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FOR IMMEDIATE RELEASE: March 13, 1998

RE: Appeal No. 78,548: Citizens' Utility Ratepayer Bd. V. Kansas Corporation Comm'n

The Supreme Court today unanimously upheld the validity of the 1996 Kansas Telecommunications Act and orders of the Kansas State Corporation Commission implementing it.

Today's decision, authored for the Court by Justice Bob Abbott, reverses a Court of Appeals decision filed last August striking down major portions of the Act and the KCC orders implementing it on grounds that they were inconsistent with the 1996 Federal Telecommunications Act. The Court of Appeals also found sections of the Kansas act and KCC orders inconsistent with existing Kansas statutes. The Supreme Court, however, agreed with the Court of Appeals holding in the case that the act did not constitute an unlawful delegation of legislative power.

The Supreme Court ruling reinstates the KCC's decision to allow an increase in pay phone and directory assistance rates. The increase raised pay telephone rates to 35 cents a call.

The act and KCC orders were challenged by the Citizens Utility Ratepayers Board, which represents residential and small business utility companies.

In upholding the act and the KCC orders, the Supreme Court affirmed the creation of a $111.6 million Kansas Universal Service Fund, a pool of money generated by a surcharge assessed telecommunications providers who purchase access services from local exchange carriers, such as Southwestern Bell Telephone and Sprint/United. The surcharge was authorized by the legislature in recognition of the reduced access rates that will be paid to the local exchange carriers pursuant to the state Telecommunications Act.

In response to a contention in the rate case that the KUSF surcharge is a tax and therefore represents an unlawful delegation of a legislative power to an administrative agency, Justice Abbott wrote: "This money goes into the KUSF and it is distributed to the LECs that use the money to build and maintain land lines. As such, the implicit land line subsidy once found in high access rates is now explicit through the KUSF surcharge and distribution," Justice Abbott wrote.

"All the KUSF surcharge does is manipulate the movement of the same money (extra access rate money) to the same parties (from companies purchasing access to the LECs) to be used for the same reasons (to build and maintain land lines). Thus, the purpose of the KUSF surcharge is not to raise revenue. As such, the surcharge is not a tax."

In today's decision, the Court held that a "revenue neutral concept" provided by the act does not violate the Federal Telecommunications Act; that the Kansas act does not prevent a subsequent audit and earnings study to establish future amounts of the KUSF; that the act doesn't conflict with the KCC's statutory duty to regulate and ensure just and reasonable rates and charges to consumers; and that wireless telecommunications providers, although not given proper notice before the KCC rate case hearing that resulted in a surcharge to them, waived the issue by failing to include what it would have presented at the hearings in its motion for reconsideration by the KCC.

The court also said it is the KCC's responsibility to ensure that all parties to the rate case are placed in the same financial position that they would have been in had the KCC orders regarding the KUSF never been struck down by the Court of Appeals.

The court also upheld other provisions of the act, including the KCC's manner of establishing the initial KUSF at $111.6 million. "The KCC set the amount of the KUSF at $111.6 million--the total amount of revenue estimated to be lost by the LECs due to the access rate reduction. To fund the KUSF with this $111.6 million, the KCC ordered all intrastate telecommunications providers to pay an assessment into the KUSF in an amount up to 14.1 percent of their intrastate retail revenues," Justice Abbott said in the opinion.

Justice Abbott noted at the beginning of his discussion of the rate case that "although the underlying KCC regulations may ultimately increase competition, the underlying legislation appears to be largely a cost shift between consumers, with no actual reduction in the total cost of service.

"Second, the ultimate issues in this case will, for the most part, be determined by the federal courts under federal law, which will render most of this opinion as a suggestion to the federal courts for such consideration as they choose to give it, if any. Third, the appeal seems, in most part, to be premature. As we view the briefs, no actual harm is alleged, only potential or the possibility of harm," he said.

Note: The full text of this decision is available on the Internet at: http://lawlib.wuacc.edu/kscases/supct/1998/19980313/78548.htm

See also synopses for other cases released March 13, 1998.

END