New England Tel. and Tel. Co. v. Public Utilities Com'n of Maine, 83-1779

• Decision Date: 10 September 1984
• Docket Number: No. 83-1779,83-1779
• Citation: 742 F.2d 1
• Parties: NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, etc., Plaintiff, Appellee, v. PUBLIC UTILITIES COMMISSION OF MAINE, et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 1

742 F.2d 1

NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, etc., Plaintiff, Appellee, v. PUBLIC UTILITIES COMMISSION OF MAINE, et al., Defendants, Appellants.

No. 83-1779.

United States Court of Appeals First Circuit.

Argued March 6, 1984.

Decided June 29, 1984.

Rehearing Denied Sept. 10, 1984.

William E. Furber, Augusta, Me., with whom Charles F. Dingman, Cushing P. Samp, Joseph G. Donahue, Augusta, Me., Peter L. Murray, and Murray, Plumb & Murray, Portland, Me., were on brief, for defendants, appellants.

Francis X. Bellotti, Atty. Gen., and Charles R. Peck, Asst. Atty. Gen., Com. of Mass., Utilities Div., Public Protection Bureau, Boston, Mass., on brief for the Atty. Gen., Com. of Mass., amicus curiae.

Robert A. Lewis, Boston, Mass., with whom Ralph I. Lancaster, Jr., Everett P. Ingalls, and Pierce, Atwood, Scribner, Allen, Smith & Lancaster, Portland, Me., were on brief, for New England Tel. and Tel. Co.

Before CAMPBELL, Chief Judge, BREYER, Circuit Judge, and GIERBOLINI, ^* District Judge.

BREYER, Circuit Judge.

In this case a private party seeks to enforce a decision of the Federal Communications Commission against a recalcitrant state utilities commission. The FCC promulgated a rule that required state public utility commissions to follow a certain method for calculating depreciation of telephone company equipment. The Public Utilities Commission of Maine (the "P.U.C.") evidently ignored the FCC rule. The private party, namely the New England Telephone Company, invoking the authority of section 401(b) of the Federal Communications Act, 47 U.S.C. Sec. 401(b), obtained a federal district court injunction requiring the Maine commission to comply with the FCC rule. 570 F.Supp. 1558 (D.Me.1983). Section 401(b) of the Act states that if anyone

fails or neglects to obey any order of the [Federal Communications] Commission ..., any party injured thereby ... may apply to the appropriate district court of the United States for the enforcement of such order.

We find that the word "order" in this statute does not include an FCC rulemaking decision of the sort here at issue. Thus, the district court lacked authority to issue the injunction.

I

We start by examining the FCC decision at issue. The decision focused upon the question of how to recapture through depreciation charges the cost of a telephone company asset that has unexpectedly lost some of its anticipated economic value. (For a general description of cost recovery through regulated rate-setting, see Distrigas of Massachusetts Corp. v. FERC, 737 F.2d 1208 (1st Cir.1984).) To take an oversimplified, imaginary example to illustrate the problem, suppose that the telephone company originally thought that some connecting equipment (say, a $50 fuse) installed in 1960 on the line between a house and a street pole would last fifty years. The company might initially depreciate the equipment at the rate of $1 per year. Suppose further that in 1980, after the company has recaptured $20 through depreciation charges, a new, dirt cheap, technological development makes it sensible to replace the fuse in 1985, instead of in the year 2010. How should the company recapture the remaining $30 of its original equipment cost? One depreciation method, called the "whole life" method, would have the company recalculate the annual depreciation charge for future years by dividing the original $50 cost by the newly estimated whole life of the asset (25 years). Thus, for the next five years, the company would charge $2 per year. By 1985, the company, then, would have recovered $30 of its $50 investment; the remainder would be recovered after the fuse was taken out of service. Another method, called the "remaining life" method, would have the company recalculate the annual depreciation allowance by dividing the remaining undepreciated cost of the fuse ($30) by its remaining useful life. So, the company would charge $6 per year for the years 1981 through 1985, recovering the total cost by the time the fuse was retired from service.

The economic implications of the choice between these methods are likely to be complex and may be of great importance. See generally Cornell, Pelcovits, & Brenner, A Legacy of Regulatory Failure, Regulation, July/Aug. 1983, at 37; Fogarty, Capital Recovery: A Crisis for Telephone Companies, A Dilemma for Regulators, Pub.Util.Fort., Dec. 8, 1983, at 13. The "remaining life" method, for example, apparently means that consumers will have to pay more in the near future, but less in the more distant future. Moreover, there are those who argue that in the newly deregulated telephone world, the foreseeably longterm higher "phantom" depreciation charge resulting from the whole life approach (say, $2 extra per year from 1985 to 1995 to recover for the replaced fuse) could lead important customers to switch from the regular telephone system to other lower priced (but economically more costly) systems. If so, customer desertion could deprive the regular system of important sources of revenue and burden remaining customers with still higher charges.

Whether or not these concerns are accurate, the fact is that in 1980 the FCC announced that it would switch from "whole life" to "remaining life" depreciation methods. In re Amendment of Part 31, etc., 83 FCC2d 267 (1980), reconsidered, 87 FCC2d 916 (1981). And in December 1982 it ruled that New England Telephone and certain other phone companies must use "remaining life" systems in setting their inter- state rates. In re Prescription of Revised Percentages of Depreciation, etc., 92 FCC2d 920 (1982). It expressly said, however, that it would determine the applicability of its choice of methodologies to intra -state rates (the subject now before us) in a "separate proceeding." Id. at 928-29.

The "separate proceeding" was a rule-making proceeding, which initially involved a different depreciation question, namely whether certain telephone assets should be depreciated or treated as current expenses. In re Amendment of Part 31, Uniform System of Accounts, etc., Docket No. CC 79-105. The FCC concluded that some of the assets should be charged as current expenses, at least insofar as inter state rates were concerned. 85 FCC2d 818 (1981), clarified as only affecting interstate rates, 89 FCC2d 1094 (1982). Several phone companies then asked the FCC to reconsider whether it should not apply its rule to intra -state rates as well.

In the meantime, an Ohio telephone company asked the FCC for a "declaratory ruling" that the Commission's newly announced preference for a "remaining life" depreciation system applied to intra -state, as well as to inter state, rates and preempted contrary preferences of state regulatory commissions. The FCC evidently believed that the Ohio case and the Part 31 case reconsideration both involved the same general question, whether the FCC should require state commissions to apply FCC depreciation policies in intra-state ratemaking. Hence, it consolidated the two proceedings.

In January 1983 the FCC announced its decision in the (now consolidated) Part 31 reconsideration. 92 FCC2d 864 (1983). It held that its methods for calculating depreciation were automatically binding upon the state commissions under the Communications Act, 47 U.S.C. Sec. 220(b). It added that, in any event, even if the federal Act did not automatically preempt the right of state commissions to follow different depreciation methods for intra-state transactions, the Commission could (and did) forbid their doing so, for a nationally uniform depreciation policy was of great importance to a sound national communications policy. The Maine P.U.C. was not a party to the Part 31 reconsideration proceeding, but some other state regulatory commissions were, and several of these commissions have appealed the FCC's ruling to the Fourth Circuit, where the case awaits decision. Virginia State Corporation Commission v. FCC, 737 F.2d 388 (4th Cir.).

In April 1983, three months after the FCC's consolidated Part 31 reconsideration decision, the Maine P.U.C. denied New England Telephone a rate increase in part because the increase rested upon the use of "remaining life" depreciation. The Maine commission decided that the FCC decision was unlawful--that the FCC could not tell it what depreciation methods to use. New England Telephone appealed the P.U.C.'s decision to the Maine Supreme Judicial Court, but it did not raise the "remaining life" issue in its appeal. Instead, it went to federal court, under 47 U.S.C. Sec. 401(b), arguing that the Maine commission's defiance of the FCC was unlawful and should be enjoined. The federal district court agreed. The Maine P.U.C. now appeals its decision.

II

The FCC decision at issue is the product of a rulemaking proceeding, namely the Part 31 reconsideration. See pages 8-9 infra. The decision also fits the Administrative Procedure Act's definition of a "rule": It is "an agency statement of general ... applicability and future effect designed to implement, interpret, or prescribe law or policy ..." 5 U.S.C. Sec. 551(4). Hence, we consider it to be a rule. And, we ask whether such a rule can also be considered an "order of the Commission" within the terms of section 401(b) of the Communications Act. We note that several other courts have been asked to enforce the preemptive effect of the FCC's Part 31 reconsideration decision pursuant to section 401(b), and a number of them have granted the requested injunctions. See Southwestern Bell Telephone Co. v. Arkansas Public Service Commission, 738 F.2d 901 (8th Cir.1984); South Central Bell Telephone Co. v. Louisiana Public Service Commission, 570 F.Supp. 227 (M.D.La.1983); Pacific Northwest Bell Telephone Co. v. Washington Utilities & Transportation Commission, 565 F.Supp. 17 (W.D.Wash.1983); Chesapeake & Potomac Telephone Co. v. Public Service Commission, 560 F.Supp. 844 (D.Md.1983). But none of the courts granting injunctions, aside from the district...