Opinion
NO. 2013-CA-001625-MR 2013-CA-001630-MR
04-24-2015
PUBLIC SERVICE COMMISSION OF KENTUCKY APPELLANT v. BRANDENBURG TELEPHONE COMPANY AND SPRINT COMMUNICATIONS COMPANY, L.P. APPELLEES AND SPRINT COMMUNICATIONS COMPANY, L.P. APPELLANT v. BRANDENBURG TELEPHONE COMPANY AND PUBLIC SERVICE COMMISSION OF KENTUCKY APPELLEES
BRIEFS AND ORAL ARGUMENT FOR PUBLIC SERVICE COMMISSSION OF KENTUCKY: J.E.B. Pinney Frankfort, Kentucky BRIEFS FOR BRANDENBURG TELEPHONE COMPANY: John E. Selent Edward T. Depp Michael P. Abate Nicholas M. Haering Louisville, Kentucky ORAL ARGUMENT FOR BRANDENBURG TELEPHONE COMPANY: John E. Selent Louisville, Kentucky BRIEFS FOR SPRINT COMMUNICATIONS COMPANY, L.P.: Douglas F. Brent Barry L. Dunn Louisville, Kentucky ORAL ARGUMENT FOR SPRINT COMMUNICATIONS COMPANY, L.P.: Douglas F. Brent Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 10-CI-00019
OPINION
REVERSING AND REMANDING
BEFORE: MAZE, NICKELL, AND STUMBO, JUDGES. NICKELL, JUDGE: In these consolidated appeals, the Public Service Commission of Kentucky ("PSC") and Sprint Communications Company, L.P. ("Sprint"), appeal from the Franklin Circuit Court's November 28, 2012, order reversing an order of the PSC in a billing dispute between Sprint and Brandenburg Telephone Company ("Brandenburg"), and the August 19, 2013, order granting in part and denying in part the PSC's and Sprint's motions to alter, amend or vacate the earlier judgment. Following a careful review of the record, the briefs and the law, we reverse and remand for further proceedings.
Sprint is an Interexchange Carrier ("IXC") that carries wireless telephone traffic for Sprint PCS and Nextel, two Commercial Mobile Radio Service Providers ("CMRS Providers"). Wireless calls placed by the CMRS Providers' customers are carried over the long-distance network owned and operated by Sprint. Calls made by Sprint's customers to customers of other service providers must be "handed off" to another carrier before reaching their final destination or termination point—the called party. Brandenburg is a Local Exchange Carrier ("LEC") that provides switched access telephone service and "terminates" or delivers access traffic for Sprint. An IXC—such as Sprint—is obligated to pay fees to compensate an LEC for use of necessary local facilities in delivering a call to the recipient. These charges, known as "switched access charges," are contained within and governed by state and federal access tariffs. Calls originating and terminating in different states are regulated by the Federal Communications Commission ("FCC") and are billed under the federal tariff. Purely intrastate calls are regulated by the PSC and are billed under the state tariff. Traditionally, interstate rates were much lower than intrastate rates. The issue in this case is not whether Sprint must pay Brandenburg for its services, but rather, is centered on how much should be paid.
Although Sprint carries both wireless and wireline (also known as "landline") traffic, these appeals pertain exclusively to wireless calls because cellular phones are, by their very nature, mobile and allow their users to initiate and receive telephone calls from around the world, unlike wireline phones whose location is by necessity static.
In general terms, and as applied in the instant appeals, a tariff is a document setting forth the rates a utility will charge its customers in exchange for services. Tariffs are prepared by each individual utility although, on occasion, multiple utilities may adopt the same or substantially similar tariffs. After an administrative review and approval process, tariffs are filed with the PSC. The rates listed in a tariff are charged to all customers and may only be changed upon petition and approval of the PSC. Thus, entities using a utility's services have no bargaining power to negotiate different rates from those listed in the applicable tariff.
Federal guidance issued after the trial court rendered its initial decision in this matter eliminated this disparity. See In re Connect America Fund, et al., 26 F.C.C. Rcd 17663, 17677 (F.C.C. Nov. 18, 2011) (requiring carriers to bring intrastate and interstate termination rates into parity by July 2013). Thus, this case has no prospective application after July 2013.
Brandenburg has traditionally determined the jurisdiction—i.e., the interstate or intrastate nature—of Sprint's access traffic by comparing the calling party number ("CPN") and the called number. It has done so based on its understanding of the language of the tariff it wrote, which defines "interstate access minutes" as "the access minutes where the calling number is in one state and the called number is in another state." It is undisputed that in the era of modern wireless mobile telephony, where a caller from Kentucky may initiate a phone call from nearly any point on the planet, the CPN does not always accurately reflect whether a particular phone call is interstate or intrastate.
In 2007, Sprint requested Brandenburg cease using the CPN to "jurisdictionalize" Sprint's access traffic. Sprint believed the CPN was insufficient to properly identify the location of wireless callers, thus resulting in improper billing of interstate calls under the higher intrastate rate. Instead of utilizing the CPN, Sprint requested Brandenburg use an estimated calculation—known as a Percent of Interstate Use ("PIU")—as called for under the appropriate tariff to allocate charges as interstate or intrastate for billing purposes. Sprint admitted this method was not always accurate, but contended the margin of error was significantly less than using the CPN to determine the caller's geographic location.
Sprint alleged Brandenburg incorrectly rated interstate calls as intrastate calls approximately 87% of the time.
Specifically regarding the use of the PIU, Brandenburg's tariff acknowledges the jurisdictional nature of calls cannot always be determined and states:
[w]hen originating call details are insufficient to determine the jurisdiction for the call, the [IXC] shall supply the projected interstate percentage or authorize the Telephone Company to use the Telephone Company developed percentage. This percentage shall be used by the Telephone Company as the projected interstate percentage for originating and terminating access minutes.
Brandenburg insisted its reliance on the CPN to jurisdictionalize calls was proper and complied with the plain language of its tariff regarding the rating of interstate and intrastate calls. Brandenburg maintained the CPN contained "sufficient call detail" to determine the jurisdiction of a call, and therefore, resort to the PIU was not required. Further, Brandenburg contended the tariff does not require a determination of the geographic location of the calling number—indeed, such information is not even mentioned in the provision regarding interstate originating access minute charges, but is mentioned in other provisions of the tariff dealing with different matters. Thus, based on its understanding of the tariff language, Brandenburg refused to comply with Sprint's request to cease using the CPN for rating purposes.
It appears from the record that Brandenburg's billing practices result in wireless calls from handsets assigned a Kentucky-based telephone number always being billed at intrastate rates—regardless of the initiating caller's physical location.
By February of 2008, Sprint began withholding payments for access traffic. Brandenburg informed Sprint that if payment of the past due amounts was not forthcoming, it would cease terminating Sprint's switched access traffic. Shortly thereafter, in April of 2008, Sprint filed a complaint with the PSC alleging Brandenburg had misapplied its tariff and wrongfully billed certain wireless calls at the higher intrastate rate. Sprint requested an order from the PSC requiring Brandenburg to accept Sprint's PIU and utilize it for all wireless traffic terminated across Brandenburg's access facilities. In addition, Sprint sought a refund of all amounts it alleged had been improperly billed between March 1, 2006, and April 10, 2008. Brandenburg answered and filed a counterclaim demanding payment for amounts Sprint had withheld during the fee dispute. A lengthy period of thorough discovery ensued. On July 22, 2009, approximately three weeks prior to a scheduled final hearing, Sprint amended its initial complaint to assert it had discovered Brandenburg's overbilling began in January 2002, and thus requested the refund period be extended to include the period of January 1, 2002, through June of 2009. Over Brandenburg's objection, the PSC permitted the amendment without comment at the formal hearing conducted on August 11, 2009.
On November 6, 2009, the PSC entered its final order finding in favor of Sprint upon concluding the CPN does not determine the jurisdiction of a call. After setting forth the various positions and arguments of the parties, the PSC found:
[b]ased on the foregoing, the Commission finds that Brandenburg's reliance on only the CPN to assign the jurisdiction of a wireless call unreasonably allocates substantial amounts of interstate traffic to the intrastate jurisdiction, resulting in the application of access charges that are not in compliance with Section 2.3.11(C) of Brandenburg's tariff. Brandenburg admits that the use of the CPN is not always reliable, yet it makes an unsubstantiated claim that, because the use of the CPN may result in rating an intrastate call as an interstate call, the errors cancel each other out. The Commission is not convinced that Brandenburg's reliance on the CPN to determine the jurisdiction of wireless calls is more objective or accurate than the methodology applied by Sprint. More importantly, Brandenburg's usage of the CPN directly conflicts with the provision of its tariff that defines an interstate call as one "where the calling number is in one state and the called number is in another state." The language clearly contemplates that the geographic location where the wireless call is made determines the jurisdiction of the call.
. . . .
The issues before the Commission were presented in such a way as to leave little room for compromise between the two parties. The Commission, in effect,
must simply choose one party's interpretation of the tariff and method of assigning jurisdiction over the other's. Accordingly, we agree with Sprint. Brandenburg's tariff requires it to consider the geographic location of a wireless call, not the calling party's number in order to determine the jurisdiction of a wireless call. We also conclude the use of Sprint's [Jurisdictional Information Parameter ("JIP")] field and PIU is the most accurate method by which to assign the jurisdiction of a wireless call.(Internal footnotes omitted). The PSC ultimately ordered Brandenburg to apply Sprint's PIU in calculating compensation going forward, but stayed implementation of that order for thirty days to permit Brandenburg to take advantage of the audit provisions contained in the tariff concerning the PIU or for the parties to reach an agreement as to the amount of compensation due. Brandenburg timely sought review of the PSC's decision in Franklin Circuit Court.
Before the trial court, the facts were undisputed. Following a briefing schedule on the merits, the trial court entered its initial opinion on November 28, 2012, reversing the PSC's decision. Therein, the trial court held: the PSC's decision was arbitrary, specifically faulting the PSC for failing to provide adequate "reasoning for its decision consistent with the plain meaning of the tariffs"; the accuracy of the methodology used to jurisdictionalize calls was not a factor required by the tariff; the PIU could only be applied when a call lacked sufficient call detail, specifically the calling party number; the ruling was inconsistent with prior interpretations of the tariff and prevailing understandings of its proper application; and, that while the PSC has authority to prospectively adopt new standards or regulations to address new concerns or factual situations—such as advances in technology—the PSC had, in this case, engaged in retroactive rulemaking, a practice condemned in KRS 446.080(3). Based on these holdings, the trial court determined Sprint was not entitled to the relief it sought and reversed the PSC.
Kentucky Revised Statutes.
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Sprint and the PSC filed independent motions to alter, amend or vacate raising several areas of contention. Both argued the trial court had utilized an incorrect standard of review and failed to give proper deference to the PSC's ruling. Further, they contended the trial court had erroneously and without evidentiary support found the PSC's decision conflicted with prior rulings as the issue presented for review was a matter of first impression before the PSC. The PSC argued the tariff language was unambiguous so there was no need to go into great detail or analysis regarding its decision and it had properly analyzed the evidence before making a factual finding—which could not be supplanted by the trial court under the applicable standard of review (citing Energy Regulatory Comm'n v. Kentucky Power Co., 605 S.W.2d 46, 50 (Ky. App. 1980))—that neither the CPN nor the JIP constituted sufficient call detail to jurisdictionalize a call. Once the factual finding had been made, the PSC argued it had simply applied the existing law to the unique facts presented, but it had not attempted to change the law as the trial court had concluded. The PSC disputed the trial court's conclusion that it had engaged in retroactive rulemaking, positing instead that it was exercising proper and exclusive jurisdiction over the rates and conditions of utilities as provided for in KRS Chapter 278, and it was simply reviewing Brandenburg's practices in light of the factual situation presented. In addition, Sprint contended the trial court had erred in concluding the tariff was ambiguous and compounded that error by resolving the purported ambiguity in favor of Brandenburg, the drafter of the tariff. Finally, Sprint argued the trial court's ruling was violative of federal law as it permitted the application of a state tariff to interstate communications.
In an August 20, 2013, order, the trial court largely denied the motions to alter, amend or vacate and reiterated and clarified its earlier holdings that the PSC's decision was arbitrary and unreasonable and further constituted improper retroactive rulemaking without affording all potentially affected parties proper notice and due process. In the interest of judicial economy, we quote the pertinent parts of the trial court's August 20, 2013, order.
The lynchpin of the Court's decision is that the [PSC] was arbitrary and unreasonable in retroactively applying an interpretation in a case of first impression without adequate notice to Brandenburg. To the extent the Court's Order characterizes the PSC's decision as inconsistent with previous interpretations of the tariffs in question, it is altered to clarify that the Commission's decision in this matter was a case of first impression. . . . The record demonstrates that the PSC's ruling on this issue is inconsistent with the traditional understanding of the tariffs in question that was shared by Brandenburg and other long distance providers, that jurisdiction of a phone call was based on the phone number, not the physical geographic location of the caller.
The PSC argues that the Court's reading of the tariff would result in a wireless call with a Kentucky number made from a physical location outside of Kentucky to a number in Kentucky always being classified as an intrastate call. The Court's ruling merely holds that this result is required by the plain language of its own tariff, and the PSC, as well as the regulated entities are bound by the tariff. The PSC is free to amend that tariff to address the issue of allocation of cost for cell phone calls made from out-of-state locations to in-state phone numbers, or to adopt a new interpretation prospectively. But the commission (sic) cannot adopt a new interpretation of the tariff that is at variance with the well established prior understanding of the tariff, and apply the new interpretation retroactively to Brandenburg.
This Court's decision is consistent with the plain language of the tariff, and with the prior understanding of the tariff's application that was shared by all the parties. This Court must fairly interpret the plain meaning of the language of the existing tariff in dispute. The PSC has a duty to update the applicable tariffs to reflect the changing reality of electronic communications. But in the absence of a new tariff to address this issue, the PSC cannot retroactively impose a new interpretation of the existing tariff that is inconsistent with the plain language of the tariff, to address this problem of out-dated tariffs.
. . . .
Under the existing tariff, geographic origin is the issue in deciding whether an interstate or intrastate tariff applies. Under the plain language of the tariff, if the phone number originating the call is assigned to a Kentucky location, the call is presumed to be intrastate. The Court does not doubt that the accuracy of this method is doubtful in this age of electronic communications and cell phones. Nevertheless, this deficiency in the tariff must be remedied through adoption of a new tariff or an administrative regulation, with public notice and a right for affected parties to be heard, rather than retroactive application of a new interpretation of the existing language of the tariff.
. . . .
This Court agrees with the basic Findings of Fact from the PSC: that the calling party number was insufficient call detail to determine the origin of a call, and that in cases where the calling party number was insufficient to determine the origin of a call, the PIU rate applied. . . . [T]he reason for the PIU was not for cases where a landline number was moved to a different state, but rather for instances when a calling number was an 800 number. This Court already noted this in its order, and there is no basis in this record for the argument that the PIU was meant otherwise. Thus, the Court finds that the facts found by the PSC should be upheld, but they in no way affect the plain meaning of the tariff. The clear language of the tariff is counter to the PSC's argument that the tariff clearly contemplates using geographic location. There is simply no evidence in the record or in oral argument to suggest the tariff ever contemplated using physical, geographic location. On the contrary, all parties agreed in oral argument that the tariff clearly contemplated fixed line phones as the basis for determining rates, using the phone number as a proxy for geographic location to determine the rates, not physical geographic location.
. . . .
The Court recognizes the jurisdiction of the PSC in setting rates and conditions of utility services, as well as its original jurisdiction over rate complaints. The Court further recognizes that the PSC offered Brandenburg a full hearing on the merits in a formal adjudication process.
However, the PSC may not retroactively apply interpretations of first impression to rules, regulations and practices without proper notice to Brandenburg Telephone Company when Brandenburg has established that the new interpretation is counter to the well established prior understanding of all affected parties. PSC argues this is within its jurisdiction to adjudicate
rate under- or over-payments in the previous five years. The Court upholds the PSC's jurisdiction in this area. The distinction is that all parties in rate adjustment adjudications were put on notice that such adjustments could occur. In this case, no utility was put on notice that an issue of first impression might be applied retroactively to a company that operated in good faith under the prevailing interpretation of the tariffs in question. To allow such arbitrary retroactive change in interpretation of tariffs, regulations and practices would violate the due process rights of any company implicated in such changes.
The Court stands by its Order on this point, "The Court finds that the PSC has every right to review its regulations and revise them to reflect current technology and usage of consumer wireless communications. However the Commission may not make retroactive rules through adjudication." In its Opinion and Order, the Court meant that for any rules, regulations or practices that the PSC wishes to interpret on first impression, it must apply those interpretations only on a prospective basis, not retroactively. As this Court previously stated, "Retroactive application of administrative regulations is prohibited by KRS 446.080(3). Kerr v. Board of Registration for Professional Engineers and Land Surveyors, 797 S.W.2d 714, 717 (Ky. App. 1990). Brandenburg should have been afforded the basic due process of notice of the change in regulatory interpretation. To allow the PSC to retroactively impose a new interpretation of the tariff in this adjudication would result in a windfall to Sprint, at the expense of Brandenburg, which reasonably relied on the plain language of the tariff.
. . . .
Accordingly, for the reasons stated above, the motions to alter or amend are GRANTED to the extent that the reasoning of the Court is further explained in [the] discussion set forth above, but DENIED to the extent that the motions request the relief of affirmation of the PSC's final order. The Court re-affirms its ruling that the
decision of the PSC was arbitrary and capricious, and that the PSC retroactively imposed its new interpretation of the tariff at issue on Brandenburg. The decision of the PSC is REVERSED. This is a final and appealable order and there is no just cause for delay.
The PSC and Sprint separately and timely appealed to this Court. The issues presented in the two appeals are based on the same orders and are largely intertwined, and therefore, the appeals have been consolidated for treatment in this single Opinion.
"Because this is a review of a public service commission's order, the judiciary is limited to determining whether the Commission's decision is unreasonable or unlawful. KRS 278.410(1)." Citizens for Alternative Water Solutions v. Kentucky Public Service Comm'n, 358 S.W.3d 488, 489-90 (Ky. App. 2011). Further,
[i]n all trials, actions or proceedings arising under the preceding provisions of this chapter or growing out of the commission's exercise of the authority or powers granted to it, the party seeking to set aside any determination, requirement, direction or order of the commission shall have the burden of proof to show by clear and satisfactory evidence that the determination, requirement, direction or order is unreasonable or unlawful.KRS 278.430. A decision is considered "unlawful" if it violates a statute or constitutional provision. National Southwire Aluminum Co. v. Big Rivers Elec. Corp., 785 S.W.2d 503 (Ky. App. 1990); see also Public Serv. Comm'n v. Jackson County Rural Elec. Co-op., Inc., 50 S.W.3d 764 (Ky. App. 2000). Orders of the PSC "can be found unreasonable only if it is determined that the evidence presented leaves no room for difference of opinion among reasonable minds. In making such a review, the court is confined to a consideration of the evidence as presented in the record. KRS 278.440." Kentucky Indus. Utility Customers, Inc. v. Kentucky Utilities Co., 983 S.W.2d 493, 499 (Ky. 1998) (citing Energy Regulatory Comm'n v. Kentucky Power, 605 S.W.2d 46 (Ky. App. 1980)). There being no allegation the PSC's order was unlawful, the issue presented concerns whether it was unreasonable.
The Commission serves as fact-finder and possesses sole discretion to judge the credibility of evidence. Energy Regulatory Comm'n, 605 S.W.2d at 50. "The [PSC] acts as a quasi-judicial agency utilizing its authority to conduct hearings, render findings of fact and conclusions of law, and utilizing its expertise in the area and to the merits of rates and service issues." Simpson County Water Dist. v. City of Franklin, 872 S.W.2d 460, 465 (Ky. 1994). "The jurisdiction of the commission shall extend to all utilities in this state. The commission shall have exclusive jurisdiction over the regulation of rates and service of utilities[.]" KRS 278.040(2). Accordingly, the standard of review of orders entered by the PSC is necessarily circumscribed. See Commonwealth, ex rel. Stumbo v. Kentucky Public Service Comm'n, 243 S.W.3d 374, 378 (Ky. App. 2007).
Although KRS Chapter 278 grants the PSC sweeping authority to regulate public utilities, the PSC is a creature of statute and its powers are purely statutory, having only such powers as conferred expressly, by necessity, or by fair implication. Croke v. Public Service Comm'n of Kentucky, 573 S.W.2d 927 (Ky. App. 1978). "Whether the PSC exceeded the scope of its authority is a question of law that we scrutinize closely and review de novo." Cincinnati Bell Telephone Co. v. Kentucky Public Service Comm'n, 223 S.W.3d 829, 836 (Ky. App. 2007) (citing Com., Transportation Cabinet v. Weinberg, 150 S.W.3d 75 (Ky. App. 2004)). Finally, as always, we review questions of law de novo. City of Greenup v. Public Service Comm'n, 182 S.W.3d 535, 539 (Ky. App. 2005) (citing Revenue Cabinet v. Comcast Cablevision of the South, 147 S.W.3d 743, 747 (Ky. App. 2003)). With these standards in mind, we turn to the arguments presented.
The PSC and Sprint advance a large number of similar and intertwined allegations of error. We have reviewed each of these issues and concluded three require remand for further action on the part of the trial court. Based on our resolution of these issues, the remaining matters raised are either rendered moot or otherwise warrant no discussion.
First, Sprint and the PSC contend the trial court failed to use the appropriate standard of review as set forth in KRS 278.410(1) which provides that an order of the PSC can be vacated or set aside only if it is shown by clear and satisfactory evidence that the order is unlawful or unreasonable. See also Energy Regulatory Comm'n, 605 S.W.2d at 49-50. Sprint and the PSC argue the trial court used the less deferential "arbitrary and capricious" standard of review, and further compounded its error by substituting its own judgment for that of the PSC when it found the PSC's order was at variance with the plain language of the tariff and Brandenburg's understanding thereof.
The trial court recited the appropriate standard of review in its initial order reversing the PSC. However, it then made three findings supporting its decision: 1) the PSC's order was arbitrary; 2) the order was inconsistent with previous interpretations of the tariff; and 3) it was unreasonable. The trial court took the PSC to task for failing to support its decision with appropriate factual findings, grafting new requirements onto the tariff and attempting to impose those retrospectively, and ignoring the plain language of the tariff based on the belief it was outdated in light of technological advances. Contrary to the PSC, the trial court concluded the language of the tariff was ambiguous, recognized the deference due to administrative agencies when they are interpreting their own statutes, rules and regulations—pursuant to Chevron U.S.A., Inc. v. Natural Resource Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)—then determined the PSC's judgment was not entitled to any such deference because its order had found the plain language unambiguous and had included insufficient reasoning for reaching its ultimate decision finding in favor of Sprint.
In its later order in response to the parties' motions to alter, amend or vacate, the trial court conceded the matter was one of first impression before the PSC and amended its earlier ruling to remove offending references to prior interpretations of the tariff by the PSC. The trial court further specifically affirmed the factual findings of the PSC but determined those factual findings had no impact on interpretation of the tariff. It went on to conclude the PSC's order was arbitrary insofar as it retroactively applied the PSC's new interpretation of the tariff which was at variance with Brandenburg's understanding and the past practices of the parties. The trial court believed the PSC had ignored the plain language of the tariff and believed no evidence had been presented suggesting physical, geographical location was ever contemplated or utilized in the jurisdictionalization of calls. It concluded its order with a reaffirmation of its holding that the PSC's order was arbitrary and capricious. No discussion of alleged unreasonableness appears in the August 20, 2013, order.
The internal inconsistencies in the trial court's orders render it extremely difficult, if not impossible, to determine what standard of review was actually applied. Although the trial court initially referenced the correct standard and ostensibly concluded the PSC's order was unreasonable, the bulk of both of its orders is centered on the arbitrariness the trial court perceived. The less-deferential arbitrary and capricious standard has no place in the review of administrative decisions such as the one at issue in this appeal. Because we are unable to clearly determine whether the trial court utilized the correct standard of review, we must reverse the trial court and remand the matter for further clarification and appropriate findings under the statutorily required standard of review.
While we are aware the trial court may well have reached the same result under either standard, and of the real probability that the outcome may not change, our decision to remand is not simply an academic exercise. In the absence of adherence to clear statutory mandates, there can be no confidence the trial court's decision is based upon sound legal principles and the veracity of the trial court's rulings cannot be adequately reviewed.
Next, the PSC contends that even if the trial court correctly reversed any retroactive application of its interpretation of the tariff, it was erroneous for the trial court to circumvent the PSC's ability to provide prospective relief to Sprint. We agree.
Like the previous issue, the trial court's order on this matter is internally inconsistent. The trial court first acknowledged the PSC's inherent ability to interpret tariffs and provide prospective guidance and relief. In spite of this explicit acknowledgment, the trial court reversed the PSC's decision in toto, including any provision for prospective relief. We are unable to square these conflicting positions. Proverbially speaking, it appears the trial court threw out the baby with the bathwater. No finding was made that the PSC's interpretation of the tariff was unlawful or unreasonable when applied prospectively, nor would either determination have been supported by the record. It is undisputed the PSC has jurisdiction to regulate all utilities within the Commonwealth, KRS 278.040, along with the authority—either upon complaint or on its own motion—to investigate, proscribe and enforce rates and services of such utilities. KRS 278.260-280. It is also undisputed that the PSC's authority to regulate is applicable on a prospective basis. Id. Thus, to the extent the trial court's Order does not permit the PSC's interpretation of Brandenburg's tariff to apply prospectively, it is reversed and remanded for entry of appropriate orders consistent with this Opinion.
Finally, we are compelled by the PSC's contention that the trial court overstepped its authority in sua sponte requiring the PSC to update "the applicable tariffs to reflect the changing reality of electronic communications." This statement was included in the trial court's August 20, 2013, order, in a discussion regarding the plain language and prior understandings of the tariff provisions at issue. The trial court cited no authority supporting its decision to impose this affirmative duty upon the PSC where none had previously existed—similar to the practice the trial court had chastised the PSC for attempting. Although we believe the statement was likely made in passing without the intent of imposing a burden upon the PSC, it can clearly be seen as having such an effect. As previously stated, the PSC is a creature of statute and only has those duties and responsibilities imposed by the General Assembly. Croke, 573 S.W.2d at 929. They simply cannot be enlarged nor restricted by judicial fiat. Thus, to the extent the trial court's order imposes an affirmative duty on the PSC to sua sponte amend and update its tariffs, it is reversed. On remand, we direct the trial court to excise the offending language.
For the foregoing reasons, the judgment of the Franklin Circuit Court is reversed and the matter is remanded for further proceedings consistent with this Opinion.
STUMBO, JUDGE, CONCURS.
MAZE, JUDGE, DISSENTS WITH SEPARATE OPINION.
MAZE, JUDGE, DISSENTING: I agree with much of the analysis in the majority's thorough and well-written opinion. However, I reluctantly dissent because I disagree with the majority's conclusion that this matter must be remanded to the circuit court for additional proceedings. Although the circuit court uses some inconsistent language, I believe that it is sufficiently clear to allow this Court to determine its basis and holding. And while I am sympathetic to the circuit court's analysis, I must conclude that it clearly erred in finding that the PSC's interpretation of the tariff was unreasonable, at least when applied prospectively.
The majority focuses on the circuit court's inconsistent language when discussing the applicable standard of review. In most administrative appeals, the circuit court applies an arbitrariness standard to reviewing the agency's action. KRS 13B.150. The circuit court is well-acquainted with this standard and likely fell back on that language when considering this appeal. However, KRS 278.410(1) provides that an order of the PSC can only be set aside if it shown by clear and convincing evidence that the order is unlawful or unreasonable. I agree with the majority that the circuit court's use of inconsistent language creates a question of whether it applied the proper standard of review.
I disagree with the majority that these inconsistencies require this matter to be remanded to the circuit court for review under the appropriate standard. In this case, the distinction between "arbitrary" and "unreasonable" is largely semantic. Indeed, these standards of review overlap to a considerable degree. Kentucky Milk Mktg. & Antimonopoly Comm'n v. Kroger Co., 691 S.W.2d 893 (Ky. 1985), "[W]hatever is essentially unjust and unequal or exceeds the reasonable and legitimate interests of the people is arbitrary...." Id at 899. Moreover, either standard would allow the application of Chevron deference to the PSC's interpretation of its own tariff. See, e.g., Louisville/Jefferson Cnty. Metro Gov't v. TDC Grp., LLC, 283 S.W.3d 657, 661 (Ky. 2009). Rather, the central question is whether the tariff is ambiguous and subject to interpretation by the PSC, or unambiguous and not subject to interpretation.
The tariff defines an interstate call as occurring "where the calling number is in one state and the called number is in another state." Section 2.3.11(C). The tariff allows the use of PIU Estimate to determine the jurisdiction of the originating call where the jurisdiction of the originating call cannot be determined. However, the tariff does not specify how the geographic location of the calling number is to be determined. For years, the prevailing interpretation of that definition looked to the CPN of each number to determine its origin. The only exceptions occurred where the CPN did not clearly indicate the location of the calling number, such as an 800-number.
This method prevailed when most parties relied exclusively on land-lines. The accuracy of this method came into question with the increasing use of cell phones, which may be physically located outside of a LEC's calling area. Furthermore, the geographic location of cell phone calls may now be determined, with reasonable accuracy, by reference to the JIP field.
Although the application of the tariff was clear when it was written, it has become ambiguous when applied to cell phones. As such, the ambiguity is latent insofar as it is subject to multiple interpretations. MPM Fin. Grp., Inc. v. Morton, 289 S.W.3d 193, 197 (Ky. 2009), citing Whitley Whiz, Inc. v. Whitley County, 812 S.W.2d 149, 150-51 (Ky. 1991). Therefore, I would conclude that the PSC was entitled to interpret the tariff in light of that latent ambiguity, and a reviewing court must defer to that interpretation unless it is unreasonable. As the PSC noted in its Order, there would have been substantial grounds to support either Brandenburg's or Sprint's methodology to assign jurisdiction to a CPN. Under the circumstances, I cannot find that the PSC's adoption of Sprint's methodology was clearly unreasonable.
I also disagree with the majority's decision to remand this matter for additional consideration of whether the PSC's interpretation may be applied prospectively. I agree with the majority that the circuit court's decision is internally inconsistent on this question. But as the majority correctly notes, the circuit court clearly held that the PSC's interpretation of the tariff was inconsistent with the unambiguous language of the tariff. Based upon that conclusion, the circuit court reversed the PSC's decision in toto, concluding that the new interpretation could not be applied either retroactively or prospectively. The confusion arises because the circuit court separately addressed the issue of retroactive application. Nevertheless, the circuit court's holding is clear from the context of both opinions and does not require further clarification on this point.
Having said that, I fully agree with the circuit court's analysis on why the new interpretation of the tariff cannot be applied retroactively:
Retroactive application of administrative regulations is prohibited by KRS 446.080(3). Kerr v. Board of Registration for Professional Engineers & Land Surveyors, 797 S.W.2d 714, 717 (Ky. App., 1990). Brandenburg should have been afforded the basic due process of notice of the change in regulatory interpretation prospectively, so that it could have avoided costly litigation. Moreover, the provisions of KRS 13A.100 prohibit an agency from regulating by informal policy.Circuit Court Opinion, November 28, 2012, pp. 6-7.
The record here discloses that the tariff in question had long been interpreted by all affected parties to allow the carriers that compete for long distance calls to use the originating phone numbers as the basis for billing the originating carriers, either intrastate or interstate charges. Sprint now seeks a different interpretation of the tariff, and to retroactively collect refunds based on the new interpretation it has urged the PSC to adopt. Here, as in Humana v. Revenue Cabinet, 998 S.W.2d 494 (Ky. App. 1998), the doctrine of contemporaneous construction prohibits the agency from retroactively changing its interpretation of the controlling law. As the Court explained in Humana, "the doctrine of contemporaneous construction means that where an agency has the responsibility of interpreting a statute that is in some manner ambiguous, the agency is restricted to any long-standing construction of the provisions of the statute it made previously." Id. at 495
While the agency may prospectively adopt a new standard, or enact an administrative regulation or tariff to specifically address this concern, it may not retroactively impose a new interpretation of the controlling tariffs that is at odds with its longstanding prior practice. Hagan v. Farris, 807 S.W.2d 488, 490 (Ky. 1991). Accordingly,
Sprint is not entitled to any relief that requires such a change in interpretation to be imposed retroactively.
Therefore, I would reverse the circuit court's decision insofar as it sets aside the PSC's interpretation of the tariff and prohibits prospective application of that methodology. However, I would affirm the circuit court's decision to the extent that it prohibits application of the new methodology to tariffs incurred prior to Sprint's institution of the formal dispute process in 2007. BRIEFS AND ORAL ARGUMENT
FOR PUBLIC SERVICE
COMMISSSION OF KENTUCKY:
J.E.B. Pinney
Frankfort, Kentucky
BRIEFS FOR BRANDENBURG
TELEPHONE COMPANY:
John E. Selent
Edward T. Depp
Michael P. Abate
Nicholas M. Haering
Louisville, Kentucky
ORAL ARGUMENT FOR
BRANDENBURG TELEPHONE
COMPANY:
John E. Selent
Louisville, Kentucky
BRIEFS FOR SPRINT
COMMUNICATIONS COMPANY,
L.P.:
Douglas F. Brent
Barry L. Dunn
Louisville, Kentucky
ORAL ARGUMENT FOR SPRINT
COMMUNICATIONS COMPANY,
L.P.:
Douglas F. Brent
Louisville, Kentucky