Colorado Office of Consumer Counsel v. Mountain States Telephone & Telegraph Co.

JUSTICE KIRSHBAUM delivered the Opinion of the Court.

[35] JUSTICE LOHR dissenting:

[36] The majority holds that the Public Utilities Commission (P.U.C.) engaged in rule-making conduct in Case 6647 in which it delineated a list of telecommunications services provided by The Mountain States Telephone and Telegraph Company (Mountain States) that would be subject to traditional regulation by the P.U.C. under the Intrastate Telecommunications Services Act. Because the P.U.C. did not follow statutorily mandated procedures for the exercise of its rule-making power, the majority upholds the judgment of the Denver District Court invalidating the decision of the P.U.C. In contrast, it is my opinion that the P.U.C. engaged in adjudication or, alternatively, adjudication coupled with proper adjudicatory rule-making, within the scope of its authority, in arriving at its decision in Case 6647. Accordingly, I respectfully dissent and would reverse the judgment of the district court and remand for reinstatement of the P.U.C. decision.

[37] The Intrastate Telecommunications Services Act, §§40-15-101to -404, 17 C.R.S. (1990 Supp.) (the Act), establishes a flexible regulatory regime for telecommunications services. The Act divides telecommunications services into three categories based on the extent of the P.U.C.'s regulatory authority. Services subject to traditional regulation by the P.U.C. are governed by Part 2 of the Act, §§40-15-201to -207. Part 4 of the Act, §§40-15-401to -404, exempts certain telecommunications services from P.U.C. regulation. The final category is described in Part 3 of the Act, §§40-15-301to -308, as emerging competitive telecommunications services, i.e., services that the P.U.C. must evaluate to determine the manner of regulation required, including the possibility of deregulation.

[38] Three related proceedings before the P.U.C. involve the classification of telecommunications services provided by Mountain States. First, the P.U.C. initiated Case No. 6635, not limited to Mountain States' telecommunications services, to determine which emerging telecommunications services should be subject to alternative regulation or deregulated pursuant to Part 3 of the Act. Later, Mountain States informed the P.U.C. that it regarded certain specific services as exempt from regulation under Part 4 of the Act. In response, the P.U.C. initiated two declaratory order proceedings. In Case 6645, the P.U.C. sought to identify those Mountain States' services covered by section40-15-401and therefore exempt from regulation. In Case 6647, the case now before us, the P.U.C. sought to identify those Mountains States' telecommunications services encompassed by section40-15-201(2) and therefore subject to traditional regulation.

[39] Under the State Administrative Procedure Act, §§24-4-101to -108, 10A C.R.S. (1988 1990 Supp.) (APA), an adjudication is the procedure used by an agency to formulate, amend, or repeal an order. §24-4-102(2). Declaratory orders are available under the APA to remove uncertainties as to the applicability of any statutory provision. §24-4-105(11). The P.U.C. initiated Case 6647 in order to determine the applicability of Part 2 of the Act to Mountain States.

[40] An examination of P.U.C. Case 6647 reveals its essentially adjudicatory nature. The purpose of this case is to identify those Mountain States' telecommunications services that would be subject to regulation pursuant to Part 2 of that Act. Under Part 2,

[41] "(2) The following products, services, and providers are declared to be subject to regulation pursuant to this part 2 . . .:Page 287

[42] "(a) Basic local exchange service;

[43] "(b) Basic emergency service;

[44] "(c) Public coin telephone service;

[45] "(d) White page directory listing;

[46] "(e) Local exchange listed telephone number service;

[47] "(f) New products and services necessary for the provision of basic local exchange service;

[48] "(g) Dual tone multifrequency signalling."

[49] §40-15-201(2).¹In Case 6647, the P.U.C. examined more than ninety telecommunications services offered by Mountain States to determine the statutorily defined category in which each is properly included. The P.U.C. does not decide the wisdom or propriety of regulating these services;²the P.U.C. merely applies the statutory criteria to particular services — in the present case the services supplied by a single regulated entity, Mountain States. Such application is the precise objective of the APA's declaratory order procedure.

[50] The majority contends that the Act lacks precise definitions, and, in the absence of administrative standards and policies, this imprecision prevented the P.U.C. from fully and fairly resolving Case 6647.Seemaj. op. at 17. Section40-15-201(2) expresses the legislative policy decision identifying the telecommunications services that are to be subject to traditional regulation. That section specifies with some particularity the services encompassed by Part 2. This detailed statutory enumeration does not necessitate further administrative embellishment.³The P.U.C. is uniquely qualified through expertise derived from many years of regulating the telecommunications industry to resolve any ambiguities that became apparent in applying the statutory criteria to particular telecommunications services.Page 288

[51] The majority also argues that Case 6647 effectively constituted rule-making. According to the majority, the P.U.C. was developing policies for determining which products and services should be subject to traditional, alternative or no regulation. Maj. op. at 16-17. Although Case 6647 involves only the application of Part 2 to Mountain States, the majority's argument proceeds, the standards and policies established in the case would be applicable to telecommunications services of all public utilities. Maj. op. at 17. Thus, Case 6647 would have effects beyond its immediate application to Mountain States. Furthermore, the P.U.C.'s classification of services under Parts 2 and 4 would affect its determination of services encompassed by Part 3.Seemaj. op. at 16. These possible implications for future proceedings, the majority contends, establish that the P.U.C. decision in Case 6647 actually was rule-making.

[52] InHome Builders Ass'n v. Public Utilities Comm'n,720 P.2d 552(Colo. 1986), we invalidated a purported adjudication wherein the P.U.C. adopted a completely new formula for calculating consumer charges for electrical distribution extensions.⁴We reversed the P.U.C. because its adoption of this new formula constituted rule-making and the P.U.C. had not complied with the APA rule-making procedures. We identified several factors demonstrating that the P.U.C. had undertaken rule-making. First, the decision had general applicability to the utility's future permanent customers.Id.at 561. These customers were not parties to the P.U.C. proceeding and therefore had no ability to participate in the formulation of the new P.U.C. policy. Second, the P.U.C. characterized the new formula as a "permanent service policy," thereby establishing the intent to apply this formula to future situations affecting many people.Id.Finally, the P.U.C. stated that it adopted the new formula as an interim measure pending a more comprehensive revision of the previous formula.Id.We commented that the P.U.C. actually amended an existing rule by its decision. In light of these considerations, we found the P.U.C.'s action to be functionally indistinguishable fromde factorule-making.Id.

[53] The P.U.C.'s decision in Case 6647 does not exhibit the characteristics of its decision inHome Builders.Case 6647 specifically concerns the application of Part 2 to Mountain States, a single utility. This decision does not apply to Mountain States' customers or to other utilities. The P.U.C. did not purport to define the services subject to regulation but merely fit existing services into the statutory classifications. The P.U.C. simply determined the regulatory status of specific Mountain States' telecommunications services based upon existing facts, existing law and the P.U.C.'s regulatory expertise. Although the decision in Case 6647 has implications for future proceedings, such implications will result from any adjudicatory action. Those implications do not require formal rule-making proceedings.

[54] Moreover, any minor policy determination necessitated by the application of the criteria of Part 2 to particular facts is appropriately handled through adjudicatory rule-making. We have recognized that an agency may make policy through either adjudication or rule-making.Charnesv. Robinson,772 P.2d 62,66(Colo. 1989). Generally, the purpose of adjudicative rules is to fill in the gaps or interstices of statutory or regulatory schemes.See Securities and Exchange Comm'n v. Chenery Corp.,332 U.S. 194,202(1947) (Chenery II); Weaver,Chenery II: A Forty YearRetrospective, 40 Admin. L. Rev. 161, 199 (1988). Part 2 provides a comprehensive statutory scheme and enumerates the services subject to its provisions. The P.U.C. merely decides whether a particular service offered by a specific company comes under the purview of Part 2. This decision involves a factually bound determination which will vary from service to service. The P.U.C. must examine each particular telecommunications service and its relationship to the statutory categories. For example, in Case 6647 the P.U.C. had toPage 289decide whether assignment of seven-digit telephone numbers was subject to Part 2. The P.U.C. determined that the seven-digit telephone number was indispensable to the provision of basic service and that the ability to assign or reassign a seven-digit telephone number can have a significant impact upon customers. Therefore, the P.U.C. determined that assigning and changing telephone numbers was part of basic local exchange service and, consequently, pursuant to §40-15-201(2)(a), subject to regulation under Part 2.⁵

[55] This type of determination at most involves interstitial statutory interpretation. Such interpretations are best arrived at in the context of concrete facts. Given the large number of possible services and the distinct nature of each service, the P.U.C. needs significant flexibility in order to apply Part 2. Thus, general standards would have only marginal utility. The need for flexibility, the individualized nature of each service, and the unsuitability of general standards make adjudicatory rule-making appropriate.See Charnes,772 P.2d at 66.

[56] The majority would require formal rule-making proceedings whenever the P.U.C. determines policy, even within narrow limits. The APA's formal rule-making process entails, among other things, formal and detailed procedures which include published notice of proposed rule-making, §24-4-103(2), publication of the time, place, and nature of the public rule-making proceedings, §24-4-103(3)(a), a regulatory analysis, §24-4-103(4.5), and the attorney general's opinion on the rule's constitutionality and legality, §24-4-103(8)(b). These detailed procedures are cumbersome and particularly inappropriate for statutory interpretation and interstitial policy making such as that involved in Case 6647, functions that are better performed on a case-by-case basis.⁶

[57] Moreover, the P.U.C. is implementing a new statutory regime. Its lack of experience with the issues arising under this program warrants administrative hesitance to rigidify its tentative judgments into hard and fast rules.See Chenery II,332 U.S. at 202.⁷Through adjudicatory rule-making and experience in future cases, the P.U.C. can fashion an appropriate, flexible regulatory response to problems arising under its Part 2 determinations.

[58] I respectfully dissent and would reverse the judgment of the district court and reinstate the decision of the P.U.C.

[59] JUSTICE ERICKSON and JUSTICE VOLLACK join in this dissent.