NO. 5-02-0199

JUSTICE KUEHN delivered the opinion of the court:

The petitioners appeal from an original order and from an order on rehearing, both entered by the IllinoisCommerce Commission. The original order was entered on September 18, 2001, and the order on rehearing was enteredon March 13, 2002. At issue in this matter is the establishment of a state universal service fund for small rural telephonecompanies.

Following the restructuring of the telecommunications industry in the 1980s, the federal and state governmentsenacted legislation designed to keep the playing field level for rural telephone companies and to ensure that telephoneservice was universally available and affordable. In keeping with this policy of keeping service available and affordable,various funding sources were established. Funding was essential to the support of these rural carriers, who often hadvery high costs in providing service to citizens of the rural setting. In fact, oftentimes, the costs to provide telephoneservice in these rural areas exceed the revenue derived from providing those services. These funds are distributed byboth the federal government and the state government.

On May 7, 1997, the Federal Communications Commission (FCC) established a federal universal service fund,providing essential support to small local exchange carriers to assist these companies in meeting a portion of their highcosts of providing telephone service to the public in rural areas. On March 17, 2000, the Illinois Independent TelephoneAssociation filed a petition with the Illinois Commerce Commission (Commission) requesting that Illinois establish itsown universal service support fund for rural telephone companies pursuant to a recently passed Illinois statutecontemplating its establishment. Thereafter, the Commission ordered its own investigation. The dockets wereconsolidated on May 10, 2000.

On September 18, 2001, the Commission entered an order that established an Illinois universal service fundfor the first time. This universal service fund support is to be provided to companies whose economic costs of doingbusiness of providing the group of services that constitute universal service exceed the affordable rate established bythe Commission for the supported service, less any federal monies received for the same provision of service. A findingin this order established that the aggregate costs of providing services for all access lines in the areas serviced by therural telephone carriers, after accounting for federal similar support, exceeded a Commission-established affordable rateof $22.23 per month by as much as $73.5 million or as little as $29.9 million. However, the rural telephone companieswere not seeking these economic costs amounts but were seeking funds based upon the appropriate rate of return thateach company was entitled to earn. The amount sought by the rural telephone companies was $12,799,298, with someminor adjustments. After reviewing all of the evidence presented, the Commission determined that a proposal set forthby Verizon North, Inc., and Verizon South, Inc. (Verizon), best served the competing needs in that it utilized theaffordable rate and the economic costs gap in reaching a determination on each company's funding needs. Utilizingan affordable rate of $22.23 monthly, suggested by Verizon, would reduce the subsidy amount sought by the ruraltelephone carriers by $6.2 million. Under this proposal, each rural telephone company would be required to demonstratethe need for funding through the use of the $22.23-per-month affordable rate and the current rate for telephone servicesthat each company charged. In this order, the Commission also determined that the list of Illinois-supported telephoneservices should mirror the FCC-supported services list but that it would only consider funding for each primary accessphone line-not for every access line in homes and businesses. It reached this determination by concluding that the"voice grade access to the network" category of lines eligible for federal funding only included a primary residentialline and a single business line, stating, "[D]iscretionary services should not be supported by the *** fund." The orderestablished an initial universal service fund in the amount of approximately $6.6 million.

The Illinois Independent Telephone Association, along with other petitioners, filed a timely application forrehearing. On October 31, 2001, the Commission granted rehearing on four of the issues raised. Two of the issuesinvolved alleged mathematical errors. The third issue involved the number of access lines considered. The fourth issuequestioned the Commission's decision to disallow a phase-in of rate increases or a transition plan to the "affordablerate." The order upon rehearing was entered on March 13, 2002. The Commission corrected its mathematical errors,increased the initial universal service fund size to $8,420,271, and utilized $20.39 monthly as the "affordable rate." Nochange was made to the original conclusion that the access lines considered would not include secondary business andresidential lines. The order on rehearing resolved the final issue by approving a three-to-five year transition plan basedupon the level of an individual company's existing rates. That determination meant that initial fund size would be$10,535,634, and the final fund size at the conclusion of the transition would be $8,695,055.

The Illinois Independent Telephone Association appeals from this March 13, 2002, order on rehearing. TheIllinois Independent Telephone Association raises the following issues:

1. The Commission should not have denied universal service fund support for all access lines.

2. There was no evidence to support the level of funding included in the initial universal service fund.

Additionally, several rural telephone companies⁽¹⁾ raise the following additional concerns on appeal:

1. The finding that the rural telephone companies are entitled to earn an appropriate rate of return isinconsistent with the reduction of the amount of each company's funding by the percentage of secondary linesthe company serves.

2. The conclusion that all access lines should not be included in determining funding amounts is inviolation of federal law.

3. The Commission's order is in violation of an Illinois statute requiring telephone companies toprovide advanced telecommunications services to at least 80% of their customers by January 1, 2005.

4. The affordable rate should not have been set below the current rate.

Harrisonville Telephone Company (Harrisonville) separately appeals and raises the following issues:

1. The Commission's adoption of Verizon's average rate as the "affordable rate" was not supportedby substantial evidence.

2. The interpretation of "economic costs" as being synonymous with "forward looking" costs waserroneous.

3. The Commission's denial of Harrisonville's interlocutory appeal of an evidentiary matter waserroneous.

Finally, Moultrie Independent Telephone Company (Moultrie) filed a separate appeal of Commission rulingsregarding sale and lease transactions undertaken by Moultrie and the impact those transactions and Moultrie's businessstructure had upon the method of determining the funding to which Moultrie was entitled.

Because the Commission is an administrative agency, the judicial review of its orders is somewhat limited. Illinois Power Co. v. Illinois Commerce Comm'n, 316 Ill. App. 3d 254, 258, 736 N.E.2d 196, 200 (2000). On appeal,a court should only reverse such an administrative order if it reaches one of the following conclusions:

1. The Commission's findings are not supported by substantial evidence in the record.

2. The Commission acted beyond its authority.

3. The order violates a state or federal statute or constitution.

4. The proceedings were in violation of the state or federal constitution or laws to the petitioner's prejudice.

Illinois Bell Telephone Co. v. Illinois Commerce Comm'n, 203 Ill. App. 3d 424, 433, 561 N.E.2d 426, 433 (1990).

Because of the agency's familiarity with its own statutes and regulations, the Commission's statutoryinterpretation would normally be granted extreme deference on appellate review. Local Union Nos. 15, 51, & 702,International Brotherhood of Electrical Workers v. Illinois Commerce Comm'n, 331 Ill. App. 3d 607, 613-14, 772N.E.2d 340, 345 (2002). However, we are not necessarily bound by its statutory interpretation. Archer-Daniels-Midland Co. v. Illinois Commerce Comm'n, 184 Ill. 2d 391, 397, 704 N.E.2d 387, 390 (1998). If the Commission failsto abide by its own rules and standards, then its order relative to that particular issue can be reviewed de novo. IllinoisBell Telephone Co. v. Illinois Commerce Comm'n, 327 Ill. App. 3d 768, 775, 762 N.E.2d 1117, 1122 (2002).

The Public Utilities Act (220 ILCS 5/1-101 et seq. (West 2000)) provides for the general supervision of allpublic utilities by a statutorily created commission, the Illinois Commerce Commission. 220 ILCS 5/2-101, 4-101 (West2000). The power and authority of the Commission comes strictly from this statutory enactment, and the Commissioncannot by its own actions extend its jurisdiction. Regional Transportation Authority v. Illinois Commerce Comm'n,118 Ill. App. 3d 685, 694, 455 N.E.2d 172, 178 (1983). Furthermore, the Commission can only determine facts andenact orders concerning the matters specified in the Public Utilities Act. Lowden v. Illinois Commerce Comm'n, 376Ill. 225, 230, 33 N.E.2d 430, 433-34 (1941). Telephone companies are, by definition, "public utilities." 220 ILCS 5/3-105, 13-101 (West 2000).

On May 7, 1997, the FCC established a federal universal service fund to partially fund the expenses of smallrural telephone companies.⁽²⁾ 47 C.F.R.