Northern New England Telephone Operations LLC v. Public Utilities Commission

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2013 ME 11Docket: PUC-12-91
Argued: November 7, 2012
Decided: January 24, 2013
Panel: SAUFLEY, C.J., and LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.
NORTHERN NEW ENGLAND TELEPHONE OPERATIONS LLC
v.
PUBLIC UTILITIES COMMISSION
GORMAN, J.
[¶1] Northern New England Telephone Operations LLC, d/b/a FairPoint
Communications-NNE (FairPoint), appeals from an order of the Public Utilities
Commission (the 2012 order) determining how “addressability” will be measured
when calculating FairPoint’s broadband buildout commitments in Maine. Those
commitments originated in a 2008 Commission order (the merger order) that
incorporated an amended stipulation presented by FairPoint and other parties.
FairPoint primarily contends that the merger order constitutes a consent decree and
that the Commission erred by failing to interpret the merger order in a manner
consistent with the intent and understanding of the parties to the stipulation.1 We
affirm the Commission’s order.
1
FairPoint also argues that the 2012 order violates its due process rights and the takings clauses of the
U.S. and Maine Constitutions. See U.S. Const. amend. V; U.S. Const. amend. XIV, § 1; Me. Const.
art. I, §§ 6-A, 21. Because the 2012 order is not arbitrary and does not exceed the scope of the
2
I. BACKGROUND
[¶2] FairPoint’s broadband obligations in Maine arose from a utility
reorganization effected by a merger between Verizon New England Inc., d/b/a
Verizon Maine (Verizon), and FairPoint.2 Pursuant to the merger, Verizon was to
transfer its local exchange and long distance telephone businesses to FairPoint, and
FairPoint would start providing regulated telephone utility service to Maine
citizens and businesses. On or about February 1, 2007, as required by 35-A
M.R.S. § 708 (2007),3 Verizon and FairPoint filed a request with the Commission
seeking the approvals and authorizations needed for the utility reorganization to
proceed. In considering the request, the Commission began an adjudicatory
proceeding in which numerous parties intervened, including the Office of the
Public Advocate.
Commission’s authority or the merger order, it does not violate FairPoint’s due process rights. See Pine
Tree Tel. & Tel. Co. v. Pub. Utils. Comm’n, 634 A.2d 1302, 1305 (Me. 1993). The merger order also
does not constitute a confiscatory taking that requires compensation pursuant to the takings clause of the
U.S. and Maine Constitutions. See Nat’l Council on Comp. Ins. v. Superintendent of Ins., 481 A.2d 775,
781 (Me. 1984).
2
“FairPoint,” as used here with respect to the merger proceeding, includes Northern New England
Telephone Operations, Inc.; Enhanced Communications of New England, Inc.; Northland Telephone
Company of Maine, Inc.; Sidney Telephone Company; Standish Telephone Company; China Telephone
Company; Maine Telephone Company; and Community Service Telephone Company.
3
Title 35-A M.R.S. § 708 has since been amended; it is no longer applicable to telephone utilities
other than providers of last resort. P.L. 2011, ch. 623, §§ A-13, A-14 (effective Aug. 30, 2012) (codified
at 35-A M.R.S. §§ 708(1)(C), (5) (2012)).
3
[¶3] During the merger proceedings, the Commission’s hearing examiner
and advisory staff (examiners) issued a report reviewing the merger proposal. The
examiners recommended that the merger not be approved because the debt
FairPoint would acquire presented too great a risk of causing FairPoint to
experience financial failure. In their report, the examiners stated that “FairPoint’s
commitment to increase investment in facilities that [would] deliver broadband
services” to more Maine consumers than Verizon had was “the most obvious of
[the] potential advantages offered by the proposed merger.”
[¶4] In explaining FairPoint’s proposal, the examiners noted that FairPoint
used the term “addressability” when referring to its proposed expansion of
broadband service. As the term was used by FairPoint, addressable lines included
some lines that were not actually capable of providing broadband service because
of line characteristics such as length or the presence of “disrupters.” Verizon did
not count those lines in its broadband buildout estimates. Thus, to facilitate a
comparison of FairPoint’s proposal with Verizon’s broadband buildout estimates,
the examiners, in their report, referred to addressable lines in the same way
FairPoint did.
[¶5] After receiving the examiners’ report, FairPoint, Verizon, the
Commission’s advocacy staff, the Public Advocate, and some of the other
interveners filed a stipulation with the Commission on or about December 21,
4
2007. This stipulation, as later amended on January 3, 2008, committed FairPoint
to expanding “DSL [a]vailability in Maine to reach . . . 83% addressability of
Maine access lines within two years of the closing of the Merger” and “attaining
90% DSL addressability by the end of the five year period” beginning when the
merger closes. “Addressability” was not defined in the stipulation.
[¶6] Upon its review, the Commission found that the proposed merger was
“consistent with the interests of ratepayers and investors” and that its potential
benefits outweighed its risks. Thereafter, the Commission added conditions to
those contained in the amended stipulation, approved the merger with the new
conditions, and “explicitly integrated [the amended stipulation] into, and made [it]
a part of” its merger order. Although the merger order, like the amended
stipulation, discusses FairPoint’s broadband buildout obligations in terms of
addressability, it contains no definition of the term.
[¶7] Approximately twenty months after the Commission’s approval of the
merger, FairPoint filed a voluntary petition for relief pursuant to Chapter 11 of the
U.S. Bankruptcy Code. See 11 U.S.C.S. §§ 1101-1146 (LexisNexis 2012). In
connection with those bankruptcy proceedings, FairPoint, the Public Advocate, and
a Commission representative reached a regulatory settlement agreement that,
among other things, reduced FairPoint’s ultimate broadband buildout obligations
from 90% addressability to 87%. The Commission agreed to that reduction in a
5
July 6, 2010, order (the 2010 order), finding that “the benefit to be gained from a
financially sound FairPoint, and the risks inherent in making substantive changes
to the Regulatory Settlement, outweigh the potential hardship to be faced by the
3% of customers that may not receive broadband service.” In the 2010 order, the
Commission also amended the merger order by approving and incorporating other
provisions that extended deadlines for FairPoint’s broadband buildout4 and
committed FairPoint to providing broadband technology with “a minimum upload
speed of 512 kilobits and a download speed of 1.5 megabits per second.”
[¶8] After the first milestone date, FairPoint notified the Commission that it
had expanded broadband buildout to the level of 83%. The Public Advocate
disagreed, contending that FairPoint had used the wrong measure of addressability
and therefore overstated its results. In calculating its addressability ratio, FairPoint
used as its numerator the number of lines that terminated at a DSL-equipped
facility, regardless of whether a line’s characteristics prevented it from being
capable of providing DSL service. It used as its denominator the number of
residential and business switched-access lines existing as of the summer of 2007.5
4
The 2010 order created broadband buildout milestones of 83% addressability by December 31,
2010, 85% by July 31, 2012, and 87% by March 31, 2013.
5
The dispute in this case involves the numerator. In proceedings before the Commission, however,
the Public Advocate also disputed FairPoint’s calculation of the denominator. The Commission
ultimately determined that the denominator would include all current access lines, i.e., all lines FairPoint
can provide telephone service to as of each milestone date, rather than using the line count from 2007.
FairPoint did not appeal the determination of the denominator.
6
The Public Advocate argued that lines that cannot be made to actually provide
DSL service in a short period of time should not be included in the numerator.
Following a hearing, the Commission determined that when calculating
addressability, FairPoint could include in the numerator only “those lines that are
actually capable of receiving broadband service plus those lines that can be made
ready to receive it within 15 days following a request for service by a customer.”
The Commission further held that only those lines that meet the requirements of
the 2010 order, including the speed requirements, may be included in the
numerator. FairPoint appeals pursuant to 35-A M.R.S. § 1320 (2012).
II. DISCUSSION
A. The Merger Order
[¶9] The outcome of this appeal turns on the nature of the merger order.
FairPoint argues that, because the merger order approved the amended stipulation
among some of the parties to the merger proceeding, the merger order should be
treated as a consent decree and the Commission’s interpretation of it is therefore
subject to de novo review, rather than the deferential review we typically afford the
Commission’s interpretations of its own decisions.
[¶10] “[A] consent decree is the product of negotiations by parties who
elect to waive their rights to litigate and, instead, reach a compromise in which the
parties each give up something they might have won through litigation.” State
7
v. Shattuck, 2000 ME 38, ¶ 18, 747 A.2d 174. It contains aspects of both a private
contractual agreement and a court judgment or agency order; the parties essentially
agree to a set of facts and a remedy and request court or agency approval of it so
that it has the weight of a judicial decree or agency order. United States v. ITT
Cont’l Baking Co., 420 U.S. 223, 236 n.10 (1975); Shattuck, 2000 ME 38, ¶ 18,
747 A.2d 174.
[¶11] Due to the unique hybrid nature of consent decrees, a court’s role in
determining whether to approve or deny a proposed consent decree is somewhat
limited. Long v. State, 807 A.2d 1, 7, 9-10 (Md. 2002). Typically, a court reviews
a proposed consent decree to determine whether it is “fair, adequate, and
reasonable” and to ensure that it does not violate any existing law. Id. at 9
(quotation marks omitted); Bragg v. Robertson, 83 F. Supp. 2d 713, 717-18
(D. W. Va. 2000) (quotation marks omitted). Closer scrutiny is required, however,
if the proposed consent decree affects public rights. Pike Indus., Inc. v. City of
Westbrook, 2012 ME 78, ¶ 23, 45 A.3d 707.
[¶12] Like a consent decree, the Commission’s order is based, at least in
part, on a stipulated record of facts. That is where the similarity ends, however.
The “merger” between FairPoint and Verizon was not a private, corporate event or
a litigated dispute. Rather, the merger represented FairPoint’s attempt to become
the “utility” that would provide telephone service to Maine consumers. Because
8
telephone utilities are regulated by the Commission, the merger could not have
occurred without the Commission’s approval. See 35-A M.R.S. § 708(2)(A)
(prohibiting a reorganization from taking place without Commission approval).6
[¶13] In its role as the regulatory body tasked with overseeing the activities
of competitive service providers, the Commission could only grant its approval if
the transaction was consistent with ratepayers’ and investors’ interests. Id.; see
also P.L. 1987, ch. 141, emergency pmbl. (effective July 1, 1987) (recognizing the
“vital interests” of the public in the regulation of public utilities). This requirement
for regulatory approval, focused on the public interest, changed the nature of the
amended stipulation that became the merger order:
Any agreement that must be filed and approved by an agency loses its
status as a strictly private contract and takes on a public interest gloss.
That means that when the agency reconciles ambiguity in such a
contract it is expected to do so by drawing upon its view of the public
interest. And, therefore, the agency to which Congress entrusted the
protection and discharge of the public interest is entitled to just as
much benefit of the doubt in interpreting such an agreement as it
would in interpreting its own orders, its regulations, or its authorizing
statute.
6
The merger transaction between Verizon and FairPoint also required Commission approval pursuant
to 35-A M.R.S. §§ 304, 1101, 1104 (2012), 35-A M.R.S. §§ 707, 2102, 2105 (2007), and 47 U.S.C.S.
§§ 214(e), 254(e) (LexisNexis 2012). Title 35-A M.R.S. §§ 707, 2102, and 2105 (2007) have since been
amended such that they are no longer applicable to telephone utilities other than providers of last resort.
P.L. 2011, ch. 623, §§ A-12, A-17 (effective Aug. 30, 2012) (codified at 35-A M.R.S. §§ 707(6), 2102(3)
(2012)).
9
Cajun Electric Power Coop., Inc., v. FERC, 924 F.2d 1132, 1135 (D.C. Cir. 1991)
(citations omitted); see also In re Entergy Corp., 142 S.W.3d 316, 323-24
(Tex. 2004) (observing that, in regulatory merger proceedings, what begins as a
private contract may take on an administrative character when there is a public
interest involved and regulatory approval is required).
[¶14] Here, after engaging in a risk-benefit analysis to determine whether
the transaction was, on the whole, consistent with ratepayers’ and investors’
interests, the Commission accepted and approved the parties’ amended stipulation,
added some conditions without the prior approval of the parties who presented the
stipulation, and approved the merger. See 35-A M.R.S. § 708(2)(A) (requiring the
Commission to impose conditions necessary to protect ratepayers). In determining
whether to incorporate the parties’ amended stipulation into its order, the
Commission exercised its expertise in this area and effectively took ownership of
the amended stipulation. See N. Ind. Pub. Serv. Co. v. U.S. Steel Corp., 907
N.E.2d 1012, 1017-18 (Ind. 2009). As the statutory provisions governing the
Commission’s approval of the transaction make clear, the Commission’s role in
approving the amended stipulation for the merger proceeding is not equivalent to
the role a court or agency plays in approving a consent decree. We conclude that
the merger order is an order of the Commission, and not a consent decree.
10
B. The 2012 Order
[¶15] Because the merger order is an order of the Commission, we review
the Commission’s 2012 order interpreting the merger order “for errors of law,
abuse of discretion, or findings of fact not supported by the record.” Covanta Me.,
LLC v. Pub. Utils. Comm’n, 2012 ME 74, ¶ 10, 44 A.3d 960 (quotation marks
omitted). FairPoint contests two aspects of the 2012 order: (1) the numerator that
FairPoint must use when calculating addressability, and (2) the minimum upload
and download speed requirements.
[¶16] Before defining “addressability,” the Commission found that the term
had not been defined in its previous orders and that the examiners’ report, which
discussed how FairPoint had used the term, was not controlling on the matter.
Because the record supports those findings, we do not discuss them further. See id.The Commission, as the issuing agency of the order in which the term was used,
was required to determine, within its area of expertise, what “addressability”
means. See N. Ind. Pub. Serv. Co., 907 N.E.2d at 1018.
[¶17] The definition of “addressability” that FairPoint advocates would
allow FairPoint to satisfy its broadband buildout obligations in Maine by counting
lines that are not capable of providing DSL service to customers. The Commission
concluded that such a definition was illogical and antithetical to the goal of
expanding broadband buildout in Maine. It determined that “addressable” lines,
11
i.e., those that FairPoint could include in the numerator when reporting the extent
of its broadband buildout, would only comprise “those lines that are actually
capable of receiving broadband service plus those lines that can be made ready to
receive it within 15 days following a request for service by a customer.” We do
not find anything “unreasonable, unjust or unlawful” about defining addressability
in that way. Quiland, Inc. v. Pub. Utils. Comm’n, 2008 ME 135, ¶ 9, 956 A.2d 127(quotation marks omitted).
[¶18] We also discern no error in the imposition of the minimum upload and
download speed requirements referenced in the 2012 order. FairPoint contends
that nothing in the amended stipulation or merger order imposes speed
requirements. Although it is true that the original merger order did not include
speed requirements, the Commission exercised its statutory authority to amend the
merger order after FairPoint sought relief through a bankruptcy proceeding. See
35-A M.R.S. § 1321 (2012) (granting the Commission the authority to “rescind,
alter or amend any order it has made” at any time so long as it gives notice to the
utility and the parties to the original proceeding). The Commission’s 2010 order
amended the merger order by, among other things, approving section 2.2 of the
regulatory settlement, to which FairPoint was a party. Section 2.2 of the regulatory
settlement states that FairPoint’s broadband buildout commitments “may be met by
installation of DSL or any other broadband technology which provides a minimum
12
upload speed of 512 kilobits and download speed of 1.5 megabits per second.”
This language clearly and unambiguously amends the merger order to impose
minimum speed requirements on any technology FairPoint wants to use to meet its
broadband buildout obligations, including DSL. Accordingly, the Commission did
not err by including minimum speed requirements in its 2012 order.
The entry is:
Order of the Commission affirmed.
On the briefs:
Joseph G. Donahue, Esq., Neal F. Pratt, Esq., and Jonathan G. Mermin, Esq.,
Preti Flaherty, LLP, Augusta, for appellant Northern New England
Telephone Operations LLC
Andrew S. Hagler, Esq., Jordan D. McColman, Esq., and Joanne B. Steneck,
Esq., Maine Public Uitilities Commission, for appellee Maine Public
Utilities Commission
Wayne R. Jortner, Esq., and William C. Black, Esq., Public Advocate
Office, Augusta, for appellee Office of the Public Advocate
At oral argument:
Joseph G. Donahue, Esq., for appellant Northern New England Telephone
Operations LLC
Andrew S. Hagler, Esq., for appellee Maine Public Utilities Commission
Wayne R. Jortner, Esq., for appellee Office of the Public Advocate
Maine Public Utilities Commission case numbers 2005-155; 2007-67
FOR CLERK REFERENCE ONLY