Consumer Advocate v. TRA

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE

CONSUMER ADVOCA TE )
FILED
DIVISION, on Behalf of Tennessee ) January 10, 2000
Consumers and the ATTORNEY )
GENERAL OF TENNESSEE, ) Cecil Crowson, Jr.
) Appellate Court Clerk
Petitioner/A ppellant, ) Appeal No.
) M1999-02151-COA-R12-CV
VS. )
) Tenness ee Regu latory Author ity
TENNESSEE REGULATORY ) No. 95-02614
AUTHORITY, )
)
Respondent/Appellee. )

APPEALED FROM THE TENNESSEE REGULATORY A UTHORITY
AT NASHVILLE, TENNESSEE

COMMISSIONERS
MELVIN J. MALONE, LYNN GREER AND SARA KYLE

FOR THE APPELLANT: FOR THE APPELLEE
TENNESSEE REGULATORY
PAUL G. SUMMERS AUTHORITY:
Attorney General & Reporter
J. RICHARD COLLIER
MICHAEL E. MOORE H. EDWARD PHILLIPS
Solicitor General Tenness ee Regu latory Author ity
Nashville, Tennessee
L. VINCENT WILLIAMS
Assistant Attorney General FOR THE APPELLEE
Nashville, Tennessee BELLSOUTH
TELECOMM UNICATIONS,
INC.:

GUY M. HICKS
PATRICK W. TURNER
Nashville, Tennessee

BENNETT L. ROSS
Atlanta, G eorgia

AFFIRMED AND REMANDED

BEN H. CANTRELL,
PRE SIDIN G JU DGE , M.S.
 OPINION

After this court remanded a prior appeal saying that “the Tennessee

Public Service Commission . . . should have approved BellSouth’s application

for a price regulation plan based on BellSouth’s rates existing on June 6, 1995",

the Tennessee Regulatory Authority entered an order approving a price

regulation plan based on the data used in the 1995 application. The State

Attorney General’s Consumer Advocate Division levels a broad attack on the

order, asserting that this court’s prior order did not mandate the result below, and

that the order violates state and federal law. We hold that the Authority was not

required by our prior order to take the action it took but that the order was within

the Authority’s discretion. Therefore, we affirm.

I.

We refer to our prior opinion in BellSouth Telecommunications v.

Greer, 972 S.W.2d 663 (Tenn. Ct. App. 1997) for the facts leading up to the

approval of price regulation plans for local telephone companies. As that

opinion recites, BellSouth applied for a price regulation plan on June 20, 1995

and an audit of BellSouth’s Form PSC-3.01 report of March 31, 1995 showed a

rate of return within the range set by the Public Service Commission’s order in

1993. Nevertheless, the Commission’s staff recommended some adjustments to

the 3.01 report, and the Commission ordered BellSouth to reduce its rates by

$56.285 million.

-2-
 On appeal this court held that the Commission did not have the

power to adjust the figures in the 3.01 report, and we remanded the case “to the

Tennessee Regulatory Authority with directions to approve BellSouth’s

application for a price regulation plan.” 972 S.W.2d at 682. BellSouth filed a

petition to rehear seeking an order from this court that the price regulation plan

became effective on March 1, 1995. We declined the invitation and left it up to

the agency “to carry out its task in a manner consistent with its statutory

authority.” 972 S.W.2d at 683.

On remand BellSouth contended that this court’s opinion required

an immediate order approving a price regulation plan and moved for a plan

effective as of October 1, 1995. BellSouth conceded that the freeze on basic

rates and call waiting services should be extended to August 1, 2002 and that the

indexing for annual adjustments for basic and non-basic rates should begin on

August 1, 1998. The Consumer Advocate Division moved to start over. The

Regulatory Authority approved BellSouth’s motion with one exception. The

annual adjustments for basic and non-basic services will be calculated from

December 1, 1998.

II.

The Scope of the Remand

The Consumer Advocate Division asserts that the Regulatory

Authority erred in concluding that this court’s opinion required it to take the

action it took. A remand may take one of several forms. It may dictate the

-3-
course of further proceedings, Hoover v. Metropolitan Board of Zoning Appeals,

955 S.W.2d 52 (Tenn. Ct. App. 1997), it may be made for a specific purpose.

Mathis v. Campbell, 117 S.W.2d 764 (Tenn. Ct. App. 1938), or it may be open

and general. Here, however, we agree that this court’s remand did not require the

Authority to approve, without qualification or further inquiry, BellSouth’s 1995

application. On the petition to rehear in Greer, we made the following

observations with respect to BellSouth’s request for a holding that its price

regulation plan became effective on March 1, 1996:

Our October 1, 1997 opinion focused on the
procedure employed by the Tennessee Public Service
Commission to consider and act on BellSouth’s
application for a price regulation plan. Rather than
focusing on the substance or merits of the
Commission’s decision, we held that the procedure the
Commission followed did not comply with Tenn.
Code Ann. § 65-5-209. Accordingly, we vacated the
Commission’s orders and remanded the case to its
successor for further proceedings consistent with the
requirements of Tenn. Code Ann. § 65-5-209.

* * *

The doctrine of separation of powers counsels
the courts to avoid requiring an administrative agency
to take a particular action except in the most
extraordinary circumstances. We should decline, for
constitutional and practical reasons, to shoulder an
agency’s responsibilities. Thus, the goal of a remand
in cases of this sort should generally be to require the
agency to carry out its task in a manner consistent with
its statutory authority. See Hoover, Inc. v.
Metropolitan Bd. Of Zoning Appeals, 955 S.W.2d 52,
55 (Tenn. Ct. App. 1997).

Throughout these proceedings, BellSouth
consistently asserted that the procedure followed by
the Commission was not authorized by Tenn. Code
Ann. § 65-5-209 and requested the courts to require
the regulators to make their decisions in accordance
with Tenn. Code Ann. § 65-5-209. Our October 1,
1997 opinion settles the dispute concerning what
Tenn. Code Ann. § 65-5-209 requires. Now it falls

-4-
 upon the Tennessee Regulatory Authority to consider
BellSouth’s application for a price regulation plan in
accordance with Tenn. Code Ann. § 65-5-209.

The key to the scope of the remand is contained in the last quoted

paragraph. We resolved one question about price regulation. We left it to the

Authority to consider BellSouth’s application in accordance with Tenn. Code

Ann. § 65-5-209 and to “carry out its task in a manner consistent with its

statutory authority.” Therefore, the Authority was not under a mandate to take

any particular action. It could not, however, adjust the actual results on

BellSouth’s 3.01 report.

III.

The Regulatory Authority’s Decision

Our conclusion that the Authority was not compelled to take the

action it took opens up the question of whether it was compelled to take some

other action. The Consumer Advocate Division attacks the Agency’s action on

several fronts.

A. The 3.01 Audit

The Consumer Advocate Division asserts that the Authority did not

have the assurance that BellSouth’s March 1995 3.01 report was in compliance

with generally accepted accounting principles. See Tenn. Code Ann. § 65-5-

209(j). The Agency staff gave a “negative” assurance, meaning that it did not

-5-
make that determination itself but relied on the company’s internal controls and

independent auditors for the assurance.

After initially making the same arguments in the prior proceeding,

the Consumer Advocate Division dropped its objection and did not pursue it on

appeal – despite a finding by the PSC that the 3.01 report accurately reflected

BellSouth’s earned rate of return according to generally accepted accounting

principles. By failing to challenge that finding on appeal, the Consumer

Advocate Division waived any objection to it, Lewter v. O’Connor Management,

Inc., 886 S.W.2d 253 (Tenn. Ct. App. 1994), and it is now the law of the case.

See Ladd v. Honda Motor Co., 939 S.W.2d 83 (Tenn. Ct. App. 1996).

In addition, in the prior appeal the Consumer Advocate Division

actually defended the PSC’s action, because it resulted in a sizeable reduction in

rates. Having taken that position, the Division must confront the rule that a

litigant is required to act consistently throughout the litigation. Fidelity-Phenix

Fire Ins. Co. v. Jackson, 181 S.W.2d 625 (Tenn. 1944). Other courts have talked

in terms of judicial estoppel. See Bubis v. Blackman, 435 S.W.2d 492 (Tenn. Ct.

App. 1968); Stamper v. Venable, 97 S.W. 812 (Tenn. 1906). Thus, we conclude

that the objections to the 3.01 audit cannot be pursued on this appeal.

B. Federal Preemption

The Consumer Advocate Division devotes a lengthy part of its

appellate brief to an argument that the preemptive effect of the Federal

-6-
Telecommunications Act of 1966 (which took pay phones out of regulated

operations) was a compelling reason to reopen the case below. In the prior

appeal AT&T argued that federal preemption was a reason to deny price

regulation and remand the case to the Regulatory Authority for consideration of

that issue. We rejected AT&T’s argument then, in part because some of the

issues were already before the Authority in separate proceedings involving

AT&T and BellSouth. We said, “This type of proceeding, and others like it,

provide the parties with an appropriate forum to air out and resolve more clearly

defined issues concerning the possible preemptive effect of the specific

provisions of the Telecommunications Act of 1966 . . . .”

In this appeal BellSouth points out that the changes in payphone

regulation are already the subject of a separate proceeding pending before the

Authority. We think our decision in Greer applies with equal force to this issue.

We are not convinced that a federal law prohibiting pay phones from being

subsidized by the company’s rate-payers affects BellSouth’s price regulation

plan, but the pending proceeding can determine if BellSouth’s rates should be

adjusted to reflect the changes in the law.

C. Retroactive Ratemaking

The Consumer Advocate Division asserts that the Authority engaged

in retroactive ratemaking by approving BellSouth’s price regulation plan

effective October 1, 1995. See South Central Bell v. Tennessee Public Service

Commission, 675 S.W.2d 718 (Tenn. Ct. App. 1984). We disagree.

-7-
 The Regulatory Authority’s order did not attempt to change rates

retroactively. The rates had been in effect for some time before the June 6, 1995

application for price regulation. The whole thrust of the Consumer Advocate

Division’s four year effort has been to convene a contested case hearing for the

purpose of setting new rates. The only rate changes under the Authority’s

December 1998 order will be prospective. Annual rate adjustments for nonbasic

services are to be calculated from December 1, 1998, and there can be no

increase in the rates for basic services or call waiting until December 1, 2002.

By making the order prospective only, the Authority avoided the charge that

future ratepayers would “pay for past use,” which is the essence of retroactive

ratemaking. Porter v. South Carolina Public Service Comm’n, 493 S.E.2d 92

(S.C. 1997). The order also eliminated BellSouth’s right to seek an increase in

nonbasic services in 1996, 1997, and 1998, which it would have had if the Public

Service Commission had acted lawfully in 1995. As we view it, the Authority’s

order places BellSouth as nearly as possible in the position they would have been

in except for the Commission’s error. That was the goal of the Authority on

remand. See Hoover, Inc. v. Metropolitan Board of Zoning Appeals, 955 S.W.2d

52 (Tenn. App. 1997).

IV.

“The sole concern of the courts, at each stage of appellate review,

it to determine whether the [Regulatory Authority’s] action on the matters raised

by the application meet the requirements of the law.” CF Industries v. Tenn.

-8-
Public Service Commission, 599 S.W.2d 536 at 544 (Tenn. 1980). We are

satisfied that the Authority acted within the scope of its powers.

We affirm the Authority’s order and remand the cause to the

Authority for any further proceedings that are necessary. Tax the costs on appeal

to the Consumer Advocate Division.

_______________________________
BEN H. CANTRELL,
PRESIDING JUDGE, M.S.

CONCUR:

____________________________
WILLIAM C. KOCH., JR., JUDGE

____________________________
WILLIAM C. CAIN, JUDGE

-9-