# ACS of Anchorage, Inc. v. Federal Communications Commission

> Court of Appeals for the D.C. Circuit · May 21, 2002 · 290 F.3d 403

URL: https://www.frixlaw.com/law-library/cases/185673

## Case

- **Full name:** ACS OF ANCHORAGE, INC., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. General Communication, Inc., Intervenor
- **Court:** Court of Appeals for the D.C. Circuit
- **Decided:** May 21, 2002
- **Citations:** 290 F.3d 403; 351 U.S. App. D.C. 317; 26 Communications Reg. (P&F) 1067; 2002 U.S. App. LEXIS 9557
- **Precedential status:** Published
- **Opinion:** Opinion by Williams
- **Judges:** Edwards, Randolph, Williams
- **Cited by:** 16 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/185673

## How later opinions describe it (automated extraction)

- explaining that a “deemed lawful” tariffs terms are “conclusively presumed to be reasonable”
- noting that the FCC "apparently co-opts these rates for the calculation of prejudgment interest"

## Opinion text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/185673. Public record. Not legal advice.