ORDER NO. 97-366

ENTERED SEP 17 1997

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UT 135

DISPOSITION: RECONSIDERATION GRANTED IN PART;

REQUESTED RELIEF DENIED

On July 21, 1997, U S WEST Communications, Inc., (USWC) applied to the Commission for reconsideration of its Order No. 97-180, entered May 22, 1997. On August 4, 1997, MCI Telecommunications Corporation; AT&T of the Pacific Northwest, Inc.; TCG Oregon; Electric Lightwave, Inc.; MFS Intelenet of Oregon, Inc.; and Enhanced Telemanagement, Inc., dba Frontier Telemanagement (joint parties) filed a joint response.

USWC argues that the Commission erred in concluding that the company’s Interconnection Cost Adjustment Mechanism tariff (ICAM) constitutes retroactive ratemaking and is prohibited under Oregon law. USWC also argues that the Commission erred by rejecting the tariff on legal issues, rather than after a hearing on the tariff.

Standard for Reconsideration

OAR 860-014-0095(3) provides that the Commission may grant an application for rehearing or reconsideration if the applicant shows that there is:

(a) New evidence which is essential to the decision and which was unavailable and not reasonably discoverable prior to issuance of the order;

(b) A change in the law or agency policy since the date the order was issued, relating to a matter essential to the decision;

(c) An error of law or fact in the order which is essential to the decision; or

(d) Good cause for further examination of a matter essential to the decision.

USWC raises a number of issues that were addressed in Order No. 97-180 and need no further comment. These include: (1) whether the ICAM implicates the rule against retroactive ratemaking, and (2) assuming the ICAM does constitute retroactive ratemaking, whether the Legislature has granted the Commission authority to approve such a proposal.

Consideration of the ICAM Without a True-up Mechanism

One new claim is that the Commission erred by failing to consider the legality of the ICAM without the use of USWC’s proposed true-up and balancing account. USWC claims the Commission could use the company’s start-up costs to predict additional start-up costs over the next 36 months. The Commission could then set and collect fixed surcharges to cover future, predicted costs based on that past experience.

We reject that claim for several reasons. First, this proposal was not included in the original filing. If USWC wanted the Commission to consider a recovery mechanism without a true-up, it should have proposed one. Applications for reconsideration are an inappropriate place to raise new proposals that could have been raised at the outset of the proceeding.

Second, the Commission already offered USWC the opportunity to cure the retroactive ratemaking problems inherent in this filing. Prior to the February 4, 1997, public meeting, the joint parties filed with the Commission and served on USWC a legal analysis alleging that the ICAM proposal violated the rule against retroactive ratemaking. At the public meeting, the joint parties again raised the issue of the retroactive nature of the ICAM. Commission counsel also suggested at the public meeting that USWC should consider withdrawing the ICAM filing so that the utility could provide better support for the proposal.

Despite legal arguments raised by the joint parties and Staff counsel’s suggestion, USWC chose to proceed with its ICAM filing. The USWC representative at the meeting indicated that USWC was without legal counsel at the meeting and would prefer the Commission suspend the tariff. Minutes of the Commission Public Meeting, February 4, 1997. Thereafter, USWC filed opening and reply comments to support the ICAM. No mention was made of an ICAM without a true-up/balancing account. Throughout this proceeding, USWC has had ample opportunity to evaluate its legal position and to offer the Commission an option without retroactive ratemaking flaws. We reject the assertion that we erred by not restructuring USWC's ICAM to avoid infirmities that were obvious from the outset of this proceeding.

Third, we have already suggested two alternatives that USWC could pursue to recover expenses necessary to ready its network for the competitive telecommunications environment. We suggested that USWC could proceed under the dispute resolution provisions of the arbitration agreements. In addition, we acknowledged that USWC could file a rate case.

A general rate case may be USWC's most appropriate option. USWC's request for recovery of its interconnection costs would be reviewed in the context of the company’s overall revenue requirement, not just a narrow category of expenditures that USWC claims have been or will be incurred for a particular purpose. For example, a general rate case would allow us to address whether USWC is seeking double recovery for the claimed interconnection costs. These concerns cannot be thoroughly investigated without a comprehensive review of USWC's costs.

Finally, we recognize that USWC may, at any time, file a new proposal, without a true-up mechanism, to recover network rearrangement costs associated with serving competitive local exchange carriers. However, for the reasons set forth above, we are uncertain whether such a filing would provide the information necessary to determine the appropriate costs for interconnection. Should USWC submit a narrowly constructed tariff, the company should be aware that the Commission may require it to justify its entire revenue requirement. The Commission is authorized to impose such a requirement to prevent a utility from continually filing piece-meal rate increase proposals for particular services.

Necessity for a Hearing on the ICAM

USWC also argues that the Commission erred in suspending the ICAM tariff on the basis of legal briefing rather than a hearing on the merits. USWC suggests that the Commission is required to undertake an investigation to "address concerns about and potentially adjust the details of the ICAM through tariff hearings." USWC Application for Reconsideration at 7.

USWC points out that ORS 759.180 requires the Commission to accept the tariff or conduct a hearing, whenever a telecommunications utility files a rate schedule with the Commission. USWC's reference to ORS 759.180 is incomplete, however. While the statute requires the Commission to "conduct a hearing to determine the propriety and reasonableness of such rate or schedule," the statute also provides:

At such hearing the telecommunications utility shall bear the burden of showing that the rate or schedule of rates proposed to be established or increased or changed is just and reasonable.

This statute imposes on the filing telecommunications utility the obligation to file rate schedules that are, on their face, legal. Illegal rate schedules, including those schedules that violate the rule against retroactive ratemaking are, by definition, not just and reasonable.

The Commission complied with the requirement for a hearing by providing USWC the opportunity to be heard on the legality of the ICAM. The case was split into phases so the parties could address the legal issue first. An evidentiary phase was to follow if the Commission determined that it had authority to adopt the ICAM.

In the first phase, the Commission established a briefing schedule to address the legal issues. USWC filed extensive briefs supporting its position, as did the joint parties. The Commission Staff also filed a brief. After reviewing the briefs, we concluded that the proposed rate schedule constituted retroactive ratemaking. Because the rate was illegal, we found that USWC had not carried its burden to show that its proposal was just and reasonable. No further proceedings were necessary. It is axiomatic that fact gathering is unnecessary when the Commission does not have authority to adopt the rate schedule filed by the telecommunications utility.

Constitutional Claims

USWC asserts that we failed to address its constitutional claims in Order No. 97-180. USWC argues that it is a violation of the Fifth Amendment of the United States Constitution and Article I, Section 18 of the Oregon Constitution to require USWC to incur costs to open its private network without providing just and reasonable compensation for such costs. USWC claims that it is unconstitutional. As we pointed out in Order No. 97-180, we are only rejecting USWC's selected mechanism for collecting the start-up costs that it claims it has been incurring and will incur. We rejected that mechanism because we are without statutory authority to approve it. At no point have we determined that USWC is not entitled to recover the costs that it incurs to rearrange its network. In fact, we suggested to USWC two alternatives for collecting those costs. We have not required USWC to open its network without providing just and reasonable compensation.

ORDER

IT IS ORDERED that the application for reconsideration is granted, in part. The requested relief is denied.

Made, entered, and effective ____________________________.

A party may appeal this order to a court pursuant to ORS 756.580.