Untitled Texas Attorney General Opinion

December 31, 1990

Honorable Bob Bullock Opinion No. JM-1280
Comptroller of Public
Accounts Re: Gross receipts assessment for
L.B.J. Office Building for telephone companies under sec-
Austin, Texas 78774 tions 78 through 82 of article
1446c, V.T.C.S., the Public Utility
Regulatory Act (RQ-2090)

Dear Mr. Bullock:

Sections 78 through 82 of article 1446c, V.T.C.S., the
Public Utility Regulatory Act [hereinafter PURA], impose a
regulatory fee on each public utility falling within the
Public Utility Commission's [hereinafter PUC] jurisdiction
for the purpose of defraying the costs and expenses incurred
by the commission in the administration of PURA. The fee is
calculated as a percentage of the gross receipts from rates
charged by public utilities to ultimate consumers.

You ask a series of nine questions regarding the appli-
cation of the gross receipts fee to telecommunications
carriers operating in Texas. Specifically, you ask whether
and under what circumstances the fee may be imposed upon
certain telecommunications carriers, in light of the dives-
titure by American Telephone & Telegraph Company [herein-
after AT & T] of Bell operating companies imposed in an
antitrust consent decree entered by order of the federal
courts. Essentially, you wish to know which carriers are
subject to the jurisdiction of the PUC and who is an
"ultimate consumer" under certain circumstances for purposes
of section 78 of PUPA.

Section 78 of PURA imposes an assessment upon each
"public utility" subject to the PUC's jurisdiction that is
based upon the "rates" charged to the "ultimate consumers."
Section 78 of PURA provides:

An assessment is hereby imvosed uvon each
public utilitv within the commission's iuris-
diction, includinu interexchanue telecommuni-
cations carriers. servina the ultimate con-
sumer eoual to one-sixth of one percent of
its oross receints from rates charsed the
ultimate consumers in Texas for the wurwose

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Honorable Bob Bullock - Page 2 (JM-1280)

of defravina the costs and exnenses incurred
in the administration of this Act;. There-
after the commission shall, subject to the
approval of the Legislature, adjust this
assessment to provide a level of income
sufficient to fund the commission and the
office of public utility counsel. -Y
interexchange telecommunications carrier
found dominant as to any service market under
Section 100(b) or filing a petition under
Section 100(f) of this Act shall be required
to reimburse the Office of Public Utility
Counsel for the costs of participation before
the commission on behalf of residential
ratepayers in. any of the proceedings under
Section 100 of this Act to the extent found
reasonable by the commission. Recovery of
costs under this section by the Office of
Public Utility Counsel shall not exceed
$175,000 per annum. Nothina in this Act or
any other nrovision of law shall nrohibit
interexchanae telecommunications carriers who
do not vrovide local exchanue teleuhone
service from collectina the fee imnosed under
this Act as an additional item senaratelv
stated on the customer bill as 'Utilitv Gross
Receints Assessment*. (Emphasis added.)

You first ask:

What telephone companies should be paying
this assessment -- does it apply to all
telephone companies which may be subject to
any facet of the PUC's jurisdiction, whether
for rate making purposes or for more limited
purposes?

You inform us that you have advised all "long distance
telephone companies" that they fall within the reach of
section 78 and are thereby subject to the assessment, but
that several carriers disagree with your construction. We
assume that there is no question that local exchange
carriers (known as LECs) who provide local services to
residential and business subscribers fall within the ambit
of the act. We assume that, with the phrase "long distance
telephone companies," you refer to interexchange carriers
(known as IXCs) that offer either interLATA or intraLATA
long distance service. You state that the PUC has failed to
take any consistent position on whether the assessment
applies to all carriers subject to any facet of its
jurisdiction or just to "dominant carriers" as defined in
section 3(c)(2)(B) of PURA. It is suggested that section 78

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reaches only those carriers over which the PUC has ratemak-
ing authority. We disagree.

In Attorney General Opinion H-811 (1976), this office
was asked, inter alla whether section 70 reached only those
utilities over which'the PUC had ratemaking authority or
whether it extended to any utility over which it exercised
any type of jurisdiction. The opinion concluded:

The quoted language of section 78 is
unqualified. Consequently, the Commission
need not exercise any particular form of
jurisdiction over a utility in order to
assess the utility. In our view, the term
\Commission's jurisdiction' may best be
defined by reference to article III of the
Act, entitled 'Jurisdiction.' Therein the
Commission is given jurisdiction over various
utilities.

The relevant language of section 78 has not been amended
since the issuance of Attorney General Opinion H-811, except
for the addition of the phrase llincluding interexchange
carriers."

Any doubt as to whether section 78 now' reaches all
interexchange carriers is resolved by examining the legis-
lative history for Senate Bill No. 229, which was enacted in
1987. Prior to the enactment of that bill, section 78
provided that the assessment was l'imposed upon each public
utility within the commission's jurisdiction serving the
ultimate consumer." The bill added the phrase "including
interexchange telecommunications carriers.*' Acts 1987, 70th
Leg., ch. 414, 5 3 at 1950. Moreover, the bill amended
subsections 3(c) and 18 (c) and (d) of PUHA, which had
effectively provided that IXCs other than AT & T were not
"public utilities" for purposes of section 3 and not subject
to the PUC's jurisdiction under section 18. Subsequent to
the enactment of Senate Bill 229, IXCs other than AT & T
became "public utilities II for purposes of conferring limited
jurisdiction over them on the PUC.

The *@Background" section of the bill analysis for the
bill provides:

Current Texas law requires a public utility
to submit to the jurisdiction of the Public
Utility Commission (commission). There are
now at least 70 interexchange telecommunica-
tions carriers operating in the state that do
not fall under the definition of a public
utility because they do not provide local

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Honorable Bob Bullock - Page 4 (JM-1280)

exchange telephone service. Because they do
not fall in the category of a public utility,
they are not subject to regulations that
carriers who provide local telephone service
are subject to. For examvle. wrier6 who
provide local exchanae telenhone service must
pav one-sixth of one nercent of the aross
receints from rates charaed consumers to the
PlJC, which is used to defray the exoen e
incurred in runnina the commission. (Emp:as
sis added.)

Bill Analysis, S.B. 229, 70th Leg. (1987).

The l'Purpose*@section of the bill analysis stated:

As proposed, S.B. 229 amends the Public
Utility Regulatory Act by making interex-
change telecommunications carriers public
utilities, thereby placing them under the
jurisdiction of the Public Utility Commis-
sion. S.B..229 also requires that the long
distance rates be averaged statewide and that
long distance carriers not discontinue
service to any area of the state without
permission of the PUC.

And finally, the qqSection by Section Analysis" portion
of the bill analysis described the bill in the following
way:

SECTION 1. Amends Section 3(c), Public
Utility Regulatory Act (PURA), Art. 1446c,
V.T.C.S., to define a public utility as it
affects telecommunications. Provides for the
term 'interexchange telecommunications
carriers' to be substituted for the terms
*specialized communications common carriers'
and 'resellers of communications and other
common carriers.' Provides that the commis-
sion's iurisdiction over those interexchanae
telecommunications carriers who do not
provide local exchanae telephone service will
be limited to the extent defined in PURA.
Strikes from the amendment to the definition
of a public utility any reference to the term
'dominant carrier' as defined in Section
3(c) (2) (b).
SECTION 2. Amends Sections 18(c) and (d),
PURA, Art. 1446~.

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: Honorable Bob Bullock - Page 5 (JM-1280)

Subsection (cl DrOVideS swecific iurisdic-
tion of the commission over 'interexchm
telecommunications carriers who do not Dro-
vide local exchanae televhone spwic e. ' Re-
moves the reference to *dominant carriers.'
Provides for the commission to conduct in-
vestigations regarding competition in the
industry.

(c)(4) Requires the commission to maintain
statewide average rates or prices of message
telecommunications service.

*i;)(5) Authorizes the commission to re-
clul that interexchanae telecommunications
carriers mav not abandon or discontinue
messaae telecommunications service in or to a
local exchanae area unless the commission
swecificallv so orders.

(d) Provides that an interexchange tele-
communications carrier must maintain its
tariffs or service lists on file with the
commission.

SECTION 3. Amends Section 78. PURA. Article
1446~. V.T.C.S.. to recniire that inter-
exchanae telecommunications carriers be
included amoncl those Dublic utilities that
must suwwort the Public Utilitv COmmiSSiOn
throuah an assessment of one-sixth of one
percent of their aross receivts. (Emphasis
added.)

We conclude that, with the enactment of Senate Bill 229
in 1987, the legislature clearly intended to confer juris-
diction, however limited, to the PUC over all interexchange
common carriers. Therefore, we conclude that the section 78
assessment reaches all local exchange carriers and all
interexchange carriers operating in Texas.

Your second question asks:

Are local access charges subject to the as-
sessment?

Section 78 imposes an assessment that is calculated on
the basis of the "rates charged the ultimate consumer." The
phrase "ultimate consumer" is not defined anywhere in PURA,
but the term "rate" is. Subsection (d) of section 3 of PURA
defines l'rate" and provides:

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Honorable Bob Bullock - Page 6 (JM-1280)

The term 'rate,' when used in this Act,
means and includes every compensation, tar-
iff, charge, fare, toll, rental, and classi-
fication, or any of them demanded, observed,
charged, or collected whether directly or
indirectly by any public utility for any
service, product, or commodity described in
Subdivision (c) of this section, and any
rules, regulations, practices, or contracts
affecting any such compensation, tariff,
charge, fare, toll, rental, or classifica-
tion.

End user access charges exacted upon residential and
business subscribers by an LECs or IXC are "rates charged to
the ultimate consumer" for purposes of the regulatory as-
sessment imposed by section 78 of PUBA. You ask whether
interexchange carrier access charges received by an LEC from
an IXC are "rates charged to the ultimate consumer." That
they fall within the definition of VateNt is clear. The
issue is whether the interexchange carrier, in paying an
access charge to a local exchange carrier is, an Qltimate
consumer."

Prior to the divestiture, charges analogous to those
about which you ask were held by the PUC not to fall within
the section 78 assessment. In Docket 2054, 23 P.U.C. Bull.
vol. IV, No. 23, 2074 (1979), the PUC held,that charges
imposed upon telegraph companies for access services
provided by local telephone exchange companies were not
charges imposed upon the @'ultimate consumer." See also
Attorney General Opinion H-811.

You suggest that that administrative holding is no
longer controlling because of the court-ordered divestiture.
You suggest that, because the Bell operating companies are
restricted primarily to providing local exchange services
and access to their local systems to interexchange carriers,
while interexchange carriers are prohibited from providing
local exchange service, an interexchange carrier is an
"ultimate consumer" of the services provided to them in the
identical way that residential and business subscribers are
ultimate consumers of the services provided to them. For
two reasons, we disagree.

First, words ordinarily are given their plain meaning,
unless the statute clearly shows that they were used in some
other sense. Bia H Auto Auction. Inc. v. Saenz Motors, 665
S.W.2d 756 (Tex. 1984); Tavlor v. Firemen‘s 8 Policemen's
Civil Service Comm., 616 S.W.2d 187 (Tex. 1981). The ordi-
nary meaning of the phrase Vltimate consumer" refers to
someone who is last in the chain of sale or use. See, e.g.,

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Honorable Bob Bullock - Page 7 (JM-1280)

Alto. Bev. Code SS 16.01, 16.05, 64.01; Nat. Res. Code
5 113.081(a)(4). The final consumer in the chain created
when someone makes a long distance telephone call is the
residential or business subscriber who initiates the call.

There are three essential components of any long dis-
tance telephone call. First, the calling party places a
call through the facilities of an LHC serving his area.
Second, the originating LEC connects the call to an IXC that
transports the call to its destination. Third, the IXC
accesses the local network of the destination LHC to
complete transmission of the call to its destination. See
National Ass'n of Rea Util. Comm‘rs v. F C.C., 737 F.2d
1095 (D.C. Cir.), cert denied, 469 U.S. 1227 (1984). The
interexchange access charge is imposed upon the interex-
change carrier by both local exchange companies. These
charges comprise part of the rate that interexchange
carriers impose upon their customers. In effect, the access
is Vesold,l* as it were, by the interexchange carrier to its
customer. That the legislature understood that access by an
IXC to local exchange companies is a resold service to the
residential or business subscriber is evidenced by the
legislative history of the statute that added section
151.323 of the Tax Code.1 This provision exempts tele-
communications services from the reach of the sales and use
tax. See Bill Analysis, H.B. 1949, 69th Leg. (1985).

Second, the section 78 assessment is imposed upon the
interexchange carriers' gross receipts from its subscribers,
which includes the charges passed through to their customers
to recoup the access charges paid to local exchange
carriers. If we were to conclude that interexchange
carriers were %ltimate consumers" for purposes of the
imposition of the interexchange carrier access charge, that
charge would be included twice in the total assessment
imposed upon the telecommunications industry. There is no
indication that the legislature intended such a result.

1. Section 151.323 of the Tax Code provides in part:

There are exempted from the taxes imposed by this
chapter the receipts from the sale, use, or other
consumption in this state of:

. . . .

(3) access to a local exchange telephone com-
pany's network by a regulated provider of telecommun-
cations services. . . .

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Honorable Bob Bullock - Page 8 (JM-1280)

Your third, fourth, fifth, sixth, and seventh questions
are as follows:

If Question Two is answered 'yes', are local
access charges subject to the assessment on
calls from:

(3) a point in Texas to another point in
Texas in a different LATA;

(4) a point in Texas to another state:

(5) a point in another state to a point in
Texas ;

(6) a point in Texas to another country;
and

(7) a point in another country to a point
in Texas?

Because of our answer to your second question, we need not
address your third through seventh questions.

Your eighth question asks:

Under the Supreme Court case of Goldbera
Sweet, 488 U.S. 252, 109 S. Ct. 582, 112
L.Ed.2d 607 (1989), it is clear that Texas
could constitutionally impose this assessment
on the long distance portion of a call that
originates in or is received in Texas so long
as the call is billed to a Texas address.
Should the assessment on long distance calls
be based on the formula approved by the court
in Goldbera v. Sweet or, if not, what formula
should be used?

In Goldbera v. Sweet, 488 U.S. 252 (1989) the United
Supreme Court held that the Illinois Excise Tax, which
imposed an excise tax on interstate calls that separated
local exchange costs from the costs associated with the
actual use of the interstate interexchange carrier's line,
did not violate the commerce clause of the United States
Constitution. The Illinois statute imposed a five percent
tax on the gross charge of interstate telecommunications
originated or terminated in Illinois and charged to an
Illinois service address regardless of where the telephone
call is billed or paid. The statute imposed an identical
five percent tax on intrastate telecommunications. In order
to prevent actual multi-state taxation that would be viola-
tive of the commerce clause of the United States Consti-

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Honorable Bob Bullock - Page 9 (JM-1280)

tution, the statute provided a credit to any taxpayer that
has paid a tax in another state on the same telephone call
that triggered the Illinois tax.

We do not understand you to ask whether you may promul-
gate administrative rules that would permit you to admin-
ister the section 78 assessment charge in a way that
comports with the holding of Goldberq. We understand you to
ask whether any rules so drafted would be constitutional.
You have not submitted to us any specific proposed rules;
therefore, any discussion by this office of any hypothetical
formula would be speculative. This office does not answer
hypothetical questions in the opinion process. Therefore,
we decline to answer your eighth question.

Your ninth question asks:

Does the assessment apply to activities such
as 'billing and collection services* per-
formed by local exchange companies on behalf
of, and billed to, long distance telephone
companies?

The definition of "rate" set forth in section 3 of PUPA
includes '*services.lV Subsection (6) of section 3 of PUPA
defines lVservice**and provides:

'Service is used in this Act in its
broadest and most inclusive sense, and in-
cludes any and all acts done, rendered, or
performed and any and all things furnished or
supplied, and any and all facilities used,
furnished, or supplied by public utilities in
the performance of their duties under this
Act to their patrons, employees, other public
utilities, and the public, as well as the
interchange of facilities between two or more
of them. Service shall not include the
printing, distribution, or sale of advertis-
ing in telephone directories.

Billing and collection services clearly fall within the
definition of lVservices" and "services" falls within the
definition of "rate." However, the section 78 regulatory
fee may be imposed only on those t*rateslV charged to
"ultimate consumers." We assume that these service charges
are passed through to the IXC's subscribers. Because of our
answer to your second question, we answer your ninth
question in the negative.

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Honorable Bob Bullock - Page 10 (JM-1280)

SUMMARY

The assessment imposed by section 78 of
article 1446c, V.T.C.S., the Public Utility
Regulatory Act, reaches all public utilities
subject to the jurisdiction of the act. In-
terexchange carriers are not "ultimate
consumers" for purposes of section 78, if the
local access charges are passed through to
their subscribers.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

I0U MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLKY
Special Assistant Attorney General

RKNEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, opinion Committee

Prepared by Jim Moellinger
Assistant Attorney General

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