Opinion ID: 1211297
Heading Depth: 2
Heading Rank: 2

Heading: Separated Methodology.

Text: GSTC contends that the APUC erred in computing its revenue requirements on a separated basis. The APUC analyzed GSTC's revenue data in a form that separates interstate toll, intrastate toll, and local exchange components. GSTC claims that the APUC and the superior court misunderstood United States v. RCA Alaska Communications, Inc., 597 P.2d 489 (Alaska 1979) ( Alascom ), and that the APUC should have determined revenue rates on a total company basis. The APUC argues that whether or not Alascom actually required it to use a separated methodology, considerations of fairness and proper utility regulatory policy led it to use this system. We conclude that although a separated methodology was not mandated by Alascom, it was within the authority of the APUC to require such methodology in this case. [1] GSTC argues that the facts of this case distinguish it from Alascom. In Alascom, we held that the separated methodology was mandated in a situation where the interstate component earned a high rate of return and the intrastate component earned a confiscatory rate, which GSTC calls a toll-excess situation. [2] In other words, the utility sought to have its interstate business subsidize its intrastate operations. The telephone company in Alascom, as a toll carrier company, is regulated by the Federal Communications Commission (FCC) as to its interstate toll operations and by the APUC as to its intrastate toll operations. See 47 U.S.C.A. § 152(a) (West 1962 & Supp. 1986). GSTC, on the other hand, is a toll-deficient company, realizing a low rate of return on its interstate toll operations. GSTC seeks to have its local exchange rates subsidize its interstate and intrastate toll operations. The APUC has complete jurisdiction over GSTC, a local exchange carrier. See 47 U.S.C.A. § 221(b) (West 1962). The consequence of these factual distinctions, according to GSTC, is that in this case the bases for requiring separation in Alascom, to avoid preemption of federal law and a burden on interstate commerce, do not exist. GSTC argues extensively that federal preemption and commerce clause issues are missing from this case. In fact, the APUC does not disagree with this analysis. Its counsel conceded at the superior court argument that this case does not involve commerce clause issues, and it does not argue the federal preemption issue at this level. [3] Alascom does contain dictum that separation is required when intrastate revenues might subsidize interstate toll operations. Alascom quotes Simpson v. Shepard, 230 U.S. 352, 33 S.Ct. 729, 57 L.Ed. 1511 (1913), ( The Minnesota Rate Cases ) which states: The reason, as [stated in Smyth v. Ames ], is that the state cannot justify unreasonably low rates for domestic transportation, considered alone, upon the ground that the carrier is earning large profits on its interstate business, and, on the other hand, the carrier cannot justify unreasonably high rates on domestic business because only in that way is it able to meet losses on its interstate business. 230 U.S. at 435, 33 S.Ct. at 755, 57 L.Ed. at 1556 (emphasis added), quoting Smyth v. Ames, 169 U.S. 466, 541, 18 S.Ct. 418, 431, 42 L.Ed. 819, 847 (1898). Neither Alascom, The Minnesota Rate Cases, nor Smyth v. Ames offers any reason why a utility cannot use intrastate revenues to subsidize interstate business. The language is dicta in all three cases. [4] Nevertheless, we are of the view that the APUC was not required to use a total company approach. A public service commission is an administrative agency that has whatever powers are expressly granted to it by the legislature or conferred upon it by implication as necessarily incident to the exercise of powers expressly granted. Greater Anchorage Area Borough v. City of Anchorage, 504 P.2d 1027, 1033 n. 19 (Alaska 1972), quoting State v. Department of Transportation of Washington, 33 Wash.2d 448, 206 P.2d 456, 474-75 (1949). The essence of the administrative power conferred upon the APUC is regulatory. Id. at 1033. Among the commission's powers are setting rates, promulgating regulations, collecting information, and processing complaints. Id.; see also AS 42.05.141(a)(3). It is clearly within the APUC's authority to decide that it wants telephone rates to reflect only the costs of the service provided a ratepayer. The commission stated that one consideration underlying its decision was the determination to reaffirm its policy to not intervene in the negotiations process regarding intrastate toll settlements. The APUC emphasized that the local exchange company should make every attempt to settle its disputes with Alascom (the long-distance carrier) regarding intrastate tolls before filing a complaint with the commission. APUC's policy is to refuse to allow the use of local exchange revenues as a substitute for a negotiated toll deficiency. The APUC argues also that basic fairness to ratepayers is a reasonable basis for its decision. In fact, at some point this policy of fairness is mandated by statute. AS 42.05.391(a) forbids a utility to maintain unreasonable discriminatory rates between classes of services. AS 42.05.391(a) states in part: A public utility may not, as to rates, grant an unreasonable preference or advantage to any of its customers or subject a customer to an unreasonable prejudice or disadvantage. A public utility may not establish or maintain an unreasonable difference as to rates, either as between localities or between classes of service. Discrimination based on justifiable differences in the cost of service or discrimination that is otherwise reasonable is permissible; however, when the rate structure is such that one class of customers subsidizes another, discrimination may pass beyond its permitted scope and become unreasonable. Jager v. State, 537 P.2d 1100, 1109-10 (Alaska 1975). GSTC wants local exchange ratepayers to cover an interstate and intrastate toll deficit of nearly $2 million per year. Clearly this might be considered an unreasonable difference as to rates between classes of customers. It is unnecessary for us to determine whether GSTC's suggested rate structure would violate 42.05.391(a), however, because the APUC's policies of nonintervention in intrastate toll settlements and fairness to ratepayers are reasonable bases for its decision to require separation in this case. We hold therefore, that by virtue of its authority to set rates and create regulatory policy, the commission acted within its power. [5]