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In re Application of Medicine Park Telephone Co.

Supreme Court of Oklahoma

April 16, 2019



          William H. Hoch, Melanie Wilson Rughani, Crowe & Dunlevy, P.C., Oklahoma City, Oklahoma, and Ron Commingdeer, Kendall W. Parrish, Ron Commingdeer & Associates, Oklahoma City, Oklahoma, for Appellants.

          Michele Craig, Deputy General Counsel, Oklahoma Corporation Commission, Oklahoma City, Oklahoma, for Appellees.

          Nancy M. Thompson, Oklahoma City, Oklahoma, for Sprint Communications Company, L.P., Sprint Spectrum L.P. and Virgin Mobile USA, L.P.

          Jack G. Clark, Jr., Clark, Wood & Patten, P.C., Oklahoma City, Oklahoma, for Verizon.

          Bob Anthony, Chairman; Dana Murphy, Vice Chairman; and Todd Hiett, Commissioner.

          WINCHESTER, J.

         ¶0 Medicine Park Telephone Company appeals the Oklahoma Corporation Commission's denial of its application for reimbursement from the Oklahoma Universal Services Fund for reasonable investments and expenses incurred in providing primary universal service to its customers. We find that the Commission's wholesale denial of the reimbursement of any of the requested funds is in error and vacate the Commission's ruling and remand with directions.

         ¶1 The issue before this Court is whether the Oklahoma Corporation Commission ("the Commission") erroneously withheld funding to be provided to Medicine Park Telephone Company ("Medicine Park") pursuant to the provisions of the Oklahoma Universal Service Fund ("OUSF"), 17 O.S.Supp.2016, § 139.106. For the reasons set forth herein, we find that Medicine Park is entitled to the requested funding.


         ¶2 In 1996, the U.S. Congress passed the federal Telecommunications Act, 47 U.S.C. §§ 151 et seq., in part, to promote a policy of universal service that would provide telecommunications services to consumers all over the country, including "those in rural, insular, and high cost areas." The Act seeks to provide access to services that are "reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas." 47 U.S.C. § 254(b)(3). The Oklahoma Legislature followed suit with its own, complementary Oklahoma Telecommunications Act of 1997 (the "Act"). 17 O.S.2011 and Supp.2016, §§ 139.101 et seq.

         ¶3 Under the state and federal Acts, certain telecommunications providers known as "carriers of last resort" are required to provide, without discrimination, telephone service to any customer requesting it. See 47 U.S.C. § 201; 17 O.S.Supp.2016, §139.106. In addition, the provider must offer the requested services at reasonable and affordable rates in line with those offered in more urban areas even if serving such customers would not be economically sustainable. See 47 U.S.C. § 202; 47 U.S.C. § 254(b)(3), (g), (i). The purpose of the legislation was to provide affordable and quality primary universal services to all despite the challenges of its accessibility.

         ¶4 In an effort to defray the costs of delivering phone service in rural, more remote areas, the federal and state Acts each established a fund to help support eligible service providers. Within Oklahoma's Act, the Legislature created the OUSF to help pay for reasonable investments and expenses incurred by "eligible local exchange telecommunications service providers" in providing primary universal services to customers in rural and high-cost areas "at rates that are reasonable and affordable." See 17 O.S.Supp.2016, § 139.106 (A), (B), and (G).

         ¶5 The OUSF generally provides that an eligible provider "may request funding from the OUSF as necessary to maintain rates for primary universal services that are reasonable and affordable." 17 O.S.Supp.2016, § 139.106 (G). The OUSF is funded by a charge paid by certain telecommunications carriers that have revenues as defined in Section 139.107. See 17 O.S.Supp.2016, §§ 139.106 (D) and 139.107. [1]

         ¶6 The Commission's rules governing the process for obtaining funding from the OUSF are set out in OAC 165:59, Part 9 and are overseen by the Administrator of the Commission's Public Utilities Division ("PUD"). Under the rules, upon receipt of a request for OUSF funding, the OUSF Administrator reviews the request and, if appropriate, reimburses the provider consistent with the Act. OAC 165:59-7-1(d) and OAC 165:59-3-62(g). Requests for Subsection (G)'s "as necessary" distributions are evaluated through a detailed study and analysis of the "costs of providing primary universal services" as well as potential revenue. 17 O.S.Supp.2016, § 139.106 (H). The process of providing such detailed studies and demonstrating their effect on rates has made Subsection (G) requests for funding time-consuming and expensive. [2]

         ¶7 The Commissioners are free to approve or reject any determination by the OUSF Administrator. Under the rules, if no one objects to the Administrator's determination, an order approving the funding request is issued by the Commission. OAC 165:59-3-62(j). If, however, a party is not satisfied with the OUSF Administrator's determination, the party may file a request for reconsideration by the Commission and the matter is set for hearing. OAC 165:59-3-62(h) and (i). The Commission is the ultimate arbiter of the issues. See, Cameron v. Corporation Com 'n, 1966 OK 75, ¶29, 414 P.2d 266, 272 (on appeal from an oil and gas spacing order, the Court noted that regardless of whatever weight the Commission may attach to an examiner's report, "the Commission is the final arbiter of the issues"). See also, State ex rel. Cartwright v. Southwestern Bell Telephone Co., 1983 OK 40, ¶32, 662 P.2d 675, 681 (quoting Cameron).

         ¶8 The Commission, by a 2-1 vote, denied reimbursement. Commissioner Dana Murphy, dissenting in each of these companion cases, has stated that although she may not agree with the need for the fund, she feels she must uphold the Legislature's will as long as the fund exists. [3]

         ¶9 In 2014, the Commission denied a request for OUSF funding from Dobson Telephone Company. See Dobson Telephone Co. v. State ex rel. Okla. Corporation Comm., 2017 OK CIV APP 16, 392 P.3d 295. Dobson sought reimbursement, under 17 O.S.Supp.2016 (K)1)(b), for costs incurred to relocate its telephone facilities as required by the city of Oklahoma City for a street-widening project. Because the request had been issued by the city, and not the county commission or ODOT, the Commission narrowly interpreted the statute and concluded that the Fund was not authorized to pay for such relocation costs.

         ¶10 The Court of Civil Appeals found that the Commission's interpretation of the statutory language defeats the purpose of the Fund and is contra to the legislative intent to defray increased costs incurred by eligible telecommunications service providers resulting from government action, no matter the originating government entity. Dobson Telephone Co. v. State ex rel. Okla. Corporation Comm., 2017 OK CIV APP 16, ¶21, 392 P.3d 295, 305. The Commission's Order was vacated and the matter was remanded for further proceedings consistent with the Court of Civil Appeals opinion. Dobson Telephone Co. v. State ex rel. Okla. Corporation Comm., 2017 OK CIV APP 16, ¶23, 392 P.3d 295, 305. This Court approved the case for publication.


         ¶11 Medicine Park provides telecommunications services to customers in a rural area of southwestern Oklahoma. Pursuant to 17 O.S.Supp.2016, § 139.106 (G), Medicine Park submitted an application to the Commission for an "as necessary" reimbursement from the OUSF. The company indicated that it had incurred a revenue deficiency as a result of the growing expense of maintaining its service obligations to its customers, combined with the added costs of continued compliance with Federal Communications Commission (FCC) mandates. Medicine Park indicated that it calculated its funding request, in conformance with Subsection (H)(1) of the OUSF, using its most recent annual cost study, which was based on its calendar year 2014 financial data. To avoid substantially raising its customers' rates, Medicine Park asked for a lump-sum reimbursement from the OUSF of $1, 046, 188.00, for calendar year 2014, and a monthly recurring amount of $87, 182.33, payable beginning January 1, 2015.

         ¶12 Medicine Park's application went through several rounds of review and supplementary submissions to PUD. The Administrator initially recommended denial of Medicine Park's request for funding stating there was insufficient documentation upon which to base its decision. Thereafter, Medicine Park filed a Request for Reconsideration and supplied the requested, additional information to PUD. Sprint and Verizon (collectively hereafter "Sprint") entered appearances in the case to contest Medicine Park's entitlement to the requested funding. On May 13, 2016, based on the information provided to date, the Administrator filed an Amended Determination in which he recommended a lump sum of $135, 935.00 and a recurring monthly amount of $11, 327.89. Sprint filed a Request for Reconsideration of the Determination arguing against any funding.

         ¶13 On May 31, 2016, Medicine Park filed its Second Request for Reconsideration and reduced the amount of its requested funding to $671, 373 for 2014 and a recurring monthly amount of $55, 947. Shortly thereafter, the company again provided additional information to PUD, including the direct testimony of Medicine Park President, Edward E. Hilliary. According to Medicine Park, this testimony was filed to more clearly reflect how Medicine Park's investments and expenses were incurred.

         ¶14 On July 14, 2016, PUD filed testimony of its Regulatory Manager, James L. Jones, and of David G. Winter, an expert regulatory consultant whom PUD hired to perform an independent examination of Medicine Park's application. At that time, Mr. Winter recommended a slightly increased amount of funding in the amount of $145, 696.49 for 2014 support, and $12, 141.27 in recurring support thereafter. Mr. Jones agreed with Mr. Winter's assessment and PUD expressly determined that Medicine Park's rate for primary universal services was reasonable and affordable.

         ¶15 On August 15, 2016, after considering the testimony of Mr. Hilliard, both Mr. Jones and Mr. Winter filed supplemental testimony and exhibits, respectively. Following the in-depth review of Medicine Park's application and supporting testimony, including a review of all documentation by a neutral, independent consulting firm hired by PUD, the PUD Administrator ultimately recommended that Medicine Park receive a lump-sum payment of $309, 016.90 for calendar year 2014, and monthly recurring payments of $25, 751.41, to begin January 1, 2015. Despite the recommendation from the PUD Administrator and the outside consulting firm independently hired by PUD to assist in the process, the Commission rejected the Administrator's final determination. By a vote of 2-1, following a two-day hearing on the merits, the Commission denied Medicine Park's application in full. The Commission found that Medicine Park included requests for reimbursement of expenses and investments that were not incurred entirely for the provision of primary universal services, that the Administrator did not determine whether Medicine ...

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