L/ice Date of Issuance December 5, 2017

Decision 17-11-036 November 30, 2017

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Kerman Telephone Co. (U 1012 C) for Rehearing of Resolution T-17531.

Application 17-03-010(Filed March 16, 2017)

ORDER DENYING REHEARING OF RESOLUTION T-17531

I. INTRODUCTIONIn today’s order, we deny the application for rehearing of Resolution

T-17531, filed by Kerman Telephone Company (“Kerman”).

Kerman owns and operates a telephone system that provides local exchange

telephone service to approximately 4,900 customers in the City of Kerman and in

surrounding unincorporated areas of Fresno County. Kerman is eligible for California

High Cost Fund-A (“CHCF-A”) support pursuant to Public Utilities Code Section 275.6.1

On December 28, 2011, Kerman filed a General Rate Case (“GRC”)

Application (A.) 11-12-011 seeking a review of its revenue requirement and an increase

in net intrastate revenues of $2.957 million. On January 26, 2012, the Office of

Ratepayer Advocates (“ORA”)2 protested Kerman’s GRC application and filed a motion

to stay, which asked the Commission to stay Kerman’s application during the pendency

of Order Instituting Rulemaking (R.) 11-11-007, in which the Commission was

conducting a detailed review of the CHCF-A program. ORA’s motion for a stay was

denied at that time.

On January 9, 2013, Kerman filed its first motion requesting immediate

interim rate relief in the form of additional CHCF-A funds for 2013, continuing until a

1 All subsequent section references are to the Public Utilities Code unless otherwise noted.2 At the time, ORA was known as the Division of Ratepayer Advocates (“DRA”), which was renamed ORA in September 2013.

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final decision is reached in the proceeding. ORA filed a response opposing Kerman’s

motion for immediate interim rate relief and recommending coordination with

R.11-11-007. On November 4, 2013, we issued D.13-10-051,3 which denied Kerman’s

motion for an interim rate increase and ordered a stay of Kerman’s pending rate case

application until December 31, 2013. D.13-10-051 also provided that the stay could be

extended for up to six months and it froze Kerman’s CHCF-A draw at 100%.4

On August 28, 2014, a Second Amended Scoping Memo and Ruling of the

Assigned Commission and Administrative Law Judge was issued setting a schedule for

the proceeding through the spring of 2015.

On December 19, 2014, Kerman filed a second Motion for Interim Rate

Relief, requesting that ratemaking decisions adopted in the proceeding be effective as of

January 1, 2015, and an increase in its revenue requirement. We did not rule on the

second Motion for Interim Rate Relief.

On January 29, 2016, Kerman filed a third Motion for Interim Rate Relief

(“Motion”) due to the delays in the processing of its GRC Application. In the Motion,

Kerman requested an interim rate relief in the amount of $1,112,373, based on its

calculated revenue requirement of $9,913,767 for Test Year 2016.

On February 25, 2016, we adopted D.16-02-022,5 which granted Kerman’s

Motion. We approved Kerman’s forecasted interim revenue requirement of $9,913,767,

which resulted in a rate increase of $1,112,373, to be divided into twelve equal monthly

3 In the Matter of the Application of Kerman Telephone Co. d/b/a Sebastian, to Review Intrastate Rates and Charges and Rate of Return for Telephone Service Furnished within the State of California, And to Modify Selected Rates – Order Denying Motion for an Interim Rate Increase and Staying General Rate Case (2013) [D.13-10-051], affirmed in Order Modifying Decision 13-10-051 and Denying Rehearing of Modified Decision [D.14-02-044] (2014).All citations to Commission decisions are to the official pdf versions which are available on the Commission’s website at: http://docs.cpuc.ca.gov/DecisionsSearchForm.aspx.4 D.13-10-051, at pp. 6 & 20.5 In the Matter of Application of Kerman Telephone Co. d/b/a Sebastian, to Review Intrastate Rates and Charges and Rate of Return for Telephone Service Furnished within the State of California, and to Modify Selected Rates -- Decision Granting Kerman Telephone Co.’s Third Motion for Interim Rate Relief (“Interim Rate Relief Decision”) [D.16-02-022] (2016).

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payments.6 We ordered the Communications Division (“CD”) to issue the interim relief

payments with the CHCF-A payments that the Commission authorized for Calendar Year

(CY) 2016,7 during the pendency of the GRC proceeding. In granting the interim rate

relief, we kept Kerman’s end users’ rates unchanged and held that the interim rate relief

was subject to true-up and possible refund to the CHCF-A, after final rates were adopted

for Test Year 2016.8 While the GRC proceeding was in process, Kerman received six

monthly CY CHCF-A support payments, which included the interim relief during the

months of February 2016 through July of 2016.

On June 23, 2016, we issued D.16-06-053 and adopted final rates for

Kerman’s Test Year 2016.9 These rates were subject to adjustment (e.g. possible refund)

as a result of a true. Thus, in D.16-06-053, we ordered Kerman to file a Tier 3 Advice

Letter (“AL”) to true-up the difference between its interim rates, including CHCF-A

support and interim rate relief, and newly adopted rates.

On July 29, 2016, Kerman filed Tier 3 AL-407 to true-up its interim rates

relief to adopted rates for Test Year 2016. In Resolution T-17531 (or “Resolution”), we

disposed of this advice letter, and ordered Kerman to refund $559,783.78 to the CHCF-A

in one lump sum payment within 45 days from the effective date of the Resolution.

Kerman timely filed an application for rehearing, which challenges the

Resolution’s directive that Kerman refund adopted rates for Test Year 2016.

Specifically, Kerman argues that the Commission committed legal error in ordering this

refund because: (1) the refund constitutes an unlawful constitutional taking of Kerman’s

property; (2) the Commission abused its discretion by not relying on the record in

ordering the refund; (3) the decision is not consistent with the record evidence, and

6 Id. at pp. 6 [Findings of Fact (“FOF”) 8 & 9], & 7 [Ordering Paragraph (“OP”) 2].7 Id. at p. 7 [OP 2].8 Id. at p. 3. 9 In the Matter of Application of Kerman Telephone Co. d/b/a Sebastian, to Review Intrastate Rates and Charges and Rate of Return for Telephone Service Furnished within the State of California, and to Modify Selected Rates -- Adopting Intrastate Rates and Charges, Rate of Return, and Modifying Selected Rates for Kerman Telephone Company (“Final Rate Decision”) [D.16-06-053] (2016).

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therefore, the Commission acted arbitrary and capricious; and (4) the Commission failed

to comply with the public notice requirements under Public Utilities Code Sections

311(e) and 311(g).) No responses were filed to Kerman’s Application for Rehearing.

We have carefully considered each and every argument presented by

Kerman in its application for rehearing of Resolution T-17531, and are of the opinion that

good cause for rehearing has not been shown. Therefore, rehearing of the Resolution is

denied.

II. DISCUSSIONA. Contrary to Kerman’s allegation, the Resolution T-17531 does not

contain misstatements, or false statements.In its rehearing application, Kerman contends that statements made by Staff

during the Commission’s December 15, 2016 Meeting constituted misstatements or were

false. Kerman claims that because Resolution T-17531 contains these alleged

misstatements and/or false statements by the Staff, the Commission acted unlawfully by

relying on them in issuing the Resolution. (Rehrg. App., pp. 39-41.) Kerman further

contends that because it had no opportunity to rebut Staff’s statements, the Commission

erred. These contentions have no merit.

Kerman fails to demonstrate that Kerman’s claims of misstatements or false

statements are correct. The allegations of misstatements and false statements are really

differences of opinion between Staff and Kerman regarding what Interim Relief Decision

[D.16-02-022] and the Final Rate Decision [D.6-06-053] determined for the true-up.

Such differences of opinion do not make the statements made by Commission Staff

misstatements or false statements, and Kerman has not proven otherwise. The

differences of opinion do not constitute legal error.

Furthermore, Resolution T-17531 speaks for itself. There is no mention of

the discussion during the Commission’s meeting of December 15, 2016. Contrary to

Kerman’s contention in its rehearing application, the Resolution represents the

Commission’s determinations regarding the true-up, based on the record evidence and in

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accordance with its determinations in

D.16-02-022 and D.16-06-053.

Moreover, a review of the transcript10 of the discussion on the draft

Resolution during the December 15, 2016 Commission meeting shows that Kerman’s

argument is baseless. Much of the discussion focused on Kerman’s proposed calculations

and several Commissioners questioned CD as to why the Commission should not adopt

Kerman’s methodology.11 Indeed, at the end of the discussion, Commissioner Florio

offered to circulate some information to the other Commissioners, and it seemed that the

Commissioners might ask CD to draft an alternate that was more in Kerman’s favor.12 In

the end, there was no alternate. The idea that the discussion during a public session of a

Commission meeting unlawfully biased the Commissioners against Kerman has no merit.

B. By acting consistently with D.16-06-053 and D.16-02-022, the Commission correctly applied the proper methodology in determining that Kerman owe a refund to the CHCF-A. In its rehearing application, Kerman contends that since the Resolution is

not consistent with OP 2 in D.16-06-053 and D.16-02-022, the Commission did not rely

on the proper methodology to conduct the true-up, and thus created a shortfall for

Kerman. (See generally, Rehrg. App., pp. 19-22.) This contention has no merit.

OP 2 in D.16-06-053 states:

Kerman Telephone Company shall file a Tier 3 Advice Letter to true-up the difference between interim rates, including 2016 California High Cost Fund-A support and interim rate relief, for the period January 1, 2016 to the implementation date of the rates adopted in this order, in compliance with General Order 96-B, Industry Rule 7.3(5) (an update by a GRC-LEC regarding its allocation from the high cost fund.) The process for the true-up shall be in accordance with Ordering Paragraph 4 from D.16-02-022, which we set forth verbatim:

10 Kerman provided the transcript as Attachment C to its rehearing application. 11 See Rehrg. App, Attachment C (“Transcript”), pp. 2-6.12 See Rehrg. App., Attachment C (“Transcript”), p. 6.

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The payments to Kerman Telephone Co. (Kerman) authorized by this decision shall be subject to true-up and possible refund. The refund, if any, shall be a one-time lump sum payment from Kerman to the California High Cost Fund A (CHCF-A) fund with interest calculated using the 3-month commercial paper rate from the date of payment by the CD. The lump sum refund, including interest, shall be paid by Kerman within 45 days from the effective date of the final order in this application. On the other hand, if the ultimate draw at the conclusion of the proceeding is larger than the interim draw, additional CHCF-A shall be available to make up the difference back to February 1, 2016.

(D.16-06-053, supra, at pp. 143-144 [OP 2].)

Contrary to Kerman’s contention, Resolution T-17531 followed the

methodology set forth in D.16-06-053, as adopted in D.16-02-022. (See generally,

Resolution T-17531, pp. 3-12.)13 Kerman may be unhappy with the result, but that does

not constitute legal error.

Second, Kerman claims that the Commission committed legal error because

Resolution T-17531 did not require that the interim rate relief period subject to the

CHCF-A funding “true-up” include the month of January 2016. (Rehrg. App., p 21.)

It is evident from a review of OP 2 from D.16-06-053 that Kerman’s

interpretation is incorrect. As the Commission ordered in both D.16-02-022 and

D.16-06-053, which Kerman did not contest until Resolution T-17531 was issued,

Kerman was only authorized to receive interim rate relief for the time period

commencing February 1, 2016 to the date the final decision was issued on these matters.14

13 Contrary to Kerman’s assertion, the Commission did not make up an “alien” two-step test. (Rehrg. App., p. 20.) As discussed in the Resolution, it is based on the methodology derived from D.16-02-022 and D.16-06-053. (See Resolution T-17531, pp. 5-7.) 14 These points were also made clear elsewhere in D.16-02-022 and D.16-06-053. In D.16-02-022, the Commission stated: “Because the interim draw authorized in this decision would be subject to true-up and possible refund, there would be no harm to Kerman’s ratepayers or to contributors to the CHCF-A.” (D.16-02-022 at p. 6 [FOF 10].) Further, in D.16-06-053, the Commission opined:

The payments to Kerman Telephone Co. (Kerman) authorized by this decision shall be subject to true-up and possible refund. The refund, if any, shall be a one-time lump sum payment from Kerman to the California High Cost Fund A (CHCF-A) fund with interest calculated using the 3-month commercial paper rate

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Third, Kerman argues that Resolution T-17531 violated D.16-06-053 by

causing a shortfall in Kerman’s end user revenue for Test Year 2016. (Rehrg. App.,

p. 22.) Kerman claims:

Kerman's rate structure, as determined in the Final Rate Decision, incorporated increases to end user rates, with associated increased revenue expectations in the amount of $23,782 per month, for the seven months from January 2016 through July 2016. The Final Rate Decision in Kerman's rate case was not issued until July 1, 2016, and, therefore, rate increases could not be adopted until August 2016. Accordingly, for the seven months (January 2016 through July 2016) end user revenues on which Kerman's revenue requirement for the test year was based simply could not be generated, leaving Kerman $166,473 short of the end user revenue amount that the Commission declared was needed to meet its revenue requirement.

(Rehrg. App., p. 22.)

Kerman further asserted that “[i]n order to cure this shortfall, as the

predictable result of the timing of the Final Rate Decision, the Commission directed a

“true up [of] the difference between interim rates . . . for the period of January 1, 2016 to

the implementation date of the rates adopted in [the final] order.” (Rehrg. App., p. 22.)

This argument is not supported by the relevant decisions. D.16-02-022 and D.16-06-053

stated that the purpose of the true-up was to ensure that Kerman received the correct

amount of interim rates. The decisions say nothing about using the true-up process to

“cure this shortfall” with regard to the end user revenue amount.

from the date of payment by the CD. The lump sum refund, including interest, shall be paid by Kerman within 45 days from the effective date of the final order in this application. On the other hand, if the ultimate draw at the conclusion of the proceeding is larger than the interim draw, additional CHCF-A shall be available to make up the difference back to February 1, 2016. The interim relief was set at $1,112,373 and payable from CHCF-A.

(D.16-06-053 at pp. 137-138 [FOF 87].) Furthermore, D.16-06-053, at p. 11 noted: “On February 26, 2016, the Commission issued Decision 16-02-022, which granted Kerman’s Third Motion for Interim Rate Relief. Kerman’s interim relief was set at $1,112,373 and payable from the CHCF-A, and is subject to true-up and adjustment once the Commission reaches a final decision in this general rate case proceeding.”

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Fourth, Kerman also claims that the Resolution failed to provide sufficient

funding for it to meet its revenue requirement, and therefore, the Commission abused its

discretion. (Rehrg. App., p. 22.) Kerman notes that the Commission must base its

conclusions on record evidence. (Rehrg. App., p. 22.) Furthermore, Kerman claims that

by adopting the Resolution, “the Commission abused its discretion by ignoring the

weight of the ‘whole record.’” (Rehrg. App., p. 23.) Kerman’s arguments lack merit.

Kerman’s 2008 revenue requirement was $8,801,394. Its 2016 revenue

requirement was $8,795,090. (D.16-02-022, at p. 23.) Therefore, the revenue

requirements for Kerman’s 2008 and 2016 Test Years were nearly identical, with the

2016 Test Year revenue requirement being $6,304 less than the 2008 Test Year Revenue

Requirement.

The Commission based the interim relief it granted Kerman in D.16-02-022

on Kerman’s forecasted 2016 revenue requirement, $9,913,767, as Kerman requested in

its Motion. (D.16-02-022, at p. 3.) Kerman’s forecasted 2016 revenue requirement was

$1,118,677 higher than its 2008 revenue requirement. Kerman received several months

of interim rate relief based on its forecasted revenue requirement.

In response to Kerman’s Tier 3 advice letter on the true-up (an advice letter

it was required to file per D.16-06-053), the CD conducted two tests, consistent with the

directive in D.16-02-022 and D.16-06-053. As the Commission stated in Resolution

T-17531:

First, in accordance with D. 16-02-022, CD’s true-up calculation compares Test Year 2016 total operating revenue adopted in D.16-06-053 and 2016 interim rate relief total operating revenue adopted in D.16-06-022 to determine the revenue requirement differential. This calculation is provided in Table 1, which shows that Kerman’s adopted 2016 operating revenue is $1,118,677 less than the amount adopted in the interim rate relief decision, D.16-06-022. Therefore, because the revenue requirement for Test Year 2016 is less than the interim revenue requirement adopted for Test Year 2016, the interim rate relief is subject to refund to the CHCF-A fund. Based on this calculation, CD finds that Kerman must refund the interim rate

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relief received, plus interest, to the CHCF-A as directed by D.16-02-022 and D.16-06-053.

(Resolution T-17531, p. 5.)

Because the 2016 revenue requirement was nearly identical to the 2008

revenue requirement, and because Kerman’s forecasted 2016 revenue requirement was

significantly higher than the final revenue requirement, Kerman was required to refund

the interim rate relief it received, plus interest, to the CHCF-A, as directed by

D.16-02-022 and D.16-06-053. (Resolution, T-17531, p. 5.)

The second test compared the CHCF-A draw that Kerman received during the

interim and what it ultimately received and was granted in the rate case in D.16-06-053.

(Resolution T-17531, p. 6; see also, D.16-02-022, pp. 7-8 [OP 4]; D.16-06-053, at pp.

142-143 [OP 2].) Under this analysis, CD compared whether the interim CHCF-A draw

was less than the amount that Kerman was granted in its final draw.15 CD found that

“since Kerman’s Test Year 2016 adopted CHCF-A draw $4,177,111, is less than the

interim CHCF-A draw $4,652,098, Kerman does not qualify to receive any additional

CHCF-A payments.” (Resolution, T-17531, p.6.) CD concluded that the second test

showed that the interim rate relief that Kerman received must be refunded. (Ibid.)

Kerman proposed a methodology to calculate the true-up that was not

consistent with the methodology that the Commission established in D.16-02-022 and

affirmed in D.16-06-053. Resolution T-17531 noted the following inconsistencies with

Kerman’s proposed methodology:

1. Kerman excluded local network services, interstate USF, intrastate network access services, miscellaneous and uncollectible revenue in its true-up calculations;

2. Kerman isolated and compared only the CHCF-A support that the Commission adopted for Test Year 2016 to the CHCF-A support that was adopted for CY 2016 and interim rate relief instead of

15 “The revenue requirement methodology that CD used in determining Kerman’s true-up is standard Commission practice. The total revenue requirement comparison CD made is an established procedure used for water utilities in performing true-up for interim rate relief; it is appropriate for CD to follow a similar practice for this true-up. (Resolution T-17531, p. 6.)

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including the entire operating revenue adopted for Test Year 2016 against the interim operating revenue adopted in D.16-02-022; and

3. Kerman included ARC revenue in its true-up calculation even though the ARC was not a component of the operating revenues that the Commission adopted or included in the calculation of the interim rate relief in D.16-02-022. Because it is not appropriate to include the ARC in the true-up calculation, we will not address the merits of Kerman’s request for ARC recovery in this Resolution. Kerman may file a separate Tier 3 AL seeking disposition of the ARC recovery it has incorrectly included in the interim rate relief true-up calculation.

(Resolution T-17531, p. 4.)

Kerman attempts to complicate the issue. However, this really boils down

to one simple concept: Kerman received money that was in excess of what it had a right

to recover. The Commission unequivocally stated in two decisions that Kerman would

be required to refund any over-collections within 45 days of a Commission order on the

true-up. D.16-02-022 and D.16-06-053 were explicit that there were two things to be

compared, the adopted interim rates and the adopted final rates for Test Year 2016.

Because the final revenue requirement adopted in D.16-06-053 ($8,795,090) is less than

the interim revenue requirement adopted in D.16-06-022 ($9,913,767), the true-up

calculation and repayment to the CHCF-A fund should be based on that differential. Any

interim draw that was over what was authorized in Kerman’s final revenue requirement

was an over-collection.

Thus, we followed the methodology that we adopted in D.16-02-022 and

D.16-06-053 in issuing Resolution T-17531. Moreover, the Resolution does not

constitute an abuse of discretion because it is based on record. Thus, Kerman fails to

establish legal error.

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C. Kerman’s argument regarding an unconstitutional taking has no merit. Kerman claims that the Resolution “effects a taking of private property

without just compensation in violation of the United States and California Constitutions

and fails to proceed in the manner required by law.” (Rehrg. App., p. 23.) Kerman

further claims that “the Resolution reaches a result that is at odds with two unambiguous

decisions” and that the Resolution “also adopts a rate structure and revenue requirement

that constitute a taking per se of Kerman’s property and thereby Kerman’s constitutional

rights.” (Ibid.)

To support its takings argument, Kerman attempts to make a case that the

numbers just do not add up:

[T]he Commission found that Kerman required $8,795,090 to meet its revenue requirement for 2016 … [t]he $8,795,090 figure included CHCF-A of $4,177,111 and end user revenue of $2,036,922, in addition to other revenue sources unrelated to this matter. Following the return of $550,784 that the Resolution wrongfully orders, Kerman will have received only $3,801,700 in CHCF-A for 2016 and Kerman’s rates were only set to produce $1,870,460 in end user revenue for 2016.

(Rehrg. App., p. 25.)

D.16-06-053 provided for a revenue requirement of $8,795,090. Kerman

claims that because the Resolution orders a refund of the interim rates, the Resolution

lowers this revenue requirement to $8,253,207. Kerman believes that this amounts to an

unconstitutional taking. (Rehrg. App., p. 24.)

Kerman’s taking claims are premised on an argument that somehow

D.16-06-053 and D.16-02-022 guaranteed the company a certain recovery. However,

these claims are without merit.

In the leading cases of Federal Power Co. v. Hope Natural Gas Co.

(“Hope”) (1944) 320 U.S. 591, and Duquesne Light Co. v. Barasch (“Duquesne”)(1989)

488 U.S. 299, the United States Supreme Court outlined several factors to consider in

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determining whether utility rates effect an unconstitutional taking. Generally, an

unlawful taking or confiscation does not occur unless a regulation or rate is unjust and

unreasonable, and whether a regulation or a rate is just and reasonable depends on a

balancing of the interests of the regulated entity providing the services and the interests of

the consumers of such services. (Duquesne, 488 U.S. at p. 307; Hope, 320 U.S. at p.

603.) Merely asserting in general language that rates are confiscatory is insufficient; the

facts relied on must specifically demonstrate that the rates necessarily deny plaintiff just

compensation and deprive it of its property. (Public Serv. Com. of Montana v. Great

Northern Util. Co. (1933) 289 U.S. 130, 136-137.)16

There is no legal principle which guarantees utilities that they always will

be able to recover 100% of those costs in every area. In fact, it has long been recognized

that state commissions are not required by the United States Constitution to adopt any

specific rate formula as long as the results are not confiscatory. (See Hope, 320 U.S. at

p. 602.) Even if a utility receives no recovery for certain costs, the rates will not be

considered confiscatory so long as the overall rate levels are just and reasonable.

(Duquesne, 488 U.S. at p. 310; see also, Market Street R. Co. v. Railroad Commission of

California (“Market Street Railway”) (1945) 324 U.S. 528, 566). The law only requires

that a utility has a reasonable opportunity to earn a fair return on their investment. (See

Duquesne Light Co. v. Barasch, 488 U.S. at p. 308.)

16 Generally, an unlawful taking or confiscation does not occur unless a regulation or rate is unjust and unreasonable. (Duquesne, 488 U.S. at p. 307; see also, 20th Century Ins. Co. v. Garamendi (“Garamendi”) (1994) 8 Cal.4th 216, 292.) Whether a regulation or rate is just and reasonable depends on a balancing of the interests of the regulated entity providing the services and the interests of the consumers of such services. (Hope, 320 U.S. at p. 603; see also, Garamendi, 8 Cal.4th at p. 293.) “‘The “just and reasonable” principle does not require “that the cost of each company be ascertained and its rates fixed with respect to its own costs.” ‘“ (Id., citing Giles Lowery Stockyards v. Dept. of Agriculture (5th Cir. 1977) 565 F.2d 321, 327.) “[A] regulated industry is not entitled, as a matter of right, to realize a particular rate of return, and the interests of the consuming public are also to be considered in establishing rates.” (Id. at p. 324.) “That a particular rate may not cover the cost of a particular good or service does not work confiscation in and of itself.” (Garamendi, 8 Cal.4th at p. 293.) Further, a regulated entity neither has a constitutional right to a profit nor a constitutional right against a loss. (Id. at p. 294.) “The fixing of prices, like other applications of the police power, may reduce the value of the property which is being regulated. But the fact that the value is reduced does not mean that the regulation is invalid." (Hope, 320 U.S. at p. 601.)

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“A regulated utility has no constitutional right to a profit. (Bluefield Water

Works & Improvement Co. v. Public Service Commission of West Virginia (1923) 262

U.S. 679, 693; see also, Jersey Central Power & Light Co. v. FERC (D.C. Cir. 1987) 810

F.2d 1168, 1180-81 (en banc), citing FPC v. Natural Gas Pipeline Co. (1942) 315 U.S.

575, 590 and Market Street Railway, 324 U.S. at p. 566.)

Because both D.16-06-053 and D.16-02-022 provided for a true-up,

Kerman’s contention that the Resolution could not order refund is without merit. It is

obvious from D.16-06-053 that while the Commission approved a revenue requirement

for Kerman of $8,795,090, it also anticipated that Kerman’s revenue requirement may be

reduced.

We were very clear that “Kerman Telephone Company’s operating

revenues shall be $8,795,090”and “Kerman Telephone Company shall file a Tier 3

Advice Letter to true-up the difference between interim rates, including 2016 California

High Cost Fund-A support and interim rate relief …” is to recognize that the $8,795,090

operating revenues are subject to a true-up. (D.16-06-053 at pp. 143-144 [OP 1 &2].

Further, in D.16-02-022, the Commission ordered a true-up with respect to

Kerman’s interim draw, with the possibility of a refund. (D.16-02-022, pp. 3 & 7 [OP 4].

As the Commission stated:

In addition, because the interim draw authorized in this decision would be subject to true-up and possible refund, there would be no harm to Kerman’s ratepayers or to contributors to the CHCF-A. If Kerman’s final CHCF-A draw is less than the interim draw, Kerman will return the difference to the CHCF-A.

(D.16-02-022, p. 3.)

Thus, with the true-up and the possibility of a refund, the assertion that

the adjustments in the amounts set forth in D.16-06-053 and D.16-02-022 constituted an

unlawful taking has no merit.

Further, Kerman merely alleges that the amounts set forth in both decisions

constitute their property. This allegation also has no merit.

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Kerman fails to establish how the refund amount constituted its property in

light of the fact the amounts were subject to true-up and possible refund. The refund that

Resolution T-17531 ordered Kerman represented an over-collection by Kerman, and thus,

did not constitute the property of the utility. The funds were also monies from the

CHCF-A account, which were monies collected from ratepayers. Thus, Kerman had no

property entitlement to this over-collection.

Merely asserting in general language that rates are confiscatory is

insufficient; the facts relied on must specifically demonstrate that the rates necessarily

deny plaintiff just compensation and deprive it of its property. (Public Serv. Com. of

Montana v. Great Northern Util. Co. (1933) 289 U.S. 130, 136-137.) Here, Kerman has

failed to establish how the refund amount constituted its property, so that it would not be

subjected to refund if there was an over-collection.

In its taking claim, Kerman also asserts that the Resolution conflicts with

section 275.6(a), which sets forth the CHCF-A Fund program. (Rehrg. App., p. 26.)

Kerman asserts that “[b]y contradicting the express directives in the Final Rate Decision

[D.16-06-053], the Resolution categorically deprives Kerman of the funding that the

Commission conclusively determined is necessary for Kerman to meet its revenue

requirement, and, in turn, categorically denies it an opportunity to earn its authorized rate

of return.” (Ibid.) This argument is misplaced.

Section 275.6(a) provides:

The commission shall exercise its regulatory authority to maintain the California High-Cost Fund-A Administrative Committee Fund program (CHCF-A program) to provide universal service rate support to small independent telephone corporations in amounts sufficient to meet the revenue requirements established by the commission through rate-of-return regulation in furtherance of the state’s universal service commitment to the continued affordability and widespread availability of safe, reliable, high-quality communications services in rural areas of the state.

(Pub. Util. Code, § 275.6.)

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Again, Kerman fails to recognize that the revenue requirement the

Commission adopted in D.16-06-053 was subject to a true-up for the interim rates, and it

was clear in both D.16-06-053 and D.16-02-022 that Kerman may have to refund monies

that it received in interim rate relief, but that ultimately it was not entitled to keep.

As noted above, there is no constitutional right to profit. Further, Kerman

fails to demonstrate how ordering the refund was unreasonable and unjust, so as to

constitute an unlawful taking. Section 275.6(a) does not constitute a guarantee for

Kerman to receive the monies that were subject to true-up and possible refund. Nothing

in section 275.6(a) provides for that guarantee, and Kerman assertion that it does is

legally flawed. Accordingly, this assertion is without merit.

D. There is no merit to Kerman’s allegation that the Resolution erred in stating that the Interim Rate Relief Decision [D.16-06-022] adopted an interim revenue requirement. In its rehearing application, Kerman alleges:

“[T]he Resolution falsely asserts that the Interim Rate Relief Decision adopted an “interim revenue requirement of $9,913,767.” Resolution, at p. 2 (emphasis added). No such statement appears in the Interim Rate Relief Decision, and it did no such thing. Rather, it adopted an interim rate structure pursuant to which end user rates remained unchanged, and CHCF-A was increased by $92,697 per month for as long as needed before final rates could be adopted and a proper true-up conducted. D.16-02-022, at p. 7 (O.P.s. 2, 3).

(Rehrg. App., p. 27.) Therefore, Kerman believes that Resolution T-17531 is not

consistent with the “record,” and thus is arbitrary and capricious, and constitutes an abuse

of discretion on the Commission’s part. (Rehrg. App., p. 27.)17 By the “record,” it

appears that Kerman is arguing that the Resolution “falsely asserts” that D.16-06-022

17 It appears that Kerman is alleging that in erroneously determining that D.16-02-022 adopted an interim revenue requirement rather than an interim rate structure, the Commission used the wrong true-up methodology. (See generally, Rehrg. App., pp. 26-30.) As discussed above, the Commission applied the correct true-up methodology as set forth in D.16-06-053 and D.16-16-02-022. (See discussion, infra.)

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adopted an “interim revenue requirement,” while Kerman asserts that D.16-06-22

adopted an “interim rate structure.” On this issue, Kerman’s arguments have no merit.

A review of D.16-02-022 demonstrates that Kerman’s argument is spurious.

The Commission clearly stated in D.16-02-022 that it was adopting an interim revenue

requirement of $9,913,767, subject to a true up process, in order to establish interim

rates.18 The Commission also noted that the difference between the 2008 and 2016

revenue requirements was $1,112,373.19 The Decision directed CD to divide $1,112,373

into 12 monthly payments from the CHCF-A.20 D.16-02-022 specifically provides, in

relevant part:

We have reviewed the evidence that Kerman has submitted in support of its motion. Assuming that Kerman’s allegations are accurate (which will be determined later in the true-up process), they support the granting of the motion. As noted above, Kerman claims that its earnings for 2013 and 2014 were 6.11% and 4.45%, respectively. Kerman also attached a Means Test to its annual CHCF-A Advice Letter for 2015 to support its claim of 3.67% projected earnings for 2015, based on seven months of annualized data. Kerman’s Regulatory Manager, David Clark, then performed a calculation to adjust Kerman’s current revenue requirement for inflationary increases through 2016 based on the GDDPI. He alleges that Kerman’s revenue requirement set by its 2008 GRC was $8,801,394. He then calculated Kerman’s revenue requirement for 2016 which he asserts to be $9,913,767 when adjusted for inflation. If these figures are correct, subtracting 2008 revenue requirement ($8,801,394) from the 2016 revenue requirement ($9,913,767) leaves a difference of $1,112,373. 21

With the true-up, Kerman’s “allegations” regarding what the 2016 revenue

requirement will be prove to be incorrect. Kerman attempts to confuse the situation by

18 D.16-02-022 at p. 3 (citing the Declaration of David Clark, Kerman’s Regulatory Manager, at ¶5). See also D.16-02-022 at p. 6 [Finding of Fact (“FOF”) 8].19 Id. at p. 6 [FOF 7-9].20 Id. at p. 6 [Conclusion of Law (“COL”) 4].21 Id. at p. 3 [emphasis added; citations omitted].

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claiming that the Commission adopted an interim rate structure, not an interim revenue

requirement, in D.16-02-022. Kerman’s claim is unfounded. D.16-02-022 only mentions

the word “rate structure” two times in D.16-02-022 on page 2 in the section summarizing

Kerman’s Motion.22 Further, D.16-02-022 clearly states in both the body of the decision

and in the Findings of Facts and Conclusions of Law that for the purposes of granting

Kerman interim rate relief, that it was adopting Kerman’s forecasted 2016 revenue

requirement. The Commission also plainly stated that its adoption of Kerman’s

forecasted 2016 revenue requirement was subject to a true-up process.23

For the aforementioned reasons, Resolution T-17531 was correct in

determining that D.16-02-022 adopted an interim revenue requirement, and not an

interim rate structure. Thus, the Commission was not arbitrary and capricious, nor did it

abuse its discretion.

E. In issuing the Resolution, the Commission did not violate the notice and comment requirements set forth in sections 311 (e) and 311(g), and in its own rules. Kerman claims that “the reasoning, findings and conclusion of the

Resolution were radically altered less than 70 hours before its adoption, in violation of

the notice and comment requirements of Public Utilities Code Sections 311(e) and

311(g).” (Rehrg. App., p. 3 [emphasis in the original].) Kerman claims that under Public

Utilities Code 311(e) and 311(g), the Commission was required to re-notice the matter

and seek comment from affected parties. (Ibid.) Kerman’s section 311 claims have no

merit.

The changes made to the Resolution were not substantive, and were made

in response to Kerman’s own comments on the draft Resolution. (See Kerman’s

Comments to Proposed Resolution, filed December 5, 2017.) There was no change in

outcome. Both Resolution T-17531 and the Proposed Resolution ordered refunds.

22 Id. at p. 2.23 Id. at pp. 3 & 6-7 [FOF 7-10 & COL 4-5].

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The Commission can lawfully make changes in response to comments to a

proposed order, whether a Commission decision or resolution, as long as the changes do

not constitute an alternate within the meaning of section 311(e). (See, e.g., Order

Instituting Rulemaking on the Commission’s Own Motion to Adopt New Safety and

Reliability Regulations for Natural Gas Transmission and Distribution Pipelines and

Related Ratemaking Mechanisms -- Order Modifying Decision (D.) 12-12-030 and

Denying Rehearing, as Modified [D.15-07-044] (2015), at pp. 7-9.

Specifically, the Commission amended the reasoning for reaching its

determination in response to the comments that Kerman filed on the draft Resolution on

December 5, 2016, and which the final Resolution references and addresses. (See

Resolution T-17531, pp. 8-10.) Notably, the ultimate outcome remained in the final

Resolution that the Commission adopted and the draft Resolution was the same. The

changes did not “materially change the outcome of a contested issue.” (See ibid.)

Therefore, the changes that we made to the proposed Resolution in response to comments

are not in contravention to section 311(e). The Commission was not required to re-

circulate for 30 days the draft proposed Resolution. Therefore, Kerman’s argument has

no merit.

Thus, the revised draft Resolution which became Resolution

T-17531 did not qualify as an alternate under section 311(e), which provides, “[f]or

purposes of this subdivision, ‘alternate’ means either a substantive revision to a proposed

decision that materially changes the resolution of a contested issue or any substantive

addition to the findings of fact, conclusions of law, or ordering paragraphs.” (Pub. Util.

Code, § 311. Subd. (e).)

Kerman continues this line of argument by also claiming that the

Commission violated Rules 14.5 and 14.2(c) of the Commission’s Rules of Practice and

Procedure (“Rules”) because it did not circulate the Revised Draft Resolution for

comment. (Rehrg. App., pp. 36-37.) Here, Kerman does not argue that the comment

period needs to be 30 days but rather 10 days. Rule 14.2(c) states: “‘Draft resolution’ is a

recommended resolution that is proposed by a Commission director.” (Commission

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Rules of Practice and Procedure, Cal. Code of Regs., tit. 20, § 14.2, subd. (c).) Rule 14.5

provides:

Any person may comment on a draft or alternate draft resolution by serving (but not filing) comments on the Commission by no later than ten days before the Commission meeting when the draft or alternate resolution is first scheduled for consideration (as indicated on the first page of the draft or alternate resolution) in accordance with the instructions accompanying the notice of the draft or alternate draft resolution in the Commission's Daily Calendar.

(Commission Rules of Practice and Procedure, Rule 14.5, Cal. Code of Regs., tit. 20,

§ 14.5.) Because Kerman was, in fact, given 30 days to comment on the draft Resolution,

the due process requirement in Rule 14.5 was met here. Further, because the Revised

Draft Resolution is not an alternate under the meaning of section 311(e), Kerman’s

reliance on Rules 14.5 and 14.2(c) is misplaced.

F. Kerman was afforded due process in the true-up methodology that was set forth in D.16-02-022 and D.16-06-053. Kerman further argues that its due process rights were violated by the

“Commission’s procedure in adopting the Resolution.” (Rehrg. App., p. 37.) In its

rehearing application, Kerman cites to several decisions regarding what constitutes

adequate due process of law. For example, Kerman stated:

The fundamental requisite of due process of law is the opportunity to be heard and to be heard “at a meaningful time and in a meaningful manner.” Goldberg v. Kelly, 397 U.S. 254, 267-68 (1970) (citing Grannis v. Ordean, 234 U.S. 385, 394 (1914), Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). The adequacy of governmental notice is essential to any evaluation of the sufficiency of procedural due process. Fuentes v. Shevin, 407 U.S. 67, 80 (1972) (“For more than a century the central meaning of procedural due process has been clear: ‘Parties whose rights are to be affected are entitled to be heard; and in order that they may enjoy that right they must first be notified.’”).

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(Rehrg. App., p. 38.)

The problem with Kerman’s argument is that Kerman was, in fact, given

notice and opportunity to be heard on this issue. The Commission first adopted the true-

up process in D.16-02-022. Kerman did not protest the language or process that the

Commission adopted for a true-up at that time. Four months later the Commission

reaffirmed its conclusions in D.16-02-022 in D.16-06-053. Kerman again did not

comment on the language or process that the Commission adopted in the final decision.

The Commission then issued Resolution T-17531 and circulated it for 30 day comment.

Kerman filed comments on the draft Resolution which the Commission clearly addressed

in the final Resolution. (See Resolution T-17531, pp. 8-10.)

In summary, Kerman did not contest the true-up process adopted in

D.16-02-022 and confirmed in D.16-06-053. The time to oppose the true-up process that

Commission staff used in issuing Resolution T-17531 was during the comment period for

the draft decisions of D.16-02-022 and D.16-06-053. A careful review of Kerman’s

comments on those proposed decisions reveals that Kerman did not raise any objections

to the true-up proposal.24

Nor does it appear that Kerman file an application for rehearing of either

decision, challenging the lawfulness of the true-up. Thus, both decisions are final and

unappealable.

To challenge the true-up methodology set forth in D.16-02-022 and D.16-

06-053 at this point constitutes an impermissible collateral attack of the final

determinations made in those decisions. (See Pub. Util. Code, § 1709 [“In all collateral

actions or proceedings, the orders and decisions of the commission which have become

final shall be conclusive”]; see also, People v. Western Air Lines (1954) 42 Cal.2d 621,

630.)

For all of these reasons, the Commission did not violate Kerman’s due

process rights. Therefore, Kerman’s due process argument has no merit.24 See, A.11-12-011, Opening Comments of Kerman on Proposed Decision of Administrative Law Judge Mason (A.11-12-011), filed on April 25, 2016, at p. 19. Reply Comments of Kerman on Proposed Decision of Administrative Law Judge Mason (A.11-12-011), filed May 2, 2016.

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III. CONCLUSIONFor the reasons stated above, Kerman’s application for rehearing of

Resolution T-17531 has not demonstrated legal error. Accordingly, rehearing is denied.

THEREFORE, IT IS ORDERED that:

1. Rehearing of Resolution T-17531 is hereby denied.

2. This proceeding, Application (A.) 17-03-010, is hereby closed.

This order is effective today.

Dated November 30, 2017, 2017, at San Francisco, California.

MICHAEL PICKER PresidentCARLA J. PETERMANLIANE M. RANDOLPHMARTHA GUZMAN ACEVESCLIFFORD RECHTSCHAFFEN Commissioners

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