20000119Order No 28250.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION BY C-SYSTEMS, INC. D/B/A NETLINK FOR ARBITRATION WITH GTE NORTHWEST, INC. PURSUANT TO THE FEDERAL TELECOMMUNICATIONS ACT OF 1996. )
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CASE NOS. CSY-T-99-1
GTE-T-99-2

ORDER NO. 28250

On August 31, 1999, C-Systems, Inc. dba Netlink filed a Petition for Arbitration requesting that the Commission arbitrate an interconnection dispute under the provisions of the federal Telecommunications Act of 1996 (Act). C-Systems seeks an interconnection agreement with GTE Northwest. Under the federal Act, if parties are unable to negotiate a voluntary interconnection agreement, either party may request arbitration by the state regulatory commission to resolve the disputed issues. 47 U.S.C. § 252. The Legislature has empowered the Commission to implement provisions of the Act. Idaho Code § 62-615(1). CSystems submitted seven issues for arbitration and requested that the Commission authorize an interim interconnection agreement pending resolution of the disputed issues. After reviewing the parties’ briefs, the Arbitrator’s Decision and the exceptions to his decision, the Commission issues this final Order resolving the disputes tendered in the arbitration process.

BACKGROUND
A. The Telecommunications Act
The federal Telecommunications Act was enacted by Congress to foster competition in local telecommunications service markets. It enables competitors (commonly referred to as competitive local exchange companies, or CLECs) to enter local markets in any of three ways: (1) by purchasing unbundled network elements from the incumbent local exchange carrier (LEC); (2) by reselling the incumbent LEC’s retail services purchased at wholesale rates; or (3) by constructing their own facilities. The first method for a competitor’s market entry can be accomplished only with an agreement between the competitor and the incumbent LEC, and even a facilities-based competitor may need an agreement to provide for the exchange of telecommunications traffic. The Act establishes certain duties for telecommunications carriers to facilitate these agreements and requires active negotiation by the parties. 47 U.S.C. § 251. If the parties are unable to negotiate a voluntary final agreement, either party may request arbitration by the state regulatory commission to resolve the open issues.

B. Procedural History
On September 10, 1999, the Commission issued a Notice of C-Systems’ Petition and established December 24, 1999 as the deadline for concluding arbitration. The parties initially divided the seven disputed issues into two groups: four issues to be submitted on legal briefs and three issues to be addressed in an evidentiary hearing. On October 8, 1999, the Commission issued Procedural Order No. 28181 appointing an arbitrator and establishing a schedule for the processing of this case.
Following issuance of the Procedural Order, the parties engaged in extensive discovery, filed various procedural motions, and prefiled testimony for the evidentiary hearing. On October 26, 1999, each party submitted a brief addressing the four non-hearing issues. The parties subsequently entered into prolonged settlement negotiations. On November 30, 1999, the parties notified the arbitrator that they had settled four of the disputed issues—the three evidentiary issues and one non-hearing issue. The remaining non-hearing issues were submitted to the arbitrator for his decision. Stated briefly, the three issues are:
1. Should the Interconnection Agreement absolve each party of liability for indirect and consequential damages for “gross” negligence?

2. If a court or agency subsequently determines that a provision of the Agreement is invalid or unenforceable, should either party be able to terminate the Agreement if the parties are unable to voluntarily amend the affected provision and either party finds the provision “material”?

3. When should the yet to be released FCC rules/orders regarding reciprocal compensation become effective for purpose of the Agreement?

The Arbitrator’s Decision was filed with the Commission on December 10, 1999. The Arbitrator recognized that the extended settlement negotiations rendered the original procedural schedule contained in Order No. 28181 unattainable. Arbitration Decision at 11. The Arbitrator directed that exceptions to his decision “will be due in hand to the Commission on or before December 20, 1999. The parties shall file an original and five copies of any such exceptions with the Commission.” Id. at 12.
On December 20, 1999, C-Systems filed an exception to the Arbitrator’s Decision seeking clarification of the Arbitrator’s Decision regarding the third issue. On the same date, GTE submitted its exceptions by electronic mail. GTE filed an original and five copies of its exceptions on the following day. On January 3, 2000, C-Systems filed a Motion to Strike GTE’s exceptions or, in the alternative, comments opposing GTE’s exceptions. On January 10, 2000, GTE submitted a response opposing C-Systems’ Motion to Strike.

DISCUSSION AND FINDINGS
A. Motion to Strike
In its Motion, CSystems urges the Commission to strike GTE’s exceptions because “GTE filed its exceptions [one day] late, on December 21, 1999.” Motion to Strike at 1. CSystems argues that although GTE e-mailed its exceptions to the parties and the Commission Staff, “such e-mails do not constitute filing with the PUC.” Id. The Company maintains that given the untimeliness of GTE’s exceptions, that they should be summarily dismissed. Id. at 2. CSystems does not assert that it was prejudiced by GTE’s method of filing or the timeliness of the exceptions.
C-Systems is correct that the Arbitrator’s decision directed the parties to file exceptions with the Commission no later than December 20 and that our current Procedural Rules do not provide for e-mail filings. However, the Arbitrator did allow the parties to use e-mail throughout the arbitration process to serve each other in an effort to facilitate the speedy resolution of the disputed issues. Although GTE’s exceptions were, in a technical sense, untimely, we find that C-Systems was not prejudiced. In addition, neither our Procedural Order No. 28181 nor the Arbitrator’s Decision contemplated the filing of responses to exceptions. Indeed, the Commission finds that the record in this proceeding was closed upon the filing of the parties’ exceptions. Consequently, we deny the Motion to Strike and shall not consider C-Systems’ comments opposing the GTE exceptions. Likewise, GTE’s Opposition to C-Systems’ Motion to Strike is moot and shall not be considered in this proceeding.
B. The Arbitrator’s Decision
After reviewing the positions of the parties offered in their respective briefs, the Arbitrator issued his decision on December 10, 1999. His decision recites the arguments of the parties regarding each issue, discusses each issue, and articulates the reasons supporting his decision on each issue. He determined that the parties’ Interconnection Agreement should include the language proposed by C-Systems on the three issues. In resolving the third issue, the Arbitrator also determined that a clause should be added to the Agreement “that permits the parties to seek, through the agreement’s alternative dispute resolution provisions, temporary arrangements regarding reciprocal compensation obligations pending appeal of the FCC’s order….” Arbitration Decision at 11.
After reviewing the Arbitrator’s Decision and the parties’ exceptions, we adopt the Arbitrator’s Decision regarding the disputed issues but modify his resolution of the third issue. We find that the Arbitrator’s resolution of each issue is reasonable and in accordance with the requirements of the federal Act. It is clear that the Arbitrator diligently pursued the separate issues and appropriately resolved each issue. Our decision regarding the third condition is set out in greater detail below.
C. The Third Issue
1. Position of the Parties. Both parties recognized that the issue of reciprocal compensation regarding Internet service provider (ISP) traffic has not been resolved by the FCC. Consequently, both parties agreed that the Interconnection Agreement should be amended and/or “trued up” in the future to reflect the FCC’s decision regarding reciprocal compensation for ISP traffic. The dispute between the two parties is the timing of that amendment.
GTE proposed that reciprocal compensation be paid to either party from the effective date of the FCC’s decision but only after such rules or orders “become final and no longer subject to appeal.” GTE Memorandum at 7. GTE maintained that once the FCC’s decision is “final and no longer subject to appeal, the parties would then pay any reciprocal compensation owed pursuant to the Order or ‘true up’ to the effective date of the rule or order.” Id. (emphasis original). On the other hand, C-Systems suggested that reciprocal compensation may be paid beginning at such time the FCC’s rules or orders become effective. The Company asserted that the FCC’s decisions are normally effective after publication in the Federal Register. 47 C.F.R. § 1.427.
2. Arbitration Decision. The Arbitrator adopted C-Systems’ proposed language. He noted that GTE’s proposal could subject C-Systems “to years of delay in receiving any compensation that the FCC may determine to be appropriate, even if the courts uphold the FCC.” Arbitrator Decision at 10. The Arbitrator observed that the federal Act is almost four years old and there are still unresolved issues before the FCC and courts. He stated that “[c]ommercial practicalities and predictability simply require more dispatch than that associated with the ultimate resolution of legal disputes, particularly given the history of this industry in the forced relationships under which the Congress has decided to open up the American telecommunications marketplace to local-exchange competition.” Id. at 10.
In addition to adopting C-Systems proposed language, the Arbitrator also directed that the parties insert a clause into the Agreement. As stated in his decision, the clause would permit “the parties to seek, through the Agreement’s alternative dispute resolution provisions, temporary arrangements regarding reciprocal compensation obligations pending appeal of the FCC’s Order on the subject.” Id. at 11.
3. The Parties’ Exceptions. In its exception to this issue, GTE reiterated its prior arguments. The Company insisted that it was more appropriate to maintain the status quo until the issue of reciprocal compensation for ISP traffic becomes finally settled. GTE Exceptions at 4. GTE again insisted that if it pays reciprocal compensation payments to C-Systems and the FCC’s decisions are ultimately overturned, then it may not be able to recover those payments from C-Systems. Even if C-Systems were able to pay “trued up” funds, other CLECs that might adopt such a provision in an agreement with GTE may not. If unable to collect such repayments, GTE’s shareholders and Idaho customers could ultimately bear the loss from the failure to recover reciprocal compensation payments. Id. at 5.
C-Systems agreed with and supported the Arbitrator’s decision that reciprocal compensation under the Interconnection Agreement should become effective when the FCC’s order on reciprocal compensation becomes effective. C-Systems’ Exception at 1-2. C-Systems noted that its proposed language (adopted by the Arbitrator) provides that at
such time as the “FCC Order” [on reciprocal compensation] becomes effective, the Parties shall meet to discuss implementation of the FCC Order and shall make adjustments to reflect the impact of the FCC Order, including but not limited to a retroactive true up of compensation for such traffic back to the effective date of the FCC Order.

C-Systems Exception at 2; Exhibit 1. Thus, the Company maintained that the Agreement already provides for dispute resolution.
However, C-Systems believed that the additional clause ordered by the Arbitrator should be clarified to apply “in the event of a stay.” More specifically, C-Systems insisted it is appropriate to add language providing: “in the event of a stay, either party may seek interim compensation arrangements, as appropriate, during the pendancy of the stay based on the particular circumstances in northern Idaho.” C-Systems’ Exception at 3.
4. Commission Findings. After reviewing the exceptions of the parties regarding the third issue, the Commission believes that it is appropriate to amend the Arbitrator’s Decision regarding this issue. We agree with the Arbitrator and CSystems that the ISP reciprocal compensation provision in the interconnection agreement should become effective on the date that the FCC order is in force. Consequently, we believe that C-Systems’ language quoted above is appropriate, reasonable and in conformance with FCC procedural rules.
However, we also recognize merit in GTE’s argument regarding the uncertainty and finality of the reciprocal compensation issue. In particular, we too are concerned that given the litigious nature of this issue, companies may not be able to recover reciprocal compensation payments if the FCC’s decision is later overturned. We find that an additional safeguard is appropriate. If reciprocal compensation payments are made before the FCC order becomes final and nonappealable, either party may require adequate security to ensure payment recovery in the event that the reciprocal compensation decision is overturned on appeal.
For example, Idaho statutes have long provided that a suspending bond be executed when a party desires to collect higher utility rates pending appeal than the Commission set in an underlying decision. The purpose of the bond is to secure prompt recovery of any overpayment if the Commission’s decision is upheld. See Idaho Code §§  61-634 and 61-637. In addition, we have required similar security provisions (e.g., escrow accounts or bonding) in PURPA contracts for overpayment liability in levelized QF contracts. See Order Nos. 21690 (Case No. U-1006-292) and 27839 (Case No. IPC-E-98-14). In other words, the interconnection agreement should contain a mechanism to ensure that the interim compensation is recoverable in the event that the FCC’s Order is subsequently overturned or modified. Accordingly, C-Systems’ proposed Inter-carrier Internet bound traffic provision is amended by including the underlined language below:
. . .At such times as an “FCC Order” becomes effective, the parties shall meet to discuss implementation of the FCC Order and shall make adjustments to reflect the impact of the FCC Order, including but not limited to a retroactive true up of compensation for such traffic back to the effective date of the FCC Order. Either party may seek interim compensation arrangements upon providing adequate security (e.g., escrow accounts, bonding, etc.) to ensure that interim compensation payments are recoverable in the event that the FCC’s Order is subsequently overturned or modified.

We find that the inclusion of security arrangements to ensure the recovery of reciprocal compensation payments properly balances the reasonable business expectations of both parties and Idaho ratepayers.

O R D E R
IT IS HEREBY ORDERED that the Arbitrator’s Decision, as modified by this Order, is adopted by the Commission as the resolution of the disputed issues pursuant to Section 252(b) of the Telecommunications Act.
IT IS FURTHER ORDERED that C-Systems’ Motion to Strike GTE’s Exceptions or to submit the comments opposing GTE’s Exceptions is denied. Consequently, we shall not consider GTE’s Opposition to C-Systems’ Motion to Strike and its Motion for Leave to File Comments Opposing GTE’s Exceptions.
IT IS FURTHER ORDERED that having completed arbitration of the three disputed issues, the parties are instructed to prepare their Interconnection Agreement, consistent with this Order, and file it with the Commission.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of March 2003.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

vld/O:CSY-T-99-1_GTE-T-99-2_dh3
On October 14, 1999, C-Systems withdrew its request for an interim interconnection agreement. Consequently, the Commission need not address this issue.
In addition to the Motion to Strike, C-Systems also filed a “Motion to Dismiss GTE’s [exceptions]. ” A review of CSystems two Motions reveals that the documents are identical in content and argument except that one Motion urges the Commission to strike GTE’s exceptions while the other Motion urges the Commission to dismiss the exceptions. Given the nearly identical nature of both Motions, the Commission will consider them as one and the same.

ORDER NO. 28250 1

Office of the Secretary
Service Date
January 19, 2000