Southwestern Bell Telephone Co. v. F.C.C.

• Decision Date: 25 June 1999
• Docket Number: No. 98-1197,98-1197
• Court: U.S. Court of Appeals — District of Columbia Circuit
• Parties: SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. AT&T Corporation, et al., Intervenors.

180 F.3d 307

SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of

America, Respondents.

AT&T Corporation, et al., Intervenors.

No. 98-1197.

United States Court of Appeals, District of Columbia Circuit.

Argued March 8, 1999.

Decided June 25, 1999.

On Petition for Review of an Order of the Federal Communications Commission.

Geoffrey M. Klineberg argued the cause for petitioners. With him on the briefs were Michael K. Kellogg, Mark L. Evans, James D. Ellis, Robert M. Lynch, Durward D. Dupre, Michael J. Zpevak, Thomas A. Pajda, Michael E. Glover, and Edward Shakin.

Joel Marcus, Counsel, Federal Communications Commission, argued the cause for respondents. On the brief were Joel I. Klein, Assistant Attorney General, U.S. Department of Justice, Robert B. Nicholson and Robert J. Wiggers, Attorneys, Christopher J. Wright, General Counsel, Federal Communications Commission, John E. Ingle, Deputy Associate General Counsel, and Carl D. Lawson, Counsel.

Maria L. Woodbridge, Donald B. Verrilli, Jr., Nory Miller, Mark C. Rosenblum, Peter H. Jacoby, Jules M. Perlberg and Stephen F. Smith were on the brief for intervenors MCI Telecommunications Corporation and AT&T Corporation. Matthew B. Pachman and Gene C. Schaerr entered appearances.

Before: WALD, SILBERMAN, and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

The Federal Communications Commission determined that the method by which six local exchange carriers (LECs) calculated the "common line basket" in arriving at their 1997-98 tariffs resulted in unjust and unreasonable rates charged to interexchange carriers (IXCs), and it ordered the LECs to refund the overcharges. Two of the LECs, Southwestern Bell Telephone Company and the Bell Atlantic telephone companies, sought reconsideration of that order, which the Commission denied. Southwestern Bell then petitioned for review of the order denying reconsideration. As explained below, an order denying reconsideration is not reviewable for material error but only for new evidence or changed circumstances. Applying that standard of review, we deny the petition.

I. Background

In 1990 the Commission adopted a price cap system for larger LECs, including petitioner Southwestern Bell and intervenor Bell Atlantic. The general features of the price cap system are described in other opinions of this court. See, e.g., Illinois Pub. Telecomm. Ass'n v. FCC, 117 F.3d 555, 570 (1997); Southwestern Bell Tel. Co. v. FCC, 100 F.3d 1004, 1005 (1996). The component of the price cap pertinent to this case is the "common line basket," which contains all the interstate charges associated with the "local loop"--the facilities that carry traffic between the end user and a LEC's central switch.

The cost of the local loop is shared by end users and the IXCs. The precise formula for determining the amounts to be paid by the two groups is quite complex, see generally 47 C.F.R. § 69, but a simple description will suffice for this case. The portion of the "common line basket" not allocated automatically to the IXCs is known as the base factor portion (BFP). The BFP is divided by the projected end user common line (EUCL) demand to arrive at a monthly EUCL charge. End users are charged the lower of that amount or their EUCL cap. Prior to 1998 the caps were $3.50 for residential and single-line business subscribers, and $9.00 for multi-line business subscribers. That is, if the calculated EUCL charge was less than or equal to $3.50, then a LEC would recover the full BFP from end users. If the calculated EUCL charge was more than $3.50, then residential and single-line business users would pay $3.50 and multi-line business users would pay the lower of the EUCL charge or $9.00; the LEC would recover the remainder of the BFP through a per-minute carrier common line (CCL) charge to the IXCs. Accordingly, between $3.50 and $9.00 a change in the level of the EUCL charge would inversely affect the level of the CCL charge to the IXCs.

At the urging of the IXCs, which claimed that the LECs had been overcharging them for per-minute access to the local loop since the inception of the price cap system, the Commission suspended for one day the 1997-98 tariffs filed by the price cap LECs. In the Commission's view the LECs had not adequately supported their BFP revenue requirements or their end user demand projections. In its order designating issues for investigation, the Commission required each LEC to submit its actual and projected BFP revenue requirements from 1991 to 1997, as well as a detailed explanation of the method by which it arrived at its BFP projection for the 1997-98 tariff. The Commission also noted that under-forecasting the BFP requirement would not necessarily reduce a LEC's total common line revenue; for reasons that need not detain us for the purposes of this case, "so long as this year's growth in minutes of use per common line is expected to exceed half the previous year's growth, the price cap LEC would expect to receive greater total common line revenues by charging relatively lower EUCLs and relatively higher CCL charges."

In its Investigation Order, which concluded its inquiry into the LECs' 1997-98 tariffs, the Commission found that six of the twelve LECs under investigation--petitioner Southwestern Bell, intervenor Bell Atlantic, U.S. West, NYNEX, GTE, and Sprint--"employed forecasts that reflect a consistent downward bias." The Commission concluded that the 1997-98 tariffs filed by five of the six LECs contained the same bias, and that the tariff filed by the sixth, Bell Atlantic, had a specific flaw in its forecasting methodology. For the reasons set out in its Designation Order, the agency rejected the LECs' contention that they have little or no incentive to underestimate their BFP revenue requirements because, in their view, the allocation of charges between end users and the IXCs is a zero-sum game. The Commission next analyzed the pattern of underestimation in the LECs' forecasts of their per-line BFP revenue requirements, that is, the result of dividing the BFP by projected end user demand. The Commission concluded that "their forecasting techniques underestimate the per-line BFP revenue requirement in a statistically significant manner" and, therefore, that their 1997-98 "forecasts are likely to be the product of biased forecasting techniques." Finally, the Commission canvassed the reasons proffered by the LECs for their underestimates and rejected them, ultimately concluding that the 1997-98 per-minute charges to the IXCs were not just and reasonable.

The Commission then prescribed for each LEC a method for determining just and reasonable CCL charges for the purpose of ordering refunds to the IXCs, although it acknowledged that it had not previously prescribed a methodology for forecasting the BFP and stated that it continued "to believe that there are many different methods that could produce reasonable forecasts for individual LECs." It ordered the six LECs to use the revised BFP forecasts to calculate the refunds owed to the IXCs for the period July 1 to December 31, 1997 and to recalculate the EUCL and the CCL charges for use from January 1 through June 30, 1998.

Bell Atlantic petitioned for rehearing. In its petition, the LEC challenged the assumptions underlying the Commission's conclusion that underestimating the BFP revenue requirement is not necessarily a zero-sum game and the analysis upon which the Commission relied in concluding that the LECs' underestimates were the result of bias. Bell Atlantic also claimed that for tariffs filed in years prior to 1997 its method was more accurate than the Commission's. Finally, it argued that if the agency was going to order the LECs to make refunds to the IXCs, then it should have "provid[ed] a method to recover that same amount--which no one disputed they were entitled to recover--from end-users." Southwestern Bell submitted comments in support of Bell Atlantic's petition and also filed its own petition for rehearing, in which it challenged a different aspect of the Commission's decision. The agency denied both petitions for reconsideration.

Southwestern Bell then petitioned this court for review of the Reconsideration Order only. Bell Atlantic intervened and the two filed the joint briefs now before us.

II. Analysis

The Commission, along with AT&T and MCI, which intervened in support of the agency, argue that the Reconsideration Order is not a reviewable order and, therefore, that this court must dismiss the petition to review that order for lack of jurisdiction. For the reasons given today in Beehive Telephone Co. v. FCC, No. 98-1293, we hold that we have jurisdiction over the petition for review pursuant to 47 U.S.C. §§ 402(a) and 405(b)(2). See slip op. at 6-8. We agree that the petition is unreviewable, however, and we deny it on that ground.

A. Standard of Review

Twenty-five years ago we regarded it as "settled [law] that an order which merely denies rehearing of another order is not itself reviewable" and that the filing of a petition for reconsideration simply "toll[s] the period for seeking judicial review" of the underlying order. Microwave Communications, Inc. v. FCC, 515 F.2d 385, 387 n. 7 (1974). The Supreme Court reached the same conclusion thirteen years later in ICC v. Brotherhood of Locomotive Engineers, 482 U.S. 270, 279-80, 107 S.Ct. 2360, 96 L.Ed.2d 222 (1987), citing our earlier decision with approval.

In the Supreme Court case a union representing railroad employees sought review of two decisions of the Interstate Commerce Commission, one denying the Union's petition for clarification, which was "in effect a petition to reopen," id. at 285, and the other denying its petition for reconsideration of the first petition. The Court held that when an agency "refuses to reopen a proceeding, what is reviewable is merely the...