28407.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF U S WEST COMMUNICATIONS, INC. FOR DEREGULATION OF BASIC LOCAL EXCHANGE RATES IN ITS BURLEY, IDAHO EXCHANGE. )
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CASE NO. USW-T-99-15

ORDER NO.  28407

The Commission in this case considered U S WEST Communications, Inc.’s (U S WEST) Application for deregulation of its basic local exchange rates in the Burley, Idaho exchange. On May 3, 2000, the Commission issued Order No. 28369 denying the Application, and U S WEST filed a Petition for Reconsideration on May 24, 2000. The Commission issues this Order denying U S WEST’s Petition for Reconsideration.
U S WEST’s initial Application was filed pursuant to Idaho Code ( 62-622(3), which requires the Commission to “cease regulating basic local exchange rates in a local exchange calling area upon a showing by an incumbent telephone corporation that effective competition exists for basic local exchange service throughout the local exchange calling area.” The Commission reviewed the evidence presented by U S WEST regarding the level of competition in the Burley exchange, as well as the public interest implication of deregulating basic rates based on the evidence presented. The Commission denied U S WEST’s Application because “the legislature intended competition to be effective, substantive, meaningful, involving a significant number of customers and not just a mere presence by a competitor, and throughout a local exchange calling area for basic rates to be deregulated by law.” Order No. 28369 p. 13. U S WEST’s evidence showed “the presence of a competitor” in the Burley exchange, but not “the existence of effective competition required by the legislature in Section 62-622(3) for rates to be deregulated.” Id.
In its Petition for Reconsideration, U S WEST identified two grounds for reconsideration. The first is that “the Order assumes a definition of ‘[e]ffective competition… throughout a local exchange calling area’ that is in direct violation of the plain language of Idaho Code ( 62-622(3) (Supp. 1999).” Petition for Reconsideration p. 1. In support of this ground for reconsideration, U S WEST argues that it is enough under Section 62-622(3)(a) if evidence shows “actual competition from a facilities-based competitor for both residential and small business local exchange customers in the Burley exchange.” Petition for Reconsideration p. 2. In other words, if subparagraph (a) is read in isolation, it arguably is enough that a competitor is available to any number of residential and business customers. U S WEST contends that rather than applying subparagraph (a) of Section 62-622(3), the Commission “imposed ad hoc, non-statutory conditions for deregulation by taking out of context the words ‘effective’ and ‘throughout.’” Petition for Reconsideration p. 2. In U S WEST’s view, subparagraph (a) by itself “unambiguously indicates when effective competition exists throughout a local exchange calling area” and the Commission thus “should not look elsewhere for the legislature’s intent.” Petition for Reconsideration p. 4, citing State v. Berntsen, 68 Idaho 539, 547, 200 P.2d 1007, 1011 (1948).
This is the same argument previously made by U S WEST, in particular in its post-hearing brief and its brief in response to Staff’s post-hearing brief. As Order No. 28369 makes clear, the Commission was compelled to review the expressly stated intent of the legislature in applying Section 62-622(3) to the facts presented. It was not necessary for the Commission to search for meaning in an obscure or incomplete legislative history to ascertain the legislature’s purpose behind Section 62-622(3), because the legislature deliberately provided its intent and purpose for Section 62-622(3) in a companion statute. At Idaho Code § 62-602(2), the legislature stated it intended
that effective competition throughout a local exchange calling area will involve a significant number of customers having both service provider and service option choices and that actual competition means more than the mere presence of a competitor. Instead, for there to be actual and effective competition there needs to be substantive and meaningful competition throughout the incumbent telephone corporation’s local exchange calling area.

Not only did the legislature expressly state its intent, it also added a proviso that “the commission shall administer these statutes with respect to telecommunication rates and services in accordance with these policies and applicable federal law.” Idaho Code ( 62-602(5).
U S WEST’s Petition for Reconsideration adds nothing new to its argument on this point. U S WEST again contends the Commission should isolate subparagraph (a) and cites State v. Berntsen for support of its argument that the Commission “should not look elsewhere for the legislature’s intent.” In Berntsen, the Idaho Supreme Court invalidated as unconstitutional a tax statute that clearly and unambiguously gave to Idaho residents “a credit against net income of $1,500 and $200 for each dependent, but to non-residents, similarly situated, a credit of only $700.” Berntsen, 68 Idaho at 543. The Tax Commission argued the law should be upheld because the commissioner interpreted and applied the law in a way that did not discriminate against non-residents. The Court rejected that argument because, “[a]lthough the commissioner has interpreted the law in a certain way, this does not determine what the law actually is or what it means.” Berntsen, 68 Idaho at 546. The Court explained that “[w]here the language of a legislative enactment is clear, then the court cannot speculate upon the intention of the legislature, but must accept the interpretation of the act as it appears therein.” Berntsen, 68 Idaho at 547 (citations omitted).
As we stated in Order No. 28369, none of the cases cited by U S WEST, including Berntsen, “involved application of an expressly stated legislative intent.” Order No. 28369 p. 7. It was not necessary here to speculate upon the intention of the legislature because the Commission is faced in this case with a statute that specifically states the intent and purpose of the legislature for the application of Section 62-622(3). As a public agency charged with the responsibility to apply the statutes that govern its authority to further the intent of the legislature, the Commission simply is not free to disregard the deliberately stated intent of the legislature.
U S WEST also noted that although “the Order recognizes that the legislature did not impose a numerical standard for deregulation, it goes on to strongly suggest just such a standard.” Petition for Reconsideration p. 3. In U S WEST’s view, the Commission created a “50% precondition for deregulation.” Petition for Reconsideration p. 3.
The Commission specifically concluded in Order No. 28369, given the language of Section 62-622(3), that “it would be inappropriate for the Commission to declare a specific penetration level or loss of a specific market share as a bright line test for application of Section 62-622(3).” Nonetheless, the Commission went on to say, in the context of the evidence presented in this case, that “it is difficult to foresee circumstances where competition could be deemed effective and throughout the local exchange calling area where less than half the customers have a choice of provider.” Order No. 28369 p. 12. U S WEST contends in its Petition for Reconsideration that “the telecommunications market, like most markets, can be explained by the ‘80/20 rule’: 80 percent of the profits are garnered from 20 percent of the customers.” Petition for Reconsideration p. 5. U S WEST also points out that PMT already has access to the entire exchange through resale because “[a]ll competing carriers have the right to resell an incumbent’s services under federal law.” Petition for Reconsideration p. 5, citing 47 U.S.C. 251(b) (Supp.1999).
Although it may be true that 20 percent of U S WEST’s Burley exchange customers provide 80 percent of its profits, and that PMT may only be interested in attracting those profitable customers, no evidence was presented to support the argument U S WEST now makes in its Petition for Reconsideration. U S WEST did not attempt to show that PMT is deliberately building facilities to serve only the profitable customers, or that U S WEST has lost some of its best customers to PMT. Nor was evidence presented to show that PMT currently is reselling U S WEST’s services as a means of competing in the Burley exchange. The only evidence in the record on this point is that PMT has an interconnection agreement with U S WEST. Tr. p. 195. Evidence of deliberate targeting of profitable customers or of active reselling of services by a competitor clearly would be relevant in the Commission’s determination that competition is effective and throughout a local exchange calling area.
The second basis for reconsideration is identified by U S WEST as the Commission’s erroneous creation of “non-statutory and unreasonable conditions for deregulation that will act as a barrier to competition.” Petition for Reconsideration p. 1. It is here that U S WEST contends that “by requiring competition in every part of the calling area, the Order would leave competitors free to skim off the most profitable customers without fear of competitive counter measures from the incumbent provider,” and that, because PMT could resell U S WEST’s services, “PMT could choose to serve any customer in Burley at relatively low incremental cost where its facilities are not yet available.” Petition for Reconsideration pp. 4-5. As we stated previously, no evidence was presented at the hearing to show that PMT is skimming the most profitable customers or that PMT is providing local service through the reselling of U S WEST’s services. The Commission must make a decision based on the record presented and will not speculate on the outcome of this case if different evidence had been presented.
In support of its second ground for reconsideration, U S WEST also maintains the Commission “set an unreasonably high evidentiary standard of proof for ‘effective competition.’” Petition for Reconsideration p. 6. U S WEST noted the Commission stated the record “falls short of showing that competition presently is actual, effective, substantive and meaningful,” but that the Commission’s Order “does not provide guidance to applicants as to what type of evidence the Commission feels is appropriate.” Id. U S WEST’s concern regarding the evidentiary standard of proof is misplaced, for it is the legislature that established a standard for “effective competition”, and placed the burden of proof on the incumbent telephone company seeking deregulation of its basic rates. U S WEST in this case proved little more than that PMT is building facilities and may have facilities in place to reach as much as 30% of the Burley exchange customers. The Commission simply held, given the language selected by the legislature to describe effective competition throughout a local exchange calling area, that evidence of facilities constructed to 30% of an exchange’s customers without more does not satisfy the legislature’s requirement for mandatory deregulation of basic service rates.
Finally, U S WEST contends that the Commission improperly assumed “that if U S WEST is left to its own devices, it will charge unjust and unreasonable rates for low-quality service.” Petition for Reconsideration p. 7. U S WEST selected and edited a part of the Commission’s discussion of the public interest to support its argument. The Commission stated in the public interest discussion of the Order as follows:
Our concern regarding the public interest is the same as that which prompted the legislature to require substantive, meaningful competition throughout the local calling area before basic rates are deregulated. It is the concern “that U S WEST could cover its competitive losses by raising its rates for those customers within the local calling area who have no choice of service providers.” Tr. p. 260. That amounts to more than 70% of the Burley exchange customers. The economic incentive to ignore those areas where no competition or regulation exists could also jeopardize the availability of high quality universal service at just and reasonable rates.

Order No. 28369 p. 10.
In expressing concern that an absence of competition or regulation could result in higher rates for most customers, U S WEST claims the Commission ignored “U S WEST’s long history of high-quality service at just rates.” Here again U S WEST’s argument misses the point. By pointing out that economic incentives change when prices and service are not controlled through regulation or competition, the Commission was not disparaging U S WEST’s history of service in southern Idaho. U S WEST’s basic service rates have never been unregulated, nor have they been controlled through competition. U S WEST’s past record in providing basic services in a regulated environment simply is not relevant when assessing the level of competition required by the legislature to protect customers in the absence of regulation.
In sum, U S WEST’s Petition for Reconsideration does not present any new issue or point to any mistake of law made by the Commission. Instead, U S WEST simply disagrees with the Commission’s application of Section 62-622(3). U S WEST would have the Commission ignore the legislature’s directive to the Commission in Idaho Code ( 62-602(2), where the legislature made clear its intent for the level of competition required to replace customer protections provided through regulation. If the legislature intended only a minimal level of competition, it would not have enacted Section 62-602(2). The legislature not only stated its intent in Section 62-602(2), it also specifically required the Commission in Section 62-602(5) to “administer these statutes with respect to telecommunication rates and services in accordance with these policies.” The Commission cannot ignore the expressly stated intent and clear directive of the legislature.
O R D E R
IT IS HEREBY ORDERED that U S WEST’s Petition for Reconsideration is denied.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by this Order or other final or interlocutory Orders previously issued in this Case No. USW-T-99-15 may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho Appellate Rules. See Idaho Code § 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of June 2000.

DENNIS S. HANSEN, PRESIDENT

Commissioner Smith Dissent Opinion Attached
MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

Vld/O:USW-T-99-15_ws4

DISSENTING OPINION OF
COMMISSIONER SMITH
Case No. USW-T-99-15

For the reasons explained in my dissent in Order No. 28396, I dissent from the Commission’s Order denying U S WEST’s Petition for Reconsideration. I believe U S WEST presented sufficient evidence to meet the statutory standards for deregulation. The Commission should grant the Petition for Reconsideration and enter an Order approving U S WEST’s Application for deregulation of its basic exchange rates, effective on the date the nonrural universal service fund is implemented.
DATED at Boise, Idaho this day of June 2000.

Marsha H. Smith, Commissioner

ORDER NO. 28407 1

Office of the Secretary
Service Date
June 12, 2000