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Bluestem Telephone Co. v. Kansas Corp. Commission4/8/2005
ess revenues, local phone service might become unaffordable. Accordingly, the KUSF was at first designed to be an explicit subsidy to replace some of these lost revenues and ameliorate the impact of rate increases on local consumers. See Citizens' Utility Ratepayer Bd. v. Kansas Corporation Comm'n, 264 Kan. 363, 368-69, 956 P.2d 685 (1998); Rural Telephone Service Co. v. Kansas Corporation Comm'n, 31 Kan. App. 2d 760, 761, 72 P.3d 937, rev. denied 276 Kan. 970 (2003). Thus, revenues lost from bringing intrastate and interstate rates into parity were replaced, at least in part, by KUSF payments. Citizens' Utility Ratepayer Bd., 264 Kan. at 375.
After that 3-year transition period, the Commission began working toward making the KUSF payments cost-based. In other words, KUSF payments were to be made based on the amounts needed to cover the LECs' actual prudent costs to provide universal service rather than replacing all revenue lost by imposing rate parity. The present case is a consolidation of appeals from orders in at least three different Commission dockets.
The first Commission docket, the 326 Docket, was the generic docket opened with the goal of establishing an industry-wide policy for a cost-based KUSF payout system. The record of this docket is extensive and involves a broad range of issues not relevant to the issues in this appeal. The relevant issues involve the Commission's requirement that KUSF payments be paid on a per-line basis to rural carriers and, to a limited extent, KUSF portability (meaning the KUSF funds one carrier receives would go to another carrier who takes over the customer).
Toward the completion of the 326 Docket, the Commission started another generic docket involving only rural LECs: the 068 Docket. That docket was resolved by a Stipulation and Agreement proposed by the parties and adopted by the Commission. Immediately thereafter, the 2002 legislature enacted Substitute for House Bill 2754; the key provision in this amendment was codified in K.S.A. 66-2008(e) and must be interpreted in this appeal.
Finally, after the 326 Docket order was appealed to district court, the Commission held its annual hearings about KUSF Year 7 and Year 8 (Dockets 284 and 331). The resulting orders determined the amount each telecommunications carrier must contribute to the KUSF fund to meet the anticipated need for monies to distribute to qualifying LECs.
District Court Action
In challenging the Commission's various orders the SIA/ITG argued that paying KUSF on a "portable" per-line basis violated both K.S.A. 66-2008(e)--which required KUSF to be paid based on an LEC's embedded costs--and the fundamental policies provided in KUSF statutes. SIA/ITG also asserted the requirement for portability of KUSF payments was misguided and based on faulty assumptions. Finally, SIA/ITG argued the per-line portability requirements violated traditional rate of return regulation principles, failed to address carrier of last resort (COLR) cost recovery requirements, did not provide a competitively neutral mechanism, and, therefore, violated public policy.
In response, the Commission asserted the same issues it now raises in this appeal. Specifically, the Commission argued that K.S.A. 66-2008(e) does not intend that all KUSF payments are to be based on embedded costs and that if the court would construe all the sections of KTA in pari materia, it would support the Commission's decisions. The Commission also argued its order was consistent with both statutes (federal and state) and by public policy concerns.
The district court rescinded the Commission's order allowing a per-line distribution of KUSF funds effective March 1,
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