Public Service Com'n of District of Columbia v. F.C.C., 88-1771

• Citation: 906 F.2d 713
• Decision Date: 22 June 1990
• Docket Number: No. 88-1771,88-1771
• Parties: PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, United States Telephone Association, et al., Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 713

906 F.2d 713

285 U.S.App.D.C. 19

PUBLIC SERVICE COMMISSION OF the DISTRICT OF COLUMBIA, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of

America, Respondents,

United States Telephone Association, et al., Intervenors.

No. 88-1771.

United States Court of Appeals, District of Columbia Circuit.

Argued Nov. 15, 1989.

Decided June 22, 1990.

Howard C. Davenport, with whom Mary J. Sisak, Thomas J. Moorman, Peter G. Wolfe, and S. Keith Townsend were on the brief, for petitioner.

Linda L. Oliver, Counsel, Federal Communications Com'n ("FCC"), with whom James F. Rill, Asst. Atty. Gen., Catherine G. O'Sullivan and Andrea Limmer, Attys., U.S. Dept. of Justice, and Diane S. Killory, Gen. Counsel, Daniel M. Armstrong, Associate Gen. Counsel, and John E. Ingle, Deputy Associate Gen. Counsel, FCC, were on the brief, for respondents.

Martin T. McCue, for United States Telephone Ass'n, R. Frost Branon, Jr., for Bell South Corp., et al., Gail L. Polivy, for GTE Service Corp., Saul Fisher, for New York Telephone Co. and New England Tel. & Tel. Co., James P. Tuthill, John W. Bogy, and Stanley J. Moore, for Pacific Bell and Nevada Bell, William C. Sullivan, Richard C. Hartgrove, and Patricia J. Nobles, for Southwestern Bell Telephone Co., and Robert B. McKenna, for Mountain States Tel. & Tel. Co., Northwestern Bell Telephone Co. and Pacific Northwest Bell Telephone Co., were on the joint brief, for intervening local telephone companies. William B. Barfield, for Bell South Corp., et al., Nancy K. McMahon, for Pacific Bell and Nevada Bell, Michael A. Meyer and Melanie S. Fannin, for Southwestern Bell Telephone Co., Martin J. Silverman and Mary McDermott, for New York Telephone Co., et al., and James R. Hobson, for GTE Service Corp. entered appearances, for intervening local telephone companies.

David Cosson and Denise M. Drialo entered appearances, for intervenor National Telephone Co-op. Ass'n.

Thomas L. Welch, David K. Hall, and Mark J. Mathis entered appearances, for intervenors Bell Atlantic Telephone Co.

Alfred Winchell Whittaker and Floyd S. Keene entered appearances, for intervenors The Ameritech Operating Cos., et al.

Lisa M. Zaina entered an appearance, for intervenor Organization for the Protection and Advancement of Small Telephone Cos Richard A. Rocchini entered an appearance, for intervenor American Tel. & Tel. Co.

L. Marie Guillory entered an appearance, for amicus curiae District of Columbia Office of the People's Counsel, urging reversal.

Before MIKVA, SILBERMAN and BUCKLEY, Circuit Judges.

Opinion for the court filed by Circuit Judge BUCKLEY.

BUCKLEY, Circuit Judge:

The Public Service Commission of the District of Columbia seeks review of a Federal Communications Commission order approving a revised separations manual used by telephone companies in allocating their costs between federal and state regulatory jurisdictions. It alleges that the agency did not give adequate notice of the changes as required by the Administrative Procedure Act and did not justify its conclusion that the changes (a) would reduce the burden of complying with the separations procedures without substantially sacrificing accuracy and (b) would not prompt an unreasonable shift of costs between the interstate and intrastate jurisdictions. We reject these contentions and deny the petition for review.

I. BACKGROUND

The Public Service Commission of the District of Columbia ("PSC") objects to a Federal Communications Commission order that implemented changes in the "separations manual" used by telephone companies to divide their costs of service between federal and state jurisdictions for ratemaking purposes. Such a division is necessary because the Federal Communications Act ("Act") denies the Commission jurisdiction over purely intrastate communication. See 47 U.S.C. Sec. 152(b) (1982).

Because most of the equipment employed by telephone companies in the provision of services is used for both intrastate and interstate and foreign communication, it is necessary to separate, or allocate, their costs between federal and state jurisdictions for the purpose of setting rates, which are based on costs. The Act assigns responsibility for this separation to the Commission. 47 U.S.C. Sec. 221(c) (1982). In recognition of the State's obvious interest in how this jurisdictional separation is performed, however, Congress has required the Commission to refer new rulemaking on the subject to a special Federal-State Joint Board ("Board"). 47 U.S.C. Secs. 221(c), 410(c). The Board prepares a recommended decision, which the Commission must promptly review and act upon. Id. The FCC's final decision becomes binding on the States. See Hawaiian Tel. Co. v. Public Util. Comm'n of Hawaii, 827 F.2d 1264, 1275-76 (9th Cir.1987), cert. denied, 487 U.S. 1218, 108 S.Ct. 2870, 101 L.Ed.2d 906 (1988).

The proceedings in this case began in July 1986, when the FCC initiated the process of changing its separations procedures, a move necessitated by a prior change in its Uniform System of Accounts ("USOA") to which the separations procedures were geared. The changes in the USOA were designed to increase the accuracy of the procedures used by telephone companies to account for their interstate activities and to make those procedures more consistent with modern accounting principles. The FCC ultimately adopted a two-tiered approach, applying simpler, less burdensome accounting requirements to the smaller carriers (designated "Class B" carriers) than it did to the larger ones (designated "Class A" carriers). The revised USOA was codified at 47 C.F.R. Part 32 (1988).

The notice of the proposed changes in the separations procedures, codified in 47 C.F.R. Part 67, stated in its introduction that

[t]he primary purpose of this proceeding is to develop new jurisdictional separations procedures that are required to conform Part 67 of the Commission's Rules to the new USOA (Part 32) adopted on May 1, 1986. We are also seeking to simplify the procedures set forth in Part 67.

Notice of Proposed Rulemaking and Order Establishing a Federal-State Joint Board, CC Docket No. 86-297, at 1 (July 8, 1986) ("Initial Notice"). In addition, the Initial Notice specified that the proceeding

should not be limited to the minimal changes that will be necessary to conform the Separations Manual with the new USOA.... We are also asking this Joint Board to recommend additional modifications that should make it easier for carriers to comply with the separations process.

Id. at 2.

Following the Initial Notice, the Board sought comments and data on the proposed revision in the separations procedure. Order Inviting Comments and Request for Data, CC Docket No. 86-297 (July 25, 1986) ("Comments Order"). The Board reviewed the responses and, on April 8, 1987, it issued its recommendation. Recommended Decision and Order, 2 F.C.C. Rcd. 2582 (1987). In it, the Board recommended that the simpler Class B separations manual be used by all carriers. The Board acknowledged that the Class B manual, as originally proposed in the Comments Order, might result in unacceptable interjurisdictional shifts in revenue requirements if used by both Class A carriers and Class B carriers alike. 2 F.C.C. Rcd. at 2585. The Board concluded, however, that it could compensate for these discrepancies through the use of different allocators by the two classes of carriers for certain costs.

Allocators are parts of computer models used to apportion revenue requirements according to various costs. The Board determined on the basis of the data submitted that if it modified the Class B manual so as to use a plant-based allocator for Class B carriers and an expense-based one for Class A carriers in one category of the computer models, the use of the Class B manual would result in a revenue shift to the interstate jurisdiction of only $64 million. This "bifurcated allocator" approach thus produced even less of a revenue shift than the $72 million or 0.43 percent shift of total revenue requirements that would have been produced by a modification proposed by several major carriers in their comments submissions. Id. Moreover, the Board concluded that the modified Class B manual could achieve the stated objective of conforming the separations process to the new USOA without incurring what the Board saw as the unnecessary burdens of the more complex Class A manual which, it maintained, did not clearly ensure greater accuracy. 2 F.C.C. Rcd. at 2586.

On May 1, the Commission adopted the Board's recommended decision. Report and Order, 2 F.C.C. Rcd. 2639 (1987). The PSC petitioned for reconsideration. It argued, inter alia, that the adoption of the Class B manual for Class A carriers would sacrifice accuracy in the separations process and cause a reallocation or shift of over $10 million in costs, representing 6.17 percent of intrastate revenue requirements for the D.C. jurisdiction, from the federal rate-making jurisdiction to that of the District, with a resulting increase in local rates. It also argued that the FCC order was arbitrary and capricious because it was not preceded by adequate notice and opportunity for comment, in violation of the Administrative Procedure Act, 5 U.S.C. Sec. 553(b) & (c) (1988) ("APA").

On August 8, 1988, the Commission rejected all of the PSC's complaints. Order on Reconsideration, 3 F.C.C. Rcd. 5518 (1988). The FCC pointed to the large number of comments the Board had received, the actual notice to the PSC, and the subsequent submission of comments by the PSC as evidence that notice had been adequate. The FCC further defended its use of an expense-based, as opposed to plant-based, allocator for Class A carriers on the grounds that, despite producing somewhat larger shifts in the District's jurisdictional rate base, it minimized such shifts nationwide. As the converse was true for Class B carriers, the Commission concluded that the bifurcated allocator approach would...