Opinion ID: 1433961
Heading Depth: 2
Heading Rank: 2

Heading: audit and earnings review

Text: K.S.A. 1996 Supp. 66-2005(u) provides: (u) No audit, earnings review or rate case shall be performed with reference to the initial prices filed as required herein. As required herein apparently refers only to prices filed pursuant to K.S.A. 1996 Supp. 66-2005(b) by companies that have elected price cap regulation. Apparently, no company had made such an election when this appeal was filed. In relevant part, the Court of Appeals stated: [I]n any event, there was to be no audit, earnings review, or rate case with reference to an LEC's initial prices filed pursuant to K.S.A. 1996 Supp. 66-2005(b).... ... It is impossible for the KCC to determine an affordable rate for universal service without being able to perform an audit or earnings review of the incumbent LECs.... What is the cost of basic telephone service in Kansas? We have no answer from the record before us. What is the cost to provide universal service? We have no answer from the record before us. The funding level of $111.6 million for the KUSF was preordained by the Kansas Legislature once the concept of revenue neutrality and the prohibition against investigation of profits was written into the Kansas Act.... .... Finally, the KCC order has created a $111.6 million fund that bears no rational relation to the concept of universal service and its cost. ... Likewise, the KCC must disregard the provision of K.S.A. 1996 Supp. 66-2005(u) that prohibits any audit or earning[s] review. The KCC cannot meet its general regulatory responsibilities or those mandated under the Federal Act without a complete and thorough review of the earnings of the LECs. 24 Kan. App.2d at 237-41. There is no indication that the Court of Appeals was basing its decision on a belief or understanding that the no audit or earnings provision applied only to prices filed by companies that had elected price cap regulation and that no company had made such an election at the time this appeal was filed. In its order on reconsideration, the KCC stated that it would need to reevaluate the KUSF for consistency with the FCC universal service order guidelines once the FCC order was issued. In its brief filed on June 3, 1997, and in its May 28, 1997, motion for clarification, the KCC acknowledges that the May 8, 1997, FCC order requires that universal service orders be based on cost studies. The FCC order finds that the states are responsible for identifying existing implicit universal service subsidies and emphasizes that the revenues of the carriers must be carefully examined. The KCC has said that it will comply with the FCC order by performing and implementing cost studies in connection with the KUSF. The KCC was caught in a catch 22 situation. This case started and the record was made without federal regulations defining the Federal Act. Federal regulations have since been adopted. The Court of Appeals appears to have obtained copies, although they were not available and thus not considered by the KCC when it issued its order. While this appeal was pending, the KCC would be reluctant to, if not prevented from, adopting different rules, regulations, and rates. As we read the Kansas Act, it does not prevent the KCC from making appropriate adjustments and performing a cost study or from conducting an audit or earnings review at this time. As we view what the legislature did, it assumed the rates that existed when the Act in question was adopted, were not unreasonable, arbitrary, and capricious, i.e., in compliance with Kansas law. The legislature started with this premise. The legislature had to start with a figure in mind, and the fact that it chose a different method of obtaining a starting figure than what the court might have done, does not require us to hold that it violates K.S.A. 77-621. We hold that the legislature has the authority to start from this premise and the Act, insofar as this issue is concerned, is valid.