S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Philip S. Porter,
Consumer Advocate for
the State of South
Carolina, Appellant,
v.
South Carolina Public
Service Commission and
BellSouth -
Telecommunications.,
Inc., Respondents.
AT&T Communications
of the Southern States,
Inc., Petitioner,
v.
Public Service
Commission of South
Carolina and BellSouth
Telecommunications,
Inc., Respondents.
South Carolina Cable
Television Association, Appellant,
v.
p.14
PORTER v. SCPSC
Public Service
Commission of South
Carolina and BellSouth
Telecommunications,,
Inc., d/b/a Southern
Bell Telephone and
Telegraph Company, Respondents.
Appeal From Richland County
J. Ernest Kinard, Jr., Judge
opinion No. 24936
Heard October 7, 1958 - Filed April 19, 1999
REVERSED
Philip S. Porter, Nancy Vaughn Coombs, and Elliott
F. Elam, Jr., of S.C. Dept. of Consumer Affairs, of
Columbia, for appellant Consumer Advocate.
Frank R. Ellerbe, III, of Robinson, McFadden &
Moore, of Columbia; and Christopher W. Savage, of
Cole, Raywid & Braverman, of Washington, D.C.,
for appellant South Carolina Cable Television
Association.
Caroline N. Watson, Robert A. Culpepper, and
Harry M. Lightsey, 111, of BellSouth
Telecommunications, Inc.; William F. Austin, of
Austin, Lewis & Rogers; Dwight F. Drake, of
Nelson, Mullins, Riley & Scarborough; and Steven
W. Hamm, of Richardson, Plowden, Carpenter &
Robinson, all of Columbia; and John Hamilton
Smith, of Charleston, for respondent BellSouth
Telecommunications, Inc.
F. David Butler, of S.C. Public Service Commission,
PORTER v. SCPSC
of Columbia, for respondent Public Service
Commission.
MOORE, A.J.: This is a rate case. Respondent BellSouth
Telecommunications, Inc. (Company) applied for approval of a proposed
Consumer Price Protection Plan (the Plan) as an alternative means of
regulation pursuant to S.C. Code Ann. 58-9-575 (Supp. 1997).
Respondent South Carolina Public Service Commission (PSC) approved the
Plan with some modifications. Appellants, the Consumer Advocate and
South Carolina Cable Television Association, appealed to the circuit court
claiming the Plan as approved did not meet the requirements of 58-9-
575. The circuit court affirmed. We reverse.
FACTS
Background
In response to increased competition and the availability of new
technology in telephone services, Company has sought alternatives to
traditional regulation. In South Carolina Cable Television Ass'n. v. Public
Serv. Comm'n, 313 S.C. 48, 437 S.E.2d 38 (1993), we considered an
Earnings Sharing Plan that was approved by the PSC as an alternative to
traditional rate-of-return regulation for local telephone companies. The
Earnings Sharing Plan basically allowed a local exchange carrier to earn
more than the traditional rate of return if it shared earnings over a
certain benchmark with consumers. We reversed, finding the PSC had no
statutory authority to adopt an alternative regulatory scheme.
Following the Cable Television decision, the legislature enacted 58
9-575 which allows an exception to the rate-of-return regulation required
under S.C. Code Ann. 58-9-570 (1976). It provides in pertinent part:
58-9-575. Alternative means of regulating telephone utilities.
(A) Notwithstanding the provisions of section 58-9-570, in
fixing rates and charges for a local exchange telephone utility,
the commission may, upon the request of the telephone utility
or upon the commission's own motion, consider in lieu of the
procedures provided in this chapter, alternative means of
regulating the telephone utility. If the commission determines
that a local exchange telephone utility is subject to competition
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PORTER v. SCPSC
with respect to its services, the commission may implement
regulatory alternatives including, but not limited to, equitable
sharing of earnings between a local exchange telephone utility
and its customers, consistent with the provisions of section 58
9-330.
(B) The commission shall review and may authorize
implementation of an alternative regulatory plan under
subsection (A) if it finds after notice and hearing that the
substantial evidence of record shows that the plan:
. . .
(6) includes effective safeguards to assure that rates for
noncompetitive services do not subsidize the prices charged for
competitive services. In determining whether a service is
competitive, the commission shall consider, at a minimum, the
availability, market share, and price of comparable service
alternatives;
(7) assure that rates for noncompetitive services are just,
reasonable, or not unduly discriminatory and provide a
contribution to basic local telephone service....
(Emphasis added).
The Plan
The Plan approved by the PSC in this case divides Company's
services into three categories subject to separate price controls as follows:
1) Basic services. This category includes basic local exchange
service to residential and small business customers. Prices charged are
capped for five years then subject to controlled increases based on a
specific formula related to an inflation-based index.
2) Interconnection services. This category includes services that
allow other telecommunications providers to interconnect to Company's
network to originate or terminate a call. Prices charged are capped for
three years then subject to controlled increases based on a specific formula
related to an inflation-based index.
3) Non-basic services. This category includes all other services.
Prices charged are limited to an increase of 20% in a twelve-month period.
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PORTER v. SCPSC
In addition to these category-specific pricing rules, one general
pricing rule applies. All prices will equal or exceed Company's long-run
incremental cost (LRIC) of providing the service except: 1) a service may
be priced below LRIC in order to meet public interest goals such as
universal service; or 2) the PSC may approve a price below LRIC for a
particular service on a case-by-case basis.
Company concedes the Plan does not categorize services according to
whether they are competitive or noncompetitive (monopoly) services, nor
did the PSC make such findings before approving the Plan. Company
claims its general pricing rule requiring all prices to equal or exceed LRIC
assures there will be no cross-subsidization, therefore eliminating the need
to divide services into competitive and noncompetitive categories.
DISCUSSION
Appellants contend 58-9-575(B) requires a division of services into
competitive and noncompetitive in order to ensure prices for monopoly
services do not subsidize prices for competitive services. We agree.
Subsection (B)(6) of 58-9-575 authorizes the PSC to approve an
alternative regulation plan if it:
includes effective safeguards to assure that rates for
noncompetitive services do not subsidize the prices charged for
competitive services. In determining whether a service is
competitive, the commission shall consider, at a minimum, the
availability, market share, and price of comparable service
alternatives.
We find the underscored language of this subsection indicates the
legislature's intent that the PSC control cross-subsidization by identifying
which of the regulated company's services are competitive. Had the
legislature intended to leave the means of assuring against cross
subsidization to the PSC's discretion, it would not have mandated
consideration of minimum factors to identify a service as competitive. See
Ballard v. Ballard, 314 S.C. 40, 443 S.E.2d 802 (1994) (Court is
constrained to avoid construction that would read provision out of statute).
While the Plan's pricing rules may in fact assure against cross
subsidization, without identifying which services are competitive and which
noncompetitive, the Plan does not allow for the type of oversight
envisioned by 58-9-575.
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PORTER v. SCPSC
Further, subsection (B)(7) requires that an alternative regulation
plan:
assure[ ] that rates for noncompetitive services are just,
reasonable, or not unduly discriminatory and provide a
contribution to basic local telephone service.
Here the statute requires a distinct consideration of noncompetitive
services which clearly cannot be accomplished without first identifying
which services are noncompetitive.
The PSC found subsection (B)(7) was satisfied without identifying
noncompetitive services because prices for all the services were just and
reasonable. It based this conclusion on the fact that all current rates had
been previously approved, and these rates were subject to specific caps
under the Plan and would be further monitored by the PSC. We question
this assumption in light of the fact that prices for "non-basic" services,
which perhaps include some noncompetitive services, are not capped at
current rates but may increase up to 20% annually. If the PSC does not
identify which services are noncompetitive, it cannot make a distinct
determination that such an increase is appropriate for a noncompetitive
service. Accordingly, the approved plan does not comply with subsection
(B)(7) which requires a separate evaluation of noncompetitive services.
Appellants further contend the reference in (B)(7) to "just" and
11reasonable" rates for noncompetitive services means the price for a
noncompetitive service must be controlled by the traditional rate-of-return
standard under S.C. Code Ann. 58-9-570 (1976).1 We disagree. Section
58-9-575 specifically exempts an alternative regulation plan from rate-of-
return regulation under 58-9-570.2 The general reference in subsection
(13)(7) to just and reasonable rates does not remove noncompetitive rates
1 The term "just and reasonable" in rate cases originates from 58-9-570
which provides: "In determining just, reasonable and sufficient rates the
Commission shall give due consideration to [certain enumerated factors]. . .
. But the rates so fixed shall not be higher than necessary to give a fair
return to the stockholders." See also Cable Television, 437 S.E.2d at 39 ("The
just and reasonable rate is set by balancing the interests of the ratepayers
and the right of the utility to earn a fair return.").
2 Section 58-9-575 begins with the phrase, "Notwithstanding the
provisions of 58-9-570. . . ."
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PORTER v. SCPSC
from this exemption but merely requires the PSC to exercise particular
scrutiny of the rates for noncompetitiv6 services.
Further, the main thrust of the legislature's concern expressed in
58-9-575 regarding noncompetitive services is that they not subsidize
competitive services. Requiring that noncompetitive services remain
subject to rate-of-return regulation would not necessarily further this goal
and would perhaps defeat the flexibility of an alternative regulation plan.
Accordingly, we decline to adopt appellants' restrictive construction of
(B)(7).
Finally, appellants contend 58-9-575(A) requires the PSC to
identify Company's competitive services to determine if Company qualifies
for an alternative regulation plan. We agree.
As a threshold condition for allowing an alternative regulation. plan,
subsection (A) of 58-9-575 provides in pertinent part:
If the commission determines that a local exchange telephone
utility is subject to competition with respect to its services, the
commission may implement regulatory alternatives....
The PSC found Company was "subject to competition" based on Company
witnesses who testified there was competition for several of the services
provided by Company.
Appellants contend the phrase "subject to competition" must be read
together with subsection (B)(6) which enumerates factors to determine
what services are "competitive." -They contend the PSC did not properly
assess Company's qualification for an alternative regulation plan because
it failed to identify competitive services based on the enumerated factors:
availability, market share, and price of comparable service alternatives.
We agree with appellants an evaluation whether Company is "subject
to competition" must be based on the enumerated factors. A plain reading
of the phrase "subject to competition with respect to its services" indicates
a company must have competitive services to qualify for alternative
regulation. Competitive services, in turn, are defined by the enumerated
factors in subsection (B)(6). Therefore, these enumerated factors must be
applied in determining if Company is subject to competition under
subsection (A). See Wright v. Colleton County School Dist., 301 S.C. 282,
391 S.E.2d 564 (1990) (Court need not look beyond words of statute to
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PORTER v. SCPSC
discern legislative intent apparent on its face).
CONCLUSION
The PSC possesses only the authority given it by the legislature.
Cable Television, supra. Section 58-9-575 does not authorize'the PSC to
approve an alternative regulatory plan without identifying competitive and
noncompetitive services. Because the PSC failed to make the requisite
findings regarding competitive and noncompetitive services, the circuit
court order affirming the PSC's order is REVERSED.
WALLER, A.J., Acting Associate justices John L. Breeden,
Jr., Jasper M. Cureton, and George T. Gregory, Jr.
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