Hawaiian Telephone Co. v. Public Utilities Com'n of State of Hawaii, Nos. 85-1907

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBefore FERGUSON, CANBY and CYNTHIA HOLCOMB HALL; CANBY; FERGUSON
Citation827 F.2d 1264
Docket NumberNos. 85-1907,85-1908
Decision Date11 September 1987
PartiesHAWAIIAN TELEPHONE COMPANY, a Hawaii Corporation, Plaintiff-Appellee, v. PUBLIC UTILITIES COMMISSION OF STATE OF HAWAII; Albert Tom, Chairman; Sunai Kido, Commissioner; and Clyde S. Dupont, Commissioner, Defendants, Consumer Advocate, the Director of the Department of Commerce and Consumer Affairs, State of Hawaii, Intervenor-Defendant-Appellant.

Page 1264

827 F.2d 1264
56 USLW 2173
HAWAIIAN TELEPHONE COMPANY, a Hawaii Corporation, Plaintiff-Appellee,
v.
PUBLIC UTILITIES COMMISSION OF STATE OF HAWAII; Albert Tom,
Chairman; Sunai Kido, Commissioner; and Clyde S.
Dupont, Commissioner, Defendants,
Consumer Advocate, the Director of the Department of
Commerce and Consumer Affairs, State of Hawaii,
Intervenor-Defendant-Appellant.
Nos. 85-1907, 85-1908.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted March 28, 1986.
Submission Deferred April 29, 1986.
Resubmitted Oct. 28, 1986.
Decided Sept. 11, 1987.

Page 1266

L. Russell Mitten, II, Honolulu, Hawaii, William R. Malone, Washington, D.C., and Thomas W. Williams, Jr., Honolulu, Hawaii, for plaintiff-appellee.

Ronald Shigekane, Honolulu, Hawaii, for the Consumer Advocate appellant.

Harry S.Y. Kim, Honolulu, Hawaii, for appellants.

Appeal from the United States District Court for the District of Hawaii.

Before FERGUSON, CANBY and CYNTHIA HOLCOMB HALL, Circuit Judges.

CANBY, Circuit Judge:

The ultimate issue in this case is whether the Hawaii Public Utilities Commission (PUC) violated an order of the Federal Communications Commission mandating use of a particular set of "separations" procedures for allocating the respective costs and investments between interstate and intrastate telephone operations. A threshold question is whether the district court had jurisdiction under Sec. 401(b) of the Communications Act to enforce the FCC order. In essence, the district court's permanent injunction required the PUC to obey the FCC order by raising Hawaiian Telephone Company's (HawTel's) intrastate rates by $10,507,000 annually.

Hawaii's PUC and Consumer Advocate, as intervenor, appealed. We deferred submission to await the Supreme Court's recent decision in Louisiana Public Service Commission v. FCC, 476 U.S. 355, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986), and to permit the parties to comment upon it. We now affirm the district court's injunction.

BACKGROUND

HawTel provides interstate, intrastate, and overseas telephone service for residents of Hawaii. The FCC sets HawTel's long-distance rates, and the PUC sets intrastate rates. Because the same physical plant is used for both interstate and intrastate services, some system for apportioning costs and investments is necessary to set fair rates for the respective services. See generally MCI Telecommunications Corp. v. FCC, 750 F.2d 135 (D.C.Cir.1984); McKenna, Preemption Under the Communications Act, 37 Fed.Comm.L.J. 1 (1985). This system of apportionment is referred to as "separations procedures."

Until recently, interstate rates for telecommunications to and from Hawaii were considerably higher than interstate rates in the 48 contiguous states. In 1972, the FCC determined that Hawaii's rates should be integrated into the Mainland domestic rate pattern. Interstate rates in Hawaii accordingly were to be adjusted so that they would be roughly comparable to rates in other parts of the United States. In re Establishment of Domestic Communications-Satellite Facilities by Non-Governmental Entities, Second Report & Order (Docket No. 16495), 35 F.C.C.2d 844, 856-57, aff'd on reconsideration, 38 F.C.C.2d 665 (1972), aff'd sub nom. Network Project v. FCC, 511 F.2d 786 (D.C.Cir.1975). The FCC later decided that integration would be accomplished in part by establishing new procedures for interstate and intrastate cost apportionment. The FCC, exercising its authority under 47 U.S.C. Sec. 410, established a special Federal-State Joint Board, to advise it on fair separations procedures for Hawaii. The FCC had not previously prescribed any separations procedures for Hawaii, and the PUC had apportioned costs according to its own "Hawaiian Plan II."

In 1981, the Joint Board recommended use of the so-called "Ozark Plan," see 47 C.F.R. Secs. 67.1-67.701, for separations. In

Page 1267

re Integration of Rates & Services for the Provision of Communications by Authorized Common Carriers between the United States Mainland & Hawaii & Alaska, Memorandum Opinion & Order (Docket 21263), 87 F.C.C.2d 20, 24 (1981). The Ozark Plan, which was developed through cooperative efforts of the FCC and utility regulators nationwide, had been used in the 48 states for some time. The Joint Board suggested extending the Plan for use in Hawaii without modification. Id. The FCC ordered application of the Ozark separations procedures to Hawaii. Integration of Rates & Services for the Provision of Communications by Authorized Common Carriers between the United States Mainland & Hawaii & Alaska, Report & Order 81-312 (Docket 21263), 87 F.C.C.2d 18 (1981) [hereafter Order 81-312]. 1

The new procedures were expected to yield significantly lower interstate phone rates, but only at the price of upward pressure on intrastate rates. To avoid a dramatic impact on local rates, the FCC, AT & T, and HawTel agreed to phase in the new procedures over four years, with full implementation by January 1, 1985. During the transition period, AT & T was to make certain payments or "transitional supplements" to HawTel, thereby reducing the need for immediate intrastate rate relief.

In August 1981, shortly after the integration plan was adopted in FCC Order 81-312, HawTel filed for a local rate increase of $47.6 million. PUC Docket 4306. This proceeding was a predecessor to the one that is the subject of this appeal. The PUC granted only $27.1 million of the requested increase, in part due to a downward 1.1 percent rate-of-return adjustment proposed by the PUC itself. The "Separation Adjustment" represented the difference between intrastate rates resulting from jurisdictional separations calculated under the Ozark Plan and those calculated under Hawaiian Plan II. In re Application of Hawaiian Telephone Company, PUC Decision & Order No. 7412, Docket No. 4306 (Jan.1983); see In re Application of Hawaiian Telephone Company, 67 Haw. 370, 689 P.2d 741, 751-52 (1984). The PUC agreed that the Ozark Plan should be used to establish the rate base, and that an 11.46 percent rate of return was appropriate. It also conceded that the transitional payments from AT & T must be treated as interstate revenues. It considered the special downward adjustment proper, however, in light of the State's previous support for the transitional rate-integration agreement between AT & T, HawTel, and the FCC. At HawTel's request, the State had lobbied the FCC for approval of the transition agreement, at least in part because of HawTel's representations that it would need local rate relief of $30-35 million per year if the agreement were not adopted. 2

HawTel appealed the PUC's decision in Docket 4306 to the Hawaii Supreme Court, arguing that the order in fact nullified the FCC's 1981 mandate to employ the Ozark Plan. On September 27, 1984, the court upheld the PUC, finding that the PUC had employed appropriate procedures and that it merely had determined the appropriate rate of return on intrastate business, which was within its authority, Application of Hawaiian Telephone Company, 67 Haw. at 385, 689 P.2d at 751. HawTel declined to seek United States Supreme Court review.

While HawTel's state-court appeal was pending, it filed for another rate increase, with which this appeal is directly concerned. PUC Docket 4588. In Docket 4588, after determining that HawTel would be entitled under the Ozark Plan to some $30 million in new revenues, at a reasonable 11.25 percent rate of return, the PUC made an identical 1.1 percent rate-of-return

Page 1268

adjustment. In re Application of Hawaiian Telephone Company. Decision & Order No. 8042, Docket No. 4588 (Aug. 1984). It granted HawTel about $20 million in rate relief, $10,507,000 less than its calculations indicated HawTel otherwise should receive. This time, however, the PUC did not expressly compare rates under the Ozark Plan to rates under Hawaiian Plan II, the way that it did to arrive at the 1.1 percent figure in 1981.

HawTel filed suit in federal district court under 47 U.S.C. Sec. 401(b), 3 challenging the PUC's second rate decision in Docket 4588. The downward rate adjustment, HawTel argued, constituted a failure of the PUC to obey FCC Order 81-312. Appellants PUC and Consumer Advocate argued that the district court lacked jurisdiction under Sec. 401(b) and that the PUC's intrastate rate decision was consistent with FCC Order 81-312. Further, appellants contended that HawTel's action was barred by the Johnson Act, 28 U.S.C. Sec. 1342, 4 and by the doctrine of res judicata. The district court rejected these contentions. Finding that the second 1.1 percent adjustment had the effect of applying Hawaiian Plan II as the basis for separations, the court issued preliminary and permanent injunctions. Hawaiian Telephone Company v. Public Utilities Commission, Civ. No. 84-1306, slip op. (D.Haw. Mar. 13, 1985). Both the PUC and the Consumer Advocate appeal. 5

DISCUSSION

I. JURISDICTION UNDER 47 U.S.C. Sec. 401(b)

Questions of subject matter jurisdiction and statutory interpretation are reviewed in this court de novo. Carpenters Southern California Admin. Corp. v. Majestic Housing, 743 F.2d 1341, 1343 (9th Cir.1984); Southeast Alaska Conservation Council, Inc. v. Watson, 697 F.2d 1305, 1309 (9th Cir.1983).

47 U.S.C. Sec. 401(b) states:

If any person fails or neglects to obey any order of the [FCC] other than for the payment of money, while the same is in effect, the [FCC] or any party injured thereby ... may apply to the appropriate district court of the United States for the enforcement of such order. If, after hearing, that court determines that the order was regularly made and duly served, and that the person is in disobedience of the same, the court shall enforce obedience to such order by a writ of injunction or other proper process, mandatory or otherwise, to restrain such person or the officers, agents, or representatives of such person, from further disobedience of such order,...

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