local services. (Emphasis added.) Additionally, the KCC ordered SWBT to file tariffs reflecting these rates thirty (30) days after receipt of this Order. (Emphasis added.) Finally, CMT points out that the extra charge is a flat, monthly, per line charge and is not tied to a percentage of the customer charges. Hence, CMT and KCFN assert that this extra charge is an increased rate per line and not an assessment of a certain percentage of a customer's charges. Since this extra charge is a local rate increase, CMT and KCFN argue, the rates for local service have been rebalanced by that amount. Thus, CMT and KCFN claim that the revenue generated by this local rate increase should be netted against the revenues lost by the access rate reduction and the initial amount of the KUSF should be reduced accordingly. According to CMT and KCFN, the initial amount of the KUSF, as ordered by the KCC, violates the federal and state prohibitions on implicit subsidies (ง 254); violates state and federal requirements that universal service support be equitable and nondiscriminatory (K.S.A. 1996 Supp. 66-2008[a];ง 254 [f]); and sizes the KUSF in a manner other than that mandated by 66-2005(c) and 66-2008(a). CMT and KCFN ask this court to remand the case to the KCC with orders to redefine the size of the KUSF in accordance with 66-2005 and 66-2008. The Court of Appeals found that the KCC orders were in error on other grounds. Thus, the Court of Appeals found this issue was moot and did not address it. In analyzing this issue on appeal, the KCC orders are subject to judicial review pursuant to the Act for Judicial Review and Civil Enforcement of Agency Actions. K.S.A. 77-601 et seq. The reviewing court shall grant relief to petitioners if the agency action, or the action on which the agency action is based, is unconstitutional on its face or as applied. K.S.A. 77-621(c)(1). Similarly, the reviewing court must reject a KCC order if the KCC erroneously interpreted or applied the law. See K.S.A. 77-621(c)(4). When issues of law are raised by a petition for judicial review, the reviewing court is required to engage in de novo review and may substitute its judgment for that of the KCC. Williams Natural Gas Co. v. Kansas Corporation Comm'n, 22 Kan. App.2d 326, 335, 916 P.2d 52 (1996). The KCC's interpretation of a statute that it is charged to interpret and enforce, using its expertise, is entitled to great deal of judicial deference by the courts. City of Wichita v. Public Employees Relations Board, 259 Kan. 628, 631, 913 P.2d 137 (1996). However, the KCC's determination of a question of law is not binding on the reviewing court. Whether the KCC has erroneously interpreted or applied the law in an unconstitutional manner is a question of law over which an appellate court's review is unlimited. See In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 536, 920 P.2d 947 (1996). If the KCC is mistaken as to a question of law, the reviewing court has an obligation to cure the KCC's action. See National Council on Compensation Ins. v. Todd, 258 Kan. 535, 539, 905 P.2d 114 (1995). K.S.A. 1996 Supp. 66-2005(c) does not require the KCC to increase local rates after it reduces access rates, or participate in rate rebalancing. All 66-2005(c) does is require the KCC to reduce access rates. Specifically, 66-2005(c) provides in pertinent part: Subject to the commission's approval, all local exchange carriers shall reduce intrastate access charges to interstate levels as provided herein. Rates for intrastate switched access, and the imputed access portion of toll, shall be reduced over a three-year period with the objective of equalizing interstate and intrastate rates in a revenue neutral, specific and predictable manner. (Emphasis added.) The KCC followed the legislature's directive and did reduce access rates. Also in 66-2005(c), the legislature authorized an increase in local rates to offset the reduction in access rates (or rate rebalancing). As the statute provides in part: The commission is authorized to rebalance local residential and business service rates to offset the intrastate access and toll charge reductions. (Emphasis added.) Under any interpretation of 66-2005(c), this language does not require the KCC to increase local service rates; it only authorizes such increases should the KCC choose to recoup lost revenues, due to the access rate reduction, in this manner. The legislature knows the difference between the meaning of the terms shall and authorized, and it used each word within this statute purposefully, to indicate its intent that increases in local rates were not required, only authorized. Then, 66-2005(c) provides that any lost revenues, due to the access rate reduction, which are not recovered through rate rebalancing, shall be paid out of the KUSF. Here, none of the revenues lost, due to the access rate reduction, were recovered from rate rebalancing or increasing the local rates because the KCC chose not to recoup lost revenues in this manner, as it had the discretion to do. Thus, all of the lost revenues, due to access rate reduction, were required to be paid out of the KUSF. These lost revenues amounted to $111.6 million. Thus, the initial balance of the KUSF required to recoup these lost revenues was properly set at $111.6 million. This conclusion is consistent with 66-2008(a), which provides in part: The initial amount of the KUSF shall be comprised of local exchange carrier revenues lost as a result of rate rebalancing pursuant to subsection (c) of K.S.A. 1996 Supp. 66-2005.... Here, partial rate rebalancing occurred, as 66-2005(c) required, because access rates were reduced. However, total rate rebalancing did not occur because the KCC did not raise local rates, as it had the discretion not to do under 66-2005(c). Thus, the revenues lost as a result of the partial rate rebalancing which occurred, due to a reduction in access rates, amounts to $111.6 million. As such, the initial amount of the KUSF was properly comprised of the $111.6 million figure. However, even if 66-2005(c) does not require rate rebalancing or increases in local rates, CMT and KCFN assert that the KCC exercised its discretion and did in fact raise local rates. According to CMT and KCFN, the KCC allowed SWBT to increase its local rates by $3.21 per month over a 3-year period and allowed other LECs to increase their local rates in a similar manner. Thus, CMT and KCFN argue that all of the revenues the LECs lost, due to the access rate reduction, should be set off by these increases in local rates, resulting in an overall smaller amount of lost revenues. As such, CMT and KCFN claim the initial amount of KUSF should be comprised of this overall smaller figure. The KCC did not authorize any LEC to raise local rates or participate in total rate rebalancing, and no LEC has done so. Admittedly, the KCC uses language in the order which makes it appear that it has raised local rates. However, when looked at carefully, it becomes clear that the KCC is not authorizing an actual increase in local rates. For instance, the KCC order stated: The estimated $3.21 per month rate increase for SWBT would be allocated as follows.... (Emphasis added.) However, later in the same paragraph, the order states: United will implement the pass through of its KUSF assessment on a similar per line basis. (Emphasis added.) Further, in its order, the KCC refers to tariffs which must be filed to reflect an increase in rates. However, this statement refers to an increase in the rates for pay phone directory assistance calls, not an increase in local service rates. Thus, the KCC order does not indicate a local rate increase, as it first appears. Further, in the KCC Order on Reconsideration, it specifically acknowledged its misuse of the term rate rebalancing in the order and made it clear that it did not, in fact, raise local rates. The extra $3.21 charge authorized in the KCC order is not an increase in SWBT's local rates. Instead, the KCC informed SWBT and all other LECs that they could pass on the KUSF assessment to their customers if they so chose. If SWBT chooses to pass on the KUSF assessment to its customers, the KCC set up a method for SWBT to do soโby charging an extra $3.21 per month over a 3-year period. Thus, if SWBT chooses to pass on the KUSF assessment, its customers will have to pay more for local service. However, such an increased payment is not the result of increased local rates, but is the result of the KUSF assessment passed through by SWBT to its customers. In allowing SWBT to pass through the KUSF assessment to its customers, the KCC required SWBT to divide up the passed-through assessment evenly among all its customers. The KCC decided that this pass-through method was a better method than passing a certain percentage of the overall KUSF assessment through to each customer, depending upon the amount of each customer's bill. The KCC chose this pass-through method because it averaged out the passed-through assessment to all customersโplacing a lower percentage of the passed-through assessment on customers with the highest local charge and placing a higher percentage of the passed-through assessment on customers with the lowest local charge. Using this pass-through method, the charge passed-through to each customer is the same. Thus, it looks like the charge is a local rate increase; in fact, it is simply a pass-through of the KUSF assessment that SWBT and other LECs are required to pay. As such, the LECs did not receive any extra revenue from this nonexistent local rate increase. Hence, this nonexistent extra revenue cannot be used to set off the LECs' actual lost revenue, due to the access rate reduction. Under 66-2008(a), the initial balance of the KUSF is required to comprise an amount equal to the LECs' lost revenue after rate rebalancing. The KCC did not order rate rebalancing, as it had the discretion to do. Thus, after nonexistent rate rebalancing, the LECs' lost revenue, due to the access rate reduction, equaled $111.6 million. As such, the KCC properly set the initial balance of the KUSF of $111.6 million. The KCC's orders, setting the initial size of the KUSF, complies with K.S.A. 1996 Supp. 66-2008 and is in conformity with the Kansas Act. This issue fails.