Opinion ID: 2329066
Heading Depth: 2
Heading Rank: 4

Heading: Interstate Billing and Collections

Text: Local exchange carriers, like Pine Tree, can generate revenue by charging interstate carriers for sending bills to customers and performing collection services usually to customers within its own service territory. Pine Tree provides these billing and collection services to AT & T. During the test year, 1990, AT & T paid Pine Tree $96,418 for these services. Pine Tree's president, Timothy Hutchinson, testified that the company's expenses in providing this service were about eight or nine thousand dollars. Pine Tree argues that the commission impermissibly included Pine Tree's interstate billing and collection revenues in Pine Tree's total revenues. Pine Tree argues that any regulation of these services is outside the commission's jurisdiction. The commission asserts that the FCC has not preempted state regulation of interstate billing and collection services and that since ... the billing and collection revenues are still to be regulated for jurisdictional separations purposes, this commission has no other alternative under the paradigm of residual ratemaking than to include those revenues as part of Pine Tree's total interstate revenue and hence its interstate costs for intrastate ratemaking purposes. The commission continues, [a]ny other method of regulation would not ensure that Pine Tree does not receive any more or less than 100% of its total company revenue requirement. We closely analyze FCC precedent in order to decide this issue. In 1986, the FCC concluded that carrier billing or collection for the offering of another unaffiliated carrier is not a communications service for the purposes of Title II of the Communications Act. Detariffing of Billing & Collection Services, 102 F.C.C.2d 1150, 1168 (1986). The FCC also declined to exercise its authority to regulate such services pursuant to Title I of the Communications Act. Id. at 1170. The FCC continued: [W]e have concluded that we should give preemptive effect to our decision with respect to [local exchange carrier] billing and collection for interstate services of interexchange carriers. State rate regulation of such billing and collection services is not required.... Therefore, we have decided to preclude such regulation. Id. at 1177 (emphasis added). The FCC added, the deregulation of billing and collection services should not shift costs between the state and interstate jurisdictions... [but] merely removes some interstate costs from the regulated arena. Id. at 1175. In 1987, however, the FCC added, we did not preempt all state regulation of billing and collection service. Separation of Costs of Regulated Telephone Service from Costs of Nonregulated Activities, 2 F.C.C.R. 1298, 1309 (February 1987) (emphasis added) (hereinafter Separations I ). In a footnote, the FCC explained these remarks as follows: While we preempted state regulation of [local exchange carrier] billing and collection for interstate service of interexchange carriers ... we did not preempt regulation of billing and collection services for intrastate services. Id. at 1350 n. 152 (citation omitted) (emphasis added). In 1987, the FCC established a method of separating regulated and nonregulated activities. See id. at 1299. Under that scheme, a company would generally first separate its regulated from its nonregulated activities, [12] and then only the regulated activities would proceed to the jurisdictional separation phase. Separation of Costs of Regulated Tel. Service from Costs of Nonregulated Activities, 2 F.C.C.R. 6283, 6300 (October 1987) (hereinafter Separations II ). The FCC has determined that billing and collection activities are deregulated activities in the interstate jurisdiction but has allowed regulation in the intrastate jurisdiction; and because of this, unlike those services that are preemptively deregulated in both interstate and intrastate jurisdictions, billing and collection services remain subject to the jurisdictional separation process. Separations I, 2 F.C.C.R. at 1309 ([W]e did not preempt all state regulation of [intrastate] billing and collection service... [therefore] [w]e believe that billing and collection activities should continue to be accorded regulated accounting treatment.); see also 47 C.F.R. § 32.23 (1992). Because Pine Tree's revenues from interstate billing and collection services are not separated from its regulated activities prior to jurisdictional separations and because Pine Tree chose to use average schedules rather than a cost-based jurisdictional separation, the commission did not err by including Pine Tree's interstate billing and collection revenues in Pine Tree's total revenues for residual ratemaking purposes. [13] Moreover, even if the commission had committed error by including these costs, such error would be harmless because Pine Tree did not supply adequate evidence on which the commission could exclude expenses of interstate billing and collection services. Hutchinson testified that he estimated the companies expenses for billing and collection services based on Pine Tree's costs of printing bills and an estimate by Pine Tree staff as to time spent answering questions on interstate bills. Contrary to Pine Tree's assertion during oral argument that its cost separation study, excluded by the commission, contained an accurate separation of interstate billing and collection services expenses, that study did not do so. According to 47 C.F.R. §§ 36.378 (1992), account number 6623, customer services, should be broken into three separate categories: (1) message processing expenses, (2) carrier access charge billing and collection expenses, and (3) other billing and collecting expenses. The expenses identified in the other billing and collecting expenses category are then further segregated according to 47 C.F.R. § 36.380 (1992). The study commissioned by Pine Tree did not segregate expenses to this extent; and, in fact, simply included one lump sum for all customer services expenses. [14]