PUBLIC UTILITY COMMISSION of TEXAS et al., Petitioners, v. AT & T COMMUNICATIONS OF THE SOUTHWEST et al., Respondents, 777 S.W.2d 363

COOK, Justice. This is an appeal from two administrative determinations by the Public Utility Commission. The district court considered the administrative appeals together and affirmed the commission’s orders in both cases. The court of appeals reversed the judgments of the district court, holding that the system of access charges implemented by the commission was unreasonably discriminatory. 735 S.W.2d 866 (1987).

We find the rate structure adopted by the commission to be reasonably based on differences between the two types of carriers, with the differences found as facts by the commission supported by substantial evidence in the record. We reverse the judgments of the court of appeals and affirm the judgments of the trial court. I. A. This case arises from two related docket cases before the commission. The first case, docket number 5113, was a rate design case that was to be used for future rate change hearings.

It was instituted by the commission in April 1983 to assess the effects of the federal court decisions mandating AT & T to divest itself of the local Bell operating companies on the fate structure and telephone utility revenues in Texas. The basic federal order, which is known as the modification of final judgment or modified final judgment, divided the United States into geographic regions called local access and transport areas (LATAs). The modified final judgment ordered AT & T to divest itself of the Bell operating companies, including Southwestern Bell.

The decree further provided that the divested local Bell operating companies could not provide long-distance service between LATAs, i.e., interLATA service; that right was reserved to long-distance companies independent of the Bell operating companies, which are known as interexchange carriers. The Bell operating companies were allowed to provide long distance service within a LATA, i.e., intraLATA service. The inter-exchange carriers were not specifically allowed to offer intraLATA service; instead, each state could decide whether to allow the interexchange carriers to compete for intraLATA calls.

The second case, docket number 5220, is a rate case filed by Southwestern Bell in which the commission implemented the rate design that it had adopted in docket number 5113. The commission also adopted and incorporated by reference in docket number 5220 the findings of fact and conclusions of law from docket number 5113. B. Texas hás a number of local telephone companies other than the Bell operating companies. These companies are referred to as local operating companies. The Bell operating companies and the local operating companies are collectively known as local exchange companies.

Although not parties to the federal divestiture suit, the local operating companies were drastically affected by the modified final judgment because they had been operating under a contractual sharing arrangement with respect to revenues from long-distance calls that originated or terminated within the state. Under this arrangement the local operating companies shared in the revenue generated by long distance service. Under the modified final judgment, however, the local exchange companies lost the pool of long-distance revenue they would have received under this arrangement.

This revenue loss had to be recouped from some other source for the local operating companies to remain profitable. The commission allowed the interexchange carriers to participate in the proceeding to determine how to recoup this revenue loss. The interplay between the federal orders and the state’s exclusive regulatory domain focused the dispute largely on the allocation of non-traffic sensitive costs. Non-traffic sensitive costs are those associated with the local exchange company’s telephone plant that do not increase as traffic or usage increases, such as cables, poles, and telephone instruments.

The interexchange carriers advocated allocating the non-traffic sensitive costs on the end users of local exchange services. Under this proposal a very significant portion of the non-traffic sensitive costs of the local exchange companies would have been recovered as some form of end user charge, which would have been reflected in increased rates for basic telephone service. The commission rejected this proposed rate structure.

The local exchange companies advocated recouping non-traffic sensitive costs by imposing charges on the interexchange carriers for their use of the network owned by the local exchange companies. The local exchange companies argued that the inter-exchange carriers should contribute to defraying the costs of the local exchange network since they use it to complete virtually all of the calls they carry. The charge under this proposed rate structure is called an interexchange carrier access charge.

The commission adopted a modified form of the interexchange carrier access charge as its rate structure in docket number 5113. The commission determined that the interexchange carrier access charge should apply to all intrastate toll calls whether the calls were intraLATA or interLATA. By definition, the charge applies only to inter-exchange carriers. The commission based its determination to apply the access charge to all calls in part on the finding that local exchange companies cannot determine whether a call is intraLATA or interLATA.

Thus, all calls will be considered interLATA, to which access charges apply, even though the call might be wholly intraLATA. As a result, the interexchange carriers would pay an access charge on intraLATA long distance calls whereas the local exchange companies would not. The commission left the existing rate structure for the local exchange companies largely intact. In particular, the commission did not require the local exchange companies to impute an access charge on themselves for the intraLATA long-distance service they provide.

In a concession to the interexchange carriers’ arguments that the proposed order would make them bear too much of the local exchange companies’ non-traffic sensitive costs, the commission ordered a ten percent increase in the intraLATA long-distance rates for the local exchange companies. II. A. The court of appeals’ opinion is based on its observation that for certain intraLATA long-distance calls, especially ones for shorter distances, the access charge paid by the interexchange carriers exceeds the entire rate charged by the local exchange companies. 735 S.W.2d at 869.

The court of appeals concluded that the net effect is that a customer must pay more for an intraLATA long-distance call placed through an interexchange carrier than for one placed through a local exchange company, thus placing the interexchange carriers at a competitive disadvantage with the local exchange companies. Id.

Virtually all of the respondents concede that the court of appeals’ factual conclusion that a customer must pay more for an intraLATA long-distance call placed through an interexchange carrier than for one placed through a local exchange company is not only a fact not found by the commission, but is factually incorrect. The reviewing appellate court is not to make independent findings of fact; the right to find facts rests with the administrative agency. Imperial Am. Resources Fund, Inc. v. Railroad Comm’n, 557 S.W.2d 280, 286 (Tex.1977).

The court is not to substitute its judgment for that of the administrative body. Id. Further, the conclusion that the interex-change carriers are placed at a competitive disadvantage because of the rate design adopted by the commission is a finding the commission expressly declined to make. The hearing examiner’s report in both cases expressly stated that the interex-change carriers failed to prove that the proposed access charge system placed them at a competitive disadvantage, and the commission adopted these findings.

The hearing examiner’s report further states that it would be inequitable, in the absence of proof establishing competitive disadvantage, to impute intraLATA toll related non-traffic sensitive costs on local exchange customers when these customers are already paying their fair share of the costs. The reviewing court, in determining whether the administrative agency has adequately articulated its findings of fact and conclusions of law, is to give appropriate consideration to such statements in the reports that were adopted by the commission in its final order. See State Banking Board v.

Allied Bank Marble Falls, 748 S.W.2d 447, 448-49 (Tex.1988). Thus, the court of appeals made findings that the commission expressly refused to make, thereby invading the fact finding authority of the commission. B. This court has previously set forth the authority of the commission to design rates based on the concepts of universal service, residual pricing, and value of service. See Texas Alarm & Signal Ass’n v. Public Util. Comm’n, 603 S.W.2d 766, 770 (Tex.1980).

As long as the commission addresses the rate considerations set by Public Utility Regulatory Act, the particular factors and the weight to be given those factors are within the discretion of the commission. Id. at 772-73. The commission may establish classes of customers and set rates for such classes that are literally discriminatory if the rates are not unreasonably discriminatory as to that class of customers. Id. at 772. The commission designated the interex-ehange carriers as a distinct class of customers separate from the other classes of customers of the local exchange companies.

The commission found facts to support this conclusion and expressly found the proposed treatment of the interexchange carriers through the interexchange carrier access charge rate design was not unreasonably discriminatory. C. The respondents argue that all carriers of intraLATA long-distance calls should also have to pay the access charge. Thus, the interexchange carriers contend that the local exchange companies should have to impose an access charge on themselves for intraLATA calls.

Since an inter-exchange carrier is a customer of the local exchange company, this concept assumes that the local exchange company, as to its own intraLATA long-distance rates, is a customer of itself. The findings of the commission do not support imputing an access charge on the local exchange companies or treating the local exchange companies as customers of themselves.

The commission specifically found that the use interexchange carriers make of the local exchange companies’ networks is fundamentally different than the use made by other business customers of the local exchange companies: the interexchange carriers use the local exchange network to originate and terminate interexchange telecommunications traffic. Even if the local exchange companies were considered to be their own customers, there is still a basis for treating them as a different class of customers from the inter-exchange carriers.

The commission found several differences between the local exchange companies and the interexchange carriers, including the following: the other common carriers are not regulated by the commission, can select the markets in which they wish to do business and can enter or leave such markets at will, and can set their own rates and change them at will. D. The interexchange access carriers also argue that the commission had to adopt a completely nondiscriminatory rate structure in order to comply with sections 45 and 47 of the Public Utility Regulatory Act (PURA), Tex.Rev.Civ.Stat.Ann. art. 1446c (Vernon Supp.1989).

Both of these sections, by their very terms, apply to only the public utility itself and not the commission.

Section 38 of the PURA is the

section that provides guidance to the commission in designing a rate structure. Texas Alarm & Signal, 603 S.W.2d at 772. III. Accordingly, we reverse the judgments of the court of appeals and affirm the judgments of the trial court, which affirmed the commission orders in docket numbers 5113 and 5220. MAUZY, J., files a concurring opinion in which SPEARS, GONZALEZ and DOGGETT, JJ., join. . This arrangement is called the toll-pool agreement, and the allocation of pooled toll revenues between Southwestern Bell, both pre- and post-divestiture, and the local operating companies is called the settlements process. .

The commission found that the present structure gives an unreasonable preference to the interexchange carriers other than AT & T, which are known as other common carriers; the commission likewise found that the present structure unreasonably prejudices AT & T. This is because the other common carriers made no contribution to the non-traffic sensitive costs of the local exchange companies while AT & T did make such contributions. . The commission found that local flat rates on average already recovered over half of the non-traffic sensitive costs of the local exchange companies. .

The court of appeals seized on a finding by the commission that the use the interexchange carriers make of the local exchange network is functionally identical to the use made by the local exchange companies. When read in context, however, it is seen that this was part of a group of findings made by the commission to support imposition of the interexchange carrier access charge because of past rate discrimination, see supra note 2. This finding does not support the conclusion that the interexchange carriers and local exchange companies are not two distinct classes of customers.