MO Supreme Court upholds rejection of Sprint's request for rate

St. Louis Daily Record & St. Louis Countian, Jun 21, 2005 by Emily Umbright

Maybe Sprint Missouri Inc. thought it could bank its annual percentage rate increases for a rainy day in competition land, but a recent opinion handed down by the Missouri Supreme Court corrects that line of thinking.

The Supreme Court's interpretation of Section 392.245.11 upholds the Public Service Commission's rejection of Sprint's request for a 16 percent rate increase for the optional Metropolitan Calling Area service.

When the legislature opened the state's doors to alternative telecommunication companies in 1996, it enacted a series of laws designed to protect competition and diversity while upholding consumers' rights.

Under Section 392.245, incumbent local exchange telecommunication companies, like Sprint, are subject to a price-cap regulation whereby the maximum price for services offered by Sprint, and other companies like it, are set based on the previous year's price.

Because Sprint became subject to price cap regulations on August 19, 1999, its initial maximum allowable price was the price in effect on December 31, 1998, Judge Laura Denvir Stith explained in the opinion.

However, an incumbent's maximum allowable price for nonbasic services, like Sprint's MCA service, can increase by up to 8 percent of the previous year's maximum price, pursuant to Section 392.245.11, which also requires a request for such an increase be submitted by providing notice to the PSC and by filing tariffs that establish the rates.

In 2000, Sprint filed a tariff for a maximum allowable rate that increased the previously charged rate by 8 percent. The commission approved the filing, yet Sprint did not raise its rates.

A year later, it filed another tariff to raise its rate again by 8 percent from the earlier year's hypothetically raised rate, according to the opinion. Again, the PSC approved the rate change, but Sprint did not actually raise the rate.

In 2002, Sprint asked for a 16 percent increase from the rate it charged in 2001. However, the commission denied the request because Section 392.245.11 only allowed for an 8 percent increase from the actual rate charged the year before, not a hypothetical 'maximum allowable rate' that Sprint might have, but did not, charge customers, the opinion recounted.

Before the Supreme Court, Sprint contended the 16 percent increase was allowable because the percentage was actually an 8 percent increase from its hypothetical maximum allowable rate.

The high court refuted this argument because the statute calls for a maximum allowable price made by truly setting the rates at the new price.

Because, here, Sprint failed to increase rates in its 2000 or 2001 tariff filings, its maximum allowable price remained the same as it had been in the previous year, Stith explained. Consequently, when it sought to raise its rates in 2002, its right to such an increase in price was capped at an eight percent increase over its prior year's rate.

To interpret the statute otherwise would contravene its purpose, she went on. It would permit Sprint to 'bank' the right to price increases, so that in any year when the competition envisioned by the legislature in enacting price cap regulation weakened, Sprint [or other ILECs] could avoid the effect of the rate savings resulting from past competition by increasing rates by the full amount of its 'banked' price increases at one time, not just by the 16 percent requested here, but potentially by 24 percent, 36 percent, or more.

This is not what the legislature intended when it amended chapter 392.

Although Sprint threatened that such a ruling would escalate consumer prices, the Supreme Court reasoned that competition from alternative telecommunications companies would keep prices stable.

In the event that competition is not sufficient to keep down rates in the manner envisioned, however, the legislature has protected consumers by providing that rates cannot increase by more than eight percent in any 12-month period, thus avoiding a rate shock increase that would only be subject to competitive regulation, Stith added.

A concluding point by the unanimous Supreme Court mentioned the fact that nothing in the statute forced Sprint to raise its rates every year by the maximum 8 percent.

A company may choose not to increase up to the cap - indeed, if competition is working as anticipated, it may well not do so - but, in any case, the new base on which the next year's cap will be figured will be the actual rate charged as set out in the tariff, wrote Stith.

State of Missouri ex rel., Sprint Missouri Inc., appellant, vs. Public Service Commission of the state of Missouri, a state agency, et al., respondents; No. SC86584; handed down June 14.