Petition for Writ of Certiorari — Communications Satellite Corp. v. Federal Communications Commission

No. 89

1 JOSEPH F SPANO, |

IN THE —

Supreme Court of the United States-

OCTOBER TERM, 1989

oe ~~ =

i 2

COMMUNICATIONS SATELLITE CORPORATION,

Petitioner,

V.

FEDERAL COMMUNICATIONS COMMISSION AND

THE UNITED STATES OF AMERICA,

Respondents,

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

J. ROGER WOLLENBERG

SALLY KATZEN *

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6000

Counsel for Petitioner

Of Counsel:

WILLARD R. NICHOLS

Communications Satellite Corporation

950 L’Enfant Plaza, S.W.

Washington, D.C. 20024

(202) 863-6000

April 30, 1990 * Counsel of Record

WILSON - EPES PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. May the Federal Communications Commission fail

to follow the specific ratemaking provisions of the Com-

munications Act, which establishes a system of prospec-

tive rate regulation, and instead require a carrier to re-

fund revenues, collected pursuant to its effective rates, in

order to enforce an extra-statutory ceiling on earnings?

2. Does a Commission order establishing a carrier’s

allowed rate of return remain operative after the Com-

mission has knowingly permitted rates, which were de-

signed to achieve a higher rate of return, to go into

effect?

(i)

ii

PARTIES TO THE PROCEEDING

The following were parties to the proceeding in the

Court of Appeals:

Petitioner: Communications Satellite Corporation

(“COMSAT”) was the sole petitioner. COMSAT has no

parent corporation, and all of its subsidiaries are wholly-

owned.

Intervenors: American Telephone & Telegraph Com-

pany, Bell Atlantic Telephone Companies, Capital Cities/

ABC, Inc., CBS, Inc., FTC Communications, Inc., MCI

Communications Corporation, National Broadcasting

Company, Inc., Nevada Bell, Pacific Bell, Pacific Tele-

communications, Ine., RCA Global Communications, Inc.,

Southwestern Bell Telephone Company, Turner Broad-

casting System, Inc., TRT Communications Corporation.

Respondents: Federal Communications Commission

and the United States of America.

TABLE OF CONTENTS

TABLE OF AUTHORITIES .....

OPINIONS BELOW ................0000.........

®B

JURISDICTIONAL STATEMENT |...

STATUTORY PROVISIONS ......................

STATEMENT OF THE CASE ........ ailibandbitn cists cloaash

Nee Lo seavecensncientsvicmins

APPENDICES

A.

Communications Satellite Corp. v. FCC, Order

of the D.C. Circuit Granting Summary Affirm-

gS | es

Communications Satellite Corp., Federal Com-

munications Commission Refund Order (Jan.

Es en

New England Tel. & Tel. Co. v. FCC, Decision

of the D.C. Circuit (Aug. 21, 1987) _...............

Communications Satellite Corp. v. FCC, Orders

of the D.C. Circuit Denying Petition for Rehear-

ing and Suggestion for Rehearing En Banc (Feb.

ae ALS il el a

New England Tel. & Tel. Co. v. FCC, Order of

the D.C. Circuit Denying Suggestion for Rehear-

ing En Banc (Nov. 2, 1988) ......................

SE PP PWIMROUND <<<. oncensoceecccecceeoeeesee--

(iii)

Page

la

3a

iv

TABLE OF AUTHORITIES

CASES: Page

Aberdeen & Rockfish Railroad Co. v. SCRAP, 409

ce Re A | RR ee 10

Aeronautical Radio, Inc. v. FCC, 642 F.2d 1221

(D.C. Cir. 1980), cert. denied, 451 U.S. 976

y | ERR ARRRIERE I it ESE) Sa eS PRU e. oie ME le ee 11

American Public Gas Association v. Federal Power

Commission, 567 F.2d 1016 (D.C. Cir. 1977),

cert. denied, 485 U.S. 907 (1978) _.............------..... 18

American Telephone & Telegraph Co. v. FCC, 487

F234 O68 (28 Cie. 1978) ...........-...............--.. 10, 24, 25, 28

American Telephone & Telegraph Co. v. FCC, 836

P24 1886 (D.C. Gis. 1968) ..........-..-.-----20--s061----...+. passim

Arizona Grocery Co. v. Atchison, Topeka & Santa

Fe Railway, 284 U.S. 370 (1932) .........-..-....--.--... 17

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571

6) Sg ROE” Aa Stearate nnn tae ROMs » US 10, 17,18

Atlantic Refining Co. v. Public Service Commission,

a ee I a ec stescaneetes 19, 20, 21

Board of Public Utility Commissioners v. New

York Telephone, 271 U.S. 23 (1926) -........ a 21. 3

Clifford F. MacEvoy Co. v. United States, 322 U.S.

Oy I aegis cineece eet eeneaiiee cecetoreics 23

Colorado Interstate Gas Co. v. FERC, 791 F.2d

803 (10th Cir. 1986), cert. denied, 479 U.S. 1043

IN pik ceicec haters acho shee anh psecpemee asccemnalaiipmeninid 18

Cooperative Power Association v. _ FERC, 733 F.2d

4 el eS Se ae 25, 26

D. Ginsberg & Sons, Inc. v. Popkin, 285 US. 204

ON ee ar tds cotecteas tornersenodiine paerrpeittmrante 23, 24

Federal Power Commission v. Hope Natural Gas

eee fe | eee eer nennes 13,18

Federal Power Commission v. Panhandle Eastern

Pipe Line Co., 337 U.S. 498 (1949) 0... 21

Federal Power Commission v. Sierra Pacific Power

Co., 350 U.S. 348 (1956) -..... nN 17

Federal Power Commission v. Sunray DX Oil Co.,

I ee Oe I oro irctcseiesorsnincracieepaaeaseed Guanes 12

Federal Power Commission v. Texaco, Inc., 417

A I vecaca ca tikcesenertasedaeecdcccetnensuh micccbcetinngss 24

Vv

TABLE OF AUTHORITIES—Continued

Page

FCC v. Schreiber, 381 U.S. 279 (1965) 23

Fourco Glass Co. v. Transmirra Products Corp.,

Se a 23

Indiana & Michigan Electric Co. v. Federal Power

Commission, 502 F.2d 336 (D.C. Cir. 1974),

cert. denied, 420 U.S. 946 (1975) ................... on)

Las Cruces TV Cable v. FCC, 645 F.2d 1041 (D. C.

+ A; FeeneLeeneries 10

Louisiana Public Service Commission ¢ v. FCC, 476

pi aa R NC ROIIN ORORSEC 24

Maggio v. Zeitz, 333 U.S. 56 (1948) AS At int 10

Maislin Industries v. Primary Steel, Inc., 879 F. 2d

400 (8th Cir. 1989), cert. granted, 110 S. Ct. 834

RRO ee ee NEE GN. whine A. | 20

Massachusetts v. United States, 729 F.2d 886 (1st

Cir. 1984) _......... bio ad pilus eaaics tesa es 18

MCI Telecommunications Corp. v. FCC, 765 F.2d

Se as ee I rei occetie tee en 24

Montana-Dakota Utilities Co. v. Northwestern

Public Service Co., 341 U.S. 246 (1951)... 17, 18, 21

Nader v. FCC, 520 F.2d 182 (DC. Cir. 1975) 14, 27

Natural Gas Pipeline Co. v. FERC, 590 F.2d 664

4. 2° 3s. Seen Lane SS eee 18

New England Telephone & Telegraph Co. v. PCC,

826 F.2d 1101 (D.C. Cir. 1987), cert. denied, 109

a: ee. >, RAR at iret auece passim

North America Telecommunications Association v.

FCC, 772 F.2d 1282 (7th Cir. 1985) .. 25

Public Service Commission v. FERC, 866 F.2d 487

Cians a ee a ee 25

Public Utilities Commission v. FERC, 894 F.2d

1372 (D.C. Cir. 1990) . i 18

Sea Robin Pipeline Co. v. FERC, 795 F.2d 182

Cais ie I pele ac nctlacidesptutsen cateuacenatin 18

Southern Bell Telephone & Telegraph Co. v. FCC,

160 &. See Se... ee 7

Taylor v. McKeithen, 407 U.S. 191 (1972) ease 26

vi

TABLE OF AUTHORITIES—Continued

Trans Alaska Pipeline Rate Cases, 436 U.S. 631

2 IRENE ERNE Srtra uO See or CURIE Ante Ree

Transcontinental & Western Air, Inc. v. CAB, 336

ORRIN dont RARER REND ens ti

United Gas Co. v. Memphis Light, Gas & Water

Division, 358 U.S. 103 (1958) -..............--.....-..... 2

United States v. SCRAP, 412 U.S. 669 (1973) _.....

United States v. Southwestern Cable Co., 392 U.S.

a

United States v. Storer Broadcasting Co., 351 U.S.

ETRE aE ie le SLL ©. 8 ale PP

Washington Gas Light Co. v. Baker, 188 F.2d 11

(D.C. Cir. 1950), cert. denied, 340 U.S. 952

ES ERC nian ern nO RLS ARS Ls kee

ORDERS:

American Telephone & Telegraph Co. v. FCC, No.

85-1778, Order Denying Rehearing En Banc

(D.C. Cir. Nov. 2, 1988), amended (Nov. 23,

RU po StS Ga ee er es

Communications Satellite Corp. v. FCC, No. 88-

1243, Order Denving Petition for Rehearing

ee, Se I tie | SIE cache cecssosncacamcsiaselabsvcdcccseen

Communications Satellite Corp. v. FCC, No. 88-

1243, Order Denying Suggestion for Hearing

En Bane (D.C. Cir. Aug. 8, 1989) ........................

Communications Satellite Corp. v. FCC, No. 88-

1243, Order Denying Suggestion for Rehearing

En Bane (D.C. Cir. Feb. 2, 1990) ......................

Communications Satellite Corp. v. FCC, No. 88-

1243, Order Granting Summary Affirmance

ea, Fey PU Me IUD vsiecscs scieacitecucenasacccmcesbeenes

Communications Satellite Corp. v. FCC, No. 88-

1243, Order to Hold in Abeyance (D.C. Cir. May

5 Cee saa tach acc Race aie ence a

New England Telephone & Telegraph Co. v. FCC,

No. 85-1087, Order Denvine Rehearing En

Bane (D.C. Cir. Nov. 2, 1988)

Page

6

vii

TABLE OF AUTHORITIES—Continued

STATUTORY MATERIALS:

28 U.S.C. § 1966(1) (1968) ...................................

Communications Act of 1934

Bie ee eS | een eee

47 U.S.C. § 203 (1982) ..................... paborepecest 2

oe ;

ee Ree be | ee

OF Chas ee IED nnn iecenen arenes cvnrecesnassenes

Federal Power Act, 16 U.S.C. §§ 824d- 8240 (1988) ..

Interstate Commerce Act, 49 U.S.C. §§ 10704,

10708, 10762 (1982 & Supp. IV 1986)... :

Natural Gas Act, 15 U.S.C. $§ 717¢-717d (1988) __.

Transportation Act of 1920, 41 Stat. 456 (1920)

LEGISLATIVE MATERIALS:

H.R. Rep. No. 193, 73d Cong., Ist Sess. (1933).

H.R. Rep. No. 384, 100th Cong., Ist Sess. (1987).

H.R. Rep. No. 1315, 94th Cong., 2d Sess. (1975).

S. Rep. No. 781, 73d Cong., 2d Sess. (1934) _.....

ADMINISTRATIVE MATEDRIALS:

AT&T Earnings on Interstate & Foreign Services

During 1978, 102 F.C.C.2d 52 (1984) 0.0...

Annual 1985 Access Tariff Filings, 4 FCC Red

3959 (1989), petition for review docketed sub

nom. BellSouth Corp. v. FCC, No. 89-1380 (D.C.

PS Ue. ee See eh eee

Annual 1988 Access Tariff Filings, 4 FCC Red 3965

(1989), petition for review docketed sub nom.

Southern - Tel. Co. v. FCC, No. 89-1081 (D.C.

Cir. Feb. 1989), motion to hold in abeyance

granted Pog Cir. Aug. 4, 1989) .

Annual 1988 Access Tariff Filings, 4 FCC Red

1115, recon. granted in part, 4 FCC Red 2965

(1989), netition for review docketed sub nom.

Southern Bell Telephone Co. v. FCC, No. 89-1081

(D.C. Cir. Feb. 2, 1989), motion to hold in abey-

ance granted (D.C. Cir. Aug. 4, 1989)...

Annual 1988 Access Tariff Filings (GTE Operat-

ing Cos.), CC Docket No. 88-1, Phase II, Order

FCC 90-82 (released Mar. 28, 1990) -....................

Page

9

=

passim

passin

passim

passim

11

9. 29

-_—

13

viii

TABLE OF AUTHORITIES—Continued

Authorized Rates of Return for Interstate Serv-

ices of AT&T & Exchange Telephone Carriers,

50 Fed. Rew. 41,360 (1GG8) .cccccceein eens:

Authorized Rates of Return for the Interstate

Services of AT&T Communications & Exchange

Telephone Carriers, 51 Fed. Reg. 11,033

RARER REET Ra A CE rr Conte A GOe er Ane Saree

Changes in the Corporate Structure & Operations

of the Communications Satellite Corp., 97

F.C.C.2d 145, recon. denied in part, 99 F.C.C.2d

I i a ae scannapananiacaibneniess

Changes in the Corporate Structure & Operations

of the Communications Satellite Corp., 99

ee ee akdeaeantntnopeartivins

Communications Satellite Cerp., CC Docket Nos.

80-634 & 85-268, Memorandum Opinion & Order,

Mimeo No. 0672 (Common Carrier Bur., released

Nov. 8, 1985), modified by erratum, Mimeo No.

1703 (Common Carrier Bur., released Dec. 27,

ge cecenetiie tas dines said hdaideed ions eannalinesien)-

Communications Satellite Corp., CC Docket No.

80-634, Memorandum Opinion & Order, Mimeo

No. 5797 (Common Carrier Bur., released Aug.

Rat a RR I a Ee Ses ER

Communications Satellite Corp., 2 FCC Red 3706

(1987), modified, CC Docket Nos. 80-634 & 85-

268, Modification of Order, DA 87-526 (Com-

mon Carrier Bur., released May 4, 1987) —..........

Communications Satellite Corp., 3 FCC Red 2643

(1988), summarily aff’d, No. 88-1243 (D.C. Cir.

Nov. 17, 1989), reh’g & reh’g en banc denied

CT TI TS I sicicrecccnencsteerenernnnendsicenerancenee

Communications Satellite Corp., 3 FCC Red 7164

(eb ARSE ACN a POORER ae ean

Communications Satellite Corp., 56 F.C.C. 2d 1101

(1975), modified, 68 F.C.C.2d 941 (1978) .......

Communications Satellite Corp., 68 F.C.C.2d 941

(i978), recon. denied, 70 F.C.C.2d 1449 (1979) .

Page

16

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-——

COMMUNICATIONS SATELLITE CORPORATION,

Petitioner,

wa

FEDERAL COMMUNICATIONS COMMISSION AND

THE UNITED STATES OF AMERICA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

OPINIONS BELOW

The opinion of the D.C. Circuit in the case here under

review (Pet. App. at la-2a) is not reported. The deci-

sion below was based solely on New England Telephone

& Telegraph Co. v. FCC (Pet. App. at 36a-73a), which is

reported at 826 F.2d 1101. The opinions accompanying

the orders denying rehearing en banc in this case (Pet.

App. at 75a) and New England (Pet. App. at 76a-78a)

are not reported. The order of the Federal Communica-

tions Commission in the instant case (Pet. App. at 3a-

35a) is reported at 3 FCC Red 2644 and at 64 Rad. Reg.

(P&F) 524.

JURISDICTIONAL STATEMENT

The judgment of the Court of Appeals (Pet. App. at

la-2a) was entered on November 17, 1989. Communica-

tions Satellite Corporation’s petition for rehearing and

2

suggestion for rehearing en banc were denied on Febru-

ary 2, 1990 (Pet. App. at 74a-75a). The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1) (1982).

STATUTORY PROVISIONS

The relevant statutory provisions are Sections 4(i),

203, 204, and 205 of the Communications Act of 1934, as

amended, 47 U.S.C. §§ 154, 203, 204, 205 (1982). They

are reprinted in Petitioner’s Appendix F.

STATEMENT OF THE CASE

This case squarely presents the question of whether a

federal regulatory agency may rewrite its governing stat-

ute, displacing the prospective ratemaking provisions en-

acted by Congress with an extra-statutory scheme of

retroactive ratemaking. The order at issue in this case

requires Communications Satellite Corporation (“COM-

SAT’) to refund $38 million in revenues that it col-

lected between August 1984 and December 1986 pur-

suant to its tariffs lawfully on file with the Federal

Communications Commission (“FCC” or “Commission’’).

The Commission concedes that it did not comply with the

specific refund procedures in Section 204 of the Com-

munications Act (“the Act”), which provides a carefully

circumscribed exception to the rule against retroactively

reducing a carrier’s filed rates. Nonetheless, the Com-

mission claims, the general grant of authority contained

in Section 4(i) of the Act—which authorizes the agency

to take action ‘“‘not inconsistent” with the terms of the

Act that is “necessary in the execution of its func-

tions’”—permits it to order the refund.

This case had its origin in 1978, when the FCC pre-

scribed an 11.48% rate of return for COMSAT (with

one additional percentage point for efficiencies), and

directed COMSAT to file tariffs designed to produce that

3

return." COMSAT complied with this order by filing

tariffs designed to attain that return in May 1978, which

the FCC permitted to go into effect. In response to the

high level of inflation during the late 1970’s and early

1980’s, COMSAT subsequently filed a series of revised

tariffs, which it informed the FCC were designed to

achieve a higher rate of return. The FCC permitted

these tariffs to become effective as well.”

In 1984, the FCC ordered COMSAT to file new tariffs

that were “to be in compliance with its authorized rate

of return (11.48%-12.48%).”.* COMSAT contested this

order, arguing that the FCC’s 1978 rate of return pre-

scription was no longer operative because of changed cir-

cumstances.‘ The Commission rejected COMSAT’s argu-

ment.°®

1Communications Satellite Corp., 68 F.C.C.2d 941, 950-51 (1978),

recon. denied, 70 F.C.C.2d 1449 (1979). The Commission has stated

that it prescribes “a range of rate of return... to provide a carrier

with the incentive, on a rate schedule designed to yield a return at

the low end of the range, to achieve a return at the upper end of

the range through operating and internal efficiencies.”” Communica-

tions Satellite Corp., 56 F.C.C.2d 1101, 1173 (1975), modified, 68

F.C.C.2d 941 (1978).

2 See Communications Satellite Corp., 3 FCC Red 2643, 2644, 2646

(1988) (“1988 Refund Order”), summarily aff’d, No. 88-1243 (D.C.

Cir. Nov. 17, 1989), reh’g and reh’g en banc denied (D.C. Cir. Feb.

2, 1990).

3 Changes in Corporate Structure & Operations of the Communi-

cations Satellite Corp., 97 F.C.C.2d 145, 179, recon. denied in part,

99 F.C.C.2d 1040 (1984).

4COMSAT Petition for Reconsideration at 23-24 (June 4, 1984).

COMSAT further argued that if the 1984 order was intended to

reimpose the 11.48-12.48% prescription, the Commission could not

do so without first conducting a hearing as required by Section 205

of the Communications Act. 7d. at 23.

5 Changes in the Corporate Structure & Operations of the Com-

munications Satellite Corp., 99 F.C.C.2d 1040, 1054-56 (1984).

While preserving its objections,» COMSAT filed tariffs

in June 1984 that were designed to generate the rate

of return specified by the Commission. These tariffs,

which reduced COMSAT’s existing charges, were per-

mitted to become effective on August 1, 1984.’ In Feb-

ruary and June 1985, COMSAT filed additional tariffs,

which further reduced its rates. The Commission per-

mitted both sets of tariffs to go into effect.*

In November 1985, the FCC released an order initiat-

ing an investigation of the tariffs filed earlier in 1985.

The order expressly noted that COMSAT had “revised

its rates [in June 1985] to achieve an 11.48 percent rate

of return.”® Although the FCC had not suspended the

rates before they become effective, the order purported

to make them subject to an accounting order.”

On April 6, 1987, the Commission issued an order

which asserted that COMSAT had violated the 1978 rate

of return prescription because the rates that were in ef-

fect between August 1984 and December 1986 had yielded

a rate of return in excess of the level specified. Purport-

ing to act under its Section 4(i) authority, the FCC di-

rected COMSAT to remedy this “violation” by refunding

6 See COMSAT Transmittal Letter No. 546, at 2 (Feb. 1, 1985).

7™Communications Satellite Corp., CC Docket No. 80-634, Memo-

randum Opinion and Order, Mimeo No. 5797, at § 13 (Common Car-

rier Bur., released Aug. 2, 1984). The Common Carrier Bureau

denied several petitions to suspend or reject the June 1984 tariff

filings. The order initiated an investigation of those tariffs, but

stated that the issues to be investigated would be specified in a

subsequent order.

8 See Communications Satellite Corp., 3 FCC Red 7164, 7165

(1988).

® Communications Satellite Corp., CC Docket Nos. 80-634 & 85-

268, Memorandum Opinion & Order, Mimeo No. 0672, at {6 (Com-

mon Carrier Bur., released Nov. 8, 1985), modified by erratum,

Mimeo No. 1703 (Common Carrier Bur., released Dec. 27, 1985).

10 Td. at (9) 47-52.

5

all money collected during this period in excess of a

12.48% return.'!

COMSAT contested the FCC’s order, arguing that, un-

der the prospective ratemaking system enacted by Con-

gress, the FCC could not order COMSAT to make re-

funds because the agency had not employed the specific

procedures contained in Section 204 of the Act, which is

the section of the Act that governs refunds. COMSAT

contended, among other things, that Section 204 author-

izes the FCC to order refunds only if it challenges the

carrier’s rates at the time they are filed by suspending

them and identifying specific components for investiga-

tion; that refunds may be ordered only when a carrier

has filed rates for a new service or has increased its

rates for an existing service; and that refunds must be

based on a finding that one or more components of the

carrier's rates was unlawful when filed. COMSAT

further argued that the FCC could not use its general

authority under Section 4(i) to circumvent the specific

statutory procedures.’* Finally, COMSAT stressed that,

even if the Comr ission has the authority to order a

carrier to refund revenues in excess of its prescribed

rate of return, it had not validly exercised that authority

in the instant case because the 1978 order prescribing an

11.48-12.48% rate of return—which the 1988 refund

order was intended to “enforce’—had ceased to be in

effect in 1979, when the Commission knowingly al-

lowed rates targeted to a higher rate of return to become

effective."

The FCC concluded its investigation on December 8,

1988, resolving all issues designated in the investigation

11Communications Satellite Corp., 2 FCC Red 3706, 3716-18

(1987), modified, CC Docket Nos. 80-634 & 85-268, Modification of

Order, DA 87-526 (Common Carrier Bur., released May 4, 1987).

12 Communications Satellite Corporation’s Response to Show

Cause Order at 13-24 (May 15, 1987).

13 Jd. at 10 n.18.

14 Jd. at 25-32.

6

order in COMSAT’s favor.’ The FCC, however, reaf-

firmed its finding that COMSAT had violated the 1978

rate of return prescription. The Commission refused to

consider any of COMSAT’s legal arguments on the

ground that in New England ‘Jelephone & Telegraph

Company v. FCC, 826 F.2d 1101 (D.C. Cir. 1987), cert.

denied, 109 S. Ct. 1942 (1989), the Court of Appeals for

the District of Columbia Circuit held that the Commission

could use its general authority under Section 4(i) of the

Communications Act to enforce a valid rate of return

prescription by ordering refunds.’® COMSAT then filed

a petition for review of the refund order with the D.C.

Circuit; the case was held in abeyance pending disposi-

tion of the petition for rehearing en banc in New Eng-

land.**

A four-member plurality of the D.C. Circuit subse-

quently denied rehearing en banc in New England.**

Three judges dissented, criticizing the New England de-

cision as “badly wrong.” '® The FCC, they observed, had

15 Communications Satellite Corp., 3 FCC Red at 7167-69.

16 1988 Refund Order, 3 FCC Rcd at 2645.

17 Communications Satellite Corp. v. FCC, No. 88-1243, Order to

Hold in Abeyance (May 17, 1988).

18 New England, No. 85-1087, Order Denying Rehearing En Bunce

(D.C. Cir. Nov. 2, 1988). The court also declined to rehear en banc

a closely related case, American Telephone & Telegraph Co. v. FCC,

836 F.2d 1386 (D.C. Cir. 1988) (“AT&T”). See AT&T, No. 85-1778,

Order Denying Rehearing En Bane (D.C. Cir. Nov. 2, 1988)

(amended Nov. 23, 1988). In that case, two members of the panel

(Judges Mikva and Bork) had concluded that the earlier New

England decision foreclosed consideration of the question whether

the Commission could use a rate of return/refund approach, but

found that the rule adopted by the Commission to implement this

approach was arbitrary and capricious. AT&T, 836 F.2d at 1390-91.

A third member of the panel, Judge Starr, concurred in the judg-

ment, but found that the Commission’s ratemaking scheme was in-

consistent with the “terms and structure” of the Communications

Act. Id. at 1395 (Starr, J., concurring in judgment).

19 New England, Order Denying Rehearing En Banc at 2 (Starr,

Williams, & Buckley, JJ., dissenting).

7

“purported to exercise a power which Congress never

conferred upon it” and had adopted a scheme that

“do{es] violence to well-settled, salutary doctrines, such as

the bar on retroactive ratemaking and the filed rate doc-

trine.” However, they recognized that “the sv ostantial

shortage in judicial personnel” resulting from the recusal

of four members of the court “virtually foreordained”

that the New England decision could not “be afforded

the en banc treatment that it so plainly deserves.” °°

This Court subsequently denied certiorari.”

In light of the panel decision in New England, COM-

SAT sought a hearing of its case by the D.C. Circuit

en banc.*? The court denied this request.2* The Commis-

sion subsequently moved to have the COMSAT refund

order summarily affirmed, without briefing or oral argu-

ment, on the ground that the COMSAT case was con-

trolled by the court’s decision in New England.** COM-

SAT opposed this motion, arguing that the panel decision

there was not entitled to the full precedential weight

normally accorded decisions in the circuit and that, in

any event, New England did not control the question of

whether the 1978 rate of return prescription was still in

effect during the 1984-1986 period covered by the FCC’s

refund order. On November 17, 1989, a panel of the

Court of Appeals granted the Commission’s motion for

summary affirmance, stating that “‘[t]he issues presented

in the petition for review are controlled by this court’s

decision in New England Telephone & Telegraph Co. v.

FCC, which is binding precedent in this circuit until re-

20 Jd.

(

21 Southern Bell Tel. & Tel. Co. v. FCC, 109 S. Ct. 1942 (1989).

22 COMSAT Suggestion for Hearing En Banc (May 23, 1989).

23 Communications Satellite Corp. v. FCC, No. 88-1243, Order

Denying Suggestion for Hearing En Banc (D.C. Cir. Aug. 3, 1989).

24 FCC Motion for Summary Affirmance at 1 (Aug. 11, 1989).

25 COMSAT Opposition to FCC Motion for Summary Affirmance

at 16-19 (Sept. 22, 1989).

8

jected by the court en banc or overruled by the Supreme

Court.” 2°

COMSAT filed a pétition for rehearing and a sugges-

tion for rehearing en banc.** On February 2, 1990, the

petition for rehearing was denied and a four-member

plurality of the Court of Appeals voted to deny the sug-

gestion for rehearing en banc.** Three members of the

court dissented,” and two members recused themselves.”

REASONS FOR GRANTING THE WRIT

In the present case, the Federal Communications Com-

mission has issued an order requiring Petitioner to re-

fund revenues collected pursuant to rates that the Com-

mission previously allowed to go into effect. The proce-

dures used did not comply with the specific ratemaking

provisions contained in Sections 203 through 205 of the

governing statute. Rather, the Commission asserted that

its general authority under Section 4(i) of the Communi-

cations Act, which permits it to take actions not incon-

sistent with the Act, enables it to adopt its own retroac-

tive ratemaking scheme.

Petitioner respectfully submits that this case merits

consideration by the Court because it raises an impor-

tant question of law that has not been. but should be,

restlved by this Court: whether the FCC can replace

the statutory scheme of prospective ratemaking set forth

26 Communications Satellite Corp. v. FCC, No. 88-1243, Order

Granting Summary Affirmance (D.C. Cir. Nov. 17, 1989) (Wald,

C.J., Edwards & Silberman, JJ.) (citation omitted).

27 COMSAT Petition for Rehearing and Suggestion for Rehear-

ing En Bane (Dec. 18, 1989).

28 Communications Satellite Corp. v. FCC, No. 88-1243, Order

Denying Petition for Rehearing (D.C. Cir. Feb. 2, 1990) (Wald,

C.J., Edwards & Silberman, JJ.) ; Communications Satellite Corp. v.

FCC, No. 88-1243, Order Denying Suggestion for Rehearing En

Bane (D.C. Cir. Feb. 2, 1999).

29 Order Denying Suggestion for Rehearing En Banc (Williams,

Buckley, Sentelle, JJ., dissenting).

30 Td. (Ginsburg, R.B. & Ginsburg, D.H., JJ., recused).

9

in the Communications Act with an FCC-devised scheme

of retroactive rate regulation. Although the Court has

not passed on this precise question, Petitioner further

submits that this case merits consideration because the

decision of the D.C. Circuit conflicts with numerous deci-

sions of this Court and the courts of appeals construing

substantially similar ratemaking provisions of other fed-

eral statutes.

The fact that this case involves the interpretation of

the ratemaking provisions of the Communications Act,

which are virtually indistinguishable from the ratemak-

ing provisions of the Interstate Commerce Act, 49 U.S.C.

§§$ 10704, 10708, & 10762 (1982 & Supp. IV 1986),

the Federal Power Act, 16 U.S.C. §§ 824d-824e (1988),

and the Natural Gas Act, 15 U.S.C. $§ 717c-717d (1988),

significantly enhances the importance of this case. If

allowed to stand, the decision of the court below would

have far-reaching implications for a host of industries

subject to federal rate regulation, touching virtually

every aspect of the economy. Moreover, the ability of an

agency to rewrite its governing statute, substituting its

policy preferences for the express choices made by Con-

gress, raises a significant issue that extends beyond rate-

making to the full spectrum of agency activity.

The D.C. Cireuit is the court most frequently called

upon to review actions of federal regulatory agencies.

Since New England, the decisions of that court regard-

ing the limits on retroactive ratemaking and the ability

of an agency to use its general authority to displace

specific statutory provisions have been strikingly incon-

sistent, depending on the agency involved. Indeed, since

issuing the decision in the present case, the D.C. Circuit

has again applied the basic principles of federal rate-

making in cases involving the Federal Energy Regulatory

Commission. As a result, the “state of the law in [the

D.C.] Circuit on a pivotal statutory issue cutting across

agency lines can only be regarded as distressingly un-

10

settled.” ** This is especially problematic because of the

large number of pending cases that turn on these issues.

In these circumstances, the need to resolve this intra-

circuit conflict further justifies the exercise of this Court’s

certiorari jurisdiction.**

I.

Sections 203 through 205 of the Communications Act

reflect a carefully crafted congressional approach to rate-

making, first embodied in the Interstate Commerce Act,

and subsequently incorporated in the Federal Power Act

and the Natural Gas Act.** Each statute provides that

once a common carrier’s rates have gone into effect, those

are the rates the carrier must charge and the customer

must pay. Like the other statutes, the Communications

Act provides two methods for revising a carrier’s filed

31 New England, 85-1087, Order Denying Rehearing En Banc at 2

(Starr, J., dissenting).

32 Compare Maggio v. Zeitz, 333 U.S. 56, 59-60 (1948) (Certiorari

granted in bankruptcy case because of intra-circuit conflict in the

circuit most frequently required to resolve disputes arising under

the Bankruptcy Code).

33 The Senate Rerort on the bill that became the Communications

Act observed that the ratemaking provisions of the Act were adapted

from portions of Sections 6, 15, and 16 of the Interstate Commerce

Act. See S. Rep. No. 781, 73d Cong., 2d Sess. 4 (1934). It is well

settled that these statutes should be construed consistently. See,

e.g., Aberdeen & Rockfish R.R. Co. v. SCRAP, 409 U.S. 1207, 1215 &

n.6 (1972) (Because the suspension provisions of the Communi-

cations Act, Interstate Commerce Act, Federal Power Act, and

Natural Gas Act are comparable, a decision construing one act

would be applicable to each of the acts.); Arkansas Louisiana Gas

Co. v. Hall, 453 U.S. 571, 577 (1981) (The basic federal ratemaking

principles apply ‘“‘across the spectrum of regulated utilities.”); Las

Cruces TV Cable v. FCC, 645 F.2d 1041, 1047 (D.C. Cir. 1981)

(Because the ratemaking provisions of the Communications Act,

the Interstate Commerce Act, and the Natural Gas Act are, “in

large part, identical .. . the principles of judicial review of agency

refund decisions in ratemaking cases are of general applicability.’’) ;

American Tel. & Tel. Co. v. FCC, 487 F.2d 865, 877 n.21 (2d Cir.

1973) (The ratemaking provisions of the Communications Act and

the Natural Gas Act are substantially the same.).

11

rates. The first method is for the carrier, pursuant to

Section 203, to file new rates with the FCC.** If the

Commission, acting under Section 204, does not reject or

suspend the carrier’s new rates within 90 days, they be-

come effective from that point on.** The second method

is for the FCC, acting under Section 205, to initiate an

investigation of the carrier’s existing rates. If the Com-

mission concludes, after opportunity for hearing, that

those rates are not just and reasonable, it may prescribe

new rates “to be thereafter observed.” *°

There is only one situation in which the Act authorizes

the FCC to order a carrier to make a general refund of

revenues collected pursuant to its effective rates.*’ Sec-

tion 204 provides that, at the time the carrier files a new

tariff, the Commission may suspend the carrier’s pro-

posed rates for five months, during which it can conduct

an investigation of the specific aspects of the rates that

it believes may be improper.** At the end of the suspen-

34 See 47 U.S.C. § 203 (1982).

35 47 U.S.C. §§ 203(b) (1), 204(a) (1982).

36 47 U.S.C. § 205 (1982) (emphasis added).

87 See 47 U.S.C. § 204(a) (1982). Section 208 of the Act estab-

lishes a complaint procedure for challenging rates that the Com-

mission has allowed to go into effect that the complainant be-

lieves are not just and reasonable. 47 U.S.C. § 208 (1982). In

such proceedings, the complainant must bear the burden of proof

and relief is limited “to actual damages rather than to the [amount]

that would have been available had the FCC ordered an investiga-

tion [under Section 204].” Aeronautical Radio, Inc. v. FCC, 642

F.°d 1221, 1235 n.34 (D.C. Cir. 1980), cert. denied, 451 U.S. 976

(1981).

38 Congress has made clear that it intends for the FCC to con-

duct its review of the lawfulness of a carrier’s rates at the time

they are filed. In 1976, Congress extended the suspension period in

the Communications Act from 3 to 5 months in order to “enable

[the FCC] to keep pace with its regulatory responsibilities.” The

House Interstate and Foreign Commerce Committee specifically

stated that it “expects that the Commission will continue to handle

the majority of its less complicated tariff filings within the 3-month

time frame ... [and]! will be able to complete major tariff filings

12

sion period, if the investigation is not complete, the Com-

mission must allow the proposed rates to go into effect,

but may make any increased rates (or rates for new

services) subject to an accounting order.*® This order

preserves the Commission’s right to require a carrier to

refund the revenues collected pursuant to any component

of the increased rates that the Commission ultimately

finds, after hearing, was not just and reasonable when

filed.

In the present case, the FCC did not comply with the

refund procedures specified in Section 204. It did not

suspend COMSAT’s revised rates; it issued an account-

ing order only after the rates had gone into effect; it did

not find that any component of COMSAT’s rates had not

been just and reasonable when filed; and it required

COMSAT to refund revenues received pursuant to tariff

filings that reduced its effective rates. The FCC asserts

that these facts are “irrelevant” *’ because the general

grant of authority in Section 4(i)*' permits it to order

within the 5-month time frame.” H.R. Rep. No. 1315, 94th Cong.,

2d Sess. 5 (1976).

3947 U.S.C. § 204(a) (1982). As originally enacted, the Com-

munications Act ‘‘authorize[d] the Commission to impose account-

ing and refund orders only in cases of tariffs involving increased

charges.” H.R. Rep. No. 1315, 94th Cong., 2d Sess. 5 (1976).

In 1976, Congress amended the Act to permit the FCC also to

“issue accounting and refund orders in connection with tariffs

invoiving charges for a new service.” Jd. at 5-6; cf. Trans Alaska

Pipeline Rate Cases, 436 U.S. 631, 657 (1978) (In enacting Section

15(7) of the Interstate Commerce Act—-which provided the model

for Section 204—Congress concluded that “there is no need to create

a refund procedure to protect” a carrier’s customers from de-

creased rates.) ; Federal Power Conm’n v, Sunray DX Oil Co., 391

U.S. 9, 24 (1968) (Under Section 4(e) of the Federal Power Act—

which parallels Section 204—the agency’s refund power is limited

to rate increases; it cannot order a carrier that has filed a rate

increase to refund revenues in excess of the amount of the in-

crease. ).

49 FCC Reply to COMSAT Opposition to Summary Affirmance at

9n.16. (Oct. 11, 1989).

4147 U.S.C, §154(i) (1982).

13

refunds to enforce the 1978 rate of return prescrip-

tion—‘“‘whether or not the procedures set forth in Sec-

tion 204 are met.” *#

The Communications Act, like the other federal rate-

making statutes, neither authorizes the agency to issue

a “rate of return prescription” nor to “enforce” it by

ordering refunds. To be sure, the determination of a

carrier’s appropriate rate of return-—that is, the amount

of revenues (expressed as a percentage) that the carrier

has an opportunity to earn on its capital assets devoted

to the provision of service **“—is one component in the

determination of a carrier’s lawful rates.‘ Until the

early 1970’s, that is how the FCC used rate of return

in fulfilling its statutory responsibilities. In 1971, faced

with an unusually complex AT&T rate investigation, the

Commission decided to bifurcate its ratemaking investiga-

42 FCC Reply to COMSAT Opposition to Summary Affirmance at

9. We note that the Commission has recognized that “the question

of [its] legal authority” to order refunds of decreased rates “is a

highly controverted one.” Annual 1988 Access Tariff Filings, 4 FCC

Red 3965, 3966 (1989), petition for review docketed sub nom. South-

ern Bell Tel. Co. v. FCC, No. 89-1081 (D.C, Cir. Feb. 2, 1989), motion

to hold in abeyance granted (D.C. Cir. Aug. 4, 1989). Seeking ‘“‘to

avoid possibly protracted litigation” on this issue, the Commission

has recently declined to order refunds in such circumstances. /d.;

see also Annual 1988 Access Tariff Filings (GTE Operating Cos.),

CC Docket 88-1, Phase II, Order, FCC 90-82, at {5 (released Mar.

28, 1990).

43 A carrier’s authorized rate of return is generally equivalent to

the carrier’s cost of capital or the amount that it needs “to assure

confidence in the financial integrity of the enterprise, so as to main-

tain its credit and to attract capital.” Federal Power Comm’n v.

Hope Natural Gas Co., 320 U.S. 591, 603 (1944).

44 In determining lawful rates, the agency multiplies the carrier’s

authorized rate of return by the amount of ‘used and useful” or

“prudently invested” capital devoted to the provision of the car-

rier’s services (rate base). The product, reflecting the allowed re-

turn (expressed in dollars), is then added to expenses, including

taxes, to arrive at the carrier’s revenue requirements. Revenue

requirements divided by anticipated demand yields the rates that

the carrier may charge.

14

tion. In Phase I, the FCC “prescribed” a rate of return

for AT&T, ordering it to use that rate of return in de-

signing interim rates pending the Commission’s determi-

nation of the other components of AT&T’s rates in Phase

II of the proceeding. This approach was challenged in

the D.C. Circuit. In Nader v. FCC, 520 F.2d 182 (D.C.

Cir. 1975), the court recognized that Section 205 of the

Communications Act, which authorizes the Commission to

prescribe rates, does not authorize the prescription of

rates of return. Nevertheless, the court held that Section

4(i) authorizes the Commission to prescribe a rate of

return as a target which the carrier’s rates must be

“reasonably designed” to meet.*®

At the time, neither the FCC nor the Nader court sug-

gested that the authority to “prescribe” a rate of return

in the context of the AT&T proceeding could form the

basis for the Commission to impose a radically different

system of ratemaking. That, however, is precisely what

the Commission has done. Relying on Nader, the Com-

mission has prescribed carriers’ rates of return as a rou-

tine procedure, and it has interpreted its “rate of return

prescriptions” in a manner inconsistent with the prospec-

tive ratemaking system enacted by Congress.

Thus, in 1984, in another proceeding regarding AT&T,

the FCC asserted (for the first time) that a rate of re-

turn prescription was not a benchmark to be used in

designing a carrier’s rates, but rather a ceiling on the

carrier’s maximum permissible earnings; that this limit

on earnings remained in effect unless and until the FCC

prescribed a new rate of return; and that a carrier vio-

lated the Communications Act if its rates, although de-

signed by the carrier to achieve the targeted rate of re-

turn and allowed to go into effect by the FCC, generated

45 Nader, 520 F.2d at 202-03. This use of Section 4(i) is not in-

consistent with the prospective ratemaking scheme mandated by

Congress. See id. at 202 (The FCC’s rate of return prescription

was “intended to have a prospective effect.’”’).

15

a return in excess of the level prescribed.*® The Commis-

sion further asserted that Section 4(i) gives it “broad

authority” to order a refund—even though it had not

employed the refund procedures specified in Section 204—

as a remedy for this alleged violation.*’ The resulting re-

fund order was upheld by a divided panel in New Eng-

land.‘*® The Commission subsequently adopted a rule im-

posing its rate of return/refund scheme on al! dominant

domestic communications common carriers subject to its

rate regulation.*® While the D.C. Circuit struck down

that rule,” the FCC has persisted in its efforts to apply

this regime to the carriers that it regulates.”!

46 AT&T Earnings on Interstate & Foreign Services During

1978, 102 F.C.C.2d 52, 63-65 (1984).

47 Td. at 65.

48 New England Tel. & Tel. Co. v. FCC, 826 F.2d 1101 (D.C. Cir.

1987). The panel consisted of Judges Mikva and Buckley and Senior

District Judge Parsons. Judge Buckley dissented, observing that

“(flor more than fifty years the Communications Act has been

understood to establish a precise, express statutory scheme govern-

ing refunds and the setting of rates. Never before has Section 4(i)

been held to authorize refunds.” Jd. at 1112 (Buckley, J., dissenting).

4” Authorized Rates of Return for the Interstate Services of AT&T

Communications & Exchange Telephone Carriers, 51 Fed. Reg.

11,083 (1986).

* AT&T, 836 F.2d 1386 (D.C. Cir. 1988).

51 Since issuing the COMSAT refund order, the Commission has

issued a series of refund orders which have continued to chip

away at the statutory structure created by Congress. See, e.g.,

Annual 1985 Access Tariff Filings, 4 FCC Red 3959 (1989), peti-

tion for review docketed sub nom. BellSouth Corp. v. FCC, No.

89-1380 (D.C. Cir. June 13, 1989); Annval 1988 Access Tariff Fil-

ings, 4 FCC Red 4115, recon. granted in part, 4 FCC Red 3965

(1989), petition for reriew docketed sub nom. Southern Bell

Tel. Co. v. FCC, No. 89-1081 (D.C. Cir. Feb. 2, 1989), motion to

hold in abeyance granted (D.C. Cir. Aug. 4, 1989). In seeking to

justify these orders, the Commission has asserted that the detailed

procedural safeguards contained in Section 204 are nothing more

than “optional protective measures which this Commission may

elect to impose, but which are not necessary in order for the Com-

mission to order refunds to customers.” Annual 1985 Access Tariff

Filings, 4 FCC Red at 3962.

16

The end result of the series of actions outlined above

is that the FCC (alone among the federal ratemaking

agencies) has replaced the system of prospective rate

regulation in the Communications Act (and in other reg-

ulatory statutes), with its own retroactive rate of return

>

scheme.*? By upholding the FCC’s refund order, the court

below has sanctioned an interpretation of the ratemaking

provisions of the Communications Act that is inconsistent

with 1»: settled law with respect to the substantially

similar ratemaking provisions of the other federal regu-

latory statutes. In particular, the decision below sanc-

tioned a ratemaking scheme that is flatly inconsistent

with the fundamental principles of prospective ratemak-

ing articulated by this Court and the courts of appeals.

See infra Part II. And by allowing the Commission to

rely on Section 4(i) for refund authority denied it by

the substantive ratemaking provisions of the Act, the

decision below conflicts with the basic principle of statu-

tory interpretation that specific statutory provisions take

precedence over general ones. See infra Part III.

52 The difference between prescribing rates and prescribing rates

of return is significant in and of itself, and in the context of the

congressionally mandated system of prospective rate regulation.

When the Commission prescribes rates, the carrier knows from the

outset precisely how much it must charge. The carrier’s obligations

are far less clear under a rate of return scheme. If a prescribed rate

of return is simply a benchmark to be used by the carrier in design-

ing its rates (the procedure approved in Nader), the carrier would

comply by filing rates reasonably designed to generate the prescribed

return, which are the rates it would thereafter charge. If, however,

a prescribed rate of return is a ceiling on the carrier’s earnings (as

the FCC contends in the present case), the carrier cannot know

until after the fact how much it had earned and therefore whether

or not it has been in compliance. The reason for the uncertainty is

that, as the FCC has conceded, carriers are “unable to target their

earnings with precision due to their dependence on demand forecasts

which hinge on the state of the economy and other unpredictable fac-

tors.” Authorized Rates of Return for Interstate Services of AT&T

& Exchange Telephone Carriers, 50 Fed. Reg. 41,350, 41,351 (1985).

As a result, “fa] carrier cannot be expected to receive earnings at

precisely the prescribed rate of return.” AT&T, 836 F.2d at 1390.

17

II.

Certiorari should be granted because the decision below

interpreting the ratemaking provisions of the Communi-

cations Act conflicts with the basic principles of prospec-

tive rate regulation incorporated in the various federal

regulatory statutes, and consistently applied by this Court

and the courts of appeals.

Each of the several federal regulatory statutes enacted

by Congress implements a simple but fundamental prin-

ciple: ratemaking is to be prospective. The seminal case

is Arizona Grocery Company v. Atchison, Topeka &

Santa Fe Railway, 284 U.S. 370 (1932). In that case,

the Interstate Commerce Commission had prescribed a

earrier’s rate. Although the carrier charged its customers

the prescribed rate, the agency subsequently ordered the

carrier to refund revenues on the ground that the rate

the agency had prescribed was excessive. This Court

struck down the refund order, explaining that, once the

Commission had prescribed

the maximum reasonable rate to be charged by a

[regulated common] carrier, it may not at a later

53 See, e.g., Arkansas Louisiana Gas, 453 U.S. at 578 (A fed-

eral regulatory agency “has no power to alter a rate retroac-

tively.”); Federal Power Comm’n v. Sierra Pacific Power Co., 350

U.S} 348, 353 (1956) (A federal regulatory agency’s power to set

rates “is limited to prescribing the rate” to be thereafter observed

“and thus can effect no change prior to the date of the order.”);

Transcontinental & Western Air, Inc. v. CAB, 336 U.S. 601, 605

(1949) (“[A] departure from the customary pattern of fixing rates

prospectively ... [would] make a radical break with tradition.’’).

This principle forms the basis for two cardinal federal ratemaking

doctrines: the rule against retroactive ratemaking and the filed

rate doctrine. Under the rule against retroactive ratemaking,

once a regulatory agency has allowed the carrier’s rates to be-

come permanentiy effective, it “may not impose a _ retroactive

rate alteration and, in particular, may not order reparations.”

Arkansas Louisiana Gas, 453 U.S. at 578 n.8. Under the filed rate

doctrine, the carrier’s effective rates, “whether fixed or merely ac-

cepted by the Commission,” are the only rates to which customers

have “a legal right.” Montana-Dakota Utils. Co. v. Northwestern

Pub. Serv. Co., 341 U.S. 246 (1951).

18

time . . . subject a carrier which conformed thereto

to the payment of reparation measured by what the

Commission now holds it should have decided in the

earlier proceeding to be a reasonable rate.

Id. at 390. Subsequent cases construing the Federal

Power Act and the Natural Gas Act have made clear that

the system of prospective ratemaking developed by Con-

gress also prohibits a regulatory agency from ordering

a carrier to refund revenues collected pursuant to its

effective rates when, as here, the rates have been filed by

the carrier and “merely accepted by the Commission.” *

The FCC contends that its refund order in this case

does not violate the rule against retroactive ratemaking

because it is merely enforcing the “rate of return pre-

54 Montana-Dakota, 341 U.S. at 251; see Federal Power Comm’n

v. Hope Gas Co., 320 U.S. at 618 (Once the agency allows a carrier’s

rates to go into effect, it “has no power to make reparation orders

... [I ]ts power to fix rates is... limited to those ‘to be thereafter

in effect and in force.’” (quoting 15 U.S.C. §717d)); Arkansas

Louisiana Gas, 453 U.S. at 578 n.8 (Once the agency has allowed a

carrier’s rates to become effective, it ‘‘may not impose a retroactive

rate alteration and, in particular, may not order reparations.”’) ; see

also Colorado Interstate Gas Co. v. FERC, 791 F.2d 803, 808 (10th

Cir. 1986) (A federal regulatory agency may order a refund “only

where the company’s rates have been suspended” pending an inves-

tigation.), cert. denied, 479 U.S. 1043 (1987); Massachusetts v.

United States, 729 F.2d 886, 887 (1st Cir. 1984) (Once a regulated

entity’s rates have become effective, it “has no obligation to give

customer refunds, even if the rates are found unreasonably high.”’) ;

Natural Gas Pipeline Co. v. FERC, 590 F.2d 664, 668 (7th Cir. 1979)

(FERC’s enabling statute “prohibits the Commission from retroac-

tively applying a ‘new rate’ to a prior point in time, and requires

the ‘new rate’ to be enforced prospectively only.”’).

In contrast to its interpretation of the Communications Act, the

D.C. Circuit has held that once FERC has allowed a carrier’s rates

to become effective, its “remedial power .. . is limited to prospective

relief: the Commission cannot order a refund of past payments

made under [a rate subsequently found to be excessive].” Sea

Robin Pipeline Co. v. FERC, 795 F.2d 182, 184 (D.C. Cir. 1986) ; see

also Public Utils. Comm’n v. FERC, 894 F.2d 1372, 1383-84 (D.C. Cir.

1990); American Public Gas Ass’n v. Federal Power Comm'n, 567

F.2d 1016, 1057 (D.C. Cir. 1977), cert. denied, 435 U.S. 907 (1978).

19

scription” that it adopted in 1978.°° As noted above, Sec-

tion 205 of the Act authorizes the Commission to pre-

scribe “rates,” not “rates of return.” ** If, however, the

Commission chooses to proceed under the prescription

section, it is bound by the remedies provided for in that

section.’ In Atlantic Refining Company v. Public Service

Commission, 360 U.S. 378 (1959), the Court compared

the remedies provided by Sections 4 and 5 of the Nat-

ural Gas Act (which parallel Sections 204 and 205 of the

Communications Act). The Court specifically noted that

if, at the time the carrier files new or revised rates, the

Federal Power Commission (now FERC) employs the

suspension and accounting procedures of Section 4, it may

issue an order permitting “the consumer [to] recover re-

funds for monies paid under excessive increases” between

the date the carrier’s rates go into effect and the date the

agency concludes its investigation. Jd. at 389. However,

if the agency allows the carrier’s rates to go into effect

without employing the Section 4 procedures, the statute

does not permit the agency to order refunds. In this

situation, the Court observed, Section 5 permits the

agency to conduct an investigation and, if it concludes

that the carrier’s rates are not just and reasonable, to

prescribe new rates “which become[] effective prospec-

tively only.” Jd. The Court made clear that ratepayers

“have no protection from excessive charges collected’’

prior to the time new rates are prescribed; they are

55 COMSAT’s argument that the 1978 prescription was no longer

in effect during the period covered by the refund order is discussed

infra at Part IV.

56 See supra at 13-16.

57 See AT&T, 836 F.2d at 1393 (Starr, J., concurring) (‘Each

statutory section [of the Communications Act] containing a spe-

cific mandate . . . contains a corresponding penalty for viola-

tion. ... If, say, a section 205(a) prescription is violated, the

Commission may invoke the remedial mechanism crafted specifi-

cally to deal with such violations (found in section 205(b) ).’’).

ii

20

“without the protection of [a] refund, as is possible in

a $4 proceeding.” Id. at 389-90 (emphasis added).**

The application of these principles to the present case

is clear. When COMSAT filed the rates at issue, the

Commission could have suspended the rates or imposed

a timely accounting order if it wished to preserve its

right to order refunds in the event that it subsequently

found that some component of the increased rates was

not just and reasonable when filed. It not only failed

properly to invoke these statutory remedies, but specifi-

cally found that the rates filed by COMSAT had been

revised to achieve the rate of return the Commission had

specified. As Judge Starr observed in a previous refund

case, for the Commission to order a refund in these

circumstances

does clear violence to the values of stability and pre-

dictability that Congress so carefully enshrined in

the Communications Act. ... Carriers are no longer

able to rely on filed rates; instead they must go

about their business in constant jeopardy of being

forced to refund enormous amounts of money, even

though they complied scrupulously with their filed

rates.”

As the Court noted in Atlantic Refining Company, the

structure created by Congress does not authorize refunds

58 See also Indiana & Michigan Elec. Co. v. Federal Power Comm'n,

502 F.2d 336, 344-45 (D.C. Cir. 1974) (“The FPC’s power to order

refunds . . . is directly tied to the exercise of [its] suspension

power.’”’), cert. denied, 420 U.S. 946 (1975).

59 AT&T, 836 F.2d at 1394 (Starr, J., concurring). On April 16,

1990, the Court heard oral argument in Maislin Industries v.

Primary Steel, Inc., 879 F.2d 400 (8th Cir. 1989), cert. granted,

110 S. Ct. 834 (1990) (Docket No. 89-624, Oct. 16, 1989). In

Maislin, the Eighth Circuit held that the trustee in bankruptcy for

a carrier that had filed a rate with the Interstate Commerce Com-

mission, subsequently negotiated a lower rate with a customer, and

collected the negotiated rate, was not entitled to recover the filed

rate in a subsequent action. There are significant statutory and

factual differences between Maislin and the present case. However,

both cases present questions as to the specific circumstances under

which there can be exceptions to the filed rate doctrine.

21

for all rates that the agency may ultimately conclude are

excessive.’ That was Congress’ choice." In enacting the

Communications Act, as with all of the ratemaking stat-

utes, Congress sought to balance the interests of carriers

and their customers."* Under the prospective ratemaking

system adopted, if a carrier sets rates that result

in its earning less than a fair rate of return, it cannot

recover the resulting underearnings; it can file higher

rates for the future, but “must bear the loss’ from the

past. Board of Public Util. Comm’rs v. New York Tel.

80 Atlantic Refining Co., 360 U.S. at 389; see also Montana-

Dakota, 341 U.S. at 254 (“It is urged that this leaves [a customer

who makes payment pursuant to a carrier’s effective rate] without

a remedy.... We agree.’’).

61 Indeed, less than a year before it enacted the Communications

Act, Congress specifically repudiated the sort of retroactive ad-

justment procedure that the Commission imposed here. In 1920,

Congress amended the Interstate Commerce Act to set a 6% rate

of return for railroads, and required carriers to give up any reve-

nue in excess of 6%. See Transportation Act of 1920, 41 Stat. 456,

488-91 (1920). Congress repealed this provision in 1933. The House

Committee Report noted “ ‘the impossibility of [a carrier] main-

taining the level of rates required to produce the percentage rate

fixed by the statute,’’”’ H.R. Rep. No. 193, 73d Cong., Ist Sess. 29

(1933) (quoting H.R. Rep. No. 456, 66th Cong., Ist Sess. (1919)),

and concluded that “ ‘the difficulties, disadvantages, and dangers

of recapture far outweigh its possible advantages.’” Jd. at 30

(quoting testimony of the Chairman of the Legislative Committee

of the Interstate Commerce Commission).

62 See United States v. SCRAP, 412 U.S. 669, 697 (1973) (In

enacting the ratemaking provisions of the Interstate Commerce

Act, Congress struck a “careful balance of inierests.’’); United

Gas Co. v. Memphis Light, Gas & Water Div., 358 U.S. 103, 113

(1958) (In drafting the Natural Gas Act, “Congress . .. was not

only expressing its conviction that the public interest requires pro-

tection of consumers from excessive prices ... but was also mani-

festing its concern for the legitimate interests of [the carriers]

in whose financial stability the . . . public has a vital stake.’’);

Federal Power Comm’n v. Panhandle Eastern Pipe Line Co., 337

U.S. 498, 513 (1949) (In enacting the Power Act, Congress “had

both producers and customers in mind. Legislative adjustments

were made to reconcile the conflicting views.’’).

22

Co., 271 U.S. 28, 31-32 (1926). By the same token,

however, if the carrier initially sets rates that turn out to

yield revenues in excess of a fair rats of return, it is not

required “to give up ... any part of its accumulations

from past operations.” Jd. at 32.° In that case, it is up

to the agency to prescribe new rates to be observed in

the future or, under a rate of return regime, to direct

the carrier to file new rates reasonably calculated to

achieve the appropriate level of return.

The present case reflects the FCC’s dissatisfaction with

this statutory balance. The Commission, however, does

not have the authority to change it. Congress struck the

balance between carriers and their customers; only Con-

gress can alter it. In sixty years, the Congress has

shown no inclination to do so.

III.

The FCC seeks to displace the specific system of pros-

pective ratemaking enacted by Congress through the use

of the agency’s general authority under Section 4(i) to

take any action “not inconsistent” with the Communica-

83 See also Washington Gas Light Co. v. Baker, 188 F.2d 11, 21

(D.C. Cir. 1950) (“[T]he legality of past rates may not be chal-

lenged . . . past excessive earnings belong to the [carrier] just as

past losses must be borne by it.”’), cert. denied, 340 U.S. 952 (1951).

64 While Congress has not altered the pertinent provisions of the

Communications Act, it recently modified Section 206 of the Fed-

eral Power Act (which is comparable to Section 205 of the Com-

munications Act). The amended provision permits FERC, when it

prescribes a carrier’s future rates, to order the carrier to refund

revenues that it collected pursuant to its existing rates during a

15-month period beginning sixty days after the initiation of the

agency’s investigation. See 16 U.S.C. § 824e (1988). In amending

Section 206, Congress was aware that it was departing from the

prospective ratemaking procedures set forth in the other regula-

tory statutes, and that legislation was required to make this change.

See, e.g., H.R. Rep. No. 384, 100th Cong., Ist Sess. 2-3 (1987)

(“[Rlelief pursuant to a Section 206 determination is prospective

only.... [The proposed amendment] would change the procedure.’ ).

Congress has made no similar change in the Communications Act.

23

tions Act that is “necessary in the execution of its func-

tions.” ® The FCC’s efforts to use this general authority

conflict with the fundamental canon of statutory inter-

pretation that general provisions of a statute cannot take

precedence over specific ones.

This Court has recognized that the Commission’s gen-

eral authority under Section 4(i) is broad. Where Con-

gress has not prescribed the applicable procedure, the

Commission has the power under Section 4(i) to adopt

its own regulations, and to fashion remedies “imperative

for the achievement” of its statutory obligations.°® This

is not such a case. The decision of the court below per-

mits the Commission to use the general grant of au-

thority under Section 4(i) not to fill a statutory void,

but to displace the specific system of prospective rate-

making mandated by the Act.

This Court has repeatedly held that, “[h]owever in-

clusive may be the general language of a statute, it ‘will

not be held to apply to a matter specifically dealt with

in another part of the statute.’”® For example, in

D. Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204 (1932),

a district judge, purporting to act under the general

grant of authority contained in Section 2(15) of the

Bankruptcy Code, issued an order to arrest a bank-

rupt. In so doing, the court had not employed the proce-

65 47 U.S.C. § 154(i) (1982).

66 United States v. Southwestern Cable Co., 392 U.S. 157, 177-81

(1968) (quoting Permian Basin Area Rate Cases, 390 U.S. 747, 780

(1968) ) ; see United States v. Storer Broadcasting Co., 351 U.S. 192,

203 (1956) (Section 4(i) permits the FCC to impose additional

licensing requirements in situations “not specifically” addressed by

the Communications Act); cf. FCC v. Schreiber, 381 U.S. 279, 289

(1965) (Section 4(i) “delegat[es] to the Commission power to re-

solve subordinate questions of procedure.” (emphasis added) ).

87 Clifford F. MacEvoy Co. v. United States, 322 U.S. 102, 107

(1944) (quoting D. Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204,

208 (1932)); see also Fourco Glass Co. v. Transmirra Products

Corp., 353 U.S. 222, 228 (1957) (‘Specific terms prevail over the

general.’’).

24

dures (including detailed procedural safeguards) con-

tained in another section of the Code that specifically

related to arrests. This Court struck down the arrest

order, reasoning that even though the language of Sec-

tion 2(15) “was broad enough” to include the issuance

of an order to arrest a bankrupt, the lower court was

required to employ the procedures set out in the provision

of the Code that “specifically govern[ed]” the situation.

“'S]pecifie terms,” the Court made clear, “prevail over

the general [provisions] . . . which otherwise might be

controlling.” Jd. at 207-08.

This basie principle of statutory interpretation is fully

applicable to the question of whether a federal regulatory

agency can use its general authority to displace specific

ratemaking provisions in its governing statute. Thus, in

Federal Power Commission v. Texaco, Inc., 417 U.S. 380

(1974), the Court invalidated a Federal Power Commis-

sion order that sought to use the agency’s general grant

of authority to exempt small producers from certain rate-

making requirements contained in the Natural Gas Act.

The Court explained that, while the general grant of au-

thority gave the agency “great discretion in carry-

ing out its statutory responsibilities[, it] .. . does not

authorize the Commission to set at naught an explicit

provision of the Act.” Jd. at 394.°

The courts of appeals have consistently applied this

principle. The case most closely on point is American

Telephone & Telegraph Company v. FCC, 487 F.2d 865

(2d Cir. 1973). In that case, the FCC sought to use Sec-

tion 4/i) to displace the procedures specified in Section

203 of the Communications Act—which permits carriers

to file new rates at will—with a new procedure under

68 See MCI Telecommunications Corp. v. FCC, 765 F.2d 1186,

1194 (D.C. Cir. 1985) (‘However reasonable the Commission’s

assessment, we are not at liberty to release the agency from the tie

that binds it to the text Congress enacted.”’); cf. Louisiana Pub.

Serv. Comm’n v. FCC, 476 U.S. 355, 374-75 (1986) (“To permit an

agency to expand its power in the face of a congressional limit on

it would be to grant the agency the power to override Congress.’’).

25

which AT&T would have had to seek advance permission

before filing tariffs for certain services. The Second Cir-

cuit struck down the order. “In enacting Section 203 of

the Communications Act,’ the court stated, ‘Congress

intended a specific scheme. ... A balance was achieved

after careful compromise. The Commission is not free

to circumvent or ignore that balance.” Jd. at 880.

Rather, the court held, the FCC must adhere to “the

statutory plan of carrier initiated rate changes, a limited

suspension period, rate refunds and rate prescriptions

only after a full hearing and specific findings.” Jd. at

875."

The same principle of statutory construction was ex-

pressed by the D.C. Circuit in a recent FERC case.

In Public Service Commission v. FERC, 866 F.2d 487

(D.C. Cir. 1989), the agency sought to use the general

grant of authority in Section 16 of the Federal Power

Act (which is comparable to Section 4(i) of the Com-

munications Act) to substantially change its ratemaking

procedures to protect ratepayers from excessive rates

before the agency prescribed new rates. The D.C. Circuit

struck down the proposed procedure, firmly rejecting the

notion that Section 16 “might possess some exceptional

power to trump” the ratemaking procedures provided by

Congress. Jd. at 490-91. An agency, the court empha-

sized, must “adhere to the basic framework of the Act,

despite resulting inconvenience.” Jd. at 492.

The Eighth Circuit adopted a similar approach to

statutory interpretation in Cooperative Power Associa-

tion v. FERC, 733 F.2d 577 (8th Cir. 1984). In that

case, the court concluded that FERC could not use “the

general power” provided by Section 313(a) of the Fed-

eral Power Act to order a refund when the agency had

not complied with the specific refund provisions con-

tained in the statute (which are comparable to Section

204 of the Communications Act). The court observed

69 See also North American Telecommunications Ass’n v. FCC,

772 F.2d 1282, 1292 (7th Cir. 1985) (“Section 4(i) is not infinitely

elastic.’’).

26

that “[c]learly by its enactment of [the specific rate-

making provisions in the Federal Power Act] Congress

anticipated cases in which rates would be found unrea-

sonable, and subject to future adjustment, but would not

be subject to refund....”’ Jd. at 580. The general grant

of authority could not be used to “effectively amend...

the Act.” Id.

In the present case, Sections 203 through 205 of the

Communications Act set forth specific provisions govern-

ing ratemaking and contain detailed procedures (includ-

ing important procedural safeguards) concerning re-

funds. The FCC declined to follow the path set forth by

Congress, seeking instead to invoke the agency’s general

powers as justification for designing and implementing

an entirely different regime—a regime in which the Com-

mission prescribed a rate of return, and sought to en-

force it by ordering refunds rather than by prescribing

new rates to be thereafter observed. The decision below,

which allows such a scheme on the basis of Section 4(i)

of the Act, cannot be reconciled with the principles of

statutory construction articulated by this Court and the

courts of appeals.

IV.

Even if the Commission had the authority to prescribe

a carrier’s rate of return, and to enforce that prescrip-

tion by ordering the carrier to refund revenues in excess

of the prescribed limit on return, this case would merit

grant of certiorari because the court below departed from

the accepted and usual course of judicial procedure by

summarily affirming the Commission’s refund order with-

out addressing a fundamental argument raised by Peti-

tioner.*”

As detailed above, the Commission required COMSAT

to refund revenues collected between August 1984 and

December 1986 in order to “enforce” the Commission’s

77Compare Taylor v. McKeithen, 407 U.S. 191 (1972) (per

curiam) (Summary disposition vacated where the court of appeals

failed to address an “important” question.).

27

1978 rate of return pyrescription. COMSAT sought to

argue before both the Commission and the D.C. Circuit

that the 1978 rate of return prescription ceased to be

effective in 1979, when the Commission knowingly per-

mitted COMSAT rates targeted to generate a rate of re-

turn in excess of 12.48% to go into effect. The D.C. Cir-

cuit—like the I'CC—refused to consider this argument on

the ground that all issues had been disposed of by the

court’s earlier decision in New England.

This holding is plainly erroneous. In New England,

the court was not asked to consider, and expressed no

opinion on, the question of whether the Commission’s

acceptance of rates designed to generate a rate of return

in excess of the prescribed amount served to terminate

its previous rate of return prescription. Indeed, to the

extent that the D.C. Circuit has addressed the question

of how long a rate of return prescription remains opera-

tive, its pronouncements support Petitioner’s view that

the 1978 prescription was not in effect during the period

covered by the refund order. The Nader decision, which

permitted the FCC to prescribe a carrier’s rate of return,

specifically stated that a rate of return prescription “can-

not remain binding indefinitely without agency reevalua-

tion, especially during periods of rapidly changing eco-

nomic conditions.” ** And in New England, the very deci-

sion which the panel below treated as dispositive, the

D.C. Cireuit noted that if a carrier “believed that [its]

outstanding rate-of-return prescription was inadequate”

it could “filfe] rate increases.” ** This is precisely the

ecurse that COMSAT followe: in 1979 it filed new rates

designed to generate a higher rate of return, which the

FCC allowed to go into effect. The D.C. Circuit thus had

no basis for granting summary affirmance without con-

sidering Petitioner’s claim that the 1978 prescription was

not in effect during the period covered by the refund

order at issue here.

™ Nader, 520 F.2d at 205.

72 New England, 826 F.2d at 1110.

28

We note, finally, that if the decision below were read

as endorsing the Commission’s contention that, once it has

prescribed a rate of return, the prescription remains bind-

ing until the carrier seeks and the Commission formally

grants a new rate of return prescription,’”® that decision

would be at odds with a pronouncement of this Court and

with a decision of the Second Circuit. This Court has

stated that the generic federal ratemaking structure re-

flects Congress’ awareness that

[b]usiness reality demands that [carriers] should

not be precluded by law from increasing the prices

of their products whenever that is the economically

necessary means of keeping the intake and outgo of

their revenue in the proper balance; otherwise, pro-

curement of the vast sums necessary for the main-

tenance and expansion of their systems would be-

come most difficult, if not impossible.

United Gas Co. v. Memphis Light, Gas & Water Div.,

358 U.S. at 113. The Second Circuit has expressly ap-

plied this principle to the Communications Act, striking

down an FCC requirement that AT&T receive Commis-

sion approval before filing certain tariffs. American

Telephone & Telegraph Co. v. FCC, 487 F.2d 865 (2d

Cir. 1973). The Commission’s contention that a rate of

return prescription remains binding until modified or

vacated would permit it effectively to prevent a carrier

from filing rate increases without prior approval—the

very result that the Second Circuit rejected in American

Telephone & Telegraph.

The issue as to whether the 1978 prescription order

was in effect during the period covered by the challenged

refund order warrants consideration by the Court.

73 See FCC Motion for Summary Affirmance at 8-9.

Ciel a tt a i i ti al

29

CONCLUSION

For the foregoing reasons, a Writ of Certiorari should

be granted.

Respectfully submitted,

J. ROGER WOLLENBERG

SALLY KATZEN *

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6000

Counsel for Petitioner

Of Counsel:

WILLARD R. NICHOLS

Communications Satellite Corporation

950 L’Enfant Plaza, S.W.

Washington, D.C. 20024

(202) 863-6000

April 30, 1990 * Counsel of Record

APPENDICES

a. es

fe Sins A ote

_ 4

al a

aie

la

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 88-1243

COMMUNICATIONS SATELLITE CORPORATION,

Petitioner

Vv.

FEDERAL COMMUNICATIONS COMMISSION and

UNITED STATES OF AMERICA,

Respondents

Before: Wald, Chief Judge; Edwards and Silberman,

Circuit Judges

ORDER

(Filed Nov. 17, 1989]

Upon consideration of respondent Federal Communica-

tions Commission’s motion for summary affirmance and

the responses thereto, it is

ORDERED that the order of the Federal Communica-

tions Commission in file number FCC 87-388, released

January 28, 1988, be summarily affirmed substantially

for the reasons stated therein. The issues presented in

the petition for review are controlled by this court’s de-

cision in New England Telephone & Telegraph Co. v.

FCC, 826 F.2d 1101 (D.C. Cir. 1987), cert. denied, 109

S. Ct. 1942 (1989), which is binding precedent in this

circuit until rejected by the court en banc or overruled

by the Supreme Court. Spannaus v. U.S. Dept. of Jus-

tice, 824 F.2d 52, 55 (D.C. Cir. 1987). The merits of

2a

the parties’ positions are therefore so clear as to justify

summary action. See Cascade Broadcasting Group, Ltd.

v. FCC, 822 F.2d 1172, 1174 (D.C. Cir. 1987) (per cur-

iam); Walker v. Washington, 627 F.2d 541, 545 (D.C.

Cir. 1987) (per curiam), cert. denied, 449 U.S. 994

(1980).

The Clerk is directed to withhold issuance of the man-

date herein until seven days after disposition of any

timely petition for rehearing. See D.C. Cir. Rule 15.

Per Curiam

3a

APPENDIX B

BEFORE THE

FEDERAL COMMUNICATIONS COMMISSION

WASHINGTON, D.C. 20554

CC Docket No. 80-634

and 85-268

IN THE MATTER OF

COMMUNICATIONS SATELLITE CORPORATION

Revisions to Tariff F.C.C. No. 101,

Implementing the Second Memorandum

Opinion and Order in CC Docket No. 80-634

COMMUNICATIONS SATELLITE CORPORATION

Revisions to Tariff F.C.C. No. 101,

Offering Bulk International Business

Satellite Service

COMMUNICATIONS SATELLITE CORPORATION

Revisions to Tariff F.C.C. No. 191, For

New Space Segment Full Period Video Leases

COMMUNICATIONS SATELLITE CORPORATION

Revisions to Tariff F.C.C. Nos. 101 and

14, Implementing Reconsideration Order

in CC Docket No. 80-634 and Report and

Order in CC Docket No. 82-540

COMMUNICATIONS SATELLITE CORPORATION

Tariff F.C.C. No. 103, Establishing Separate,

Unbundled Space Segment Offering

4a

COMSAT INTERNATIONAL COMMUNICATIONS INC.

Tariff F.C.C. No. 1, Establishing Separate,

Unbundled Multipurpose Earth Station Service

Offerings in Compliance with Report and Order

in CC Docket No. 82-540

COMSAT INTERNATIONAL COMMUNICATIONS INC.

Tariff F.C.C. No. 2, Establishing Separate

Unbundled Special Purpose Earth Station Service

Offiering through Santa Paula, California in

Compliance with Report and Order in

CC Docket No. 82-540

INTERNATIONAL BUSINESS EARTH STATIONS, INC.

Tariff F.C.C. No. i, Establishing Offering of

International Business Satellite Service at

New York Teleport

MEMORANDUM OPINION AND ORDER

Adopted: December 10,1987; Released: January 28, 1988

By the Commission:

I. INTRODUCTION

1. On April 6, 1987 the Common Carrier Bureau re-

leased its Memorandum Opinion and Order in the dockets

captioned above.' That April 6 Order tentatively deter-

mined that Comsat must refund: $61.7 million in reve-

nues accrued which exceeded a 1978 rate of return pre-

scription, in 1983-1986. The April 6 Order directed Com-

1 Communications Satellite Corporation. CC Docket Nos. 80-634

and 85-268. 2 FCC Red 3706 (1987) (April 6 Order).

5a

sat to show cause why the excess revenues should not

be refunded and required Comsat to propose a refund

schedule and methodology for public comment, in the

event excess revenues were ultimately refunded. The

Order also resolved certain cost allocation issues that had

been designated for investigation in these dockets.2 Our

decision in this Order is limited to the refund question.

2. Comsat has responded to the April 6 Order by as-

serting that its refund obligation is unfounded in law,

and in any case is overstated. Comsat has also submitted

a proposed refund methodology and schedule. Several

parties have commented on Comsat’s response and on its

proposed refund methodology.* In addition, ITT and

Fedex have filed petitions for reconsideration of the Bu-

reau’s April 6 Order.*

3. This Commission has reviewed the record developed

in this docket and determined that it presents several

unique factual circumstances, described in more detail

below. We have taken into account these unique factual

circumstances in exercising the equitable discretion in-

herent in agency consideration of refund matters. Con-

sequently, we have determined that the public interest

would be best served if Comsat’s refund liability is lim-

ited to revenues accrued by Comsat during the period

from August 1, 1984 to December 31, 1986 in excess of its

2 For a discussion of these cost allocation issues, see Communica-

tions Satellite Corporation, CC Docket Nos. 80-634 and 85-268.

Mimeo No. 0672, released Nov. 8, 1985. (Designation Order);

Erratum, Mimeo No. 1703, released Dec. 27, 1985.

3 The pleadings received since the April 6 Order are described in

Appendix A.

4 Comsat responded to the petitions for reconsideration and appli-

cation for review on June 26, 1987: replies were submitted July 10,

1987 by ITT, Fedex, the Networks and TBS. An application for

review filed by Capital Cities/ABC, Inc., CBS, Inc., and National

Broadcasting Company, Inc., initially supported by Turner Broad-

casting System, Inc., has been withdrawn.

6a

1978 Settlement Agreement prescription. This amount,

totalling approximately $39 million, must be refunded as

a lump sum pursuant to paragraph 45, infra, with in-

terest calculated in accordance with Appendix C.

Il. BACKGROUND ®

A. The 1978 Prescription

4. This Commission first adopted an authorized rate

of return for Comsat in 1975.° Our decision adopting

that rate of return was stayed pending appeal and was

subsequently susperseded in 1978 by a Settlement Agree-

ment that established an authorized annual rate of re-

turn of 11.48 percent with a 1 percent allowance for ef-

ficiency.’ At that time, Comsat had an all equity finan-

cial structure. The authorized rate of return was com-

puted by imputing 45 percent debt at a 9 percent in-

terest rate and establishing a hypothetical equity return

of 13.2 percent, which reflected the addition of (1) a

4 percent risk premium to the then current yield (8.2

percent) for long-term U.S. government bonds, and (2)

a 1 percent increment to reflect the increased risk that

a 45 percent debt structure would produce. The result-

ing 11.31 percent return was adjusted to 11.48 percent to

reflect “‘a synthesis of the gradual imputation of debt

over six years...” 68 FCC 2d at 951. That 11.48 per-

cent rate of return prescription with a one percent buffer

has never been modified.

B. Comsat Tariff Filings in Response to the Seitle-

ment Agreement

5. The Settlement Agreement mandated a 48.5 percent

reduction in Comsat’s tariffed rates. On April 27, 1979,

5 The procedural history of these dockets is set forth in greater

detail in the April 6 Order and the Designation Order. In this sec-

tion, we summarize only those events relevant to the instant refund.

6 Communications Satellite Corporation, 56 FCC 2d 1101 (1975).

7 Communications Satellite Corporation, 68 FCC 2d 941 (1978).

Serre

7a

Comsat filed tariff revisions further reducing its rates

by 15 percent. No petitions were filed to reject, suspend

or investigate the 15 percent rate reduction. The tariff

revisions became effective on May 15, 1979 without in-

vestigation. The Chief of the Common Carrier Bureau

subsequently requested information on Comsat’s projected

rate of return under the revised rates, by letter dated

June 25, 1979. Comsat responded by letter on July 24,

1979, in which it projected an average return of 14.17

percent for the latter half of 1979 and alternative pro-

jections for 1980 of 9.8 percent and 12.6 percent, de-

pending on the course taken by the notably volatile

economy at that time. On December 28, 1979, Comsat

filed further revisions reducing its rates by an additional

5 percent. These revisions were also uncontested and be-

came effective without investigation on February 1, 1980.

The Bureau again requested information on Comsat’s

projected rate of return. Comsat projected an average

rate of return under the new rates of 17.88 percent in

its February 29, 1980 letter to the Chief, Tariff Division

(Att. C to Comsat’s Response to Show Cause Order).

6. In the summer of 1980, Comsat developed alterna-

tive return projections ranging from 14.46 percent to

20.80 percent. Comsat discussed its rate development

procedures informally with Bureau staff,’ and filed tariff

revisions on October 22, 1980 under Transmittal No. 384

which generally reduced its rates by 11.8 percent. In

the transmittal letter accompanying its proposed re-

visions, Comsat explicitly noted that its projected rate of

return for 1981 with the new rates was between 14.2

and 16.7 percent. No petitions were filed te investigate

those charges and the charges became effective on Decem-

ber 24, 1980 without investigation.

8 Comsat Response to Show Cause Order at 25-26. There is no

record of the content of those discussions. We note, however, that

this Commission is not bound by informal discussions with our

staff, nor can parties reasonably rely on them. See, e.g., Southern

New England Tel. Co., FCC 87-128, n.78, released Apr. 22, 1987.

8a

C. Second Structure and Earth Station Ownership

Proceedings

7. In 1980, this Commission initiated a Rule Making

(Comsat Structure Proceeding) on Comsat’s corporate

structure, operations, and accounting practices.® On April

20, 1984 we released an order in that proceeding (the

Second Structure Order), in which we prescribed ex-

tensive revisions to Comsat’s accounting practices. The

revised accounting practices reduced certain jurisdictional

accounts thereby decreasing the revenue requirement un-

derlying Comsat’s rates. 97 FCC 2d at 179. Accordingly,

the Commission directed Comsat to file tariff revisions

that would reflect the lower revenue requirement and

would “be in compliance with its authorized rate of re-

turn (11.48%-12.48% ).” 1! Comsat filed tariffs in pur-

ported compliance with the Second Structure Order which

became effective on August 1, 1984.

_ 8. In its petition for reconsideration of the Second

Structure Order, Comsat challenged the requirement that

its re-filed tariffs comply with the 11.48 percent rate of

return requirement. Comsat contended that this Com-

mission lacked authority to order such tariff revisions

without a hearing under Section 205 of the Act. Com-

sat further argued that we were required to consider

changes in the economy and the corporation since 1978

before requiring it to abide by the rate of return set in the

Settlement Agreement. In our Second Structure Recon-

® Changes in the Corporate Structure and Operations of the Com-

munications Satellite Corporation, 81 FCC 2d 287 (1980).

10 Changes in the Corporate Structure and Operations of the

Communications Satellite Corporation, CC Docket No. 80-634, Sec-

ond Memorandum Opinion and Order, 97 FCC 2d 145 (1984) (Second

Structure Order) ; recon., 99 FCC 2d 1040 (1984) (Second Structure

Reconsideration).

1 Jd. at 179.

9a

sideration Order, we rejected Comsat’s arguments, stat-

ing, inter alia:

Comsat had every opportunity since the 1978 Settle-

ment Agreement to petition us for relief if it be-

lieved its authorized rate of return was too low and

did not reflect the changed circumstances to which

it refers in its petition for reconsideration. For

whatever reason, it did not do so. Until it does so

and until relief is granted, Comsat shall submit

tariffs reflecting cost-based rates that will earn the

corporation its authorized rate of return. Comsat

simply cannot unilaterally modify its authorized rate

of return.

Second Structure Reconsideration, 99 FCC 2d at 1055-

56.

9. In 1984, we released an order in our Earth Station

Ownership proceeding."* In that proceeding, we concluded

that Comsat should be required to provide its earth sta-

tion services through a separate subsidiary and pursuant

to cost-based rates unbundled from its space segment

rates. Accordingly, Comsat filed tariffs which became ef-

fective in 1985 that provided separate rate schedules for

its space and earth segment services.

D. April 6 Order

10. The Common Carrier Bureau reviewed Comsat’s

various tariff filings in response to the Structure and

Earth Station Ownership Orders and concluded that it

should investigate a number of issues raised by the fil-

12.99 FCC 2d 1040 (1984).

13 Modifications of Policy on Ownership and Operation of U.S.

Earth Stations that Operate with the Intelsat Global Communica-

tions Satellite System, CC Docket No. 82-540, 100 FCC 2d 250

(1984).

10a

ings.* The April 6 Order resolved some of those issues

while deferring the resolution of others pending further

development of the record. The investigation also revealed

that the rates under review had produced earnings in

excess of Comsat’s authorized level. Accordingly, the

April 6 Order directed Comsat to refund the excess or

show cause why it should not be required to do so.

III. DISCUSSION

A. Refund Authority

1. Pleadings

11. The Comsat response to the show cause order

presents three alternative contentions. First, Comsat ar-

gues that this Commission does not have the power to

order refunds for the violation of a rate of return pre-

scription. Second, Comsat contends that the 1979 and

1980 decisions to accept tariffs that were expressly tar-

geted to produce a greater return effectively vacated the

1978 rate of return prescription. Third, Comsat urges

that, even if the prescription remained effective, it would

be inequitable to apply that prescription to periods that

precede the Second Structure decisions which “revive” the

1978 prescription.

12. Comsat’s general arguments relating to this Com-

mission’s refund power are essentially the same as the

arguments that AT&T and the Bell Operating Companies

presented in another refund proceeding.*” Those argu-

ments were decisively rejected in a Court of Appeals

opinion '® issued shortly after Comsat filed its response

14 See note 2, supra.

15 AT&T Earnings on Interstate and Foreign Services During

1978, 102 FCC 2d 52 (1984), aff'd sub nom. New England Tel. &

Tel. Co. v. FCC, No. 85-1087 (D.C. Cir. August 21, 1987) (New

England Telephone), petition for rehearing pending.

16 Jd.

lla

in this proceeding. We have accordingly concluded that

the pleadings on this subject do not warrant further

discussion.

13. Comsat’s second claim, that the 1978 rate of re-

turn prescription has lapsed, is based upon the series of

events outlined in Section II.B., supra.'’ Comsat says

that it filed a series of tariffs that were targeted to earn

more than the prescribed return, that the Commission or

the Common Carrier Bureau staff was informed orally

and in writing that the rates were targeted to earn

more than 11.48 percent, and that these “tariffs were

permitted to go into effect without objection from the

Bureau or anyone else... .’’'* Comsat also says that it

submitted data to demonstrate the effect of double-digit

inflation on the Comsat cost of capital and that this

submission was discussed at a series of meetings with

Common Carrier Bureau staff in the summer of 1980.

Comsat describes this process as an application of the

“eontinuing surveillance regulation” described in 1962

and 1971 statements of former Commission Chairmen.

Comsat con‘ends that the decision to accept the tariffs

after consideration of Comsat’s rate of return submis-

sions “eliminated” the 1978 rate of return prescription.

It also contends that a new proceeding would be re-

quired to establish a new rate of return prescription

or to reinstate the old one.

14. Some of the replies dispute Comsat’s claim that

the 1978 prescription has been eliminated. For example,

Univision says that the “argument that tariff revisions

which were never the subject of an affirmative Commis-

sion order and which became effective through Commis-

sion silence and inaction, somehow superseded or nullified

the rate of return prescribed in the 1978 Settlement

Agreement ... is contrary to law” and unfair to Com-

17 Response at 24-33.

18 Response at 24.

12a

sat’s customers.'® Univision contends that the Commis-

sion’s inaction, i.e., its acceptance of the tariff filings

without investigation, has no bearing on the lawfullness

of the rates.*”

15. Fedex says the argument that accepting tariffs

without investigation changed the prescription is “star-

tling’”’ and “[clontrary to a wealth of judicial and ad-

ministrative precedent.” *! It contends that only pre-

scribed rates are immune from refund liability,** that

Bureau inaction on the tariffs Comsat filed is “without

legal significance,” ** and that the 1980 discussions with

Commission staff are irrelevant because ‘“‘the Bureau had

no authority to waive or modify the full Commission’s

1978 Comsat rate of return prescription order.” ** Fedex

also notes that this Commission has rejected claims that

general fluctuations in the economy can affect an outstand-

ing rate of return prescription in the absence of a peti-

tion to modify the prescription.” Finally, Fedex empha-

sizes that the Commission prescription was reaffirmed in

1984 “and Comsat has never sought appellate review of

the 1984 reaffirmation nor petitioned the Commission to

vacate the prescription order.” °°

16. In support of its third argument, that events

make compliance with the prescription inequitable prior

to mid-1984,7° Comsat notes that this Commission first

19 Univision Reply at 10.

20 Univision cites Las Cruces TV Cable v. FCC, 645 F.2d 1041

(D.C. Cir. 1981), as support for that contention.

“1 Fedex Reply at 16-17.

22 Id. at 18.

23 Td. at 20.

*4 Id. at 19.

25 Jd. at 16, citing AT&T Earnings, 78 FCC 2d at 666 n.7.

26 Td. at 15.

“7 Response at 33.

13a

directed Comsat to retarget rates to comply with the

1978 prescription in the April 1984 Second Structure

Order and affirmed that view in the December 1984 Sec-

ond Structure Reconsideration. Fedex says that the equi-

- ties are against Comsat because Comsat intentionally and

substantally exceeded the prescribed return.** Finally,

Comsat contends that it would be improper to order re-

funds for earlier periods because the Common Carrier

Bureau initiated this docket to investigate tariffs filed in

1984 and 1985 and did not specify any issues involving

earlier tariffs for investigation.

2. Discussion

17. As noted in paragraph 12 above, Comsat’s argu-

ment that this Commission lacks refund authority has

been rejected by the Court of Appeals. In addition, we

cannot accept Comsat’s second argument that the rate of

return prescription was eliminated in 1979 or 1980. We

believe that such an argument is foreclosed by our deci-

sions in the Second Structure proceeding. Those orders

unequivocally concluded that the 1978 prescription is still

in effect and will remain in effect until a proceeding is

initiated and completed to vacate or modify that pre-

scription. Comsat did not appeal those decisions and

should not be permitted to reopen the question now.

18. Moreover, Comsat’s argument would not be per-

suasive even if we decided to entertain a collateral attack

upon the Second Structure orders. Comsat’s analogy to

the continuing surveillance process that was used to reg-

ulate AT&T in an earlier era does not fit this situation.

We have always used formal procedures to establish or

modify the AT&T authorized return since 1967.*" More-

“8 Fedex Reply at 22-23.

°° AT & T (Docket Nos. 16258, 15011), 9 FCC 2d 30, 88, 114

(1967); accord Concurring Opinion of Comm’r Nicholas Johnson,

id. at 123: AT & T (Phase I of Docket No. 19129), 38 FCC 2d 213

a

l4a

over, Commission prescriptions that have been em-

bodied in a formal Commission order have been modified

by a formal Commission order. The informal discus-

sions in 1979-80 between Comsat personnel and Bureau

staff did not result in any Commission or Bureau order

that purported to vacate, modify or waive the rate of

return prescription. Those informal processes also did

not produce any document that purported to notify any

Comsat customer that the rate of return prescription

might be modified.

19. We have concluded, however, that there is some

merit to Comsat’s third contention. The course of events

Comsat has described creates equitable considerations

that warrant limiting refunds to the August 1984

through the December 1986 period. In the following

paragraphs, we state the reasons for our conclusion.

In view of that conclusion, we need not consider Com-

sat’s claim that, because the Bureau did not designate

earlier tariffs for investigation when it opened this

docket, pre-1984 refunds are precluded.

20. In determining the refund appropriate to the in-

stant case which best serves the public interest, we are

mindful that we must exercise our refund authority with

due regard for the factual circumstances of individual

cases and the equitable considerations they create.”’ In

Las Cruces TV Cable v. FCC," the Court reviewed this

Commission’s first articulation of standards for ordering

refunds. There, the Court noted that judicial review of

(1972); AT & T (Docket No. 20376), 57 FCC 2d 960 (1976) ; AT&T

(Docket No. 79-63), 86 FCC 2d 221 (1981).

30 See FPC v. Tennessee Gas Co., 371 U.S. 145, 155 (1962);

Wisconsin Elec. Power Co. v. FERC, 602 F.2d 452, 457 (D.C. Cir.

1979). s

31 Las Cruces TV Cable v. FCC, 645 F.2d 1041, loc. cit. (D.C.

Cir. 1981) (Las Cruces) (citing, e.g., Public Service Comm'n vy.

FPC, 329 F.2d 242, 250 (D.C. Cir.), cert. denied, 377 U.S. 963

(1964) ).

15a

agency refund decisions has been marked by “great

deference . . . perhaps based upon the discretionary na-

ture of their refund power, but [courts] have neverthe-

less looked closely to see if the agency had considered

relevant factors and if it had struck a reasonable ac-

commodation among them.” ** In Wisconsin Electric Power

v. FERC, the Court held that the standard of review

for an agency refund order is whether the order is “equi-

table in the circumstances of | the specific] litigation.”

21. Earnings before August 1, 1984 **—Applying these

standards to the instant case, we have decided to order

Comsat to refund only those excess revenues accrued after

August 1, 1984, the effective date of the tariffs filed in

compliance with the Second Structure Order. The events

underlying Comsat’s rate of return prescription as well

as our regulatory treatment of the carrier in the years

immediately following the Settlement Agreement pres-

ent several unique factual circumstances which persuade

us that this exercise of our discretion best serves the

public interest.

22. As previously noted, Comsat filed a series of tariff

revisions in which it explicitly targeted its proposed rates

to earn above the prescribed rate of return. Those rates

became effective without Commission action. In response

to the earlier of these filings, the Bureau requested in-

formation about the return anticipated by Comsat, but

took no formal action. The subsequent revisions were

32 Td. at 1047.

33 602 F.2d 452 (D.C. Cir. 1979).

34 In the interest of simplicity, excess revenues and interest have

been calculated from August 1, 1984 rather than July 30, 1984,

when Comsat’s tariffs in purported compliance with the Second

Structure Order became effective. The Common Carrier Bureau is

delegated authority to make any adjustment in the refund amount

that may be necessary to reflect the actual effective date of the

tariffs. See n.46, infra.

SSS

16a

explicitly targeted well above Comsat’s authorized rate

of return, but still became effective without challenge by

affected customers or the Bureau. Indeed, until the

time of the Second Structure Order, the Commission took

no action with respect to Comsat’s tariffs solely on the

basis of its improper targeting of a rate of return. More-

over, our inaction followed discussions between the Bu-

reau and Comsat and letter submissions by Comsat

which explicitly stated that Comsat had targeted its rate

of return to exceed its prescribed level. We have con-

cluded that our inaction on Comsat’s proposed rates, in

the face of our specific knowledge that Comsat’s tar-

geted rates exceeded the prescribed level, led Comsat to

assume that we were no longer enforcing the rate of

return prescribed in the Settlement Agreement, and that

no further action on its part was required to obtain

a change in the rate.

23. Our inaction would not have provided Comsat with

a defense in a Section 208 complaint proceeding if Com-

sat’s customers had chosen to pursue that remedy in a

timely manner. Nor does it provide Comsat with a legal

defense in the context of the present investigation. Never-

theless, it is a relevant consideration in determining

whether we should exercise our discretionary refund pow-

ers to provide relief which those customers can no longer

obtain in a Section 208 proceeding.** The customers’

failure to file petitions or complaints pursuant to Section

208 is also a relevant factor. Comsat provides most of its

services to other carriers who knew, or should have

known, that Comsat’s rate, although substantially re-

duced, were nevertheless targeted to exceed the prescribed

return.

24. We have taken into account an additional equitable

factor in determining the refund appropriate to these cir-

cumstances, namely, the likelihood that Comsat could

35 The Communications Act establishes a two year statute of limi-

tations for reparations claims. 47 U.S.C. § 415.

17a

have made a persuasive showing that it was entitled to a

change in its authorized rate of return level. Based on

the actual economic conditions during the 1980-84 time

period, we believe it is likely that Comsat would have

succeeded in obtaining such a change. Financial and

business conditions have not been stable over the ten

years since the Settlement Agreement. Arguably, eco-

nomic circumstances had made the 11.48 percent six-

year average outdated by the end of the first year it was

in effect. Interest and inflation rates during 1980-84,

including those to which the Settlement Agreement’s

prescription was pegged, soared to unprecedented heights.

The Treasury bond rate at the time of the Settlement

Agreement was 8.2 percent, but by 1980 it had risen

to 10.8 percent and by 1982 had risen to 12.2. In 1983,

the rate had dropped only to the 1980 level. The A-rated

corporate bond rate rose from 9 to 12.9 percent in 1980,

reaching 15.4 percent in 1982 and dropping only to 13.1

in 1983. Treasury and corporate rates only returned to

1978 levels in 1986. Indeed, a review of these economic

indicators demonstrates that Comsat’s revenues do not

substantially exceed those that probably would have been

authorized, had periodic adjustments to the 1978 return

prescription been made under the Settlement Agreement’s

methodology to reflect prevailing economic conditions. The

formula used in the Settlement Agreement to derive the

prescribed level would have produced higher rates of re-

turn if actual prevailing interest rates during the rele-

vant time periods are substituted for the projections in

the Settlement Agreement Order. For example, as de-

scribed in Appendix B, annually adjusting the Settle-

ment Agreement’s assumptions to reflect prevailing rates

for taxable Treasury bonds and A-rated corporate bonds

would have resulted in an average return for the 1978-

1983 period of 14.11-15.11 percent.

25. If Comsat had filed a rate of return represcription

petition in 1979 or 1980, we might, of course, have

adopted a different methodology to determine a new au-

Bata atanceaciainaiic ene eaieen elie

18a

thorized rate. Nevertheless, it seems likely that any

methodology could have produced a higher rate of return

if the decision was made during a period that was

marked by high inflation and very high interest rates.

We note, for example, that the AT&T authorized return

was represcribed in 1981 to replace the 1976 9.5 percent

prescription with a 12.75 percent prescription. In light

of these changes in economic conditions after the adop-

tion of the Settlement Agreement, we have concluded

that our equitable adjustment to Comsat’s refund liability

is fair to ratepayers and consistent with the public in-

terest since it is unlikely that Comsat’s rates during the

pre-August 1, 1984 period were unjustly or unreasonab'y

high.

26. We emphasize here that all aspects of these unique

factual circumstances are crucial to our allowing Comsat

to retain the revenues accrued prior to the Second Struc-

ture Order. Absent our knowing acceptance of, and

failure to investigate, explicitly ‘excessive’ rates (un-

contested by ratepayers), or the surrounding anomalous

economic conditions, the equitable considerations would

be fundamentally different.*®

36 We do not, for example, foresee any circumstances that would

warrant suspending enforcement of the present Part 65 refund

procedures or that would enable carriers that are subject to those

rules to present a credible claim that they did not expect full

enforcement. In addition, the equitable considerations present here

clearly distinguish this case from our treatment of AT&T in a series

of orders addressing its tariffs and rate of return compliance. See

AT&T Charges for Interstate Telephone Service, 51 FCC 2d 619

(1975): recon. denied, 53 FCC 2d 1073 (1975); return prescribed

57 FCC 2d 960 (1976); American Tel. & Tel. Co., Petition for

Modification of Prescribed Rate of Return (CC Docket No. 79-63),

73 FCC 2d 689 (1979); and AT&T Charges for Interstate Service,

78 FCC 2d 661, 667 (1980). The factual circumstances present in

the instant case are, again, a unique combination of factors—this

Commission’s continued knowing acceptance of, and failure to in-

vestigate, explicitly excessive rates, and the surrounding economic

conditions that would likely have justified a higher authorized

19a

27. We also emphasize that while Comsat could have

believed that this Commission had suspended enforce-

ment of the rate of return prescribed in the Settlement

Agreement, Comsat could not have reasonably assumed, as

a legal matter, that its tariff revisions were lawful

merely from their effectiveness. It is well settled that

a tariff’s becoming effective without investigation does

not imply that the tariff is ultimately lawful, or that

the tariffed rates were properly targeted. Nor does its

effectiveness prevent the filing of Section 208 formal

complaints.** We are determining herein only that Com-

sat’s reliance on our inaction is a relevant equitable

factor in our analysis of Comsat’s refund liability and,

under the unique factual circumstances in this case, the

public interest is served by exercising our equitable dis-

cretion in the manner set forth herein.

28. We are mindful of the Court’s statement in

New Eng!and Telephone, that once the Commission pre-

scribed a maximum rate of return, “it was not reason-

return had Comsat sought one. Neither factor was present in the

AT&T context. This Commission did not once permit facially ex-

cessive AT&T rates to take effect. Nor did it fail to investigate

promptly AT&T’s facially excessive rates. Moreover, in an order

requiring AT&T to refund excessive earnings, we concluded that the

economic and financial market conditions during the refund period

were similar to those that the Commission had considered at the

time of the rate of return prescription. AT&T Earnines on Inter-

state and Foreign Services During 1978, FCC 84-567 (released

Dec. 11, 1984), 49 Fed. Reg. 49502, 49504-5 (Dec. 20, 1984), recon.,

FCC 85-284 (released May 30, 1985), aff'd s’b nom. New England

Tel. & Tel. Co. v. FCC, No. 85-1087 (D.C. Cir. August 21, 1987).

37 See, e.g., Aeronautical Radio, Inc. v. FCC, 642 F.2d 1221, 1234-

35 (D.C. Cir. 1980), cert. denied, 451 U.S. 920, 976 (1981); Papago

Tribal Util. Authority v. FERC, 628 F.2d 235, 239-41 (D.C. Cir.),

eert. denied, 449 U.S. 1061 (1980). For example, had a Comsat

customer filed a complaint under Section 208 of the Act during this

period, equitable considerations would not have barred its considera-

tion, particularly in light of the facially excessive rates proposed

in these filings.

20a

able for the carriers to think that the agency had an

affirmative policy of permitting carriers who earned

{above their authorized level] ... to retain the unlawful

excess.** Were it not for the unique factual circum-

stances of this case, Comsat’s expectation that it would

be permitted to retain revenues in excess of its author-

ized return would be irrelevant to the question of its

refund liability. We believe, however, that the equitable

considerations identified in the preceding discussion war-

rant our departure from the result otherwise indicated

by purely legal analysis.

29. Earnings after August 1, 1984—The considera-

tions that persuade us not to require refunds for excess

earnings before August 1, 1984 do not apply to the

period following the August 1, 1984 effective date of

tariff revisions filed in compliance with the Second

Structure Order. In that Order, the Commission un-

equivocally re-affirmed the continuing validity of the

Settlement Agreement rate of return. Thus, the Order,

for the first time since 1978, gave Comsat unambiguous

notice that the rate of return prescription in the Settle-

ment Agreement remained in effect. Moreover, by mid-

1984, relevant interest rates were no longer at the ex-

traordinarily high levels prevailing in the early 1980’s.

Accordingly, after the release of the Second Structure

Order, the equities are no longer balanced in Comsat’s

favor since it could no longer assume that our inaction

on its tariffs reflected a de facto abandonment of the

Settlement Agreement’s rate of return prescription.

B. Applicable Rate of Return

30. The April 6 Order used the 12.48 percent maxi-

mum return to compute excess earnings. That is consist-

ent with the procedure this Commission used to compute

38 New England Tel. & Tel. Co. v. FCC, No. 85-1087, slip op. at

18 (D.C. Cir. Aug. 21, 1987).

|

2la

the AT&T-BOC refund for excess 1978 earnings * and

the new Part 65 procedures for computing AT&T and

local exchange carrier refunds for excess earnings.*’ The

1978 refund was based, and the Part 65 refunds will be

based, upon the maximum return rather than the return

that the carrier is supposed to use to target rates.

31. Fedex International Transmission Corporation

(Fedex) and ITT World Communications Ine. (ITT

World-com) have petitioned for reconsideration of the

April 6 Order, contending that the Common Carrier Bu-

reau erred in premising its calculations of excess reve-

nues on the upper bound of Comsat’s authorized range

of return. Fedex argues that the incremental one percent

can be obtained only through internal operating effi-

ciencies, citing the Commission’s instructions to Comsat

in the Second Structure Reconsiderations Order.'' Fedex

also cites this Commission’s determination in AT&T

Charges for Interstate Telephone Service, 51 FCC 2d 619,

626 (1975), that the filing of a tariff designed to pro-

duce a rate of return in excess of the prescribed return

is prima facie unlawful.” ITT, for its part, asserts that

there is no record evidence, nor explicit finding in the

Bureau’s April 6 Order, suggesting that Comsat’s excess

earnings resulted from operating efficiencies. To the con-

trary, Comsat has conceded that its excess revenues re-

sulted from rates explicitly targeted to a return above

that prescribed in 1978.

32. In the 1975 Comsat Rate Case, this Commission

stated that the purpose of establishing a range of rate of

return “is to provide a carrier with the incentive, on a

39 Jd.

49 See 47 C.F.R. § 65.700 (1986).

4199 FCC 2d at 1056.

42 In American Telephone & Telegraph Co., 51 FCC 2d 619, 626,

aff'd sub nom. Nader v. FCC, 520 F.2d 182, 204 n.25 (D.C. Cir.

1975).

— zzz <<

22a

rate designed to yield a return at the low end of the

range, to achieve a return at the upper end of the range

through operating and internal efficiencies.” ** In addi-

tion, this Commission has long recognized the imprecision

inherent in requiring carriers to set tariff rates that will

produce the exact level of revenues necessary to produce

the anticipated return. AT&T, 9 FCC 2d 30, 51-88

(1967); AT&T, 88 FCC 2d 213, 248-51 (1972). A “buf-

fer’ increment above the prescribed return “in order

to provide an incentive to increase productivity and

efficiency” was employed in this Commission’s 1976 pre-

scription of a return for the AT&T system. AT&T, 57

F.C.C. 2d 960, 973 (1976).

33. In the Authorized Rates of Return proceeding,"

this Commission rejected the argument that the target

rate of return, rather than the upper bound of the per-

missible range, be used for the calculation of excess

earnings by AT&T and local exchange carriers. Author-

ized Rates of Return, 58 RR 2d at 1656. We explained

that the use of a range for enforcement purposes recog-

nizes the inevitable fluctuations in a carrier’s cost of

capital, as well as changes in the state of the economy

generally:

Disallowing any earnings ‘peaks,’ while ignoring the

‘valleys,’ would tend to induce a systematic bias

that would cause a carrier to fall short of its tar-

geted rate of return over the long run. Such a situ-

ation is not in the interests of shareholders or in

the long run interest of ratepayers.*

43 Communications Satellite Corporation, 56 FCC 2d 1101, 1173

(1975), aff'd sub nom. Comsat v. FCC, 611 F.2d 883 (1977).

44 Authorized Rates of Return for the Interstate Services of

AT&T Communications and Exchange Telephone Carriers, 5&8 RR 2d

1647 (1985) (Authorized Rates of Return), appeal pending, AT&T

v. FCC, No. 85-1778 (D.C. Cir. May 21, 1987).

45Authorized Rates of Return, 58 RR 2d at 1649.

23a

34. We did not depart from that practice by requiring

in the Second Structure Order and reiterating in the

Second Structure Reconsidera'ion that Comsat properly

target its rates at the 11.48 percent return level as an

initial matter. The initial targeting of rates at the pre-

scribed level of return raises concerns which differ from

those raised by the after-the-fact, equitable balancing of

ratepayer and shareholder interests that we are engaging

in here. The cited statements were not, and could not

reasonably be, intended to specify a standard for the

eventual review of actual earnings, given the uncertain-

ties of actual operations and possible changes in the eco-

nomic environment, but were directed to the carrier’s

obligation to develop rates initially. Confirming this

fundamental distinction, this Commission’s consistent

practice in the refund context has been to accord carriers

the full “buffer” increment, as in the AT&T refund case,

in which this Commission ordered the refund of only

those revenues exceeding the “buffer.’”’ Moreover, Com-

sat’s excess earnings represent the same kind of targt-

ing error that the Part 65 rules are designed to remedy

and the same considerations warrant an allowance for

targeting error. The same considerations also warrant

viewing differentials that earlier Commissions described

as an “efficiency” allowance as an allowance for target-

ing error. We will accordingly limit refunds to earnings

that exceeded the 12.48 percent maximum return.

C. Subject Carriers

35. Comsat contends that because there has never been

a separate Commission proceeding to determine the ap-

propriate rate of return for the earth station operations

of its subs‘diary, Comsat International Communications

Inc. (CICI), no refunds should be ordered in connection

with its multipurpose earth station services. Comsat’s

assertion that CICI’s distinct risk profile and its relatively

small rate base distinguish it from space segment opera-

tions fails to recognize that the return prescription for

24a

Comsat was not developed for Comsat’s space segment

alone. In addition, one of our considerations in allowing

Comsat to retain revenues up to the limit of its return

prescription, apart from the inherent imprecision of

revenue targeting, is that Comsat has achieved opera-

tional efficiencies as the result of its compliance with our

structural reform orders. Therefore, absent a far more

persuasive showing from—Comsat, equitable considerations

do not warrant a distinct treatment of excess revenues

attributed to CICI.

D. Implementation of Refund

1. Refund Methodology

36. In its proposed refund schedule and methodology,

Comsat urges this Commission to implement any refund

of excess revenues by a prospective rate adjustment to its

customers over some period of future operations, rather

than the more “classical” refund of a lump sum to parties

that were customers of Comsat during the period excess

revenues accrued. New England Telephone, supra n.15,

recently held that our statutory refund authority com-

prehends both approaches. Therefore, we have carefully

considered the equitable and administrative factors re-

lated to both.

37. Comsat contends that a lump sum refund payment

in excess of $20 million would impair its flexibility and

capability to maximize growth. Comsat proposes instead

that its refund liability be dispersed prospectively, by off-

sets to future bills rendered its customers, who are pri-

marily carriers. This approach thus contemplates no re-

duction in Comsat’s revenue requirement or in its tariffed

rates. Comsat contends such an approach better effects a

flow-through of refunds to the customers of Comsat’s cus-

tomers, that is, end users. According to Comsat, some end

users who contributed to the excess revenues, in the form

of higher rates from Comsat’s carrier customers, may

a

25a

have since shifted to carriers that were not providing

substantial service during the earlier period. Such end

users would be disadvantaged by the lump sum approach,

because the carriers from whom they now receive service

would be entitled to receive a smaller share of the refund.

Finally, Comsat states that it would add excess revenues

attributable to its mulitpurpose earth station operations,

which are to be discontinued at the end of 1987, to the

space segment refund pool.

38. The parties commenting on Comsat’s proposal ob-

serve that Comsat’s proposed refund method would re-

quire carriers to continue or expand their relations with

Comsat in order to recoup their refunds. Those parties

contend that this result would effectively restrict competi-

tion in international services. The parties also argue that

Comsat’s proposal would effectively burden traditional in-

ternational record carriers (IRCs) with the support of

newer carriers. Those parties respond to Comsat’s claim

that fairness for end users is better achieved by a pro-

spective approach by observing that some end users who

previously took service from carriers who provided lim-

ited service during the accrual period may now take serv-

ice from larger carriers, who provided a greater share of

service during the accrual period and who would there-

fore be entitled to a greater share of the refund.

39. Comsat customers note that lump sum refunds

were used in the first Comsat rate case, which exceeded

$100 million, and refunds ordered under Bell System OCC

facilities tariffs. Further, they contend, the principal dif-

ficulty associated with lump sum refunds has been the

administrative difficulty and economic inefficiency of iden-

tifying and locating numerous customers who are entitled

to modest refunds. Those parties say that consideration

is not relevant here since Comsat’s customers are small in

number. Customers finally contend Comsat’s proposal to

calculate discounts on customer bills would constitute a

violation of Section 203 of the Act, 47 U.S.C. § 203,

26a

prohibiting rebates, and Part 61 of this Commission’s

Rules, 47 C.F.R. Part 61.

40. We have concluded that the disadvantages of the

prospective rate adjustment approach urged by Comsat

clearly outweigh its advantages. The principal beneficiary

of this approach would be Comsat, when Comsat has

already had the use of these excess revenues for several

years. Comsat’s competitors in international services

would be disadvantaged in a way that would frustrate

efforts to promote competition in the provisions of inter-

national services. Moreover, a prospective approach would

promote time- and resource-consuming controversies over

Comzat’s traffic projections and the allocation of refunds

between space and earth segments, as Comsat no longer

owns its multipurpose earth stations.

41. Finally, Comsat’s assertions regarding its ability

to bear the refund burden imposed today are not sub-

stuntiated sufficiently to demonstrate that the earrier’s

financial health or prospects would be significantly im-

paircd. Therefore, we will order a lump sum refund pay-

ment so that end users may directly and speedily receive

the benefits of these payments.

42. Consistent with the calculation of interest ex-

plained in Appendix C, we have determined Comsat’s

refund liability for the period from August 1, 1984 to

December 31, 1986 to be that displayed in the table below,

based on interest accrued to December 31, 1987 (dollars

in thousands): *”

i* As in Appendix C, from which these data are taken, the speci-

fied amounts for excess revenue and interest in 1985 and 1986 do

not precisely agree with the total due to rounding. These amounts

are subject to modification before final distribution to customers as

may be necessary to correct arithmetical errors in, or make technical

adjustments to. the data or calculations underlying them. We dele-

vate to the Chief, Common Carrier Bureau, the authority to make

such modifications.

27a

Aug.-Dec. 1984

Refund Amount 5306.0

Interest 1618.0

6924.0

Jan.-Dec. 1985

Refund Amount 13,856.0

Interest 2,563.0

16,420.0

Jan.-Dec. 1986

Refund Amount 14,139.0

Interest 1,273.2

15,411.0

Total 38,755.0

2. Disbursement Methodolozy

43. While we have concluded that Comsat must refund

certain excess earnings, we are not ordering that refunds

be disbursed to Comsat’s carrier customers at this time.

We have decided to obtain additional comment on the

appropriate allocation of the refund among Comsat’s car-

rier customers and on several flow-through questions be-

fore we order disbursements. We will accordingly require

Comsat to place the entire refund amount in an escrow

on or before February 29, 1988, and will issue instruc-

tions for payments from the escrow in a_ subsequent

order.** The actual interest earned on the escrow ac-

count will inure to the ultimate beneficiaries.

44. The Bureau’s April 6 Order tentatively concluded

that Comsat’s carrier customers should be required to

pass through to their customers any refunds they receive

47 There is no reason to delay refunds owed to Comsat’s end user

customers, since these customers and their relative usage are easily

identified. Such funds should be disbursed by Comsat prior to

February 15, 1988.

28a

from Comsat. This determination is consistent with prior

Commission practice in implementation of rate reduc-

tions.*® Comsat’s non-dominant international carrier cus-

tomers, in responding to Comsat’s proposed refund meth-

odology, have criticized the Bureau’s proposed flow-

through requirement on a variety of grounds. First, they

state that a mandated flow-through would be inconsistent

with their non-dominant status. They argue that flow-

throughs should not be ordered for entities who are not

rate-base regulated.*® Second, these carriers indicate

that their rates are driven by market forces to be close to

costs, that they have not overcharged end-users (and in-

deed have “absorbed” a portion of Comsat’s overcharges),

and that their returns have been substantially less than

Comsat’s. Third, they state that past Commission prac-

tice (i.e., ordering a flow-through) is not relevant since

the question of flow-throughs for non-dominant carriers

is a case of first impression. They conclude by arguing

that flow-throughs are discretionary and should not be

ordered for non-dominant carriers under the existing cir-

cumstances. In its comments, AT&T states that until a

refund mechanism is finalized it would be premature to

attempt to establish the specifics of a flow-through plan.

AT&T sugzests that-Comsat’s earrier customers receiving

refunds be permitted to propose a method of treating

those refunds after the refund mechanism is adopted.

45. We remain convinced that these refund payments

should inure to the benefit of ratepayers. Non-dominant

carriers pricing close to cost because of market forces will

recieve what amounts to a significant reduction in their

48 See American Tel. & Tel. Co., Docket No. 20639, 56 FCC 2d

821 (1975), modified, 67 FCC 2d 966 (1978), proceeding terminated,

90 FCC 2d 1233 (1982); American Tel. & Tel. Co. (Hawaii Trans-

ponder Case), 45 FCC 2d 252 (1974); Authorized Entities and

Authorized Users, 4 FCC 2d 421, 434 (1966).

49 International Competitive Carrier Policies, CC Docket No. 85-

107, 59 Pike & Fischer R.R. 2d 283 (November 15, 1985).

29a

costs. We believe that their rates should reflect such cost

reductions.” Dominant carriers, for their part, will be

receiving payments which should be reflected in their

accounts and rate development calculations. Nevertheless,

we believe that the record warrants giving Comsat’s car-

rier customers a specific opportunity to further address

this issue and propose a specific flow-through method-

ology. Accordingly, interested parties may file comments

on these issues no later than 30 days from the release

date of this Order. Replies may be filed by any party

fourteen days thereafter. In their filings, Comsat’s car-

rier customers should propose specific methodologies for

implementing flow-throughs of Comsat’s refund. These

parties should also identify the portion of Comsat’s re-

fund to which they believe they are entitled, as well as

the data and calculations underlying their claim.”

IV. ORDERING CLAUSES

46. Accordingly, IT IS ORDERED, pursuant to Sec-

tions 4(i), 201(b) and 205(a) of the Communications

Act, 47 U.S.C. $$ 4(i), 201(b), and 205(a), that Com-

sat is required to refund to its customers taking service

between August 1, 1984 and December 31, 1986, the ag-

gregate sum of $38,755 million dollars, representing the

revenues accrued during that period in excess of 12.48

percent return and accrued interest as calculated in Ap-

pendix C, to be apportioned between these customers on a

basis reflecting the charges for service incurred by cus-

tomers. The aggregate sum, less amounts due to end user

customers, shall be deposited in an interest bearing es-

crow account on or before February 29, 1988 and the

costs of administering that account shall be borne by

50 We note that the non-dominant international carriers were not

classified as such by this Commission until well after the mid-point

of the period involved.

"1 See, ITT World Communications Inc., 70 FCC 2d 1316, 1328-30

(1978).

30a

Comsat. The simple interest accruing from December 31,

1987 to the date of deposit in escrow shall be calculated

by Comsat consistent with the method of Appendix C,

using the current Internal Revenue Service rate, and

added to the $38.755 million figure stated above. Sums

owed to end user customers shall be paid by Comsat on

or before February 29, 1988 and the aggregate refund

sum placed in escrow reduced accordingly.

47. IT IS FURTHER ORDERED that the Secretary

shall, by registered mail, serve a copy of this decision

upon the Communications Satellite Corporation in accord-

ance with Sections 416 and 413 of the Communications

Act of 1934, as amended, and shall enter proof of service

in the docket in this proceeding.

48. IT IS FURTHER ORDERED that the Secretary

shall transmit a copy of this order to the American Tele-

phone & Telegraph Co., and to each party filing comments

in this proceeding.

49. IT IS FURTHER ORDERED, that in addition to

the filing requirements generally imposed by this Com-

mission’s Rules for docketed investigations, a separate

copy of pleadings responsive to this Order shall be filed

with the Commission’s commercial contract duplicator;

the Chief, Common Carrier Bureau; the Chief, Tariff

Division; the Chief, International Facilities Division; and

the respective divisions’ reference rooms.

50. IT IS FURTHER ORDERED, that the Chief,

Common Carrier Bureau is authorized to require Comsat

to make such minor adjustments to the escrowed amount

as may be necessary to correct errors in, or reflect tech-

nical modifications to, the data or calculations underlying

the refund ordered herein.

51. IT IS FURTHER ORDERED that the vetitions

for reconsideration filed by Fedex International Trans-

mission Corporation and ITT World Communications,

Inc. ARE DENIED.

3la

52. IT IS FURTHER ORDERED, that comments on

the flow-through issue discussed herein SHALL BE

FILED not later than 30 days after release of this Order,

and replies SHALL BE FILED not later than 45 days

after release of this Order.

FEDERAL COMMUNICATIONS COMMISSION

H. Walker Feaster III

Acting Secretary

APPENDIX A

Comsat filed its response to the show cause elements of

the April 6 Order May 15, 1987, but failed to submit a

refund methodology. Pursuant to the Bureau’s pro-

cedural consolidation order of Jun. 17, 1987, 2 FCC Red.

4417, Comsat submitted its proposed refund schedule and

methodology July 10, 1987; parties’ comments on that

proposal and on Comsat’s response were submitted July

31, 1987 in various configurations. Fedex International

Transmission Corporation (Fedex) submitted separate

pleadings addressing (i) Comsat’s response and (ii) re-

fund and flow-throuch issues. FTC Communications, Inc.

(FTCC) and MCI Communications Corporation (MCI),

the latter on behalf of Western Union International

(WUI), MCI Telecommunications Corporation (MCII)

and MCI International, Ine. (MCII), each submitted

comments on the refund methodolory and flow-through

issues. TRT Telecommunications Corporation (TRT) and

Univision, Ine. (Univision) each addressed Comsat’s re-

sponse and its refund methodology in intevrated com-

ments, while Turner Broadcasting System, Inc. (TBS)

limited its response to the proposed refund method, as did

Pan American Satellite (PAS) and RCA Global Com-

munications, Ine. (RCA Globecom)-Capital Cities /ABC,

Inc.. CBS Inc. and National Broadcasting Company, Inc.

(Networks) also commented on Comsat’s refund proposal.

Additionally, the Bureau’s procedural consolidation order

a

32a

(DA 87-735, released June 17, 1987) did not rule on

Univision’s request that its comments on the networks’

joint application for review of the Apri! 6 Order be ac-

cepted as an additional pleading under Section 1.45 of

the Commission’s Rules, 47 C.F.R. $1.45. Univisions’

comments endorsed concerns raised by the networks re-

specting Comsat’s treatment of Intelsat cost components

in the development of occasional television service rates.

While the networks have withdrawn their application for

review (n4, infra), the concerns raised by Univision were

originally proffered under its previous corporate name

(SIN, Ine.) in petitions directed to the television tariff

revisions captioned in the Bureau’s investigation, and

Univision’s comments will be included in the record for

subsequent consideration of those issues.

APPENDIX B

Table 1

Rate of Return Prescribed for COMSAT

as Calculated under the Settlement Agreement

Adopted in Docket No. 16070

Weighted

Equity Capital Debt Capital Average

Cost of

Year Return Weight Return Weight Capital

(A) (B) (C) (D) (E=A*B+

C*D)

1978 12.2% 1.00 9.0% 0.00 12.20%

1979 12.2% 0.91 9.0% 0.09 11.91%

1980 12.2% 0.82 9.0% 0.18 11.62%

1981 12.2% 0.73 9.0% 0.27 11.34%

1982 12.2% 0.64 9.0% 0.36 11.05%

1983 12.2% 0.55 9.0% 0.45 10.76%

Average return over 6 year period: 11.48%

Notes:

Column (A)—The current long-term government bond yield (8.2

percent at the signing of agreement) plus a 4 percent risk premium.

Column (B)—100% equity financing assumed in first year, de-

clining to 55 percent at the end of six years.

33a

Column (C)—The cost of debt was assumed to be the rate for an

A-rated public utility. (9.0 percent at signing of agreement)

Column (D)—Debt to be acquired at the rate of 9 percent per

year, starting in 1979 and continuing until 45% of capital is

reached.

APPENDIX B

Table 2

Docket No. 16070 Prescription Methodology,

Adjusted to Actual Interest Levels

Cumulative

Weighted

Equity Capital Debt Capital Average

Year Return Weight Return Weight Cost of

Capital

(A) (B) (C) (D) (F=A*B+

C*D)

1978 12.20 1.00 9.00 0.00 12.20

1979 12.74 0.91 10.20 0.09 12.51

1980 14.81 0.82 12.89 0.18 14.22

1981 16.87 0.73 15.29 0.27 15.77

1982 16.23 0.64 15.43 0.36 15.23

1983 15.84 0.55 13.10 0.45 14.73

Average return over 6 year period: 14.11

Notes:

Column A—Assumed to be the current long-term government bond

yield plus a 4 percent risk premium. The entry for 1983 includes

an extra one percent risk premium to reflect that COMSAT had

obtained a capital structure with 45 percent debt.

Column B—100% equity financing assumed in first year, declining

to 55 percent at the end of six years.

Column C—Return on Moody’s A Rated Corporate Bonds, from

Survey of Current Business, US Dept. of Commerce, various issues.

Column D—Debt financing to increase by 9 percent per year,

starting in 1979 and continuing until 45% of capital is reached.

Column E—The weighted averave cost of capital is equal to the

cost of equity times its weight in the capital structure plus the cost

of debt times its capital structure weight. The calculation under-

lving these figures assuines that the cost of each increment of debt

is the cost of debt in the year it was added.

34a

APPENDIX C

COMSAT Refund Liability

For the Period August, 1984 through December, 1986

(Dollars in Thousands )

Return Excess Excess

Avg Net Net Op Earned Earnings Revenue

Year Invest Income (Annual) (r=.1248)

(A) (B) (C=B/A) (D=Ar-C) (E=D/1-t)

1984 $398,266 $23,421 14.11% $2,711

1985 $404,843 $57,605 14.23% $7,081 $13,856

1986 $421,338 $59,808 14.19% $7,225 $14,139

Total $33,301

Interest:

Refund

Revenue

1985 1986 1987 Total + Interest

(F=.12E) (G=.095E) (H=.09E) (I=F+G+H) (J=E+I)

$637 $504 $478 $1,618 $6.924

$0 $1,316 $1,247 $2,563 $16,420

$0 $0 $1,273 $1,273 $15,411

$5,454 $38,755

Notes:

The April 6 Order’s tentative refund calculation did not include

excess revenue data for July, 1985 because changes in Comsat re-

porting procedures made to reflect the Second Structure Order

result in a discontinuity in the data reported monthly by Comsat

on its Form 901 between June and July, 1985. Specifically, data

presented by Comsat for the months prior to July, 1985 (Revised

Exhibit D1 at 1-8) are for combined earth and space operations,

while data presented for the months of July 1985 and later (Revised

Exhibit D1 at 9) separate space and earth operations. The figures

adopted today reflect inclusion of data for July, 1985. Consistent

with the rate base calculation methodology used in the April 6

Order, we have developed rate base and revenue data for July 1985

by combining the separately reported figures for Comsat’s earth

and space segment operations.

Columns A&B—Data for August, 1984 through June 1985 taken

from Comsat Response (dated March 3, 1986, revised July 9, 1986),

Exhibit D1, paves 7-8. Data for July, 1985 threugh December, 1986

taken from FCC Form 901.

35a

Column A is calculated by adding the end of month rate base for

the current month with the previous month and dividing by two.

Column C—The 1984 row covers only the last five months of the

year. The realized rate of return was annualized by multiplying

B/A by 12/5. The 1985 and 1986 rows cover full years.

Column D—The excess earnings calculations assumes an allowed

rate of return of 12.48%.

Column E—The calculation assumes a 48.9% tax rate. E=D*(1-

.48.9)

Column F—The interest rate used for 1985 is the average of the

Internal Revenue Service (IRS) refund interest rates in effect in

1985. Jan-Jun: (13%); Jul-Dec: (11%). See IRS Notice 746.

Column G—The 1986 interest rate was the average of the Jan-

Jun: (10%) and July-Dec: (9%) IRS rates.

Column H—The 1987 interest rate was the Jan-Dec: (9%) IRS

rate.

Column I—The sum of Columns F through H. Note that interest

computations assume that refund liabilities were incurred at the

end of each year, and that the refund will be made on December 31,

1987. The interest computations assume no compounding.

Column J—The total refund obligation as of 12/31/87 is the sum

of columns E and I. The sum of E and I differs from Column I for

1985 and 1986 due to rounding.

36a

APPENDIX C

UNITED STATES COURT OF APPEALS

DISTRICT OF COLUMBIA CIRCUIT

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

NEW ENGLAND TELEPHONE AND TELEGRAPH

COMPANY, et al.,

Petitioners,

V.

FEDERAL COMMUNICATIONS COMMISSION and the

UNITED STATES OF AMERICA,

Respondents,

GTE Service Corp., et al., NATIONAL TELEPHONE Co-

OPERATIVE ASSOCIATION, et al., AMERICAN TELEPHONE

& TELEGRAPH Co., AMERITECH OPERATING Co., MOUN-

TAIN STATES TELEPHONE & TELEGRAPH Co., et al.,

SATELLITE BUSINESS SYSTEMS, U.S. TELEPHONE ASSO-

CIATION, TELECOMMUNICATION RESEARCH & ACTION

CENTER, SOUTH CENTRAL BELL TELEPHONE CO.,

SOUTHWESTERN BELL TELEPHONE Co.,

Intervenors.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

‘ Petitioner,

FEDERAL COMMUNICATIONS COMMISSION and the

UNITED STATES OF AMERICA,

Respondents,

U.S. TELEPHONE ASSOCIATION, GTE SERVICE CorP., et al.,

MOUNTAIN STATES TELEPHONE & TELEGRAPH CO.,,

et al., BELL OPERATING COMPANIES, SOUTHWESTERN

BELL TELEPHONE Co.,

Intervenors.

37a

THE MOUNTAIN STATES TELEPHONE AND TELEGRAPH

COMPANY, et al.,

Petitioners,

v.

FEDERAL COMMUNICATIONS COMMISSION and the

UNITED STATES OF AMERICA,

Respondents,

GTE SERVICE CorpP.; et al., AMERITECH OPERATING CO.,

AMERICAN TELEPHONE & TELEGRAPH Co., BELL OPER-

ATING COMPANIES, SOUTHWESTERN BELL. TELEPHONE

Co.,

Intervenors.

PACIFIC BELL, et al.,

Petitioners,

v.

FEDERAL COMMUNICATIONS COMMISSION and the

UNITED STATES OF AMERICA,

Respondents,

GTE SERVICE Corp., et al.,. MOUNTAIN STATES TELEPHONE

& TELEGRAPH Co., et al., AMERITECH OPERATING CoO.,

AMERICAN TELEPHONE & TELEGRAPH CO., BELL OPER-

ATING COMPANIES, SOUTHWESTERN BELL TELEPHONE

Co.,

Intervenors.

Argued Oct. 30, 1986

Decided Aug. 21, 1987

Before MIKVA and BUCKLEY, Circuit Judges, and

PARSONS, Senior District Judge.

Opinion for the Court filed by Cireuit Judge MIKVA.

Dissenting opinion filed by Circuit Judge BUCKLEY.

* Of the United States District Court for the Northern District

of Illinois, sitting by designation pursuant to 28 U.S.C. § 294(d).

38a

MIKVA, Circuit Judge:

Petitioners American Telephone and Telegraph Com-

pany (“AT & T”) and numerous former Bell operating

telephone companies (“BOCs”) seek review of orders of

the Federal Communications Commission (‘the Commis-

sion”) requiring them to grant rate reductions. The re-

ductions are designed to reimburse consumers for earn-

ings enjoyed by AT & T and the BOCs in 1978 which

were over and above a rate-of-return ceiling previously

prescribed by the Commission. Petitioners challenge the

orders on a number of grounds, the most substantial of

which is that the Commission had no authority under the

Communications Act to impose such a remedy. We con-

clude that the Commission had ample authority to order

reductions to enforce its prior rate-of-return prescription,

and we deny the petitions for review.

I. BACKGROUND

A. Requlatory Structure

The Communications Act of 1934, ch. 652, 48 Stat.

1064 (codified as amended at 47 U.S.C.) (the “Act’’),

provides the regulatory ratemaking scheme within which

these petitions arise. Section 203 of the Act places pri-

mary responsibility for initiating rate revisions upon the

earrier. 47 U.S.C. § 203. Once a carrier initiates a re-

vision, the Commission is empowered under section 204

of the Act to suspend implementation of the proposed

tariff for up to five months while it investivates the law-

fulness of the proposed rates. 47 U.S.C. $204. If the

Commission’s investigation is not completed within that

time, the proposed tariff automatically goes into effect.

In such a case, however, section 204 empowers the Com-

mission to make the increases subiect to an accounting

and refund order: if the Commission later determines

that the revisions are excessive, it may order the carrier

to refund the unjustified amount to those customers who

39a

have been overcharged. Jd.: see Nader v. FCC, 520 F.2d

182, 198 (D.C.Cir.1975).

Section 205 of the Act, which is of particular relevance

to this dispute, governs the Commission’s authority to

rezulate existing rates. Under section 205, the Commis-

sion can initiate an investigation into any carrier rate or

practice. If the Commission determines that a carrier

‘ate is or will be unlawful under the Act, it may pre-

scribe the “just and reasonable charge ... to be there-

after observed.” 47 U.S.C. $205. This power of pre-

scription is a potent tool: once the Commission issues a

prescription order under section 205, the carrier must

“cease and desist from such violation . . . and shall not

thereafter publish, demand, or collect any charge other

than the charge so prescribed, or in excess of the maxi-

mum...so prescribed.” Id.

The Commission in this case also relied on section 4 (i)

of the Act. That section authorizes the Commission to

“nerform any and all acts, make such rules and regula-

tions, and issue such orders, not inconsistent with this

Act, as may be necessary in the execution of its func-

tions.” 47 U.S.C. §$ 154(i). As we detail below, section

4(i) previously has been held to justify the use of rate-

of-return prescriptions, as opposed to prescriptions of ac-

tual rates.

B. Regula'ory History

Although it had recommended appropriate return levels

as early as 1967, the Commission first began to use its

section 205 powers to prescribe a rate of return, as op-

posed to a prescription of actual rates, for the AT & T

system in 1972. The Commission decided to undertake a

rate-of-return prescription because AT & T had become

so huve and diverse that individual rate determinations

for each service were impractical. The 1972 order fixed

a rate of return of 8.5% and rejected proposed AT & T

tariffs that would have provided the compay with a higher

40a

return. AT & T’s challenge to that order called on this

court to determine whether the Commission’s section 205

powers permitted the agency to prescribe rates of return

as well as rates. Sze Nader v. FCC, 520 F.2d 182, 199-

205 (D.C.Cir.1975). In Nader, we determined, as a thres-

hold matter, that the Commission’s order fixing a rate of

return was indeed a prescription. We concluded that

‘“'wle would be shirking reality if we did not recognize

that the practical effect of the Commission’s . . . order

was to limit prospectively AT & T’s rate of return to

8.5°7, and thus [the order] was a prescription under sec-

tion 205.” Id. at 201; see also id. at 202 (the Commis-

sion’s order was intended “to have the prospective effect

of a prescription, thus, limiting the utility to that re-

turn.”’).

We then found that the Commission’s prescription of

a rate of return was consonant with the agency’s statu-

tory authority under the Act. 7d. at 203-05. Even though

section 205 refers only to the Commission’s power to pre-

scribe “charges, classifications, regulations and practices,”

we found that prescription of a rate of return was proper

under section 4(i), which gives the Commission the power

to issue such orders ‘‘as may be necessary to the execution

of its functions.” Jd. at 2038. In holding that “the

Commission lawfully prescribed a rate of return for

AT & T,” id. at 204, we noted that “the effect of the

prescription is to protect AT & T from the possibility of

refunds on the ground that an 8.5 rate of return was

too high, [although] the Commission retains full latitude

to order refunds on all other grounds.” J/d. at 205 n. 25.

With the issue of its power to prescribe rates of return

thus settled, the Commission proceeded in 1976 to set a

rate of return of 9.5°° for the AT & T system. See Amer-

ican Tel. & Tel. Co., 57 F.C.C.2d 960 (1976). The Com-

mission added to the 9.5% figure a buffer of .5% “in

order to provide an incentive to increase productivity and

efficiency.” Jd. at 973. In effect, while the Commission

4la

prescribed a 9.5% rate, it let AT & T know in advance

that it would tolerate “a level or range of interstate earn-

ings not to exceed 10%” before it took remedial action.

Id.

AT & T responded to the Commission’s prescription by

filing a tariff structure designed to produce no more than

a 10% rate of return. Without making a specific finding

that they were just and reasonable, the Commission per-

mitted these rates to go into effect on March 1, 1976. In

1976 and 1977, the rates produced a rate of return under

10%. However, the same rates in 1978 resulted in a rate

of return which all parties agree exceeded the prescribed

10% ceiling.

Although it took a great deal of time to do so, see

Telecommunications Research & Action Center v. FCC,

750 F.2d 70 (D.C.Cir.1984), the Commission eventually

responded to AT & T’s excessive rate of return in Decem-

ber of 1984, when it ordered the company to reduce its

rates to refund the excess earnings to consumers. See

J.A. 23-33. In its order, the Commission rejected

AT & T’s argument that the 1976 prescription was meant

to be not a ceiling on AT & T’s rate of return but only

a target for setting rate levels; the Commission observed

that the plain language in the prescription order re-

stricted AT & T to a return of not more than 10%.

J.A. 27. The Commission cited to sections 205 and 4(i)

of the Act, as well as our decision in Nader, in justifying

its authority to enforce its prescription by ordering re-

funds. J.A. 28. The Commission also rejected AT & T’s

argument that changing economic conditions had rendered

the 10% rate of return unlawfully low and therefore pre-

cluded the Commission’s enforcement of the rate. The

Commission explained that under the Act the carrier

bears primary responsibility for initiating changes in

existing prescriptions: since AT & T had initiated no

such revision, the 1976 prescription remained in effect in

1978. J.A. at 27.

42a

The Commission determined that AT & T had enjoyed a

10.22% rate of return in 1978. The Commission derived

the 10.22% figure from AT & T’s own Interstate Monthly

Report (“IMR”), which AT & T had filed with the Com-

mission in January 1979. AT & T subsequently had sub-

mitted an “FDC Report’ in which the company main-

tained that its rate of return for 1978 had been 10.09%.

In the proceeding leading up to the orders under review,

AT & T urged the Commission to compute the rate re-

ductions based on the 10.09% figure. AT & T insisted

that the 10.22% figure did not adequately account for

certain services and facilities provided to other common

carriers, and that integrating the relatively slight earn-

ings of those services and facilities into the computation

resulted in a net rate of return of 10.09%. The Commis-

sion, however, chose to rely on the IMR, as it had for the

previous 28 years in computing AT & T’s rate of return.

The 10.22% reflected excessive 1978 earnings for AT & T

in the amount of one hundred one millien dollars. The

Commission ordered AT & T and its former operating

companies (AT & T had by this time been divested) to

lower its rates by an amount sufficient to reimburse rate-

payers for that amount plus interest. J.A. 26.

In two reconsideration orders, the Commission sub-

stantially reaffirmed its December 1984 order, imposing

only slight alterations not at issue here. See J.A. 43-80.

Specifically, the Commission again concluded that it had

the statutory authority to impose the refunds on AT & T

and the BOCs, that its decision did not represent a re-

versal of longstanding policy not to impose refunds for

violations of prescriptions, and that AT & T had earned

a 10.22% rate of return in 1978. AT & T and ten BOCs

responded with these consolidated petitions for review.

The petitioners’ efforts to overturn the Commission’s or-

ders are championed in whole or in part in intervenors’

briefs filed by the Ameritech Operation Companies, the

United States Telephone Association, and GTE, and an

43a

amicus curiae brief filed by the Communications Satellite

Corporation.

II. DISCUSSION

Petitioners make three basic challenges to the Commis-

sion’s orders. The first, and most important, of their

contentions is that the Commission has no authority

under the Communications Act to impose refunds for

earnings in excess of a prescribed rate of return. A sec-

ond and related argument is that even if the order did

not violate the Act, it departed from prior policy with-

out adequate explanation and with unfairly retroactive

effect. Third, petitioners allege various infirmities in the

Commission’s methods of calculating the amount of the

refund liability. We address each of these contentions

in turn. :

A. Statutory Authority

Petitioners’ challenge to the Commission’s authority

to issue the orders under review reveals two points of

fundamental opposition to the agency’s view of its regu-

latory authority. First, petitioners differ with the Com-

mission as to the effect of the 1976 prescription. They

contend that the nature of their obligation was merely

to try in good faith te formulate rates that would not

produce an excessive return. In the Commission’s view,

by contrast, the prescription imposed a maximum return

that the carriers could not exceed, however innocent’y.

Petitioners also argue that in any event the Commission

has no power to impose refunds to remedy a violation of

rate-of-return prescriptions. This argument as to remedy

is linked to the first contention: if the prescription

obliged the carriers on'y to design responsive rate, the

Commission would be overreaching in adopting a remedy

that in effect retroactively adjusts rates that appeared

reasonable when implemented. We consider first the

nature of the Commission’s power to perscribe rates of

44a

return and then take up the related issue of the Com-

mission’s remedial reach.

Petitioners acknowledge that once the Commission pre-

scribes a rate of return, they are required to submit rates

designed to achieve no more than that rate. Under peti-

tioners’ view of the regulatory scheme, however, that is

all they are required to do; if they err, and rates designed

to achieve a lawful return turn out to generate an ex-

cess, the prescription has not been violated. Petitioners’

argument, in short, is that the Commission may pre-

scribe constraints only on carriers’ subjective efforts, not

on future events. We see no reason to adopt this narrow

reading of “prescription,” especially when it is opposed by

a more reasonable interpretation by the Commission.

See Chevron U.S.A. Inc. v. Natural Resources Defense

Council, 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81

L.Ed.2d 694 (1984). The Commission’s chief concern in

issuing prescriptions is protecting just and reasonable

rates, not policing carriers’ states of mind. The idea of

a prescription under section 205 is that the agency has

proclaimed that a certain situation—here a return in

excess of 10%—is unlawful and shall not occur. Cer-

tainly carriers cannot intentionally try to violate an out-

standing prescription, but that does not mean that they

may achieve through inadvertence what they are forbid-

den from doing by design.

A central defect in petitioners’ argument is a failure

to recognize the import of our prior decision in Nader

approving the Commission’s authority to prescribe rates

of return. Nader established that the Commission may

determine what rate of return must be thereafter ob-

served in the same way it may set a just and reasonable

rate to be thereafter observed. We expressly recognized

as much when we wrote that the Commission’s order

had ‘‘the prospective effect of a prescription, thus, /imit-

ing the utility to that return.” Nader, supra, 520 F.2d

at 202 ‘emphasis added). Here the Commission has ex-

45a

ercised its legal prerogative to prescribe a rate of return,

rather than a rate. The teaching of Nader is that such

a prescription is no less binding. If the order setting the

maximum rate of return was a valid section 205 pre-

scription, as it clearly was after Nader, it had “the force

of a statute... . The carrier ... is bound to conform.”

Arizona Grocery v. Atchison Ry., 284 U.S. 370, 52

S.Ct., 183, 76 L.Ed. 348 (1931). See also American Tele-

phone & Telegraph Co. v. FCC, 487 F.2d 865, 874 (2d

Cir.1973) (carriers are compelled to adhere to prescrip-

tions by Commission).

Having established that the Commission reasonably

determined that AT & T’s 1978 earnings violated the

outstanding prescription, we turn to the question of rem-

edy. Petitioners insist that no section of the Act em-

powers the Commission to grant refunds for a violation

of a prescription. Petitioners point out that section 204

is the only provision in the Act to expressly mention

“refunds,” and it applies only to Commission action fol-

lowing suspension of new or revised rates; the order

under review corrected rates that already had been in

effect for two years. Section 205, petitioners observe, is

forward-looking: the Commission uses it to prescribe

charges and practices ‘‘to be thereafter observed.” In pe-

titioners’ view, by contrast, the Commission’s order was

a classic example of retroactive ratemaking, which is

forbidden under a plethora of case law interpreting

sections 204 and 205 and similar provisions in analogous

regulatory schemes. Finally, petitioners argue that the

Commission cannot cure its lack of authority by reliance

on section 4(i), because that provision authorizes only

such orders as are “not inconsistent with this Act,”

and retroactive refunds are inconsistent with the Act.

The petitioners buttress their textual arguments with

an observation that the prohibition against retroactive

ratemaking is designed to achieve an overall regulatory

balance between the interests of consumers, who need

46a

protection from unreasonably high rates, and those of

carriers, who need assurance of a reasonable rate of

return. Under the prospective ratemaking scheme, car-

riers are precluded from recouping shortfalls during lean

years, but they are compensated by being permitted to

retain excess earnings from unexpectedly profitable years.

This balance, petitioners argue, is destroyed if the Com-

mission can order refunds to enforce a ceiling on a

carriers’ return without also guaranteeing the carriers

some minimum reasonable return.

In addressing petitioners’ concerns, we note at the out-

set that although petitioners and the Commission both

refer to the rate reductions as a “refund,” the order does

not impose a refund in the classic sense of restitution

to an overcharged party. Here the reductions will accrue

to the benefits of a different customer base from the base

that contributed to AT & T’s excessive earnings. The

Commission’s order therefore is more precisely considered

a prospective rate adjustment to compensate for past

surpluses. See J.A. 26. This case does not, however, turn

on the arguably overfine semantic distinction between a

refund and a prospective adjustment; even allowing for

argument’s sake that the Commission imposed a refund,

the order was well within the agency’s statutory author-

ity.

As petitioners observe, section 204 is the only provision

of the Act explicitly to mention refunds, and it does not

apply to the circumstances of this case. The Commission,

however, relied on another section of the Act—section

4(i)—to impose ra‘e reductions in the amount of

AT & T’s excessive 1978 earnings. That provision em-

powers the agency to perform any act “not inconsistent

with this Act, as may be necessary in the execution of its

functions.” We find this wide-ranging source of author-

ity adequately supports the Commission’s remedial action.

In a strictly technical sense, the Commission’s choice of

remedy was absolutely necessary; without the reductions,

47a

the carriers in fact would not be limited to a return of

10% and the prescription would be violated. More gen-

erally, the Commission enjoys a significant discretion to

choose among a range of reasonable remedies, including

refunds. See Las Cruces TV Cable v. FCC, 645 F.2d

1041, 1047 (D.D.Cir. 1981). The Commission does not

have to show that it selected the only conceivably appro-

priate remedy in order to invoke its 4(i) powers. See

North American Telecommunications Ass’n v. FCC, 772

F.2d 1282, 1292 (7th Cir.1985) (section 4(i) is a “neces-

sary and proper clause” empowering the Commission to

“deal with the unforeseen ... to the extent necessary to

regulate effectively those matters already within the

boundaries”). Although, as petitioners point out, there

are other corrective measures the Comission might have

chosen, the measure it adop‘ed in this case was appropri-

ate and reasonable. As we said recently in another case

approving of an agency’s refund order, “|t]|he question

eventually reduces to one of judgment, informed by the

policy of the statute that Congress has seen fit to enact.

We find the agency’s judgment . . . to be fully consistent

with the Commission’s broad mandate from the Article I

branch to assure that all rates are just and reasonable.”

Southern California Edison Co. v. FERC, 805 F.2d 1068,

1072 (D.C.Cir.1986).

Petitioners nevertheless insist that a refund remedy is

inconsistent with the Act, and therefore an inappro-

priate exercise of power under section 4(i), because it

amounts to retroactive ratemaking. This argument again

overlooks the force of our decision in Nader and the Com-

mission’s subsequent 1976 rate-of-return prescription.

There was not retroactive ratemaking here, because the

carrier’s obligations were set prospectively in 1976, when

the Commission forbade AT & T from earning more than

10%. The 1984 order under review merely recognized

that the prior prescription had been violated and im-

posed a remedy for that violation. As the Commission

explained, the refund order is a “dispassionate remedy

48a

for a violation in fact of an earnings ceiling. The car-

riers are being required merely to give up what they

never should have collected in light of the rate of return

prescription.” FCC Br. 25 n. 31. This case is thus no

different from one in which the Commission prescribed

actual rates and the carrier, either intentionally or inad-

vertently, collected higher charges. Although no carrier

has yet been so brazen, there can be little doubt under

such circumstances but that the Commission would be

well within its authority in forcing the carrier to dis-

gorge the unlawful excess. Cf. United States v. Corrick,

298 U.S. 435, 56 S.Ct. 829, 80 L.Ed. 1263 (1936) (Com-

mission can reject rate filings in excess of prescribed

rates). The Commission has no more engaged in retro-

active ratemaking here just because it is acting to en-

force a rate-of-return prescription rather than a rate

prescription.

Nor does the Commission order foster an impermissible

imbalance between the interests of carriers and those of

consumers. First, the Commission’s 1976 prescription did

provide a measure of protection for the carriers. As we

noted in Nader, “the effect of the prescription is to pro-

tect AT & T from the possibility of refunds on the ground

that an 8.5% rate of return was too high.” 520 F.2d

at 205. n. 25. Thus, had the cost of capital plunged in

1977, so that AT & T’s return in that year of 9.59%

was far above the reasonable minimum necessary to at-

tract continued investment, the Commission nevertheless

would not have been able to order a refund; rather, it

would have had to initiate a new Section 205 proceeding

and issue a new rate-of-return prescription, which would

have had prospective force only.

It is true that the current regulatory scheme is asym-

metric on another level. Since the Commission has so

far declined to set minimum guaranteed rates of return

for the carriers (although it has not foreclosed the possi-

bility of doing so in the future), carriers must refund ex-

49a

cess earnings, but they are not compensated for short-

falls. The carriers, however, have no statutory entitle-

ment to a perfectly balanced regulatory scheme; rather,

they are entitled only to earn an overall reasonable re-

turn. The Commission has concluded that a guaranteed

minimum annual return is not essential to protect that

right. That conclusion is a reasonable one. Under the

Act, the carriers have the opportunity and responsibility

to file rates that provide an adequate return. In this.

sense they are unlike consumers, who rely predominantly

on the Commission to protect their right to just and rea-

sonable rates. Moreover, the Commission supplements its

rate-of-return prescriptions with a buffer, in this case

amounting to .5%. This added increment makes it easier

for the carriers to design charges that provide a rate of

return in the vicinity of the prescribed ceiling. Thi

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