10th Circuit USF Decision Could Have Broad State Impact

"At this point, the decision won’t change what commissions are doing,” said NARUC Telecom Committee Chairman Chris Nelson, also South Dakota Public Utilities Commission vice chairman. The larger issue of the decision “is the broad brush of deference which the court granted to the FCC,” which he said sets a precedent “allowing the usurpation of state” authority to regulate intrastate telecommunications, particularly access rates.” The decision “leaves as an open question whether there are any boundaries to the FCC’s ability to pre-empt state jurisdiction,” he said. Spokespeople for several state commissions that joined as interveners in the petition for review, including the Virginia State Corporation Commission and the Montana Public Service Commission, said their main concern in the case was pre-emption of state authority.

While states are best poised to hear and respond to customer concerns and issues caused by local companies, the order limits state ability to design rates, said NARUC General Counsel Brad Ramsay. “If other courts follow this incorrect view of the Supreme Court’s Chevron case, the FCC is free to ignore the plain text of the statute and interpret it any way they choose. Big bureaucracy would be handling everything telecom.” Ramsay emphasized he wasn’t referring to any particular FCC administration, and the current one appears to be including states. One risk as state commissions lose authority is that some states might reduce enforcement, he said.

The order’s USF reforms, including conditioning the receipt of USF money on broadband buildout, has been less of a concern for state bodies, partly because only about half the states have versions of the high-cost fund, said Sandy Reams, Kansas Corporation Commission assistant telecom chief, speaking as chairwoman of NARUC’s Staff Subcommittee on State Universal Service Fund Administrators. Without a state fund, many states are not in a position to make up for any loss in federal funding caused by including USF support for broadband deployment, she said. It’s unclear how much of a problem that would be, because many states and providers are emphasizing broadband deployment anyway, she said. Reams said the impact of USF reforms on companies has become less of a concern than other provisions, because the FCC is moving away from the quantile regression analysis formula for USF disbursement (CD April 24 p2). The formula was “a big concern for states in that it removed a statutory requirement for predictability of support for rural carriers, which in turn caused hesitation in additional capital investment,” Nelson said.

The most visible impact on states of the affirmation of the order could be the reduction in access charges, “which means that carriers do not pay any share of the costs of local networks they use,” Bergmann said. Commissions still have jurisdiction over service quality and intercarrier disputes, he said, but because “all the costs of the local networks must be paid by the local networks’ customers,” he predicted commissions will have to deal with more applications seeking rate increases,” he said. Calling the 10th Circuit decision long and complex, a spokesman for the Connecticut Public Utilities Regulatory Authority was one of several PUC representatives that said they are reviewing the ramifications.

Ohio USF Case

Though not involving access issues, the FCC order has dropped a case before the Ohio PUC, Bergmann said. Middle Point is seeking (http://bit.ly/1ilkWbQ) a $3 increase in the monthly residential home rate from $6.30 to $9.30. Representatives of the company did not respond to our inquiries. Middle Point’s PUC petition said the FCC order calls for companies to lose a dollar in high-cost funds for every dollar they are below the rate floor. “The FCC significantly changed the federally approved support mechanisms in the Transformation Order,” the company wrote April 10 in response to opposition by the Ohio Consumers’ Counsel to the request. The OCC said Middle Point hasn’t shown it can’t make up the loss of funding through any other means than a rate increase (http://bit.ly/1oJRWQG). The Ohio Telecom Association (http://bit.ly/1xESWcX) is supporting the increase.

A PUC spokesman said the case is pending. The commission on March 31 expressed concerns about the dollar-for-dollar loss provision, in comments in FCC docket 10-90 (http://bit.ly/1q15f0R). Concerned the FCC Wireline Bureau initially raised the prospects of raising the floor to $20.46 as of July 1, the PUC said a continued increase of the rate floor at levels higher than the state cap on rate increases would mean “many of Ohio’s small, rural ILECs losing an ever-increasing amount of the high-cost support upon which they heavily rely.”

An FCC spokesman pointed to a news release from its April meeting saying the reform is intended to “improve fiscal responsibility” by phasing out “excessive subsidies that allowed some rural companies to charge rates vastly lower than those paid by the average consumer.” The FCC at the meeting agreed to ease the impact on customers of companies receiving the subsidies by phasing in the rule. The floor will remain at $14, and rise to $16 on Jan. 2, 2015, $18 on July 1, 2016, and, on July 1, 2017, the lower of $20 or a new rate floor level to be guided by a new rate survey. The spokesman also pointed to the FCC’s statement following the ruling saying that as a result of the decision, the commission “has tools in hand” to increase access to 21st century communications, particularly by affirming the requirement to provide broadband to receive USF. (kmurakami@warren-news.com)