Skip to main content Skip to office menu Skip to footer
Minnesota Legislature

Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language

                            CHAPTER 534-H.F.No. 2143 
                  An act relating to telecommunications; regulating 
                  competitive telephone services and incentive plans; 
                  extending expiration dates and making technical 
                  changes for certain regulatory provisions; amending 
                  Minnesota Statutes 1992, sections 237.161, by adding a 
                  subdivision; 237.57, subdivision 4; 237.58, 
                  subdivision 1; 237.59, subdivisions 1, 2, 3, 5, and by 
                  adding a subdivision; 237.60, subdivision 2; 237.62, 
                  subdivision 1; 237.625, subdivision 1; and 325E.26, by 
                  adding a subdivision; proposing coding for new law in 
                  Minnesota Statutes, chapter 237; repealing Minnesota 
                  Rules, parts 7815.0700; 7815.0800; 7815.0900; 
                  7815.1000; 7815.1100; 7815.1200; 7815.1300; 7815.1400; 
                  and 7815.1500; Laws 1987, chapter 340, section 26; 
                  Laws 1989, chapter 74, sections 25 and 27; Laws 1990, 
                  chapter 513, section 3; and Laws 1993, chapter 41, 
                  section 1. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
                                   ARTICLE 1
           Section 1.  Minnesota Statutes 1992, section 237.161, is 
        amended by adding a subdivision to read: 
           Subd. 6.  [EXPIRATION.] This section expires June 1, 1996, 
        or upon the issuance under this subdivision of a final order of 
        the commission to govern extended area service, whichever occurs 
        earlier. 
           Prior to June 1, 1996, the commission shall complete a 
        proceeding or series of proceedings to investigate issues 
        related to extended area telephone service and shall issue a 
        final order to establish, at a minimum, an orderly and equitable 
        process and standards for determining the configurations of and 
        cost allocations for extended area service in the state.  The 
        commission shall provide notice of the proceedings required 
        under this subdivision in the same manner as for rulemaking and 
        shall ensure public participation in the proceedings as for rate 
        changes under section 237.075.  The commission may not accept a 
        new petition for extended area service between the effective 
        date of this subdivision and the effective date of the final 
        order issued under this subdivision but shall continue to 
        process petitions pending on that effective date under this 
        section. 
           Sec. 2.  Minnesota Statutes 1992, section 237.57, 
        subdivision 4, is amended to read: 
           Subd. 4.  [EMERGING COMPETITION.] A service will be 
        regulated under "emerging competition" exists provisions when 
        the criteria of section 237.59, subdivision 5, have not been 
        satisfied, but there is a trend toward effective competition, or 
        if it is a new service offered for the first time after August 
        1, 1994, that is not integrally related to the provision of 
        adequate telephone service or access to the telephone network or 
        to the privacy, health, or safety of the company's customers, 
        whether or not it meets the criteria of section 237.59, 
        subdivision 5. 
           Sec. 3.  [237.5799] [EXPIRATION.] 
           Sections 237.58, 237.59, 237.60, 237.61, 237.62, 237.625, 
        237.63, 237.64, 237.65, 237.66, and 237.68 expire on August 1, 
        1999. 
           Sec. 4.  Minnesota Statutes 1992, section 237.58, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [APPLICABILITY.] This section and sections 
        237.59; 237.60, subdivisions 1, 2, and 5; 237.62; and 237.625 do 
        not apply to a telephone company unless the company notifies the 
        commission in writing of its decision to be subject to all of 
        those sections.  The company may not revoke its decision to be 
        subject to those sections before January 1, 1994 1999, unless 
        the company becomes subject to some other form of alternative 
        regulation. 
           Sec. 5.  Minnesota Statutes 1992, section 237.59, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [EMERGING COMPETITIVE SERVICES.] (a) The 
        following services provided by the telephone company are subject 
        to emerging competition unless and until reclassified as 
        noncompetitive or subject to effective competition under this 
        section: 
           (1) apartment door answering services; 
           (2) automatic call distribution; 
           (3) billing and collection services; 
           (4) call waiting, call forwarding, and three-way calling 
        services for businesses with three or more lines; 
           (5) central office-based pricing packages providing 
        switched business access lines which substitute for private 
        branch exchange systems which may or may not share intelligence 
        with customer premises equipment; 
           (6) command link-type services for network reconfiguring to 
        rearrange cross-connections between channel services; 
           (7) custom network services and special assemblies; 
           (8) digicom switchnet services for full duplex, 
        synchronous, information transport; 
           (9) direct customer access services for telephone number 
        information services video display; 
           (10) group access bridge teleconferencing services; 
           (11) inter-LATA and intra-LATA message toll service; 
           (12) inter-LATA and intra-LATA private line services; 
           (13) inter-LATA and intra-LATA wide area telephone service; 
           (14) mobile radio services; 
           (15) operator-handled intercept operator services, 
        excluding local operator services; 
           (16) public pay telephone services, excluding charges for 
        access to the central office; 
           (17) seminars; 
           (18) services not previously offered prior to August 1, 
        1987; 
           (19) a service that generates an annual revenue equal to or 
        less than the greater of one-tenth of one percent or $100,000 of 
        a telephone company's annual gross revenues in the year the 
        company elects to be covered by this section; 
           (20) special construction of facilities; 
           (21) studies; 
           (22) (18) systems for automatic dialing; and 
           (23) (19) versanet-type service access line involving 
        continuous monitoring and transmission of data from customer's 
        premises to the central office. 
           (b) A service classified as subject to emerging competition 
        before the effective date of this act retains that 
        classification unless and until it is reclassified pursuant to 
        subdivision 3 or 10.  
           Sec. 6.  Minnesota Statutes 1992, section 237.59, is 
        amended by adding a subdivision to read: 
           Subd. 1a.  [CLASS SERVICES.] Notwithstanding the terms of 
        subdivision 1, paragraph (b), CLASS services may be classified 
        as competitive services only when so classified according to 
        subdivision 3 or 10. 
           Sec. 7.  Minnesota Statutes 1992, section 237.59, 
        subdivision 2, is amended to read: 
           Subd. 2.  [PETITION.] (a) A telephone company, or the 
        commission on its own motion, may petition to have a service of 
        that telephone company classified as subject to effective 
        competition or emerging competition.  The petition must be 
        served on the commission, the department of public service, the 
        office of the attorney general, and any other person designated 
        by the commission.  The petition must contain at least: 
           (1) a list of the known alternative providers of the 
        service available to the company's customers; and 
           (2) an estimate of the company's current market share; 
           (3) identification of barriers to entry or exit from the 
        market for the service; and 
           (4) a description of affiliate relationships with any other 
        provider of the service in the company's market. 
           (b) At the time the company first offers a service, it 
        shall also file a petition with the commission for a 
        determination as to how the service should be classified.  In 
        the event that no interested party or the commission objects to 
        the company's proposed classification within 20 days of the 
        filing of the petition, the company's proposed classification of 
        the service is deemed approved.  If an objection is filed, the 
        commission shall determine the appropriate classification after 
        a hearing conducted pursuant to section 237.61.  In either 
        event, the company may offer the new service to its customers 
        ten days after the company files the price list and incremental 
        cost study as provided in section 237.60, subdivision 2, 
        paragraph (f). 
           (c) A new service may be classified as subject to effective 
        competition or emerging competition pursuant to the criteria set 
        forth in subdivision 5.  A new service must be regulated under 
        the emerging competition provisions if it is not integrally 
        related to the provision of adequate local service or access to 
        the telephone network or to the privacy, health, or safety of 
        the company's customers, whether or not it meets the criteria 
        set forth in subdivision 5. 
           Sec. 8.  Minnesota Statutes 1992, section 237.59, 
        subdivision 3, is amended to read: 
           Subd. 3.  [EXPEDITED PROCEEDING.] An interested party 
        wishing to contest the change of classification of a service 
        must file an objection with the commission within 20 days after 
        the filing of the petition.  If no party files an objection, the 
        service must be reclassified in accordance with the petition.  
        If a petition is contested, a telephone company that is the 
        subject of a petition under subdivision 2 may request that the 
        commission determine the classification of the service through 
        an expedited proceeding under section 237.61 or a contested case 
        hearing.  If an expedited proceeding is requested, the 
        commission must provide interested persons an opportunity to 
        comment on the appropriateness of the process and the merits of 
        the petition. 
           When an expedited proceeding is requested, the commission 
        shall make a final determination within 60 days of the date on 
        which all required information required under subdivision 2 is 
        filed, unless during the 60 days the commission finds that a 
        material issue of fact is in dispute, in which case it shall 
        order that a contested case hearing be conducted to evaluate the 
        petition. 
           Sec. 9.  Minnesota Statutes 1992, section 237.59, 
        subdivision 5, is amended to read: 
           Subd. 5.  [CRITERIA.] (a) If a proposed classification is 
        objected to pursuant to subdivision 2, paragraph (b), on the 
        basis that the service does not meet the criteria of this 
        subdivision, the commission shall consider, in determining 
        whether a service is subject to either effective competition or 
        emerging competition from available alternative services service 
        providers, the commission shall consider and make findings on 
        the following factors:  
           (1) the number and sizes of alternative providers of 
        service and affiliation to other providers; 
           (2) the extent to which services are available from 
        alternative providers in the relevant market; 
           (3) the ability of alternative providers to make 
        functionally equivalent or substitute services readily available 
        at competitive rates, terms, and conditions of service; 
           (4) the market share, the ability of the market to hold 
        prices close to cost, and other economic measures of market 
        power; and 
           (5) the necessity of the service to the well-being of the 
        customer.  
           (b) In order for the commission to find a service subject 
        to effective competition alternative services must be available 
        to over 50 percent of the company's customers for that service. 
           (c) In order for the commission to find a service subject 
        to emerging competition alternative services must be available 
        to over 20 percent of the company's customers for that service. 
           Sec. 10.  Minnesota Statutes 1992, section 237.60, 
        subdivision 2, is amended to read: 
           Subd. 2.  [EMERGING COMPETITION.] (a) A company may 
        decrease the rate for a service subject to emerging competition 
        that is listed in the price list, effective ten days after 
        filing a new price list with the commission and the department, 
        along with an incremental cost study demonstrating that the new 
        price is above incremental cost.  The commission shall prevent a 
        proposed price reduction from going into effect or prospectively 
        reinstate the original rate if the reduction has gone into 
        effect if, after receiving a complaint or on its own motion, 
        under section 237.081, the commission finds that the new rate is 
        below incremental cost or that the new rate is not just and 
        reasonable. 
           (b) A company may increase the rate for a service subject 
        to emerging competition that is listed in the price list 
        effective 30 days after notice is given to affected customers, 
        the commission, and the department.  The notice and new price 
        list filing to the commission and the department for a rate 
        increase must include an incremental cost study demonstrating 
        that the proposed price is above incremental cost, unless a cost 
        study for the service has been filed within the past three years 
        and the company certifies that the cost study remains 
        appropriate for setting rates.  However, the commission may 
        order a new cost study upon showing that the most recent cost 
        study is inadequate.  The department shall investigate an 
        increase in rates for services subject to emerging competition, 
        and report its findings to the commission within 30 days of the 
        filing. 
           An interested party may file comments on the proposed rate 
        increase within 30 days of the filing.  If no party objects to 
        the increase within that time, the rate is deemed approved.  If 
        an objection is filed, the rate increase must nonetheless be 
        deemed approved unless within 60 days of the date of the filing 
        the commission determines that the increase is potentially 
        contrary to the public interest.  In that event, the commission 
        may shall, within 60 days after the date of the filing, order 
        that the rate increase is interim in nature and subject to 
        refund.  If interim rates are not ordered, the rate increase is 
        not refundable.  If a rate is subject to refund, the commission, 
        after a contested case hearing or an expedited hearing under 
        section 237.61, must make a final decision regarding the 
        propriety of the rate increase within six months of the date the 
        price change was filed, except that if a contested case hearing 
        before an administrative law judge is required the commission 
        shall make a final decision within ten months of the date the 
        price change was filed.  If the commission does not do so, the 
        price change is deemed approved. 
           (c) If language describing a rate, term, or condition of 
        service in a price list is changed without substantially 
        altering the application of the price list, the change may take 
        effect upon one-day notice to the commission. 
           (d) If a term or condition of service in a price list is 
        changed in a way that results in a substantial change in the 
        application of the price list, but the price is not changed, the 
        change in the price list is effective at the same time as a 
        price decrease under paragraph (a). 
           (e) If a new pricing plan is proposed for a service that is 
        currently offered by a telephone company, the change in the 
        price list is subject to the same schedules governing a price 
        increase under paragraph (b).  For purposes of this paragraph, a 
        new pricing plan is a proposal that bundles rate elements for a 
        service, alters the definition of the rate elements for a 
        service, or includes increases for some rate elements and 
        decreases for other rate elements. 
           (f) A telephone company may offer a new service to its 
        customers ten days after it files a price list and incremental 
        cost study for the service with the department and the 
        commission. 
           (g) A telephone company may discontinue a telephone service 
        that is subject to emerging competition, as long as the 
        discontinuance is effective for that service throughout the 
        state, effective 60 days after notice to the commission, the 
        department, and affected customers, unless the commission, 
        within 45 days of the notice, orders a hearing on it.  If the 
        commission orders a hearing, the commission shall make a final 
        determination on the discontinuance within 180 days of the date 
        that notice of the discontinuance was filed with the commission, 
        except that if a contested case hearing before an administrative 
        law judge is required the commission shall make a final decision 
        within ten months of the date the notice of discontinuance was 
        filed. 
           (h) A change in a price list not covered by paragraphs (a) 
        to (f) must be reviewed according to the schedule prescribed for 
        a price increase under paragraph (b). 
           (i) An incremental cost study required by this section, 
        section 216D.01, subdivision 8, and 237.62, must be a long-run 
        incremental cost study unless the commission has allowed the 
        telephone company required to do the study to set rates based on 
        a variable cost study.  A telephone company may include a 
        petition to file a variable cost study instead of a long-run 
        incremental cost study with its notice of price change, notice 
        of a promotion, or its filing of a new service.  The commission 
        shall grant the petition if the company demonstrates that a 
        long-run incremental cost study is burdensome in relation to its 
        annual revenue from the service involved, that the company has a 
        low market share, that the service is no longer being offered to 
        new customers, or if the company shows other good cause.  A 
        petition must be accompanied by a variable cost study.  If the 
        petition is denied, the company shall withdraw a filing made 
        under this section. 
           (j) For purposes of this section and section 237.62, (1) 
        long-run incremental cost means the change in total cost 
        associated with a change in volume of the service, expressed on 
        a per-unit basis, and (2) variable cost means the change in 
        total cost, excluding fixed costs, associated with a change in 
        volume of service, expressed on a per-unit basis. 
           Sec. 11.  Minnesota Statutes 1992, section 237.62, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [FINANCIAL REQUIREMENTS.] (a) This 
        subdivision governs a proceeding initiated under section 237.075 
        or 237.081 to change the rates for noncompetitive services.  
        Subdivision 1a governs a proceeding under section 237.075 or 
        237.081 to change the rates for noncompetitive services and for 
        services subject to emerging competition.  The company shall 
        elect that rate changes be made in accordance with either this 
        subdivision or subdivision 1a, and that election is binding on 
        the commission in all respects.  
           (b) A company electing to use this subdivision may 
        demonstrate the revenue requirement for its noncompetitive 
        services by providing: 
           (1) revenues, expenses, and embedded investments directly 
        related to the provision of the noncompetitive services; 
           (2) a reasonable portion of the net income generated 
        jointly or arising from jointly competitive and noncompetitive 
        services, and net income received by a telephone company as a 
        result of the sale of telephone number listings, charges and 
        advertising for use in white pages, yellow pages, other 
        directory and other related services, must be treated as arising 
        jointly from competitive and noncompetitive services; and 
           (3) a reasonable portion of the company's total joint and 
        common costs to be attributable to the provision of the 
        noncompetitive services. 
           (c) For purposes of this subdivision, when a telephone 
        company uses an investment to provide competitive services to 
        end-user customers and another company provides a competing 
        service that requires, in part, the use of a similar investment 
        to provide the telephone company's noncompetitive services or 
        service elements, the telephone company shall treat both 
        investments and related costs as though they are providing 
        noncompetitive services and shall attribute revenues to the 
        noncompetitive category using the rates for the noncompetitive 
        service or service elements multiplied by the appropriate 
        current volumes for the telephone company's competitive service 
        instead of determining the investment, associated expenses, and 
        common and joint costs under paragraph (b), clauses (1) and (3) 
        to determine the revenue requirement for the noncompetitive 
        category. 
           (d) A telephone company that receives annual revenues from 
        Minnesota intrastate services of less than $100,000,000 may 
        demonstrate the revenue requirement for its noncompetitive 
        services by removing from the telephone company's total 
        revenues, expenses, and embedded investments the revenues, 
        expenses, and embedded investments of: 
           (1) interstate services, determined using: 
           (i) the specific jurisdictional separations procedures 
        adopted by the Federal Communications Commission, if the 
        telephone company is an actual cost company for interstate 
        services; or 
           (ii) applicable jurisdictional separations principles, if 
        the telephone company is an average schedule company for 
        interstate services; and 
           (2) competitive intrastate services, determined as follows: 
           (i) revenues must be directly assigned based on the related 
        services; 
           (ii) revenues from services with both competitive and 
        noncompetitive elements must be assigned first to noncompetitive 
        elements based on tariffs, with the remainder assigned to 
        competitive elements; 
           (iii) expenses must be directly assigned to either 
        competitive or noncompetitive services when possible, based on 
        the origin of those expenses; 
           (iv) joint expenses, which are those that cannot be 
        directly assigned to any single competitive or noncompetitive 
        service, must be allocated using a cost causal methodology in 
        accordance with the following hierarchy: 
           (A) whenever practicable, the allocation of expenses must 
        be based on a measurable assignment method; then 
           (B) other expenses, to the extent practicable, must be 
        allocated by employing surrogate measures; and then 
           (C) any remaining joint expenses must be allocated to 
        competitive services based on the ratio of related direct and 
        joint expenses assigned to the competitive services to total 
        related direct and joint expenses; 
           (v) expenses that are common to all services must be 
        allocated based on the ratio of all direct and joint expenses of 
        competitive and noncompetitive services; and 
           (vi) embedded investments must be assigned and allocated 
        using a hierarchy comparable to the hierarchy used for the 
        assignment and allocation of expenses. 
           (e) A telephone company shall also treat the net income 
        from the sale of telephone number listings, charges, and 
        advertising for use in the white pages directory, yellow pages 
        directory, other directories, and other related services as 
        provided in paragraph (b), clause (2). 
           (f) Unless otherwise ordered by the commission, a telephone 
        company may omit the determination and removal of the revenues, 
        expenses, and embedded investments related to competitive 
        services that: 
           (1) generate, in the aggregate, annual revenues less than 
        $50,000; or 
           (2) individually generate annual revenues less than 
        one-tenth of one percent of the company's annual gross revenues 
        for the test year period. 
        However, the telephone company shall not omit determination 
        based on clauses (1) and (2). 
           Sec. 12.  Minnesota Statutes 1992, section 237.625, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [INCENTIVE PLANS.] (a) A telephone company 
        whose general revenue requirement is determined under section 
        237.075 may petition the commission for approval of an incentive 
        plan.  The incentive plan must apply to the noncompetitive 
        services of a company covered by section 237.62, subdivision 1, 
        and must apply to noncompetitive services and services subject 
        to emerging competition if the company has chosen to be governed 
        by section 237.62, subdivision 1a.  The purpose of the plan is 
        to provide an incentive to the company to improve its operating 
        efficiency while maintaining or improving the quality of its 
        service.  If a telephone company is able to increase its 
        earnings, the telephone company shall share the increased 
        earnings with its customers to the extent and in the manner set 
        forth in the commission-approved plan.  The commission may not 
        approve a plan that does not meet the requirements of this 
        paragraph and paragraphs (b) to (e) (f). 
           (b) A telephone company shall share increased earnings 
        during the term of the incentive plan with its customers either 
        by giving them credits against bills or by lowering rates.  The 
        division of increased earnings between the company and the 
        customers must reflect the degree to which the company has 
        assumed a risk of earning less than its revenue requirement and 
        the degree to which the customers have assumed a risk of rate 
        increases.  Any plan approved or renewed under this section 
        after August 1, 1994, must require that the percentage of 
        increased earnings shared with customers change in relation to 
        the amount that earnings exceed the last authorized return on 
        equity for that company. 
           (c) The incentive plan must be in effect for at least two 
        years. 
           (d) The incentive plan must provide for periodic reporting 
        to the commission to document that the sharing requirements of 
        the plan are being properly implemented.  The company's rates 
        and earnings under the plan are not subject to section 237.081, 
        subdivision 2, paragraph (b), except to the extent necessary to 
        enforce the sharing provisions of the incentive plan. 
           (e) An incentive plan may not permit rate increases except 
        under other provisions in this chapter.  The plan may, however, 
        permit the direct pass-through of cost decreases and increases 
        approved or reallocated by a governmental entity, except for 
        changes in intrastate depreciation schedules. 
           (f) An incentive plan approved or renewed by the commission 
        pursuant to this section after August 1, 1994, must contain: 
           (1) specific standards for measuring the quality of 
        noncompetitive services and services subject to emerging 
        competition in all areas served by the company and including, 
        but not limited to, standards concerning installation and time 
        intervals for restoration or repair of service, trouble rates, 
        exchange access line held orders, customer satisfaction, and 
        dial tone speed; 
           (2) quality reports provisions for reporting to the 
        commission at least annually the company's performance as to the 
        quality of service standards; 
           (3) indexing provisions that index quality of service 
        improvements for local residence services to similar 
        improvements for local business services; and 
           (4) appropriate remedies, which may include incentives and 
        sanctions, that may apply to ensure substantial compliance with 
        the quality of service standards set forth in the plan. 
           Sec. 13.  [REPEALER.] 
           Laws 1987, chapter 340, section 26; Laws 1989, chapter 74, 
        sections 25 and 27; Laws 1990, chapter 513, section 3; and Laws 
        1993, chapter 41, section 1, are repealed. 
           Minnesota Rules, parts 7815.0700; 7815.0800; 7815.0900; 
        7815.1000; 7815.1100; 7815.1200; 7815.1300; 7815.1400; and 
        7815.1500, are repealed. 
           Sec. 14.  [EFFECTIVE DATE.] 
           Section 1 is effective the day following final enactment. 
           Sections 2 to 13 are effective June 1, 1994. 
                                   ARTICLE 2
           Section 1.  Minnesota Statutes 1992, section 325E.26, is 
        amended by adding a subdivision to read: 
           Subd. 6.  [MESSAGE.] "Message" means any call, regardless 
        of its content. 
           Sec. 2.  [EFFECTIVE DATE.] 
           Section 1 is effective July 1, 1994. 
           Presented to the governor April 26, 1994 
           Signed by the governor April 28, 1994, 2:30 p.m.