BELLSOUTH                            )
TELECOMMUNICATIONS, INC.,            )
                                     )
     Petitioner/Appellant,           )   Appeal No.
                                     )   01-A-01-9509-BC-00400
VS.                                  )
                                     )   Public Service Commission
KEITH BISSELL, STEVE HEWLETT, )          No. 95-01050
SARA KYLE, Constituting the          )
Tennessee Public Service Commission, )
                                     )
                                                             FILED
     Respondents/Appellees.          )
                                                             October 2, 1996

                   COURT OF APPEALS OF TENNESSEE          Cecil W. Crowson
                     MIDDLE SECTION AT NASHVILLE         Appellate Court Clerk

    APPEALED FROM THE TENNESSEE PUBLIC SERVICE COMMISSION
                   AT NASHVILLE, TENNESSEE


FOR APPELLANT:                           FOR APPELLEES:

Bennett L. Ross                          Dianne F. Neal
Nashville, Tennessee                     Public Service Commission
                                         Nashville, Tennessee

FOR INTERVENOR                           FOR TENNESSEE CONSUMERS:
AT&T COMMUNICATIONS, INC:                       Charles W. Burson
                                         Attorney General & Reporter
Val Sanford
John Know Walkup                         Michael E. Moore
Nashville, Tennessee                     Solicitor General

                                         L. Vincent Williams
                                         Consumer Advocate Division
                                         Nashville, Tennessee




                       REVERSED AND REMANDED




                                         BEN H. CANTRELL, JUDGE


CONCUR:
LEWIS, J.
KOCH, J.
                                 OPINION


              The Tennessee Public Service Commission ordered the completion of

a previously authorized investigation of the future earnings of BellSouth

Telecommunications, despite legislative developments that stripped the Commission

of its authority to use such an investigation to set telephone rates. BellSouth filed a

petition with this court for review of the PSC’s order, arguing that completion of the

investigation was inconsistent with the legislative purpose.         We reverse the

Commission’s order and remand the case for further consideration by the Tennessee

Regulatory Commission.



                                           I.



              Prompted by a petition filed by the State Consumer Advocate, the Public

Service Commission voted on March 28, 1995 to conduct an investigation of the

intrastate earnings of South Central Bell (now BellSouth Telecommunications) for a

one-year future test period.    Under the statute in effect at that time, such an

investigation of future earnings was a required preliminary step in the performance of

the P.S.C.’s function of establishing “just and reasonable rates” for telephone service.



              On May 25, 1995, the Legislature enacted the Teleommunications

Reform Act, now codified at Tenn. Code Ann. § 65-5-201 et seq. The new act was

expressly designed to encourage competition in the telecommunications services

market, and it created an alternative to the traditional method of establishing

consumer telephone rates by future rate-of-return analysis.



              Under the new procedure, a telephone company could apply for price

regulation, and the P.S.C. was required to implement a price regulation plan within 90


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days, based on an audit of the rate of return earned by the utility within the most

recent reporting period. See Tenn. Code Ann. § 65-5-209(c)and (j). Thus the statute

permitted expedited decision-making based on retrospective rather than prospective

financial data.



              BellSouth applied on June 20, 1995 for price regulation under the new

statute. Nonetheless, on July 14, 1995 the Commission voted to complete the

earnings investigation, reserving the issue of “whether any use could be made of the

results of this investigation under the price regulation scheme set out in the

Telecommunications Act . . . .”         BellSouth filed a petition under Rule 12,

Tenn.R.App.P. to appeal that order. The PSC and intervenor AT&T filed a joint

motion to dismiss the petition, on the ground that the order of investigation was not

a final order subject to appellate review.



              On October 25, 1995, this court dismissed the joint motion on the ground

that “interlocutory administrative orders are reviewable where the agency has plainly

exceeded its statutory authority or threatens irreparable injury in clear violation of an

individual’s rights.” This court also stayed all proceedings in the Commission related

to the earnings investigation, and directed that the appeal proceed.



              On July 1, 1996, the PSC was replaced by a new, appointed agency

called the Tennessee Regulatory Authority. See Tenn. Code Ann. § 65-1-201. On

June 11, 1996, this court heard oral arguments on BellSouth’s petition for review.

Neither in the briefs nor in oral argument did the PSC articulate a reason why the

investigation should continue. The parties all acknowledge that the information gained

through the investigation would be irrelevant to BellSouth’s rates. The PSC argues

only that the investigation might serve some purpose.




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              We think the PSC’s decision to continue the investigation is simply

arbitrary, a decision “that is not based on any course of reasoning or exercise of

judgment.” See Jackson Mobilphone v. Tennessee PSC, 876 S.W.2d 106 at 111

(Tenn. App. 1993). An agency’s arbitrary decision -- even a preliminary, procedural,

or intermediate one -- may be reversed by the reviewing court. Tenn. Code Ann. §

4-5-322(a)(1), (h)(4).



              We are aware that in adopting regulatory reform the legislature was

careful to say that nothing in the act would “affect the authority and duty of the

Commission to complete any investigation pending at the time” the act became

effective. See Acts 1995, ch. 408. But we do not think the legislature intended to

authorize the PSC to continue an investigation that no longer had any purpose.



              We, therefore, reverse the PSC’s order continuing the earnings

investigation and remand the cause to the Tennessee Regulatory Authority for further

proceedings consistent with this opinion. Tax the costs on appeal to the PSC.




                                               _____________________________
                                               BEN H. CANTRELL, JUDGE

CONCUR:



______________________________
SAMUEL L. LEWIS, JUDGE



______________________________
WILLIAM C. KOCH, JR., JUDGE




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