# Appendix — Public Utilities Commission v. Hawaiian Telephone Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1988
- **Citation:** 485 U.S. 956

## Text

2) | FILED

INTHE {(** cur
Supreme Court of the Gnited States
OCTOBER TERM, 1987

PUBLIC UTILITIES COMMISSION OF THE STATE OF HAWAII;
ALBERT TOM, Chairman; SUNAO KIDO, Commissioner; and
RuSSEL S. NAGATA, Director of the Department of Commerce
and Consumer Affairs, State of Hawaii, and Consumer
Advocate,

Petitioners,
v.

HAWAIIAN TELEPHONE COMPANY, a Hawaii Corporation,
Respondent.

On Petition for a Writ of Certiorari to the United
States Court of Appeals for the Ninth Circuit

APPENDIX TO THE PETITION FOR WRIT OF
CERTIORARI

WARREN Price, III
Attorney General
State of Hawaii

CoRINNE K.A. WATANABE*

First Deputy Attorney General
State of Hawaii

Harry S.Y. Kim, Esq.* STEVEN S. MICHAELS
Legal Counsel RONALD M. SHIGEKANE
Public Utilities Commission Deputy Attorneys General
State of Hawaii State of Hawaii

465 South King Street State Capitol

Honolulu, Hawaii 96813 Honolulu, Hawaii 96813
(808) 548-3990 (800) 548-4740

Counsel for Petitioners Counsel for Petitioner
Public Utilities Commission, Director of Commerce and
Albert Tom and Sunao Kido Consumer Affairs

*Counsel of Record

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

EDITOR'S NOTE

THE FOLLOWING PAGES WERE POOR HARD copy
AT THE TIME OF FILMING. IF AND WIEN A

BETTER COPY CAN BE OBTAINED,
WILT, BE ISSUED,

A NEW FICHE

PETITIONERS’ APPENDIX
TABLE OF CONTENTS

OPINION OF THE (COURT WHOSE DECISION IS
SOUGHT TO BE REVIEWED

Appendix A—Opinion of the United States Court
of Appeals for the Ninth Circuit dated Sep-
tember 11, 1987, Hawaiian Telephone Com-
pany v. Public Utilities Comm’n, 827 F. 2d
p,m nr erITE

OTHER OPINIONS AND ORDERS IN THE CASE

Appendix B—Decision of the United States Dis-
eriet Court for the District of Hawaii Granting
Permanent Injunction dated March 13, 1985,
Hawaiian Telephone Company v. Public Utili-
ties Comm’n, Civ. No. 84-1306 (D. Haw. Mar.
Ty Se Sekbiinscacasnissocapilamnacaleaasivlaniarsdatennniae’

— C—Order of the United States District
for the District of Hawaii Granting Pre-
liminary Injunction dated January 8, 1985, Ha-
watian Telephone Company v. Public Uttlities
— Civ. No. 84-1306 (D. Haw. Jan. 8,
SINE iskacienaeheacaedidtanla nica taeatetinedtinncens

— D—Order of the United States District
for the District of Hawaii Granting Con-
sumer Advocate’s Motion to Intervene as
Defendant dated December 21, 1984, Ha-
watian Telephone Company v. Public Utilities
Comm’n, Civ. No. 84-1306 (D. Haw. Dec. 21,
BE Sancoans is naetincecedcdaaaianiers Ccahshadcatidiel ieihadene

Appendix E—Order No. 8168 of the Public Util-
ities Commission, State of Hawaii, dated No-
vember 15, 1984, In re Hawaiian Telephone
Company, Docket No. 4588 (Haw. P.U.C. Nov.
EL SEED * ‘Sencansdsasenncsais pachaudidepnisesiciatiencaelaaninns

la

37a

40a

47a

ll

Appendix F—Opinion of the Supreme Court of
Hawaii dated September 27, 1984, In re Ha-
wartian Telephone Company, 67 Haw. 370, 689
P. 2d 741 (1984) (on review of Decision and
Order 7412, Docket No. 4306, of the Public
Utilities Commission, State of Hawaii) ......... 66a

——— G—Decision and Order No. 8042 of the
ublic Utilities Commission, State of Hawaii,
dated August 14, 1984, In re Hawaiian Tele-
phone Company, Docket No. 4588 (Haw. P.U.C.
Sm I Ditiipideieiiaaiaie digeh tea. 90a

es H—Decision and Order No. 7412 of the
ublic Utilities Commission, State of Hawaii,
dated January 26, 1983, In re Hawaiian Tele-
phone Company, Docket No. 4306 (Haw. P.U.C.
Pe TR TE bitvntiice neti 123a

JUDGMENTS SOUGHT TO BE REVIEWED AND
ORDER EXTENDING THE TIME IN WHICH TO
PETITION FOR CERTIORARI

Appendix I—Judgment of the United States Dis-
trict Court for the District of Hawaii dated
March 18, 1985, Hawatian Telephone Company
v. Public Utilities Comm’n, No. 84-1306 (D.
maw. Tee. 3: We acu 169a

Appendix J—Judgment for Permanent Injunction
of the United States District Court for the Dis-
trict of Hawaii dated March 28, 1985, Ha-
warian Telephone Company v. Public Utilities
Comm’n, No. 84-1306 (D. Haw. Mar. 28,
TEED ssscsatencanaiindsisibnhebaeeed aah Ge ee ns 170a

Appendix K—Order of Associate Justice O’Con-
nor Extending the Time to File Petition for
Writ of Certiorari to and Including January 9,
TEND wsinswintaninheersannninniiamintaiiaaiebaaeee 178a

ili

OTHER MATERIAL

Record in the United States District Court

Appendix L—Complaint for —'s and In-
junctive Relief, filed in the District Court No-
sc adascnddatsatessanensosconsccocse

Appendix M—Intervenor’s Answer, filed in the
District Court November 21, 1984 (pursuant to
BE P.M GAT, Fe CLE) cnccssccccccccecess

—_— N—Defendants’ Answer, filed in the
istrict Court November 23, 1984 ................

Appendix O—Defendants’ Memorandum in Op-
position to Motion for Preliminary Injunction
(excerpts) and Appendix E Thereto, filed in the
District Court November 29, 1984 ................

Appendix P—Intervenor’s Memorandum in Op-
position to Plaintiff's Motion for Preliminary
Injunction (excerpts), filed in the District Court
i cinsecceuneeurtessinocsccceveres

Appendix Q—Plaintiff’s Reply Memorandum (ex-
cerpts), filed in the District Court December
SE ic ovessmapineoistasnneistssnoncsescencesevesoc sees

Statutes and Administrative Rulemakings:

Appendix R—Chapter 269, Hawaii Revised Stat-
utes (Public Utilities Commission) (1985) (ex-
i etekcasbiabetsnncsansanenstendncssonccenseessesessoosese

Appendix S—Chapter 91, Hawaii Revised Stat-
utes (Administrative Procedure Act) (1985) (ex-
IT ii citasetintiintewasecsexsessasceeisnsesconcsecssessssesees

Appendix T—The Federal Communications Act of
1934, as amended, 47 U. S. C. 151, et seq.
(1982 & Supp. IV 1986) (excerpts) ...............

Appendix U—In re Integration of Rates and Ser-
vices for the Provision of Communications by
Authorized Common Carriers between the
United States Mainland and Hawaii and
Alaska, Report and Order Nos. 81-312, -313

together with the Report and Order of the —

Federal-State Joint Board (Docket 21263), 87
I occ nsssecsunssseesssonsscccssssese

(197a

208a

2lla

216a

234a

242a

la

APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

HAWAIIAN TELEPHONE COMPANY, a
Hawaii Corporation,

Plaintiff-Appellee,

iP

PuBLic UTILITIES COMMISSION OF
STATE OF HAWAII; ALBERT TOM,
Chairman; SUNAI KIDo,
Commissioner; and CLyDE S.
Dupont, Commissioner,

Defendants,

CONSUMER ApvocaTE, the Director
of the Department of Commerce
and Consumer Affairs, State of
Hawaii,

Intervenor-Defendant-Appellant.

Nos. 85-1907/1908

D.C. No.
C-84-1306-SPK

OPINION

Argued and Submitted
March 28, 1986—Honolulu, Hawaii
Submission Deferred April 29, 1986

Resubmitted October 28, 1986

Filed September 11, 1987

Before: Warren J. Ferguson, William C. Canby, Jr. and
Cynthia Holcomb Hall, Circuit Judges.

Opinion by Judge Canby; Dissent by Judge Ferguson

Appeal from the United States District Court
for the District of Hawaii
Stephen P. King, District Judge, Presiding

2a

SUMMARY

Communications

The Hawaiian Telephone Co. (HawTel), which provides
phone service for the state, is regulated by the defendant
Hawaii Public Utilities Commission (PUC). The Federal
Communications Commission (FCC) sets HawTel’s long-
distance rates and the PUC sets intrastate rates. Physical
plant used for both services is apportioned between the two
kinds of service through separations procedures. Although
Hawaii's interstate phone rates had been higher than rates in
other states, the FCC determined in 1972 that the rates
should be integrated into the mainland domestic rate pattern,
and adjustments were made so that they would be compara-
ble. The FCC later decided that integration would be accom-
plished in part by establishing new procedures for cost
apportionment. A special Federal-State Joint Board set up to
advise on separations procedures recommended use of the
Ozark Pian, instead of the Hawaiian Plan II used by the PUC.
The FCC and telephone companies agreed to phase in the
new procedures over four years to achieve full implementa-
tion by January |, 1985, with the interstate carrier making
transitional supplements to HawTel to reduce the need for
increased local rates. This was adopted in FCC Order 81-312.
Shortly afterward, HawTel filed for a local rate increase, but
the PUC cut the amount requested, in part due to a 1.1%
rate-of-return adjustment proposed by the PUC, which repre-
sented the differences between using the Ozark Plan and the
Hawaiian Plan II. The Hawaii Supreme Court affirmed, but
while the appeal was pending HawTel filed for another rate
increase. The PUC again granted a smaller increase, using the
same 1.1% rate-of-return adjustment, but this time not
expressly comparing rates under the two plans. HawTel filed
suit in federal district court challenging the decision. Appel-
lants PUC and Consumer Advocate (an intervenor) argued
that the court lacked jurisdiction to hear the case, and that the

3a

intrastate rate decision is consistent with Order 81-312, but
the court rejected these contentions and issued injunctions.

[1] The PUC itself is a person for purposes of section 401 (a)
of the Communications Act, and even if the PUC itself does
constitute a person subject to an enforcement action, the indi-
vidual Commissioners clearly are individuals, so the court
would not lack subject matter jurisdiction even if the PUC
were not a person. [2] In addressing the question of whether
FCC Order 81-312 constitutes an order of the commission
within the meaning of the Act, there is no authority to support
the proposition that the distinction drawn by the Administra-
tive Procedures Act (APA) between a rule or an order should
be applied to the Communications Act, which was modeled
after the Interstate Commerce Act. [3] Nor does the language
of other sections of the Communications Act show that Con-
gress did not intend to limit section 401(b) exclusively to
adjudicatory orders as the APA defines them. [4] This order
was appropriately interpreted as an order for enforcement by
injunction. [5] Finally, the challenge to jurisdiction based on
the requirement that the order be regularly made by the FCC
refers only to procedural regularity. The district court had
subject matt«.’ jurisdiction, [6] which is not barred by the
Johnson Act. [7] The appellants also assert that HawTel had
earlier argued to the Hawaii Supreme Court that the PUC
misapplied FCC Order 81-312. and that this issue is now
foreclosed. [8] But there were sufficient differences between
the two cases to militate against application of collateral
estoppel. >

[9] Appellant Consumer Advocate contends that FCC
Order 81-312 did not preempt state regulation of separations
procedures and that the use of state-developed procedures
was proper intrastate rate-making. [10] The Communications
Act empowers the FCC to prescribe uniform separations pro-
cedures. A nationwide telecommunications system with dual
intrastate and interstate rates can operate effectively only if
one set of separations procedures is employed. [11] The

4a

FCC's efforts to integrate Hawaii into the established rate
scheme for communications services applicable to the main-
land and the need for consistent apportionment between
interstate and intrastate Operations are sufficient to convince
that Order 81-312 preempted any independent separations
procedures of the Hawaii PUC. [12] This conclusion is sup-
ported by Louisiana PublicService Commission v. FCC, 106
S.Ct. 519 (1986), as that decision held that a state’s indepen-
dent depreciation rule for intrastate rate-making could be
protected from federal preemption only after a uniform sepa-
rations formula has been applied. [13] Finally, the district
court did not err in finding that the PUC’s rate adjustment
was an attempt to nullify the FCC’s Ozark separation plan.
[14] The court properly considered the effect of the PUC’s rul-
ing to determine whether it conflicted with federal law, and
made no clear error in finding that it did.

Judge Ferguson dissents, arguing that the Louisiana Public
Service Commission case constitutes a congressional denial of
power to the FCC to regulate intrastate rate-making.

COUNSEL

Thomas W. Williams, Jr.. Honolulu, Hawaii, for the plaintiff-
appellee.

Ronald Shigekane, Honolulu, Hawaii, for the Consumer
Advocate appellant.

Harry S.Y. Kim, Honolulu, Hawaii, for the appellants.

OPINION
CANBY, Circuit Judge:

The ultimate issue in this case is whether the Hawaii Public
Utilities Commission (PUC) violated an order of the Federal

5a

Communications Commission mandating use of a particular
set of “separations” procedures for allocating the respective
costs and investments between interstate and intrastate tele-
phone operations. A threshold question is whether the district
court had jurisdiction under § 401(b) of the Communications
Act to enforce the FCC order. In essence, the district court's
permanent injunction required the PUC to obey the FCC
order by raising Hawaiian Telephone Company’s (HawTel’s)
intrastate rates by $10,507,000 annually.

Hawaii's PUC and Consumer Advocate, as intervenor,
appealed. We deferred submission to await the Supreme
Court’s recent decision in Louisiana Public Service Commis-
sion v. FCC, 106 S. Ct. 1890 (1986), and to permit the parties
to comment upon it. We now affirm the district court's
injunction.

BACKGROUND

HawTel provides interstate, intrastate, and overseas tele-
phone service for residents of Hawaii. The FCC seis Haw-
Tel’s long-distance rates, and the PUC sets intrastate rates.
Because the same physical plant is used for both interstate
and intrastate services, some system for apportioning costs
and investments is necessary to set fair rates for the respective
services. See generally MCI Telecommunications Corp. v.
FCC. 750 F.2d 135 (D.C. Cir. 1984); McKenna, Preemption
Under the Communications Act, 37 Fed. Comm. L.J. |
(1985). This system of apportionment is referred to as
“separations procedures.”

Until recently, interstate rates for telecommunications to
and from Hawaii were considerably higher than interstate
rates in the 48 contiguous states. In 1972, the FCC deter-
mined that Hawaii's rates should be integrated into the Main-
land domestic rate pattern. Interstate rates in Hawaii
accordingly were to be adjusted so that they would be roughly
comparable to rates in other parts of the United States. /n re

Establishment of Domestic Communications-Satellite Facili-
ties by Non-Governmental Entities, Second Report & Order
(Docket No. 16495), 35 F.C.C.2d 844, 856-57, aff'd on recon-
sideration, 38 F.C.C.2d 665 (1972), aff'd sub nom. Network
Project v. FCC, 511 F.2d 786 (D.C. Cir. 1975). The FCC later
decided that integration would be accomplished in part by
establishing new procedures for interstate and intrastate cost
apportionment. The FCC, exercising its authority under 47
U.S.C. § 410, established a special Federal-State Joint Board,
to advise it on fair separations procedures for Hawaii.The
FCC had not previously prescribed any separations proce-
dures for Hawaii, and the PUC had apportioned costs accord-
ing to its own “Hawaiian Plan II.”

In 1981, the Joint Board recommended use of the so-called
“Ozark Plan,” see 47 C.F.R. §§ 67.1-67.701, for separations.
In re Integration of Rates & Services for the Provision of Com-
munications by Authorized Common Carriers between the
United States Mainland & Hawaii & Alaska, Memorandum
Opinion & Order (Docket 21263), 87 F.C.C.2d 20, 24 (1981).
The Ozark Plan, which was developed through cooperative
efforts of the FCC and utility regulators nationwide, had been
used in the 48 states for some time. The Joint Board suggested
extending the Plan for use in Hawaii without modification.
Id. The FCC ordered application of the Ozark separations
procedures to Hawaii. /ntegration of Rates & Services for the
Provision of Communications by Authorized Common Carri-
ers between the United States Mainland & Hawaii & Alaska,
Report & Order 81-312 (Docket 21263), 87 F.C.C.2d 18
(1981) {hereafter Order 81-312].'

The new procedures were expected to yield significantly
lower interstate phone rates, but only at the price of upward
pressure On intrastate rates. To avoid a dramatic impact on
local rates, the FCC, AT&T, and HawTel agreed to phase in
the new procedures over four years, with full implementation

'See infra note 21.

7a

by January |, 1985. During the transition period, AT&T was
to make certain payments or “transitional supplements” to
HawTel, thereby reducing the need for immediate intrastate
rate relief.

In August 1981, shortly after the integration plan was
adopted in FCC Order 81-312, HawTel filed for a local rate
increase of $47.6 million. PUC Docket 4306. This proceeding
was a predecessor to the one that is the subject of this appeal.
The PUC granted only $27.1 million of the requested
increase, in part due to a downward 1.1 percent rate-of-return
adjustment proposed by the PUC itself. The “Separation
Adjustment” represented the difference between intrastate
rates resulting from jurisdictional separations calculated
under the Ozark Plan and those calculated under Hawaiian
Plan Il. Jn re Application of Hawaiian Telephone Company,
PUC Decision & Order No. 7412, Docket No. 4306 (Jan.
1983); see In re Application of Hawaiian Telephone Coinpany,
67 Haw. 370, 689 P.2d 741, 751-52 (Haw. 1984). The PUC
agreed that the Ozark Plan should be used to establish the rate
base, and that an 11.46 percent rate of return was appropri-
ate. It also conceded that the transitional payments from
AT&T must be treated as interstate revenues. It considered
the special downward adjustment proper, however, in light of
the State’s previous support for the transitional rate-
integration agreement between AT&T, HawTel, and the
FCC. At HawTel’s request, the State had lobbied the FCC for
approval of the transition agreement, at least in part because
of HawTel’s representations that it would need local rate
relief of $30-35 million per year if the agreement were not
adopted.’

21t appears that the PUC considered the rate request somewhat disingen-
uous under the circumstances. In particular, the PUC found that HawTel
was already receiving rate relief through the transitional payments from
AT&T. The PUC also stated that it ordered the |.1 percent adjustment
because it found that the shift from Hawaiian Plan II to Ozark resulted in
a 1.1 percent reduction in the firm’s intrastate returns, even though Haw-
Tel’s overall revenues and expenses basically remained unchanged. The
PUC therefore found the rate-of-return adjustment necessary to avoid a
windfall for HawTel. PUC Decision & Order No. 7412 at 23-24.

8a

HawTel appealed the PUC’s decision in Docket 4306 to the
Hawaii Supreme Court, arguing that the order in fact nulli-
fied the FCC’s 1981 mandate to employ the Ozark Plan. On
September 27, 1984, the court upheld the PUC, finding that
the PUC had employed appropriate procedures and that it
merely had determined the appropriate rate of return on
intrastate business, which was within its authority.
Application of Hawaiian Telephone Company, 67 Haw. —_,
689 P.2d at 751. HawTel declined to seek United States
Supreme Court review.

While HawTel’s state-court appeal was pending, it filed for
another rate increase, with which this appeal is directly con-
cerned. PUC Docket 4588. In Docket 4588, after determin-
ing that HawTel would be entitled under the Ozark Plan to
some $30 million in new revenues, at a reasonable | 1.25 per-
cent rate of return, the PUC made an identical |.1 percent
rate-of-return adjustment. Jn re Application of Hawaiian
Telephone Company. Decision & Order No. 8042, Docket
No. 4588 (Aug. 1984). It granted HawTel about $20 million
in rate relief, $10,507,000 less than its calculations indicated
HawTel otherwise should receive. This time, however, the
PUC did not expressly compare rates under the Ozark Plan to
rates under Hawaiian Plan II, the way that it did to arrive at
the 1.1 percent figure in 1981.

HawTel filed suit in federal district court under 47 U.S.C.
§ 401(b),? challenging the PUC’s second rate decision in
Docket 4588. The downward rate adjustment, HawTel
argued, constituted a failure of the PUC to obey FCC Order
81-312. Appellants PUC and Consumer Advocate argued
that the district court lacked jurisdiction under § 401(b) and

3Section 401(b) is discussed at length infra Part |. HawTel also asserted
subject matter jurisdiction in the district court under 28 U.S.C. §§ 1331,
1337(a), 1343, 2201 & 2202. The court sustained jurisdiction under
§ 401(b) and did not rule on the other grounds. Because we uphold the dis-
trict court’s ruling, we do not consider the other jurisdictional claims.

9a

that the PUC’s intrastate rate decision was consistent with
FCC Order 81-312. Further, appellants contended that Haw-
Tel’s action was barred by the Johnson Act. 28 U.S.C.
§ 1342.* and by the doctrine of res judicata. The district court
rejected these contentions. Finding that the second 1.1 per-
cent adjustment had the effect of applying Hawaiian Plan II
as the basis for separations, the court issued preliminary and
permanent injunctions. Hawaiian Telephone C ompany vy.
Public Utilities Commission, Civ. No. 84-1306, slip op. (D.
Haw. Mar. 13, 1985). Both the PUC and the Consumer Advo-
cate appeal.®

DISCUSSION
I. JURISDICTION UNDER 47 U.S.C. § 401(b)

Questions of subject matter jurisdiction and Statutory
interpretation are reviewed in this court de novo. Carpenters
Southern California Admin. Corp. v. Majestic Housing, 743
F.2d 1341, 1343 (9th Cir. 1984); Southeast Alaska Conserva-
tion Council, Inc. v. Watson, 697 F.2d 1305, 1309 (9th Cir.
1983).

“ 28 U.S.C. § 1342 provides:

The district courts shail not enjoin. suspend or restrain the oper-
ation of, or compliance with, any order affecting rates chargeable
by a public utility and made by a State administrative agency or
a rate-making body of a State political subdivision, where:

(1) Jurisdiction is based solely on diversity of citizenship or
repugnance of the order to the Federal Constitution: and.

(2) The order does not interfere with interstate commerce: and.

(3) The order has been made after reasonable notice and hear-
ing: and,

(4) A plain, speedy and efficient remedy may be had in the
courts of such State.

*The appeals were consolidated by our order of Aug. 20, 1985, and appel-
lants filed a joint brief.

10a

47 U.S.C. § 401(b) states:

If any person fails or neglects to obey any order of
the [FCC] other than for the payment of money,
while the same is in effect, the [FCC] or any party
injured thereby . . . may apply to the appropriate dis-
trict court of the United States for the enforcement
of such order. If, after hearing, that court determines
that the order was regularly made and duly served,
and that the person is in disobedience of the same,
the court shall enforce obedience to such order by a
writ of injunction or other proper process, manda-
tory or otherwise, to restrain such person or the offi-
cers, agents, or representatives of such person, from
further disobedience of such order, or to enjoin
upon it or them obedience to the same.

The threshold questions in this case are whether a state utility
regulatory body is a “person” and whether, as a rulemaking or
nonadjudicatory order, FCC Order 81-312 is an “order”
“regularly made” within the meaning of Section 401(b).

A. Whether the PUC is a Person Within the Meaning of the
Statute

The definitional section of the Communications Act, 47
U.S.C. § 153, provides that: “[U]nless the context otherwise
requires .... “Person” includes an individual, partnership,
association, joint-stock company, trust, or corporation.” Jd.
§ 153(i). The Act defines “state commission” as “the commis-
sion, board, or official (by whatever name designated) which
under the laws of any State has regulatory jurisdiction with
respect to intrastate operations of carriers.” /d. § 153(t).

In support of their contention that the district court lacked
subject matter jurisdiction to grant injunctive relief because
the PUC is not a “person” for purposes of § 401(b), appellants
principally rely on the Vermont district court’s decision in

lla

New England Telephone & Telegraph Company v. Public Ser-
vice Board of Vermont, 576 F. Supp. 490 (D. Vt. 1983),
vacated as moot, 794 F.2d 677 (2d Cir. 1984). In that case,
the district court held that because the definition of “person”
in § 153(i) includes a series of specific categories that do not
encompass state utility commissions, the term “person”
should not be interpreted to include such commissions. New
England Tel. & Tel., 576 F. Supp. at 493-95.

We disagree with appellants’ argument and the district
court’s analysis in New England Tel. & Tel. The design of the
statute leads us to conclude that the PUC itself is a person for
purposes of § 401(b)’. Section 153(i) does not specify the
meaning of “person” in the Communications Act, but instead
lists several categories of entities that the term “includes.”®
Thus, the definition of “person” is open-ended and not
restricted to the examples enumerated in the statute.’ Fur-

*New England Tel. & Tel. is listed as “REVERSED AND REMANDED”
at 794 F.2d 677. The Second Circuit's memorandum decision makes clear,
however, that it was vacated and ordered dismissed as moot.

7Section 401(b) was derived in part from § 16 of the Interstate Commerce
Act of 1887, 24 Stat. 379, 384 (1887), providing for judicial enforcement
of ICC orders against “carriers.” While the statute contemplated judicial
orders addressed to carriers directing compliance with ICC orders, the stat-
ute also authorized injunctions addressed to any “other person” when nec-
essary to secure carrier compliance. 24 Stat. at 385 (1887). Section 401(a)
was derived from the 1906 amendment to § 20 of the 1887 Act, 34 Stat.
584, 593-95 (1906), which also applied to “carriers.” “Person” was substi-
tuted for “carrier” in the antecedents of both subsections, and the present
language essentially appeared in the clean bill, S. 3285 (73d Cong., 2d Sess.)
introduced by Senator Dil! on April 4, 1934. 78 Cong. Rec. 5952 (1934).

As part of the Procedural and Administrative Provisions, § 401 is appli-
cable to enforcement of all provisions of the chapter and orders thereunder.

*In defining most of the terms in § 153, Congress used the term “means.”
In defining “person,” however, Congress chose to use the term “includes,”
as it did for only four other definitions in § 153.

° See Highway & City Freight Drivers v. Gordon Transps., Inc., 576 F.2d
1285, 1289 (8th Cir.) (when statute describes what term “includes,” “the
fact that the statute does not specifically mention a particular entity ...
does not imply that the entity falls outside of the definition”) (citing Pfizer,
Inc. v. India, 434 U.S. 308, 312 n.9 (1978)), cert. denied, 439 U.S. 1002
(1978).

12a

thermore, § 153 expressly gives courts leeway to interpret
terms in the Act “{as] the context ... requires.” 47 U.S.C.
§ 153.

_ The purposes of § 401(b) and the structure of the Act
strongly suggest that the PUC can be enjoined under
§ 401(b).'° Section 401(b) is the sole mechanism Congress
provided for the FCC, the federal government, or private par-
ties to obtain enforcement of FCC orders against
noncarriers.'! Under appellants’ interpretation, state regula-
tory commissions would be exempt from this statutory
scheme. Rather than being required to challenge FCC orders
under § 402,’? state commissions would be free to violate
FCC orders with impunity. They would be equally immune to
private enforcement actions and to enforcement actions
brought by the FCC and 4he federal government.

State commissions have the same opportunity as others to
seek review of FCC orders under § 402. See, e.g., State Corpo-

10Several federal courts have held that state regulatory commissions are
persons under § 401(b). New England Tel. & Tel. Co v. Public Util.
Comm'n, 570 F. Supp. 1558, 1568-69 (D. Me. 1983), rev'd on other
grounds, 742 F.2d 1 (1st Cir. 1984), cert. denied, 106 S. Ct. 2902 (1986),
Mountain States Tel. & Tel. Co. v. Department of Pub. Serv. Reg., 588 F.
Supp. 5, 7 (D. Mont. 1983); see also Illinois Bell Tel. Co. v. Illinois Com-
merce Comm'n, 740 F.2d 566 (7th Cir. 1984); WUTC v. FCC, 513 F.2d
1142, 1145-46, 1152 (9th Cir.) (holding state commission had standing to
challenge validity of FCC order under § 402(a), implicitly concluding that
WUTC was a “person who is aggrieved or whose interests are adversely
affected” under § 402(b)(6)), cert. denied, 423 U.S. 836 (1975).

‘Civil actions for enforcement and review of the Communications Act
and orders made under the Act are governed by 47 U.S.C. §§ 401-415. Fol-
lowing promulgation of an order by the FCC, any aggrieved party can peti-
tion for rehearing. Jd. § 405. Sections 401(a) & (c) permit the FCC to
prosecute violations of the chapter.

'2Parties seeking to challenge the validity of FCC orders must do so
through actions in the circuit courts under 47 U.S.C. § 402 and 28 U.S.C.
§ 2342(1). FCC v. ITT World Communications, Inc., 466 U.S. 463, 468
(1984).

13a

ration Commission v. FCC, 787 F.2d 1421 (10th Cir. 1986):
New York State Commission on Cable TV v. FCC, 669 F.2d
58, 62 n.8 (2d Cir. 1982); North Carolina Utilities Conimis-
sion v. FCC, 552 F.2d 1036 (4th Cir.), cert. denied, 434 U.S.
874 (1977). No logical ground supports excluding state com-
missions from the group of persons against whom enforce-
ment of orders may be sought. New England Telephone &
Telegraph Company v. Public Utilities Commission, 570 F.
Supp. 1558, 1569 (D. Me. 1983), rev'd on other grounds, 742
F.2d | (Ist Cir. 1984), cert. denied, 106 S.Ct. 2902 (1986).
Moreover, since § 401(a), which authorizes district courts to
enjoin violations of the Act itself, also contains the term
“person,” state commissions would be immune fram enforce-
ment of the Act in general.”* It is unlikely that Congress could
have intended this result.

[1] We hold that the PUC is a person for purposes of
§ 401(b)."* We also note that, even if the PUC does not itself
constitute a person subject to a § 401(b) enforcement action,
the individual Commissioners clearly are “individuals”
under § 153(i)."* Because the Commissioners qualify as per-
sons for purposes of § 401(b) injunctions, the district court
would not lack subject matter jurisdiction even if the PUC
were not a person.

"Section 401(a), 47 U.S.C. § 401(a), provides in part:

(a) The district courts of the United States shall have jurisdiction,
upon application of the Attorney General of the United States at
the request of the Commission, alleging a failure to comply with or
a violation of any of the provisions of this chapter by any person, to
issue a writ or writs of mandamus commanding such person to
comply with the provisions of this chapter.

/d. (emphasis supplicd).

‘Appellants also claim that holding the PUC to be a person under
§ 401(b) derogates the express provisions of § 152(b). The effect of § 152(b)
is addressed in connection with our preemption analysis, infra.

'SHawTel’s complaint named the individual Commissioners as defen-
dants, along with the PUC. The district court permanently enjoined both
the Commissioners individ ‘ly and the PUC.

l4a

B. Whether FCC Order 81-312 is an “Order” for Purposes of
§ 401(b)

The next question is whether FCC Order 81-312 consti-
tutes an “order of the Commission” within the meaning of
§ 401(b).’* Appellants maintain that it does not because the
Order resulted from a rulemaking as opposed to an adjudica-
tory proceeding. The gist of appellants’ argument has been
accepted by the First Circuit. New England Telephone & Tele-
graph Co. v. Public Utilities Commission of Maine, 742 F.2d
1 (Ist Cir. 1984), cert. denied, 106 S. Ct. 2902 (1986) [hereaf-
ter New England Telephone v. Maine]. In contrast, the Sev-
enth Circuit has affirmed the grant of an injunction under
§ 401(b) to enforce a nonadjudicatory order. Illinois Bell Tele-
phone Company v. Illinois Commerce Commission, 740 F.2d
566, 571 (7th Cir. 1984).

In New England Telephone v. Maine, the First Circuit
based its decision primarily on two grounds. First, the court
adopted the distinction between “rules” and “orders” that
appears in the Administrative Procedure Act’’. Second, it
concluded that the central role of the FCC in enforcing the
Communications Act, and its sole power to seek injunctions
under § 401(a), suggested that the scope-for private enforce-
ment under § 401(b) should be narrow.”* The court therefore

'6The phrase “order of the Commission” is not defined in the Communi-
cations Act.

17 The APA defines the term “order” as “a final disposition, whether affir-
mative, negative, injunctive, or declaratory in form, of an agency in a mat-
ter other than rule making.” 5 U.S.C. § 551(6).

The First Circuit also cited Congress’ use of the term “order” in several
other provisions of the Communications Act, which it interpreted to sig-
nify only FCC adjudicatory orders and not FCC rules. New England Tele-
phone v. Maine, 742 F.2d at 7. (citing 47 U.S.C. §§ 201, 204, 205, 209,
214(d) & 416(a)).

®The First Circuit further noted that treating FCC rules as orders under
§ 401(b) would require district judges with no special expertise regarding

ee

ea ae os

15a

concluded that an FCC directive that it considered to be the
product of a rulemaking proceeding, and that was not specifi-
cally directed at the parties against whom enforcement was
sought, was not enforceable under § 401(b).

Like several other circuit courts,’® we disagree with the

FCC rules to determine in the first instance the scope and meaning of those
ruies. Allowing 700 different judges to make such determinations would
lead to inconsistent interpretations of the FCC rules and threaten “the
sound development of a coherent nationwide communications policy,”
which was “a central objective of the 1934 Act.” New England Telephone
v. Maine, 742 F.2d at 5-6.

The First Circuit was also concerned about allowing injunctions against
parties who were not involved in the proceeding in which a rule was pro-
mulgated. See id. at 6-7.

'8For substantially the same reasons discussed infra, the Fourth, Fifth,
and Eighth Circuits, as well as the federal court for the District of Washing-
ton, have expressly or implicitly rejected the analysis of New England Tele-
phone v. Maine in a series of decisions that have been vacated and
remanded or reversed on other grounds. Chesapeake & Potomac Tel. Co. v.
Public Serv. Comm'n, 748 F.2d 879, 880-81 (4th Cir. 1984), vacated and
remanded for proceedings consistent with Louisiana Pub. Serv. Comm'n v.
FCC, infra, 106 S. Ct. 2239 (1986) (per curiam) (mem.); South Central Bell
Tel. Co. v. Louisiana Pub. Serv. Comm'n, 744 F.2d 1107, 1115 (Sth Cir.
1984), vacated and remanded for consideration in light of Chesapeake &
Potomac, supra, i06 S. Ct. 2884 (1986) (mem.); Southwestern Bell Tel. Co.
v. Arkansas Pub. Serv. Comm'n, 738 F.2d 901 (8th Cir. 1984), vacated and
remanded for consideration in light of Chesapeake & Potomac, supra, 106
S. Ct. 2885 (1986) (mem.); Virginia State Corp. Comm'n v. FCC, 737 F.2d
388 (4th Cir. 1984), rev'd on other grounds sub nom. Louisiana Pub. Serv.
Comm'n v. FCC, 106 S. Ct. 1890 (1986); Pacific Northwest Bell Tel. v.
Washington Util. & Transp. Comm'n, 565 F. Supp. 17, 21 (D. Wa. 1983),
vacated and remanded in light of Louisiana Pub. Serv. Comm'n, supra, No.
83-3746 (9th Cir. 1986).

The First Circuit's result also conflicts with the Seventh Circuit’s deci-
sion in //linois Bell Tel. Co., 740 F.2d 566 (ordering state commission com-
pliance with FCC order relating to Separations Procedures), and the
injunction granted by the federal court for the District of Kansas in
Southwestern Bell Tel. Co. v. State Corp. Comm'n, No. 83-4090 (D. Kan.
Apr. 8, 1983).

16a

First Circuit’s reasoning. So did the FCC. See New England
Telephone v. Maine, 742 F.2d at 10-11.

[2] To begin with, we find no authority supporting the prop-
osition thai the APA’s rule-order distinction should be
imported into the Communications Act. See 5 U.S.C. § 551
(use of APA’s definitions is mandatory only when APA itself
is applicable). In fact, the Communications Act’s legislative
history indicates that § 401(b) was modeled in part after § 16
(12) of the Interstate Commerce Act, 49 U.S.C. § 16 (12) (re-
pealed). The wording of the two provisions is virtually identi-
cal, see S. Rep. No. 781, 73d Cong., 2d Sess. 9 (1934). In
Pacific Fruit Express Company v. Akron, Canton & Youngs-
town Railroad, 524 F.2d 1025, 1028-31 (9th Cir. 1975), cert.
denied, 424 U.S. 911 (1976), we held that § 16 (12) authorizes
private in junctive actions to enforce ICC rules. The same
result would seem to follow for FCC rules under § 401(b).

[3] Second, the language of other sections of the Communi-
cations Act shows that Congress did not intend to limit
§ 401(b) exclusively to adjudicatory orders as the APA
defines them. When Congress intended the APA’s definition
of a given term to be incorporated into the Communications
Act, it said so. E.g., 47 U.S.C. §§ 409(a)-(c) (incorporating
APA’s definition of “adjudication”). Congress never pro-
vided that the APA’s definition of “order” should extend to
§ 401(b).”

2°0T wo Supreme Court decisions also seem to support the conclusion that
Congress intended the term “order” in § 401(b) to encompass FCC rules. In
CBS. Inc. v. United States, 316 U.S. 407, 425 (1942), the Court held that
FCC rules constitute orders for purposes of § 402(a) of the Act. Because
Congress did not indicate any intention that “order” should have a differ-
ent meaning in § 401(b) from § 402, it appears that FCC rules can be con-
strued to constitute orders for purposes of § 401(b). But see New England
Telephone v. Maine, 742 F.2d at 8 (distinct functions of sections 401(b) and
402 dictate a far broader interpretation of “order” in § 402 than in
§ 401(b)).

< ReneS ees Penne eo oemcienaamemenlal

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3

17a

We do not believe that our interpretation of § 401(b) dis-
places the FCC from its central role in the enforcement of the
Act. The FCC has broad discretion to act through either case-
by-case adjudication or the rulemaking process. See United
States v. Southwestern Cable Company, 392 U.S. 157, 180-81
(1968); see also SEC v. Chenery Corporation, 332 U.S. 194,
202-03 (1947) (citing CBS, Inc. v. United States, 316 U.S. 407,
421 (1942)). Thus, the FCC can tailor directives to the needs
of particular circumstances. Moreover, the FCC can inter-
vene or file amicus briefs in § 401(b) actions or even invoke
the doctrine of primary jurisdiction. See, e.g., United States v.
Yellow Freight System, Inc., 762 F.2d 737, 739 (9th Cir. 1985)
(primary jurisdiction doctrine authorizes suspension of dis-
trict court proceedings to allow agency to express views on
pending issues within agency's special competence); but see
New England Telephone v. Maine, 742 F.2d at 11 (noting that
primary jurisdiction doctrine lacks needed clarity and effi-
ciency). These mechanisms help to prevent substantially
inconsistent application of FCC rules and serious judicial
encroachment on FCC responsibilities.

[4] We need not decide today whether every rule, order, or
regulation promulgated by the FCC is an enforceable order
under § 401(b), however. The language of the particular order
in question, and the proceedings leading up to it, demonstrate
that the FCC intended Order 81-312 to require particular
actions be taken by the PUC and private carriers providing
service to Hawaii.”* Appellant PUC conceded that it must

In Ambassador, Inc. v. United States, 325 U.S. 317 (1945), the Supreme
Court upheld a §401 injunction granted to enforce tariff regulations
imposed by a telephone company in compliance with a FCC rulemaking
order. /d. at 325. To the extent that Ambassador involved a § 401(b) injunc-
tion, it also supports the injunction in this case.

*1See FCC Order 81-312, 87 F.C.C.2d 18, which in pertinent part pro-
vides:

18a

abide by those FCC-mandated separations procedures.
Under the circumstances, we conclude that FCC Order 81-
312 was appropriately interpreted as an “order” for enforce-
ment by injunction in the district court.

C. Whether FCC Order 81-312 was “Regularly Made”

Appeliants’ final challenge to jurisdiction under § 401(b)
seizes upon that section’s requirement that an order be
“regularly made” by the FCC. They contend that a substan-
tive determination must be made that the FCC had authority
to make Order 81-312. Appellants argue that the Commission
was without authority to mandate a specific separations
method for intrastate ratemaking.

[5] We think that “regularly made” in § 401(b) simply refers
to procedural regularity. The substantive validity of FCC
orders can be challenged only through actions under § 402(a).
ITT World Communications, Inc., 466 U.S. at 468 & n.5 (also
noting in dicta that challenges to validity of past agency con-
duct should be brought through actions for FCC declaratory
rulings under doctrine of primary jurisdiction, not in district
courts). It would defeat the purpose of § 402(a) to interpret
§ 401(b) to require a threshold finding of the FCC’s authority
to make particular rules. Appellants identify, and we have
found, no procedural problems with the promulgation of

3. IT IS FURTHER ORDERED That... the NARUC-FCC Sepa-
rations Manual [Ozark Plan]... SHALL APPLY to Hawaii and
Alaska.

4. IT IS FURTHER ORDERED That, Section 67.1 (e) of the
Commission's Rules and Regulations, 47 C.F.R. §67.1 (e), IS
AMENDED to read as follows: These Separations Procedures
apply to Puerto Rico, the United States Virgin Islands, Alaska and
Hawaii.

Thus, the order was not merely interpretive, but instead was a mandate to
apply the NARUC-FCC separations procedure.

19a

Order 81-312. Consequently, the district court had subject
matter jurisdiction under § 401(b) to issue the injunction.

Il. THE JOHNSON ACT

As their final jurisdictional challenge, appellants argue that
the Johnson Act, 28 U.S.C. § 1342, bars HawTel’s action. The
four conditions in the Johnson Act are conjunctive; therefore,
all four conditions must be present to deprive the district
court of jurisdiction.” DeKalb County v. Southern Bell Tele-
phone & Telegraph Company, 358 F. Supp. 498, 504 (N.D.
Ga. 1972), aff'd, 478 F.2d 700 (Sth Cir. 1973); United States
v. Public Utilities Commission, 141 F. Supp. 168, 188 (N.D.
Cal. 1956), aff'd, 355 U.S. 534 (1958).

HawTel does not dispute that the final three conditions are
met.*? Instead, HawTel argues, and the district court found,
that the Johnson Act is inapplicable because HawTel’s action
is not based “solely” on a claim of “repugnance of the order
to the Federal Constitution.” See 28 U.S.C. § 1342(1).
Although appellee's action is based expressly on 47 U.S.C.
§ 401(b) and FCC Order 81-312, appellants contend that it is
in essence a preemption claim under the Supremacy Clause.

|6] We have construed the term “solely” in § 1342(1) nar-
rowly. The Johnson Act applies “only when [a challenge to a
rate order] rests exc/usivel/y on ‘repugnance of the order to the
Federal Constitution.’ ” Jnternational Brotherhood of Electri-
cal Workers v. Public Service Commission, 614 F.2d 206, 210-
11 (9th Cir. 1980) (quoting 28 U.S.C. § 1342(1)) (emphasis
supplied) (upholding federal jurisdiction because the union's
action depended in part on an interpretation of National

22 See supra note 4.

23The PUC’s decision possibly may affect interstate commerce, see 28
U.S.C. § 1342(2). because it interferes with an FCC-mandated system for
apportioning costs between interstate and intrastate services. HawTel does
not advance this argument, and we need not consider it today.

20a

Labor Relations Act). A claim of preemption does not meet
this test. Jd. at 211. The district court was correct in holding
that the Johnson Act did not bar appellee’s action.

III. RES JUDICATA

[7] The district court also rejected appellants’ contention
that HawTel’s claim is barred by res judicata. Appellants
assert that HawTel argued that the PUC had misapplied FCC
Order 81-312 when it appealed the PUC’s 1981 rate order to
the Hawaii Supreme Court.* Appellants contend that this
issue is now foreclosed. Whether res judicata or collateral
estoppel bars claims is a mixed question of law and fact sub-
ject to de novo review. A&A Concrete, Inc. v. White Mountain
Apache Tribe, 781 F.2d 1411, 1414 (9th Cir.), cert. denied,
106 S.Ct. 2008 (1986). :

HawTel offers several responses. First, HawTel contends
that the Hawaii Supreme Court never squarely addressed its
federal claim,” at least in part because the court exercises
only limited review of rate cases. See In re Application of
Hawaii Electric Light Company, 60 Haw. 625, 628-29, 594
P.2d 612, 617 (Haw. 1979). Thus, without citing the case,
HawTel appears to invoke the principle of Robinson v. Ari-
yoshi, 753 F.2d 1468, 1472 (9th Cir. 1985), vacated and
remanded on other grounds, 106 S.Ct. 3269 (1986), that col-
lateral estoppel or res judicata effect will not be given to a

24To the extent HawTel did not assert that argument, appellants contend
it should have and is now precluded from doing so. Appellants appear to
argue al times that res judicata bars HawTel’s district court action. At other
times, they appear to argue that HawTel should be collaterally estopped
from raising certain issues. Our conclusion is the same whichever doctrine
appellants intend to argue.

*5Res judicata prevents federal litigation of a federal constitutional claim
that was or might have been raised in a prior state action. Board of Trustees
of Carpenters Pension Trust Fund v. Reyes, 688 F.2d 671, 673 (9th Cir.
1982) (noting appellant's failure to seek United States Supreme Court
review of the state court judgment), cert. denied, 462 U.S. 1120 (1983).

2la

State court decision when the complaining party did not have
a “full and fair opportunity to litigate a claim in state court or
where the state court demonstrated inability or unwillingness
to protect federal rights.” Jd. There is some support in the
record for HawTel’s characterization of the Hawaii Supreme
Court's decision, but we need not rule upon this contention
because we find Hawtel’s second argument dispositive.

HawTel’s second point is that there is such a disparity
between the contexts of the PUC decisions in Dockets 4306
and 4588 that neither res judicata nor collateral estoppel can
apply. We agree. The two dockets involve different rate peri-
ods, with different rate bases. The causes of action are clearly
not the same, and res judicata cannot apply. See Commis-
sioner v. Sunnen, 333 U.S. 591, 597-98 (1948) (income tax
claims for successive tax years not same cause of action for res
judicata purposes). It is true that collateral estoppel may
apply and foreclose the litigation of issues that were actually
litigated and decided in a previous action, even though the
causes of action differ. /d. at 598-99. But in successive rate
proceedings, as in successive tax cases, there are strong policy
reasons for denying the application of collateral estoppel
when variations in either facts or law occur. An issue once
decided may create inequities in the continuing administra-
tion of the law if applied by estoppel to later years. /d. at 599-
600.

[8] Here we conclude that there were sufficient differences
between the PUC actions in Dockets 4306 and 4588 to mili-
tate against the application of collateral estoppel to the !.1
percent rate downward rate adjustment. Although essentially
the same adjustment was applied, it was applied to different
rate periods, with different revenues, different expenses, and
different investments. See Papago Tribal Utility Authority v.
FERC, 776 F.2d 828, 833 n.5 (9th Cir. 1985), cert. denied,
106 S.Ct. 1515 (1986). When Docket 4306 was decided, Haw-
Tel was operating under its transition agreement with AT&T.
Among other things, that agreement provided for payments

22a

to HawTel to soften the impact on its overall revenues of the
mandated shift to the Ozark Plan. In contrast, Docket 4588
involved rates effective January |, 1985, after the transition
agreement had expired.” If, in this new setting, the 1.1 per-
cent adjustment did violate the FCC separations rule, Haw-
Tel should be free to raise the issue,. rather than to suffer a
continuing violation of a policy set by the FCC. HawTel is not
collaterally “appealing” the Hawaii Supreme Court’s deci-
sion, but is challenging the lawfulness of the PUC’s action in
Docket 4588. PUC Docket 4588 has not been ruled upon by
the Hawaii court, or ary other court. We conclude that the
district court properly rejected the application of res judicata
and collateral estoppel.”’

IV. PREEMPTION OF THE SEPARATIONS FIELD

{9} Reaching the merits, appellant Consumer Advocate
contends that FCC Order 81-312 did not preempt state regu-

?61n its Judgment for Permanent Injunction 1 15, the district court noted
this distinction:

The declared purpose behind the PUC adjustment is to have
Hawaii intrastate ratepayers share in the transitional supplement
received by HTC under the HTC-AT&T agreement approved by
the FCC in 1981. Yet presumably Hawaii intrastate ratepayers
have received some benefit from that agreement by a slowing
down of increases in intrastate rates. Furthermore, that agree-
ment, and supplements under the agreement, terminated on
December 31, 1984. The rates set in PUC Docket No. 4588, how-
ever, remain in place indefinitely until modified in another future
proceeding before the PUC.

Id.

27? HawTel also argued that because federal courts have exclusive juris-
diction under § 401(b) to enforce FCC Orders, the state court determina-
tion cannot preclude federal review even if the state court reached the
merits of its federal claim. See Southern Pacific Transp. Co. v. Public Utili-
ties Comm'n, 716 F.2d 1285, 1289-90 (9th Cir. 1983), cert. denied, 466 U.S.
936 (1984). We need not reach this issue, and express no view on the merits
of appellees’ contentions regarding exclusive jurisdiction, or on that possi-
ble ground for collateral attack on the state court's decision.

tree. Bink Se! ed out

| ee A Ce eal Stee Oe Fe

23a

lation of separations procedures and that the PUC’s use of
state-developed procedures was perfectly proper for intra-
state ratemaking. This argument raises a question of law
reviewed here de novo. United States v. McConney, 728 F.2d
1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824
(1984).

Appellants concede the FCC’s plenary authority over sepa-
rations procedures, but argue in their Joint Brief that the FCC
has not exercised this power. They point to the absence of an
express statement of intention to preempt the field of separa-
tions for intrastate ratemaking purposes in FCC Order 81-
312. They argue that the applicable test for preemption is
whether both the state and federal regulations “can be
enforced without impairing the federal superintendence of
the field.” Florida Lime & Avocado Growers, Inc. v. Paul, 373
U.S. 132, 142 (1963).

Appellants’ argument overlooks the extent to which separa-
tions for interstate ratemaking and separations for intrastate
ratemaking are two sides of the same coin.”? When the same
plant and equipment is used to provide both interstate and
intrastate services and different authorities set rates for these
respective services, cost and investment must be apportioned
uniformly in order to establish fair rates. See The Minnesota
Rate Cases, 230 U.S. 352, 435 (1913); Washington Utilities &
Transportation Commission v. FCC, 513 F.2d 1142, 1146
(9th Cir.), cert. denied, 423 U.S. 836 (1975). If the sum of the

28In this respect, appellants’ brief contradicts the PUC’s earlier conces-
sions in Docket 4588 and in the Hearing on Motion for Preliminary Injunc-
tion, that the PUC must apply the FCC-mandated separations procedures.
Counsel for the PUC stated that the PUC agreed with Hawtel and “the FCC
that the separations formula must remain intact for each governmental
authority to assert its own jurisdiction.”

°Thus the question is not whether federal separations procedures pre-
empt state ratemaking. It is whether federal separations procedures pre-
empt any inconsistent separations adopted, openly or otherwise, by the
state for the purposes of establishing the intrastate rate base.

24a

intrastate and interstate portions for rate-base allocation pur-
poses were not 100 percent,

some costs of plant and expenses would not be
included in the rate computations of either [the
PUC or the FCC]. In [that] situation. . ., the “carrier
may be deprived of a fair rate of return when inter-
state and intrastate jurisdictions are both taken into
account.”

Application of Hawaiian Tel. Co., 67 Haw. ___, 689 P.2d at
751-52 (quoting New England Tel. & Tel. Co. v. Public Utili-
ties Comm'n, 448 A.2d 272, 298 (Me. 1982)). See also Illinois
Bell, 740 F.2d at 567; Washington Utilities & Transportation
Commission, 513 F.2d at 1146-47 (recognizing complemen-
tary nature of the separations process).

[10] The Communications Act empowers the FCC to pre-
scribe uniform separations procedures. //linois Bell, 740 F.2d
at 567; see 47 U.S.C. § 221(c) (granting FCC authority to clas-
sify property for interstate or foreign telephone toll service);
id. § 410(c) (requiring use of Federal-State Joint Board for
separations rulemaking). These statutes evince a congression-
al intent that FCC separations orders control the state regula-
tory bodies, because a nationwide telecommunications sys-
tem with dual intrastate and interstate rates can operate
effectively only if one set of separations procedures is
employed. E.g., State Corporation Commission v. FCC, 787
F.2d 1421, 1426-27 (10th Cir. 1986) (citing cases); see Louisi-
ana Public Service, 106 S. Ct. at 1902 (citing Smith v. I/linois
Bell Telephone Co., 282 U.S. 133 (1930)); S. Rep. No. 92-362.
92d Cong.. Ist Sess., reprinted in 1971 U.S. Code Cong. &
Admin. News 1511, 1513, 1515 (noting need to preserve fed-
eral superintendence in the separations field, citing Sith v.
Illinois Bell, supra). see also NARUC v. FCC, 746 F.2d 1492,
1499-1501 (D.C. Cir. 1984); Jn re Establishment of Interstate
Toll Settlements & Jurisdictional Separations Requiring the
Use of Seven Calendar Day Studies by the Florida Pub. Serv.

Mt A co Rg ate aR ah

A sine AD

25a

~ Comm'n, Memorandum Opinion & Order on Reconsidera-

tion (Docket No. 84-268), 98 F.C.C.2d 777-84 (1984); Jn re
AT&T & the Associated Bell System Companies Charges for
Interstate & Foreign Communication Service, Interim Deci-
sion & Order (Docket Nos. 16258 & 15011), 9 F.C.C.2d 30,
90-91 (1967).

The FCC’s statements during the lengthy Ozark Plan pro-
ceedings indicate a desire to adopt a separations scheme
agreeable to as many states as possible because that scheme
will apply to the entire nation. E.g., Prescription of Procedures

for Separating and Allocating Plant Investment, Operating

Expenses, Taxes and Reserves Between the Intrastate and
Interstate Operations of Telephone Companies, Report &
Order 70-1151 (Docket 18866), 26 F.C.C.2d 247, 257 (1970).
In 1972, the FCC began efforts to integrate Hawaii “into the
established rate scheme for communications services applica-
ble to the Mainland.” Docket No. 16495, 35 F.C.C.2d at 856-
57. The FCC extended Ozark to Hawaii as a central part of
that rate scheme in Order 81-312, expressly citing its separa-
tions authority under § 221(c) and following the procedure set
forth by § 410(c).

[11] This history, the statutory framework underlying it,
and the need for consistent apportionment between interstate
and intrastate operations, are sufficient to convince us that
FCC Order 81-312 necessarily preempted any independent
separations procedures of the Hawaii PUC.

V. LOUISIANA PUBLIC SERVICE AND § 152(b)

In its recent decision in Louisiana Public Service, the
Supreme Court held that § 152(b) of the Act bars “federal pre-
emption of state regulation over depreciation of dual jurisdic-
tion property for intrastate ratemaking purposes.” 106 S.Ct.
at 1904. Section 152(b) provides:

{ NJothing in this chapter shall be construed to apply
or to give the [FCC] jurisdiction with respect to (1)

26a

charges, classifications, practices, services, facilities,
or regulations for or in connection with intrastate
communication service by wire or radio of any car-
rer... ...

47 U.S.C. § 152(b). Appellants argue that this provision, and
the Louisiana Public Service decision, support their view that
the FCC cannot dictate separations practices to the states for
use in their intrastate ratemaking. We disagree.

The Supreme Court made it quite clear in Louisiana Public
Service that federal separations procedures were an essential
prerequisite to the creation of independent spheres of federal
and state power over communications:

~The Communications Act not only establishes dual
state and federal regulation of telephone service; it
also recognizes that jurisdictional tensions may arise
as a result of the fact that interstate and intrastate
service are provided by a single integrated system.
Thus, the Act itself establishes a process designed to
resolve what is [sic] known as “jurisdictional
separations” matters, by which process it may be
determined what portion of an asset is employed to
produce or deliver interstate as opposed to intrastate
service. 47 U.S.C. § 410(c). Because the separations
process literally separates costs such as taxes and
operating expenses between interstate and intrastate
service, it facilitates the creation or recognition of
distinct spheres of regulation.

Louisiana Public Service, 106 S. Ct. at 1902. See also id. at
1899 (“the jurisdictional limitations placed on the FCC by
§ 152(b), coupled with the fact that the Act provides for a
‘separations’ proceeding to determine the portions of a single
asset that are used for interstate and intrastate service. 47
U.S.C. § 410(c), answer” arguments for preemption of depre-

ciation).

SAA NA Ache taal bia nah. SENS eas a hale

is ntti cl

27a

{12] Thus, it is only affer a uniform separations formula has
been applied that a state’s independent depreciation rule for
intrastate ratemaking can be protected from federal preemp-
tion. See Smith v. Illinois Bell, 282 U.S. at 148. The Supreme
Court’s decision in Louisiana Public Service accordingly sup-
ports our conclusion that the FCC separations procedures
authorized by § 410(c) of the Act bind the states, and that
§ 152(b) does not stand in the way.”

VI. PUC DISOBEDIENCE OF THE FCC ORDER

Finally, appellants contend that the PUC did not disobey
the FCC order. The district court found that it did. We review
factual findings for clear error. E.g., United States v. McCon-
ney, 728 F.2d at 1201.

We have already determined that the FCC properly pre-
empted the separations field, employing the authority granted
by the Communications Act. No one disputes the authority of
a state PUC to establish a reasonable rate of return for utili-
ties within its jurisdiction. But, as the district court found, the
“appropriate adjustment” here was a fairly transparent and
improper attempt to circumvent the FCC mandate. Cf. Aloha
Airlines, Inc. v. Director of Taxation, 464 U.S. 7, 12-13 (1983)
(state could not circumvent preemptive federal Act prohibit-
ing gross receipts tax on airlines by calling its tax a “property

3° ppellants contend that, even after imposition of a federal separations
formula, PUC remains free to impose variations. If, for example, the FCC
decides that interstate rates should be based on 25% of an employee’s $20
per hour wage, the PUC need not accept a base of the remaining $15. The
PUC remains free to determine that a $20 wage is unreasonable for state
ratemaking purposes, while a $16 wage is reasonable. The PUC could then
base its rates on 75% of that figure, or $12.

We accept this argument, but it does not apply directly to this case. What
the PUC cannot do is concede that a $20 wage is reasonable for intrastate
ratemaking purposes, but nevertheless base its rate on $12 of the wage
because it thought that the interstate proportion of the wage, set by the FCC
at 25%, was too low. That example is more nearly analogous to this case.

28a

tax measured by gross receipts”). The Supremacy Clause does
not countenance state policies—in this case, a state ratemak-
ing ruling—that may produce results inconsistent with the
objective of a federal statute. E.g.. Maryland v. Louisiana,
451 U.S. 725, 747 (1981).

[13] The undisputed evidence is that, while the PUC ini-
tially used the Ozark Plan to calculate rates, it then adjusted
rates downward by 1.1 percent. The PUC arrived at its 1.1
percent “Adjustment for Change in Separation Plan” by com-
paring 1981 rates under the Ozark Plan and under Hawaiian
Plan II. It also took into account the transitional payments
from AT&T even though it acknowledged that these had to be
considered as interstate revenues. The district court did not
clearly err in finding that this adjustment was an attempt to
nullify the FCC’s Ozark separations plan. Although no new
comparison was performed in 1984 in Docket 4588, the PUC
expressly carried over the 1.1 percent adjustment even after
it found that 11.25 percent was a reasonable rate of return
and that a rate increase of $30 million was necessary to
achieve the 11.25 percent return.” Appellants offered only
the explanation that the 1.1 percent adjustment resulted from
the PUC’s determination, within its proper authority, that
the adjustment was “necessary, fair and reasonable.” PUC
Decision & Order No. 8042, Docket No. 4588 at 15 (noting
that adjustment would be treated as an adjustment to
expenses). No support for such a finding appears in the PUC
order or in evidence, however.

[14] Rather than simply accept the PUC’s statements that
it was applying the Ozark Plan, the district court properly
considered the effect of the PUC’s ruling to determine
whether it conflicted with federal law. See Perez v. Campbell,

31The PUC made it quite clear that its adjustment in Docket No. 4588
was not independent of its original adjustment in Docket No. 4306. “We
find no reason to deviate from our previous decision.” Decision & Order
No. 8042. Docket No. 4588, at 14.

thd cic 8 an i

whew

Th Sali Se oan Yodel namie lt aaa te dh em Le,

TV ie pina Mica ind wed eee Sa

Fee on

ita eemre

402 U.S. 637, 652 (1971); New York State Commission on
Cahle TV v. FCC, 669 F.2d 58, 62 (2d Cir. 1982). Reviewing
the record, we conclude that the district court committed no
clear error in finding that “[t]he so-called ‘appropriate adjust-
ment’... in Docket No. 4588 was calculated solely and pre-
cisely on the difference between the Hawaiian Plan II and
Ozark Separations formulas.” Judgment for Permanent
Injunction { 13. That finding supports a conclusion that PUC
violated the FCC-impeosed Ozark Plan.

CONCLUSION

The district court’s injunction is authorized under § 401(b)
and its decision to accord preemptive weight to FCC Order
81-312 does not violate the dual regulatory system prescribed
under the Communications Act. The court did not clearly err
in finding that the PUC’s rate-of-return adjustment was in
effect a thinly veiled attempt to depart from the required sep-
aration of plant and expenses between interstate and intra-
state use. The PUC clearly has supreme authority with regard
to intrastate ratemaking; but the PUC is not entitled to define
boundaries of its intrastate sphere that are different from
those established by the valid FCC order. Nor can the PUC
accomplish by subterfuge what it could not, by its own admis-
sion, do directly.

The order of the district court enjoining the PUC and its
Commissioners is therefore AFFIRMED.

FERGUSON, Circuit Judge, dissenting:

I dissent. The majority opinion misconstrues and misap-
plies the Supreme Court's recent decision in Louisiana Public
Service Commission v. FCC, 106 S. Ct. 519 (1986), and in so
doing pays scant heed to the important federalism concerns
that lie at the heart of this case. As the Supreme Court has

30a

pointed out in a different context, “the essence of federalism
is that States must be free to develop a variety of solutions to
problems and not be forced into a common uniform mold.”
Addington v. Texas, 441 U.S. 418 (1979). The Supremacy
Clause of Art. VI of the Constitution does, of course, give
Congress the power to preempt state law. See Louisiana, 106
S. Ct. at 1898. Absent a congressional mandate, however, it is
not appropriate for either the FCC or this court to abridge the
authority of the Hawaii Public Utilities Commission
(“PUC”) to set intrastate rates for telephone services. The
Court’s decision in Louisiana makes clear that 47 U.S.C.
§ 152(b) constitutes a congressional denial of power to the
FCC to regulate intrastate rate-making. For this reason, |
would reverse the decision of the district court.

The threshold issue is, as the majority points out, the ques-
tion of whether the district court had jurisdiction to require
the PUC to obey an FCC order raising the intrastate rates for
Hawaii Telephone (“HawTel”). Whether the district court
had jurisdiction depends on whether there was an enforceable
FCC order under 47 U.S.C. § 401(b). Whether there was an
enforceable order under section 401(b) depends, in turn, on
whether intrastate rate-making is preempted by the uniform
separations process.

It is undisputed that the Communications Act empowers
the FCC to prescribe uniform separations procedures for
apportioning the property and expenses of telephone compa-
nies between the interstate jurisdiction, governed by the
FCC, and the intrastate jurisdiction, governed by state regu-
latory authorities. See 47 U.S.C. §§ 221(c), 410(c). The issue,
however, is whether, once that apportionment is made
according to FCC procedures, the FCC can require the state
to follow the uniform procedures when establishing intrastate
rates. Simply stated, the question is whether state regulatory
authorities are preempted by 47 U.S.C. §§ 221(c) and 410(c)
from making adjustments in setting intrastate rates. The
Supreme Court’s decision in Louisiana leaves no doubt that

Mina Ea all Oe ate a MIN a

ee Te eee ee

3la

there is no federal preemption in the area of intrastate regula-
tion, even where intrastate regulation has an impact on inter-
state communications. Under Louisiana, therefore, this court
should find that the district court had no jurisdiction to
enforce the FCC's order.

The issue in Louisiana was whether state regulation of
depreciation methods and rates for telephone companies was
preempted by rulings of the FCC. The Court held that 47
U.S.C. § 152(b) bars federal preemption of state regulation of
depreciation of “dual jurisdiction” property for intrastate
rate-making purposes, notwithstanding 47 U.S.C. § 220,
which expressly directs the FCC to prescribe depreciation
practices. The FCC argued in Louisiana that section 220
operates to preempt inconsistent state depreciation regula-
tions even for intrastate rate-making purposes, and that such
federal displacement of state regulation was justified as neces-
sary to avoid frustration of valid federal policies. The
Supreme Court rejected this argument, noting the “express
jurisdictional limitations” of section 152(b) and stating that
“by its terms this provision fences off from FCC reach or reg-
ulation intrastate matters—indeed including matters ‘in con-
nection with’ intrastate service.” 106 S.Ct. at 1899. The
Court noted that the Act itself establishes a process for resolv-
ing jurisdictional separations issues, 47 U.S.C. § 410(c), and
stated that “it is possible to apply different rates and methods
of depreciation to plant once the correct allocation between
the interstate and intrastate use has been made.” /d. at 19@2.

Applying the reasoning of Louisiana, it is clear that once
jurisdictional separations were made, the PUC was not pre-
empted from making an adjustment to intrastate rates alone.
Section 152(b) expressly denies the FCC jurisdiction over
“charges, classifications, practices, services, facilities, or regu-
lations for or in connection with intrastate communication
service.” 106 S. Ct. at 1899. The Supreme Court noted that
this section contains not only a substantive jurisdictional lim-
itation on the FCC’s power, but also a rule of statutor, con-

32a

struction (“... nothing in this chapter shall be construed to
apply or to give the Commission jurisdiction with respect to
... intrastate communication service”). Thus, in Louisiana,
the FCC could not rely on the specific grant of authority to
prescribe depreciation procedures contained in section 220 to
defeat the express limitations of section 152(b). Similarly,
here, once apportionment between State and Federal jurisdic-
tions is made under section 410(c), the FCC may not further
rely on that section to invade the authority specifically denied
the agency under section | 52(b). As the Court points out, the
separations process itself “facilitates the creation or recogni-
tion of distinct spheres of regulation.” Jd. at 1902.

Nor, under Louisiana, may the FCC compel a different
result by arguing that the PUC’s adjustment of intrastate
rates was preempted as an evasion of the separations proce-
dure. The Supreme Court makes clear in the Louisiana
decision that arguments about the effect or impact of state
regulation will not confer preemptive authority on the FCC if
the agency is acting outside the scope of its congressionally
delegated authority. In Louisiana, the FCC argued that the
express limitations on federal authority contained in section
152(b) should not bar the FCC from requiring state commis-
sions to follow FCC depreciation practices for intrastate rate-
making purposes, because the plant involved was used inter-
changeably to provide both intrastate and interstate service:
and that any authority reserved to the states under section
152(b) should be confined to intrastate matters which are sep-
arable from and do not substantially affect interstate com-
merce.

The Supreme Court rejected this argument, noting:

While it is certainly true, and a basic underpinning
of our federal system, that state regulation will be
displaced to the extent that it stands as an obstacle
to the accomplishment and execution of the full pur-
poses and objectives of Congress, it is also true that

ee Le ee

oe Ne ee Rn a ck _

33a

a federal agency may preempt state law only when
and if it is acting within the scope of its congressio-
nally delegated authority.

Id. at 1901 (citation omitted).

The Court went on to explain that an agency literally has no
power to act, let alone preempt state law, until Congress con-
fers authority on it; and that the best way of determining
whether Congress intended the agency's regulations to dis-
place state law is to examine the scope of the authority
granted to the agency by the legislature. /d. Applying these
principles, the Court reiterated that section 152(b) consti-
tutes a congressional denial of power to the FCC, and con-
cluded therefore that “we simply cannot accept an argument
that the FCC may nevertheless take action which it thinks
will best effectuate a federal policy.” Jd.

The argument that HawTel made, and the district court
accepted, that the Hawaii PUC’s actions constituted an eva-
sion of the federal separations procedures, is essentially the
same kind of argument that the Court rejected in Louisiana.
Louisiana stands for the proposition that an agency may not
expand its jurisdiction beyond that granted by Congress,
regardless of the policy arguments that the agency may make
in support of greater preemptive power. Thus, under the prin-
ciples of Louisiana the first question to ask is whether there
is a congressional grant of authority to the agency. It is clear
from the statute that Congress has authorized the FCC to
establish separation procedures. However, error arises if it is
concluded that this grant of authority extends to intrastate
rate-making, as the authority of the FCC in this area is clearly
limited by the express provisions of section 152(b). Accord-
ing to Louisiana, HawTel cannot bypass that express limita-
tion hy reference to the impact or effect of the state’s exercise
of authority on interstate communications. The Court explic-
itly holds that the authority reserved to the state regulatory
authorities under section |52(b) is not limited to those areas

34a

where the matter to be regulated is “purely local” and where
interstate communications are not affected by the state regu-
lation. Dismissing this approach, the Court states “the short
answer to this argument is that it misrepresents the statutory
scheme and the basis and test for preemption. 106 S. Ct. at
1901.

I conclude therefore that the FCC order was not enforce-
able under 47 U.S.C. § 401(b), as the federal agency had no
authority to intervene in the purely intrastate rate-making of
the PUC. The PUC accepted the FCC order in the initial sep-
arations process and allocated property and expenses
between the intrastate and interstate jurisdictions accord-
ingly. Once that process was complete, the authority of the
FCC terminated, as, under section 152(b), the FCC may not
require compliance with federal standards in intrastate rate-
making, arguments about the effect of such rate-making on
interstate communications notwithstanding. Thus, the dis-
trict court was without jurisdiction to issue the injunction.

To hold otherwise subverts the operation of the federalism
that Congress has mandated. The FCC regulates interstate
rates. The state PUCs regulate intrastate rates. That rule may
not work as the telephone companies would like,but that is a
problem that Congress must solve.’ Only Congress can extend
the jurisdiction of a federal agency, not the courts. Were pro-
posals before Congress to confer jurisdiction on the FCC over
intrastate rates, they would doubtless engender a consider-
able political controversy. However, Congress has not acted,
and the Supreme Court has said in no uncertain terms that
the FCC may not assume jurisdiction merely because it
thinks to do so would make for a more efficient system.’

‘It is hard to escape the conclusion that, as in Louisiana, “what is really
troubling [the appellees] is their sense that state regulations will not allow
them sufficient revenues.” 106 S. Ct. at 1902. While recognizing that con-
cern, as the Court pointed out, “only Congress can rewrite the statute.” /d.

It should be emphasized that a decision by this panel that there was no
enforceable order under 47 U.S.C. § 401(b) would not leave the telephone

ee

35a

I have set forth in detail my reasons for dissenting from the
majority’s analysis of the impact of Louisiana because the
majority ignores the important federalism concerns which
must be addressed when federal regulatory agencies attempt
to assert authority over intrastate decision-making absent a
clear mandate from Congress. I believe, however, that this
court does not need to reach the preemption issue as Haw-
Tel’s suit here is collaterally estopped by the decision of the
Hawaii Supreme Court in /n re Hawaii Telephone Co., 689
P.2d 741 (Haw. 1984).

The majority concludes that collateral estoppel does not
apply because of the factual differences between the two
actions. The majority concedes that both actions concerned
HawtTel’s appeal of essentially the same downward adjust-
ment in intrastate rates, but argues that because the adjust-
ment was applied in different rate periods, with different
revenues, different expenses, and different investments, the
second suit is not a collateral appeal of the first.

The principle of collateral estoppel “is designed to prevent
repetitious lawsuits over matters which have once been
decided and which have remained substantially static, factu-
ally and legally.” Commissioner v. Sunnen, 333 U.S. 591, 599
(1948). In the context of claims involving tax liability in dif-
ferent tax years, the Supreme Court noted that “the prior
judgment acts as collateral estoppel only as to those matters
in the second proceeding which were actually presented and
determined in the first suit,” id. at 598, cautioning that “a
subsequent modification of the significant facts or a change in
the controlling legal principles may make that determination
obsolete or erroneous, at least for future purposes,” id. at 599.

companies without any means of challenging the rate-setting of state rate-
setting commissions. Apart from any federal constitutional claims, there
are also a number of state grounds on which decisions or orders of state reg-
ulatory agencies may be challenged in state courts. See, e.g., Haw. Rev. Stat.
§ 91-14(g) (1976).

36a

The central issue in the instant case is whether the PUC
may independently adjust its intrastate rate basis or is pre-
empted from so doing by FCC orders governing the separa-
tions process. In Hawaiian Telephone Co., the Hawaii
Supreme Court squarely confronted and decided this issue.
The court stated: “We have examined the claim that the State
agencies invaded a federally preempted area by varying a
jurisdictional separation approved by the FCC, but find the
claim to be without merit.” 689 P.2d at 741. Thus, the two
rate increase requests, one pursued in state court and one sub-
sequently raised in federal court, raise the same legal issue:
Did the PUC invade a federally preempted area in setting its
intrastate rates? The state court found that it did not, because
it neither “varied a formula, method of procedure decreed by
the federal agency nor tampered with interstate rates in any
way.” Id. at 751.

In this suit, HawTel seeks to relitigate the propriety of that
conclusion as to PUC’s intrastate rate-making procedures. In
the period between the first and second suit, there has been no
“subsequent modification of the significant facts,” Sunnen,
333 U.S. at 591 (emphasis added). That the transition period
had expired and that the two suits involved different rate
periods are not significant changes for the determination of
whether or not the state’s authority to set intrastate rates,
after following the prescribed separations procedures, is pre-
empted under the federal statute. Collateral estoppel should
therefore bar HawTel’s attempt to relitigate in federal court
the very issue decided against it by the Supreme Court of
Hawaii. To decide otherwise is not only to commit the
resources of this court to redundant litigation; it is also a con-
travention of those principles of comity which underlie the
federal system.

37a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

CIVIL NO. 84-1306

HAWAIIAN TELEPHONE COMPANY, A Hawaii Corporation,
Plaintiff,
VS.

PUBLIC UTILITIES COMMISSION OF THE STATE OF HAwaAII;
ALBERT Tom, Chairman; SuNAo KIDO, Commissioner;
and CLYDE S. DuPoNT, Commissioner,

Defendants.

Filed March 13, 1985

DECISION GRANTING PERMANENT INJUNCTION

This matter came on for trial on March 12, 1985, on
the plaintiff's complaint for a permanent injunction. An
earlier hearing on December 17, 1984, on a preliminary
injunction resulted in an Order Granting Preliminary In-
junction filed herein on January 8, 1985, following a De-
cision rendered on December 26, 1984.

The evidence adduced at the hearing on a permanent
injunction was essentially the same as at the hearing on
a preliminary injunction. Some cross-examination of Carl
D. Zaretki and some testimony by Leroy Yuen were added
to the earlier record. An order by the Public Utilities
Commission following this court’s Order of January 8,
1985, was received.

I re-adopt the statements, findings of fact, and conclu-
sions of law set forth in my Decision of December 26,
1984, and Order of January 8, 1985.

38a

Some further reaction to the Public Utilities Commis-
sion’s argument that the Commission did not violate the
FCC Report and Order in Docket No. 21263 is required.

Leroy Yuen testified that separations calculations in
PUC Docket No. 4588 were made according to the fed-
erally-mandated Ozark Plan and that calculations according
to Hawaiian Plan II were never made (and have not yet
been made) in that docket. Therefore, the PUC argues,
the 1.1% ‘“‘adjustment’’ that was made in PUC Docket No.
4588 cannot be said to have been derived soiely from a
comparison between the Ozark Plan and Hawaiian Plan
II, as held by this court in connection with the hearing
on a preliminary injunction herein. Thus any complaint as
to PUC Decision and Order No. 8042 in PUC Docket No.
4588 cannot be said to involve a violation of FCC Report
and Order in Docket No. 21268.

It is true that no new separations calculations based on
Hawaiian Plan II were made in connection with PUC
Docket No. 4588. However, the 1.1% ‘‘adjustment’’ made
in PUC Docket No. 4588 was carried over from PUC
Docket No. 4306 in which such a comparison was made.
In Exhibit No. 1 to PUC Docket No. 4306, the 1.1% dif-
ference in Return on Rate Base between the results ob-
tained under the Ozark Plan (4.0%) and the results obtained
under Hawaiian Plan II (5.1%) is developed explicitly. Ex-
hibit No. 8 to PUC Docket No. 4306 then shows an ‘‘Ad-
justment for Change in Separation Plan” calculated as
111.1% of Interstate Rate Base = .011 x 454,129 =
$4,995”’ by which amount the ‘‘Increase In Net Operating
Income Required”’ is additionally reduced.

This 1.1% from PUC Docket NO. 4306 was carried over
to PUC Docket No. 4588, although without identifying the
item as an ‘Adjustment for Change in Separation Plan’’.
Instead the PUC stated, at page 14 of its Decision and
Order No. 8042, that at 1.1% adjustment having already

39a

been found to be fair and reasonable in PUC Docket No.
4306, would be applied again in PUC Docket NO. 4588.

PUC Docket NO. 4588 immediately succeeded PUC
Docket NO. 4306. No separate basis for reaching an ‘‘ad-
justment” of 1.1% in PUC Docket No. 4588 is given other
than the calculations set forth in Exhibit No. 1 to PUC
Docket No. 4306.

I adhere to my conclusions on the preliminary injunction.

The preliminary injunction heretofore granted will be
made permanent.

The foregoing constitute the court’s Findings of Fact
and Conclusions of Law.

DATED: Honolulu, Hawaii, March 13, 1985.
/s/SAMUEL P. KING
United States District
Judge

40a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

CIVIL NO. 84-1306

HAWAIIAN TELEPHONE COMPANY, A Hawaii Corporation,
Plaintiff,
“VS.

PuBLIC UTILITIES COMMISSION OF THE STATE OF HAWAII;
ALBERT ToM, Chairman; SUNAO KIDO, Commissioner;
and CLYDE S. DUPONT, Commissioner,

Defendants.

Filed January 8, 1985

ORDER GRANTING PRELIMINARY INJUNCTION

This matter has come before the Court on Plaintiff’s
Motion for Preliminary Injunction. Pursuant to notice, a
hearing on the Motion was held on December 17, 1984.
The Court has considered the affidavits of the parties,
evidence submitted at hearing, and the pleadings and ar-
guments of counsel. In accordance with its Decision herein,
rendered on December 26, 1984, the Court finds as follows:

1. By Report and Order adopted June 29, 1981 and
released July 8, 1981 in Docket No. 21263 (Report and
Order 81-312), the Federal Communications Commission
(““FCC’’) ordered that the federal Separations Manual
(based on what is referred to as the ‘Ozark Plan’’) “shall
apply to Hawaii.”’

2. Plaintiff HAWAIIAN TELEPHONE COMPANY
(‘““HTC”’) has moved for a Preliminary Injunction against
defendants PUBLIC UTILITIES COMMISSION and the

4la

PUBLIC UTILITIES COMMISSIONERS (collectively
“PUC” herein) under 47 U.S.C. §401(b), which reads in
part:

If any person fails or neglects to obey any
order of the [Federal Communications] Commis-
sion ... any party injured thereby ... may apply
to the appropriate district court of the United
States for the enforcement of such order. If, after
hearing, that court determines that the order was
regularly made and duly served, and that the
person is in disobedience of the same, the court
shall enforce obedience to such order by a writ
of injunction or other proper process, mandatory
or otherwise ....

3. The above-referenced FCC Report and Order in
Docket No. 21263 is an “order’’ which was “regularly
made”’ and the PUC is a “‘person,”’ all within the meaning
of those words as used in 47 U.S.C. §401(b).

4. The June 29, 1981 FCC Report and Order in Docket
No. 21263 referenced above is applicable to and binding
upon the PUC for purposes of jurisdictional separations
procedures in setting intrastate rates.

5. In its August 14, 1984 Decision and Order No. 8042
in Docket No. 4588, the PUC established intrastate tele-
phone rates for HTC’s regulated services.

6. The PUC in Decision and Order No. 8042 made an
adjustment to HTC’s revenue requirement, based on a 1.1%
computational factor, which resulted in a reduction of
$10,507,000 in the rate increase granted to Plaintiff. Said
adjustment is shown on Exhibit 4 to the Decision and
Order.

7. The PUC denies that, in making its adjustment, it
failed to apply the Ozark Plan as required by FCC Report
and Order 81-312. The PUC states in Decision and Order
No. 8042:

42a

.... The Commission ... did not shift intrastate
expenses to interstate and the Commission did
not adopt Hawaiian Plan II as the basis for sep-
arations. ... The Commission made an appro-
priate adjustment to provide reciprocal benefits
to the ratepayers as a result of the State of
Hawaii’s, and in turn the ratepayers’ support of
the transitional agreement between HTC and
AT&T. In making the appropriate adjustment the
Commission merely took the difference in rates
of return between Hawaiian Plan II and the
Ozark Plan as a basis of measurement and applied
the percentage difference to HTC’s intrastate rate
base. In so doing the annual cost or dollar return
became a reduction in a cost or expense item in
the determination of revenue requirements. We
must emphasize again that the Commission made
an “appropriate adjustment’’ and made no shift
in expenses from intrastate to interstate ....

8. The transitional agreement referred to above was be-
tween HTC and AT&T and was supported by the State
of Hawaii through its Governor. The agreement resulted
in a transitional supplement payable to HTC by AT&T, as
described in Decision and Order No. 8042:

The origin of the transitional supplement issue
begins with the FCC decision in [FCC] Docket
No. 21263, the purpose of which was to deter-
mine whether, and how Hawaii-Mainland tele-
phone rates could be integrated into the
nationwide toll rate structure without unduly bur-
dening Hawaii intrastate ratepayers. Previous to
the FCC decisions, the Hawaii-Mainland calls
were approximately three times the rates for calls
of corresponding distances on the mainland. Rev-
enues from Hawaii-Mainland calls were split in
approximate correspondence to the costs incurred

43a

by HTC and AT&T. With the proposed integra-
tion, the reduction of two-thirds in rates and an
immediate imposition of the mainland separa-
tions/settlements procedure would result in a se-
vere contraction of revenues to HTC and a
consequent increase in revenue burden for HTC
intrastate subscribers.

In view of the potential impact, both HTC and
the State Government sought some modification
of the separations formula so that the rate in-
tegration would not burden HTC’s intrastate ra-
tepayers. Both parties stressed the unique
characteristics of Hawaiian service and argued
for modification to the nationwide separations
plan which would shift somewhat more revenue
responsibility from the intrastate to the interstate
jurisdiction.

As a result, a joint agreement between HTC
and AT&T proposed that the 1971 NARUC-FCC
Separations Manual would be applied, unad-
justed, to HTC’s operations for purposes of ju-
risdictional separations. Revenue settlements,
however, would be based on the conventional sep-
arations/settlements procedure plus a transitional
supplement payment reflecting differing splits
each year in the growth in revenue since the base
year 1979. Finally, the agreement deferred the
final step of rate integration until January 1,
1985.

In In Re Hawauvian Telephone Company, De-
cision and Order No. 74312, Docket No. 4306
(January 1983) we stated that:

Though the Commission has conceded ...
that it cannot utilize the transitional sup-
plement revenues as intrastate revenues, we

44a

find that it would be totally unjust and un-
reasonable if HTC after obtaining the benefit
of the transitional revenues were also to re-
ceive the benefit of the lowered intrastate
return—the difference between Hawaiian
Plan II and the Ozark Separation formulas.
To award HTC another 1.1% increase in
their return would deprive the ratepayers of
any reciprocal benefits resulting from their
support of the transitional Agreement. We
conclude, as shown in the subject entitled
‘Revenue Increase Authorized” herein that
an appropriate adjustment in the expenses
and rate base must be made to insure that
rates to be set are ‘“‘just and reasonable.”’
(Emphasis added.)

9. Notwithstanding the PUC’s disclaimer of any such
action, the PUC’s action had the effect of applying Ha-
waiian Plan II (a different separations method) instead of
the Ozark Plan as a basis for separations. The so-called
“appropriate adjustment”’ made by the PUC in Docket No.
4588 was calculated solely and precisely on the difference
between Hawaiian Plan II and the Ozark Separations for-
mulas.

10. Because the PUC’s 1.1% “appropriate adjustment”’
in Docket NO. 4588 was directly the product of applying
Hawaiian Plan II for purposes of separations, the PUC
thereby failed and neglected to obey FCC Order 81-312,
which required the application of the federal Separations
Manual.

11. The declared purpose behind the PUC adjustment
is to have Hawaii intrastate ratepayers share in the tran-
sitional supplement received by HTC under the HTC-AT&T
agreement approved by the FCC in 1981. Yet presumably
Hawaii intrastate ratepayers have received some benefit
from that agreement by a slowing down of increases in

45a

intrastate rates. Furthermore, that agreement, and sup-
plements under the agreement, terminate on December 31,
1984. The rates set in PUC Docket No. 4588, however,
remain in place indefinitely until modified in another future
proceeding before the PUC.

12. There may well be other matters besides the results
obtained through the application of separations formulas
which a public utilities commission may consider in rate
determinations. Here, however, the PUC has not articu-
lated any reason for its action other than the existence
of the transitional supplement, which the PUC specifically
held in its Docket No. 4588 decision could not be consid-
ered to be intrastate revenue.

13. Res judicata does not bar the present action; PUC
Docket No. 4588 is a different application from the earlier
PUC Docket No. 4306, which was appealed to and affirmed
by the Supreme Court of Hawaii on September 10, 1984.

14. The Johnson Act, 28 U.S.C. §1342, by its own terms
applies only when jurisdiction is founded solely on diversity
of citizenship or repugnance to the Federal Constitution.
Here, HTC’s claim arises under 47 U.S.C. § 401(b).

15. The Eleventh Amendment does not bar injunctive
relief against actions by State officials that contravene
federal statutes or the Federal Constitution.

16. The federal statutory remedy provided by 47 U.S.C.
§401(b), if available in other respects, is not defeated by
the existence of an adequate state judicial remedy.

17. The present Motion for Preliminary Injunction does
not involve the Civil Rights Act, 42 U.S.C. §1983.

NOW, THEREFORE, IT IS HEREBY ORDERED
THAT:

1. Plaintiff's Motion for Preliminary Injunction is
granted;

46a

2. Defendants are hereby enjoined from failing and ne-
glecting to obey FCC Order 81-312, adopted in Docket No.
21263 on June 290, 1981, released July 8, 1981;

3. Within 10 days of the date of this Order, the PUC
shall place in effect schedules of intrastate rates for HTC
sufficient to generate additional revenues of $101,507,000
based on the test year employed by the PUC in Docket
No. 4588;

4. All additional revenues collected by HTC as a result
of this Order shall be subject to refund with interest cal-
culated pursuant to Hawaii Revised Statutes §269-16(c) if
HTC does not prevail on the merits of this case;

5. The Preliminary Injunction here ordered shall remain
in full force and effect pending final determination of this
case and until further Order of this Court.

6. This Order shall be served upon each of the
Defendants and the Intervenor, the CONSUMER ADVO-
CATE.

DATED: Honolulu, Hawaii, January 8, 1985.
/s/SAMUEL P. KING
United States District Judge

47a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

CIVIL NO. 84-1306

HAWAIIAN TELEPHONE COMPANY, a Hawaii corporation,
Plaintiff,
v.

PUBLIC UTILITIES COMMISSION OF THE STATE OF
HAwaAll; et al.
Defendants,
and

CONSUMER ADVOCATE, the Director of the Department of
Commerce and Consumer Affairs, State of Hawaii,
Applicant for Intervention.

Filed December 21, 1984

ORDER GRANTING CONSUMER ADVOCATE’S
MOTION TO INTERVENE AS DEFENDANT

Applicant for Intervention the Consumer Advocate’s Mo-
tion to Intervene as Defendant was heard before Magis-
trate Bert S. Tokairin on Monday, November 26, at 3:00
o’clock p.m., 1984. Having considered the affidavits, plead-
ings and argument of counsel, this Court finds:

1. The Consumer Advocate has the responsibility to rep-
resent, protect and advance the interests of consumers of
utility services in the State of Hawaii.

2. The Consumer Advocate’s duties and interests are
separate and distinct from those of the Hawaii Public Util-
ities Commission.

48a

3. Unless the Consumer Advocate is ailowed to inter-
vene in this action, the disposition of the action may impair
and impede his ability to protect those interests, which
may not be adequately represented by existing parties.

4. The Consumer Advocate was a party to the Public
Utilities Commission’s Docket Nos. 4306 (and the subse-
quent appellate proceedings in Hawaii Supreme Court
Docket No. 9343) and 4588.

5. The Consumer Advocate agreed that it will cooperate
with Plaintiff so that this matter may be resolved as ex-
peditiously as possible.

6. The Consumer Advocate has met the criteria for in-
tervention in accordance with Rule 24 of the Federal Rules
of Civil Procedure.

NOW, THEREFORE, IT IS HEREBY ORDERED
THAT:

1. Applicant the Consumer Advocate’s Motion to Inter-
vene as Defendant is granted;

2. This Order shall be served upon the parties.
DATED: Honolulu, Hawaii, DEC 21, 1984.

/s/BERT S. TOKAIRIN
MAGISTRATE BERT S.
TOKAIRIN

APPROVED AS TO FORM:

/s/THoMAS W. WILLIAMS
THOMAS W. WILLIAMS, JR.
Attorney for Plaintiff

ORDER GRANTING CONSUMER ADVOCATE’S MO-
TION TO INTERVENE AS DEFENDANT, Hawazian
Telephone Company vs. Public Utilities Commission, et al.,
Civil No. 84-1306 (U.S.D.C.-Haw.)

49a

APPENDIX E

BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF HAWAII

DOCKET NO. 4588

In the Matter of the Application of
HAWAIIAN TELEPHONE COMPANY
For Approval of Rate Increases and Revised Rate
Schedules.
ORDER NO. 8168

Filed November 15, 1984
At 1:15 o’clock P.M.

/s/BERTHA F. KUROSAWA
Chief Clerk of the Commission

ORDER GRANTING MOTION FOR
RECONSIDERATION

IN PART AND DENYING MOTION

FOR RECONSIDERATION IN PART

A Motion for Reconsideration was filed by Hawaiian

Telephone Company on August 24, 1984, requesting the
Commission to reconsider Decision and Order No. 8042
filed in the above entitled proceeding on August 14, 1984,
concerning the following matters:

1. The adjustment made by the Commission to
provide reciprocal benefits to the ratepayers.

2. Implementation of a phased increase effective
January 1, 1985 to permit restoration of

50a

$10,507,000 adjustment which provides recip-
rocal benefits.

3. The restoration of $36,410 for foreign trans-
lation expenses.

4. The treatment of the General Services and
Licenses Expenses.

5. The capital carrying costs of $1,036,000 used
in the reduction of HTC’s total revenue re-
quirements.

6. The disallowance of $1,901,200 in manage-
ment salaries for HTC’s total company oper-
ations.

7. The disallowance of premium increases for em-
ployee insurance.

8. The 14% equity cost in arriving at a 11.25%
rate of return.

The Commission upon careful consideration of the
grounds stated in the Motion for Reconsideration and being
fully advised in the premises, finds that two items pre-
sented in its Motion have merit and our Decision and
Order No. 8042 should be amended accordingly. On the
remaining matters presented in the Motion, we find no
new grounds that were not already considered in the is-
suance of Decision and Order No. 8042.

Upon due consideration of the Motion and the record
in this docket, the Commission finds, in seriatim, as fol-
lows:

1. We find no new grounds, points or authorities in the
request to restore to the $10,507,000 adjustment made in
our decision not already considered in Decision and Order
No. 8042.

In its Motion, HTC erroneously alleged that Hawaiian
Plan II was used in place of the Ozark Plan, the separation

5la

plan approved by the Federal Communications Commission
(FCC herein), and that the intrastate costs were arbitrarily
adjusted.

On the issue of the transitional supplement we stated
on pages 11-12 of Decision and Order No. 8042 the fol-
lowing:

“In In Re Hawaiian Telephone Company, De-

cision and Order No. 7412, Docket No. 4306 (Jan-
uary, 1983) we stated that:

‘Though The Commission has conceded above
that it cannot utilize the transitional supplement
revenues as intrastate revenues, we find that it
would be totally unjust and unreasonable, if HTC
after obtaining the benefit of the transitional rev-
enues were also to receive the benefit of the
lowered intrastate return—the difference be-
tween Hawaiian Plan II and the Ozark Separation
formulas. To award HTC another 1.1% increase
in their return would deprive the ratepayers of
any reciprocal benefits resulting from their sup-
port of the transitional Agreement. We conclude,
as shown in the subject entitled ‘Revenue In-
crease Authorized’ herein that an appropriate ad-
gustment in the expenses and rate base must be
made to insure that rates to be set are ‘just and
reasonable.’

We hereby reaffirm our decision that the tran-
sitional supplement revenues cannot be treated as
intrastate revenues. Consequently, the CA’s rec-
ommendation to treat the transitional supplement
as intrastate revenues must be denied.

In this proceeding, we believe that some of the
parties harbor a misunderstanding of the intent
of the Commission’s decision in Docket No. 4306
on the issue of transitional supplement. The Com-

52a

mission, in that decision, did not shift intrastate
expenses to interstate and the Commission did not
adopt Hawaiian Plan II as the basis for sepa-
ration. As stated in our Decision and Order No.
7412, the Commission made an appropriate ad-
justment to provide reciprocal benefits to the
ratepayers as a result of the State of Hawaii’s,
and in turn the ratepayers’ support of the tran-
sitional agreement between HTC and AT&T. In
making the appropriate adjustment the Commis-
sion merely took the difference in rates of return
between Hawaiian Plan II and the Ozark Plan
as a basis of measurement and applied the per-
centage difference to HTC’s intrastate rate base.
In so doing the annual cost or dollar return be-
came a reduction in a cost or expense item in
the determination of revenue requirements. We
must emphasize again that the Commission made
an ‘appropriate adjustment’ and made no shift in
expenses from intrastate to interstate. The Com-
mission in Decision and Order No. 7412 adhered
to jurisdictional separations when we stated that:

For purposes of this proceeding, the Commis-
sion finds that jurisdictional separations are re-
quired by law and that the procedures specified
by the Ozark Plan as proposed by the Company
are reasonable.”” (Emphasis added.)

We further stated on pages 14-15 that:.

“In Docket No. 4306 this Commission made an
adjustment by reducing the amount of the rev-
enue increase by 1.1% on the intrastate rate base
so that the intrastate rates would be just and
reasonable. We find no reason to deviate from
our previous decision.

We again emphasize the fact that by making
such an adjustment, we are not substituting the

Pee Re ee Te

53a

Hawaiian Plan II for the Ozark Plan for rate-
making purposes. As we have indicated herein,
the method of separating interstate and intras-
tate operations is based upon the Oazark Plan.

Further, though we have utilized the Ozark
Plan and recognize that the FCC has jurisdiction
over HTC’s interstate operations this Commis-
ston 1s not precluded from making any present
and future adjustments to HTC’s intrastate re-
sults of operations in order to balance the interest
of the ratepayers and HTC to fulfill our respon-
sibility to fix ‘just and reasonable’ rates.’”’ (Em-
phasis added.)

Our decision in the past HTC rate case on this issue
and in this decision clearly indicates that the Ozark Plan
was used to allocate interstate and intrastate costs. The
Commission recognized that the costs would be incurred
during the test year and arrived at an intrastate revenue
requirement necessary to produce a fair rate of return
found reasonable. After the total intrastate revenue re-
quirement was determined the Commission then made an
appropriate intrastate adjustment based upon the prece-
dent and principle first enunciated in Docket No. 4306.

HTC appealed the transitional supplement issue in
Docket No. 4306 to the Hawaii Supreme Court and the
Court issued its opinion on this issue in September, 1984.
See In Re Hawaiian Telephone Company, Sup. Ct. No.
93438, filed September 27, 1984. The Hawaii Supreme Court
held on the issue of transitional supplement, the following
(pp. 18-20):

“The foregoing conclusion that the rate order
was just and reasonable in total effect would nor-
mally end our inquiry. Hawaiian Telephone, how-
ever, avers the decision under review is flawed
in yet another respect; it alleges the Commission
erred ‘by making an unsupported and unlawful

54a

‘Separation Adjustment.’ We have examined the
claim that the State agency invaded a federally
preempted area by varying a jurisdictional sep-
aration approved by the FCC, but find the claim
to be without merit.”

“The Commission, of course, may not interfere
with federal regulation of interstate telecommun-
ications services; the Supremacy Clause does not
countenance rulings by a state ratemaking agency
that ‘may produce a result inconsistent with the
objective of the federal [regulatory] statute.’
Maryland v. Louisiana, 451 U.S. 1725, 747 (1981)
quoting Rice v. Santa Fe Elevator Corp., 331 U.S.
218, 230 (1947)). Thus for example, a state agency
may not adopt for its ratemaking purposes a de-
preciation formula incompatible with the depre-
ciation method decreased for such purposes by
the FCC though a preemption order. See New
England Telephone & Telegraph Co. v. Public
Utilities Commission of Maine, 570 F. Supp. 1558
(1988).

Here, the Commission neither varied a formula,
method, or procedure decreed by the federal agency
nor tampered with interstate rates in any way.
It expressly rejected the Consumer Advocate’s
thesis that the circumstances surrounding the ap-
proval of ‘transitional supplements’ by the FCC
rendered it appropriate for those receipts to be
considered as intrastate revenue, recognizing that
‘(t]he use of interstate revenues to satisfy in-
trastate revenue requirements would violate the
fundamental principles of jurisdictional separa-
tions.’ P.U.C. Order and Decision No. 7412, at
22.”” (Emphasis added.)

55a

The Commission submits that the Hawaii Supreme Court
holding on the subject of transitional supplement is
dispositive of this issue in this reconsideration proceeding.

2. We find no new grounds, points or authorities to
approve the implementation of a phased rate -increase to
permit the restoration of the $10,507,000 effective January
1, 1985.

On this issue, we stated in Decision and Order No. 8042,
page 13, that:

“Although HTC claimed that the rates to be
approved in this docket will be sometime in 1984
and 1985 [and] will be the first full year it pur-
portedly will have an opportunity to earn an au-
thorized return, HTC provided no evidence on
what its results of operations would be for 1984
and 1985. HTC assumed that the revenues, ex-
penses, expenditures and conditions with the ex-
ception of the transitional supplement would
remain status quo.

We also note that HTC makes no distinction
between an actual and normalized year used in
the ratemaking process. Further, 1983 is the test
year and all revenues, expenses and similar items
based upon a representative year are used in set-
ting rates for the future. Accordingly, we reject
HTC’s position with respect to the mootness of
the benefits resulting from the agreement be-
tween HTC and AT&T.” (Emphasis added.)

3. We find no new grounds to restore the $36,410
($55,000 x 66.2%) of intrastate foreign currency translation
expenses which were disallowed in Decision and Order No.
8042.

The NARUC-FCC Separations Manual’ specifically states
that:

1 Section 1, General, Part 1, Subsection 11.18.

56a

“11.18 The separations procedures described
in this manual are not to be interpreted as in-
dicating what property, revenues, expenses and
taxes, or what items carried on the income, re-
serve and retained earnings accounts, should or
should not be considered in any investigation or
rate proceeding.”

Since our decision disallowed any foreign currency trans-
lation expenses for intrastate operations, we find that there
will be no difference in the intrastate results of operations
by excluding the total company expenses of $55,000 before
the separation of $55,000 or the intrastate reduction of
$36,410 after the separation of these translation expenses.

The inclusion of the $55,000 in total company expenses
and the separation of 33.8% (100% - 66.2%) to interstate
yields a residual of $36,410 of foreign currency translation
expenses to the intrastate operations. The disallowance of
the expenses by either method would reduce intrastate
expenses by $36,410. The end result remains the same.
Intrastate expenses are $45,410 lower.

4. We also find no new grounds, points or authorities,
not already considered in arriving at the test year General
Services and License expenses of $2,722,000.

We find that the General Services and License expenses
are reasonable and that no further amplification of our
decision is necessary.

5. With respect to the capital carrying costs of
$1,036,000 as a credit to reduce HTC’s intrastate ex-
penses, we find that in our calculations on this matter, a
corresponding adjustment of $612,000 was not made to
the revenues under present rates. By not making an off-
setting adjustment to revenue under present rates, the
amount of the increase awarded in Decision and Order No.

57a

8042 was understated by $612,000 excluding revenue taxes.
We conclude that the error in calculation was inadvertent
and the amount should be restored.

We note also in review of the capital carrying costs,
that the intrastate depreciation expenses for the test year
was overstated by $99,000.

6. After careful review of HTC’s request that we re-
consider the disallowance of $1,901,200 in total company
management salaries, we find from a review of the record
that the disallowance should have been $950,000 for total
company rather than the $1,901,200 that was used. With
the allocation to HTC’s non-regulated operation and after
separation, the intrastate disallowance amount is $608,000
instead of the $1,217,000 disallowed amount stated in De-
cision and Order No. 8042.

With respect to HTC’s request that the Commission re-
consider its ‘‘punitive action’’ of disallowing the requested
management increase in salaries, we find no new grounds,
points or authorities not already considered in our decision.

Accordingly, we find that HTC’s request to reconsider
the disallowance of the management salary increases must
be denied.

7. We find no new grounds, points or authorities to
amend our decision on premium increases for employee
insurance.

We stated in Decision and Order No. 8042 that:

“The Commission in accepting the CA’s esti-
mate as being more reasonable is not implying
that it is mandating the CA’s approach. We point
out only that cost containment 1s required and it
is in management’s discretion and prerogative as
to how this should be accomplished.”’ (Emphasis
added.)

58a

8. We also find no new grounds, points or authorities,
not already considered in our decision on the cost of eq-
uity.

With respect to HTC’s reference to Maui Electric Com-
pany, Ltd. the record is void of any comparison between

the operations and financial conditions of Maui Electric
and HTC.

9. We find that HTC’s request to phrase the last sen-
tence of the ordering paragraph in Decision and Order
NO. 8042 to: “The first report shall be filed on January
31, 1985, and successive reports filed thereafter within 30
days of the end of each quarter in 1985” as being rea-
sonable.

REVISED RESULTS OF OPERATIONS

We have concluded under Items 5 and 6 above, that
certain adjustments to HTC’s results of operations after
allocation to HTV’s non-regulated operations and after sep-
aration are in order and these adjustments are shown in
Exhibit 3, as amended, attached hereto and made a part
hereof.

As a result of the adjustments to be made, the uncol-
lectibles, gross revenue and income taxes were also re-
computed.

The end result is that the gross revenue increase, should
have been $32,009,000 instead of $30,840,000.

Exhibit 4, as amended, also shows that the intrastate
adjustment to provide reciprocal benefits should have been
$10,507,000 shown in Exhibit 4, Decision and Order No.
8042.

FURTHER INCREASE

Finally, Exhibit 5 attached hereto and made a part her-
eof shows that a further increase of $1,169,000 over and

id ae = -

én oe

59a

above $90,543,000 is necessary to provide for an 11.25%
intrastate return on rate base.

Accordingly, we find that said $1,169,000 increase is
necessary, just and reasonable.

NEW RATES

In Decision and Order No. 8042 we found that an in-
crease of $9,543,000 to the service connection or non-re-
curring activities reasonable. We also ordered HTC to file
new permanent rates to reflect the additional $9,543,000.

The Commission after reconsidering its Decision and Or-
der No. 8042 finds that a further increase of $1,169,000
is justified for the reasons discussed herein above. As
stated in Decision and Order No. 8042 “.. .fairness dic-—
tates that the non-recurring activities charges or station
connection charges* should be borne by those who cause
such non-recurring costs by HTC each year. .. .’’ We then
concluded that $7,598,900 of the $9,543,000' increase
should be imposed on station connection activities.

By Decision and Order No. 8052 dated August 23, 1984,
we approved revised rates to reflect the increases au-
thorized in Decision and Order No. 8042. Upon review of
the rates previously authorized and the record in this pro-
ceeding, we find that the added increase herein granted
should be imposed upon non-recurring station connection
activities.

The record indicates that HTC originally requested an
increase of $17,633,000 in the non-recurring station con-
nection activities. This increase was based upon the re-
covery of HTC’s costs from the cost causer. In our Interim

* Used in the same context as HTC’s non-recurring activities charges
which include such activities as moves and changes.

‘The balance of the $1,944,000 increase are revenues from new in-
trastate charges.

60a

Decision and Order No. 7855, we granted an increase of
$653,000 for station connection activities. Another increase
of $7,958,900 for the same activities was granted in De-
cision and Order No. 8042. Together the total increase
authorized amounted to $8,611,900 which is far less than
the $17,633,000 requested by HTC to cover the costs of
non-recurring activities. Thus, we find that the further
increase granted herein should be imposed upon the non-
recurring station connection activities.

In reviewing the rates we approved for the non-recur-
ring activities, we note that the majority of the increases
were imposed upon Tiers I through III of the station con-
nection tariffs. The charge for Tier IV received relatively
insignificant increases while the charges in Tier V in many
cases received no increase.

The record indicates that a comparison between HTC’s
cost of service for Tiers IV and V station connection ac-
tivities and the rates for the same activities show a wide
discrepancy between rates and costs. For Tier I, Tier II
and Tier III, the rates and the cost-to-serve are signifi-
cantly closer than Tiers IV and V.

Accordingly, we find that the further increase of
$1,169,000 should be imposed upon Tier IV, Premise Wir-
ing Charges, and Tier V, Station Handling Charges in the
Station Connection Move and Change Charges. We find
these changes to be reasonable.

IT IS THEREFORE ORDERED THAT:

1. HTC shall submit to the Commission within seven
days, for our approval, revised rate schedules reflecting a
further increase of $1,169,000 in accordance with the find-
ings made herein and as shown in Exhibit 5 attached
hereto.

2. Exhibits 3 and 4 attached to Decision and Order No.
8042 be deleted and Amended Exhibits 3 and 4 attached
hereto be substituted therefore.

6la

3. The last sentence in the ordering paragraph be
phrased as follows: “The first report shall be filed on
January 31, 1985, and successive reports filed thereafter
within 30 days of the end of each quarter in 1985”.

4. All other matters, in Decision and Order No. 8042
except the foregoing, shall remain in full force and effect.

DONE at Honolulu, Hawaii, this 15th day of November,
1984.

PUBLIC UTILITIES COMMISSION
OF THE STATE OF HAWAII
By /s/ALBERT TOM

Albert Tom, Chairman

By /s/SuNAO KIDO
Sunlao Kido, Commissioner

APPROVED AS TO FORM:
/s/HarrRY S.Y. Kim
HARRY S. Y. KIM
Commission Counsel

62a

HAWAIIAN TELEPHONE COMPANY
REVISED
RESULTS OF OPERATIONS UNDER EXISTING RATES

AND AT 11.25% RETURN

($000’s)
Results Increase
Under Without Results
Existing Appropriate At 11.25%
Rates Adjustment Return
Revenues:
Gross Revenues $215,968 $332,009 $247,977
Uncollectibles (1,014) (304) 1,318
Net Revenues $214,954 $31,705 $246,658
Expenses: .
Maintenance $ 53,933 $ 51,271
Traffic 5,675 5,503
Commercial 14,021 14,021
Marketing 2,624 2,624
Advertising 701 701
General Office Salaries
& Expenses 13,665 13,665
Insurance & Damages 252 252
Operating Rents 2,578 2,578
Relief & Pensions 11,338 11,338
General Services &
Licenses 1,512 1,512
Expenses Charged
Constr. (2,689) (2,689)
Wage Normalization 1,066 1,066
Other Expenses 400 400
Depreciation &
Amortization Expense 51,835 51,835

{Exhibit 3 As Amended continued on next page]

63a

Results Increase

Under Without Results At
Existing Appropriate 11.25%
Rates Adjustment Return
Business Information
Systems (200) (200)
Supply &
Transportation (1,641) (1,641)
Management Wage
Adjustment ( 609) (1,217)
Relocation Expenses (131) (131)
Customer Deposits (79) (79)
Accrued Vacation ,
Expenses (577) (577)
Depreciation To
Clearing 39 39
Capital Carrying Costs (727) (727)
Operating Taxes 17,444 22,376
Total Operating
Expenses $170,430 $172,019
Operating Income Before
Income Taxes $ 44,524 $ 74,088
Income Taxes $9,594 $ 24,159
Net Operating Income $ 34,930 $ 49,929
Rate Base $443,813 $443,813
Return On Rate Base 7.87% 11.25%

EXHIBIT 3 AS AMENDED

64a

HAWAIIAN TELEPHONE COMPANY
; REVISED
INTRASTATE REVENUE INCREASE WITH
APPROPRIATE ADJUSTMENT BASED
ON 1983 TEST YEAR

$000’s
Increase Necessary To Produce An 11.25% Return On
Rate Base $32,009
Less: Appropriate Adjustment As Discussed, Supra,
Under Transitional Supplement $10,507!
Total Revenue Increase Authorized $21,502
Less: Interim Increase Granted Per Decision and
Order No. 7855 10,790
Additional Increase $10,712

EXHIBIT 4 AS AMENDED

' Rate Base x % Appropriate Adjustment Factor + Interstate Gross
Revenue Factor = $443,813 x .011 + .46463 = $10,507

65a

HAWAIIAN TELEPHONE COMPANY
FURTHER INCREASE AFTER CONSIDERATION
OF HTC’s MOTION FOR RECONSIDERATION

000’s
Revised Additional Increase Per Exhibit No. 4
as amended $10,712
Additional Increase Granted Per Decision
and Order No. 8042 9,543

Further Increase necessary to produce 11.25% return 1,169

EXHIBIT 5

66a

APPENDIX F

In the Mater of the Application of HAWAIIAN
TELEPHONE COMPANY For Approval of Intrastate Rate
Increases and Revised Rate Schedules

NO. 9343

APPEAL FROM PUBLIC UTILITIES COMMISSION
STATE OF HAWAII

(DOCKET NO. 4306)
SEPTEMBER 27, 1984

LUM, CJ., NAKAMURA, PADGETT,
HAYASHI AND WAKATSUKI, JJ.

PUBLIC UTILITIES—public service commissions or
boards—judicial review or intervention—appeal from or-
ders of commission—review and determination in gen-
eral.

The enforcement of text-book orthodoxy in the rate-
making process is not a function of this court under
Hawaii Revised Statutes (HRS) Chapters 269 and 91.

APPEAL AND ERROR—review—scope and extent in gen-
eral—matters or evidence considered in determining
question—consideration of other cases and matters
therein.

It is not the practice of this court to decide important
questions of law by dicta from unrelated cases.

PUBLIC UTILITIES—public service commissions or
boards—in general—powers and functions in general.

SAME—same—yjudicial review or intervention—appeal from
orders of commission—review and determination in gen-
eral.

The general supervision over all public utilities has
been delegated to the Public Utilities Commission. It is

PE ee ee ee ee ee ee eee

67a

the Commission that is authorized to fix “just and rea-
sonable’ rates to be charged by public utilities, and a
reviewing court is not empowered to examine a rate
case de novo.

PUBLIC UTILITIES—public service commissions or
boards—judicial review or intervention—appeal from or-
ders of commission—review and determinations in gen-
eral.

This court’s function in rate making is a limited one
circumscribed by the provisions of HRS § 91-14(g).

SAME—regulations—regulation of charges—reasonableness
of charges in general.

Whether utility rates set by the Public Utilities Com-
mission are “just and reasonable” is by no means de-
pendent on the procedure followed by the Commission
in deciding what rate would be fa.r in the circumstances.
Under the statutory standard of ‘‘just and reasonable”
it is the result reached not the method employed which
is controlling.

SAME —same—same—same.

SAME—public service commissions or boards—ysudicial re-
view or intervention—appeal from orders of commis-
ston—review and determination in general.

It is not theory but the impact of the rate orders
which counts. If the total effect of the rate order cannot
be said to be unjust and unreasonable, judicial inquiry
is at an end. The fact that the method employed to
reach that result may contain infirmities is not then
important.

PUBLIC UTILITIES—regulation—regulation of charges—
reasonableness of charges in general. ;

The reasonableness of utility rates is not determined
by a fixed formula but is a fact question requiring the
exercise of sound discretion by the Public Utilities Com-
mission.

68a

SAME—same—same—nature and extent in general.

The rate-making function involves the making of prag-
matic adjustments, and there is a “zone of reasonable-
ness’’ within which the Public Utilities Commission may
exercise its judgment.

AD

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1197%3A2. Public record. Not legal advice.