Opinion
Appeal No. 01-A-01-9512-BC-00556.
December 6, 1996.
Appeal from the Tennessee Public Service Commission No. 95-02615, for Davidson County at Nashville, Tennessee.
DISMISSED AND REMANDED.
Val Sanford, John Knox Walkup, Attorneys for Petitioner/appellant.
Charles W. Burson Attorney General and Reporter, Jonathan D. Shell Assistant Attorney General, Attorneys for Respondents/appellees.
This is an appeal by petitioner/appellant, ATT Communications of the South Central States, Inc. ("ATT"), from the decision of the Tennessee Public Service Commission ("TPSC") to implement a price regulation plan for United Telephone Southeast, Inc. ("UTS"). ATT claims that TPSC failed to follow the proper standards and procedures when it addressed the application of UTS to elect a price regulation plan pursuant to Tennessee Code Annotated section 65-5-209. The facts out of which this matter arose are as follows.
On 16 June 1995, UTS filed an application to implement a price regulation plan pursuant to Tennessee Code Annotated section 65-5-209. During the proceedings, the following companies filed petitions for leave to intervene: BellSouth Telecommunications, Inc. ("Bell"); ATT; MCI Metro Access Transmission Services, Inc.; the Consumer Advocate; and MCI Telecommunications, Inc. TPSC granted all petitions.
On 7 August 1995, TPSC issued a notice setting the case for hearing on 7 September 1995. Thereafter, TPSC's staff filed its audit of UTS's 31 December 1994 3.01 report. The staff recommended that TPSC find that UTS's rates were affordable and that no other contested case proceedings were necessary. On 24 August 1995, ATT filed a reply arguing that the staff's report was an initial determination and that further contested case proceedings were necessary for TPSC to carry out its statutory powers and duties. Four days later, TPSC's staff filed a memorandum in support of its recommendation.
On 5 September 1995, TPSC entered an order canceling the 7 September hearing because there was no statutory authority for a contested case hearing. TPSC then ordered the staff to audit UTS's most recent 3.01 report of 31 March 1995. The staff concluded that UTS's earned rate of return did not exceed its current authorized fair rate of return and was below the authorized range. On 20 September, TPSC entered an order adopting the staff's audit report and holding that the rates which were in effect as of 6 June 1995 were affordable pursuant to Tennessee Code Annotated section 65-5-209(c). TPSC also approved the effective date proposed by UTS. Finally, TPSC stated that the order would become final if UTS did not request a contested case hearing. Thereafter, UTS informed TPSC it would not request such a hearing.
On 28 September 1995, ATT filed a motion in which it raised an issue as to the proper application and construction of Tennessee Code Annotated section 65-5-209 and requested an opportunity to be heard. UTS opposed the motion. On 13 October 1996, TPSC found that its previous orders addressed most of ATT's issues and that it did not have the authority to address any issue not resolved in its previous orders. As a result, it denied ATT's motion.
On 12 December 1995, ATT filed a petition for review pursuant to Tennessee Rule of Appellate Procedure 12. UTS and Bell filed notices of appearance as respondents in support of TPSC's order. On 26 January 1996, TPSC filed a motion to dismiss. TPSC claimed that this court lacked jurisdiction because the 13 October order was not the result of a contested case. On 12 April 1996, this court denied the motion and held that this court has jurisdiction to determine jurisdictional issues.
On 11 July 1996, this court granted TPSC's motion to consider post-judgment facts. Specifically, the order allowed this court to consider the chancery court's decision in ATT Communications of the S. Cent. States, Inc. v. Bissel , No. 95-3094-II (Davidson Chan. 7 May 1996). On 16 July 1996, this court entered an order substituting the members of the Tennessee Regulatory Authority as appellees in the place of the members of TPSC.
ATT has presented two issues for our review. They are:
1. Whether the final order issued by the Tennessee Public Service Commission. . . in the matter styled, In re Application of United States Telephone-Southeast, Inc. for Approval to Implement Price Regulation Plan, Docket No. 95-02615, was illegal and void as being contrary to the governing statutes, particularly T.C.A. § 65-5-209 (1995 Supp.)?
2. Whether the proceeding before the Commission in the matter styled, In re Application of UTS-Southeast, Inc. for Approval to Implement Price Regulation Plan, Docket No. 95-02615, was, as a matter of statutory and constitutional law, a contested case proceeding, which should have been so conducted by the Commission, and from which jurisdiction to review is in this Court?
We begin our discussion of this matter with a discussion of the "Telecommunications Reform Act of 1995." This appeal, as pointed out by the Attorney General, is the most recent in a series of attempts by ATT to derail the legislature's efforts to deregulate local telecommunications services and to open the local telecommunications industry to competition.
In 1995, the General Assembly passed Public Chapter 408, the "Telecommunication Reform Act of 1995." 1995 Tenn. Pub. Acts ch. 408 (codified in title 65). Chapter 408 became effective on 6 June 1995. The General Assembly stated its purpose in passing chapter 408 as follows: "The general assembly declares that the policy of this state is to foster the development of an efficient, technologically advanced, statewide system of telecommunications services by permitting competition in all telecommunications services markets, and by permitting alternative forms of regulation for telecommunications services and telecommunications services providers." Tenn. Code Ann. § 65-4-123 (Supp. 1996). Prior to the passage of chapter 408, the providing of local telephone services was not open to competition. One provider in a particular locality held the exclusive right to provide such service for the designated area unless the service was inadequate. Because there was no competition forcing providers to charge fair and reasonable rates, TPSC established the rates charged for such services. The rate regulation procedures adopted by TPSC included an extensive inquiry into the provider's cost of doing business, its capital investment, i.e., "rate base," and its revenues; into the nature and extent of the services provided; and into various other factors that enabled TPSC to determine a "fair rate of return" on the provider's "rate base."
TPSC collected this information and determined the fair rate of return through contested case proceedings in which TPSC allowed interested parties to intervene and participate. Usually, these were lengthy and expensive proceedings. TPSC then set the rates the provider was to charge for its services with the objective being to make the provider's earned rate of return equal to its authorized fair rate of return. Periodically, TPSC compared the provider's earned rate of return with the authorized rate of return and ordered rate adjustments to bring the earned rate of return into compliance with the authorized rate of return. This became known as the "rate base — rate of return" method of rate regulation.
The passage of chapter 408 has truly reformed the provision and the regulation of local telecommunications services. Chapter 408 allows, for the first time, competition in all telecommunications services markets and gives incumbent local exchange telephone companies ("incumbents"), now providing local telephone services, the option to select an alternative form of rate regulation. Instead of the traditional rate of return method, incumbents, such as UTS, may elect to have their rates regulated through a price regulation plan. See Tenn. Code Ann. §§ 65-5-208 -209 (Supp. 1996).
The change to price regulation plans reduced TPSC's power to control the individual prices charged by incumbents for individual services. Thus, it enhanced an incumbent's ability to compete in the market place by setting boundaries of acceptable pricing policies, rather than dictating the incumbents exact price. Within prescribed bounds of conduct, an incumbent now has the ability to adjust its prices in response to the competitive environment in which it finds itself.
The Tennessee General Assembly delegated to TPSC the power to "fix just and reasonable individual rates." Id. § 65-5-201. The legislature then determined that for purposes of price regulation plans rates "are just and reasonable when they are determined to be affordable. . . ." Id. § 65-5-209(a). The incumbent's rates on 6 June 1995 are deemed affordable under section 65-5-209 if the incumbent's earned rate of return is less than or equal to its authorized fair rate of return at the time of the company's application for price regulation. Id. § 65-5-209(c).
Prior to issuing an order adopting a price regulation plan for an incumbent, TPSC must verify the incumbent's earned rate of return by auditing the incumbent's most recent TPSC 3.01 financial report. Id. If the audit shows the incumbent's earned rate of return is equal to its authorized rate of return, then its rates existing on 6 June 1995 are deemed affordable and are to be used as the initial rates on which price regulation will be based. Id. If the earned rate of return is too high then TPSC must initiate a contested, evidentiary proceeding to establish the initial rates. Id. Alternatively, if the incumbent's earned rate of return is below its authorized fair rate of return, the incumbent may request that TPSC initiate a contested, evidentiary proceeding to set its initial rates. Tenn. Code Ann. § 65-5-209(c)(Supp. 1996). If it does not request such a hearing, however, the rates existing on 6 June 1995 shall become the initial rates. Id.
At the outset, we must address the jurisdictional issue raised in TPSC's motion to dismiss. We must determine if the proceedings by which UTS became subject to price regulation under Tennessee Code Annotated section 65-5-209 was a contested case. If it was not a contested case, we do not have jurisdiction.
The Uniform Administrative Procedures Act, Tennessee Code Annotated title 4, chapter 5, and Tennessee Rule of Appellate Procedure 12.1(a) govern this court's review of TPSC's actions. Tennessee Code Annotated section 4-5-322(a)(5) describes this court's jurisdiction to hear petitions for judicial review of TPSC's orders. Pursuant to that section, "[a] person who is aggrieved by a final decision in a contested case is entitled to judicial review under this chapter, which shall be the only available method of judicial review." Id. § 4-5-322(a)(1)(1991 Supp. 1996) (emphasis added). Thus, only a final decision in a contested case is subject to judicial review.
TPSC contends that this court lacks jurisdiction because TPSC did not issue the final order from which ATT seeks appeal in a contested case. TPSC argues that Tennessee Code Annotated section 65-5-209 required it to issue an order implementing a price regulation plan for UTS if UTS satisfied certain financial criteria. Moreover, TPSC contends that nothing in section 65-5-209 permitted ATT to initiate a contested case proceeding as part of UTS's application for a price regulation plan.
Clearly, TPSC did not conduct a contested case proceeding in connection with UTS's application. In fact, that is the substance of ATT's complaint in this appeal. Given these circumstances, the actual jurisdictional question for this court to resolve is whether ATT had a constitutional right to be heard making the proceeding a contested case as a matter of law.
In a declaratory judgment action filed by ATT, ATT contended that Tennessee Code Annotated section 65-5-209(c) deprived it of its due process "right to be heard as to the justness and reasonableness of rates to which it is to be subject." The chancellor ruled that ATT had no constitutionally protected interest in the rates it was charged. The chancery court entered a judgment in the declaratory judgment action on 7 May 1996 and no appeal was taken. Relitigation of this issue is barred by the doctrine of collateral estoppel.
As previously stated, this court granted a motion to consider post-judgment facts namely the case of ATT Communications of the S. Cent. States, Inc. v. Bissel , No. 95-3094-II (Davidson Chan. 7 May 1996). This case is the declaratory action discussed herein.
ATT will use UTS's services. Thus, it will be subject to the rates charged pursuant to the price regulation plan.
"Under the doctrine of collateral estoppel, when an issue has been actually and necessarily determined in a former action between the parties, that determination is conclusive upon them in subsequent litigation." King v. Brooks , 562 S.W.2d 422, 424 (Tenn. 1978). "In order to bar the relitigation of certain facts determined in the former action by applying the doctrine of collateral estoppel, there must be an identity of the parties or their privies and identity of the issue." Stacks v. Saunders , 812 S.W.2d 587, 591 (Tenn.App. 1990).
The declaratory judgment action involved all the parties that are involved in this case. Thus, there was identity of the parties. As to the identity of the issues, ATT contends that the chancery court did not address the issue of whether ATT had any due process rights as to the rates charged to it by other providers. The issues raised in the declaratory judgment action involved ATT's general contention that Tennessee Code Annotated section 65-5-209 was unconstitutional. ATT's complaint clearly alleged that ATT had a due process interest in the rates it was charged and that Tennessee Code Annotated section 65-5-209(c) violated those rights. In its complaint, ATT alleged:
10. ATT is a customer of BellSouth and UTSE for basic local exchange telephone service and for non-basic service as those terms are defined in T.C.A. § 65-5-208, as adopted in Chapter 408 of the Public Acts of 1995. As such, ATT has a direct, legally protected interest in the rates, charges and prices imposed by BellSouth and UTSE for such services.
11. T.C.A. § 65-5-209, adopted by Section 10 of Chapter 408 of the Public Acts of 1995, sets up a new system for the regulation of rates, charges, and prices of Incumbent Local Exchange Telephone Companies electing to be governed thereby by filing an application for a price regulation plan. . . . The implementation of such price regulation plans by UTSE and BellSouth will directly affect the rates, prices, and charges imposed by UTSE and BellSouth for the services provided to ATT, and will result in the deprivation of ATT's rights and interests under the Constitution of Tennessee and of the United States.
. . . .
13. . . . Instead, T.C.A. § 65-5-209 provides a novel and unprecedented departure form the general law established for the setting of rates for public utilities in this state, and deprives ATT and other interested parties of their rights to just and reasonable rates established under fair and reasonable procedures.
. . . .
17. Further, the Legislature, under subsection (c), on a finding by TPSC that a company's earned rate of return is less than or equal to that company's current authorized fair rate or return, has fixed the initial rates to be charged by a company under a price regulation plan, such as BellSouth or UTSE, for all services rendered, as the rates in effect on the effective date of the act. There is no rational basis for so fixing such initial rates. The act of the Legislature in so doing, therefore, violates Article 1, Section 8 of the Tennessee Constitution. On this ground, subsection (c) is unconstitutional.
18. Neither in T.C.A. § 65-5-209, nor elsewhere in Chapter 408, is provision made for the judicial review of the rates and prices fixed by subsection (c) of T.C.A. § 65-5-209. On the contrary, subsection (c) appears to be designed to preclude such judicial review. ATT, therefore, is deprived of its constitutional right to be heard as to the justness and reasonableness of rates to which it is to be subject. Subsection (c), therefore, violates Article 1, Section 8, and Article 1, Section 17 of the Tennessee Constitution, and the Fourteenth Amendment to the United States Constitution.
Clearly, one of the issues set forth in the complaint was the precise constitutional issue presented here, i.e., whether ATT has any due process rights as to the rates charged to it by other providers.
The chancellor provided a thorough memorandum and opinion. At the outset of the memorandum, the court stated: "[R]atepayers have no due process property rights to the charging of particular rates. ATT is forbidden, then, from challenging the legislation in issue because ATT might object to the charging of a particular rate." Moreover, the court specifically ruled that the allegations in paragraphs seventeen and eighteen were without merit.
It is the opinion of this court that the issue presented in this case is the same as one or more of the issues presented in the declaratory judgment action. Moreover, the parties in both actions were the same. As such, the doctrine of collateral estoppel applies and prevents ATT from challenging the constitutional validity of Tennessee Code Annotated section 65-5-209 on the basis of its rights surrounding the rates charged to it by other providers and on the basis of any other theory advanced and resolved in the declaratory judgment action. The issue in this case has been conclusively determined between these parties by a court of competent jurisdiction and may not now be relitigated.
TPSC's 18 August 1995 order allowing ATT to intervene does not affect this ruling. The order merely stated that the proceedings "may" affect ATT's rights and that ATT could participate "as its interest may appear." Nothing in the order conclusively recognized the existence of rights nor did it create any constitutionally protected rights that previously did not exist. ATT has not identified a constitutional right to be heard. Because there was no contested case, ATT is left only with the argument that the proceeding was a contested case as a matter of law because it should have been a contested case. We respectfully disagree.
In addition to the lack of constitutional support, ATT's claim to a contested case is not supported by the statutes. No reasonable interpretation of Tennessee Code Annotated section 65-5-209 requires or permits TPSC to convene a contested case under the circumstances here. TPSC does not have discretion on whether to allow an incumbent to select price regulation. Under the statute, an incumbent is entitled to price regulation. "The authority shall enter an order within ninety (90) days of the application of an incumbent local exchange telephone company implementing a price regulation plan for such company." Tenn. Code Ann. § 65-5-209(c)(Supp. 1996) (emphasis added).
The authority, i.e. the Tennessee Regulatory Authority, now has the power to implement a price regulation plan pursuant to Tennessee Code Annotated section 65-5-209.
ATT has pointed out that "contested case" is defined differently in two applicable statutes, section 4-5-102(3) and section 65-5-101(2). Section 4-5-102(3) defines contested case as follows:
"Contested case" means a proceeding, including a declaratory proceeding, in which the legal rights, duties or privileges of a party are required by any statute or constitutional provision to be determined by an agency after an opportunity for a hearing. Such proceeding may include rate making; price fixing; granting of certificates of convenience and necessity; the making, review or equalization of tax assessments; the granting or denial of licenses, permits or franchises where the licensing board is not required to grant the licenses, permits or franchises upon the payment of a fee or the finding of certain clearly defined criteria; and suspensions of, revocations of, and refusals to renew licenses. An agency may commence a contested case at any time with respect to a matter within the agency's jurisdiction.
Tenn. Code Ann. § 4-5-102(3) (1991).
This court's jurisdiction over this matter derives from Tennessee Code Annotated section 4-5-322, which allows judicial review of final decisions in contested cases. The jurisdictional statute is part of the UAPA, therefore, it seems appropriate that the definitions given in the UAPA, such as the definition of "contested case" given in section 4-5-102(3), would control the interpretation of section 4-5-322. Clearly, the General Assembly intended the definition in section 4-5-102(3) to refer to proceedings before TPSC. TPSC is the only agency concerned with rate making and granting of certificates of convenience and necessity both of which are specifically mentioned in section 4-5-102(3). See United Inter-Mountain Tel. Co. v. Public Serv. Comm'n , 555 S.W.2d 389, 391 (Tenn. 1977).
Under the UAPA definition, a contested case is a proceeding in which "the legal rights, duties or privileges of a party are required by any statute or constitutional provision to be determined by an agency after an opportunity for a hearing." Because ATT has not set forth any statutory or constitutional provisions which required TPSC to provide ATT with an opportunity to be heard before TPSC implemented UTS's request for price regulation, the proceeding was not a contested case as defined in Tennessee Code Annotated section 4-5-103(b).
The Tennessee General Assembly has extremely broad powers to determine the method and the extent to which it will regulate utilities. It has the power to do all acts not expressly or impliedly forbidden by the Tennessee Constitution or the United States Constitution. See Bank of Commerce Trust Co. v. Senter , 149 Tenn. 569, 576, 260 S.W. 144, 146 (1924) (discussing taxing powers). The regulation of rates charged by public utilities is a legislative function. McCollum v. Southern Bell Tel. Tel. Co. , 163 Tenn. 277, 280, 43 S.W.2d 390, 390-91 (1931); Tennessee Cable Television Ass'n v. Tennessee Pub. Serv. Comm'n , 844 S.W.2d 151, 159 (Tenn.App. 1992). The decision of whether to regulate utilities and the extent and method of such regulations are within the exclusive domain of the legislature and are subject to change at the will of the legislature. See Tennessee Elec. Power Co. v. Tennessee Valley Auth. , 306 U.S. 118, 141, 59 S.Ct. 366, 371, 83 L.Ed. 543, 551 (1939). Moreover, it is the opinion of the majority that the concurring opinion would not fulfill the intent of the legislature. Adoption of the concurring opinion would not promote the reform sought by the enactment of the statute. In essence, the litigious nature of the process would not change.
By enacting chapter 408, the General Assembly expressed its will to open the local telecommunications market to competition and declared that price regulation is a proper method of regulation. We are of the opinion that ATT's interpretation and contentions concerning chapter 408 are contrary to the plain wording of the act and to the policy statement expressed in Tennessee Code Annotated section 65-4-123.
Therefore, it results that the appeal of ATT is dismissed for lack of jurisdiction by this court. Costs on appeal are taxed to petitioner/appellant, ATT Communications of South Central States, Inc., and the cause is remanded to the Tennessee Regulatory Authority for any further necessary proceedings.
__________________________________ SAMUEL L. LEWIS, JUDGE
CONCUR:
__________________________________ HENRY F. TODD, P.J., M.S.
__________________________________ WILLIAM C. KOCH, JR., J.
CONCURRING IN SEPARATE OPINION.
The majority opinion rests on two principal holdings — first that this court lacks jurisdiction to hear this appeal and second that collateral estoppel bars ATT's attack on the constitutionality of Tenn. Code Ann. § 65-5-209 (Supp. 1996). I have prepared this separate opinion because I disagree with the majority's jurisdictional analysis. I would hold that this court has jurisdiction over this appeal and that collateral estoppel prevents ATT from pursuing its constitutional challenge to Tenn. Code Ann. § 65-5-209.
I.
In 1995 the General Assembly overhauled the procedure for setting rates for telephone services. It replaced the cumbersome administrative rate-setting process with one in which competitive forces, rather than regulators, dictate the rates. The change required the General Assembly to provide transitional mechanisms from the former regulatory environment to the new market-driven one. This appeal involves one of these mechanisms — the transition procedures in Tenn. Code Ann. § 65-5-209(c) for incumbent local exchange telephone companies.
Act of May 25, 1995, ch. 408, 1995 Tenn. Pub. Acts ___ (3 Tenn. Code Ann. 1995 Advance Legislative Serv., Chapter 398-414 at p. 205).
The new legislation required incumbent telephone companies to decide whether their rates would continue to be set using the traditional "rate base — rate of return" process or whether their rates would become more responsive to market forces. While incumbent companies had the right to begin operating free from the traditional regulatory oversight, their right was conditioned on a threshold determination that their initial rates would be "affordable." Thus, Tenn. Code Ann. § 65-5-209(c) required incumbent companies to apply to the commission for a "price regulation plan." The sole purpose of this proceeding was to ensure that an incumbent telephone company's initial rates would be "affordable."
This choice was not difficult for incumbent telephone companies to make because their new competitors were not going to be subject to the burdensome regulatory rate-making process.
The General Assembly understood that the initial rates were the most important component of any new price regulation plan. Thus, rather than simply assuming that the incumbent company's current rates were "affordable," the General Assembly decided that the commission should take one last look at a company's current rates before releasing its regulatory grip. Rather than directing the commission to commence a lengthy rate-making proceeding for every incumbent telephone company seeking to operate under a new price regulation plan, the General Assembly devised an expedited procedure for determining whether an incumbent company's current rates were affordable.
This expedited procedure involved comparing the incumbent company's current earned rate of return with its currently authorized fair rate of return. The rates that an incumbent company was charging on June 6, 1995 would become the initial rates in the company's price regulation plan, as long as the company's current earned rate of return did not exceed its currently authorized fair rate of return. If the company's current rate of return exceeded its authorized fair rate of return, the General Assembly directed the commission to commence a "contested, evidentiary proceeding" to set the company's initial rates — presumably at a lower level than its current rates.
By the same token, the General Assembly authorized incumbent companies to seek higher initial rates if their current earned rate of return was less than their currently authorized fair rate of return.
The General Assembly directed the commission to base its comparison of an incumbent company's earned and authorized rates of return on its staff's audit of the incumbent company's "most recent. . . 3.01 report." See Tenn. Code Ann. § 65-5-209(c), -209(j). The 3.01 report is a monthly financial report filed by telephone companies with more than 6,000 access lines. It details the company's revenues and expenses and provides monthly, year-to-date, and twelve months-to-date information consistent with the Uniform System of Accounts as adopted and amended by the Federal Communications Commission. It must reflect all rate-making adjustments to the company's operating revenues, expenses, and rate base contained in the commission's most recent order applicable to the incumbent company. See Tenn. Code Ann. § 65-5-209(j).
Tenn. Comp. R. Regs. r. 1220-4-1-.10(2)(a) (1988).
Tenn. Comp. R. Regs. r. 1220-4-1-.11(1)(a) (1988).
The General Assembly did not provide clear answers to two important questions concerning the expedited Tenn. Code Ann. § 65-5-209(c) procedure. First, it did not indicate whether the hearing during which the commission receives and acts on the staff audit of an incumbent company's 3.01 report would be a contested case proceeding. Second, it did not describe what role, if any, an incumbent company's customers or competitors could play with regard to the commission's consideration of the staff audit of the incumbent company's 3.01 report. This case demonstrates the problems caused by these oversights.
II.
United Telephone — Southeast, Inc. applied for a price regulation plan less than two weeks after the 1995 legislation took effect. During the next two months, the commission entered a series of orders pursuant to Tenn. Code Ann. § 4-5-310 (1991) and Tenn. Code Ann. § 65-2-107 (1993) permitting the Consumer Advocate and four of United Telephone's customers and competitors to intervene and participate in the proceeding. On August 7, 1995, the commission published a notice that it would hold a contested case hearing on United Telephone's application for a price regulation on September 7, 1995. The notice stated that the hearing would be conducted in accordance with the Uniform Administrative Procedures Act.
The commission entered an order on August 28, 1995, permitting the Consumer Advocate to intervene as an "official party of record."
The commission permitted South Central Bell Telephone Company to intervene as a party on July 24, 1995. On August 18, 1995, it entered an order permitting ATT Communications of the South Central States, Inc. to intervene and participate in the proceedings. Similar orders were entered on August 28 and August 30, 1995 for MCI Metro Access Transmission Services, Inc. and MCI Telecommunications Corporation respectively.
On August 30, 1995, the Consumer Advocate filed a motion suggesting that the contested case proceeding scheduled for September 7, 1995 was inappropriate. The Consumer Advocate likened United Telephone's application for a price regulation plan to an audit, and argued that National Health Corp. v. Snodgrass, 555 S.W.2d 403, 405 (Tenn. 1977) stood for the proposition that audits were not contested cases. On September 5, 1995, the commission entered an order rescinding its August 7, 1995 notice of hearing on the ground that "there is no statutory authority for a contested proceeding at this juncture."
The commission's staff filed the report of its audit of United Telephone's most recent 3.01 report on September 15, 1995. The report concluded that United Telephone's current earned rate of return was less than its authorized fair rate of return. On September 20, 1995, the commission, without conducting a contested case hearing, "accepted" its staff report. It also determined that United Telephone's rates in effect on June 6, 1995 were affordable and would become the initial rates under United Telephone's price regulation plan effective on October 15, 1995, unless United Telephone requested a contested evidentiary hearing within ten days.
The staff actually filed an audit report earlier on August 16, 1995. However, the commission rejected this audit on September 5, 1995 because it did not involve United Telephone's most recent 3.01 report.
The commission had determined in December 1994 that United Telephone's authorized fair rate of return should be between 8.85% and 10.05%. The staff audit in September 1995 concluded that United Telephone's current earned rate of return for the twelve months ending on March 31, 1995 was 8.69%.
United Telephone immediately informed the commission that it did not intend to request a contested evidentiary hearing. In addition, ATT, one of the intervening parties, requested the commission to "clarify" its September 20, 1995 order by making separate findings with regard to each of United Telephone's basic and non-basic rates. On October 13, 1995, the commission entered its final order authorizing United Telephone to begin operating under a price regulation plan based on its rates in effect on June 6, 1995. The commission also denied ATT's request to convene a hearing because it lacked the authority to make further findings with regard to United Telephone's rates and because the other relief requested by ATT exceeded its authority.
The proceedings took a curious turn at this point. On October 6, 1995, ATT filed a petition pursuant to Tenn. Code Ann. § 4-5-224 (1991) in the Chancery Court for Davidson County challenging the constitutionality of Tenn. Code Ann. § 65-5-209. While this proceeding was pending, ATT also appealed the commission's October 13, 1995 order to this court in accordance with Tenn. Code Ann. § 4-5-322(b)(1) (Supp. 1996) and Tenn. R. App. P. 12. Many of ATT's issues on this direct appeal were the same as those raised in its pending declaratory judgment proceeding.
ATT had requested a declaratory ruling from the commission concerning these issues on July 14, 1995. The commission denied the request on August 22, 1995.
The commission moved to dismiss ATT's direct appeal on the ground that this court lacked subject matter jurisdiction because its October 13, 1995 order was not the final order in a contested case proceeding. On April 12, 1996, this court declined to dismiss the appeal. We determined that this court, rather than the commission or the trial court, should decide legal questions concerning our own jurisdiction. ATT Communications of the S. Cent. States, Inc. v. Bissell, App. No. 01A01-9512-BC-00556 (Tenn. Ct. App. April 12, 1996) (order denying motion to dismiss appeal).
Notwithstanding this court's denial of the motion to dismiss this appeal, ATT continued to press forward with its declaratory judgment action in the chancery court. Following a hearing in mid-February 1996, the chancery court filed a memorandum and order on May 7, 1996 finding ATT's attacks on the constitutionality of Tenn. Code Ann. § 65-5-209 to be without merit. ATT Communications of the S. Cent. States, Inc. v. Bissell, No. 95-3094-II (Davidson Chan. Ct. May 7, 1996). Rather than appealing this decision, ATT turned its attention to this appeal. However, the commission asserted that the doctrine of res judicata prevented ATT from relitigating its constitutional issues because the chancery court had already decided them adversely to ATT in the declaratory judgment proceeding and because the chancery court's judgment had become final without being appealed.
III.
Our authority to review the commission's decisions stems from Tenn. Code Ann. § 4-5-322(b)(1) (Supp. 1996) which provides for a direct appeal to this court from "any final decision" of the commission or its successor, the Tennessee Regulatory Authority. Even though the phrase "any final decision" is quite broad, considering it in light of both Tenn. Code Ann. § 4-5-322(a)(1) and Tenn. R. App. P. 12 indicates that it includes only final decisions in contested cases. Thus, this court has direct appellate jurisdiction over the commission's final decisions in contested cases.
The majority's jurisdictional decision in this case is based on its conclusion that the commission's decision setting the initial rates under United Telephone's price regulation plan was not a final decision in a contested case. This conclusion ignores the existing statutes governing practice before the commission and creates a species of rate-making proceeding that is completely shielded from judicial review. I find no indication in Tenn. Code Ann. § 65-5-209's legislative history that the General Assembly desired decisions with such far-reaching financial consequences to be essentially unreviewable, or that the General Assembly decided to depart from the commission's practice of permitting interested and affected parties to intervene and participate in a rate-making proceeding.
A.
A Tenn. Code Ann. § 65-5-209 proceeding to approve a price regulation plan for an incumbent telephone company is essentially a rate-making procedure. Its primary purpose is to fix the rates that the incumbent company will charge once its price regulation plan has been approved. The proceeding is not simply an "audit" even though the evidentiary foundation for the commission's decision is the staff audit of the incumbent company's most recent 3.01 report. Thus, the holding in National Health Corp. v. Snodgrass, 555 S.W.2d 403, 405 (Tenn. 1977) that an audit is not a contested case has no bearing on this appeal.
Both the Uniform Administrative Procedures Act and the statutes specifically applicable to the commission's proceedings define rate-fixing proceedings as contested cases. Tenn. Code Ann. § 65-2-101(2) (Supp. 1996) states that "the fixing of rates shall be deemed a contested case rather than a rule-making proceeding." Tenn. Code Ann. § 4-5-102(3) (1991) likewise states that contested case proceedings may include rate-making and price-fixing. Statutes involving the same subject matter should be construed together, State v. Blouvett, 904 S.W.2d 111, 113 (Tenn. 1995), in order to promote consistency and uniformity, State ex rel. Witcher v. Bilbrey, 878 S.W.2d 567, 571 (Tenn.Ct.App. 1994), and to avoid placing the statutes in conflict with each other. Cronin v. Howe, 906 S.W.2d 910, 912 (Tenn. 1995). Accordingly, we have in the past construed the definitions of "contested case" in Tenn. Code Ann. § 4-5-102(3) and Tenn. Code Ann. § 65-2-101(2) in pari materia. Tennessee Cable Television Ass'n v. Tennessee Pub. Serv. Comm'n, 844 S.W.2d 151, 161 (Tenn. Ct. App. 1992).
Tennessee's decision to classify rate-making as a contested case rather than as a rule-making proceeding points to a clear contrast between the State's and the federal government's understanding of the the nature of a rate-making process proceeding. The rate-making mandated by federal law is viewed as informal rule-making. See, e.g., Consolidated Aluminum Corp. v. T.V.A., 462 F. Supp. 464, 475 (Supp. 1978).
Parties to contested case proceedings before the commission include "[a]ll persons having a right under the provisions of the laws applicable to the. . . [commission] to appear and be heard" and all "interested persons who have been permitted to intervene and become a party to any contested case." Tenn. Code Ann. § 65-2-107 (Supp. 1996). Persons who become parties to a contested case before the commission have a statutory right "to present evidence and argument in accordance with the rules of the [commission]." Tenn. Code Ann. § 65-2-108 (Supp. 1996).
The commission's criteria for intervention were not altered by the 1995 legislation providing for a new mechanism to set telephone rates. Tenn. Code Ann. § 65-2-107 requires only that an intervenor be an "interested person." In addition, Tenn. Code Ann. § 4-5-310(a)(2) (1991) requires that an intervenor demonstrate that the proceeding will affect its "legal rights, duties, privileges, immunities or other legal interest" or that "qualifies as an intervenor under any provision of law."
B.
The facts in this record demonstrate beyond peradventure that the commission itself considered ATT and the other intervenors as parties to United Telephone's application for a price regulation plan. The commission's orders granting the petitions to intervene invoked both Tenn. Code Ann. §§ 4-5-310 and 65-2-107. Once the commission had granted these persons the right to intervene, Tenn. Code Ann. § 65-2-108 gave them the right to present evidence and argument.
The commission never fully explained its abrupt decision that "there is no statutory authority for a contested proceeding at this juncture." There are two possible explanations for this decision. First, the commission could have agreed with the Consumer Advocate's assertion that a Tenn. Code Ann. § 65-5-209(c) proceeding was an audit, not a contested case. Second, it could have concluded that a Tenn. Code Ann. § 65-5-209(c) proceeding did not become a contested case until either the commission or the incumbent telephone company triggered a "contested evidentiary proceeding" to set the company's initial rates.
Both rationales are without merit. The Consumer Advocate's characterization of Tenn. Code Ann. § 65-5-209(c) as an audit is simply wrong and, therefore, National Health Corp. v. Snodgrass has no bearing. The notion that a Tenn. Code Ann. § 65-5-209(c) proceeding does not become a contested case unless either the commission or the incumbent telephone company triggers a "contested evidentiary proceeding" is equally untenable. In addition to overlooking the complimentary definitions of "contested case" in Tenn. Code Ann. §§ 4-5-102(3) and 65-2-101(2) stating that rate-making proceedings are contested cases, it ignores the participatory rights granted to intervenors in Tenn. Code Ann. § 65-2-108.
The legislative history of Tenn. Code Ann. § 65-5-209 provides no indication that the General Assembly intended to prevent interested parties from participating in Tenn. Code Ann. § 65-5-209(c) proceedings just as they can participate in any other proceeding before the commission. In addition, I am unable to indentify any policy reason to support the finding that these proceedings would be essentially closed unless either the commission or the affected incumbent telephone company triggered a full-blown "contested evidentiary proceeding" to set the initial rates. There are, however, sound policy reasons for treating the early phases of a Tenn. Code Ann. § 65-5-209(c) proceeding as a contested case.
Disputed factual and legal questions could very well arise in a Tenn. Code Ann. § 65-5-209(c) proceeding before a "contested evidentiary proceeding" to set an incumbent telephone company's initial rates is triggered. Questions could be raised about the staff's audit methodology and factual conclusions. These issues directly affect the commission's decision, and thus they should be aired and resolved before the commission determines whether an incumbent telephone company's actual rate of return exceeds its currently authorized fair rate of return.
These disputed matters could very well be of interest, not just to an affected incumbent company, but also to other incumbent companies applying for a price regulation plan. In addition to issues concerning audit methodology, incumbent telephone companies may also have questions about the commission's decisions concerning the implementation of this new, dramatically different rate-making procedure. Recognizing and following the intervention and hearing procedures in Tenn. Code Ann. §§ 65-2-107, -108 provides the most efficient way to resolve these matters.
IV.
Having concluded that this court has jurisdiction to consider ATT's appeal from the commission's October 13, 1995 order, I concur with the majority's conclusion that ATT is collaterally estopped from challenging the constitutionality of Tenn. Code Ann. § 65-5-209 in this proceeding. The parties to the chancery court proceeding that resolved these issues against ATT's position are the same. Accordingly, the chancery court's decision on these issues is conclusive on ATT in subsequent proceedings.
Neither the majority nor I have reached the merits of ATT's constitutional arguments since we have invoked the doctrine of collateral estoppel.
____________________________ WILLIAM C. KOCH, JR., JUDGE