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10/19/93 STATE MISSOURI v. PUBLIC SERVICE

October 19, 1993

STATE OF MISSOURI, EX REL. MID-MISSOURI TELEPHONE COMPANY, CHARITON VALLEY TELEPHONE CORPORATION, WHEELING TELEPHONE COMPANY, MOKAN DIAL, INC., GREEN HILLS TELEPHONE COMPANY, NORTHEAST MISSOURI RURAL TELEPHONE COMPANY, CHOCTAW TELEPHONE COMPANY, AND KLM TELEPHONE COMPANY, APPELLANTS
v.
THE PUBLIC SERVICE COMMISSION OF MISSOURI AND OFFICE OF THE PUBLIC COUNSEL, RESPONDENTS, AND ALLTEL MISSOURI, INC., SOUTHWESTERN BELL TELEPHONE COMPANY, GTE NORTH INC., CONTEL OF MISSOURI, INC., CONTEL SYSTEM OF MISSOURI, KANSAS STATE TELEPHONE COMPANY D/B/A CONTEL OF EASTERN MISSOURI, CITIZENS TELEPHONE COMPANY, FIDELITY TELEPHONE COMPANY, UNITED TELEPHONE COMPANY OF MISSOURI, CYBERTEL CELLULAR TELEPHONE COMPANY, COMPETITIVE TELECOMMUNICATIONS ASSOCIATION OF MISSOURI, MCI TELECOMMUNICATIONS CORPORATION, AT&T TELECOMMUNICATIONS OF THE SOUTHWEST, INC., AND CITIES OF OAK GROVE, INDEPENDENCE, EXCELSIOR SPRINGS, PLATTE CITY, OZARK AND THE COUNTY OF JACKSON, INTERVENORS



APPEAL FROM THE CIRCUIT COURT OF COLE COUNTY. The Honorable Thomas Joseph Brown, II, Judge

Appellant's Motion for Rehearing and/or Transfer to Supreme Court Denied November 30, 1993.

Before Kennedy P.j., Berrey, and Spinden, JJ.

The opinion of the court was delivered by: Spinden

Appellants are eight telephone companies which appeal several orders by the Public Service Commission (PSC) establishing a new policy for the way appellants can charge for telephone calls between telephone exchanges. The companies are Mid-Missouri Telephone Company, Chariton Valley Telephone Corporation, Wheeling Telephone Company, MoKan Dial, Inc., Green Hills Telephone Company, Northeast Missouri Rural Telephone Company, Choctaw Telephone Company, and KLM Telephone Company. Each provides local exchange telephone service within its assigned exchange and is referred to in the industry as a local exchange company (LEC).

Appellants serve approximately 70 Missouri exchanges. They challenge PSC orders creating and directing all Missouri telephone companies to provide "community optional service" (COS) in exchanges meeting criteria set out in PSC orders.

BACKGROUND FACTS

This appeal involves telephone calls between exchanges, which are typically toll calls billed by the minute. Under the toll system, five carriers--Southwestern Bell, United Telephone of Missouri, Contel, GTE and Fidelity--provide toll service. The LEC where the call originated charges its customer for the toll call and pays the toll carrier. The toll carriers pay LECs access payments for this service.

COS' purpose is to allow unlimited calling between two exchanges for a flat monthly rate rather than a per-minute toll. In those areas where PSC ordered implementation of COS, LECs lost the access payments they had received under the toll system.

PSC began investigating COS after receiving numerous complaints about large telephone bills resulting from calls between neighboring telephone exchanges. Initially, the PSC established extended area service (EAS), but it did not resolve the problem. On March 20, 1987, in case TO-86-8, *fn1 the PSC rescinded EAS and implemented extended measured service (EMS) on a limited, experimental basis. It assigned a docket number, TO-87-131, to the experiment. It made all 44 Missouri LECs parties to the case, and conducted an evidentiary hearing in September 1989.

PSC issued a decision, denominated a report and order, in case TO-87-131 on December 29, 1989, permanently establishing COS. PSC ordered all LECs to make COS available to customers in any exchange where EMS had been implemented and in other exchanges meeting certain criteria. The report and order mandated the options to be offered and the rates to be charged. PSC did not set a plan for the companies to divide COS proceeds. It directed the phone companies to suggest an intercompany compensation plan which would ensure that no phone company profited from COS at the expense of other companies. *fn2 PSC ordered any company which believed that it would suffer permanent losses from COS to file a tariff increasing rates for selected services. The report and order also said that PSC would promulgate a rule to implement the decisions announced in the report and order. PSC has not done this. *fn3

Three phone companies--United, Contel, and Southwestern Bell--filed applications for a rehearing. PSC denied the applications, and the companies appealed to circuit court. The circuit court ruled on April 27, 1990, that, insofar as COS reduced existing rates and revenues of LECs involved in providing COS, the report and order was an unlawful taking of revenues in violation of U.S. CONST. amend. XIV and MO. CONST. art. I, § 10 (1945). The court's order stated:

THEREFORE, IT IS ORDERED, ADJUDGED AND DECREED that that part of the Commission's Report and Order in Case No. TO-87-131, which reduces the existing rates and revenues of LECs involved in providing COS without taking any evidence or making any finding that the rates and revenues of the affected LECs are unlawful or otherwise unreasonable or, in lieu thereof, without maintaining revenue neutrality for those LECs is reversed and remanded to the Commission for further action consistent herewith. In all other respects, the Commission's Report and Order is hereby affirmed.

The three companies did not appeal this ruling.

In the meantime, on March 9, 1990, PSC closed case TO-87-131 and opened TO-90-232 to address any outstanding issues regarding COS, including revenue neutrality increases for LECs experiencing shortfalls. On April 18, 1990, PSC issued a report and order adopting a revenue sharing plan for intercompany compensation. The plan called for companies participating in a COS to share COS revenues equally. If one company gained, the plan provided for ...


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