Bluestem Telephone Co. v. Kansas Corporation Comm'n

1

NOT DESIGNATED FOR PUBLICATION

No. 114,639

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

BLUESTEM TELEPHONE COMPANY, et al.,
Appellants,

v.

KANSAS CORPORATION COMMISSION,
Appellee,


MEMORANDUM OPINION

Appeal from Nemaha District Court; JAMES A. PATTON, judge. Opinion filed May 13, 2016.
Appeal dismissed.

Thomas E. Gleason, Jr., of Gleason & Doty, Chartered, of Lawrence, Colleen R. Jamison, of
James M. Caplinger, Chartered, of Topeka, and Mark E. Caplinger, of Mark E. Caplinger, P.A. of
Topeka, for appellants.

Brian G. Fedotin, deputy general counsel and chief appellate counsel, of Kansas Corporation
Commission, for appellee.

Before MALONE, C.J., BUSER and BRUNS, JJ.

Per Curiam: To keep telephone rates in rural areas reasonably comparable to rates
in more competitive urban markets, the Kansas Corporation Commission (KCC)
established the Kansas Universal Service Fund (KUSF), from which funds are distributed
to subsidize local telephone companies' actual costs of providing universal service when
rural rates are insufficient to cover them. In 2013, the Kansas Legislature passed a bill
that created a $30 million cap on KUSF distribution to companies that operate under rate-
of-return regulation. After receiving inquiries regarding potential effects of the
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legislation, the KCC opened a general investigative docket, identifying two proposed
implementation strategies and soliciting comments and alternative suggestions. A group
of several rural local exchange carriers (the RLECs, now appellants) entered appearances
and filed comments suggesting that neither proposed strategy was acceptable. The KCC
ultimately issued an order determining that when the cap was reached, the KCC would
proportionately reduce the companies' KUSF support based on the amount of support
they would have received absent the cap.

The RLECs filed a petition for judicial review. After receiving written and oral
arguments from the parties, the district court denied the RLECs' petition, finding that
their complaints did not merit setting aside the KCC order. The RLECs timely appealed
to this court, arguing (1) the district court erred in finding that the KCC's chosen strategy
did not violate the statutory requirement that rate-of-return carriers have the right to
recover costs from the KUSF; (2) the district court erred in finding that it was permissible
for the KCC to issue its order without first holding an evidentiary hearing; and (3) the
district court erred by suggesting that the RLECs seek legislative clarification or
amendment of the statute at issue.

After briefing was completed, this court ordered the parties to show cause why the
appeal should not be dismissed for lack of justiciability, as it appears the case is not ripe
for judicial review. After reviewing the parties' responses and considering their oral
arguments, we conclude that this case is not ripe for adjudication for reasons set forth in
this opinion. Moreover, we note that this appeal will be rendered moot when a new
statute passed by the 2016 Kansas Legislature and signed by the governor becomes
effective on July 1, 2016. Thus, we dismiss the RLECs' appeal.




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FACTUAL AND PROCEDURAL BACKGROUND

In 1996, Congress passed the Telecommunications Act of 1996 (the Act) to further
deregulate the telecommunications industry. Congress wanted to (1) ensure "universal
service" to low-income consumers and those in high-cost areas and (2) promote
competition in all markets. See Bluestem Telephone Co. v. Kansas Corporation Comm'n,
52 Kan. App. 2d 96, 98, 363 P.3d 1115 (2015). The Act required the federal government
to create universal service funds to ensure that consumers in high-cost areas were offered
rates reasonably comparable to those offered in more competitive markets. 52 Kan. App.
2d at 98. Under the Act, states could adopt their own mechanisms for universal intrastate
service as long as those mechanisms were not inconsistent with federal law.

In response to the Act, Kansas passed the Kansas Telecommunications Act
(KTA). 52 Kan. App. 2d at 98. The KTA required local telephone companies, also called
local exchange carriers, to reduce their rates for intrastate access to a level equal or close
to the rates for interstate access, which led to falling long-distance rates but higher local
costs. 52 Kan. App. 2d at 99. Rates in more rural areas were required to be reasonably
comparable to rates in more competitive urban markets, but sometimes the rural rates
were then insufficient to cover the telephone companies' actual costs of providing the
universal service the KTA and the Act required. Accordingly, the KCC established the
KUSF to subsidize local telephone companies and keep local rates from increasing to an
unaffordable level. 52 Kan. App. 2d at 99. When rural rates are insufficient to cover
telephone companies' actual prudent costs of providing the universal service the KTA and
the Act required, the fund administrator distributes KUSF funds to the companies. 52
Kan. App. 2d at 99.

Kansas statutes required Kansas local telephone companies to file with the KCC,
between January 1, 1997, and January 1, 1998, a network infrastructure plan and a
regulatory reform plan. See K.S.A. 2015 Supp. 66-2005(a) and (b). In its regulatory
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reform plan, each local telephone company "elect[ed] traditional rate of return regulation
or price cap regulation." K.S.A. 2015 Supp. 66-2005(b). Under rate-of-return regulation,
which is based on cost, telephone companies "can charge rates no higher than necessary
to obtain 'sufficient revenue to cover their costs and achieve a fair return on equity.'
[Citation omitted.]" See National Rural Telecom Ass'n v. F.C.C., 988 F.2d 174, 177-78
(D.C. Cir. 1993). On the other hand, in price cap regulation, "the regulator sets a
maximum price, and the firm selects rates at or below the cap." 988 F.2d at 178. Subject
to certain conditions, both rate-of-return companies and price cap companies may receive
monetary support from the KUSF. See K.S.A. 2015 Supp. 66-2008(c)(1), (e)(1).

K.S.A. 2015 Supp. 66-2008(e)(1) addresses the calculation of a company's
eligibility for KUSF support, stating: "For each local exchange carrier electing . . . to
operate under traditional rate of return regulation, all KUSF support, including any
adjustment thereto pursuant to this section shall be based on such carrier's embedded
costs, revenue requirements, investments and expenses." According to the KCC's
arguments before the district court, KUSF support is calculated annually for the
following year and funds are allocated to qualifying carriers in monthly installments. See
K.S.A. 2015 Supp. 66-2009(b). Although statutorily the monthly installments are meant
to be equal amounts, payment amounts may change based upon periodic audits conducted
by the KCC or if the carrier applies for and is granted additional funds. See K.S.A. 2015
Supp. 66-2009(b).

In 2013, the Kansas Legislature passed House Bill 2201, which, among other
things, amended the rules for KUSF distributions. See L. 2013 ch. 110, § 11. One of the
items in HB 2201, now codified at K.S.A 2015 Supp. 66-2008(e)(3), establishes a $30
million cap on KUSF distributions to rate-of-return companies. The statute states:

"Notwithstanding any other provision of law, the total KUSF distributions made
to all local exchange carriers operating under traditional rate of return regulation pursuant
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to subsection (b) of K.S.A. 66-2005, and amendments thereto, shall not exceed an annual
$30,000,000 cap. A waiver of the cap shall be granted based on a demonstration by a
carrier that such carrier would experience significant hardship due to force majeure or
natural disaster as determined by the commission." K.S.A. 2015 Supp. 66-2008(e)(3).

In addition, K.S.A. 2015 Supp. 66-2008(e)(1), along with mandating that any "adjustment
thereto pursuant to this section shall be based on such carrier's embedded costs, revenue
requirements, investments and expenses," further stated: "Until at least March 1, 2017,
any modification of such support shall be made only as a direct result of changes in those
factors enumerated in this subsection."

After the legislation passed, KCC staff (Staff) received many inquiries from rate-
of-return companies regarding implementation and potential effects of the bill. Staff
prepared a report and recommendation and on June 13, 2013, prior to the legislation
taking effect, the KCC opened a docket and solicited comments on issues related to
HB 2201, including how to implement the cap on the rate-of-return carrier support. As
the KCC acknowledged in its order opening the docket, Staff suggested two options for
implementation: (1) not disbursing any additional funding to rate-of-return companies
once the cap is reached, or (2) reducing any support beyond the cap proportionately based
on the amount each company would have received absent the cap.

The KCC explained the second option with the following example: Imagine that
the cap is set at $29 million and there are three companies eligible for funds in the state.

"Company A is deemed eligible to receive $10 million, Company B is deemed eligible to
receive $15 million, and Company C is deemed eligible to receive $5 million. Since the
total amount of support to be received . . . is $30 million, which exceeds the $29 million
cap, the amount of support is reduced by a factor. In this case, the factor would be
.96667. Thus, Company A would receive $9.67 million, Company B would receive $14.5
million, and Company C would receive $4.83 million."
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Comments on the issues identified in the docket were due on June 17, 2013.
Between June 13 and June 19, 2013, several RLECs, who are the appellants in this
appeal, entered their appearances. The RLECs are: Bluestem Telephone Company; Blue
Valley Telecommunications, Inc.; Columbus Communications Services, LLC; Craw-Kan
Telephone Cooperative, Inc.; Cunningham Telephone Co., Inc.; The Golden Belt
Telephone Cooperative, Inc.; Haviland Telephone Company, Inc.; H & B
Communications, Inc.; Home Telephone Co., Inc.; J.B.N. Telephone Company, Inc.;
KanOkla Telephone Association; LaHarpe Telephone Co., Inc.; Madison Telephone,
LLC; MoKan Dial, Inc.; Moundridge Telephone Co., Inc.; Mutual Telephone Company;
Peoples Telecommunications, LLC; The Pioneer Telephone Association, Inc.; Rainbow
Telecommunications Association, Inc.; Rural Telephone Service Company, Inc.; S&A
Telephone Company, Inc.; The S&T Telephone Cooperative Association, Inc.; South
Central Telephone Association; Southern Kansas Telephone Company; Sunflower
Telephone Company, Inc.; Totah Communications, Inc.; The Tri-County Telephone
Association, Inc.; Twin Valley Telephone, Inc.; United Telephone Association, Inc.;
Wamego Telecommunications Co., Inc.; Wheat State Telephone, Inc.; Wilson Telephone
Co., Inc.; and Zenda Telephone Co., Inc.

The KCC ultimately extended the comment deadline to July 19, 2013, and the
RLECs and other parties filed comments. The RLECs argued that the first option—a
moratorium on support after the cap is reached—would violate the statutory guarantee
that rate-of-return companies have a reasonable opportunity for recovery of costs.
Therefore, they asserted, the KCC could only implement this option if there was a
separate, effective, and reasonably available source from which rate-of-return companies
could recover those costs. In response to the proposal of proportionate reductions, the
RLECs argued that following this FCC implementation strategy of its cap on federal
funding was not feasible either, as the reason for the FCC cap was different than the
rationale behind the Kansas cap. In addition, they contended that a proportional reduction
would violate statutory and constitutional guarantees.
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After reviewing the comments, Staff filed a second report and recommendation,
recommending that the KCC request replies to the comments already filed. The KCC
followed this recommendation and, on August 20, 2013, requested additional briefing by
September 16, 2013, on issues including how to implement the cap on rate-of-return
carrier support. The RLECs were the only party to specifically reply to comments made
about the cap on rate-of-return carrier support. Staff subsequently prepared a third report
and recommendation, this one considering the reply comments. After noting that only the
RLECs and one other party had expressed an opinion on implementation of the cap, Staff
recommended that the KCC prorate the support if and when the cap is reached.

In an order mailed December 3, 2013, the KCC addressed the issues that were
covered in the docket. Relevant to the issues in this appeal, the KCC determined that the
cap did not violate the RLECs' Fifth Amendment rights because the RLECs had "at least
three effective and reasonably available sources of revenue" outside of the KUSF funds.
Second, the KCC determined that when the cap was reached, the KCC would "reduc[e]
carriers' support proportionately based on the amount of support they would have
received absent the cap." KCC staff would track monthly rate-of-return carrier support
and the cumulative amount of support disbursed throughout the year and, when granting a
new request for KUSF support, the KCC and its staff would

"adjust the reduction factor accordingly to ensure the cumulative KUSF support received
does not exceed the $30 million cap for the KUSF fiscal year. Under this approach, the
[KCC] may set a new reduction factor at the beginning of each KUSF fiscal year, and
adjust it throughout the year to reflect changes to [rate-of-return] carrier support made
during the KUSF fiscal year."

The KCC summarized its plan to implement the cap in this way: "Once the $30 million
cap on rate-of-return carrier KUSF support is met, KUSF will be distributed on a pro-rata
basis."

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On December 18, 2013, the RLECs filed a petition for reconsideration of the
order. They challenged the KCC's asserted alternative sources of revenue from which
rate-of-return carriers could recover costs if and when the KUSF cap is reached. The
RLECs also complained that the KCC had failed to develop an evidentiary record to
support its findings and had failed to hold an evidentiary hearing in which the RLECs
could participate. Although they recognized that the cap had not yet been reached, the
RLECs argued that the KCC's order had an immediate adverse effect on them "by
jeopardizing the predictability and sufficiency of future support." For these reasons, the
RLECs asked the KCC to reconsider its order.

On January 16, 2014, the KCC denied the RLECs' petition for reconsideration.
The KCC stated that the RLECs had "ignor[ed] the invitation to offer comments on how
to implement the statutory cap," and had instead opposed implementation altogether.
Characterizing the RLECs' request for reconsideration as challenging the KCC's implicit
conclusion that a prorated approach would satisfy the statutory guarantee that rate-of-
return carriers could recover costs through the KUSF, the KCC determined that the
request for reconsideration was fatally flawed because it challenged an "implicit
conclusion, rather than a specific finding in an Order."

On February 14, 2014, the RLECs filed a petition for judicial review in Nemaha
County District Court. In their petition, the RLECs argued that they were adversely
affected by the KCC's order because the order restricted access to KUSF funds. The
RLECs claimed that access to those funds were necessary to satisfy the statutory
guarantee that rate-of-return companies could recover certain costs and to ensure RLECs'
continued survival. According to the RLECs, the KCC order also violated the mandate in
K.S.A. 66-2008(e)(1) that until March 1, 2017, KUSF support could be modified only "as
a direct result of changes in" embedded costs, revenue requirements, investments, and
expenses. Therefore, because it anticipated adjusting support as a result of the $30
million cap, the KCC's order improperly denied them their statutory right to an
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opportunity to recover costs and investments from the KUSF. The RLECs asked the
district court to reverse the KCC's order and issue a permanent injunction against
application of the order. The KCC filed a response to the petition for judicial review,
defending its order.

In their initial brief, filed on December 19, 2014, the RLECs argued: (1) the
KCC's conclusion that there are effective sources of revenue other than the KUSF was
based on arbitrary and capricious determinations of fact unsupported by substantial
evidence; and (2) the KCC's failure to hold an evidentiary hearing prior to making such
findings was arbitrary, capricious, unreasonable, and a violation of the RLECs' right to
due process. In addition, the RLECs renewed its argument that reducing KUSF
distribution without finding a change in embedded costs, revenue requirement,
investment, or expenses violated the statutory mandate in K.S.A. 66-2008(e).

The KCC filed its brief on February 27, 2015, contending that the proportional
strategy it had adopted was a proper way to implement the statutory cap. To the extent
that the cap conflicts with other statutes, the KCC argued that the newer, more specific
statute establishing the cap should control. Moreover, the KCC argued that issuing an
order without an evidentiary hearing was within its rights and did not violate due process.
The KCC also characterized its order as containing only findings of law, so an
evidentiary hearing was unnecessary. The RLECs filed a reply brief.

The district court held a hearing on April 10, 2015, at which the parties presented
oral argument. The RLECs argued that they were statutorily entitled to recover all of their
embedded costs, revenue requirements, investments, and expenses, so to limit that
recovery with a $30 million cap was improper. Similarly, the KCC reiterated the
arguments in its brief.

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The district court filed its memorandum decision on September 4, 2015. After
establishing the relevant and controlling law and the underlying facts of the case, the
district court found that the KCC order did not violate the statutory language requiring
that adjustments to KUSF support only be made when based upon the enumerated
factors. Specifically, the district court stated:

"If the level of KUSF support is reduced proportionately to all RLEC's, the pro-rate
reduction is still based on statutory factors comply [sic] with statutes and Bluestem.
" . . . The ruling to pro-rate does not deny the RLEC's the right to determine their
support based upon the four factors required by statute."

The district court also found that the KCC "was interpreting and enacting the
legislation. No fact finding was required." Therefore, according to the district court, no
evidentiary hearing was required. The district court denied the petition for review. The
RLECs timely appealed the district court's order.

IS THIS CASE RIPE FOR ADJUDICATION?

The first issue is whether this case is ripe for adjudication. As explained in more
detail below, the parties argued ripeness before the district court, but the district court did
not ultimately rule on the issue. Neither the KCC nor the RLECs briefed ripeness on
appeal to this court, but because ripeness implicates jurisdiction and the court can raise
jurisdiction on its own motion, this court ordered the parties to show cause why the case
should not be dismissed because it is not ripe for adjudication.

Article 3, § 1 of the Kansas Constitution grants "judicial power" exclusively to the
courts, which our Supreme Court has consistently recognized as "the 'power to hear, consider
and determine controversies between rival litigants.' [Citations omitted.]" See State ex rel.
Morrison v. Sebelius, 285 Kan. 875, 895-96, 179 P.3d 366 (2008). This Kansas case-or-
controversy requirement requires, in part, that "issues must be ripe, having taken fixed and
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final shape rather than remaining nebulous and contingent." 285 Kan. at 896. If an issue is
not ripe, it is nonjusticiable under Article 3, § 1 of the Kansas Constitution. An opinion
issued on a nonjusticiable claim is an advisory opinion and a "Kansas court issuing an
advisory opinion would violate the separation of powers doctrine by exceeding its
constitutional authority." See 285 Kan. at 898.

Many courts have explicitly linked ripeness and jurisdiction. See, e.g., Ray Charles
Foundation v. Robinson, 795 F.3d 1109, 1116 (9th Cir. 2015) ("Although neither party
argued ripeness, 'it is our duty to consider sua sponte whether [a suit] is ripe, because "the
question of ripeness goes to our subject matter jurisdiction to hear the case."' [Citations
omitted.]"); Cellport Systems, Inc. v. Peiker Acustic GMBH & Co. KG, 762 F.3d 1016, 1029
(10th Cir. 2014) ("'[T]his court is compelled to assure itself that it has subject matter
jurisdiction,' and ripeness is a 'jurisdictional prerequisite.' [Citation omitted.]"); Ctr. For
Individual Freedom v. Carmouche, 449 F.3d 655, 659 (5th Cir. 2006) ("We review all
questions of subject matter jurisdiction, including the justiciability issues of standing,
ripeness, and mootness, de novo."); Tavani v. Riley, 160 Conn. App. 669, 676, 124 A.3d
1009 (2015) ("[J]usticiability comprises several related doctrines, namely standing, ripeness,
mootness and the political question doctrine, that implicate a court's subject matter
jurisdiction."); Berger Family Real Estate, LLC v. City of Covington, 464 S.W.3d 160, 166
(Ky. App. 2015) ("'Because an unripe claim is not justiciable, the circuit court has no subject
matter jurisdiction over it.' [Citations omitted.]"). Because ripeness implicates jurisdiction,
this court may raise the issue at any time, even on its own motion. See Kansas Bldg.
Industry Workers Comp. Fund v. State, 302 Kan. 656, 666, 359 P.3d 33 (2015) ("An
appellate court can make a sua sponte inquiry into whether it has jurisdiction over a
question presented to it on appeal. [Citation omitted.]").

"To be ripe, issues must have taken shape and be concrete rather than hypothetical
and abstract. [Citation omitted.]" Shipe v. Public Wholesale Water Supply Dist. No. 25,
289 Kan. 160, 170, 210 P.3d 105 (2009). Put another way, "[a] case is ripe for
adjudication when the disagreement has taken a final shape and the court can see the
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legal issues it is deciding, including the impact of the decision upon the adversaries." In
re Tax Exemption Application of Allen, Gibbs & Houlik, L.C., 29 Kan. App. 2d 537, 543,
29 P.3d 431 (2001). "'An issue is not ripe for adjudication when there is only the
possibility of a future controversy between the parties.' [Citation omitted.]" Leavenworth
Plaza Assocs., L.P. v. L.A.G. Enterprises, 28 Kan. App. 2d 269, 271, 16 P.3d 314 (2000).

In a motion to dismiss in the district court, the KCC argued that the appeal was not
ripe for adjudication, pointing out that the $30 million cap had not yet been reached and
might not be reached at all, so the KCC's strategy to prorate KUSF funds if the cap is
reached had not yet been implemented. Therefore, the KCC asserted, the implementation
was not ripe for adjudication and the district court should dismiss the appeal. The RLECs
responded that the KCC's order was final and deprived them of their right to seek
recovery of expenses from the KUSF fund. They characterized the KCC order as "illegal"
and contended that it caused them immediate harm by affecting "the RLECs['] ability to
obtain investment" and their "decisions whether to incur costs." According to the RLECs,
prorating the KUSF fund would result in them not being compensated for their costs,
potentially reducing investors' rate of return on investments in an RLEC and "chill[ing]
the inclination of any entity considering an investment in or making a loan to a Kansas
RLEC." In addition, the RLECs expressed concern that if the district court dismissed the
appeal as not ripe, the KCC would challenge any later RLEC challenge to the prorating
strategy after an actual denial or reduction of KUSF support for failure to pursue timely
judicial review of the order adopting the prorating strategy. In its reply to the response,
the KCC reiterated its position that the case was not ripe, stating: "Only when and if the
cap is reached would the matter be ripe for adjudication."

When the district court ruled on the motion to dismiss, it acknowledged the KCC's
contention that the matter was not ripe, but the district court did not address the merits of
the argument. Instead, the district court treated the motion as one to dismiss for failure to
state a claim upon which relief can be granted. Presumably this is because the KCC
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identified "K.S.A. 60-212" as relevant statutory authority in the first sentence of its
motion to dismiss and K.S.A. 2015 Supp. 60-212(b)(6) allows the defense of a plaintiff's
failure to state a claim upon which relief can be granted. Yet the KCC's motion did not
specifically identify subsection (b)(6) of K.S.A. 60-212, nor did it request dismissal for
failure to state a claim upon which relief could be granted. Because the KCC did not
request that the case be dismissed for failure to state a claim upon which relief can be
granted, the district court's analysis of the motion under that standard was improper.

The KCC did not ask the district court to make additional findings and address
ripeness. Generally, a litigant has the responsibility of objecting to inadequate findings of
fact or conclusions of law by the district court in order to give the district court the
opportunity to make further findings and conclusions. O'Brien v. Leegin Creative Leather
Products, Inc., 294 Kan. 318, 361, 277 P.3d 1062 (2012). In the absence of such an
objection, Kansas appellate courts usually presume the district court's ruling is supported
by all facts necessary. See Dragon v. Vanguard Industries, 282 Kan. 349, 356, 144 P.3d
1279 (2006). Here, however, the issue is ripeness, which implicates subject matter
jurisdiction, which this court can address at any time. Therefore, the KCC's failure to
request additional findings and conclusions from the district court does not prevent this
court from examining and resolving the ripeness issue.

On March 17, 2016, this court ordered the parties to show cause why the appeal
should not be dismissed as not ripe for adjudication. In the order, this court noted the
district court's recognition in its memorandum decision that the legislature had until
March 1, 2017, "to review, amend and clarify whether the cap means no further payments
. . . or a pro-ration." This court further pointed out that the record contains no indication
that the cap has been reached or the KCC has applied its implementation strategy.

The RLECs filed their response to the show-cause order on March 22, 2016, and
the KCC filed its response on March 31, 2016. The RLECs offer a number of reasons
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why the KCC's plan to implement the cap is ripe for appeal. First, they propose the
following test for ripeness in the context of agency decisions:

"'the fitness of the issues for judicial decision and the hardship to the parties of
withholding court consideration.' [Citations omitted.] Relevant considerations include
whether the challenged action is 'definitive' and has a 'direct and immediate effect' on the
complaining party; whether the issues tendered are legal; and whether 'administrative
decision making has reached a stage where judicial review will not disrupt the orderly
process of adjudication.' [Citations omitted.]" Southwestern Bell Tel. Co. v. Kansas
Corporation Commission, 6 Kan. App. 2d 444, 453-54, 629 P.2d 1174, rev. denied 230
Kan. 819 (1981).

The RLECs argue that this appeal satisfies all of those conditions. As this court
has previously recognized, however, Southwestern Bell's discussion of ripeness and
finality predated the enactment of the Kansas Judicial Review Act (KJRA), K.S.A. 77-
601 et seq., so although it is persuasive authority on the reviewability of an interlocutory
order, it is not persuasive on whether an order is reviewable as a final agency action. See
Williams Gas Pipelines Central, Inc. v. Kansas Corporation Comm'n, 27 Kan. App. 2d
573, 579, 7 P.3d 311, rev. denied 270 Kan. 904 (2000); Steinmetz v. United Parcel
Service, No. 113,262, 2015 WL 5458767, *3 (Kan. App. 2015) (unpublished opinion).

The RLECs also proffer a number of hypothetical situations in which the KCC's
prorata strategy could injure them, pointing out that "any rural company could submit an
application for additional KUSF support . . . or the KCC could initiate an audit" and "the
additional demand on the KUSF could exceed the sum remaining available under the
$30,000,000 cap." (Emphasis added.) The RLECs point out that "[t]hat deprivation would
be a loss of revenue uncontrollable by the other companies." (Emphasis added.) These
contentions clearly demonstrate the ripeness problem in this appeal; as our Supreme
Court has previously stated: "To be ripe, issues must have taken shape and be concrete
rather than hypothetical and abstract. [Citation omitted.]" Shipe, 289 Kan. at 170. Simply
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put, assertions of hypothetical injury that could occur in the future do not make an issue
ripe for judicial consideration.

Next, the RLECs assert that the cap order "has a direct and immediate adverse
impact on each RLEC" because it removes the statutory reasonable assurance of recovery
of certain costs and expenses. The RLECs claim that the lack of assurance that they can
recover those costs affects their "ability to plan and make public utility investments, by
abrogating all predictability of recovery and in its place subjecting these public utilities to
an undefined and uncertain regulatory methodology subject to change at the whim of the
state." However, as this court has previously pointed out, there is no prior caselaw that
"mandates that KUSF be paid to fully fund an RLEC's embedded costs." See Bluestem
Telephone Co. v. Kansas Corporation Comm'n, 52 Kan. App. 2d 96, 122, 363 P.3d 1115
(2015) (Bluestem II).

The RLECs also point out that they are already parties to the instant case, whereas
with a future order that actually reduces an RLEC's KUSF support, each RLEC wishing
to challenge that order would need to gain standing in that proceeding. The RLECs opine
that the KCC would object to any such future challenge as an untimely collateral attack
on the order issued in the instant general docket, precluding future judicial review of the
prorating strategy. Finally, the RLECs state their belief that "[t]he statutory cap already
may be implicated." They identify three cases that may involve the KUSF cap.

First, they point to Twin Valley Telephone, Inc. v. Kansas Corporation Comm'n,
No. 115,284, a case which is currently pending before this court. The appellant in Twin
Valley challenges, in part, the KCC's allocation of KUSF funding, claiming that the KCC
allowed less KUSF support than it should have allowed. The RLECs assert that if the
Twin Valley appellant is successful in obtaining a reversal of the KCC's order, the
additional KUSF funds it would receive "would exhaust and exceed the balance of KUSF
16

support available" under the $30 million cap, leading to the imposition of the KCC's
prorating strategy challenged here.

The RLECs also point to Moundridge Telephone Company, Inc. v. Kansas
Corporation Comm'n, No. 114,064, 2015 WL 7693784 (Kan. App. 2015) (unpublished
opinion), petition for rev. filed December 28, 2015, arguing that if our Supreme Court
grants review of Moundridge, "the imminent application of the statutory cap will be
further affected." Like Twin Valley, Moundridge dealt with a KCC reduction of a
telephone company's KUSF support. 2015 WL 7693784, at *1. Although the RLECs here
do not articulate in detail how Moundridge would affect their position, presumably it is
for the same reason they assert Twin Valley is relevant: if the telephone company obtains
reversal of the reduction in KUSF support, it could push the KUSF funds allocated to the
$30 million cap, at which point the KCC would implement their prorated strategy for
allocating KUSF funds.

Finally, the RLECs cite Bluestem II as another case which they assert "impacts the
imminent applicability of the statutory cap." They state that this court's disapproval in
Bluestem II of the KCC's denial of recovery from KUSF to offset lost intrastate access
revenues will further decrease the KUSF funds left available before the $30 million cap is
reached. What the RLECs fail to mention about Bluestem II, however, is that this court
explicitly addressed the ripeness of arguments that "the statutory cap may require
[RLECs] to pay an 'arbitrary percentage' of an RLEC's embedded costs." See 52 Kan.
App. 2d at 122. This court stated:

"This argument appears to us as an anticipated battle against a potential unknown foe.
While the Commission argues that such actions might arise due to the new statutory cap
on the size of KUSF, none of the parties cite to any regulation or actual action by the
Commission to impose an across-the-board percentage in determining an individual
RLEC's KUSF entitlement.
17

"It is difficult for us to evaluate the abstract interpretation of a statute in a
vacuum. As recognized by our Supreme Court, 'issues must be ripe, having taken fixed
and final shape rather than remaining nebulous and contingent.' [Citation omitted.] 'The
doctrine of ripeness is "designed 'to prevent the courts, through avoidance of premature
adjudication, from entangling themselves in abstract disagreements.'" [Citations omitted.]
To be ripe, issues must have taken shape and be concrete rather than hypothetical and
abstract. [Citation omitted.]'" . . .This is especially true since the legislature has mandated
that until at least March 1, 2017, any modification of KUSF support shall be made only
as a direct result of changes in those factors enumerated in this subsection. K.S.A. 2014
Supp. 66-2008(e)(1)." 52 Kan. App. 2d at 123.

Considering that the Bluestem II court recognized that a challenge to a strategy to
ensure a cap on KUSF funds was not ripe for adjudication when the KCC had not yet
acted to impose a strategy, Bluestem II does not support the RLECs' position that the
instant case is ripe for appeal. As to the other two cases the RLECs cite, it is unclear why
allocation of funds in other cases which could cause the KUSF funding to reach the $30
million cap would render a challenge to the KCC's intended strategy to enforce the cap
ripe for adjudication in this appeal. Certainly if the telephone companies in Twin Valley
and Moundridge received reduced KUSF funds due to the KCC's prorating strategy, those
companies could challenge the prorating strategy at that point.

For its part, the KCC argues again that this case is not ripe for adjudication
because the $30 million cap has not yet been reached, nor is there any guarantee that the
cap will ever be reached. The KCC is correct. None of the RLECs in this appeal has
shown that they have suffered any reduction in KUSF distributions because of the KCC
implementing a prorated reduction strategy. Simply put, this issue has not yet taken
shape—it is still hypothetical—and therefore it is not ripe for adjudication.

In addition, the KCC argues that this appeal may be moot because of pending
legislation. As the KCC points out in its response to this court's show-cause order, the
18

legislature has passed legislation clarifying the cap on KUSF funds and an
implementation strategy. On March 29, 2016, House Bill 2131 was enrolled and
presented to the governor. See Kansas Legislature Website,
http://www.kslegislature.org/li/b2015_16/measures/hb2131/. Section 6 of HB 2131 will
amend K.S.A. 2015 Supp. 66-2008(e)(1) to state:

"For each local exchange carrier electing pursuant to K.S.A. 66-2005(b), and
amendments thereto, to operate under traditional rate of return regulation, all KUSF
support, including any adjustment thereto pursuant to this section, shall ensure the
reasonable opportunity for recovery of such carrier's intrastate embedded costs, revenue
requirements, investments and expenses, subject to the annual cap established pursuant
to subsection (e)(3)." (Emphasis indicates added language.)

In addition, the legislature added the following language to subsection (e)(3): "In
any year that the total KUSF support for such carriers would exceed the annual cap, each
carrier's KUSF support shall be proportionately based on the amount of support each such
carrier would have received absent the cap." See HB 2131, available at
http://www.kslegislature.org/li/b2015_16/measures/documents/hb2131_enrolled.pdf.
These amendments make clear the legislature's intent in how the cap shall affect KUSF
support—and is the same as the KCC's proposed implementation—and the legislature's
intent to guarantee only reasonable recovery subject to the cap rather than full recovery
from the KUSF based on the enumerated factors in K.S.A. 66-2008(e)(1).

In a letter of additional authority pursuant to Supreme Court Rule 6.09(b)(1) (2015
Kan. Ct. R. Annot. 53), the KCC notified this court that the governor signed HB 2131 on
April 6, 2016. The statutory changes are effective July 1, 2016.

The KCC asserts that the passage of HB 2131 renders this appeal moot. At oral
argument, the RLECs pointed out that the statutory amendments do not take effect until
July 1, 2016. Thus, the RLECs argue that the statutory amendments do not render this
19

appeal moot. Moreover, at the oral argument, the RLECs asserted that HB 2131 is
unconstitutional. However, the constitutionality of HB 2131 is not properly before this
court, although this is an issue that may be raised by the RLECs in future litigation.

The KCC's conclusion that HB 2131 renders this appeal moot is technically
premature. The statutory amendments do not become effective until July 1, 2016.
Pending legislation does not make an issue moot, despite the fact that, if it becomes law,
it may resolve similar questions in future proceedings. However, the passage of HB 2131
by the 2016 Kansas Legislature supports the KCC's argument that the RLECs' claims in
this case were never ripe for adjudication in the first place.

In summary, we conclude that this case is not ripe for adjudication. The record on
appeal shows no indication that the statutory cap has ever been reached, nor is there any
guarantee that the cap will ever be reached. As a result, none of the RLECs in this appeal
have shown that they have suffered any reduction in KUSF distributions because of the
KCC order implementing a prorated reduction strategy. The RLECs' claims that they
have been damaged by the KCC order are hypothetical and have not yet taken shape. As
the district court recognized in its memorandum decision, the legislature had until March
1, 2017, "to review, amend and clarify whether the cap means no further payments . . . or
a pro-ration." As it turns out, that is exactly what has happened. The 2016 Kansas
Legislature passed HB 2131 to make clear that in any year that the total KUSF support
exceeds the annual cap, each carrier's KUSF support shall be proportionately based on
the amount of support each carrier would have received absent the cap. Thus, it appears
that the new legislation, rather than the KCC order, will have controlling effect in all later
proceedings. Because an unripe claim is not justiciable, we conclude that the courts lack
subject matter jurisdiction over the claims brought by the RLECs in this proceeding.

Appeal dismissed.