Opinion ID: 1256320
Heading Depth: 1
Heading Rank: 1

Heading: Interim Compensation Plan.

Text: Code § 56-265.4:4 left intact until January 1, 1986, the exclusive right of local telephone companies to offer intraLATA long distance service. MCI, GTE Sprint, and certain other carriers, however, unlike AT & T of Va., currently use equipment and technology which cannot prevent all intraLATA calls from being placed on their networks. In order to protect the rights of local companies to carry intraLATA traffic while authorizing competing interLATA carriers to provide service in Virginia, the Commission adopted Rule 2, which states: Interexchange carriers will not be permitted to offer intraLATA calling at this time. Incidental intraLATA calls that occur shall either be blocked, or the local exchange companies shall be compensated for revenues lost as a result of such incidental intraLATA calls. The certificate application of each interexchange carrier shall include its plan for either blocking or paying for such incidental calling. 60 Pub.Util.Rep. 4th (PUR) at 331. In their applications, MCI and GTE Sprint both agreed to comply with Code § 56-265.4:4.B and the Commission's rules requiring that they not offer intraLATA service before 1986. Both asserted that they were unable to block all intraLATA calls placed through their systems and proposed to compensate the local telephone companies for incidental intraLATA calls by payment of access charges. C & P protested and sought a continuance, alleging that MCI and GTE Sprint had failed to comply with the requirement of Rule 2 to propose a plan for blocking or paying. The Commission denied the requested continuance and heard evidence on the applications; it instructed the parties to confer with the Commission staff to formulate, as a condition to certification, a method of compensating the local companies for their revenues lost on unauthorized intraLATA calls. Although two conferences were held, no complete resolution of this issue was reached; therefore, the Commission developed and adopted an interim plan of compensation, issued certificates to MCI and GTE Sprint, and ordered them to comply with the plan. [9] Appellants contend the compensation plan violated Virginia law because the Commission was without authority to require such payments. MCI says that, if the payments ordered are neither rates nor fines, they must be damages, which the Commission is not authorized to award. We find this argument unpersuasive. Code § 56-35 grants the Commission the following regulatory authority over telephone companies operating in Virginia: The Commission shall have the power, and be charged with the duty, of supervising, regulating and controlling all public service companies doing business in this State, in all matters relating to the performance of their public duties and their charges therefor, and of correcting abuses therein by such companies. The Commission has broad discretion to determine if a certificate of public convenience and necessity should be granted under Code § 56-265.3. See Stafford Corps. v. Corp. Comm., 220 Va. 559, 562, 260 S.E.2d 226, 228 (1979). The Commission may grant certificates to companies for interLATA service where it finds such action is in the public interest. Code § 56-265.4:4.B. It is expressly authorized to prescribe terms, conditions, limitations, and restrictions on certificates granted to such telephone carriers. Id. The Commission adopted Rule 2 and the compensation plan to insure that companies granted certificates to provide interLATA service do not encroach upon the intraLATA market reserved to the local telephone companies. The record demonstrates that the Commission intended certification of MCI and GTE Sprint to be contingent on their compliance with the plan of compensation, and so informed these applicants. The payment requirement was a reasonable condition imposed to protect local companies from loss of revenues when unauthorized intraLATA calls are not blocked but are carried over the networks of interLATA carriers. We hold that the Commission did not abuse its discretion in imposing this condition. Appellants also argue that the plan was improperly adopted before they were afforded notice and an opportunity to be heard. They rely on VEPCO v. State Corp. Comm., 226 Va. 541, 548-49, 312 S.E.2d 25, 29-30 (1984), where we held that summary disposition of a ratemaking case failed to meet the requirements of due process. In that case, Vepco filed an application for a two-step rate increase, the second step of which included recovery of its investment in a cancelled nuclear unit. With its application, Vepco filed supporting testimony and exhibits. The Commission severed the cancellation issue for further investigation. It summarily disposed of the remainder of Vepco's application, refusing both stages of the requested rate increase. Id. at 543-45, 312 S.E.2d at 26-27. We reversed the Commission's denial of these proposed increases, finding that summary disposition violated Vepco's due process rights. Id. at 548-49, 312 S.E.2d at 29-30. We noted that the order was entered only three weeks after Vepco filed its application. Vepco had no notice that summary action was contemplated and was given no opportunity to be heard. Id. at 548, 312 S.E.2d at 29. Additionally, we held that an ex post facto hearing failed to satisfy Vepco's right to an opportunity to be heard. Id., 312 S.E.2d at 30. That ratemaking case, however, is distinguishable from the applications of MCI and GTE Sprint for certification. Vepco had no notice that its requests were challenged; these applicants knew C & P challenged the adequacy of the plans proposed by their applications. Vepco had no opportunity to address the Commission; MCI filed a written response to C & P's protest and motion for a continuance, and both applicants appeared at the July 27 hearing, where they had an opportunity to argue before the Commission that access charges are an adequate means of compensation under Rule 2. At the hearing, the Commission informed MCI and GTE Sprint that access charges are insufficient to achieve the purpose of Rule 2 that the local companies be made whole for revenues lost on unblocked incidental intraLATA calls. Both applicants agreed to participate in informal proceedings with the Commission's staff in an effort to reach an agreement. Both promised to pay lost revenues. Neither asked for a hearing. Expressing concern that the certification decision should be based on a plan determined by the Commission rather than by C & P, they were given such assurances by the Commission. When negotiations failed to yield an agreement, neither applicant requested a hearing. The Commission could have withheld approval of certification of MCI and GTE Sprint until they submitted an acceptable compensation plan. Knowing that these applicants faced a critical deadline of September 1 for participating, as certificated carriers, in equal access conversion in the Norfolk area, the Commission fashioned its own temporary plan so that certification could be approved before the deadline. When the Commission approved a formula, neither MCI nor GTE Sprint asked for a hearing. After receiving certification, both challenged the plan, again arguing that access charges are appropriate compensation under Rule 2. Only at this stage, however, did one of the appellants allege a denial of due process. At no point in these proceedings did either applicant object to the procedure followed by the Commission. Nor did either party object to the Commission's use of its staff for negotiation of a plan. They cannot now be heard to complain of a procedure in which they acquiesced. As the Commission notes, hearing on the compensation plan has not been denied but has merely been deferred. The Commission order allowed for future hearings at the request of any interested party to have the plan altered. At such hearings, MCI or GTE Sprint may present evidence to demonstrate that the interim plan is an ineffective means of compensating local companies for unauthorized intraLATA calls and the Commission may modify the plan accordingly. Under the facts of this case, therefore, we hold that this opportunity to seek modification of the plan adequately affords MCI and GTE Sprint their due process rights. GTE Sprint asserts that the Commission's action was arbitrary and capricious because the plan was not supported by the evidence. We disagree. When these applicants failed to devise an acceptable method of compensation through their own efforts, the Commission drafted and adopted the plan as an interim measure to facilitate the expedited certification so eagerly sought by MCI and GTE Sprint. They may present evidence in a future proceeding to support their contention that the plan should be changed because it overcompensates the local companies for losses resulting from incidental unauthorized intraLATA calls. GTE Sprint also argues that C & P unfairly benefits from its former participation in the Bell System's anticompetitive activity, saying the plan compensates C & P for a condition caused by the nature of AT & T's telecommunications network and its attempted exclusion of other carriers prior to the divestiture. While it is true that the access initially provided to other carriers is inferior to that available to AT & T of Va., this difference is an incident of the divestiture and is not a violation of the federal court orders in the antitrust action. See American Tel., 552 F.Supp. at 196-200. [10] Furthermore, any attempt to prevent C & P from benefitting from this circumstance would result in a windfall to MCI and GTE Sprint, allowing them to profit from incidental intraLATA calls while they are not authorized to offer intraLATA service. Rule 2, to which MCI and GTE Sprint did not object, was designed to prevent this unjustified result. Nor do we find merit in appellants' contention that the plan unfairly discriminated against MCI and GTE Sprint in violation of the federal Constitution and Code § 56-481.1 by requiring them to make payments not required of AT & T of Va. The block-or-pay rule is applied to all carriers seeking certification under Code § 56-265.4:4. Certain carriers seeking certification affirmed that they would comply with Rule 2 by blocking intraLATA calls made on their networks. AT & T of Va. blocks such calls. It is likewise within the ability of MCI and GTE Sprint to block intraLATA calls by technology available since 1982. The necessity of compensation results only from their business decision not to incur the expense required to acquire a mechanism for blocking intraLATA calls. [11] To make the local companies whole by means of access charges would unfairly require carriers which are successfully blocking intraLATA calls to bear part of the financial burden resulting from the failure of MCI and GTE Sprint to block. There is no merit in the contention of MCI and GTE Sprint that the interim compensation plan violates the provisions of the modification of final judgment (MFJ) and subsequent orders in the AT & T divestiture case. These orders require that the divested operating companies provide equal access to the other carriers and assess all access charges in the form of cost-justified tariffs. MCI and GTE Sprint challenge the plan's formula for payments that are not cost-justified and the plan's exclusion of the payments from the local companies' tariffs. They also assert that the plan violates the equal access requirement by forcing them to pay additional fees for access inferior to that afforded AT & T of Va. These contentions ignore the fact that the charges imposed by the plan are not access charges. As the Commission noted, access charges cannot compensate for lost revenues. The compensation plan establishes another means of making reimbursement for losses occasioned by unauthorized intraLATA usage. Nothing in the MFJ or subsequent related orders requires the local companies to assess access charges for service which is not authorized under state law. Moreover, intrastate telephone service is exclusively under the jurisdiction of state regulatory agencies. American Tel., 552 F.Supp. at 159 n. 117, 169 & n. 161; Western Elec., 569 F.Supp. at 1005; see United States v. Western Elec. Co., Inc., 569 F.Supp. 1057, 1109 (D.D.C.1983). We hold that the Commission properly imposed the interim compensation plan. Accordingly, we will affirm the Commission's certification of MCI and GTE Sprint, conditioned upon their compliance with the terms of the plan.