Communications Workers of America v. Public Service Commission

RODOWSKY, J. The appellant, the Communications Workers of America, AFL-CIO (CWA or, the Union), appeals the affirmance by the Circuit Court for Baltimore City of Order 83137 of the Public Service Commission (PSC or the Commission), one of the appellees, which approved, pursuant to Maryland Code (1998, 2008 Repl.Vol.), § 4-301 of the Public Utility Companies Arti ⁴²² ele (PUC), an alternative form of regulation (AFOR) for Verizon Maryland (Verizon), the other appellee. 1 PUC § 4-301 provides, in relevant part: “(a) In general. — Notwithstanding § 4-101 of this title or any other law to the contrary, the Commission may regulate a telephone company through alternative forms of regulation. “(b) Required findings. — The Commission may adopt an alternative form of regulation under this section if the Commission finds, after notice and hearing, that the alternative form of regulation: “(1) protects consumers by, at a minimum: “(i) producing affordable and reasonably priced basic local exchange service, as defined by the Commission; and “(ii) ensuring the quality, availability, and reliability of telecommunications services throughout the State; “(2) encourages the development of competition; and “(3) is in the public interest.” CWA presents the following issues for our consideration: “1. Is the Commission’s Order 83137 supported by substantial evidence in the record?; “2. Is the Commission’s Order 83137 affected by an error of law in that it [ojrders Verizon to implement a new Alternative Form of Regulation (AFOR) that does not protect consumers by ensuring the quality, availability and reliability of telecommunications services throughout the State of Maryland? ...; “3. Is the Commission’s Order 83137 affected by an error of law in that[,] in [o]rdering Verizon to implement a new AFOR, the Commission made no finding that the new ⁴²³ AFOR protects consumers by producing affordable and reasonably priced basic local exchange service?; [2] “4.

Is the Commission’s Order 83137 affected by an error of law in that it [ojrders Verizon to implement a new AFOR that is not in the public interest?; [3] [and] “5. Is the Commission’s Order 83137 affected by an error of law in that it establishes a new balancing of the interest test by its approval of the AFOR?” For the reasons set forth below, we affirm the judgment of the circuit court. The Facts and Procedural History In December of 2008, Verizon, joined by PSC staff and the Office of the People’s Counsel, submitted to the Commission a Joint Petition for Approval of Settlement Agreement to settle six cases then pending before PSC. In January of 2009, CWA, representing approximately 5,000 Verizon employees, petitioned to intervene in the settlement discussion and in PSC’s investigation into the quality of Verizon’s service to customers.

Intervention was granted in February of 2009, conditioned on CWA’s acceptance of the written testimony in the record filed by other parties, because deadlines established by PSC for filing testimony had passed. The Commission held a hearing on the first petition to settle on February 12 and 13 of 2009. Then, on April 6, 2009, the Commission rejected the settlement proposed in the December 2008 petition, but stated that it would permit a modification and resubmission of the proposal. See PSC Order 82584.

On August 28, 2009, Verizon submitted its second petition to settle the six pending cases. Hearings were held on November 3 and 4, 2009. By Order 83137, the Commission approved the second petition to settle on February 2, 2010, with some modifications. On February ⁴²⁴ 22, 2010, Verizon notified PSC that it had accepted the proposed modifications.

The six cases settled by Order 83137 are: (1) PSC Case 9114, begun in August 2007 to investigate Verizon’s service quality as a result of consumer complaints; (2) PSC Case 9133, begun in October 2007, which rejected Verizon’s requested price increases, which were not tied to service quality; (3) PSC Case 9120 which reviewed whether Verizon could bundle services with affiliates and increase its prices without violating Verizon’s Price Cap Plan; 4 (4) PSC Case 9072, which reviewed Verizon’s request to reclassify some of its services as competitive; (5) PSC Case 9121, which investigated local calling areas and foreign exchange prices; and (6) PSC Case 9123, which was filed by the Office of People’s Counsel following complaints by customers who had switched from the older copper wire system to a fiber optic service. Case 9123 sought to determine if Verizon was adequately informing its customers of the difference between the two services. Order 83137 is sixty-six pages long. It found that “Verizon’s service quality performance ha[d] fallen far below [PSC’s] regulatory standards, and neither competitive market forces nor an open service quality investigation ha[d] improved Verizon’s performance.” The regulatory standard of principal concern on this appeal is COMAR 20.45.04.08.

It provides: “.08 Trouble Reports. “A. Each utility shall provide for the receipt of customer trouble reports at all hours. “B. Trouble Reporting. “(1) Arrangement shall be made to clear all trouble of an emergency nature at all hours, consistent with the bona fide ⁴²⁵ needs of the customers and the personal safety of the utility personnel. “(2) Arrangement shall be made to clear all out-of-service troubles, not requiring unusual repairs, within 8 hours of the report to the company (excluding clock hours between 5 p.m. and 9 a.m. weekdays and Saturdays, Sundays, and holidays). “(3) Arrangements shall be made to clear all non-out-of-service troubles, not requiring unusual repairs, within 24 hours of the report to the company (excluding clock hours between 5 p.m. and 9 a.m. weekdays, and Saturdays, Sundays, and holidays). “(4) If unusual repairs are required, or rehabilitation programs or other factors preclude clearing of reported troubles promptly, when practical, the customer shall be so notified and an estimated time given as to when the trouble will be cleared. “C. Appointment Missed. The utility shall grant appointments to customers on reported troubles which are consistent with the objective intervals of clearance as specified in § B(l), (2), and (3), above. If appointments with the customer cannot be kept, the utility shall make every reasonable effort to notify the customer in timely fashion of the delay. The number of appointments the utility fails to meet may not be greater than 20 percent of the total commitments given per month with a district service center. “D. Subsequent Trouble Reports.

The utility shall make reasonable efforts to prevent subsequent reports through the proper and effective administration of §§ B and C, above. To the extent possible, the utility shall grant appointments which are consistent with the needs of the customer. The rate of the subsequent reports may not be greater than 13 percent of the total reports per month registered within a district service center. “E. Repeated Trouble Reports. It is incumbent upon the utility to make the necessary tests and inspections on reported troubles to prevent customers from again experi ⁴²⁶ encing the same type trouble.

These tests and inspections shall include all necessary and reasonable repairs and rehabilitation efforts which the utility feels are necessary to keep repeated reports at minimum levels. The rate of the repeated reports may not be greater than 25 percent of total trouble reports registered per month within a district service center. “F. The utility shall keep such records of customer complaints and trouble reports as will enable it to review and analyze its procedures and actions as an aid in rendering improved service.” The Order further compared and contrasted the second settlement offer with the previously rejected first offer. In particular, PSC noted that Verizon’s first proposal for settlement included the following provisions that were unacceptable: “Retrospective credits for missed appointments could not exclude customers who suffered missed appointments but had their complaints resolved within 24 hours of the missed appointment. “The two-day proxy for the eight-hour standard set forth in COMAR 20.45.04.08[B(2) ] could not average times to restore service for businesses and residential customers. [5] “Verizon could not exclude customers [from retrospective credits] “who agreed or failed to object to Verizon’s standard appointment offer by deeming them to have agreed affirmatively to an appointment longer than two calendar days from their call’ “The next installation missed appointment metric could not exempt customers moving from regulated voice service over copper lines to regulated voice service over fiber. ⁴²⁷ “The amount of Verizon money at risk as a function of its failure to satisfy customer service metrics must be increased so that it ‘mirror[ed] more closely the revenue increases Verizon seeks under the current Price Cap Plan and the new AFOR the proposed settlement would create.’ [6] “Missed appointment compliance must be measured monthly rather than quarterly, because COMAR 20.45.04.08C prescribes a monthly standard, and Verizon could not meet the missed appointment metric by extending its standard appointment times. “The Service Quality Plan must ensure State-wide consistency, so that Verizon cannot comply with State-wide standards by ‘concentrating its efforts on the Baltimore-Washington corridor and leaving other parts of the State with sub-standard service.’ “The Service Quality Plan could not terminate automatically due to the passage of time or erosion of Verizon’s market share, but rather only after Verizon ‘meets and sustains the required level of performance ... for four consecutive quarters.’ ” ⁴²⁸ Order 83137 discussed at length Verizon’s response to each of these issues. Particularly relevant here is the discussion of the “Service Quality Plan” (Plan), which the Commission noted was the “heart” of the second settlement offer.

The Plan created an AFOR. It “define[d] new proxies, new and larger penalties if Verizon fail[ed] to meet these proposed standards, and a more stringent, performance-based end-point.” Order 83137 enumerated five tenets of the Plan that would be implemented by Verizon. Specifically, (1) the Plan would measure Verizon’s performance in hours a residential voice customer was without service, instead of by the two-day proxy, and measure without including business customers; 7 (2) the Plan would measure Verizon’s performance both on a statewide basis and also according to four intra-state regions, thereby specifically addressing PSC’s concern that parts of the State, outside of the Baltimore-Washington corridor, were not receiving proper quality of service; (3) Verizon increased its “money at risk” to $6 million per year, which more closely “mirrored” the revenue increase Verizon sought under the new AFOR; 8 (4) the Commission noted that Verizon contin ⁴²⁹ ued problematically to propose excluding customers who agreed to Verizon’s standard appointment time from the calculation of its service quality metrics; and (5) consistent with the prior order rejecting Verizon’s first settlement offer, “Verizon would be released from its crediting obligations ... only after meeting both the out-of-service and missed appointments metrics for four consecutive quarters.” In its lengthy analysis, the Commission found that the settlement contained “significant public benefits” including credits to compensate customers for extended loss of service, a connection between future price increases and improved quality of service, reductions in the price of foreign exchange service, funding for outreach programs to educate lower income customers regarding telephone service and possible discounts, and the development of a program which would enable disabled and elderly customers to pre-certify for priority repair service. The Commission further found that the AFOR would “benefit Verizon’s customers ... by providing a framework for improved service at reasonable rates ... [and] also by bringing about what [it] hope[d would] be a productive and long-lived regulatory détente.” The Commission concluded that “approval [of the proposed AFOR was] consistent with the public interest and the statutory standard for Alternative Forms of Regulation” pursuant to PUC § 4-301.

CWA sought judicial review of Order 83137 in the Circuit Court for Baltimore City which affirmed the Commission’s ⁴³⁰ approval of the AFOR. CWA then appealed to the Court of Special Appeals. This Court, on its own motion, granted certiorari prior to consideration of the case by the intermediate appellate court. Communications Workers v. Public Serv.

Comm’n, 420 Md. 463 , 23 A.3d 895 (2011). Additional facts will be stated in the discussion of particular issues. CWA’s Arguments CWA’s attack on the AFOR is directed primarily at the service quality aspects of Order 83137. CWA’s principal contention is that the language of PUC § 4-301(b)(l)(ii), allowing the Commission to adopt an AFOR if it finds that the AFOR “protects consumers by ... ensuring the quality, availability, and reliability of telecommunications services throughout the State,” requires literal interpretation.

(Emphasis added). Because the Commission recognized in its discussion of the second settlement offer that the end result after implementation of the AFOR for service quality was not assured, CWA submits that PSC did not meet the statutory requirement of “ensuring” success, and thus the Order is “affected by an error of law.” Casting the same argument in factual terms, CWA contends that there is “no evidence in the record that the Proposed Settlement” will meet the § 4-301(b)(l)(ii) standard, as CWA construes it. Appellant says that the “assertions by Verizon’s lone witness that Verizon’s proposal will work” are unsubstantiated. The Union particularly criticizes Order 83137 because the methods by which Verizon is to achieve the performance metrics are left to Verizon to develop and are not dictated by PSC.

Rather, in addition to the reports on OOS clearances, the Commission required Verizon to file an annual report setting forth Verizon’s operational plan. The Union avers that Verizon did not “undertaken any assessments of the problems with the existing copper network, the amount of funds that would be required to repair and maintain [it], nor the number of personnel that would be required ... to provid[e] adequate service.” CWA asserts that § 4-301 requires Verizon to outline a specific plan before the AFOR may be adopted. ⁴³¹ Thus, the Union concludes, PSC “has put the cart before the horse. It has approved the AFOR and then asked for a plan rather than asking for the plan in order to determine if it can approve the AFOR.” CWA next argues that the Commission erroneously employed a different standard than that required by law when it approved the second settlement offer. The assertion is that PSC was not permitted to balance the interests of Verizon with the interests of the consumers in deciding the case.

CWA’s third argument is that the Order “consistently misstate[d] the position of the CWA set forth in [its] testimony and briefing.” CWA states that, contrary to the notions PSC expressed in the Order, CWA’s witness recommended rejection of the second offer for settlement. This “mischaracterization,” in CWA’s view, constitutes grounds for reversal because the Commission “use[d] as one of [its] key building blocks ... [the fact] that no party contended that the Commission should reject the proposal.” Verizon’s Arguments Verizon contends that CWA’s argument, based on the term “ensuring,” in PUC § 4 — 301(b)(l)(ii), is unsupported by case law and would create an unworkable requirement. If PSC must “guarantee and prove a definitive and specific future outcome,” Verizon submits, any decision by PSC would be legally insufficient, “since by its very nature, PSC must make predictive judgments.” More broadly, Verizon avers that “no agency or administrative or judicial body can ever guarantee in advance what will happen in the future.” Verizon cites In re Inquiry into Alternative Forms of Regulating Telephone Cos., Case No. 8715, 174 P.U.R.4th 120 , at ³, Order No. 73011 (Md. PSC Nov. 8, 1996), which approved the original AFOR proposed by Verizon. There, PSC said that “[w]e expect this plan to protect consumers, improve efficiency, encourage modernization of services and equipment, and enable [Verizon] to respond to the emergence of competition and rapid technological advancement in the telecommunications industry.” (Emphasis added). ⁴³² Responding to CWA’s argument about balancing, Verizon denies that considering the interests of all the parties when reaching a decision is creating a new standard for approval of an AFOR.

The standard applied, Verizon states, was the public interest based on substantial evidence. PSC’s Arguments PSC makes many of the arguments asserted by Verizon, and it advances several other points. Although the case presents the settlement of six cases in, or originating in, the PSC, and represents a resolution by which competing interests gave in on some issues and benefitted from others, the Commission did not simply compare the second proposal to the previously rejected proposal. Rather, PSC analyzed “the [second] Proposal as a whole against the statutory AFOR standard and decide[d] independently that it qualifie[d] on its own merits.” In addition to the record made when the Commission specifically addressed the second proposal, PSC points out that, when approving the second settlement offer, the Commission reviewed the record on the first settlement proposal, consisting of “hundreds of pages of pre-filed testimony and exhibits, including both fact and expert witnesses, addressing the state of competition for telecommunications services in Maryland, pricing, and other issues bearing on the appropriate structure for an AFOR for Verizon.” Further, the Commission reviewed the transcripts of the hearings and the records developed in the cases resolved by Order 83137.

The Commission also notes that if the settlement offer is rejected, Verizon and the PSC would still have to litigate the six cases resolved by the settlement offer. This is risky, according to PSC, because “the ultimate disposition of [those] cases in the courts could limit the Commission to incenting Verizon solely through the threat of civil fines and resulting in Maryland consumers receiving no bill credits for poor service.” 9 ⁴³³ Standard of Review Here, we review an order of the Commission that approves and enforces a settlement of six contested cases. “Consent orders are final agency orders and reviewable as if the product of a hearing.” 3 C.H. Koch, Jr., Administrative Law and Practice § 10:13, at 405 (3d ed. 2010). Consequently, we shall review Order 83137 under the standards applicable to the agency’s decision in a contested case. PUC § 3-203 governs judicial review of a final PSC order.

It provides: “Every final ... order ... of the Commission is prima facie correct and shall be affirmed unless clearly shown to be: “(1) unconstitutional; “(2) outside the statutory authority or jurisdiction of the Commission; “(3) made on unlawful procedure; “(4) arbitrary or capricious; “(5) affected by other error of law; or “(6) if the subject of review is an order entered in a contested proceeding after a hearing, unsupported by substantial evidence on the record considered as a whole.” So long as a reasoning mind could have reached the same conclusion as the agency, we will not disturb the agency’s decision. Public Serv. Comm’n v. Delmarva Power & Light Co., 42 Md.App. 492, 499 , 400 A.2d 1147, 1151 , cert. denied, 286 Md. 746 (1979). Because the Commission is well informed by its own expertise and specialized staff, a court reviewing a factual matter will not substitute its own judgment on review of a fairly debatable matter.

Public Serv. Comm’n v. Baltimore Gas & Elec. Co., 273 Md. 357, 362 , 329 A.2d 691, 694 (1974). “Questions of law, however, are ‘completely subject’ to review by courts.” People’s Counsel v. Public Serv. ⁴³⁴ Comm’n, 355 Md. 1, 14 , 733 A.2d 996, 1003 (1999) (quoting Commissioners of Cambridge v. Eastern Shore Public Serv. Co., 192 Md. 333, 339 , 64 A.2d 151, 154 (1949)).

Even when reviewing questions of law, “the agency’s interpretation of a statute may be entitled to some deference.” Id. However, “that deference is, by no means, dispositive, nor anywise as great as that applicable to factual findings or mixed questions of law and fact.” Id. Where the order under review arises from a function committed to the agency’s discretion, there is a third standard of review, as described in Christopher v. Montgomery County Dep’t of Health & Human Servs., 381 Md. 188 , 849 A.2d 46 (2004). “Finally, the court applies the arbitrary and capricious standard when it reviews an agency’s discretionary functions. As we observed in Spencer [v. Maryland State Bd. of Pharm., 380 Md. 515 , 846 A.2d 341 (2004) ], when an agency acts in its discretionary capacity, it is taking actions that are specific to its mandate and expertise and, unlike conclusions of law or findings of fact, have a non-judicial nature.

For this reason, we ‘owe a higher level of deference to functions specifically committed to the agency’s discretion.’ Spencer, 380 Md. 515, 529-31 , 846 A.2d 341, 349-50 .... ‘[A]s long as an administrative agency’s exercise of discretion does not violate regulations, statutes, common law principles, due process and other constitutional requirements, it is ordinarily unreviewable by the courts.’ Maryland State Police v. Zeigler, 330 Md. 540, 557 , 625 A.2d 914, 922 (1993). Courts thus generally only intervene when an agency exercises its discretion ‘arbitrarily’ or ‘capriciously.’ Id. at 558 , 625 A.2d at 922 .” Id. at 199, 849 A.2d at 52 . Substantial Evidence The aspects of the alternative form of regulation that are challenged by the Union are those designed to ensure the ⁴³⁵ reliability of Verizon’s residential voice network. To achieve that end, the Commission ordered, inter alia, that: • Verizon comply with the Service Quality Plan that: a) established performance