# Petition for Writ of Certiorari — Communications Satellite Corp. v. Federal Communications Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1444%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 497 U.S. 1004 ## Text 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1444%3A1. Public record. Not legal advice.