ACS of Anchorage, Inc. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 4, 2002 Decided May 21, 2002

No. 01-1059

ACS of Anchorage, Inc.,

Petitioner

v.

Federal Communications Commission and

United States of America,

Respondents

General Communication, Inc.,

Intervenor

---------

On Petition for Review of an Order of the

Federal Communications Commission

---------

Richard P. Bress argued the cause for petitioner. With

him on the briefs were Karen Brinkmann and Richard R.

Cameron.

Jeffrey J. Peck and David W. Zesiger were on the brief for

amicus curiae Independent Telephone and Telecommunica-

tions Alliance in support of petitioner. Lewis A. Tollin

entered an appearance.

John E. Ingle, Deputy Associate General Counsel, Federal

Communications Commission, argued the cause for respon-

dents. With him on the brief were Laurel R. Bergold,

Counsel, Federal Communications Commission, and Charles

A. James, Assistant Attorney General, and Robert B. Nichol-

son and Robert Wiggers, Attorneys, U.S. Department of

Justice. Laurence N. Bourne, Counsel, Federal Communica-

tions Commission, entered an appearance.

Joe D. Edge argued the cause and filed the brief for

intervenor General Communication, Inc. With him on the

brief were Tina M. Pidgeon and Kathleen S. O'Neill.

Before: Edwards and Randolph, Circuit Judges, and

Williams, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

Williams.

Williams, Senior Circuit Judge: Petitioner ACS of An-

chorage, Inc. challenges a Federal Communications Commis-

sion order finding that ACS exceeded its permissible rate of

return for 1997-98. As a remedy, the Commission ordered

ACS to pay damages plus prejudgment interest to a com-

plaining customer, General Communications, Inc. ("GCI").

See In re General Communication, Inc. v. Alaska Communi-

cations Systems Holdings, Inc., Memorandum Opinion and

Order, FCC 01-32, at 2, p 1 (Jan. 24, 2001) ("Order"); id. at

31, p 77. ACS poses three claims. First, it says that the

Commission erroneously required it to allocate to its intra-

state services the traffic-sensitive costs associated with calls

to internet service providers ("ISPs"). Second, it argues that

even if the Commission were right on that issue, ACS's filing

of tariffs under 47 U.S.C. s 204(a)(3), a provision for "stream-

lined tariffs," barred any damages for overcharges for the

period those tariffs were in effect, namely calendar year 1998.

See In re Implementation of Section 402(b)(1)(A) of the

Telecommunications Act of 1996, Report and Order, 12 FCC

Rcd 2170 (1997) ("Streamlined Tariff Order"). Third, as to

any damages that were due, ACS challenges the rate chosen

by the FCC for calculating prejudgment interest. We deny

ACS's petition on the first issue, grant its petition on the

second, and remand for further proceedings on the third.

* * *

ACS is the incumbent local exchange carrier ("LEC") in

Anchorage, Alaska. Order at 3, p 4. As a "rate-of-return"

carrier (i.e., one whose rates are limited in terms of the rate

of return rather than via price caps, see 47 C.F.R. s 65.1(b)),

ACS files tariff rates for a two-year period, 47 C.F.R.

s 69.3(a); the rates must be chosen with a view to yielding a

rate of return no greater than the Commission-prescribed

maximum. See In re Amendment of Parts 65 and 69 of the

Commission's Rules to Reform the Interstate Rate of Return

Represcription and Enforcement Processes, 10 FCC Rcd

6788, 6791-94, p p 7-12, 6847-48, p 135 (1995). In addition,

such carriers periodically submit monitoring reports showing

their actual rates of return. 47 C.F.R. s 65.600. These

reports may lead carriers to file revised rates, see 47 C.F.R.

s 69.3(b), or cause the Commission to start proceedings un-

der 47 U.S.C. s 205 to prescribe new rates "to be thereafter

followed."

Three tariff filings by ACS are pertinent. In April 1996 it

filed tariff rates for the two-year period from July 1, 1996 to

June 30, 1998 (the "1997 Tariff"), and in December 1997 a

"mid-course correction" tariff covering the balance of that

period (January 1, 1998 to June 30, 1998) (the "January 1998

Tariff"). See 47 C.F.R. s 69.3(b) (permitting mid-course

corrections); Southwestern Bell Telephone Co. v. FCC, 10

F.3d 892, 893-94 & n.1 (D.C. Cir. 1993) (describing use of

mid-course corrections). ACS filed the January 1998 Tariff

under the streamlined tariff provisions of 47 U.S.C.

s 204(a)(3), which in this instance required a 15-day notice

period. Order at 4, p 8. During this notice period, apparent-

ly, the Commission took no action to suspend the tariffs and

initiate a hearing on the rates, see 47 U.S.C. s 204(a)(3)

(cross-referencing 47 U.S.C. s 204(a)(1)), and the tariffs went

into effect without any hearing being ordered.

In June 1998, ACS filed its rates for the two-year period

from July 1, 1998 to June 30, 2000 (the "July 1998 Tariff"),

also pursuant to the streamlined tariff provisions. The July

1998 Tariff, however, allocated to ACS's interstate service the

traffic-sensitive switching costs associated with ISP calls.

Order at 5, p 9. Previously, ACS had treated ISP calls as

intrastate. See id. at 5, p 8 & n.18; see also ACS Br. at 15.

This accounting change had the effect of increasing ACS's

reported interstate costs, thereby making its expected rate of

return lower than it otherwise would have been. See Order

at 17, p 39. Again, however, the Commission took no action

during the notice period, and the tariffs went into effect

without any hearing being ordered.

In September 1999, ACS filed its final monitoring report

for the two-year period from January 1, 1997 to December 31,

1998.1 The report continued to classify ISP-related traffic as

interstate. Anchorage Telephone Utility, Rate of Return

Report (Sept. 30, 1999); Order at 6, p 11. Had ISP costs

been classified as intrastate, ACS's cumulative rate of return

would have been 26.66% or 32.12% (depending on other

accounting practices not challenged here), see Order at 6,

p 12; Responses of Alaska Communications Systems Holding,

Inc. and ACS of Anchorage, Inc. to Interrogatories, In re

General Communication, Inc. v. Alaska Communications

Systems Holdings Inc., File No. EB-00-MD-016, at ex. 1

(Oct. 20, 2000), well in excess of the prescribed maximum rate

of return of 11.65%, see In re Represcribing the Authorized

Rate of Return for Interstate Services of Local Exchange

Carriers, 5 FCC Rcd 7507, p 1 (1990) (prescribing maximum

rate of return of 11.25%); 47 C.F.R. s 65.700(a) (stating that

maximum allowable rate of return for any access service

category is the prescribed rate of return plus 0.4%).

In August 2000, GCI filed a complaint with the Commission

alleging that ACS had improperly calculated its interstate

costs by treating ISP calls as interstate, and had violated its

prescribed rate of return during the 1997-98 monitoring

period. Order at 6-7, p 13. The Commission agreed with

GCI, id. at 10, p 22, 20, p 48, and ordered ACS to pay

__________

1 Commission regulations specify two-year monitoring reports

running with the calendar year, even though the tariffs are filed for

periods starting July 1. Compare 47 C.F.R. s 69.3(a) (specifying

periodicity for rate-of-return monitoring reports), with 47 C.F.R.

damages of about $2.7 million plus prejudgment interest

assessed at the Internal Revenue Service's corporate over-

payment rate, id. at 31, p 77.

Petitioning for review, ACS challenges the Commission's

classification of ISP calls, its failure to treat the s 204(a)(3)

tariff filings as a bar to damages for 1998, and the rate

selected for prejudgment interest.

* * *

ISP calls classification. Because the same telecommunica-

tions equipment is often used for both intrastate and inter-

state communications, carriers must apportion their costs (for

regulatory purposes) through what is called the "separations"

process. See generally 47 C.F.R. ss 36.1-36.3. ACS argues

that because FCC has previously recognized ISP calls as

interstate for jurisdictional purposes under its "end-to-end"

analysis, e.g., In re Implementation of the Local Competition

Provisions in the Telecommunications Act of 1996, 14 FCC

Rcd 3689, 3695-3703, p p 10-20 ("Reciprocal Compensation

Order"), ISP calls should be interstate for separations pur-

poses as well.

Of course, generally speaking, separations will follow juris-

diction. This basic norm is inherent in the separations for-

mulas found at 47 C.F.R. s 36.125(a)(3), (a)(5) & (b), the

Supreme Court's decision in Smith v. Illinois Bell Tel. Co.,

282 U.S. 133, 150-51 (1930), and our decision in MCI Tele-

communications Corp. v. FCC, 750 F.2d 135, 137, 140-41

(D.C. Cir. 1984). But practical considerations may justify

divergent treatment--at least temporarily. See Smith, 282

U.S. at 150 (recognizing the "practical difficulty of dividing

the property between interstate and intrastate services" and

requiring "only reasonable measures" for separation). In-

deed, in MCI, we explicitly upheld a deviation from the

jurisdictional norm where the Commission was implementing

(a) an interim ratemaking solution (b) justified by a substan-

tial policy objective. MCI, 750 F.2d at 140-41.

While the Order does not explicitly invoke the MCI excep-

tion, we can reasonably discern the path from its reasoning

__________

s 65.701 (specifying periodicity for rate-of-return monitoring re-

ports).

and citations. See Bowman Transportation, Inc. v.

Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86

(1974); Syracuse Peace Council v. FCC, 867 F.2d 654, 665

(D.C. Cir. 1989). The interim nature of the decision is quite

explicit--and, of course, a natural concomitant of the novelty

of the internet itself. Compare, e.g., WorldCom v. FCC, No.

01-1218, 2002 WL 832541 (D.C. Cir. May 3, 2002). As the

Order explains, the Commission views its treatment of ISP

calls as derivative of its policy exempting ISPs and other

enhanced service providers ("ESPs") from paying interstate

"access" charges--the charges normally paid by an interex-

change carrier ("IXC") such as AT&T and MCI for access to

the LECs originating and terminating an interexchange call.

Order at 8, p 17, 14, p 32. Insofar as the ESP exemption is

clearly temporary, it follows that the intrastate classification

would be as well. See, e.g., id.; In re Amendments of Part

69 of the Commission's Rules Relating to the Creation of

Access Charge Subelements for Open Network Architecture,

Report and Order, 6 FCC Rcd 4524, 4535, p 60 (1991) ("ONA

Order") (retaining exemption temporarily to provide stability

during open tariff architecture reforms); In re Amendments

of Part 69 of the Commission's Rules Relating to Enhanced

Service Providers, 3 FCC Rcd 2631, 2631 p 2 (1988) ("ESP

Exemption Order") (characterizing ESP exemption as a tem-

porary measure to avoid "unduly" burdening the ISP indus-

try). Furthermore, recent letters issued by the Commission's

Common Carrier Bureau explicitly note that the intrastate

classification "is an interim measure only." Common Carrier

Bureau Issues Letter to Bell Atlantic Regarding Jurisdic-

tional Separations Treatment of Reciprocal Compensation

for Internet Traffic, Public Notice, 14 FCC Rcd 13148, 13148

(1999); see also Common Carrier Bureau Issues Letter to

SBC Regarding Its Jurisdictional Separations Treatment of

Internet Traffic, Public Notice, 14 FCC Rcd 8178, 8180 n.9

(1999).

The Commission's primary policy justification for the intra-

state classification matches the language it has used for the

ESP exemption. Rather than directly exempting ESPs from

interstate access charges, the Commission defined them as

"end users"--no different from a local pizzeria or barber

shop. See Order at 16, p 37; In re Amendments of Part 69 of

the Commission's Rules Relating to the Creation of Access

Charge Subelements for Open Network Architecture, Notice

of Proposed Rulemaking, 4 FCC Rcd 3983, 3988, p 39 & n.89

(1989) ("ONA NPRM"); see also 47 C.F.R. s 69.2(m). While

this categorization exempted ISPs from interstate access

charges paid by IXCs, it left them obliged to purchase access

through intrastate tariffs--namely, local business line

charges. The Commission contends that ACS's allocation of

ISP costs to interstate service would thus create a cost-

revenue mismatch. Order at 14-16, p p 32-37. The tariff

revenue would be allocated to intrastate and the costs to

interstate, disrupting rate-of-return calculations.

Once the Commission has allotted the revenue to intrastate

service, plainly it makes sense to allocate the costs there as

well. But that might be said merely to relocate the question:

as the functional significance of the ESP exemption is to

channel the revenue to intrastate service, one might ask if

such an allocation was reasonable. Indeed, ACS's brief ad-

dresses the cost-revenue matching principle in economic

terms, i.e., the proposition that, in the interest of aligning

incentives correctly, costs should be borne by the customers

who cause them to be incurred. See Union Elec. Co. v.

FERC, 890 F.2d 1193, 1198 (D.C. 1989). Noting that in

creating the ESP exemption the Commission had recognized

that it would cause economic distortions, making non-ESP

users of interstate access bear disproportionate costs, ACS

argues that the Commission cannot now rely on the cost-

revenue matching principle. See ACS Br. at 34 (citing ESP

Exemption Order, 3 FCC Rcd at 2631, p 2). But the Com-

mission needn't rely on the economic cost-revenue principle.

All it invokes is a more modest principle of regulatory orderli-

ness. And because we must take the ESP exemption as

given, with its concomitant potential for economic distortions,

the principle of regulatory orderliness indeed supports the

Commission.

We are left, then, with the Commission matching its sepa-

rations treatment of costs for ISP-bound calls with its classifi-

cation of those calls for tariffing and revenue purposes.

Further, not only is the latter unchallenged here, but the

Commission appears to be working on a number of intercon-

nected parts of the puzzle. The ESP exemption itself is

temporary. And the Commission has set out to reform the

regime to which it is an exception, the regime of interstate

access charges, see Order at 14, p 32; In re Access Charge

Reform, First Report and Order, 12 FCC Rcd 15982, 16133,

p 345 (1997), and is investigating future regulatory schemes

for ISPs, In re Usage of Public Switched Network by Infor-

mation Service and Internet Access Providers, Notice of

Inquiry, 11 FCC Rcd 21354, 21490-93, p p 311-18 (1996).

Further, it is fundamentally rethinking the separations pro-

cess in light of ISPs and other market changes. In re

Jurisdictional Separations Reform and Referral to the

Federal-State Joint Board, Notice of Proposed Rulemaking,

12 FCC Rcd 22120 (1997); see also Report Filed by State

Members of Joint Board of Jurisdictional Separations, Pub-

lic Notice, 14 FCC Rcd 3482 (1999). Clearly, as we stated in

MCI, the Commission is entitled to substantial deference

"when it acts to maintain the status quo so that the objectives

of a pending rulemaking proceeding will not be frustrated,"

MCI, 750 F.2d at 141, including the objective of implementing

large-scale revisions "in a manner that would cause the least

upheaval in the industry," id. Accordingly, we cannot find

the Commission's interim intrastate classification of ISP-

related costs to be arbitrary or capricious.

* * *

Damages for rates filed in "streamlined tariffs". ACS

next argues that 47 U.S.C. s 204(a)(3), as elaborated upon by

the Commission in its Streamlined Tariff Order, is a bar to

damages for its purported overcharges in 1998. 47 U.S.C.

s 204(a)(3), part of the Telecommunications Act of 1996,

states:

A local exchange carrier may file with the Commission a

new or revised charge, classification, regulation, or prac-

tice on a streamlined basis. Any such charge, classifica-

tion, regulation, or practice shall be deemed lawful and

shall be effective 7 days (in the case of a reduction in

rates) or 15 days (in the case of an increase in rates)

after the date on which it is filed with the Commission

unless the Commission takes action under paragraph (1)

before the end of that 7-day or 15-day period, as is

appropriate.

Id. (emphasis added).

The terms "legal" rate and "lawful" rate come to us bur-

dened with (or illuminated by) the Supreme Court's decision

in Arizona Grocery Co. v. Atchison, Topeka & Santa Fe

Railway Co., 284 U.S. 370 (1932), as the Commission recog-

nized in its Streamlined Tariff Order, 12 FCC Rcd at 2181-

82, p p 19-20 & nn.62, 65. "Legality" mainly addresses proce-

dural validity. "[T]o render rates definite and certain, and to

prevent discrimination and other abuses," rates must be filed

and published, and deviation from published rates is subject

to criminal and civil penalties. Arizona Grocery, 284 U.S. at

384. A particular rate thus becomes "legal" when it is filed

with an agency and becomes effective. But a rate's legality is

not enough to establish its substantive reasonableness or

"lawfulness." See id. (noting that a rate's legality does not

abrogate "the common-law duty to charge no more than a

reasonable rate"). A carrier charging a merely legal rate

may be subject to refund liability if customers can later show

that the rate was unreasonable. Id. Should an agency

declare a rate to be lawful, however, refunds are thereafter

impermissible as a form of retroactive ratemaking. See id. at

387-89.

Informed by this dichotomy, the Commission in its Stream-

lined Tariff Order interpreted the "deemed lawful" language

in s 204(a)(3) as "establish[ing] a conclusive presumption of

reasonableness." Streamlined Tariff Order, 12 FCC Rcd at

2181-82, p 19. Therefore, "a streamlined tariff that takes

effect without prior suspension or investigation is conclusively

presumed to be reasonable and, thus, a lawful tariff during

the period that the tariff remains in effect." Id. at 2182, p 19.

In accordance with Arizona Grocery, these "deemed lawful"

tariffs are not subject to refunds. If a later reexamination

shows them to be unreasonable, the Commission's available

remedies will be prospective only. Id. at 2182-83, p p 20-21.

As the Commission emphatically recognized, s 204(a)(3) ef-

fected a considerable change in the regulatory regime: be-

fore, tariffs that became effective without suspension or inves-

tigation were only legal (not conclusively lawful), and thereby

remained subject to refund remedies. Id. at 2176, p 8 (de-

scribing no-refund rule as differing "radically" from past

practice); id. at 2182-82, p 20 (describing previous practice).

Clearly then, to the extent that the streamlined tariff

provisions apply to ACS tariff filings, the Commission may

not now impose refund liability for covered rates--even ones

it concludes were unreasonable. The Commission, however,

argues that the streamlined tariff provisions do not apply.

First it asserts a critical distinction between rates and rates

of return. Order at 23, p 57. It claims that since the Order

found ACS in violation of its prescribed rate of return, the

fact that ACS's rates might have been deemed lawful under

s 204(a)(3) does not immunize it from refund liability. In

support, the Commission relies on New England Telephone

and Telegraph Co. v. FCC, 826 F.2d 1101 (D.C. Cir. 1987), in

which we upheld the Commission's use of a refund remedy for

violations of prescribed rates of return. Id. at 1109; see also

MCI Telecommunication Corp. v. FCC, 59 F.3d 1407, 1413

(D.C. Cir. 1995). Since neither s 204(a)(3) nor the Stream-

lined Tariff Order directly addressed the issue of rate-of-

return violations, the Commission contends that the "long-

standing rules concerning liability for rate-of-return viola-

tions" should be left unscathed. Order at 25, p 59.

The Commission's position, however, overlooks the lan-

guage of its statutory mandate. Under the Communications

Act of 1934, it is empowered to ensure just and reasonable

rates ("charges"), not rates of return. See 47 U.S.C.

s 201(a). The Commission acquires the authority to pre-

scribe rates of return only as a means to achieve just and

reasonable rates. See Nader v. FCC, 520 F.2d 182, 203 (D.C.

Cir. 1975). As we explained in Nader, rates of return are but

one element in the task of ratemaking, but the Commission

can prescribe them--sometimes in separate phases from the

other necessary elements--if doing so will help the Commis-

sion "carry out its functions in an expeditious manner." Id.

at 204. Over the years, rate-of-return violations have devel-

oped into proxies for finding rates unreasonable. MCI, 59

F.3d at 1414 (noting that the Commission may "treat a

violation of [a rate-of-return] prescription as a per se violation

of the requirement ... that a common carrier maintain 'just

and reasonable' rates"). But we have never suggested that

rates of returns could be ends in themselves, rather than

means to the end of reasonable rates.

Here, of course, no proxy for (un)reasonableness is needed.

Since s 204(a)(3) deems ACS's rates to be lawful, the inquiry

ends. This situation is quite different from New England

Telephone, which was decided before the passage of

s 204(a)(3). In that case, the carrier's rates had gone into

effect with neither a Commission finding of reasonableness,

826 F.2d at 1105, which under Arizona Grocery would bar

refunds, nor a suspension of the rates and initiation of a

hearing, for which s 204(a) (a precursor to the current

s 204(a)(1)) specifically allowed refunds. Section 204 as it

then read was silent as to the permissibility of refunds where

the Commission simply allowed the company's filed rate to go

into effect without suspension or initiation of a hearing, and in

effect New England Telephone read the silence as permitting

the Commission to order refunds (in certain circumstances).

For the cases covered by s 204(a)(3), Congress has now

broken the silence.

Recall that the Streamlined Tariff Order read s 204(a)(3)'s

"deemed lawful" language to create a conclusive bar to re-

funds. 12 FCC Rcd at 2175-76, p p 8-9, 2181-82, p p 18-19.

In doing so, it reasoned that "deemed lawful" was "unambigu-

ous" in the "consistent" interpretation of the courts. Id. at

2181-82, p 18; see also, e.g., Ohio Power Co. v. FERC, 954

F.2d 779, 783 (D.C. Cir. 1992) (discussing "deemed" as estab-

lishing a conclusive presumption); H.P. Coffee Co. v. Recon-

struction Finance Corp., 215 F.2d 818, 822 (Emer. Ct. App.

1954) (reporting "almost unanimous judicial determination

that the word ['deemed'], when employed in statutory law,

creates a conclusive presumption"). This being so, and bear-

ing in mind that Commission control over the rate of return is

under the statute merely a tool for determining the reason-

ableness of rates, see 47 U.S.C. s 201, we find s 204(a)(3)

equally unambiguous in barring refunds purportedly for rate-

of-return violations.

The Commission next suggests that s 204(a)(3) does not

protect the January 1998 Tariff from refunds because neither

of the two challenged cost allocation practices appeared in

that filing. Order at 23, p 56. (Apparently, the earliest

public disclosure was a March 1998 preliminary monitoring

report, see Anchorage Telephone Utility, Rate of Return

Report (Mar. 31, 1998); Order at 5, p 9.) Accordingly, the

Commission contends that these " 'practices' were not 'filed'

in [ACS's] January 1998 Tariff in accordance with section

204(a)(3)." Order at 23, p 56. We find this argument some-

what mystifying. By the Commission's own account, the

methods used in the January 1998 Tariff were the proper

ones. Surely the Commission cannot now criticize ACS for

failing to use in January 1998 the new accounting methods

that the Commission maintains are impermissible and which

ACS had not yet adopted.

Alternatively, the Commission may be claiming that ACS's

changes in computation, implemented between the January

1998 Tariff and the July 1998 Tariff, were changes in "prac-

tices" within the meaning of s 204(a)(3) (authorizing filing of

"a new or revised charge, classification, regulation, or prac-

tice"), so that ACS's failure to file a tariff announcing the

computational change nullified any right of ACS to rely on

the previously filed January 1998 Tariff. But we see no basis

for understanding s 204(a)(3)'s word "practice" to include

internal computations underlying a rate. The Streamlined

Tariff Order expressly addresses filings that are hard to

classify as rate reductions or rate increases (thus entailing 7-

or 15-day waiting periods), and reads the 15-day language of

s 204(a)(3) broadly as covering any non-rate change in "terms

and conditions" or even introduction of new service; yet it

nowhere suggests that any of the words used by s 204(a)(3)

encompasses purely internal changes in computation, as op-

posed to terms or conditions of service, which, like rate

changes, are directly experienced by customers. See 12 FCC

Rcd at 2200-03, p p 62-68.

The Commission may have been confused by its pre-

s 204(a)(3) habit of retroactively assessing the lawfulness of a

rate long after it had taken effect without advance suspension

or initiation of hearing. See FCC Br. at 40. As we noted in

our 1995 MCI decision, it is virtually impossible to tell in

advance just what rate of return a given rate may yield. 59

F.3d at 1415-16. In a world where the lawfulness of a rate is

in almost endlessly suspended animation, the Commission

may understandably feel entitled to receive ongoing updates

of a company's calculations showing the links between its

rates and its rate of return. But that is not the world of

s 204(a)(3), where the rate itself, if filed and not suspended,

is "deemed lawful."

We do not, of course, address the case of a carrier that

furtively employs improper accounting techniques in a tariff

filing, thereby concealing potential rate of return violations.

The Order here makes no claim of such misconduct.

Finally, the Commission argues that s 204(a)(3) does not

protect the July 1998 Tariff because ACS failed to satisfy the

statutory notice period. Order at 23, p 54. ACS filed the

July 1998 Tariff on 7-days notice. The Commission contends

that because the Tariff changed accounting methods, it al-

tered "terms and conditions," and thus had to be filed on 15-

days notice. Order at 25-26, p p 61-63; see also Streamlined

Tariff Order, 12 FCC Rcd at 2203, p 68 (discussing treatment

of "tariffs that change terms and conditions or apply to new

services even where there is no rate increase or decrease").

Again, nothing in the statute or even the Streamlined Tariff

Order supports the classification of a filing that changes only

underlying calculations as an "increase in rate" requiring 15-

days notice.

We note that since s 204(a)(3) immunizes ACS's rates for

1998, it is unclear how its rate of return should be calculated

for 1997 in light of Virgin Islands Telephone Corp. v. FCC,

989 F.2d 1231 (D.C. Cir. 1993). In Virgin Islands we held

that the Commission could not evaluate a carrier's rate-of-

return using a period different from the two-year period the

Commission had itself prescribed. Id. at 1238 (holding inval-

id Commission use of a six-month monitoring period). But

there the truncation of the two-year period was at the insti-

gation of the Commission, while here it is a result of ACS's

use of s 204(a)(3). As the Commission has not yet had the

opportunity to address rate of return violations for a period

cut short in this fashion, we express no opinion and remand

the case to the Commission for its consideration of the issue.

* * *

Prejudgment Interest. ACS lastly argues that the Com-

mission erred in using the IRS's rate for corporate overpay-

ment for the calculation of prejudgment interest. ACS con-

tends that it should instead have used the rate for "large"

corporate overpayments. See Order at 29-30, p p 72-74.

Under 26 U.S.C. s 6621, the IRS calculates five rates of

interest, all functions of the Treasury's rate for short-term

borrowing. The rates depend on whether taxes are overpaid

or underpaid, whether the party is an individual or a corpora-

tion, and whether the amount is "large" (exceeds $10,000).

See 2002-12 I.R.B. 637, 638-43 (2002). The Commission

apparently co-opts these rates for the calculation of prejudg-

ment interest. The following, for example, are the rates for

January 1, 1999 to March 31, 1999, the first period of pre-

judgment interest charged against ACS:

Noncorporate over- and underpayment: 7%

Corporate overpayment: 6%

Large corporate overpayment: 4.5%

Corporate underpayment: 7%

Large corporate underpayment: 9%

Id.

The Commission found that the rate for non-large corpo-

rate overpayments was most appropriate because it was "the

overpayment rate that the Commission has most recently

applied, despite the apparent availability of the rate for large

corporate overpayments." Order at 30, p 74. The precedents

offered by the Commission generally support this position.

See In re Time Warner Entertainment/Advance-Newhouse

Partnership, 14 FCC Rcd 9149, 9154 n.36 (1999); In re

Section 208 Complaints Alleging Violations of the Commis-

sion's Rate of Return Prescriptions, 12 FCC Rcd 4007, 4020-

21 app. B (1997). The Ameritech case, in which the FCC

held that the appropriate interest rate was the individual

overpayment rate (as opposed to the corporate overpayment

rate) is somewhat anomalous, but in any case offers no

support for ACS's proposed use of the large corporate over-

payment rate. See In re Long-Term Telephone Number

Portability Tariff Filings of Ameritech Operating Compa-

nies, et al., 14 FCC Rcd 17,339, p p 1, 4 (1999). Indeed, ACS

presents no cases in which the Commission has ever applied

the large corporate overpayment rate. See Order at 30

n.160.

Fair enough. But the Commission acknowledged the possi-

bility of applying the large corporate overpayment rate, in

words contradicting its prior simple reasoning from prece-

dent:

Although we might appropriately apply the rate for large

corporate overpayments exceeding $10,000 when a defen-

dant has simply miscalculated revenue or demand and

accidently exceeded its rate of return, such is not the

case here.

Order at 30, p 74. The Commission went on to justify the

higher rate by arguing that ACS "had at least constructive

knowledge" of the intrastate classification rule because "the

Commission had rejected other carriers' attempts to assign

ISP traffic to the interstate jurisdiction." Id. But those

rejections happened in 1999, well after ACS filed its 1997

tariffs. See id. at 30 n.161 (cross-referencing id. at 9-10,

p 21). And while the rejections did occur before ACS filed its

1997-98 Monitoring Report in September 1999, it is unclear

why a company's acquisition of "constructive knowledge" of

Commission views after its collection of disputed rates should

affect its culpability for that collection.

As the Commission alleges no bad faith (or quasi-bad faith)

in the 1997 tariff filings, we fail to understand how this case

differs from one in which "a defendant has simply miscalcu-

lated revenue or demand and accidently exceeded its rate of

return." Id. at 30, p 74. We therefore remand the case for

further explanation on this issue.

* * *

We (1) deny ACS's petition for review of the Commission's

classification of ISP-related traffic-sensitive costs as intra-

state, (2) grant its petition regarding the Commission's failure

to honor s 204(a)(3)'s bar on refunds as to ACS's 1998 rates

and vacate the Order insofar as it grants damages for over-

charges in 1998, and (3) remand the case to the Commission

for (a) its consideration of the treatment of a rate-of-return

violation for a monitoring period cut short by s 204(a)(3)

filings, and (b) its reconsideration of the use of the IRS rate

for non-large corporate overpayments for prejudgment inter-

est.

So ordered.