AFOR Update
Federal Appeal Dismissed: On February 24, 2006, Federal District Court Judge William "Chip" Johnson ruled in favor of the PRC's motion to dismiss Qwest's federal case that would have prevented enforcement of the AFOR. Judge Johnson agreed with PRC attorneys that this was a state matter and the federal courts lacked jurisdiction. Judge Johnson's decision did not address the merits of Qwest's case, only the procedural question of whether the federal courts had jurisdiction to hear it.
State Supreme Court Hears Oral Arguments: On February 14th, the New Mexico Supreme Court heard oral arguments in Qwest's Appeal of the PRC's "Invest or Else" AFOR order. Qwest attorneys argued that the PRC was wrong when it found that could and should be required to live up to its $788 million investment committment in the AFOR. Qwest argued, as it had before the PRC, that the AFOR only required Qwest to meet certain Service Quality Standards, and that the investment plan was not enforceable as a particular dollar amount. The tone of questioning by the Justices suggested some skepticism towards this line of argument. Qwest attorneys also argued that the PRC exceeded its statutory powers when it ordered dollar-for-dollar customer credits in the event of an nvestment shortfall by Qwest.
PRC Rejects Qwest "Settlement Offer": Approximately 10 days before the scheduled oral arguments in the Supreme Court Appeal, the PRC voted 3-1 to adopt an order I (Comm'r Marks) drafted, denying Qwest's motions to enter into settlement procedings on Qwest's $86 million proposal. Accepting Qwest's motion would not have committed the PRC to ultimately accepting Qwest's proposal; however, it would have effectively stopped all other related procedings, including the Supreme Court Appeal. Thus, in the event that the PRC found that the Qwest proposal was not in the public interest, enforcement of the Commission's earlier orders would have been delayed by 6 to 9 months or even longer. The PRC used procedural grounds to reject Qwest's motion.
The PRC encouraged Qwest and other parties to attempt to negotiate on an alternative investment plan (an alternative to refunds/credits), but refused to stop the clock of the enforcement proceedings.
Where we stand: The educated guess at the Commission is that the Supreme Court will rule in the case "sooner rather than later."
The Court could rule entirely in Qwest's favor, finding that the $788 million investment target was not a separately enforceable component of the 2001 AFOR. In that event (which I believe to be unlikely), there would be not be any refunds or credits to consumers based on the investment shortfall, and the PRC would not be able to compel any additional investment under the 2001 AFOR. Qwest would likely still invest in some of the projects it listed in the $86 million "settlement offer," as they would generate new revenue streams for the company.
The Supreme Court could issue a split ruling, agreeing that the PRC acted properly in finding that the $788 million investment committment was enforceable, but that it lacked the power to order refunds/credits as the enforcement mechanism. It is also possible the Court could decline to rule on the power to order refunds/credits issue, and say that it was not yet "ripe."
The Supreme Court could uphold the PRC's AFOR enforcement order in its entirety, including the plan to give customers dollar-for-dollar refunds or credits.
I, and several other Commissioners, have expressed an interest in giving consideration one last time to an alternative investment plan when the case comes back from the Supreme Court, prior to implementing the consumer credits or refunds. I believe that such a plan would have to give the state the benefits of the investment commitments we thought we were getting in 2001. Commission Chair Ben R. Lujan recently asked the parties to comment on the desirability of requiring the investment shortfall to be placed into an escrow account.
AFOR II Status: The 2001 Qwest AFOR ended March 8, 2006. The Commission put in place an "Interim AFOR" to bridge the gap until AFOR II is implemented. AFOR II is set to go to public hearing next month, and I expect it to be in place by July 1, 2006. The main area of contention between the parties seems to be whether AFOR II can or should contain requirements that pertain to infrastructure/investment. To my knowledge, another dollar target for investment is not being proposed, but rather, the discussions is on whether to require specific service upgrades that in turn would require substantial investments that might not otherwise occur.
June 1, 2005
Qwest Appeals PRC Order to Supreme Court, Also
Brings Declaratory Action in Federal Court
On May 13, 2005, Qwest filed a notice of appeal of the PRC's Final Order to the New Mexico Supreme Court.
Under state law, Qwest has the right to directly appeal Commission actions to
the Supreme Court, and the Supreme Court must accept the case. The
Supreme Court will decide whether the Commission made a proper decision based
on the facts entered into the record during the PRCs investigation into Qwest's
compliance with its AFOR obligations. It should take approximately
a year to complete the Supreme Court appeal, so the Supreme Court decision should
roughly coincide with the end of the current AFOR's term in March 2006.
Concurrent with their N.M. Supreme Court appeal, Qwest filed an Complaint for
Declaratory Judgement in Federal District Court for the District of New Mexico.
Qwest's federal action is effectively an attempt to appeal the PRC's order through
an alternative mechanism. This federal suit raises jurisdictional
questions that will likely need to be resolved before the federal court gets
to the substance of Qwest's claims. Qwest's principle claim in federal
court is that the Commission violated Qwest's Constitutional rights by ordering
massive credits or refunds when, they argue, "any state-imposed financial sanction
or burden that is grossly excessive or arbitrary is unconstitutional."
Compliance Update
In its Final Order in Case 04-00237-UT, the Commission
directed Qwest to submit a report no later than May 20, 2005 “detailing
by project and amount how it will comply with its AFOR investment commitment
for the remaining duration of the AFOR.”
On May 20, 2005, Qwest filed a report in response
to this section of the Final Order. In that report Qwest states
“it is financially impossible and imprudent for Qwest to increase its
total investments in New Mexico to $788 million by next March.”
Qwest also states that its ongoing investment level, dictated by its own assessment
of prudence and need, is $62 million per year and that it expects this rate
of investment to continue through the termination of the AFOR, such that it
projects that it will invest only $576 million through the end of the AFOR.
Qwest’s May 20, 2005 report does not include any detail of investment
projects and amounts to be used to comply with its AFOR investment commitment.
The Final Order in Case 04-00237-UT determined that any shortfall in investment
relative to the $788 million commitment should be credited or refunded to customers.
(See Final Order at 61, A.) The Final Order in Case 04-00237-UT
also opened a new case docket to address, among other things,
a. How such credits or refunds should be
distributed to Qwest’s residential and business customers.
Final Order at 61-62, B & F.
b. In the event that Qwest is not in compliance
with its AFOR investment commitment at the end of AFOR Period 4, whether to
begin credits or refunds to Qwest’s customers in the amount of the shortfall
at the end of Period 4. Final Order at 62, E.
I am very concerned that Qwest’s Report of May 20, 2005 seems to be an
acknowledgement and admission that Qwest will not be in compliance with its
AFOR investment commitment at the end of AFOR Period 4, and that it has no intention
at present of making up that shortfall during the remaining months of the AFOR.
This matter was discussed at the Commission's regular Public Work Session of
May 26, 2005. Commissioners present concurred with my proposal to
appoint a hearing examiner in the "new" AFOR Enforcement case, and to begin
the procedings to establish methods and standards for credits or refunds.
If Qwest continues to invest only at the rate
it indicated in its May 20 report, it will be over $200 million short of its
AFOR committment at the expiration of the AFOR (March 2006).
There are approximately 900,000 Qwest landlines. If a $200 million
shortfall was simply distributed as a flat amount per customer line, the credit
or refund per line would be over $200.
I, and the other Commissioners, strongly prefer that Qwest make the full level
of investment in New Mexico's telecommunications infrastructure that was agreed
upon in 2001 by Qwest, the other parties to the AFOR, and the Commission.
Additional investments are needed to support economic development in this state.
We imposed the remedy of dollar-for-dollar refunds in order to incentivize Qwest
to live up to its committments. If the company continues to flaut the
authority of the Commission to enforce the original AFOR agreement and Orders,
then we will have no choice but to require Qwest to disgorge the money not invested
back to New Mexico consumers. This will not produce the same long term
benefit for either the state or Qwest. I hope they get the message and
change course on their investment strategy.