ILL. BELL TELEPHONE v. ILL. COMMERCE COM'N

816 N.E.2d 379

352 Ill. App.3d 630

287 Ill.Dec. 617

ILLINOIS BELL TELEPHONE COMPANY, Petitioner-Appellant, v. ILLINOIS COMMERCE COMMISSION, Citizens Utility Board, and The People of the State of Illinois, Respondents-Appellees.

Nos. 3-03-0207, 3-03-0515.

Appellate Court of Illinois, Third District.

September 17, 2004.

Demetrios G. Metropoulos (argued), Theodore A. Livingston, John E. Muench, Mayer, Brown, Rowe & Maw, Louise A. Sunderland, SBC Illinois, April J. Rodewald, Nancy J. Hertel, SBC Midwest, Chicago, for Illinois Bell Telephone Company.

Lisa Madigan, Attorney General, Janice A. Dale, Assistant Attorney General-Public Utilities Division, Susan L. Satter, Sr. Assistant Attorney General, Chicago, for the People.

Douglas W. Trabaris, AT&T Corp., Chicago, for AT&T Comm. of IL.

Owen E. MacBride (argued), Schiff Hardin & Waite, Chicago, for McLeodUSA.

John P. Kelliher, Special Assistant Attorney General (argued), Chicago, for Illinois Commerce Commission.

John R. Harrington, Jenner & Block, Chicago, for WorldCom, Inc., n/k/a MCI.

Justice SCHMIDT delivered the opinion of the court:

Petitioner Illinois Bell Telephone Company (doing business as SBC Illinois) (SBC Illinois) appeals two orders issued by the Illinois Commerce Commission (Commission). SBC Illinois contends the Commission lacked statutory authority to include a wholesale performance remedy plan and a capital spending requirement in its two orders reviewing and extending an alternative regulatory plan. SBC Illinois specifically contends that the Commission unlawfully extended conditions contained in a prior 1999 Commission order that concerned the reorganization of SBC Illinois. Additionally, SBC Illinois argues the Commission action is not supported by substantial evidence in the record. We affirm in part and reverse in part.

I. BACKGROUND

A. Introduction

In 1994, the Commission adopted a plan of alternative regulation (Alt Reg Plan) for SBC Illinois, then doing business as Ameritech Corporation, pursuant to section 13-506.1 of the Public Utilities Act (Act). (220 ILCS 5/13-506.1 (West 1992)). Section 13-506.1 authorizes the Commission to establish alternative forms of regulation with respect to the noncompetitive services provided by a telecommunications carrier, i.e., to establish an alternative to traditional rate of return regulation. 220 ILCS 5/13-506.1 (West 1992). In essence, the 1994 Alt Reg Plan controlled the price of services rather than SBC Illinois' earnings.

In the 1994 order, the Commission specified that because the Alt Reg Plan was new and untested, it should be comprehensively reviewed after a five-year period to determine whether it was meeting the requirements and goals of the Act. The Commission action at issue in this appeal was initiated pursuant to an application filed on March 31, 1998, to conduct such a review. Because, however, portions of a 1999 Commission merger order are relevant to the resolution of this appeal, we first outline the history of that prior order before turning to the Alt Reg Plan review at issue here.

B. The 1999 Merger Order

In 1998, an application was filed seeking Commission approval of the proposed merger between Ameritech Corporation and SBC Communications, Inc. In September of 1999, the Commission approved the application, subject to the implementation of certain conditions. Those conditions included a capital spending obligation established under Condition 7, and a wholesale performance remedy plan contained in Condition 30.

1. The Condition 7 Capital Investment Obligation

The original 1994 Alt Reg Plan included a requirement that at least $3 billion be spent in Illinois for growth and modernization of the telecommunications network over the first five-year period of the plan. A second $3 billion network infrastructure investment obligation was later included in the 1999 merger order as Condition 7. This second commitment was intended to cover the initial five-year period following the merger. However, the Commission also stated in its order that the second investment requirement would be subject to adjustment in a subsequent review of the Alt Reg Plan.

2. The Condition 30 Remedy Plan

Condition 30 relates to certain wholesale services SBC Illinois performs for competing local telephone companies (CLECs).¹ The services provided by SBC Illinois arose from interconnection agreements established by negotiation and arbitration under the Telecommunications Act of 1996 (47 U.S.C. § 251 et seq. (2004)).

Condition 30 required SBC Illinois to review and implement a set of performance measurements, standards, and remedies similar to those that SBC Communications, Inc., had agreed to implement in Texas. The measures imposed by Condition 30 summarize the results of wholesale operations that SBC Illinois performs for the CLECs pursuant to their interconnection agreements. The data in these measures are typically compared against specific standards to gauge performance. In the event that SBC Illinois did not meet the applicable standards, Condition 30 provided a remedy in the form of a system of self-executing automatic payments to be made by SBC Illinois to competing carriers and to the State of Illinois. The merger order mandated that Condition 30 was to expire on October 8, 2002, three years after the merger was completed.

3. Previous Litigation Regarding Condition 30

SBC Communications, Inc., and Ameritech Corporation accepted the merger conditions and consummated the merger in 1999. Thereafter, various stakeholders attempted to finalize the rules and regulations for Condition 30 through a collaborative process. When that process failed to yield a complete set of requirements, a subsequent 17-month formal process (Commission Docket 01-0120) was initiated to implement final regulations. The Commission entered a final order in Docket 01-0120 on July 10, 2002. In that order, the Commission held that Condition 30 would expire on October 8, 2002, just as the Commission had originally specified in the 1999 merger order. The final order also directed SBC Illinois to file a tariff reflecting the order, so as to "ensure that those carriers that do not have an Interconnection Agreement with [SBC Illinois] will have the benefit of the Remedy Plan." (Emphasis added.)

SBC Illinois soon filed such a tariff. When it did so, it included language in a footnote indicating that the tariff would expire on October 8, 2002. However, on October 1, 2002, without notice to SBC Illinois, the Commission entered an "Order on Reopening," which directed the chief clerk of the Commission to strike the footnote indicating that the tariff would expire. After SBC Illinois' application to the Commission for rehearing was denied, the matter was appealed to this court. Illinois Bell Telephone Co. v. Illinois Commerce Comm'n, 343 Ill.App.3d 249, 278 Ill.Dec. 121, 797 N.E.2d 716 (2003).

On appeal, this court reversed a portion of the Commission's merger order. We found that the Commission had no authority to allow CLECs without interconnection agreements with SBC Illinois to have the benefit of the Condition 30 remedy plan. This court found that this aspect of the Commission's order subverted the negotiation and arbitration process prescribed by section 252 of the Telecommunications Act of 1996. 47 U.S.C. § 252 (2000). We also held that the order on reopening improperly extended the remedy plan condition of the merger order beyond the October 8, 2002, termination date. This holding was grounded in our determination that the Commission both disregarded the merger order's sunset provision and violated SBC Illinois' due process rights by failing to notify and provide an opportunity to be heard regarding the amendment. Illinois Bell, 343 Ill.App.3d 249, 278 Ill.Dec. 121, 797 N.E.2d 716.

C. The Alt Reg Plan Review

While the above litigation was pending before this court, the Commission completed its work on the review of the Alt Reg Plan. The Commission entered its final order on December 30, 2002.² This order addressed both how the Alt Reg Plan functioned during the initial five-year period and the type and extent of modifications that would be necessary for the future.

The Commission's ultimate conclusion was that, taken as a whole, the Alt Reg Plan continued to be a valuable and appropriate form of regulation. However, the Commission made some modifications of the Alt Reg Plan to ensure that it continued to operate in the public interest. Two of these modifications are at issue in this appeal: a capital spending obligation and a wholesale performance remedy plan. These modifications are related to the two 1999 Commission merger order conditions discussed above.

1. Inclusion of a Capital Spending Obligation

In its order extending alternative regulation, the Commission included a capital spending obligation. The Condition 7 capital spending obligation found in the 1999 merger order had been set to expire in 2004. However, the Commission determined that a new spending requirement should be included in the Alt Reg Plan to ensure future investment in network infrastructure. Therefore, the Commission included the network investment requirement as a condition of continued alternative regulation. Specifically, pursuant to the February 14, 2003, amendatory order, the Commission required SBC Illinois to invest $1.8 billion in network infrastructure improvements from 2005 to 2007 and $600 million every year thereafter. This requirement was to remain in place until such time as the Commission issued a subsequent order continuing or terminating the Alt Reg Plan.

2. Use of the Condition 30 Remedy Plan

Additionally, the Commission responded to concerns raised by a number of witnesses and ordered that the requirements of Condition 30 be incorporated into the Alt Reg Plan. The concerns of these witnesses were grounded in the fact that the requirements of Condition 30 might soon expire (as we later held to be the case in ...