New England Tel. & Tel. Co. v. F.C.C.

• Decision Date: 21 August 1987
• Docket Number: 85-1457,85-1472,85-1471,Nos. 85-1087,s. 85-1087
• Citation: 826 F.2d 1101
• Parties: NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., National Telephone Cooperative Association, et al., American Telephone & Telegraph Co., Ameritech Operating Co., Mountain States Telephone & Telegraph Co., et al., Satellite Business Systems, U.S. Telephone Association, Telecommunication Research & Action Center, South Central Bell Telephone Co., Southwestern Bell Telephone Co., Intervenors. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, U.S. Telephone Association, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors. The MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors. PACIFIC BELL, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1101

826 F.2d 1101

264 U.S.App.D.C. 85

NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of

America, Respondents,

GTE Service Corp., et al., National Telephone Cooperative

Association, et al., American Telephone & Telegraph Co.,

Ameritech Operating Co., Mountain States Telephone &

Telegraph Co., et al., Satellite Business Systems, U.S.

Telephone Association, Telecommunication Research & Action

Center, South Central Bell Telephone Co., Southwestern Bell

Telephone Co., Intervenors.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of

America, Respondents,

U.S. Telephone Association, GTE Service Corp., et al.,

Mountain States Telephone & Telegraph Co., et al.,

Bell Operating Companies, Southwestern

Bell Telephone Co., Intervenors.

The MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of

America, Respondents,

GTE Service Corp., et al., Ameritech Operating Co., American

Telephone & Telegraph Co., Bell Operating

Companies, Southwestern Bell Telephone

Co., Intervenors.

PACIFIC BELL, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of

America, Respondents,

GTE Service Corp., et al., Mountain States Telephone &

Telegraph Co., et al., Ameritech Operating Co., American

Telephone & Telegraph Co., Bell Operating Companies,

Southwestern Bell Telephone Co., Intervenors.

Nos. 85-1087, 85-1457, 85-1471, 85-1472.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 30, 1986.

Decided Aug. 21, 1987.

Petitions for Review of Orders of the Federal Communications commission.

Raymond F. Scully, with whom Alan B. Sternstein, Katherine I. Hall, Washington, D.C., Saul Fisher, Bedminster, N.J., John B. Messinger, Robert L. Barada, Los Angeles, Cal., Stanley J. Moore, Susan E. Barisone, San Francisco, Cal., Vincent L. Sgrosso and R. Frost Branon, Jr., Atlanta, Ga., were on the joint brief for New England Tel. and Tel. Co., et al., petitioners in nos. 85-1087 and 85-1472 and intervenors in nos. 85-1457 and 85-1471.

Jules M. Perlberg, Chicago, Ill., with whom David J. Lewis, Washington, D.C., Francine J. Berry, New York City, Mark C. Rosenblum, Basking Ridge, N.J., and Jonathan S. Hoak, Washington, D.C., were on the brief for AT & T Co., petitioner in no. 85-1457 and intervenor in nos. 85-1087, 85-1471 and 85-1472. J. Richard Devlin, Bedminster, N.J., entered an appearance for AT & T.

Robert B. McKenna, Jr., Robert W. Barker, L. Andrew Tollin and Kenneth B. Patrich, Washington, D.C., were on the joint brief for Mountain States Telephone & Telegraph Co., et al., petitioners in no. 85-1471 and intervenors in nos. 85-1087, 85-1457 and 85-1472. Jeffrey B. Bork, Washington, D.C., entered an appearance for Mountain States Tel. & Tel. Co.

John E. Ingle, Deputy Associate Gen. Counsel, F.C.C., with whom Jack D. Smith, Gen. Counsel, Daniel M. Armstrong, Associate Gen. Counsel, Jane E. Mago, Counsel, F.C.C., Catherine G. O'Sullivan and Robert J. Wiggers, Dept. of Justice, Washington, D.C., were on the brief for respondents in nos. 85-1087, 85-1457, 85-1471 and 85-1472. Andrea Limmer, Dept. of Justice, and Linda L. Oliver, Counsel, F.C.C., Washington, D.C., entered appearances for respondents.

Alfred Winchell Whittaker, Washington, D.C., and Thomas J. Reeman were on the brief for intervenor, Ameritech Operating Companies in nos. 85-1087, 85-1471 and 85-1472.

Thomas J. O'Reilly and Patricia McClary, Washington, D.C., were on the brief for intervenor, U.S. Telephone Ass'n in nos. 85-1087 and 85-1457.

William Malone and James R. Hobson, Washington, D.C., were on the brief for intervenors, GTE Service Corp., et al. in nos. 85-1087, 85-1457, 85-1471 and 85-1472.

Daniel Davidson, Washington, D.C., entered an appearance for intervenor, Telecommunications Research and Action Center in no. 85-1087.

Kevin H. Cassidy, J. Manning Lee, McLean, Va., and Jeffrey H. Matsuura, Washington, D.C., entered appearances for intervenor, Satellite Business Systems in no. 85-1087.

William C. Sullivan, Linda S. Legg, Liam S. Coonan, Mary Whitten Marks and Michael J. Zpevak, St. Louis, Mo., entered appearances for intervenor, Southwestern Bell Telephone Co. in nos. 85-1087, 85-1457, 85-1471 and 85-1472.

David Cosson, Washington, D.C., entered an appearance for intervenors, Nat. Telephone Co-op. Ass'n, et al. in no. 85-1087.

J. Roger Wollenberg, Sally Katzen, Andrea Timko, John S. Hannon, Jr. and Ruth E. Sigler, Washington, D.C., were on the brief for amicus curiae, Communications Satellite Corp., urging reversal in nos. 85-1087, 85-1457, 85-1471 and 85-1472.

Before MIKVA and BUCKLEY, Circuit Judges, and PARSONS, ^* Senior District Judge.

Opinion for the Court filed by Circuit Judge MIKVA.

Dissenting opinion filed by Circuit Judge BUCKLEY.

MIKVA, Circuit Judge:

Petitioners American Telephone and Telegraph Company ("AT & T") and numerous former Bell operating telephone companies ("BOCs") seek review of orders of the Federal Communications Commission ("the Commission") requiring them to grant rate reductions. The reductions are designed to reimburse consumers for earnings enjoyed by AT & T and the BOCs in 1978 which were over and above a rate-of-return ceiling previously prescribed by the Commission. Petitioners challenge the orders on a number of grounds, the most substantial of which is that the Commission had no authority under the Communications Act to impose such a remedy. We conclude that the Commission had ample authority to order reductions to enforce its prior rate-of-return prescription, and we deny the petitions for review.

I. BACKGROUND

A. Regulatory Structure

The Communications Act of 1934, ch. 652, 48 Stat. 1064 (codified as amended at 47 U.S.C.) (the "Act"), provides the regulatory ratemaking scheme within which these petitions arise. Section 203 of the Act places primary responsibility for initiating rate revisions upon the carrier. 47 U.S.C. Sec. 203. Once a carrier initiates a revision, the Commission is empowered under section 204 of the Act to suspend implementation of the proposed tariff for up to five months while it investigates the lawfulness of the proposed rates. 47 U.S.C. Sec. 204. If the Commission's investigation is not completed within that time, the proposed tariff automatically goes into effect. In such a case, however, section 204 empowers the Commission to make the increases subject to an accounting and refund order: if the Commission later determines that the revisions are excessive, it may order the carrier to refund the unjustified amount to those customers who have been overcharged. Id.; see Nader v. FCC, 520 F.2d 182, 198 (D.C.Cir.1975).

Section 205 of the Act, which is of particular relevance to this dispute, governs the Commission's authority to regulate existing rates. Under section 205, the Commission can initiate an investigation into any carrier rate or practice. If the Commission determines that a carrier rate is or will be unlawful under the Act, it may prescribe the "just and reasonable charge ... to be thereafter observed." 47 U.S.C. Sec. 205. This power of prescription is a potent tool: once the Commission issues a prescription order under section 205, the carrier must "cease and desist from such violation ... and shall not thereafter publish, demand, or collect any charge other than the charge so prescribed, or in excess of the maximum ... so prescribed." Id.

The Commission in this case also relied on section 4(i) of the Act. That section authorizes the Commission to "perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this Act, as may be necessary in the execution of its functions." 47 U.S.C. Sec. 154(i). As we detail below, section 4(i) previously has been held to justify the use of rate-of-return prescriptions, as opposed to prescriptions of actual rates.

B. Regulatory History

Although it had recommended appropriate return levels as early as 1967, the Commission first began to use its section 205 powers to prescribe a rate of return, as opposed to a prescription of actual rates, for the AT & T system in 1972. The Commission decided to undertake a rate-of-return prescription because AT & T had become so huge and diverse that individual rate determinations for each service were impractical. The 1972 order fixed a rate of return of 8.5% and rejected proposed AT & T tariffs that would have provided the company with a higher return. AT & T's challenge to that order called on this court to determine whether the Commission's section 205 powers permitted the agency to prescribe rates of return as well as rates. See Nader v. FCC, 520 F.2d 182, 199-205 (D.C.Cir.1975). In Nader, we determined, as a threshold matter, that the Commission's order fixing a rate of return was indeed a prescription. We concluded that "[w]e would be shirking reality if we did not recognize that the practical effect of the Commission's ... order was to limit prospectively AT & T's rate of return to 8.5%, and thus [the order] was a prescription under section 205." Id. at 201; see also id. at 202 (the Commission's order was intended "to have the prospective effect of a prescription, thus, limiting the utility to that return.").

We then found that the Commission's prescription of a rate of return was consonant with the agency's statutory authority under the Act. Id. at 203-05. Even though section 205 refers only to the Commission's power to prescribe "charges, classifications regulations and practices," we found that prescription of a rate of return was proper under section 4(i), which gives the Commission the power to issue such orders "as may be necessary in the execution of its functions." Id. at 203. In holding that "the Commission lawfully prescribed a rate of return for AT & T," id. at 204, we noted that "the...