Skip Maine state header navigation

Agencies | Online Services | Help
Download as PDF
Wordperfect 3
Back to Opinions page

Decision:1997 ME 222
Argued:October 10, 1997
Decided:	November 24, 1997




	[¶1]  NYNEX appeals from an order of the Public Utilities Commission
adopting a rule that requires a 20% reduction in intrastate access charges.{1} 
NYNEX argues that the Commission's rulemaking order violated the
Commission's Alternative Form of Regulation ("AFOR") order by reducing the
intrastate access charges without an offsetting adjustment to make the rate
change revenue-neutral.{2}  NYNEX argues that the order altered the revenue
base provided in the AFOR order, thereby violating NYNEX's right to a fair
rate of return, due process, and nonconfiscatory rates.  Alternatively, NYNEX
argues that the Commission is without authority to affect the rates by
rulemaking.   Finding no error, we affirm.
	[¶2]  NYNEX is currently regulated by an AFOR order dated May 15,
1995, adopted pursuant to the AFOR Act, 35-A M.R.S.A. §§ 9101-9105
(Supp. 1996). The AFOR order is an alternative to the traditional rate-
base/rate-of-return order. The AFOR has a five-year term and is designed to
provide incentives for NYNEX to achieve greater efficiency and lower prices
for telephone services.
	[¶3]  On October 24, 1996, the Commission issued a notice of
rulemaking to all interested parties and requested comments.  The
Commission proposed a comprehensive revision of Chapter 280 of the
Commission's rules governing competitive telecommunications services, and
alternatively proposed to reduce intrastate access charges on an interim
basis and delay consideration of the contemplated comprehensive revisions
until the Federal Communications Commission concluded its review of
interstate access charges.  The notice stated that the proposed alternative
interim plan would immediately reduce the per-minute originating common
line charge by 20%.   The common line charges are the principal
component of intrastate access charges. Comments were received by the
Commission from interested parties, including extensive comments from
NYNEX concerning the impact of the changes and suggestions for making
the changes revenue-neutral. 
	[¶4]  After reviewing the comments, the Commission issued on June
10, 1997, an Order Adopting Rule and Statement of Factual and Policy Basis,
in which it reduced the per-minute originating common line charge by 20%
without offsetting changes to make it revenue-neutral. After reconsideration,
the Commission denied NYNEX's request to amend the Order, and NYNEX
now appeals pursuant to 35-A M.R.S.A. § 1320 (1988).
	[¶5]  NYNEX first argues that the rule reducing access charges by 20%
violated the terms of the AFOR order.  We disagree.  The AFOR order was
adopted by the Commission pursuant to the following statute: 
	The commission may adopt . . . an alternative form of
regulation for any telephone utility in the State.  The alternative
form of regulation must conform to the requirements of  chapter
71 [35-A M.R.S.A. §§ 7101-7105] . . . but need not conform with
chapter 3 [35-A M.R.S.A. §§ 301-313] to the extent that the
provisions of chapter 3 require the use of rate-base, rate-of-
return or any other specific form of regulation of the rates of a
telephone utility or to the extent that the provisions of chapter 3
give any party, including the telephone utility, the right to
petition to change rates for telecommunications services.  This
chapter may not be construed to limit the authority of the
commission under section 1322.

35-A M.R.S.A. § 9102 (Supp. 1996).

	[¶6]  The order explicitly prohibits the filing of rate cases by NYNEX,
and prohibits the Commission from initiating a rate investigation against
NYNEX during the term of the order:

NYNEX will not be able to file annual rates cases; it cannot rely
on rate increases to catch up with whatever costs it incurs; to
earn a reasonable return on its investment, it must achieve cost
levels consistent with the Price Regulation Index (PRI).

The Commission will not initiate rate investigations against
NYNEX for at least five years.  If NYNEX increases its sales or
reduces its costs by more than the PRI, it keeps the extra

The AFOR Act establishes that the period of the alternative form of
regulation "may not be less than 5 years nor exceed 10 years," 35-A M.R.S.A.
§ 9103(1) (Supp. 1996), and  provides that the utility must be entitled to a
fair rate of return over the period of the AFOR.  35-A M.R.S.A. § 9103(6)
(Supp. 1996).  The AFOR order acknowledged that, "[t]he price cap formula
we adopt today, based on reasonably expected or attainable cost changes,
will give NYNEX a reasonable opportunity to recover all of its reasonable
costs, including a fair return on its local and toll investment."  The AFOR
order established a "starting point revenue base" for establishing a fair rate
of return to NYNEX in a contemporaneous rate case, Pease v. New England
Tel. and Tel. Co., 162 P.U.R. 4th 110 (Me. P.U.C. 1995). 
	[¶7]  A change to the revenue base undoubtedly affects NYNEX's
opportunity to earn a fair return.  The AFOR order, however, reserved to the
Commission the power to change the access rates in the following terms:

[B]eyond including the rates under the non-discretionary core
services category, we do not address the issues of
interconnection or access charge structure or rates in this
proceeding.  Interexchange access charges and structure are
presently governed by existing chapter 280.
	. . . 

Subject to any change that occurs as a result of a revision of
Chapter 280, access charges will be subject to the same price
cap rules as toll rates.

The AFOR order also provided in the section entitled "Access charges" that:

[o]ur current Chapter 280 rule will control the rates of existing
access elements. . . At least for the present, the common line
charge rate will continue to be based directly on NYNEX's retail
toll rates, as required by Chapter 280, § 8. . . If Chapter 280 is
revised to require local access elements, those rates will also be
included in the nondiscretionary core services category. 

	[¶8]  Although the revision of Chapter 280 affects NYNEX's revenue
base and may undercut the incentive goals of the AFOR order, the language
of the order explicitly anticipates and permits changes to Chapter 280.  We
conclude that the Commission did not violate the AFOR order, and NYNEX
was not deprived of due process.  
	[¶9]  NYNEX next argues that any proceeding that has the effect of
reducing a utility's rates is required by 35-A M.R.S.A. §§ 1302-1304 (1988)
to be brought pursuant to the adjudicatory hearing provisions of the
Administrative Procedures Act (5 M.R.S.A. §§ 9051-9064 (1989 & Supp.
1996)).  Because the rulemaking in this case did not involve an adjudicatory
hearing, they argue that they were deprived of due process.  Maine's public
utility law neither explicitly nor implicitly requires an adjudicatory hearing
in these circumstances.  The sections of the law referred to by NYNEX
establish the procedure for a rate case, but they do not shield rates from the
impact of other forms of administrative action.  We reject NYNEX's
argument and we conclude that it is lawful for rulemaking proceedings to
affect rates, and that the subject revisions to Chapter 280 are within the
authority of the Commission.  
	[¶10]  We have previously examined the distinction between a
rulemaking proceeding and an adjudicatory proceeding.  In a case involving
the Maine Milk Commission we held that "the administrative functions and
processes involved in price fixing are more closely similar to those that are
typical of rulemaking than to those that are typical of adjudication."
Cumberland Farms Northern, Inc. v. Maine Milk Comm'n, 428 A.2d 869,
874 (Me. 1981)(citing generally Cambridge Elec. Light Co. v. Department of
Pub. Util., 363 Mass. 474, 485-87, 295 N.E.2d 876, 883-85 (1973)
(Department could adopt a regulation rather than conduct adjudicatory
procedures to fix the rate of interest to be paid by utilities upon deposits
made by their customers where it could not be fittingly described to
determine particular legal interests of specifically identified persons).  We
reasoned that "[c]haracteristically, in comparison with most adjudicatory
proceedings, price setting involves the agency in a wider range of
independent investigation to determine facts and in a more complex
balancing and reconciliation of interrelated interests, both public and
private, to arrive at its conclusions."  Id.  Even though our opinion in
Cumberland Farms rises out of a very different administrative context, it
conclusively negates the argument that the rulemaking process may never
affect rates.  The revision to Chapter 280 applies to all interexchange
carriers, and was adopted to encourage competition and to create lower
rates for certain telephone services.
	[¶11]  With regard to the Commission's authority, the law requires
that "every public utility must provide safe, reasonable, and adequate
facilities and service" and rates that are "just and reasonable." 35-A M.R.S.A.
§ 301 (1988).  The Legislature has specifically provided that "it is the policy
of the state that telephone service must continue to be universally affordable,
especially to the poor at affordable rates," 35-A M.R.S.A. § 7101(1) (Supp.
1996), and that "a modern state-of-the-art telecommunication network is
essential for the health and vitality of the state and the improvement in the
quality of life for all of Maine citizens."  35-A M.R.S.A. § 7101(2) (Supp.
1996).{3}   The Commission has "all implied and inherent powers under this
Title, which are necessary and proper to execute faithfully its express
powers and functions."   35-A M.R.S.A. § 104 (1988).  In this case, the
Commission exercised its authority in an effort to make telecommunications
more affordable and lawfully resorted to the rulemaking process in order to
achieve that objective.  NYNEX fails to demonstrate a denial of due process.
	The entry is:
				Judgment affirmed.
Attorneys for plaintiff: Gerald M. Amero, Esq. (orally) William D. Hewitt, Esq. Pierce Atwood One Monument Square Portland, ME 04101-1110 Donald W. Boecke, Esq. New England Tel. & Tel. Co. 185 Franklin Street, Room 1403 Boston, MA 02110-1585 Attorney for defendant: Joanne B. Steneck, Esq. (orally) General Counsel Maine Public Utilites Commission 18 State House Station Augusta, ME 04333-0018
FOOTNOTES******************************** {1} Access charges are the amount interexchange telephone carriers must pay for the use of the local exchange carrier's network to complete intrastate toll calls. In effect, access rates are wholesale rates for long distance calls. {2} A revenue-neutral change means that the overall revenue base of a utility is not affected -- if one rate is reduced, another rate is increased to offset the reduction so that the total revenue base does not change. {3} In addition, the Commission's final action was influenced by a legislative directive that it lower intrastate access rates to match interstate access rates. The directive was enacted by P.L. 1997, ch. 259 (An Act to Require the Public Utilities Commission to Align Telecommunication Carrier Access Rates with Costs to Foster Economic Development and Competition Throughout the State) before the Commission issued its rulemaking order. The directive became effective on September 17, 1997 and is presently