GTE Southwest Incorporated v. Public Utility Commission of Texas GE Capital Rescom And MultiTechnology Services, L.P.

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

ON MOTION FOR REHEARING

NO. 03-97-00148-CV

GTE Southwest, Incorporated, Appellant

Public Utility Commission of Texas; GE Capital Rescom;

and MultiTechnology Services, L.P., Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT

NO. 96-09155, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING

DISSENTING OPINION

The dissenting opinion issued by this Court July 15, 1999 is withdrawn and the following is substituted in its place. Technological leaps have altered telecommunication markets and prompted changes in governmental regulatory policies. Instead of regulating monopolies granted to a few companies, the Public Utility Commission is now charged with promoting competition among diverse service providers. Implementing this new charge, the Commission ordered GTE to revise its tariff to ensure reasonable, nondiscriminatory bases for decisions affecting access to customers by alternate service providers. The majority concludes that the Commission has overreached. Because the majority ignores the Commission's new responsibility and powers, I respectfully dissent.

DISCUSSION

I believe that the Commission has the power and duty to make this order, that the federal regulation requires GTE to relocate demarcation points when the owner requests, and that any taking is statutorily and constitutionally permissible. I would overrule GTE's points of error.

The Power to Order Tariff Revisions under the Utilities Code

The majority concludes that the Commission lacks the power to require GTE to revise its tariff to establish a procedure for considering whether to collapse multiple demarcation points to a single point. I believe that the changes wrought in the Utilities Code by the Public Utility Regulatory Act of 1995 empowers and virtually compels the Commission to make the disputed order.

The legislature placed an imposing duty on the Commission, but granted it concordantly broad and flexible powers. The Utilities Code directs the Commission to promote diversity of telecommunications providers and interconnectivity and to encourage a fully competitive telecommunications marketplace. Tex. Util. Code Ann. § 51.001(a) (West Supp. 2000). The legislature recognized that telecommunications is an industry "that does not lend itself to traditional public utility regulatory rules, policies, and principles." Id. § 52.001(b) (West 1998). The Commission therefore must develop rules, policies, and principles to protect the public interest and "provide equal opportunity to each telecommunications utility in a competitive marketplace." Id. The legislature also wrote that

[T]he strength of competitive forces varies widely between markets, products, and services. It is the policy of this state to require the commission to take action necessary to enhance competition by adjusting regulation to match the degree of competition in the marketplace to:

(1) reduce the cost and burden of regulation; and

(2) protect markets that are not competitive.

Id. § 51.001(e) (West Supp. 2000). The Commission also "has the general power to regulate and supervise the business of each public utility within its jurisdiction and to do anything specifically designated or implied by this title that is necessary and convenient to the exercise of that power and jurisdiction." Id. § 14.001 (West 1998) (emphasis added).

In addition to these general policy statements and conferrals of broad powers, several specific statutes indicate the Commission can require GTE to revise its tariff to establish a procedure for collapsing multiple demarcation points to a single point. The Commission must ensure that public utilities charge and receive just and reasonable rates. Tex. Util. Code Ann. § 53.003(a). The Commission can order the revision of unreasonable rates. Id. § 53.151. The definition of "rate" includes tariffs. Id. § 11.003(16) (West Supp. 2000). The public utilities the Commission governs may neither grant an unreasonable preference or advantage to a person in a classification nor subject a person in the classification to an unreasonable prejudice or disadvantage. Id. §§ 53.003(c) & 55.005 (West 1998). Nor can public utilities engage in a practice that tends to restrict or impair competition. Id. § 55.006. The Commission can also adopt just and reasonable standards, rules, or practices a public utility must follow in furnishing a service. Id. § 55.002.

GTE's actions justify the Commission's use of its authority to require that GTE have a procedure regarding relocation of the demarcation points. A single demarcation point near the property line enhances competition because competitors can offer alternative service to the property owner at a more competitive rate only by using the existing cable starting at the property line, rather than duplicating the capital expenditure of laying their own cable. GTE has no set policy regarding relocation of demarcation points. As a result, it consented to relocation on one property, then refused to relocate on others, with no distinction evident except a change in decision-makers. Thus, the customers in one apartment complex got access to competitive alternate service providers, but those in the other complexes remain essentially isolated from the market. Uncertainty inhibits competition, but the outright refusal to relocate squelches it by increasing the costs to competitors of reaching new customers. The Commission could not ignore the legislature's clear directive that it eliminate unreasonable discrimination and enhance competition.

The Federal Regulation Requires Revision of GTE's Tariff

In issuing its order, the Commission found that GTE's untariffed practice violates 47 C.F.R. § 68.3. The Commission argues that GTE's tariff expressly incorporates FCC's regulations governing demarcation points.⁽¹⁾ By violating an FCC rule expressly incorporated into its tariff, GTE failed to comply with its own tariff, the Commission urges. In issuing its order the Commission did no more than exercise its authority to require GTE to comply with its own tariff. I would hold that this FCC regulation supplies additional authority for the Commission's order requiring GTE to file a revised STS tariff. The majority summarily dismissed this ground, holding that any FCC regulation and its precedents must yield to the Fifth Amendment. First we examine the regulation, which provides in pertinent part:

In multiunit premises in which wiring is installed after August 13, 1990, including additions, modifications and rearrangements of wiring existing prior to that date, the telephone company may establish a reasonable and nondiscriminatory practice of placing the demarcation point at the minimum point of entry. If the telephone company does not elect to establish a practice of placing the demarcation point at the minimum point of entry, the multiunit premises owner shall determine the location of the demarcation point or points. The multiunit premises owner shall determine whether there shall be a single demarcation point location for all customers or separate such locations for each customer.

47 C.F.R. § 68.3 (definition of demarcation point, subpart (b)(2)).⁽²⁾ While this regulation does not expressly address "relocation" of demarcation points, it does address "modifications and rearrangements" of prior wiring. The FCC itself has held that an owner's request to move the demarcation point would constitute a modification or rearrangement. See In the Matter of Review of Sections 68.102 and 68.213 of the Commission's Rules Concerning Connections of Simple Inside Wiring to the Telephone Network, CC Docket No. 88-57, ¶ 26 n. 104 (June 17, 1997). I would hold that a request to move the demarcation point constitutes a modification or rearrangement covered by Section 68.3. This being true, I would hold that Section 68.3 requires GTE to consider relocating its demarcation points in a reasonable and nondiscriminatory manner when the owner of a multiunit premises so requests.

The minimum point of entry is defined in Section 68.3 as (1) the closest practicable point to where the wiring crosses a property line or (2) the closest practicable point to where the wiring enters a multi-unit building or buildings. Which of these alternatives defines the minimum point of entry is to be determined by the telephone company's reasonable and nondiscriminatory standard operating practices. See 47 C.F.R. § 68.3. Thus, if the telephone company's "reasonable and nondiscriminatory standard operating practice" dictates that maintaining multiple demarcation points is no longer feasible, then the minimum point of entry should be relocated to where the wiring crosses a property line. What is reasonable may change as technology advances and public policy changes. What was reasonable in a highly regulated market may no longer be reasonable in a highly competitive market.

In the absence of a reasonable and nondiscriminatory procedure for considering relocation requests, section 68.3 empowers the premises owner to determine the location of the demarcation point or points. See 47 C.F.R. § 68.3. The owner (or here the owner's agents, the STS providers) thus may require the procedureless telephone company to relocate its demarcation points to the owner's desired minimum point of entry. The inclusion of this provision would be meaningless if an agency such as the Commission could not require a telephone company to maintain reasonable and nondiscriminatory practices and policies for determining its minimum point of entry.

The majority decision allows GTE to ignore the requirement of having reasonable and nondiscriminatory standard operating procedures. This Court should hold that the Commission correctly determined that GTE's arbitrary decision to relocate demarcation points at one property but not another, together with its lack of any written relocation policy, violated Section 68.3. The FCC regulation supports the Commission's order requiring GTE to adopt a revised tariff that sets forth reasonable, nondiscriminatory, standard practices governing relocation of demarcation points.

The majority also errs by saying the FCC rule must yield to the Fifth Amendment. There is no taking issue. The Commission's order does not mandate a forced turnover of GTE's equipment to its competitors, but requires a revised STS tariff in which GTE shall set appropriate compensation for any equipment that its competitors use. Further, as a state intermediate appellate court, we may not declare invalid or ultra vires a federal regulation that is made applicable to specific telecommunications decisions governed by our public utility commission. See South Cent. Bell Tel. Co. v. Louisiana Pub. Serv. Comm'n, 744 F.2d 1107, 1114 (5th Cir. 1984), cert. granted, judgment vacated, 476 U.S. 1166 (1986), on remand, 798 F.2d 129 (5th Cir. 1986).

The Taking, if any, is Permissible.

The majority concludes that the Commission has taken GTE's property. I question whether a taking has occurred, in part because of the nature of GTE's property interest in the cable and in part because of the nature of the order. I also conclude that the order allows adequate compensation if any taking occurs.

GTE's property interest in the cables is limited. It owns the cables because, as the local exchange company, it laid them in the passing era of local telephone service monopolies. The cables are not main local exchange lines, but cables that traverse the landowners' property to connect apartment buildings to the main line. GTE does not claim that it could exclude the competitors from using the cable on the landowners' side of the multiple demarcation points, nor does it propose that it could exclude the competitors from connecting to the local exchange main lines located adjacent to the property. GTE does not claim the right to exclude others from the land surrounding its cables; in fact, it invites competitors to lay their own cables across the land to connect to the local exchange main lines--a prospect of dust and destruction that the property owners dislike. It claims exclusionary rights only to the stretch of cable traversing the building owners' land between the demarcation points for each building to the edge of the property.

The majority's opinion appears premature because the Commission neither orders the transfer of cable nor requires that GTE surrender the right to exclude others from the use of its cable. The Commission's order requires GTE to reformulate its tariff to govern GTE's decisions on the relocation of demarcation points in a reasonable and nondiscriminatory manner. GTE may formulate its tariff in a way that allows it to refuse to relocate demarcation points in a reasonable and nondiscriminatory manner; the reformulation of its tariff, then, would not deprive GTE of anything. Only when the required reformulation causes the surrender of cable, its right to exclude others from that cable, or some other property right, will there be a taking. Until GTE completes the "interim oppression of a tariff-revision proceeding" (as described by the majority) we cannot know whether the tariff revision will cause a taking of GTE's property.

Because the tariff presumably will require GTE to allow relocation of the demarcation point under certain circumstances as yet unknown, I will examine whether such a taking is permissible. As discussed above, the Commission has the statutory authority and responsibility to alter tariffs that unreasonably inhibit competition. There is substantial evidence to support the conclusion that denying competitors access to the existing cable unreasonably inhibits their ability to compete by imposing unreasonably large costs on them. Evidence also supports the conclusion that the laying of duplicative cable will impose the unnecessary externalities of disruption and destruction of landscape on the residents of the complexes.

The Commission is within its statutory and constitutional limits to order this taking. As discussed above, the new Utilities Code compels the removal of unreasonable impediments to competition. Evidence supports the conclusion that the denial of access to the existing cable was unreasonable and discriminatory when compared with the allowance of access at a similar complex. Evidence also supports the conclusion that GTE should be allowed to recoup its investment in laying the existing cable; the rearrangement fee provides the compensation to make any taking statutorily and constitutionally acceptable.⁽³⁾ The statutes that compel access for competitors also require that existing carriers not be unfairly treated. See Tex. Util. Code Ann. §§ 52.001, 52.054(a)(2). The federal and state constitutions allow the government to take private property so long as the owner is compensated for its loss. U.S. Const. amend. V ("private property [shall not] be taken for public use without just compensation."); Tex. Const. art. I., § 17 ("No person's property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made . . . .") (emphases added). The Commission's order lets GTE charge a rearrangement fee necessary to move the demarcation points. GTE can assess its own expenses in formulating that rate. The Commission clearly has the authority to evaluate the reasonableness of rates charged. See Tex. Util. Code Ann. § 53.003(a). Should the Commission's assessment of GTE's valuation leave GTE unsatisfied, GTE has recourse to judicial review. Id. § 15.001; cf. Gulf Power Co. v. United States, 998 F.2d 1386, 1397-98 (N.D. Fla. 1998).

In Gulf Power, a case on which the majority relies to show the Commission's order is a taking, the district court determined that an access fee could adequately compensate for a taking. See id. A federal law required utility pole owners to allow other utilities to attach wires to their poles. The pole owners could charge a fee, reviewed by the Federal Communications Commission, to compensate for the taking. See id. The district court held that FCC review of the fairness of the fee was constitutional and might be better than original judicial review because of the FCC's expertise in rate-setting. Id. at 1397-98. The district court also barred pole owners from filing suit until the FCC set a rate too low to compensate for the intrusion of the wires on their poles. Id. at 1397.

The Supreme Court has envisioned that a state-authorized taking by a utility may be compensated adequately to satisfy the constitution. See Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 441 (1982). The Supreme Court held that a cable television company's state-approved installations on an apartment building roof were a taking of the building owner's property. Id. at 424. The Court reversed the New York Court of Appeals' decision that this was not a taking, but remanded the issue of whether the one-time, one-dollar fee was sufficient compensation to ameliorate the taking. Id. at 441.

The rejection of a federal regulation requiring local exchange carriers ("LECs") to set aside portions of their building for their competitors' equipment does not require rejection of the Texas Commission's order. See Bell Atl. Tel. Cos. v. Federal Communications Comm'n, 24 F.3d 1441 (D.C. Cir. 1994). The federal regulation required LECs to accept "physical co-location" of competitors' equipment. Id. at 1443. If physical co-location was impossible, the FCC required the LECs to allow virtual co-location; that is, the competitors could designate the type of equipment the LECs used in their buildings to service the competitors' customers. Id. The appellate court ruled that mandatory physical co-location was a taking; the court did not decide the nature of virtual co-location. Id. at 1445. The court held the taking unconstitutional, not because the FCC's compensation scheme was inadequate, but because the FCC was not constitutionally or statutorily authorized to appropriate funds to supply the compensation; the court held that an administrative taking not explicitly authorized by Congress was an unconstitutional drain on the Treasury. Id. The federal constitution's limitations on federal agencies, however, do not constrain state agencies. Even if they did, or a provision in the state constitution offered a similar obstacle, the Commission's ruling here allows for compensation for the taking through rearrangement fees charged to the property owners, customers, or competitors, none of which will drain the State treasury.

GTE's points of error fail.

The Commission's proper exercise of its responsibilities and powers in issuing this order requires the overrule of GTE's points of error and affirmance of the district court's affirmance of the Commission's order. GTE contends that the Commission erred by finding that it acted unreasonably and discriminatorily. GTE also argues the district court's affirmance was error because the Commission lacks the authority to take GTE's property for the use and benefit of its competitors. GTE further contends that the Commission erroneously determined that FCC rules and precedent required or authorized it to force GTE to turn over its network cable to the competitors; instead, GTE contends, federal law preempts the Commission's action.

State law and the evidence support the Commission's order. Substantial evidence supports the conclusion that lack of a set procedure in GTE's tariff for determining whether to relocate a demarcation point led to inconsistency and unreasonableness in GTE's relocation decisions.⁽⁴⁾ The Code provisions enacted in 1995 require the Commission to prevent such unreasonable interferences with customers' access to competitive services; the Commission's order eliminates the interference, but balances the costs by allowing the rearrangement fee. The Commission's pre-1995 refusals to take property are irrelevant to whether the 1995 Act gives it the power and responsibility to order GTE to reformulate its tariff concerning the relocation of demarcation points. Furthermore, the Commission was authorized to require GTE to comply with FCC rules and regulations expressly incorporated into its tariff.

Federal law does not require reversal of the Commission's order. The Utilities Code empowers the Commission to make the order as do FCC regulations and pronouncements. GTE's argument that the FCC preempted the Commission's power also fails. GTE cites the FCC's conclusion that states can regulate "inside wire" not inconsistently with FCC technical standards. The applicability of this conclusion is dubious because GTE argues that the cables in question are network cable, not inside wire. Further, there is no showing that the Commission's order is inconsistent with the FCC's technical standards. Finally, though GTE argues that the FCC has not interpreted its regulations "to provide for mandatory customer access to network cable serving multiple customers," GTE does not show that the FCC prohibits states from doing so. I would overrule all four points of error and affirm the district court's judgment and the Commission's order.

CONCLUSION

Because I believe that the Commission has not taken anything from GTE and has provided a means of compensation for any taking that might occur under a revised tariff, I would affirm the district court judgment affirming the Commission's order.

Bea Ann Smith, Justice

Before Chief Justice Aboussie, Justices B. A. Smith and Powers^*

Filed: February 17, 2000

Publish

^* Before John E. Powers, Senior Justice (retired), Third Court of Appeals, sitting by assignment. See Tex. Gov't Code Ann. § 74.003(b) (West 1998).

1. The Commission relies on the following language found in a section entitled "Obligation of the Telephone Company: "The Telephone Company shall terminate its Network Access Facilities at a mutually agreeable point of demarcation...in a manner no different than that provided under Part 68 of the FCC Rules and Regulations. See Second Revised Sheet No. 5 of GTE's tariff.

2. This definition of demarcation point has been amended to delete the word "modifications" from the first sentence. See 47 C.F.R. § 68.3 (1999).

3. The majority does not discuss this fee because it concludes the Commission lacks the power to take property.

4. I also note that the findings of discrimination and unreasonableness support, but are not necessary to, the Commission's order. Even if the Commission erroneously found GTE acted discriminatorily or unreasonably, the relief granted in the Commission's order is prospective and intended to forestall future discrimination and unfairness. See Tex. Util. Code Ann. §§ 55.002-.003. It can stand on that basis without the findings of discrimination and unreasonableness.

nd powers in issuing this order requires the overrule of GTE's points of error and affirmance of the district court's affirmance of the Commission's order. GTE contends that the Commission erred by finding that it acted unreasonably and discriminatorily. GTE also argues the district court's affirmance was error because the Commission lacks the authority to take GTE's property for the use and benefit of its competitors. GTE further contends that the Commission erroneously determined that FCC rules and precedent required or authorized it to force GTE to turn over its network cable to the competitors; instead, GTE contends, federal law preempts the Commission's action.