Petition for Writ of Certiorari — National Ass'n of Regulatory Utility Commissioners v. Federal Communications Commission

Supreme Court brief1975

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Text

(i)

TABLE OF CONTENTS

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QUESTIONS PRESENTED ..... 2... ccccccccceecs

STATUTORY PROVISIONS INVOLVED............

STATEMENT OF THE CASE ..............2000055

REASONS FOR GRANTING THE WRIT ............

II.

Il.

The FCC’s “Free Entry”’ Policy for Specialized Com-

mon Carriers Conflicts with this Court’s Deter-

mination in FPC v. Texaco, Inc., 417 U.S. 380

(1974), that a Regulatory Agency May not Defer to

the Market Place as the Measure of a Statutorily

Mandated Decisional Standard................

The Extent to which a Reviewing Court Should Con-

sider Subsequent Inconsistent Agency Action is an

Important Question of Administrative Law which is

Likely to be Recurring, and which Requires Guid-

og ee eee

Sanction by the Court of Appeals of the FCC’s

Failure to Comply with NEPA so far Departs from

an Acceptable Course of Judicial Review that this

Court Should Exercise its Supervisory Powers .....

CRAIG i oc SRG kde ews gene eee nadestsewens

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(ii)

TABLE OF AUTHORITIES

Page

Cases:

Allocation of Microwave Frequencies Above 890 Mc,27

F.C.C. 359 (1959), affirmed and modified on recon-

sideraiion, Allocation of Frequencies in Bands Above

890 Me, 29 F.C.C. 825 (1960)... 0... eee eee eee 7

Burlington Truck Lines v. United States, 371 U.S. 156

Cee Ce ee Ce TELE TOURETTE EEE 16, 20

CAB v. Delta Air Lines, 367 U.S. 316 (1961). ........... 16

Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402

| SRP PEO er ere et eee ee eee ee a 20

CPI Microwave, Inc., 37 F.C.C. 2d 1120 (1972)

ERS On ere ee 19

Data Transmission Company, 34 F.C.C. 2d 306 (1972) .... 19

FCC v. RCA Communications, Inc., 346 U.S. 86

ASSES SS ees ay er are ea 1S

FPC v. Texaco, Inc., 471 U.S. 380 (1974) .......... 14, 15, 16, 17,19

In the Matter of Economic Implications and Interrela-

tionships Arising From Policies and Practices Relating to

Customer Interconnection, Jurisdictional Separations

and Rate-Structures,

Notice of Inquiry, 46 F.C.C. 2d 214 (1974) ......... 12, 22

Memorandum Opinion and Order, 49 F.C.C. 2d

ROS Ea arn tee 21

First Supplemental Notice, 50 F.C.C. 2d 574 (1974) . . 12

the Matter of Establishment of Policies and Procedures

for Consideration of Applications to Provide Specialized

Common Carrier Services in the Domestic Public Point-

to-Point Microwave Radio Service and Proposed Amend-

ments to Parts 21, 43, and 61 of the Commission's Rules,

(iii)

Notice of Inquiry to Formulate Policy, Notice of Pro-

posed Rule Making, and Order, 24 F.C.C. 2d 318

i. Peer Pee TY COTTE LTE TORE TL TE CTE TET

First Report and Order, 29 F.C.C. 2d 870(1971) ....

Memorandum Opinion and Order, 31 F.C.C. 2d 1106

In the Matter of Implementation of the National Envi-

ronmental Policy Act of 1969,

Notice of Proposed Rule Making, 36 F.C.C. 2d 108

i PPP ST TT eer rr rrrre Tere re cree

Report and Order, 49 F.C.C. 2d 1313 (1974). .......

Order, SO F.C.C. 2d 814 (1975) .. 6... ee eee eee

MCI Carriers, 27 F.C.C. 2d 380(1971) «2... eee eee ees

32 F.C.Gedd SOCIGTA) . ww ccc eee eccce

pf eal le | oy ee

37 F.C.C. 2d 1120(1972) (notations).......

Microwave Communications, Inc., 18 F.C.C. 2d 953 (1969),

reconsideration denied, 21 F.C.C. 2d 190(1970).......

Nebraska Consolidated Communications Corporation, 35

F.C.C. 2d 991 (1972) (notation). ... 2... eee ee eee

New York v. United States, 342 U.S. 882 (1951) (Douglas, J.,

dissenting). ... 0... ccc cece ee eee e teen eens

NLRB v. Metropolitan L. Ins. Co., 380 U.S. 438

POPPE TEPUCTT ETE CET ELT CERES E EE

SEC v. Chenery Corp.. 332 U.S. 194(1947). 2... 6.6 ee eee

Smith v. Illinois Bell Telephone Co., 282 U.S. 133

SOULS GAR AWARRAL RD RANAR NAS 6 Oba Skane Ree ws

Southern Pacific Communications Company, 37 F.C.C. 2d

ES Gc beks Ache eke sk eesnSevecnsena vas

10, 11

passim

12,25

13 ;

19 :

7,10, 21

LV OONE NE Rg LOE ELON TE IL, EPS LPO SATEEN! SIE RLE ENT ER MSO ET INI EL Bt A 1 Rg rere

scm ID saith

(iv)

Page

United States Transmission Systems, 48 F.C.C. 2d 859

Ae eee ee ee ey ee ee 19

Western Tele-Communications, Inc., 35 F.C.C. 2d 991

inch weed nauk Some heed nes eane 19

Statutes:

Administrative Procedure Act, 5 U.S.C. § 706(1970) ..... 20

Communications Act, 47 U.S.C. § 151, et seg. (1970) ..... passim

47 U.S.C. § 201, et seg. (1970) (Title I) ............. 5

pg Rie bo 6S PEP eee EEE LTT eee 12

AF ee RAN ha cA Sin aban ecsaciawececses 6

47 U.S.C. § 301, et seg. (1970) (Title III)............. 5

SF MAE a Gh a dha as ce becascccasbenss 12

47 U.S.C. § 310(1970, Supp. IID)... 2... eee ee ee eee 19

47 U.S.C. § 410(c) (1970, Supp. TID)... 2... eee ee eee 3

National Environmental Policy Act, 42 U.S.C. § 4321, et

AS Orr rr ree eee eee TEST Te eS passim

pe Re ene er ee 2

CLR ok 0 i re 3

oe re eee rea 3

LR ee Go err rere rer rere 3

Miscellaneous:

Hearings before the Subcommittee on Communications of

the Committee on Commerce, United States Senate. on

Overview of the Federal Communications Commission,

92d Cong., 2d Sess., Serial No. 92-54(1972).......... 7

IN THE

Supreme Court of the Mnited States

OCTOBER TERM, 1974

NATIONAL ASSOCIATION OF REGULATORY

UTILITY COMMISSIONERS,

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION, et ai.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Petitioner, the National Association of Regulatory Utility

Commissioners, respectfully prays that a writ of certiorari

issue to review the judgment and opinion of the United

States Court of Appeals for the Ninth Circuit entered in this

proceeding on January 20, 1975.

OPINIONS BELOW

The opinion of the Court of Appeals, which has not yet

been generally reported,’ appears at Appendix A to this

petition.’ The First Report and Order of the Federal Com-

' However, excerpts of the opinion appear at 43 U.S.L.W. 2341

(February 18, 1975).

? The appendices are separately bound in a companion volume.

hereinafter cited as ‘‘Pet. App.”

con UP OLIN

munications Commission (FCC), which is reported at 29

F.C.C. 2d 870 (1971), appears at Appendix C, and its

Memorandum Opinion and Order denying recon-

sideration, reported at 31 F.C.C. 2d 1106 (1971), appears at

Appendix D.

JURISDICTION

The judgment of the Court of Appeals for the Ninth Cir-

cuit was entered on January 20, 1975. A timely petition for

rehearing was denied on March 12, 1975, by an order which

appears at Appendix B, and this petition for certiorari is

filed within 90 days of that date. The jurisdiction of this

Court is invoked under 28 U.S.C. § 1254(1) (1970).

QUESTIONS PRESENTED

1. Whether the FCC exceeded its authority under the

Communications Act by promulgating, on the basis of a

rulemaking proceeding, a ‘‘free entry” policy for new ap-

plicants seeking to provide specialized common carrier ser-

vices to the public.

2. Whe*'«t an FCC decision may be sustained as

rational, when the FCC has subsequently instituted an in-

vestigation of basic issues which were raised in the subject

decision but were rejected by the FCC as being without

merit.

3. Whether a Court of Appeals may permit the FCC to

ignore the National Environmental Policy Act (NEPA), on

grounds of timeliness of raising the issue that arguably may

have been initially justified, when the Court’s decision on

review is not issued until two years after oral argument on

the appeal, and at that time the FCC still had made no

move to comply with the law.’

‘In the event certiorari is granted, petitioner may also present the

related issue for a ruling, namely, whether the FCC's failure to comply

with NEPA should have been excused by the Court of Appeals had

there been no extended delay in rendering its decision.

PERS A SNR

STATUTORY PROVISIONS INVOLVED

1. Communications Act of 1934, as amended, 47 U.S.C.

§ 151 et seq. (1970).

2. National Environmental Policy Act of 1969, 42 U.S.C.

§ 4321 et seg. (1970).

3. Administrative Procedure Act, 5 U.S.C. § 551 e2 seq.

(1970).

Relevant sections of the statutes are set out in Ap- ©

pendices E through G, respectively.

STATEMENT OF THE CASE

In this case the NARUC challenges a major policy

decision of the Federal Communications Commission es-

tablishing a general rule favoring the unlimited or ‘‘free”

entry of new entities seeking to provide domestic private

line communications common carrier services to the public.

EEE LL LES LN IVE RDA IS OTP LT

Background. For many years, common carrier telecom-

munications services have been provided to the American

people through chosen instruments regulated by Federal

and State regulatory agencies. The Congress created the

FCC in 1934 to regulate interstate carrier telecom-

munications services, and its counterparts at the State level

— members of the NARUC‘ — were established by their

respective legislatures to regulate intrastate carrier services.

* The NARUC is “the national organization of State commissions”

charged with the economic and safety regulation of utilities and

carriers, as referred to by Congress in 49 U.S.C. §§ 302(bX2), 30XM and ~

1673(aX1) (1970) and 47 U.S.C. § 41Qe) (1970, Supp. IID). A substantial

portion of the opinion of the Court of Appeals is devoted to establishing

the proposition that NARUC and its members have standing to mount

the instant challenge to the FCC’s decision. (Pet. App. 2a-18a). This

portion of the Court’s opinion is clearly correct, and review is not

sought of that issue herein.

; eee PRETEEN POISE BRITS OEE EEO Se ee Ecos aR

EED THROUGH

Insofar as pertinent here, there are three basic types of

interstate carrier telecommunications services: Message

Toll Telephone Service (MTS), Wide Area Telephone Ser-

vice (WATS) and Private Line Service (PLS). MTS is or-

dinary long distance telephone service, wherein a sub-

scriber may be connected on demand with any other

telephone anywhere in the nation. The charges for such ser-

vice are fixed on a per message basis and reflect both the

distance and the length of time of the call. In turn, rates are

determined by averaging costs, so that they are the same for

equidistant pairs of points, regardless of the actual costs of

providing the service along a given route.

WATS enables a subscriber to be connected on demand

with any other telephone in a specified geographical area

(such as a State or one or more area codes), for essentially a

fixed charge per month. PLS (also known popularly as ‘‘tie-

lines’’ and ‘‘leased"’ or ‘‘dedicated™ lines) provides a sub-

scriber with an open circuit between two or more specific

telephones or switchboards for essentially a fixed charge

per month.

As can be seen, WATS and PLS are designed to meet the

needs of large telecommunications users, and may be

viewed as ‘‘volume discount” alternatives to MTS. Stated

another way, the ordinary consumer is confined, as a prac-

tical matter, to MTS to meet his telecommunications needs,

because he does not generate the volume required to make

WATS and PLS discounts meaningful.

* Each of these services is also offered on an intrastate basis, subject

to NARUC members’ jurisdiction, with essentially similar rate and ser-

vice characteristics. In addition, however, NARUC members regulate

local exchange telephone service, which has no counterpart at the in-

terstate level.

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By the same token, the intercity telephone industry plant

used to provide MTS, WATS and PLS is substantially

fungible.®

The dominant entity providing domestic intercity

telecommunications services is, of course, American

Telephone & Telegraph Company (AT&T). Through its

Long Lines Department and the facilities of its operating =~

telephone company subsidiaries (popularly referred to

collectively as the ‘‘Bell System”’), it may be fairly said that

AT&T provides and operates the overwhelming majority of

all MTS, WATS and PLS facilities available in America.

Independent, non-Bell telephone companies provide such

services within their respective service areas; however, in

almost ali cases the services are provided jointly with the

Bell System, with Bell providing the intercity transmission

facilities and acting as the primary manager.

a ad

Je REST CaS RLS gy MONTINI GMT ACR ae ry

In addition, Western Union Telegraph Company

provides PLS for non-voice (i.e., record or data) ap-

plications, as an incident to its public telegraph service. For

purposes of the decision below, the FCC characterized

Western Union's operations as ‘“‘modest"’ compared with

those of AT&T. (Pet. App. 119a).

After World War II, technological advances made it

possible to employ microwave radio frequencies in long

haul communications transmission. This development

called into play the FCC's function as manager of the

frequency spectrum under Title III of the Communications

Act, 47 U.S.C. § 301 et seg. (1970), in addition to its

traditional common carrier regulatory function under Title

Il of the Act, 47 U.S.C. § 201 et seg. (1970).

* The major difference among the three services in this regard is that

PLS circuits essentially bypass the switching apparatus of the telephone

company that is used to complete circuits on demand for individuai

calls in MTS and WATS.

254 Sore crus aR RES < ne INCRE RRR aE SRNR ORES OI ? i PRET PR SS TRO GT —"

LEED THROUGH

This development, and to a lesser extent other com-

parable innovations, has enabled AT&T to achieve marked

economies of scale in the cost of intercity communications

transmission in recent years. By consolidating the demand

for MTS, WATS and PLS, and by furnishing such services

through jointly-used facilities, AT&T has been able to in-

troduce higher capacity, lower unit cost facilities into ser-

vice than otherwise would have been possible. In turn, the

users of each class of service have benefited from the stable

or declining interstate rates that have resulted from

technological cost reductions offsetting operating cost in-

creases.

The benefits of these technological cost reductions have

also been shared with users of local exchange and intrastate

telephone service, regulated by NARUC members, through

periodic modification of the process known as jurisdic-

tional separations.’ Under Section 221(c) of the Com-

munications Act, 47 U.S.C. § 221(c) (1970), the FCC has the

authority to allocate (@e., “‘separate”’) telephone company

investment in plant in service between interstate and in-

trastate jurisdictions for ratemaking purposes.

The technological cost savings achieved in recent years at

the interstate level have made it feasible, from a practical

standpoint, to increase from time to time the relative

proportion of telephone plant that is allocated to interstate

jurisdiction, thereby more equitably reflecting the role of

local exchange telephone facilities in the origination and

termination of interstate calls. In 1972, Mr. Dean Burch,

then Chairman of the FCC, estimated that the separations

changes made since 1952 cumulated approximately $1

” The process of jurisdictional separations has previously been con-

sidered by this Court. Smith y. Illinois Bell Telephone Co., 282 U.S.

133, 7S L.Ed. 255, $1 S.Ct. 65 (1930).

sah - SGP LTRS BAND DUAR 8 ET

billion annually in revenue requirements that had been

transferred from intrastate to interstate jurisdictions.®

Stated another way, users of local exchange and in-

trastate telephone services regulated by NARUC members

pay approximately $1 billion /ess each year for such services

as a direct consequence of microwave and other cost-saving

technological innovations achieved in long haul com-

munications transmission systems in recent years.

Until 1969, the FCC had not passed upon the issue of

authorizing additional domestic commun‘cations common

carrier transmission systems in the United States.’ In that

year, by a 4-3 decision, the FCC approved the application of

Microwave Communications, Inc. (MCI) to establish a

limited common carrier private line service utilizing point-

to-point microwave technology along the high-density

Chicago-St. Louis route. Microwave Communications,

Inc., 18 F.C.C. 2d 953 (1969), reconsideration denied, 21

F.C.C. 2d 190 (1970). In granting the application, the FCC

believed that MCI’s services would meet the specialized in-

teroffice and interplant communications needs of small

businesses. See, e.g., 18 F.C.C. 2d at 953."°

* Hearings before the Subcommittee on Communications of the

Committee on Commerce, United States Senate, on Overview of the

Federal Communications Commission, 92d Cong., 2d Sess., Serial No.

92-54, p. 80 (1972).

° However, the FCC earlier had allocated microwave bands to large

private users for the purpose of building microwave communications

systems on an individual or shared-use basis to satisfy internal com-

munications needs. Allocation of Microwave Frequencies Above 89)

Me, 27 F.C.C. 359 (1959), affirmed and modified on reconsideration.

Allocation of Frequencies in Bands Above 890 Me, 29 F.C.C. 825

(1960).

' Hence, MCI and the subsequently authorized similar entities

became known as specialized common carriers, a reference that will

sometimes be used hereinafter.

Mia A dtd

LOE RT TORE Ma are eeenstheiinniintiintaitens =

This decision provoked a vigorous dissent by Chairman

Rosel Hyde, a 23-year veteran of the FCC, who pointed out:

The decision of the majority is diametrically op-

posed to sound economics and regulatory prin-

ciples. It likewise is designed to cost the average

American ratepayer money to the immediate

benefit of a few with special interests.

The decision would authorize the use of a

microwave frequency in one of the most critical

bands for the benefit of at most 204 private line

customers, according to the applicant's own

marketing consultants. The same frequency could

ordinarily be used to derive thousands of circuits,

predominantly used for the benefit of the ordinary

long distance message toll user. There has been

no showing here of **. . . reasonable expectation

that competition may have some beneficial effect”

(FCC v. RCA Communications, Inc., .. . ).

Why does the majority condone this obviously

grossly inefficient use of the spectrum. Because,

they say, of the low cost and “‘flexibility’’ of the

facilities proposed by applicants. It should be

noted that the so-called ‘‘flexibility”’ cited by the

majority is here, as it was in the TELPAK case, a

mere euphemism connoting lower rates. But how

is it that applicant is able to propose lower rates

than the existing common carriers for private line

service? For no other reason than that it is

proposing a typical “cream skimming” operation.

Thus, it has selected a major route, Chicago to St.

Louis, with heavy traffic density characteristics

and the concomitant lower unit costs. The existing

common carriers, on the other hand have been en-

couraged by the Commission, primarily for social

reasons, to base their rates both for message toll

POOR COPY

and private line services on nationwide average

costs. Thus the small user in the hinterlands is af-

forded the same rates as the large users in the

major cities. The evidence in this record tends to

show, and there is no basis in our experience to

believe otherwise that AT&T and Western Union

could offer lower rates for private line service be-

tween Chicago and St. Louis than those proposed

by MCI, were they to base such rates on their

costs for that route alone.

The chances are, and the record so indicates,

that AT&T and Western Union will be con-

strained to lower their private line rates to meet

the competition of MCI. This, however, means

that other users, either the small private line users

who are not so fortunate as to live in large cities,

or message toll users, or both, will have to make

up the difference if total revenue requirements are

to be met. This is in addition to the higher costs

which are bound to fall on all communications

users by virtue of the inefficient use of the

frequency at stake.

The effect of the majority decision is to destroy

the principles of nationwide average rate making

This entire case is a classic example of

an inefficient, uneconomic misallocation of re-

sources.

... In short, what we have is a grant of valuable

spectrum space, with no adequaie factual basis to

warrant such an authorization. I am compelled to

say, based upon this record, that the majority has

acted not upon considered judgment of the

evidence but rather, as in the RCA case, simply

upon a reflex judgment that competition, par-

ticularly to AT&T, is per se good. The action,

Say

-D THROUGH

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because it is unsupported by the facts of record, is

inconsistent with the statutory standard. 18

F.C.C. 2d at 971-973."

Proceedings Before the FCC Below. Encouraged by

MCI's success, numerous parties filed applications with the

FCC seeking similar common carrier authorizations. As of

July 17, 1970, there were 1,713 pending applications for

microwave stations (Pet. App. 50a).'? Accordingly, the FCC

issued a Notice of Inquiry to Formulate Policy, Notice of

Proposed Rule Making, and Order, 24 F.C.C. 2d 318

(1970), to resolve certain basic policy and procedural

questions, which the FCC believed to be common to all of

the applications, prior to consideration of the individual

applications.

Insofar as pertinent here, the Notice posed the following

issues for consideration in the proceeding:

A. Whether as a general policy the public in-

terest would be served by permitting the entry of

new carriers in the specialized communications

field, and if so,

B. Whether comparative hearings on the

various claims of economic mutual exclusivity

among the applicants are necessary or desirable

in the circumstances. (Pet. App. 62a-63a).

The discussion of Issue A in the Notice was posed as a

“staff analysis’’ on which the FCC took no position pending

consideration of comments by interested persons. (Pet.

'' To the same effect were dissents by Commissioners Robert E. Lee

and James J. Wadsworth. See, 18 F.C.C. 2d at 974.

'? A number of applications were submitted by affiliated interests.

Thus, for example, the FCC pointed out that as of March 15, 1971,

there were 33 applicants, of which 17 were MCI affiliated, making 46

separate proposals and seeking a total of 1,877 microwave stations.

(Pet. App. 50a).

NAA Tee Re GTR Se Se TE ATL OE LI SRI HE.

App. 63a). The staff analysis concluded that a general policy

in favor of new entry would serve the public interest) ©

because in the staff's view, competition appeared to be

“reasonably feasible’ and could be expected to have some ©

beneficial effects ‘“‘without adverse impact on service by ©

established carriers.”” (I[d.) Issue B was a Commission ~

proposal, contingent upon the adoption of the staff position

on Issue A and subject to modification in light of the FCC's

resolution of that issue. (/d.) The FCC proposed nui to hold

comparative hearings unless a “‘much stronger’ showing

was made and it was persuaded that the public interest

required such action in the particular situation. (Jd./

baits! or

Approximately 200 parties participated in the pro- —

ceeding (Pet. App. 64a), although as a generalization the

most substantive submissions were those of the much more

limited number of parties directly affected, i.e., for the

most part the applicants and the established carriers. Oral

argument before the FCC en banc was heard on January

21-22, 1971, and rebuttal comments to oral argument were

received. (Pet. App. 64a).

In its decision (Pet. App. 48a-188a), the FCC not supris-

ingly concluded that its staff analysis was correct, and that

a “free entry” policy should be promulgated for the

_ specialized common carriers. Consistent with this view, the

FCC also declined to hold comparative hearings on the pen-

ding applications.

IS NORRIS NY

Petitions for reconsideration filed by the NARUC and

the Washington Utilities and Transportation Commission

(WUTC) were summarily rejected by the FCC. (Pet. App.

189a-194a).

Proceedings Subsequent to FCC Decision. Review of the

decision was sought by the WUTC and the NARUC in the

United States Court of Appeals for the Ninth Circuit.

Initial and reply briefs were filed under dates of May 5.

ae : IER: O65 NORRIDGE TERED NMRA SBN TM NEE MRE IC o ERIE Se RIE REE oo RR |

ED THROUGH

1972, and September 22, 1972, respectively, and oral

argument was held on February 15, 1973. The NARUC

argued that the ‘‘free entry’ policy promulgated by the

FCC is inconsistent with the “public interest, convenience

and necessity’ standard of the Communications Act, 47

U.S.C. §§ 214, 309 (1970). In particular, the NARUC

strenuously charged that the FCC had failed to adequately

consider or investigate the impact of its decision on the

rates paid by users for intrastate telephone service. (See,

Pet. App. 27a). The NARUC also assigned as error the

FCC’s complete failure to consider the environmental im-

pact of the policy adopted by the order, as required by the

National Environmental Policy Act (NEPA), 42 U.S.C.

§ 4321 et seq. (1970).'* (Pet. App. 39a).

More than a year after ora] argument was held before the

Court, but well prior to entry of its decision, the FCC

launched a broad-ranging investigation, inter alia, of the

impact of its specialized common carrier policy decision on

local telephone service rates.'* Heading the list of specific

issues to be considered in the investigation is whether “

under present ground rules, competition from specialized

common carriers (SCC’s) has resulted or will result in the

imposition upon the public of . . . [higher rates for residen-

tial telephone service.’”*

'* The NARUC had not previously raised this issue before the FCC

itself.

'* In the Matter of Economic Implications and Interrelationships

Arising From Policies and Practices Relating to Customer In-

terconnection, Jurisdictional Separations and Rate-Structures, Docket

No. 20003, Notice of Inquiry, 46 F.C.C. 2d 214 (1974). The Court was

first advised of this development by the NARUC by Consolidated An-

swer to Motion and Cross-Motion for Leave to File Copies of Com-

mission Decision filed under date of May 8, 1974.

'S Id., First Supplemental Notice, 50 F.C.C. 2d 574, 576 (1974).

CEREAL IR ERIS, RA PEE SE FE WAL EE LL ORL BEE IN EAT IG MONI BPS IEE A SET CATE AE

POOR COPY

Moreover, shortly prior to issuance of the Court's

decision, the FCC promulgated rules to implement NEPA

in proceedings before it."° In pertinent part, the FCC

declared that NEPA applies to rulemaking proceedings '’

(which it previously had denied in this case to the Court),

and that the construction of common carrier microwave

relay antenna towers or supporting structures exceeding

100 feet in height ‘‘. . . are considered to be major on the

basis of their probable environmental significance. . . ."’'®

Nevertheless, the Court of Appeals affirmed the FCC’s

decision. (Pet. App. 18a-42a). The Court held that the case

law permits the FCC wide discretion in its proceedings, and

that the FCC’s decision was an exercise of such discretion.

(See, generally, Pet. App. 25a-39a). The Court also held

that the FCC’s discussion in its decision pertaining to

economic impact on local telephone users ‘‘is adequate’’

(Pet. App. 27a), but the Court neither acknowledged nor

discussed the FCC’s economic impact investigation pen-

ding in Docket No. 20003. Finally, the Court recognized

that the FCC could not discharge its responsibilities under

NEPA by strictly relying upon private parties to raise en-

vironmental claims (Pet. App. 39a-40a), but the Court

"© In the Matter of Implementation of the National Environmentul

Policy Act of 1969, Docket No. 19555, Report and Order, 49 F.C.C. 2d

1313 (1974). It should be pointed out that it took the FCC /ive juli

yeurs after NEPA became effective to issue these rules.

'? Id., 49 F.C.C. at 1368 (Rule 1.1303). This requirement is codified

at 47 C.F.R. § 1.1303. 39 Fed. Reg. 43835, 43844 (December 19, 1974).

'*Id., 49 F.C.C. at 1317, referencing Rule 1.1305. In turn, Rule

1.130SaX2). codified at 47 C.F.R. § 1.130SaX2), 39 Fed. Reg. 43835.

43844 (December 19, 1974), specifically identifies the construction oi}

Microwave towers as major actions within the meaning of NEPA. The

FCC is giving further consideration to the difference in heighi con-

sidered to be major for microwave towers vis-a-vis other types of towers

Order, Jn the Matter of Implementation of the National Environmentu:

Policy Act of 1969, SO F.C.C. 2d 814 (1975).

2 DR EMILE LEAR IO, LEME ILRI TS ED NTR DEE IED GR MILE REET EIT BO SG a NG eke SLAP FT Te

EED THROUGH

nevertheless concluded that ‘‘. . . the balance should be

struck against possible review and reversal of this Com-

mission order on the ground NARUC seeks to raise for the

first time in this court.” (Pet. App. 40a-41a).

In its Petition for Rehearing to the Court (Pet. App.

216a-229a), the NARUC laid particular emphasis on the

extent to which the pending economic impact investigation

and the FCC’s environmental rules vitiated the Court’s

stated legal basis for affirming the FCC’s decision.

However, the NARUC’s petition was summarily denied.

(Pet. App. 47a).

REASONS FOR GRANTING THE WRIT

By itself, the FCC’s decision to fundamentally alter the

structure by which communications services are delivered

to the American people raises important issues of public

policy which warrant plenary review by this Court. The

policy adopted, and the aftermath of its implementation, in

terms of changing communications rate structures, in-

dustry profile and its practices; unquestionably will affect

every American who utilizes telephone service.

Specifically, however, the FCC's decision to promulgate a

‘free entry” policy for specialized common carriers con-

flicts with this Court’s recent determination in FPC v.

Texaco, Inc., 417 U.S. 380 (1974), that an administrative

agency charged with regulating public utilities may not

defer to the market place as the measure of its statutorily

mandated decisional standard. Moreover, the failure of the

Court of Appeals to acknowledge or discuss the FCC's sub-

sequently initiated economic impact investigation squarely

raises the issue of whether, in testing the adequacy of an

agency decision, a reviewing court must blind itself to sub-

sequent agency action that is fundamentally inconsistent

with its posture before the court in the decision under

Doyo rnonDyv

FRE Rie Ae OI HeaHte? ME ROI Ae OPENER iO 5

review. This issue is an important question of ad-

ministrative law which is likely to recur, and which requires

guidance by this Court.

Finally, sanction by the Court of Appeals of the FCC's

complete failure — over more than a two-year period — to

comply with the requirements of NEPA so far departs from

an acceptable course of judicial review that this Court’s

exercise of its supervisory powers is warranted.

I. THE FCC’S “FREE ENTRY” POLICY FOR

SPECIALIZED COMMON CARRIERS CON-

FLICTS WITH THIS COURT’S DETERMI-

NATION IN FPC V. TEXACO, INC., 417 U.S.

380 (1974), THAT A REGULATORY AGENCY

MAY NOT DEFER TO THE MARKET PLACE AS

THE MEASURE OF A STATUTORILY MAN-

DATED DECISIONAL STANDARD.

Fundamentally at issue in this case is whether a ?

regulatory statute enacted by Congress, i.e, the Com- |

munications Act, imposes any practicable limits on the ©

discretion to be exercised by the FCC in licensing domestic

communications common carrier systems to provide ser-

vices to the public in competition with the services of

existing carriers, principally American Telephone &

Telegraph Company (AT&T).

In FCC v. RCA Communications, Inc., 346 U.S. 86, 97

L.Ed. 1470, 73 S.Ct. 998 (1952), upon which the Court of

Appeals principally relied, this Court recognized that com-

petition is a relevant factor in making statutory public in-

terest determinations under the Communications Act,

although the specific holding in that case is that a

presumed national policy in favor of competition is in-

sufficient in law to sustain grant of additional common

carrier authorizations. 346 U.S. at 95, 97 L.Ed. at 1478.

> ANTI! VOR LONE RIN

LORE PR Te IRS

Speman . ee |

FEED THROUGH

Other cases have also affirmed the proposition that an ad-

ministrative agency has discretion in making statutorily-

mandated determinations.

However, there are clearly also countervailing

propositions which have been recognized by this Court. As

Mr. Justice Douglas cogently observed:

Expert discretion is the lifeblood of the ad-

ministrative process, but ‘‘unless we make the

requirements for administrative action strict and

demanding, expertise, the strength of modern

government, can become a monster which rules

with no practical limits on its discretion.’’'’

Similarly, Chief Justice Warren has pointed out that an

administrative agency ‘ . is entirely a creature of

Congress and the determinative question is not what the

[agency] thinks it should do but what Congress has said it

can do."’?°

Recently, in FPC v. Texaco, Inc., 417 U.S. 380, 41 L.Ed.

2d 141, 94 S.Ct. 2315 (1974), this Court set aside an FPC or-

der exempting small producers of natural gas from direct

rate regulation. Although the specific ruling was that the

order was too ambiguous to be sustained, the Court went on

to Say:

For the purposes of the proceedings that may

occur on remand, we should also stress that in our

view the prevailing price in the market place can-

not be the final measure of ‘just and reasonable”

'® Burlington Truck Lines v. United States, 371 U.S. 156, 167, 9

L.Ed. 2d 207, 215, 83 S.Ct. 239 (1962), quoting New York v. United

Stuies, 342 U.S. 882, 884, 96 L.Ed. 662, 663, 72 S.Ct. 152 (1951)

(Dissenting opinion). Emphasis in original.

?? CAB v. Delta Air Lines, 367 U.S. 316, 322, 6 L.Ed. 2d 869, 874, 81

S.Ct. 1611 (1961).

la | a ) at on 7 ~~ - Fea

Nh A MII aaah! ee WY CES ANN AN REL RTE LPP ANNI SEES AO AMT a IRE LE END ROA

rates mandated by the Act. It is abundantly clear

from the history of the Act and from the events

that prompted its adoption that Congress con-

sidered that the natural gas industry was heavily

concentrated and the monopolistic forces were

distorting the market price for natural gas.

Hence, the necessity for regulation... .?!

The Court further stated:

In concluding that the Commission lacks the

authority to place exclusive reliance on market

prices, we bow to our perception of legislative in-

tent. It may be, some economists have per-

suasively argued, that the assumptions of the

1930’s about the competitive structure of the

natural gas industry, if true then, are no longer

true today. It may also be that control of prices in

this industry, in a time of shortage, if such there

be, is counterproductive to the interests of the

consumer in increasing the production of natural

gas. [1 is nut the Court's role, however, to overturn

congressional assumptions embedded into the

Jramework of regulation established by the Act.

This is a proper task for the legislature where the

public interest may be considered from the multi-

faceted points of view of the representational

process.?

As did the FPC in Texaco, the FCC held a rulemaking to

implement its policy. As did the FPC in Texaco, the FCC

here produced an elaborate rationale to support its policy

decision. But the bottom line in both cases is that the FCC

and FPC determined that the “congressional assumptions

*" 417 U.S. at 397-398, 41 L.Ed. 2d at 156. Emphasis added. Foot-

note omitted.

2 417 U.S. at 400, 41 L.Ed. 2d at 157-158. Emphasis added. Foot-

note omitted.

oid choc oeemamaminers

_EED THROUGH

PALER A FOIL LEE

2 2S OF BECO PPC

embedded into the framework of regulation established by

the Act’’ were no longer appropriate, if they ever were.

Accordingly, the FCC, as did the FPC, determined that

the market place should be the measure of additional entry

into communications common carriage, rather than the

regulated entry mandated by Congress.

The latter proposition can be demonstrated briefly. After

making generalized findings relating to need for new entry

on a nationwide basis, and collateral matters, the FCC con-

cluded: aa

. .. [I]f an applicant is found qualified, obtains

the necessary financial backing, and makes a

business judgment to risk that investment in com-

petition with such of the pending applicants as

may be authorized, we are not inclined to place

further obstacles in its path. Moreover, since new

entry by more than one private line applicant ap-

pears reasonably feasible in a potential market of

this nature, we deem the marketplace to be a

more reliable and effective instrument than the

comparative hearing process for determining how

many and which new entrants may succeed. (Pet.

App. 159a-160a. Emphasis added).

These, then, are the standards by which the FCC

authorized and will continue to authorize new specialized

common carriers under the “‘public interest’’ standard of

the Act: (1) whether the applicant is ‘‘qualified,’””* (2)

whether the applicant makes the “‘business judgment”’ to

23 The NARUC is aware of no FCC requirements for entities to be

‘qualified,’ other than that they must make a minimal showing of

capability to provide the proposed service (which must be done in any

event by an unregulated businessman in order to get financial backing),

and that they not contravene the provisions of the Act relating to alien

(continued)

8 Role Ea aE

See, tinct USL ONAN FONE BAe Ee SG LL GE LAN: I By ON TL OR GRE A FE tae ALE ES ANE, FOE AE EO SG MONA ONC TR poe Cn, Tae

enter the business, and (3) whether the applicant can get

financial backing. Clearly, such standards in practice are ©

nothing more than required of any businessman entering a

completely unregulated activity. As such, they constitute

deferral to the market place in conflict with this Court’s 5

ruling in FPC v. Texaco, Inc., supra. f

et ‘

Il. THE EXTENT TO WHICH A REVIEWING

COURT SHOULD CONSIDER SUBSEQUENT :

INCONSISTENT AGENCY ACTION IS AN IM- ;

PORTANT QUESTION OF ADMINISTRATIVE

LAW WHICH IS LIKELY TO BE RECURRING,

AND WHICH REQUIRES GUIDANCE BY THIS

COURT.

<—wRye >>

A second reason for granting the writ here requested is

that this case calls into question the scope of factors which

a reviewing court should properly consider in assessing the

rationality, and therefore the lawfulness, of an agency

decision. More specifically, this case raises the issue of

whether a reviewing court must blind itself to subsequent

agency action that is fundamentally inconsistent with its

posture before the court in the decision under review. In

discharging their function as the primary reviewers of agen-

cy action, Courts of Appeals are likely to face this question

(continued)

control and similar matters. 47 U.S.C. § 310 (1970, Supp. III).

Although the Court of Appeals laid some stress on the fact that this

decision did not act on the merits of individual applications (Pet. App.

29a), in practice the applications have been granted subsequent to this

decision as essentially a ministerial function. See, e.g.. MCI Carriers, 27

F.C.C. 2d 380 (1971); 32 F.C.C. 2d 36 (1971); 35 F.C.C. 2d 98 (1972); 37

F.C.C. 2d 1120 (1972) (four notations); Nebraska Consolidated Com

munications Corporation, 35 F.C.C. 2d 991 (1972) (notation); Southern

Pacific Communications Company, 37 F.C.C. 2d 245 (1972); Western

Tele-Communications, Inc., 35 F.C.C. 2d 991 (1972) (notation); CP/

Microwave, Inc., 37 F.C.C. 2d 1120 (1972) (notation); Data Trans-

mission Company, 34 F.C.C. 2d 306 (1972); United States Trans-

mission Systems, 48 F.C.C. 2d 859 (1974).

> Soiees

tee ue RE IO A ee EN aE CO |

_EED THROUGH

Voy

on a recurring basis, and should have the benefit of this

Court’s guidance in their deliberations.

From time to time this Court has expanded upon the

criteria by which the adequacy of an administrative

decision is to be judged under the Administrative

Procedure Act, 5 U.S.C. § 706 (1970). See, e.g., SEC v.

Chenery Corp., 332 U.S. 194, 196, 91 L.Ed. 1995, 1999, 67

S.Ct. 1575 (1947) (court must judge the propriety of the

agency’s action solely on the grounds invoked by the agen-

cy; and if those grounds are inadequate or improper, the

court is powerless to affirm the administrative action by

substituting what it considers to be a more proper basis);

Burlington Truck Lines v. United States, 371 U.S. 156, 168,

9 L.Ed. 2d 207, 216, 83 S.Ct. 239 (1962) (courts may not ac-

cept appellate counsel’s post hoc rationalizations for

agency action); NLRB v. Metropolitan L. Ins. Co., 380 U.S.

438, 443, 13 L.Ed. 2d 951, 955, 85 S.Ct. 1061 (1965) (when

agency exercises discretion it must disclose the basis of its

order and give clear indication that it has exercised the

discretion with which Congress has empowered it); Citizens

to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 28

L.Ed. 2d 136, 153, 91 S.Ct. 814 (1971) (court must consider

whether the agency decision was based on a consideration

of the relevant factors and whether there has been a clear

error of judgment).

Administrative agencies necessarily write their opinions

(particularly major ones such as here presented) with at

least one eye cocked to the Courts of Appeals. Accordingly,

the process of ferreting out discrepancies between what is

stated in an opinion, and what the underlying realities are

continually becomes more subtle. Under these cir-

cumstances, it is appropriate that the criteria employed by

the Courts of Appeals to test agency decisions should

likewise continually be refined.

This case presents such a refinement. One of the prin-

cipal assignments of error urged by the NARUC upon the

ABET RRR CSSA RTO IER OTS NIL SER Om

porysi1wo irra pDvyv

BLE

Court of Appeals is that the FCC failed to adequately in-

vestigate or consider the impact of its decision on the

telephone service rates paid by the vast majority of the

telephone using public who have no use for the services of

the specialized common carriers. (Pet. App. 27a).?*

Although the Court recognized, as NARUC contended,

that the FCC has a legal duty to consider such economic

impact (Pet. App. 13a), the Court summarily rejected the

NARUC’s claim that the duty had been insufficiently met

by holding that the FCC’s treatment of this issue “‘is

adequate.” (Pet. App. 27a).

In turn, the bottom line of the portions of the record

cited by the Court is the FCC’s categorical assertion that

**.. there is no valid basis for NARUC’s assumption that

such [specialized common carrier] entry will prejudice the

users of local telephone services.”’ (31 F.C.C. 2d at 1107-

1108, Pet. App. 192a).

** In brief, the impact is two-fold; First, obtaining additional

separations modifications becomes infeasible, as a practical matter.

because of pressures on AT&T's interstate profits resulting from the

PLS competition. (As an example, the NARUC filed a petition with the

FCC for additional modifications on December 19, 1973. On December

17, 1974, the FCC announced that action on the petition would be in-

definitely deferred. Memorandum Opinion and Order, /n the Matter of

the Economic Implications and Interrelationships Arising From

Policies and Practices Relating toe Customer Interconnection, Jurisdic-

tional Separations and Rate-Structures, 49 F.C.C. 2d 1238, 1241. As

noted above (pp. 6 - 7), the changes since 1952 alone reduce the

telephone bills of intrastate ratepayers approximately $1 billion an-

nually. Thus, the benefits of long haul cost-saving technological in-

novations would no longer continue to be shared with the local

telephone users.

Second, competitive revenue diversion from AT&T, coupled with

rate reductions in PLS, brought about by competitive pressures, likely

would require rate increases by AT&T in areas and services where no

competition exists. See the dissenting opinion of Chairman Rose! Hyde

in Microwave Communications, Inc., 18 F.C.C. 2d 953, 971-973,

quoted above, pp. 8 - 10. Thus, there can be an economic impact on

AT&T's customers without necessarily an economic impact on A T& 7

LAPSE REIS SITS LS ORF

-(D THROUGH

However, in making its ruling the Court neither

acknowledged nor discussed the fact that on April 10,

1974, nine months before the Court's ruling, the FCC had

instituted an investigation in its Docket No. 20003 of the

very contentions which it previously categorically rejected,

and upon which the Court relied in affirming the FCC.”

Moreover, the Court summarily denied the NARUC’s

Petition for Rehearing (Pet. App. 47a), which strongly em-

phasized the fundamental inconsistency between the FCC’s

posture before the Court on review of this case, and its

having instituted an expensive and burdensome in-

vestigation of issues it categorically rejected as having ‘‘no

valid basis.’’”°

The NARUC recognizes that there must be some prac-

tical end to litigation and the issues that may be raised on

review of an agency decision. But where, as here, the agency

acts so diametrically at odds with its posture before the

court while the decision is stil] under review, the reviewing

court should be flexible enough to account for that develop-

ment and act accordingly.

*® Notice of Inquiry, /n the Matter of the Economic Implications and

Interrelationships Arising From Policies and Practices Relating to

Customer Interconnection, Jurisdictional Separations and Rate-

Structures, 46 F.C.C. 2d 214 (1974). The Court was advised by the

NARUC of the pendency of the proceeding and its significance as early

as May, 1974. See above, p. 12, n. 14.

*° For a fully documented showing of the FCC's inconsistency, see

Part III of the NARUC’s Petition for Rehearing. (Pet. App. 220a-224a).

The NARUC would especially point out, however, that in instituting the

economic impact investigation, the FCC specifically referred to the

NARUC’s claims of economic impact in this case. Notice of Inquiry, /n

the Matter of the Economic Implications and Interrelationships

Arising From Policies and Practices Relating to Customer In-

terconnection, Jurisdictional Separations and Rate-Structures, 46

F.C.C. 2d 214, 215, quoted at Pet. App. 221a.

Se “ DIG LEE SOLIS AEs RINT. TPES was Bice i he cl Le ila ad —

BLE

III. SANCTION BY THE COURT OF APPEALS OF

THE FCC’S FAILURE TO COMPLY WITH NEPA

SO FAR DEPARTS FROM AN ACCEPTABLE

COURSE OF JUDICIAL REVIEW THAT THIS

COURT SHOULD EXERCISE ITS SUPERVISORY

POWERS.

Finally, sanction by the Court of Appeals of the FCC’s

complete failure in this case — over more than a two-year

period — to attempt any compliance whatsoever with the

requirements of the National Environmental Policy Act of

1969 (NEPA), 42 U.S.C. § 4321, et seq. (1970), so far de-

parts from an acceptable course of judicial review that this

Court’s exercise of its supervisory powers is warranted.

The proceedings before the FCC were tried on the basis

of traditional issues of economic regulation, and it was not

until review had been sought in the Court of Appeals that

the NARUC understood NEPA’s relevance in this case and

raised that issue to the Court.”’ In its decision, the Court

properly recognized that consideration of the NEPA claims

would be within its discretion, even though not presented to

the FCC in the first instance, and that NEPA’s “‘lofty pur-

poses’’ must be weighed heavily in the balance in exercising

that discretion. (Pet. App. 40a). Nevertheless, the Court

declined review. (Pet. App. 40a-42a).

>”? Specifically, the NARUC alleged adverse environmental impact

resulting from the FCC’s decision in the following respects: (1) the

marring of the aesthetic environment because of the proliferation of

multiple low-capacity transmission systems across the country, with

microwave towers constructed every 20-40 miles, rather than a limited

number of high capacity systems; and (2) the establishment of an

overabundance of less expensive (relative to rural areas) com-

munications facilities in highly populated urban corridors, tending to

further concentrate businesses and population in these areas. The

NARUC also raised as a matter of concern the possible increase in elec-

tromagnetic pollution that could result from a proliferation of systems.

compared to a limited number of high capacity systems.

eee |

TELM I

SOON PESOS BE AEP RRR

It may be, had the Court’s decision issued without ex-

tended delay, that the discretion so exercised might have

been sustainable.”* In this case, however, oral argument on

the appeal was not held until six months after the last

round of briefs were filed, and the decision did not issue un-

til two years thereafter. During the two and one-half years

that the FCC was on notice that it had failed to comply with

NEPA in this case, it made absolutely no move to rectify

that failure. Even assuming the FCC’s original omission

was inadvertent, its continuing failure to comply with the

law cannot be excused.

In its ruling below, the Court noted and relied upon the

fact that:

Before any construction [of microwave towers by

specialized common carriers] is authorized,

separate hearings must be held on each ap-

plication. NEPA will be applicable to those

proceedings. The FCC must consider ‘“‘the en-

vironmental impact of the proposed action’’ as a

whole, and in full context. It cannot treat each ap-

plication separately from the others and ignore

the total program of which it is a part. (Pet.

App. 41a. Footnote omitted).

However, in its Petition for Rehearing, the NARUC ad-

vised the Court: (1) that the FCC had not held hearings on

the individual applications, (2) that the FCC had already

granted substantially all of the pending applications for

specialized common carrier construction permits, and (3)

that in granting these applications, the FCC gave no con-

sideration whatever to environmental impact, let alone the

comprehensive analysis that the Court recognized is legally

required. (Pet. App. 225a). Accordingly, the NARUC ad-

vised the Court that if it did not review the NEPA issues,

** The NARUC specifically reserves this issue in the event certiorari

is granted.

the FCC would be permitted to “entirely escape compliance

with NEPA in one of the few general proceedings it has con-

ducted which is likely to have a significant impact on the

quality of the human environment.” (Pet. App. 218a).

Inexplicably, the Court of Appeals refused to take any

further action to uphold NEPA’s “‘lofty purposes.”

In light of the FCC’s new rules for implementing NEPA,”

there can be little doubt that the environmental impact

should have been considered by the FCC. By the express

terms of those rules, environmental issues are to be con-

sidered, and an environmental impact statement issued, in

rulemaking proceedings; and the construction of

microwave towers such as here authorized are specifically

designated as “‘major’’ Federal actions within the meaning

of NEPA." (Pet. App. 226a-227a). i

The effect of the Court’s action, therefore, is to permit a

flagrant non-compliance with the law to go unredressed —

a result which clearly warrants exercise by this Court of its

supervisory powers.

** Report and Order, Jn the Matter of Implementation of the

National Environmental Policy Act of 1969. 49 F.C.C. 2d 1313 (1974).

The rules became effective with January 20, 1975 — five fui! years after

NEPA became effective. The proposed rules were released on August },

1972, 36 F.C.C. 2d 108, but the final rules were not released unti:

December 16, 1974. Coincidentally or otherwise, the final rules were

not promulgated until substantially all of the pending applications for

specialized common carrier construction permits had been granted.

%° Id., Rule 1.1303.

** Id., Rule 1.130XaX2).

Soa NS ROBIE 5 SSI RY SEES RIA AIRY EE EAE EET ER AS PES

=-D THROUGH

amet MOA ate RR Aan NID eh TATE PS RE Re RO

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the judgment and opinion of the United States Court

of Appeals for the Ninth Circuit.

Respectfully submitted,

PAUL RODGERS

General Counsel

KENNETH E. HARDMAN

Deputy Assistant General Counsel

National Association of Regulatory

Utility Commissioners

1102 ICC Building

Post Office Box 684

Washington, D.C. 20044

Counsel for Petitioner

June 9, 1975

Sie

, ete

ip SAS

OCTOBER TERM, 1974

No. 74-] 550

NATIONAL ASSOCIATION OF REGULATORY

UTILITY COMMISSIONERS,

Petitioner,

FEDERAL COMMUNICATIONS COMMISSION, et al.,

APPENDIX

PAUL RODGERS

General Counsel

KENNETH E. HARDMAN

Deputy Assistant General Counsel

National Association of Regulatory

Utility Commissioners

1102 ICC Building

Post Office Box 684

Washington, D.C. 20044

Counsel for Petitioner

June 9, 1975

THE CASILLAS PRESS, INC.—1717 K Street. N. W.—Washington, 0. C.—223-1220

Cie

TABLE OF CONTENTS

APPENDIX A, Opinion of the Court of Appeals..........

APPENDIX B, Order of the Court of Appeals

SR CUNUUED 5b vc Vesdecdacvadtiesnadecsde

APPENDIX C, Report and Order of the Federal

Communications Commission ...............e00008

APPENDIX D, Memorandum Opinion and Order of the

Federal Communications Commission Denying

INNS 6 hehe cGch ads KOR ED hoe db doth heccic

APPENDIX E, Communications Act of 1934,

Ss hate eae ys wu clade hh Coa KGa lesen

APPENDIX F, National Environmental Policy

NT Wes CA MRR AGA ee eka k 6 hows o6 $008 seine

APPENDIX H, Petition for Rehearing Before the

SUE GN ous pba OG eek aukde exe bow

BRA

e a Ke an Cat ADE CH

Cah Vie MIME lth hy Bg PRGR LEE LL RIAS POLES ann tie DIE OLE 9 8 IEICE ADE CL EAE ME RE ONE RAD OE

APPENDIX A

UNITED STATES COURT OF

APPEALS

FOR THE NINTH CIREUIT

WASHINGTON UtIvitirs & TRANSPORTATION :

CoMMISSION,

Petitioner,

Vs.

FEDERAL COMMUNICATIONS COMMISSION and

Unrrep States oF AMERICA,

Respondents,

Data TRANSMISSION Co.; NaTIONAL RETAIL MER-

CHANTS AssociaTION; THE Business EqQuip-

MENT MANUFACTURERS AssocIATION; MCI

CarRIERS; NEBRASKA CONSOLIDATED COMMUNI-

CATIONS; INTERDATA COMMUNICATIONS; SoUTH-

ERN Paciric Communications Company;

WESTERN TELE-COMMUNICATIONS,

Intervenors.

NaTIONAL AssociaT.ON oF REGULATORY UTILITY

COMMISSIONERS,

Petitioners,

Vs.

FEDERAL COMMUNICATIONS CoMMISSION and

Unitep StaTEs oF AMERICA,

Respondents. }

| January 20, 1975]

No. 71-2919

No. 72-1198

OPINION

On Petition for Review of an Order of the

Federal Communications Commission

Before: BROWNING WRIGHT, and WALLACE,

Circuit Judges.

BROWNING, Circuit Judge:

The Federal Communications Commission authorized Microwave

Communications, Ine, to constreet a specialized

communications

SAR OT OE Sa Ot A RE ORS

St SOREN RRR ori roy

aa ae ae

Fa NEC ag

oe es

2 Washington Utilitics & Transportation Commission, et al. vs.

common carrier route between St. Louis and Chicago. Microwave

Communications, Ine., 18 F.C.C.2d 953 (1969). As a result, a

large number of applications were filed by others interested in

providing specialized communications services in competition with

the established carriers.! The applications raised common ques-

tions. The Commission instituted a proceeding to formulate policy

and establish rules with respect to these issues. See Notice of

Inquiry to Formulate Policy, Notice of Proposed Rulemaking, and

Order, 24 F.C.C.2d 318 (1970). These petitions seck review of

the final order issued as a result of that procecding. First Report

and Order, 29 F.C.C.2d 870 (1971).?

The Commission’s order reflects two basic determinations. The

Commission decided that “a general policy in favor of the entry

of new carriers in the specialized communications ficld would

serve the public interest, convenience, and necessity.” 29 F.C.C.2d

at 920. It also decided that “it is not necessary or desirable in

the public interest to hold comparative hearings for the purpose

- of restricting new entry in any particular area to only one pri-

' vate line applicant.” 29 F.C.C.2d at 926.

Petitioners attack both determinations on substantive and pro-

. eedural grounds resting upon the Federal Communications Act,

> 47 US.C. §§ 214, 309. They also argue that the Commission

failed to consider the environmental impact of the policy adopted

by the order as required by the National Environmental Policy

| Act, 42 U.S.C. §§ 4231 et seq.

ee ee

Kespondents respond on the merits, and, in addition, challenge

petitioners’ standing to seek review of the Commission’s order.

We hold that petitioners have standing. We affirm the order.

We have been admonished that “[g]eneralizations about stand-

ing to sue are largely worthless as such” (Association of Data

Processing Service Organizations, Inc. v. Camp, 397 U.S. 150,

1As of March 15, 1971, 33 applicants had submitted 46 separate pro-

posals for the operation of 1877 microwave stations. First Report &

Order, 29 F.C.C.2d 870, 871 n.1 (1971).

2The Commission’s Memorandum Opinion and Order denying petitions

for reconsideration is reported at 31 F.C.C.2d 1106 (1971).

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Federal Communications Commission, et al. 3

151 (1970)), and that the solution to standing “problems is in

uny event more or less determined by the specific circumstances

of individual situations.” Mnited States ex rel. Chapman v. Fed-

eral Power Commission, 345 U.S. 153, 156 (1953). From an exam-

ination of the nature of. this proceeding, the character and in-

terest of the parties, and the substance of the issues, we conclude

that each petitioner is a “proper party to request an adjudication

of [the] particular issue|s|” it seeks to raise, F'last v. Cohen,

392 U.S. 83, 100 (1968). See also United States v, Richardson,

bias RO: Aidicede eas (1974) (slip at 8); Sierra Club v. Mor-

ton, 405 U.S. 727, 732 (1972).

Petitioners seek review of final administrative action. The

availability of judicial review of administrative decisions is gen-

erally thought to serve important public purposes.? This prem-

ise underlies the rule that “only upon a showing of ‘clear and

convincing evidence’ of a contrary legislative intent should the

courts restrict access to judicial review”’ (Abbott Laboratories v.

Gardner, 387 US. 136, 141 (1967), and has-+led to a progres- ~

sive expansion of the categories of persons who are granted stand-

ing to obtain such review. See, e.9., Arnold Tour, Inc. v. Camp,

400 U.S. 45 (1970); Barlow v. Collins, 397 U.S. 159 (1970) ;

Association of Data Processing Service Organizations, Inc. v.

Camp, supra.

Congress has expressly authorized review of final orders of the

FCC.* Thus, “Congress has weighed the need for and value

3See, e.g., Tucker, The Metamorphosis of the Standing to Sue Doctrine,

17 N.Y.L. Forum 911, 935-40 (1972).

4“The court of appeals has exclusive jurisdiction to enjoin, set aside,

suspend (in whole or in part), or to determine the validity of —

(1) all final orders of the Federal Communications Commission

made reviewable by section 402(a) or title 47.” 28 U.S.C. § 2342(1).

“Any proceeding to enjoin, set aside, annul, or suspend any order of the

Commission under this chapter (except those appealable under subsection

(b) of this section) shall be brought as provided by and in the manner

prescribed in chapter 19A of Title 5.” 47 U.S.C. § 402(a).

“A person suffering legal wrong because of agency action, or adversely

affected or aggrieved by agency action within the meaning of a relevant

statute, is entitled to judicial review thereof.” 5 U.S.C. § 702.

“Any party aggrieved by [a final order reviewable under 47 U.S.C.

§ 402(a)] may, within 60 days after its entry, file a petition to review

the order in the cowt of appeals where venue lies.” 28 U.S.C. § 2344.

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4 Washington Utilitics & Transportation Commission, ct al. vs.

of judicial review of a given category of administrative decisions,

and has decided it is warranted. Congress having explicitly made

that decision, the Court has before it only the implementing, see-

ondary decision as to whether there is reason not to allow the

particular plaintiff in question to be one of those who may in-

voke the review—and the. standing rules tend to become more

liberal.” Seott, Standing in the Supreme Court—A Functional

Analysis, 86 Harv. L. Rev. 645, 656 (1973).

The Washington Utilities and Transportation Commission

(WUTC) is an agency of the State of Washington, charged by

law with responsibilities related to issucs it secks to raise. There

is substantial authority that such an agency, raising such issues,

is a proper plaintiff to obtain review of an administrative order.

WUTC’s petition for review alleges that WUTC and the gen-

: eral public of Washington “are aggrieved” by the FCC order

because “[e]ffectuation of the Order would serve to increase the

burden to intrastate telephone users by reason of the diversion

of interstate usage of telephone network facilities to the detri-

- ment of telephone users whose rates are regulated by state

authorities.”

The factual and legal premises for WUTC's assertion of stand-

ing are largely conceded. The telephone systein is a single, inte-

grated network. The same services and equipment provide both

interstate and intrastate services. The rates fixed for these

services must be sufficient to allow the utility to recover its ex-

penses and receive a reasonable return on its investment. Since

the rates of interstate services are fixed by the federal agency

and rates for intrastate services by state agencies, common plant

and service costs must be allocated between them. Smith v.

Illinois Bell Telephone Co., 282 U.S. 133, 146-49 (1930); The Min

nesota Rate Cases, 230 U.S. 352, 435 (1913). The allocation

reflects the relative use of the common facilities in providing

one service or the other. A reduction in interstate service rela-

tive to intrastate service would decrease the allocation of the

costs of common plant and services to the base for interstate

rates, and increase the allocation of these costs to the base for

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Federal Communications Commission, et al. 5

intrastate rates, thus requiring state regulatory agencies to in-

crease rates for intrastate service.5

WUTC contends that by authorizing new earriers to furnish

specialized interstate commmuniecation serviecs without determin-

ing that present cerricrs are unable to meet the need for this

service, and without individualized determination of economic

exclusivity, the Conmissiou’s order will result in 2 increase

in the number of carriers competing to provide this interstate:

servier and will decrease the usage existing carriers will make :

of common telephone facilitics for the purpose of providing inter

state service. This in turn will require allocation to intrastate 7

service of a larger share of the costs of serviee and equipment

used in providing both intrastate and interstate services, and

will compel WUTC to raise rates for intrastate service, contrary

to the interesis of Washington telephone users.

WUTC is invested by statute with broad 1 sponsibilities to pro-

tecu the interests of the people of the State of Washingtoii

in matters related to the cost and quality of telephone service.

WUTC is required to “[rjegulate in the public interest... the

rates, services, fevilities, and practices of all persons [ineluding

telephone companies} engaging within this stete in the business

of supplying any utility service .. . to the public for compensa-

tion... .” RCW. 80,01.040(3). The interest of the public to

be protected under the statute is that of the customers of the reg-

ulated utility. Cole v. Washington Utilities & Trensportation

Commission, 79 Wash.2d 302, 305, 488° P2d 71, 73-74 (1971).

WUTC is empowered to fix rates for intrastate telephone service

that are “just and wasonsble™ in ordor to protect consumers

from charges that sre “unjust, unreasonable, wnjustly diserimina-

tory or unduly preferential,” as well as to protect the utilities

from charges that are “insufficient to yield reasonsble com pensa-

tion for the service rendered.” R.C.W. 80.36.140.

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The Supreme Court of Washington has specifically recognized

that WUTC has an obligation to protect the interests of tele-

5As stated in a recent Senate Report discussing telephone rates, “The

determination of the rate base at the Federal level, then. has a strong

relation to the rates which are charged at the local levei.” S, Rep. No.

362, 92d Cong., Ist Sess. (1971), 2 U.S. Code Cong. & Admin. News 1511,

1513.

DONE aE hatte ED AS Sieg NOBLE NT AN lin US DR RIE ey OE AR 8 RS ST ANOS Gd Sa PTS

6 Washington Utilitics € Transportation Commission, et al. vs.

phone users in separations matters—analogous to those under-

lying WUTC's petition for review in this case—that come within

its intrastate regulatory jurisdiction. In State ex rel. Pacific

Northwest Bell Telephone Co. v. Washington Utilitics & Trans-

portation Commission, 66 Wash.2d 411, 403 P.2d 73 (1965),

WUTC, under authority granted by R.C.W. 80.36.160, issued an

order relating to the division of revenues derived from the inter-

change of interstate long distance telephone messages between

Pacific Northwest Bell and two independent telephone companies.

The determination of the appropriate division of revenues in turn

required WUTC to devise a plan for the separation or allocation

of costs among the various local and toll telephone services per-

formed by the independent companies. In its opinion affirming

the order, the court stated:

The present proceeding is preliminary to the Commission’s

principal function, which is to establish rates for telephone

service which are found to be fair, just, and reasonable to

the user, and sufficient to provide reasonable compensation

to the utility for the service rendered. See RCW 80.36.080

and 140. ”

The Commission, in its order, pointed out that the divi-

; sion of revenues is inextricably related to the rate-making

' process. Thus the real parties in interest in this case are

all the users of telephone service in the state of Washington

who will have to pay the rates ultimately established for

such service.

66 Wash.2d at 427, 403 P.2d at 84.

In addition to these regulatory functions, two other Washing-

ton statutes impose upon WUTC an advocacy role in support of

the intcrests—stated in the broadest terms—of telephone users of

the state. WUTC is authorized to participate in administrative

and judicial proceedings of the kind involved here, “in which

there is at issue the authority, rates or practices for . . . utility

services affecting the interests of the state of Washington, its

businesses and general public... .” R.C.W. 80.01.075.6 WUTC’s

6The statute reads:

The commission shall have the authority as petitioner, intervenor

or otherwise to initiate and/or participate in proceedings before

federal administrative agencies in which there is at issue the authority,

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Federal Communications Commission, et al. 7

authority under this statute does not appear to be limited to

proceedings relating to intrastate services; it exists whenever the

authority, rate, or practice affects the interests of the state, its

businesses, or its people. A second Washington statute gives ;

WUTC power to investigate interstate rates and charges for tel-

ephone services, and provides, “[w]here any acts in relation

thereto take place within this state which, in the opinion of the

commission, are excessive or discriminatory, or are levied or laid

in violation of the federal communications act... ,” WUTC

can petition the FCC for relief. R.C.W. 80.36.250.

For thirty years or more WUTC and other state utilities

commissions have acted on the premise that their duty to pro- i

tect the interest of the people of their respective states is not .

discharged simply by accepting the existing allocation of joint 3

costs to intrastate use as a base for determining reasonable intra-

State rates. They have actively sought to reduce the allocation

of joint costs to the intrastate rate base to the extent consistent

with law. Congress and the FCC have Jong recognized that the

state utilities commissions are the appropriate parties to represent

their respective states in this effort.7

ENR ARMOR RA OK

rates or practices for transportation or utility services affecting the

interests of the state of Washington, its businesses and general

public, and to do all things necessary in its opinion to present to

such federal administrative agencies all facts bearing upon such

issues, and to similarly initiate and/or participate in any judicial

proceedings relating thereto.

*In 1941 the FCC and the National Association of Regulatory Utility

Commissioners (NARUC) initiated a cooperative study of procedures for

the allocation of joint costs. American Tel. & Tel. Co. and the Associated

Bell System Companies, 3 F.C.C.2d 307, 309 (1960). In 1947 the FCC

published the NARUC-FCC Separations Manual based on this study. Id.

at 310. The FCC observed in its 1969 report: “Separations procedures

that have been developed through the cooperative efforts of the Com-

mission, the State regulatory agencies through the NARUC, and the

telephone industry have long been used by telephone regulatory agencies

for ratemaking purposes.” 35th Annual Report of the FCC 60 (1969).

In 1969 the FCC ordered a $237 million reduction in interstate rates;

at the same time rate increases of $500 million were pending before state

regulatory agencies. 117 Cong. Rec. 28906-07 (1971). The reduction in

interstate rates was based on the development of new technology, such as

microwave transmission and coaxial cables, capable of application pni-

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8 Wuashinglou Ulilitics & Transportation Commission, et al. vs.

The test currently applied to determine if a private person

has standing to seck judicial review of ageney action is set

forth in Association of Data Proccssing Scrvice Organizations,

Inc. v. Camp, supra, 397 U.S. at 152-53:, The complainant must

allege “that the challenged action has eaused him injury in

fact, eeonomic or otherwise,” and the interest which the complain-

ant secks to protect must be “arguably within the zone of inter-

ests to be protected or regulated by the statute of constitutional

guarantee in question.” Both parts of the Duta Processing test

are satisfied in this case.8

The purposes of the first Data Processing requirement—‘injury

in fact’”—are satisfied here because the alleged interference with

WUTC’s ability to discharge its obligation to protect the inter-

ests of Washington telephone users gives spccificity and con-

erctencss to the controversy and assures its presentation with

adversarial vigor.

The fact that WUTC’s alleged injury is not economic in nature

and cannot be quantified docs not prevent it from satisfying the

requirement of “injury in fact.” Data Processing, supra, 397 U.S.

marily in interstate communication. Id. at 28907 (remarks of Rep.

Rvoney). The FCC and NARUC cooperated, through a joint board

administratively established by the FCC at NARUC’s request, in recom-

mending proposed rule changes for jurisdictional separations which, when

adupted, resulted in u shift of $126 million in revenue requirements from

inisustaic to interstate operations. 1L.R. Rep. No. 429, 92a Cong., lst

Sess. 3 (1971). Congress was fully advised of these developments. The

FCC and NARUC then agreed upon legislation for the establishment of

a permanent Federal-State Joint Board to deal with separation problems

S. Rep. No. 92-362, 2 U.S. Code Cong. & Admin. News, 92d Cong., 1st

Sess. 1511, 1513-14 (1971). In enacting the proposed statute Congress

recognized, with approval, that the result of allowing representatives of

the state commissions to participate would be an increase in the alloca-

tion of joint plant and operation costs to interstate use. 117 Cong. Ree.

28906-07.

8The Supreme Court has applied this two-part test in cases where there

was no specific statutory provision for judicial review, and complainants

relied on the general review provisions of the Administrative Procedure

Act. Since in this instance the statute specifically provides for review, a

less strict test for standing may be justified. See Scott, Standing in the

Supreme Court—A Functional Analysis, 86 Harv. L. Rev. 645, 667-68

(1973).

SPLATT PEPE Hee PRE AREER A ASE

Federal Communications Coainission, et al. 9

at 154; Sterra Club v. Morton, supra, 405 U.S. at 734: United

States v. SCRAP, 412 U.S. 669, 686 (1973). WUTC’s allegation

that the FCC order will affect the dischare. by WUTC of its

duty to protect the interest of Wasi:ington telephone users arises

too plausibly from the known facts of the industry to be dis-

missed as “an ingenious academic exercise in the conceivable.”

United States v. SCRAP, supra, 412 U.S. at 688." And it is no

bar to WUTC’s standing that the line of causation between the

FCC order and interference with WUTC's performance of. its

duties may be attenuated. Jd. at 688-90.

The obligation interfered with is imposed directly and specif-

ically upon WUTC by statute. Thus, WUTC sceks to discharge

a legal duty—it does not act from a generalized “motivation,”

Schlesinger v. Reservists Committee to Stop the War, —. US.

setae y woe (1974) (slip at 17), or because of 2 “mere ‘intercst in

a problem,’” Sierra Club v. Morton, supra, 405 US. ot 739; and

its concern is not of a kind shared by citizens g: nerally. Schles-

tnger v. Rescrvists Committee to Stop the War, supra, ...... US.

| Ra (slip at 12); United States v. Richardson, supra, .......

U.S. at ow... (slip at 10-12). As Judee Leventhal said

in a singular context, “We showld not be nigvardly in guaging

the interest of a state administrative officer in the validity of

what his federal counterpart has done in an area of overlapping

fact and intertwined law.” Nuesse v. Camp, 385 F.2d 694, 700

(D.C. Cir. 1967).

In Coleman v. Miller, 307 U.S. 433 (1939). the Supreme Court

strongly suggested, in a somewhat different contest, that for

purposes of standing, impairment of an administrative ageuer’s

interest in the effective discharge of the obligations imposed upon

the ageney by law, is the equivalent of the “personal stake,”

“injury in fact,” or “concrete injury” that would suppert standing

®The FCC found there is “no reason to anticipate that new entry in the

specialized field would result in any substantial diversion of A.T. & T.’'s

revenues or would have any significant adverse impact on telephone

users” (29 F.C.C.2d at 912), but this finding cannot be conclusive on the

issue of stancing—one of the issnes WUTC seeks to raise on review is

that this finding ix uot sustained by the reeord. See United States yv.

SCRAP, 412 U.S. 669, 688-90 (1973); Association of Data Processing:

Serv. Organizations, Ine. v. Camp, 397 U.S. 150, 153, 158 (1970).

. . cone

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10 Washington Utilitics & Transportation Commission, et al. vs.

of a private plaintiff. The immediate question in Coleman v.

Miller was whether state senators opposing ratification of the

Child Labor Amendment had standing to seck review by the

Supreme Court of a state court decision sustaining the right of

the lieutenant governor to cast a decisive vote in favor of rati-

fication. The Supreme Court held that the scnators’ interest

in maintaining the effectiveness of their votes was sufficient to

support standing. The Court noted, “[{T]jhere has been recogni-

tion of the legitimate interest of public officials and administra-

tive commissions, federal and state, to resist the endeavor to

prevent the enforcement of statutes in relation to which they have

official duties.” 307 U.S. at 441-42. Reviewing certain of its past

decisions, the Court concluded (id. at 445):

This class of cases in which we have exercised our appel-

late jurisdiction on the application of state officers may be

said to recognize that they have an adequate interest

in the controversy by reason of their duty to enforce the

state statutes the validity of which has been drawn in ques-

tion. In none of these cases could it be said that the state

officers invoking our jurisdiction were sustaining any “pri-

vate damage.”

United States ex rel. Chapman v. Federal Power Commission,

supra, 345 U.S. at 153, also holds, though without discussion, that

an adverse effect on the performance of official duties consti-

tutes the kind of injury necessary to support standing to sue.

The Scerctary of the Interior was permitted to challenge an

FPC order granting a license to a private company to build a

generating plant on a site that the Secretary argued had been

withdrawn from the licensing jurisdiction of the FPC and re-

served for public construction. The Court sect out the bases relied

upon by the Secretary for standing as follows (345 US. at

155-56) :

The Secretary of the Intcrior points to his statutory duty

to act as sole marketing agent of power developed at public

hydroelectric projects and not required for the operation

of the project; §5 of the Flood Control Act of 1944 directs

him to transmit and dispose of such power in a manner

calculated to “encourage the most widespread use thereof

at the lowest possible rates to consumers consistent with

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Federal Communications Commission, et al. 11

sound business principles.” 58 Stat. 890, 16 U.S.C. § §25s.

This provision, it is said, announess a congressional poliey

for the guidanee of the Secretary that would be disturbed

by the respondent company’s plan; thus . speeific interest ;

of the Seeretary, in addition to his more general duties re-

lating to the conservation and utilization of the Nation’s :

water resources, is said to be adversely affected by the i

Commission's order. :

Because of “[dJifferenees of view” among the Jus‘ies, 345 US.

at 156, the grounds for the holding that the Seeretary had stand- '

ing to seek review of the FPC order were not discussed. How- f

ever, since the Secretary alleged no private injurv of any kind, :

his standing necessarily rested upon the adverse effect of the

FTC order on performance of his official dutics to encourage

widespread use of electricity at the lowest possible rates, and,

more generally, to manage the nation’s water resources.

STG rege R

The Supreme Court held in Juferstatc Commerce Commission

v. Oregon-Washington Railroad & Navigation Co., 288 US. 14,

24-25 (1933), that state agencies had standing to challenge a

district court order reversing an ICC order requiring construc-

tion of several railroad routes, beeause the agencies “officially

represent{ed] the interest of their states in obtaining adequate

transportation service.” In a different context, the Court held in

Securities & Exchange Commission ». Unitcd States Realty &

Improvement Co., 310 US. 434 (1940), that the SEC should be

permitted to intervene in a Chapter XI proceeding that the

Commission alleged should have been brought under Chapicr

X, which provides for participation by the Commission. The

Court said, “we think it is plain that the Commission has a

sufficient interest in the maintenance of its statutory authority

and the performance of its publie dutics to entitle it through

intervention to prevent reorganizations which should rightly be

subjected to its scrutiny, from procesding without it.” 310 U.S.

at 460.

In this cireuit the principle that a public agener hes standing

to seck judicial revicow of governmental action thet af-cts the

performances of its duties has been expliceithy recognized by a

three-judge court in a case involving WULC's pred cessor agene.,

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12 Washington Utilities & Transportation Commission, et al. vs.

the Department of Public Works of the State of Washington.

In Department of Public Works v. United States, 55 F.2d 392

(W.D. Wash. 1932), the department was held to have standing

to obtain judicial review of an order of the Interstate Commerce

Commission. The order provided that rates for transporting grain

from points south of the Snake River in Washington and Ore-

gon to Portland, Oregon, must be 10 per cent lower than the

rates for shipment of grain from the same area to ports on Puget

Sound, Washington. The effect of the order was to prescribe

an intrastate rate that would otherwise have been subject to the

jurisdiction of the state agency. The court held (55 F.2d at

394):

. .. the laws of the United States having made provision

for suits to set aside unauthorized orders of the Intrastate

Commerce Commission, it would be unreasonable to deny to

the petitioner the right to bring a suit such as the present

in order that it may, in a proper case, remove obstacles to

the exercise of its statutory powers. As long as the order

of the Interstate Commerce Commission remains in effect, it

is an obstacle hindering, if not preventing, the exercise by

the department of its powers under section 10389.!°

On the basis of these and other cases in which state and fed-

eral officials and agencies have been allowed to challenge a wide

range of administrative orders affecting the discharge by the

officer or agency of obligations imposed by law,!! and because

the purposes of the “injury in fact” requirement are adequately

served, we conclude that the adverse effect of the FCC’s order

on WUTC’s exercise of its statutory dutics satisfies this element

of the Data Processing test for standing.

The second requirement of Data I’rocessing is also satisfied:

The interest WUTC sceks to protect—-reasonable intrastate tele-

phone rates and, more generally, high quality and widely avail-

10Section 10389 is the predecessor of R.C.W. 81.28.230, which is

identical to R.C.W. 80.36.140, see p. 6 supra, except that the forme

governs transportation of persons and property and the latter the trans

mission of messages by telegraph or telephone.

11See also Board of Edue. v. Allen, 392 U.S. 236, 241 n.5 (1968);

Akron Bd. of Educ. v. State Bd. of Educ., 490 F.2d 1285 (6th Cir.

1974); Brewer v. Hoxie Schvol Dist., 238 }°.2d 91, 104 (8th Cir. 1956).

r a | BOT eae

; | i

13a

Federal Communications Commission, et al. 15

able intrastate telephone service—is “arguably within the zone

of interests to he protected” by the Federa! Compiunieations Act.

The statutory standard governing the licensing of communiea-

tions carriers is the “public convenience and necessity,” 47 U.S.C.

§ 214(a), and the touchstone of decision in applying this standard

is ‘to make available, so far as possible, to all the people of the

United States a rapid, efficient, Nation-wide, and world-wide wire

and radio communieation service with adequate facilities at rea-

sonable charges.” 47 U.S.C. £151. The Commission’s broad man-

date would not permit it to ignore the impact of its crders upon

the quality and cost of local telephone service which constitutes

the vast bulk of the total telephone service used by the peo-

ple of the United States.12 This is obvious]+ the Commission's

view, for it gave specifie consideration to that impact in the

present preceeding. See 31 F.C.C.2d at 1107-08.

Permitting a publie ageney charged with relevant legal obli-

gations to obtain judicial review of a final order of a regula-

tory agency specifically declared reviews ble by Congress. on the

ground that the order has an adverse impect on the complainant

ageney’s performance of its statutory obligations, presents no

potential whatever ter abuse of the judicial! proeess or distortion

of the role of the Judicial braneh of government in its relation-

ship to the Exeeutive and the Legislative branches—coneerns that

may have some substanes where private litigants assert stand-

ing as taxpayers or citizens to initiate plenary actions challeng-

ing the constitutionality of federal statutes or of the concdret of

executive departments. Scc, ¢.9., Scheslinger v. Reservists to Stop

the War, supra: United States v. Richardson. sicvpra. Tndced, ai-

lowing such agencies standing may often be the only practivel

means of effecinating Congress’ decluraiion that judicial review

of particular federal ageney action is appropriate. In the preseni

12Approximately 169 billion calls were transmitted in 1969. Of these,

almost 160 billion were local calls regulated by state commissions. 36 FCC

Annual Reports, Table at 255 (1970). Of the approximately 9.5 billion

toll calls, a substantial number were intrastate and therefore also subject

to state regulation. The FCC exercises jurisdiction over approximately

9% of A.T. & T.'s plant. State commissions exercise jurisdiction over

the remaining 75¢¢ and over virtually all of the plant of the independent

(non-Bell) telepho.ie companies. Re American Tel. & Tel. Co., 70 PUR.

3d 129, 145, © 21 (1967).

i a Te ate oy OGRA

14a

14 Washington Utilities € Transportation Commission, et al. vs.

case, for example, although judicial review of the Commission's

order is expressly provided for, any adverse impact of the FCC

order on intrastate telephone rates would probably be so indirect,

and take place so gradually, that individual users of intrastate

telephone service would be unaware of it, or, in any case, would

have inadequate incentive to incur the expense of judicial review.

See Akron Board of Education v. State Board of Education, 490

F.2d 1285, 1289-90 (6th Cir. 1974).

We therefore hold that WUTC has standing in its own right

to secure judicial review of this FCC order.

WUTC may also obtain review of the challenged FCC action as

parens patriac.'3 A substantial portion of Washington’s citizens

would be affected by an increase in intrastate telephone rates.

Cf. Kansas v. Colorado, 206 U.S. 46, 99 (1907). Petitions for re-

view by individual users are not a practicable remedy. See Mis-

souri v. Illinois, 180 U.S. 208, 241 (1901). The state has an

interest independent of its individual citizens, for increased rates

for intrastate telephone service would inhibit communication vital

to the economic and social well-being of the community as a

whole. See Georgia v. Pennsylvania Railroad, 324 U.S. 439, 450-

51 (1945); Pennsylvania v. West Virginia, 262 U.S. 553, 592

(1923); Georgia v. Tennessee Copper Co., 206 U.S. 230, 237

(1907); California v. Frito-Lay, Inc., 474 F.2d 774, 775 (9th

Cir. 1973). The fact that communications rates are closely regu-

lated by both the United States and the various states reflects

the presence of a governmental interest above and beyond the

13States or territories have been permitted to sue as parens patriae for

review of federal regulatory agency decisions in many cases. E.g., Guam

v. Federal Maritime Comm’n, 329 F.2d 251, 252-53 & n7 (D.C. Cir.

1964); California v. FPC, 296 F.2d 348 (D.C. Cir. 1961), rev’d on other

grounds, 369 U.S. 482 (1962); Puerto Rico v. Federal Maritime Bd., 238

F.2d 419 (D.C. Cir. 1961); New York v. United States, 65 F. Supp. 856,

872 (N.D. N.Y. 1946), aff'd, 331 U.S. 284 (1947). See also Phillips

Petroleum Co. v. Wisconsin, 347 U.S. 672 (1954), aff’g Wisconsin v.

FPC, 205 F.2d 706 (D.C. Cir. 1953) (standing apparently based on

parens patriac, though standing issue not discussed); PUC v. FVC, 205

F.2d 116, 119 (3d Cir. 1953) (assuming standing without deciding).

WUTC's authority to initiate these judicial proceedings on behalf of the

people of the State of Washington is found in R.C.W. 80.01.075. See

note 6.

15a

Federal Communications Commission, et al. 15

concerns of the individual citizen.14 Finall, none of the consid-

erations that have justified restrictions upon the power of the

state to repres nt the inter st of its citizenr- paicins patriag are

present here. The original jurisdiction of the Supreme Court is

not invoked, and the availability of a renedy need not be re-

stricted by the necessity of husbanding thet court's limited

resources. Since no state is sued, there is no threat of cireum-

vention of the Eleventh Amendment. Se-, 9., Waivait v. Stand-

ard Oil Co., 405 U.S. 251, 258 n12 (1972). Oklahoma cx rel.

Johnson v. Cook, 304 U.S. 387, 392-93 (1938).15 Since no dam-

ages are sought, there is no risk of duplicating reeoverics. Ha.

wav uv. Standard Oil Co., supra, 405 U.S. at 261-64. Since no

absent persons will be barred from 2 remedy otherwise available

if this petition is entertained, the procecding is not subject to

criticism as a substitute for a class action without its safeguards.

California v. Frito-Lay, Inc., supra, 474 F.2d at 777 n.11.

The argument is made that WUTC is herred from maintaining

a parcns patriae challenge to an orler of an ageney of the federal

government by the holding of Massachusetts v. Vellon, 262 US.

447, 485-86 (1923), that “[wlhile the State, under seme cireum-

stances, May sue jas parens patrie| for the protection of its

citizens (Missouri v. [Mlinois, 130 US. 208, 241), it is no port of

its duty to enforce their rights in respect of their relations

with the Federal Government. In that field it is tie Uniterd

States, and not the State, which represents them as parcus patria:

”

The doctrine of Massachuset!s v. Uellon is not applicable to this

procecding. Massachusetts had alleged that a federal staiate wes

unconstitutional as a usurpation by Congress of power reserved

to the states. As the Court point.) out in Georgia ve. Peunsy!-

MAt least where injunctive relief is sought, the grounds separately

listed here may be alternative. An independent state interest may be

sufficient, whether or not a substantial portion of the citizenry is af-

fected or an adequate individual remedy is available. Note, Federal Juris-

diction—Suits by a State as Parcns Patriac, 48 N.C. L. Rev. 963, 969

(1970).

“Today the policy underlying the eleventh amendment appears to be

the principal limitatio. on tie state's attempi to assert the interesis of

its citizens as porcns patriac.” Comment. The Original Jurisdiction of

the United States Supreme Cowt, 11 Stan. L. Rev. 665, 674 (1959).

oo aD EER DB oe

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Bere eg

16a"

16 Washington U lilities C7 Transportation Commission, ct al. vs.

vania Railroad, supra, Massachusctts sought to litigate a “question

of distribution of powers between the State and the national

government” (324 U.S. at 445), and “protect her citizens from

the operation of federal statutes” (id. at 447). There are no such

questions here. WUTC does not attack the constitutionality of

the Communications Act on any ground; rather, it relies upon

the federal statute, and secks to vindicate the congressional will

by preventing what it asserts to be a violation of that statute

by the administrative agency charged with its enforcement. That

federal agency is not the only public body that may invoke

judicial assistance to enforce the Act. Sce Georgia v. Pennsylvania

Railroad, supra, 324 U.S. at 447 (“The fact that the United

States may bring criminal prosecutions or suits for injunctions

under [the antitrust] laws docs not mean that [a state] may not

maintain [a parens patriae suit]”).'®

We turn to the standing of the National Association of Regu-

latory Utility Commissioners (NARUC). A substantial argument

10The Georgia v. Pennsylvania R.R. majority rejected the broad prin-

ciple stated by Justice Stone in dissent that “[t]he federal government

alone stands in such relationship to the citizens and inhabitants of the

United States, as to permit the bringing of suit in their behalf, to protect

them from the violation of federal laws relating to interstate commerce.”

324 U.S. at 474. See also Note, Federal Jurisdiction—Suits by a State

as Parens Patriae, 48 N.C. L. Rev. 963, 966-67 (1970).

In Minnesota v. Benson, 274 F.2d 764 (D.C. Cir. 1960), this theory

was invoked to deny Minnesota the right as parens patriae to obtain

judicial review of an order of the Secretary of Agriculture. But in Guam

vy. Federal Maritime Comm’n, 329 F.2d 251, 252 (D.C. Cir. 1964), Benson

was limited to review of “an action of the federal government itself, 1.e.,

a milk regulation.” The court held in Guam that “in utility cases in-

volving private operators a state or municipal government may be a

proper party and, if adversely affected as such by an order, is aggrieved,”

and may obtain judicial review. Jd. at 253.

In a footnote in PUC v. United States, 356 F.2d 236, 241 n.1 (9th

Cir. 1966), Judge Madden quened whether Mellon barred review of an

FCC order on petition of the California commission, but concluded that

it was not necessary to answer the question in that case.

The authority of Mellon, at least as a broad rather than a narrow

proposition, may have been “eroded by time.” Massachusetts v. Laird,

400 U.S. 886, 889 (1970) (Douglas, J., dissenting from denial of leave

to file bill of complaint). Indeed, the Supreme Court hus allowed a state

17a

Federal Communications Commission, et al. 17

ean be made that NARUC has standing in its own right,!7 but

we need not reach that question. NARUC describes itself as a

to challenge as parens patriae an allegedly unconstitutional congres-

sional statute. South Carolina v. Katzenbach, 383 U.S. 301 (1966). This

action has been taken by several commentators as casting doubt on the

Mellon proposition. C. Wright, Law of Federal Courts 503 (1970) ;

Bickel, The Voting Rights Cases, 1966 Sup. Ct. Rev. 79, 87-89. It would

be improvident to extend a doctrine that is of questionable authority in

its original application.

NARUC is not merely a “concerned bystander” seeking “vindication

of value interests.” United States v. SCRAP, 412 U.S. 669, 687 (1973).

Congress has accorded NARUC official status as the representative of

state regulatory agencies in dealing with the basic problem underlying

these petitions for review. :

A brief statement of the joint efforts of the FCC and NARUC in the

area of allocating common carrier property und expenses between inter-

state and intrastate operations, as the base for determining telephone

rates, is found in footnote 7. Sce also S. Rep. No. 92-362, 92d Cong., 1st

Sess. (1971), 2 U.S. Code Cong. & Admin. News 1511, 1513-14, accom-

panying H.R. 7048 enacted as P.L. 92-131, amending 47 U.S.C. § 410.

The latter amendment provides for the creation of a Federal-State

Joint Board to consider proceedings “regarding the jurisdictional separa-

tion of common carrier property and expenses between interstate and

intrastate operations.” 47 U.S.C. §410(¢). The statute further provides,

“The Joint Board shall be composed of three Commissioners of the

(Federal Communications] Commission and of four State commissioners

nominated by tle national organization of the State commissions, as

referred to in section 302(b) and 305(f) of Title 49, and approved by

the Commission.” Jd. The “national organization” referred to is NARUC.

See H.R. Rep. No. 253, 89th Cong., Ist Sess. (1965), 2 U.S. Code Cong.

& Admin. News 2923, 2928.

The order sought to be reviewed in this case is not directly concerned

with the “separatious” problem. However, the petitioners allege that the

order will have an effect in this area that will impair the performance of

obligations that, in the case of WUTC, are officially imposed, and, in the

case of NARUC, are officially sanctioned.

Although NARUC is not compelled by statute to discharge these obli-

gations, if assumed them with the acquiescence, encouragement, and

solicitation of the Cougress and the Commission. As Judge Leventhal

has said, “Interest groups are, in today’s complex society, an indispen-

sable part of an effective channel of communication between government

and the persons whose conduct the government seeks to affect.” National

Automatic Laundry & Cleaning Couneil v. Shultz, 443 F.2d 689, 694 (D.C.

Cir, 1971). “[ Whether or not this begins as a duty, it is a necessity.

and gives rise to relationships that cannot be ignored by the courts.” Ji.

SP GPA RY TI a |

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18a

18 Washington Utilitics & Transportation Commission, ct al. v's.

“quasi-governmental nonprofit organization” composed of “the

governmental bodies of the fifty States engaged in the regula-

tion of utilities and earricrs,’”!* including WUTC. Sinee WUTC

and other publie agencies alleged to have similar duties are mem-

bers of NARUC, and since WUTC and similar agencies have

standing to sue,!® NARUC’s right to judicial review is estab-

lished upon this ground alone. Sierra Club v. Morton, supra,

405 U.S. at 739; National Association for the Advancement of

Colorcd People v. Button, 371 U.S. 415, 428 (1963) .2°

On the merits, the issue most strongly pressed is that the

Commission violated both substantive and procedural requirements

of the Federal Communications Act in determining that a general

policy in favor of entry of new carriers in the specialized com-

munications field would serve the public interest. NARUC’s

principal argument is that under the “public interest, convenience,

and necessity” standard of the Act, 47 U.S.C. §§ 214, 309, the

Commission cannot approve new common carriers unless existing

common carriers could not provide the service, and such a finding

At least where the relationship is as nearly official and as relevant to

the subject matter to be litigated as it is in this instance with respect to

NARUC, the purposes of the standing requirement are satisfied for

essentially the same reasons as they are with respect to WUTC.

1SNARUC’s petition for review states:

The NARUC is a quasi-governmental nonprofit organization

founded iu 1889. Within its membership are the governmental bodies

of the fifty States engaged in the regulation of utilities and carriers.

The missicn of the NARUC is to improve the quality and effectiveness

of public regulation in America. More specifically, the NARUC con-

tains the State officials charged with the duty of regulating com-

munication common carriers within their respective States and, as

such, they have the obligation to assure the establishment and main-

teuance of such communications service and facilitics as may be

required by the public convenience and necessity, end the furnishing

of service at rates that are just and reasonable.

19NARUC’s petition for review specifically alleged injury to its member

state commissions.

20Since NARUC has standing to raise the Federal Communications

Act issues, it may also challenge the order for noncompliance with the

National Environmental Protection Act, as it has sought to do. Sierra

Club v. Morton, 405 U.S. 727, 737 (1972).

19a

Federal Communications Conun isston, ct al. 19

has not been, aud could not be, meade. WUTC emphasizes the

procedural objection, srguing that under the provisions of the

Act, 47 U.S.C. §§ 309, 316, an evidentiary hearing must be held

on each pending application to decide whether the competition

proposed by that application would further the public interest,

and that a policy and rulemaking procecding will not suffice.

The business involved is that of providing specialized private

or leased line communication services through microwave trans-

mission facilities, as distinguished from publie exchange and long

distance toll telephone serviec. The latter consists primerily of

voice communication service from aud to all points on an inte-

grated yational and intermational telephone network, available to

the public generally. The proposed service consists of communi-

cation of all types of signals, including data and other non-

voice traffie, but only to or from limited points, and only

pursuant to private contract. The applicants propose to offer users

a wide rang» of choice as to cost, specd, and quality of transmis-

sion, part- or full-time availability, shared or exclusive usage,

and utilization of the customer's own terminal equipment.

The Commission had earlier authorized private companies to

build and operate their own microwave facilities to meet such

specialized needs, upon a showing of financial and technical qual-

ifications. Alloe:tion of Mlicrowave Frequencics above 890 Me.,

27 F.C.C. 359 (1959), 29 F.C... 825 (1960).

The Commission's Notice of the present proceeding stated the

first issue to be “Whether as a general policy the public interest

would be served by pernicting the entry of new earriers . "

M4 PCC 2d B18, 527 (1970). The legel and factual bases upon

Which the Commission's staff recommended an affirmative answer

were sont out in detail im the Notice, and comments were solicited.

Id. at 328-38. Over 200 imterested persons responded, all but a

few favoring the proposed! policy. Firsi Report and Order, 29

B.C.C.2d 870, 879 (1971). The Commission heard oral argument

and received rebuttal comnuents. It then filed its report and order,

concludin., waong other things, that “a eeneral poliey in favor

of the entry of new carriers in the specialized commutecatious

field would s rve the public interest, convenience, and necessity.”

Id. at 920.

Dewi I

meee

PO PCM SANGER LONI FELD EASE

20a

20 Washington Utilitics & Transportation Commission, ct al. vs.

The Commission based its conclusion upon the following general

findings: “[T]here is a public need and demand for the pro-

posed facilities and services and for new and diverse sourecs of

supply, competition in the specialized communications field is rea-

sonably feasible, there are grounds for a reasonable expectation

that new entry will have some beneficial effects, and there is no

reason to anticipate that new entry would have any adverse

impact on service to the public by existing carriers such as to

outweigh the consideration supporting new entry.” Jd. These

findings are based in turn upon subsidiary factual determina-

tions, forecasts, and expert judgments detailed in the Commis-

sion’s report. Id. at 904-20. These are briefly outlined in the

margin.?!

21Use of microwave frequencies in the transmission of communications

is a post-World War II development, capable of a wide range of special-

ized applications. The need for all communications services is growing

rapidly. Existing carriers (principally A.T. & T. and Western Union)

have not met the increasing and widespread need for diverse and flexible

specialized communications services, particularly in the transmission of

data. Market studies and independent forecasts establish that there is a

very large undeveloped market for such services. Although there is some

overlap, the services proposed by applicants are significantly different

from those offered by established carriers. The applicants seek primarily

te develop new services and markets, and to tap latent, undeveloped sub-

markets for existing service. The applicants offer service features de-

signed to meet the special and diverse teclinical and service requirements

of specialized users, achieving the economies and benefits of specializa-

tion. It is reasonable to conclude that the effect of new entry will be

expansion of the total communications market. Competition within the

market for specialized services should motiyate innovation, and produce

even greater growth rates. |

The existing carriers’ facilities and practices have been developed

primarily to meet the needs of voice transmission. Major modifications

may be required to meet the different needs for efficient data transmis-

sion. Moreover, the capability of established carriers to meet future

requirements should not be determinative where growing future traflic is

_ concerned and new services are proposed. Even if existing carriers might

furnish the prospective services, other benefits are reasonably to be

anticipated from new entry in the specialized communications field. New

entry will provide flexibility and wider choice in satisfying expanding and

changing requirements in this field.

It is questionable whether existing carriers can mect the new require-

merts in the specialized communications field and stili mect the increasing

requirements of the public monopoly services, particularly in view of the

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21a

Federal Communications ¢ ‘ommission, et al. a |

The Comuission’s subsidiary findings weaken NARUC’s factual

premise that existing carriers night have been able to furnish

the proposed services. Nonetheless, the Commission clearly re-

diversity of such requirements, the designing and engineering problems

involved, and the huge and increasing amounts of new capital required.

Entry of new carriers would disperse the burdens, risks, and initiatives

involved.

Competition in specialized communications would enlarge the equipment

market for manufacturers other than Western Electric, and thus stimulate

innovation. New carriers could devote their undivided attention to par-

ticular needs, and would be under pressure to innovate.

New carriers would provide a useful regulatory tool, furnishing a

standard for comparison among specialize’ communications calriers, and

encouraging beneficial changes in A.T.&T.’s services and charges.

New entry in the specialized field would not adversely affect the fur-

nishing of services to the public by existing carriers. The specialized

communications services involved constitute oniy a very small percentage

ot A.T.AT.’s total market. The market for standard voice communications

services is not affected; it accounts for the bulk of A.T.&T.’s revenue,

and it is also expanding with great rapidity. A.T.&T. will also be free

to compete in the new field and is likely to obtain a very substantial

portion of the potential market for specialized services. The potential

impact on Western Union is greater, since a larger percentage of its

service will be vulnerable to the new competition. However, a receutly

approved merger (In Re Western Union Tel. Co., 24 F.C.C.2d 664

(1970)) will add substantially to Western Union's revenue. Moreover, the

market involved is uew, relatively untouched, and growing at a very

rapid rate, and Western Union may retain most of its present specialized

business as well as capture a sizeable share of the potential market. The

independent telephone companies do not furnish inter-city facilities, and

to the exteat the new entrants rely on existing local distribution facilities

the business of independent telephone companies will increase.

The “cream skimming” charge is unfounded primarily because ap-

plicants propose to serve special service markets that have not yet been

developed, aid because they propose to serve all such markets, excluding

none that has a sicnificant need.

The contention that allowing new entry will saerifice potential econo-

mies of size is rejected because the potential for such economies is uot

great in the specialized communications field in view of rapidly changing

applications of improved technology and growing potential markets made

up of diverse consumer demaan ls. Attempts to adapt A.T.&T.’s voice

communication facilities to data communication may leave users of both

types of service unsatisfied and vitiate any economies of each. Any such

economies that micht be realized are overbalanced by the benefits that can

be expected trom the participation of smaller, specialized carriers.

SRO SEM HNC OTE

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22a

22 Washington Utilitics € Transportation Commission, ct al. vs,

jected NARUC’s legal premise that the existence of such a

capability would require rejection of applications from new ear-

riers, and the merits of NARUC’s contention must therefore be

considered. : er ae

NARUC asserts that Congress, in enacting the Conimunications

Act of 1934 and the amendments thereto, “clearly intended that

the Commission would regulate common carriers as quasi-

monopolies and that new entrants would only be authorized when

existing carriers [could] not provide adequate service.” For this

proposition NARUC relies principally upon an historical review

tracing the origin of sections 201-222 of Title II of the Com-

munications Act to the Interstate Commerce Act, and upon

decisions relating to the regulation of transportation common car-

riers,22 if a . cane 1 dete

NARUC interprets the Communications Act too narrowly. As

the Commission points out, “[t]he statutory standard governing

the Commission’s consideration of applications for microwave

radio facilities to provide common carrier services is broadly

stated in Sections 309 and 214 of the Communications Act:

whether a grant would serve the present or future public interest,

convenience, and necessity.” 49 F.C.C.2d at 901. As the Commis-

sion further notes, and as we noted in Part I of this opinion,

this broad standard is to be interpreted in light of the Commis-

sion’s sweeping mandate to regulate “interstate and forcign com-

22K.g., American Trucking Ass’n v. United States, 326 U.S. 77, 86

(1945); McLean Trucking Co. v. United States, 321 U.S. 67, 83 (1944) ;

Transit Comm’n v. United States, 289 U.S. 121, 125-26 (1933); Texas &

New Orleans R.R. v. Northside Belt Ry., 276 U.S. 475, 479 (1928). See

also Delta Airlines v. CAB, 442 F.2d 730, 733 (D.C. Cir. 1970); Delta

Airlines v. CAB, 275 F.2d 632, 637-38 (D.C. Cir. 1959). NARUC also

refers to language suggesting that traditional telephone and telegraph

companies, because they were considered to be natural monopolies, were

intended to be regulated with a presumption against competition, much

as railroads had been. FCC v. Sanders Bros. Radio Station, 309 U.S.

470, 474 (1940); National Ass’n of Theatre Owners v. FCC, 420 F.2d

194, 203 (1969). See also Hawaiian Tel. Co. v. FCC, .... F.2d ...,

(D.C. Cir. May 3, 1974). For a specific rejection of the view that the

public convenience and necessity standard of § 214 of the Communications

Act is to be interpreted generally in the same manner as §1(18) of the

Interstate Commerce Act, see General Tel. Co. v. United States, 449 F.2d

846, 856 (5th Cir. 1971). gas

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23a

Federal Communications Commission, et al. 33

merce in communication by wire and radio so us to make avail- :

able, so far as possible, to all the people of the United States a 4

rapid, efficient, Nation-wide, and world-wide wire and radio com-

munications service with adequate facilities at reasonable charges

..” (47 U.S.C. § 151), and “generally encourage the larger

and more effective use of radio in the public interest” (47 U.S.C. :

§303(g)). See 49 F.C.C.2d at 901. :

This statutory language does not suggest that the Commission

is to give controlling weight to the mere fect that existing com-

mon carriers have the ability to perform the service an applicant :

wishes to furnish. Nor, for that matter, does it suggest that the

Commission is to accord controlling weight to asserted benefits :

of competition, or to any other particular factor. The Commis- i

sion’s authority is stated broadly to avoid the need for repeated e

congressional review and revision of the Commission’s authority e

to meet the needs of a dynamic, rapidly changing industry. Va- k

tional Association of Theatre Owners v. Federal Communications &

Commission, 420 F.2d 194, 199 (D.C. Cir. 1969). Regulatory

practices and policies that will serve the “publie interest” today ;

may be quite different from those that were adequate to thet :

purpose in 1910, 1927, or 1934, or that may further the public

interest in the future.23

The power of the Commission, in determining the “public in-

terest,” to accord competitive considerations the weight the Com-

mission gave to them in this case is fully supported by the Su-

preme Court's opinion in Federal Communications Commission v.

RCA Communications Inc., 346 US. 86 (1953).24 The Court

held that the Commission could noi treat the encouragement of

*3Cases cited by the Commission (29 F.C.C.2d at 901) sustain its

interpretation of §§4(i) and (j) and 303(r) of the Communications Act,

47 U.S.C. §§ 154(i) and (j), 303(r), as conferring “ ‘not niggardly but

expansive powers’ and wide discretion to adopt flexible procedures, rules

and orders to meet ever-changing communications needs. .. . 2 National

Broadcasting Co. v. United States, 319 U.S. 190; FCC v. Pottsville Broad-

casting Co., 309 U.S. 134, 137-138; United States v. Southwestern Cable

Co., 392 U.S. 157, 172-173; United States v. Storer Broadcasting Co., 351

U.S. 192, 202-203.”

“'General Tel. Co. v. United States, 449 F.2d 846, 857-58 (5th Cir.

1971). Seo also Gulf States Util. Co. v. MPC, 411 U.S. 747, 759 (1973):

City of Huntington Library v. FPC, F224 ......... ..... (D.C. Cir. 1974).

bli sed

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24a

24 Washington Utilitics & Transportation Commission, et al. v's.

competition as such as “the single or controlling reliance for safe-

guarding the public interest,” (id. at 93), and therefore could

not authorize entry of a competing carrier on the naked assump-

tion that as a matter of national policy, competition was to be

fostered if “reasonably feasible” (id. at 95). Because the Com-

mission had authorized a new radio telegraph service on just

that premise, the case was remanded for reconsideration. The

Court made it clear, however, that “competition is a relevant

factor in weighing the public interest,” and if the Commission

had “clearly indicated that it relied on its own evaluation of the

needs of the industry rather than on what it deemed a national

policy, its order would have a different foundation.” Id. at 94.

The Court spelled out the basis upon which the Commission

could authorize new entry because of competitive considerations

(id. at 96-97):

We think it not inadmissible for the Commission, when it

makes manifest that in so doing it is conscientiously cxercis-

ing the discretion given it by Congress, to reach a conclu-

sion whereby authorizations would be granted wherever

competition is reasonbly feasible. This is so precisely because

the exercise of its functions gives it accumulating insight not

vouchsafed to courts dealing ecpisodically with the practical

problems involved in such determination. Here, however, the

conclusion was not based on the Commission’s own judgment

but rather on the unjustified assumption that it was Con-

gress’ judgment that such authorizations are desirable. . . .

In reaching a conclusion that duplicating authorizations

are in the public interest wherever competition is reasonably

feasible, the Commission is not required to make specific

findings of tangible bencfit. It is not required to grant

authorizations only if there is a demonstration of facts indi-

cating immediate benefit to the public. To restrict the

Commission action to cases in which tangible evidence appro-

priate for judicial determination is available would disre-

gard a major reason for the creation of administrative agen-

cies, better equipped as they are for weighing intangibles “by

specialization, by insight gained through experience, and by

more flexible procedure.” Far East Conf. v. United States,

342 U.S. 570, 575. In the nature of things, the possible

abn

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25a

Federal Communications Comm ission, et al. 5

benefits of competition do not lend themselves to detailed

forecast, ef. Lubor Board v. Seren- Up Co., 344 US. 344, 348,

but the Commission must at least warrant, as it were, that

competition would serve some bencficial purpose such as

maintaining good service and improving it. Although we

think RCAC’s contention that an applicant must demonstrate

tangible benefits is asking too much, it is not too much to ask

that there be ground for reasonable expectation that com-

petition may have some beneficial effect. Merely to assume

that competition is bound to be of advantage, in an industry

so regulated and so largely closed as is this one, is not

enough.

TE PAS ees

—

Pas

We have quoted the Court at length because it is evident from

the Commission’s opinion in the present case that the Conimission

was fully conscious of the guidelines announced in RCA Com-

munications, and sought conscientiously to follow them. Our exr-

lier summary of the Commission's opinion demonstrates that the

Commission succeeded. Ser note 21 supra. The Commission's

policy determination that the publie interest would be served

by entry of new carriers in the specialized communications field

is based upon its own judgment that such authorizations are de- :

sirable, a judgment reached in a conscientious exercise of. tie f

discretion vesied in the Commission by Congress. As to the bene-

fits of competition, the Commission said, “It is our judgmen:,

based on our cumulative knowledge of the industry and the entire ?

record in this proceeding—ineluding our stafi’s analysis. that i

there is a sufficient ground for a reasonable cxpeciation that new

entry here will have some beneficial effects. We so warrant.” 29 ;

F.C.C.2d at 910. Against there benefits, the Commission carefully

weighed possible adverse effects of competition upon existing car-

riers and their serviecs (29 F.C.C.2d at 910-14) before finally ;

concluding that ua general policy of new entry would serve the é

public interest, convenience, and necessity. ;

7 RRR ROE GMS cre

Woes

as a Re

The Supreme Court’s disposition of ROA Communications is

flatly inconsistent with NARUC's contention that new entry is

impermissible if it will result in duplication of facilities of ex-

isting carriers capable of furnishing the serviec. The Supreme

Court noted that the Commission hed soul that more facilities

Arata

lettin ON eT

26a

26 Washington Utilitics & T'ransportation Commission, et al. vs.

were then authorized than were necessary to handle the present

and expected volume of traffie under sound operating conditions.

346 U.S. at 88.25 Nonetheless, the Court remanded with the ex-

press understanding that the Commission might permit entry of

new carriers if it found the public interest would be served.

The disposition on remand is significant. As the Commission

notes (29 F.C.C.2d at 902 n.19):

On remand in that case the Commission concluded on the

basis of its experience that competition resulting from a

grant of the application was reasonably feasible and would

serve the public interest. It stated: “What we require is

that, in order to be successful an applicant must demonstrate

that, as has been done here, through the operation of such

a cireuit, some public need would be served or some advan-

tage would accrue to the public, or at least that there is a

reasonable expectation that such competition may have some

beneficial effect.” Mackey Radio and Tclegraph Company,

Inc., 19 FCC 1321, 1350 (1955), aff'd. RCA Communica-

‘ions, Inc. v. FCC, 238 F.2d 24, 27-28 (1956), cert. den. 352

U.S. 1004 (1957).

As the Commission puts it, RCA Communications stands for

the proposition that “while wasteful duplication is generally to

be avoided, duplication is not wasteful where a certificating

ageney appropriately concludes that competition is reasonably

feasible and may be expected to have some beneficial effect.” 29

F.C.C.2d at 902 n.20.

Assuming that the use of rulemaking procedures in this case

was appropriate, we are not persuaded by NARUC’s attacks upon

the sufficiency of the record in support of the rule adopted. We

are satisfied that “there is sufficient relationship between the

Commission’s conclusion and the factual bases in the record

upon which it relied to substantively support this exercise of its

25This finding prompted Justice Douglas to dissent from the Court’s

ultimate disposition of the case, arguing that remand would be fruitless

because the Commission, exercising its independent judgment, could not

possibly find that the entry of new carriers would serve the public

interest. 346 U.S. at 99.

a EA OL! CUTAN HF Re WE, Reciete — a

* = 1¢ er, mh ns a o PPE TRIES IIS AIS SEPP SEDI ONS nee roe

Series,

27a

Federcl Communications Com mission, et al. ne

authority.” United States v. Allegheny-Ludlum Steel Co., 406

U.S. 742, 755-56 (1972) .26

Not surprisingly, both NARUC and WUTC place some em-

phasis upon the contention that the Commission did not give suf-

ficient consideration to the risk that new specialized carriers

would divert interstate business from the established carriers,

leading to higher rates for local users. It is argued that the

Commission did not sufficiently investigate the nature and size

of the market or the potential economic impact of new entrants.

The Commission specifically addressed itself to these contentions.

29 F.C.C.2d at 910-14, 917-20; 31 F.C.C.2d at 1107-08. Its re-

sponse is adequate.

There is truth in NARUC’s charge that the Commission’s de-

cision rests in good part upon “suppositious eventualities.” Plan-

ning necessarily rests upon the acceptance of uncertain forecasts

of future events. No other course is possible if the Commission

is to formulate regulatory practices and policies that will enable

the industry to satisfy future public needs.27

We tum now to WUTC’s argument that it was improper for

the Commission to employ policy- and rulemaking procedures

to determine whether competition would further the publie inter-

“6The Court explained this standard of review as follows:

We do not weigh the evidence introduced before the Commission ;

we do not inquire into the wisdom of the regulations that the Com-

mission promulgates, and we inquire into the soundness of the

reasoning by which the Commission reaches its eonelusions only to

ascertain that the latter are rationally supported.

406 U.S. at 742. Prior to this decision, there was disagreement among

lower courts as to the standard of review of agency rules such as those

involved in Allegheny-Ludlum Stcel Corp. and in this ease. Compare

Califernia Citizens Band Ass'n v. United States, 375 F.2d 43, 53-54 (9th

Cir. 1967) and Superior Oil Co. v. FPC, 322 F.2d 601, 619 (9th Cir.

1963) with City of Chicago v. FPC, 458 F.2d 731, 741-45 (D.C. Cir.

1972).

“7FCC v. RCA Communications, Inc., 346 U.S. 86, 96-97 (1953) ;

United Stat:s v. Detroit & Cleveland Navy. Co., 326 U.S. 236, 241 (1945) ;

GTFE. Sery. Corp. v. FCC, 474 F.2d 724, 731 (2d Cir. 1973) ; see American

Airlines, lic. y. CAL, 359 F.2d 624, 633 (D.C. Cir. 1966).

Seine PEER AEA Ari OE hs NEL ve CAGED ELISE SLL LO TELE Ds tit HOY Ses Ce SLR

belts

a Ss

PERRIS am RT es RoR

aay

PE IGE BEY INN

LIN DELIA SP ALOD Pi TG LINC AVE BLE EH FRED

28a

28 Washington Utilitics & Transportation Commission, et al. vs.

est rather than determining this issue in adjudicative hearings

on individual applications.

At the outset, it is clear that if it was permissible for the

Commission to adopt a general and nationwide policy that the

public interest would be served by permitting the entry of new

carriers in the specialized communications field, it was appropri-

ate for the Commission to do so in a rulemaking proceeding.

The policy proposed and adopted by the Commission falls pre-

cisely within the Administrative Procedure Act’s definition of a

“rule.’28 The problem confronting the Commission met uniformly

accepted standards for utilization of rulemaking procedures: It

affected large numbers of individual situations, it involved deter-

mination of a general policy applicable equally to all in the af-

fected class, case-by-case adjudication would require repetitious

determination of precisely the same issue, it concerned future

events, and it required a broad judgment, legislative in nature,

rather than resolution of a particular dispute of fact.2®

The crucial question is whether the Commission acted within

its statutory authority in adopting a general policy favoring entry

of new carriers rather than considering the costs and benefits of

the specific proposal in each application. We hold that the

Commission did act within its authority.

oa pect sac USER Not dal RAR ae id nea

28A “rule” is defined as “[t]he whole or a part of an agency statement

of general or particular applicability and future effect designed to imple-

mc¢nt, interpret, or prescribe law or policy or describing the organization,

procedure, or practice requirements of an agency.” 5 U.S.C. § 551(4).

29“]t must be emphasized that here the Commission is moving into a

new area of policy affecting large numbers of telephone carriers. The

advantages of rule-making over adjudicatory proceedings in such cireum-

stances are well understood.” GTE Serv. Corp. v. FCC, 474 F.2d 724,

732 (2d Cir. 1973). “Adjudicatory hearings serve an important function

when the agency bases its decision on the peculiar situation of individual

parties who know more about this than anyone else. But when, as here,

a new policy is based upon the general characteristics of an industry,

rational decision is not furthered by requiring the agency to lose itself

in an excursion into detail that too often obscures fundamental issues

rather than clarifies them.” WBEN, Ine. v. United States, 396 F.2d 601,

618 (2d Cir. 1968). “The adversary nature of [a trial-type] proceeding

is particularly suited to the determination of ‘adjudicative’ facts, but

not to the development of ‘legislative’ facts—that is, to dctermine specific

events in the past which are contested rather than general information

NI PPL AL ILL OD STILL SLR IIIA IH GR BOE OIE Rp at ae mn

2 / - een puasenemenemees

29a

Federal Coramunications Commission, et al. 29

WUTC contends that 47 U.S.C. §§ 214 and 309, particularly

the latter, bar formulation of a policy determination in rulemaking

proceedings that the public interest would be served by the entry

of new carricrs. As WUTU points out, section 309(a ) provides

that “the Commission shall determine, in the case of each ap-

plication filed with it . . . whether the public interest, convenience,

and necessity will be served by the granting of such appliea-

tion”; and sections 309(d)(2) and 309(e) mandate an adjudica-

tory hearing, conducted in accordance with 5 U.S.C. § 556(d), if

“a substantial and material issue of fact is presented.”

The Commission points out that it did act upon the merits of

individual applications: “{T]his proceeding does not undertake to

decide all of the issues pertinent to pending apvlications, and

does not go to the qualifications of the applicants or the suf-

ficieney of particular proposals. Such questions will be resolved

by appropriate procedures when the applications are processed

{under § 309].” Sce 29 F.C.C.2d at 896. WUTC responds that

by adopting a policy in favor of competitive entry the Commis-

sion decided the substance of the issue of public interest, con-

venience, and necessity as to each of the pending applications.

leaving open only whether the particular applicant is qualified

and the proposed services is technically and economically sownd.

WUTC asserts that the adequacy of existing service, the nes

for the new service, and the desirability of competitive entry

must also be determined in adjudicatory procecdings upon each

application pursuant to section 309.

The same argument has been advaneed repeatedly both under

the statutory provisious involved here and anulogous statutes,

and has been repeatedly rejected.

Sections 4(i), 4(j) and 303(1r) of the Act, 47 U.S.C. §§ 1544)

& (j), 303(r), describe the Commission’s broad power to issue

fining Procedural Requirements for Agency Rulemaking, 87 Harv. L.

Rev. 782, 784 (1974). Sce also United States v. Florida East Coast Ry.,

410 U.S. 224, 245-46 (1973) ; FPC v. Texaco, Inc., 377 U.S. 33, 44 (1964) ;

SEC v. Chenery Corp., 332 U.S. 194, 202-03 (1947); City of Chicago

v. FPC, 458 F.2d 731, 739 (D.C. Cir. 1971); General Tel. Co. v. United

States, 449 F.2d $46, 863 n.15 (Sth Cir. 1971); Airline Pilots Ass'n v.

Quesada, 276 F.2d 892, 895-96 (2d Cir. 1960).

Bis St BRR OSI OIL IL PE. EON GE AY Rao nd tt ea

Ly ADEN! Rael ccd NY BEY

30a

30 Washington Uttlitics & Transportation Commission, ct al. vs.

rules and regulations.2® Section 309 defines the Commission’s au-

thority in granting or denying an individual application. WUTC’s

“contentions sharply pose the issue whether provisions for general

rule making by administrative agencies are to be applied in their

apparent breadth or are limited by other statutory provisions

seemingly framed to deal with the different problem of individual

applications. In resolving the conflict it is well to remember that

Congress could hardly have intended to deprive administrative

agencies of the ability to administer.” WBEN, Inc. v. United

Statcs, 396 F.2d 601, 607 (2d Cir. 1968).

As the concluding admonition forctells, WBEN, Inc. resolved

the coniliet in favor of the Commission’s broad rulemaking power.

Acting under section 303(r) of the Act, the Commission in that

ease hed promulgated a new rule limiting the predawn broadecast-

ing rights of a class of broadcasters. The latter contended that

a separate evidentiary hearing as to each licensee was required

by section 316(a) of the Act which permits modification of a

station license or permit only if the Commission determines “such

action will promote the public interest, convenience, and neces-

sity,” and requires that the holder be given an opportunity to

show cause “by public hearing” why the modification should not

issue. The court held (396 F.2d at 618):

But no case cited to us has held that §316 thus disables

the agency in the exercise of its rulemaking powers. Rather,

in the only decision in point, the Ninth Circuit upheld the

Commission’s modification of existing license rights by rule,

dcelaring that § 316’s “primary function is to protect the in-

dividual licensee from a modification order of the Commission

and is concerned with the conduct and other facts peculiar

3047 U.S.C. § 154(i) provides:

The Commission may perform any and all-acts, make such rules

and regulations, and issue such orders, not inconsistent with this

chapter, as may be necessary in the execution of its functions.

47 U.S.C. § 154(j) provides in part:

The Commission may conduct its proceedings in such manner as

will best conduce to the proper dispatch of business and to the ends

of justice. ...

47 U.S.C. § 303(r) authorizes the Commission to:

Make . . . such rules and regulations and prescribe such restrictions,

not inconsistent with law, as may be necessary to carry out the pro-

visions of this chapter ....

3la

Federal Communications ¢ ‘ommuission, et al. 31

to an individual licensee.” California Citizens Band Associa-

tion v. United States, 375 F.2d 43 (1967), cert. denied, 389

U.S. 844, 88 S.Ct. 96, 19 L.Ed.2d 112 (1967). The decision

draws the proper line,

Another of the Commission’s rules involved in WBEN, Inc.

provided that an authorization io offer pre-sunrise broadcast

service was to issue to eligible stations merely upon a showing

as to technical matters. It was contended that this rule was pre-

cluded by the provisions of section 309(d) (the section relied

upon by WUTC in this case) allowing any party in interest the

right to file a petition to deny such an application, and requiring

an evidentiary hearing to resolve aii “substantial and material

questions of fact.” 396 F.2d at 621. The court held that the

analysis of section 316 in relation to section 303(r) applied to

section 309 as well. The court said (396 F.2d at 622):

» + ~ §309(d) was an attempt to provide a workable metho:

whereby persons affected by an individual application for a

license or its modification were to have notice and a reason-

able period for registering their objections without, how-

ever, requiring the FCC to hold a hearing in every case

where a petition to deny was filed. Nothing in the text or in

the historv indieates that the statute was addressed to the

entirely difcrent situation where, after proceeding under § 4

of the APA, the Comniission utilizes the rule-making power

granted by £303(1r) to alter the permissible times of opere-

tion by existing licensees, particularly sinee, as indicated

above, coniminuce with §309(d) after suea 2 rule-making

proceeding would generally be an exercise in futility.

The Supreme Court arrived at the same conclusion With ro-

spect to the relationship between the Commission’s rulemaking

power under section 303(1) of the Act and its duty to adjudicate

under section 309 in United States v. Storer Broadcasting Coy.-

pany 351 U.S. 192 (1956). Following a rulemaking proceeding

under the authority of seetion 303(r), the Commission issued

rules providing that in passing upon applications for tel vision

broadeasting liconses it would emsider it to be contrary to public

interost, convonicues, or necessity for any party to have an in-

teresi in inore than five television stations. Storcr Proad ests

‘of

Py RPT I OMT IS eae

or ha el

SEILER POMS IE IE We

STE AICS,

Veédal seis ae Gee CP ee tok

arti ik aR TRESS fete ga ote

oetanat

eee ee ne eet

32a

32) Washington Utilitics & Transportation Commission, ct al. vs.

Company had five such stations. On the day the rules were

adopted, a pending application by Storer for an additional sta-

tion was dismissed on the basis of the rule. Storer argued that

by the express terms of section 309 its application could not

be rejected without a “full hearing.” The Supreme Court held,

however, that the Act must be read as a whole, that section 309

did not withdraw the Commission’s rulemaking power under sec-

tion 303(r), that in the exercise of that power the Commission

could announce in advance its attitude regarding concentration

of control as it related to the public interest, and that unless

an application set forth reasons sufficient to justify a change or

waiver of the rule, section 309 did not require a hearing. 351

U.S. at 202-05.

Federal Power Commission v. Texaco, Inc., 377 US. 33

(1964), applied the same analysis to comparable provisions of the

Natural Gas Act. Following rulemaking proceedings the Commis-

sion issued regulations providing that a producer's application for

a certificate of public interest, convenience, and necessity under

section 7 of the Act would be rejected if any contract submitted

in support of the application contained certain forbidden provi-

sions. An application submitted by Texaco, Inc. was rejected

under the rule without a hearing despite the provision of section

7 that the Commission “shall set” such applications “for hear-

ing.” The Court of Appeals set aside the Commission’s order,

holding that the regulation was a valid statement of Commission

policy, but that it could not “be used to deprive an applicant

of the statutory hearing granted those who seek certificates of

public convenience and necessity. 377 U.S. at 37. The Supreme

Court reversed, holding, on the authority of Storer, “that the

statutory requirement for a hearing under §7 does not preclude

the Commission from particularizing statutory standards through

the rule-making process and barring at the threshold those who

neither measure up to them nor show reasons why in the public

interest the rule should be waived.” Jd. at 39.

The same principle was applied under similar statutory provi-

sions in American Airlines, Inc. v. Civil Aeronautics Board, 359

F.2d 624, 628, 631 (D.C. Cir. 1966), and Airline Pilots Assocta-

tion v. Quesada, 276 F.2d 892 (2d Cir. 1960).

In American Airlines, Inc. the Civil Aeronautics Board issued

a policy statement after rulemaking proceedings that only all-

. spec an me Rid, Pol Ae

33a

Federal Commun ic@t ions Comics ‘on, et al. 35

cargo earricrs could sell spac’ for freight on a reserved basis at

wholesale rates. The Board ®pproved pending tariffs of all-

cargo carricrs providing for st¢) serviee and sumvearily rejected

the similar tariffs filed by eo™bination carricrs. The latter ob-

jected on the ground that the Borrd’s action effecied a modifiea-

tion of their certificates of public convenience and necessity which

could be accomplished only After a fui! adjudieatory hearing

under section 401(g) of the Pederc! Aviation Act, 49 U.S.C.

§1371(g). The court reject-d the argument on the basis of the

Storey vale “that notwithstanding the statutory hearing require-

ment the Commission retaincd the power to promulgate rules of

general application consistent With the Act, and to deny an adju-

dicatory hearing to applicants Whose applications on their face

showed violations of the rule.” 359 F.2d at 628. The court, in

rejecting the suggestion that Storer applied only to regulations

affecting future applications fol uew certilicetes, and not to regu-

lations affecting rights under existing certificates, stated (359 F.2d

at 629):

[T]he Storer doctrine is not to be revised or reshaped by

reference to fortuitous citcumstances. It rests on a funda-

mental awareness that rule making is a vital part of the

administrative process, particularly adapted to and needful

for sound evolution of policy in guiding the future devclop-

ment of industries subject to intensive administrative reovla-

tion in the public interest, and that such rule making is not

to be shackled, in the absence of clear and specifie Con-

gressional requirement, by importation of formalities de-

veloped for the adjudieatery process and basically unsuited

for policy rule making.

Airline Pilots Association sustained a regulation issued by the

Federal Aviation Agency after rulemaking pro.cedings thet no

person over 60 could serve as a commercial aireraft pilot. Plain-

tiffs argued that the regulation was invalid because it was issued

without an adjudicatory hearing reynired by section 696 oF the

Federal Aviation Act of 1958, 49 U.S.C. § 1429. before an a'r

man’s license may be amended, modified, suspended, cr revoked.

The court rejected the arguincnt, holding that section 1429 iip-

plicd “only when an order of the Administrator is directed to

an individual airman and is concerned with eonduet or other

facts peculiar to the airman,” and was “not intended to apply

EPL YT NR IRR SOR ey

Cp ROR TLD

SPHERE WS

bhi ah

SA eR UME ars he cil ein ahd) taapanaeas

34a

34. Washington Utilitics & Transportation Commission, et al. vs.

when a general directive of the Administrator is promulgated

{under § 601 of the Act, 49 U.S.C. § 1421] though the regulation

may in fact modify airmen’s Certificates.” 276 F.2d at 897.

WUTC distinguishes Storer on several grounds. It notes that

the regulation involved in Storer set up standards that barred

issuance of a certificate of public interest, convenience, and

necessity to applicants who did not meet them, while in this case

the standard permitted entry. The relevance of this difference

is not apparent. The rules involved in WBEN, Inc. and

American Airlines favored some grants and barred others, In

either case the Commission uses rulemaking procedures to arrive

at a general determination as to a matter relevant to the public

interest, convenience, and necessity. To repeat, “the Storer doc-

trine is not to be revised or reshaped by reference to fortuitous

circumstances.” American Airlines, Inc. v. Civil Aeronautics

Board, supra, 359 F.2d at 629.

WUTC seems to argue that Storer should not be applied because

the issue resolved by rulemaking in this case is somehow more

central to the discharge of the Commission’s ultimate statutory

responsibility to determine the public interest, convenience, and

necessity. The rule involved in Storer, as in each of the other

eases discussed, effectively determined that a class of applications

would be approved or rejected, and thus effectively determined

the public interest, convenience, and necessity as related to the

disposition of each such application. These cases reject WUTC’s

assumption that adjudicatory proccedings are preferred if not

mandated for the determination of issues central to the public

interest. When, as here, the issue is resolved by adoption of a

general policy for uniform application in the regulation of a

nationwide industry, rulemaking is an entirely appropriate means

for “a particularization of the Commission’s conception of the —

‘publie interest’ sought to be safeguarded by Congress in enacting

the Communications Act of 1934.” National Broadcasting Co. v.

United States, 319 U.S. 190, 218 (1943).

WUTC contends that the Commission bound “itself inflexibly

to the licensing policies expressed” in its order, contrary to the

requirement of National Broadcasting Co. v. United States, supra,

319 U.S. at 225; see Federal Power Commission v. Texaco, Inc.,

supra, 377 U.S. at 40-41; United States v. Storer Broadcasting

Company, supra, 351 U.S. at 204-05. Though the Commission

RR RIAD A ENG AMER EDT CONTR RR Na DO + ASO TETAS LOR EAS TE GH OTR Bt A ee

35a

Federal Communications Commiss‘on, et al. 35

said it would pass separately upon the merits of each pending

application, presumably the rule would govern individual cases.

That is its function. Cf. Port Angeles Telecable, Inc. v. Federal

Communications Commission, 416 F.2d 243, 246 n.6 (9th Cir.

1969). Nonetheless, the Commission’s regulations specifically pro-

vide for waiver of “rules, regulations or other requirements”

upon an appropriate showing. 47 C.F.R. § 1.566 (1973); United

States v. Storer Broadcasting Company, supra, 357 U.S. at 201,

205; see also 47 C.F.R. §1.3 (1973); WBEN, Inc. v. United

States, supra, 396 F.2d at 618. In addition, the Commission

specifically noted (29 F.C.C.2d at 900 n.17): “As in the case

of any policy or rule of general applicability, a waiver, excep-

tion or evidentiary hearing may be granted upon an adequate

showing of exceptional circumstances making it inappropriate

to apply the policy or rule in a particular situation.” Further,

the Commission said it would “examine future applications in

light of the circumstances then shown,” and expressed its willing-

ness to alter its policy “if it no longer comports with the publie

interest, convenience, and necessity” (29 F.C.C.2d at 927), an

assurance the Commission has recently reaffirmed. See In re

Commission Policics Governing the Licensing and Regulation

of Specialized Common Carriers, 44 F.C.C.2d 467, 471 n2

(1973).

III

Both NARUC and WUTC challenge the Commission’s con-

clusion that “it is not necessary or desirable in the publie interest

to hold comparative hearings for the purpose of restricting new

entry in any particular area to only one private line applicant.”

29 F.C.C.2d at 926. Again, the petitioners’ arguments rest on

somewhat different grounds.

NARUC's argument is not directed to comparative hearings as

such; rather, under this heading, NARUC presents a general

objection to the Commission's use of rulemaking procedures.

Its argument is simply that section 309(e) requires an adjudi-

catory hearing when “a substantial and material question of

fact is presented”; and that oth the record in this proceeding

and the several opinions filed in Mierowave Communications Ine..

18 F.C.C.2d 953 (1969), demonstrate that many such questions

were presented here. including the nature and extent of the

market, the ability of existing carriers to supply it, whether the

applicants proposed a different service than is now available, the

RIT RY

PAE RDNA LEI SOY CR RF POT OL

Rae a»

36a

36 Washinglon Uttlitics € Transportation Commission, et al. vs.

cost of the proposed service, the extent of duplication of facili-

tics involved, the potential for “eream skimming,” and the effect

upon existing carriers of this and other potential conscquences

of competition. The answer to this argument, as we have said,

is that rulemaking pursuant to section 303(r) is an alternative

to adjudicatory proccedings under section 309 in a proper case,

and that this is such a case. Rulemaking is hardly limited, as

NARUC implies, to that certainly rare and probably entirely

hypothetical situation in which the facts relevant to determina-

tion of a question of general policy are beyond dispute.*!

WUTC’s argument is that the Commission must inquire

whether the service proposed by any of the applicants would

preclude the service proposed by any other; and, if it would,

that the Commission must hold a comparative hearing to deter-

mine which applicant should be authorized to render the service.

WUTC relies primarily upon what are commonly referred to as

the Ashbacker doctrine and the Carroll doctrine, originating in

Ashbacker Radio Corporation v. Federal Communications Com-

mission, 326 U.S. 327 (1945), and Carroll Broadcasting Co. v.

Federal Communications Commission, 258 F.2d 440 (D.C. Cir.

1958).

Ashbacker involved two applications for broadcasting authority

that were actually exclusive in the sense that the broadcast

signals would interfere with each other. Only one of the two

applications could be granted. The Commission granted one and

31In United States v. Florida East Coast Ry., 410 U.S. 224 (1973), it

was argued that because §1(14)(a) of the Interstate Commerce Act re-

quired tle Commission to give consideration to certain factors specified

in the statute when it fixed the compensation to be paid by one railroad

for the use of freight cars of another, the Commission was required to

make its determination “on the record after opportunity for agency hear-

ing” pursuant to 5 U.S.C. §553(¢), rather than by informal rulemaking

procedures. The Court rejected the argument, stating (410 U.S. at 235):

We know of no reason to think that an administrative agency in

reaching a decision cannot accord consideration to factors such as

those set forth in the 1966 amendment by means other than a trial-

type hearing or the presentation of oral argument by the affected

parties. Congress by that amendment specified necessary components

of the ultimate decision, but it did not specify the method by which

the Commission should acquire information about those components.

37a

Federal Coimaunications Cominivsion, et al, 37

set the other for hearing. The Court held that as a practical

matter this required the second applicant to justify displace-

ment of an established licensec, and made the second applicant’s

right under section 309(a) to a hearing before denial an “empty

thing.” The Court held, “where two bona fide applieations are

mutually exclusive the grant of one without a hearing to both

deprives the loser of the opportunity which Congress chose to

give him.” 326 U.S. at 333. Mutual exclusivity in the Ashbacker

sense is not involved in this case.

Carroll held that, in some circumstances, before an application

for a license can be granted a section 309 hearing is required

“to determine whether the economic effect of a second license in

this area would be to damage or destroy service to an extent

inconsistent with the public interest,” 258 F.2d at 443. As the

Carroll court plainly stated, the doctrine of that case is simply

a particularization of the public interest standard: “The basic

charter of the Commission is. of course, to act in the publie

interest. It grants or denies licenses as the public interest, con-

venience and necessity dictate. Whatever factual elements make

up that criterion in any given problem—and the problem mar

differ factually from ease to case—must be considered.” Jd.

Carroll recognized that sometimes competition may serve the

public interest; sometimes it may not. If in a proceeding under

section 309 the Commission is presented with a substantial show-

ing that it will not, appropriate findings should be made. Id. at

444. The showing required is described in WLVA, Inc. v.

Federal Communications Commission, 459 F.2d 1286, 1297 (D.C.

Cir. 1972): “[A] petitioner secking a héaring on the Carrol

issue must plead specifie factual data sufficient to make out a

prima facie case that the economic consequences of a grant of

the challenged application will lead to an overall derogation of

service to the public.”32

32The Court continued:

Specifically, the petitioner must raise substantial and material ques-

tions of fact as to whether: (1) the revenue potential of the market

is such that a grant will cause the petitioner to suffer a significant

Joss of income; (2) the effect of this loss will be to compel the neti-

tioney to eliminate some or all of its publie service programmiie: and

(3) this loss of presramming will not be oftset by the increased

how-networlk: provramming proposed to be offered by the applicant.

PP EIEN ROGET es |

38a

38 Washington Utililics & Transportation Commission, et al. vs.

But once again, the Commission may de*ermine general ques-

tions relating to the public interest, convenience, and necessity

in rulemaking proceedings; and, specifically, may determine that

competition in the furnishing of a class of regulated service will

lead not to poorer but to better service to the public, and will

otherwise be in the publie interest. We have sustained the Com-

mission’s determination to this effect with respect to the special-

ized communications field as a whole, supporting a general policy

favoring entry of new carriers nationwide. The Commission’s

determination with regard to comparative hearings is simply a

reaffirmation of that general policy, as applied to the specific

applications then pending.

The reasons given by the Commission in support of its con-

clusion that it would be contrary to the public interest and

inconsistent with its policy determination in favor of new entry

to limit entry among pending applications by holding compara-

tive hearings on issues of economic exclusivity, are summarized

in the margin.** They reflect a careful consideration of the rele-

33As the Commission had concluded, the public interest would be served

by offering users flexibility and a wide range of choice. The applicants

were secking to develop a relatively new and potentially very large market

with heterogeneous submarkets. The proposals reflected differing routes

and services. The various systems might develop along different lines. The

number of potentially successful operations might well depend on the

ingenuity, enterprise, and initiative of the participants in developing new

services and equipment. Only four of the 33 applicants claimed economic

exclusivity, and they failed to make a substantial prima facie showing

that the potential specialized market along any route was so limited as to

support only a single entrant. The remaining applicants are willing to

proceed in the face of competition. The Commission has found a general

public need and demand for the proposed services in all areas. The record

as a whole indicates that entry by more than one private line carrier

should generally be reasonably feasible, in view of the large and hetero-

gencous potential market. The investment and revenne requirements are

such that a comparatively small share of the potential market may result

in a financially successful operation for any one applicant and that a

number of smal] carriers may co-exist in any particular region. If somo

fail, the adverse consequences would not be significant. Merger is more

likely than bankruptcy or removal of facilities from the field. Even if a

carrier is lost, demand for this type of communication could be met by

another entrant or by an established carrier, and the frequencies would

revert to the Commission fur reassignment to others. There would be

SEE CRM ALI Pahl SP aA a re

39a

Federal Communications Conuniss‘on, et al. 39

’

vant factors, and a reasoned exercise of the Commission’s

discretion.#4

NARUC attacks the order on the additional ground that the

Commission failed to consider the environmental impact of the

policy adopted by the order, as required by section 102 of the

National Environmental Policy Act (NEPA), 42 U.S.C. § 4332.

Neither NARUC nor any other party raised the NEPA claim

before the Commission. The Commission argues that this court

is barred from considering the claim by 47 U.S.C. § 405,35 which

“precludes judicial review of questions of law or fact that the

‘ Commission has not had an opportunity to pass upon.” Neckritz

v. Federal Communications Commission, 446 F.2d 501, 503 (9th

Cir. 1971) ; sce Great Falls Community TV Cable Co. v. Federal

Communications Commission, 416 F.2d 238 (9th Cir. 1969).

NEPA does not permit the Commission to confine itself to

consideration of environmental issues raised by the parties.

Calvert Cliffs’ Coordinating Committee v. Atomic Energy Com-

minimal inconvenience to the public. If it should turn out that the market

is spread so thin among the new entrants as to adversely affect their

service to the public in an area, the Commission ean take remedial action

by rulemaking or comparative hearing at license renewal time. The Com-

mission does not know whether all of the pending applications will be

found qualified and, if so, will elect to proceed. Since new entry of more

than one private applicant appears reasonably feasible in the potential

market, the market place is a more reliable and effective instrument than

the comparative hearing process for determining how many and which

new entrants may succeed. In summary, it is desirable to avoid delay in

the institution of services needed by the publie now, the publie will be

benefited by the availability of diverse options, and there will be no

public detriment if some of the pending applicants fail.

%4The Commission responded briefly but adequately to WUTC’s vigor-

ously pressed arzumeit that special consideration was required of ap-

plications to provide service in the Pacifie Coast area. 29 F.C.C.2d at

899, 926-27.

3547 U.S.C. § 405 provides that “[t]he filing of a petition for rehearing

shall net be a condition precedent to judicial review of any .. . order,

decision, report, or action [by the Commission], exeept where the party

seeking such review ... (2) relies on questions of fact or law upon which

the Commission .. . has been siforded no opportunity to pass.”

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40a

40 Washington Utlitics & Transportation Commission, et al. vs,

mission, 449 F.2d 1109, 1118-19 (D.C. Cir. 1971). The Com-

mission is required “to consider environmental values ‘at every

distinctive and comprehensive stage of the [agency's] process.’

The primary and nondelegable responsibility for fulfilling that

function lies with the Commission.” Greene County Planning

Board v. Federal Power Commission, 455 F.2d 412, 420 (2d

Cir. 1972), quoting Calvert Cliffs’ Coordinating Committee v.

Atomic Energy Commission, supra, 449 F.2d at 1119. The imme-

diate question, however, is not whether the FCC failed to dis-

charge its obligations under NEPA, but whether its alleged

failure may be considered on review of the Commission’s order.

That question is still governed by section 405(a), for “NEPA

was not intended to repeal by implication any other statute.”

United States v. SCRAP, supra, 412 U.S. at 694.

But “the doctrine expressed in section 405 is not inflexible;

it leaves room for the operation of sound judicial discretion to

determine whether and to what extent judicial review of ques-

tions not raised before the agency should be denied.” Great Falls

Community TV Cable Co. v. Federal Communications Com-

mission, supra, 416 F.2d at 239. A proper accommodation with

NEPA requires that the appellate court in exercising its dis-

cretion under section 405 weigh the “lofty purposes” of NEPA

(United States v. SCRAP, supra, 412 U.S. at 693) heavily in

the balance.*¢

Giving full weight to NEPA’s vital purposes, we conclude

that in the particular circumstances of this case the balance

should be struck against possible review and reversal of this

36The discretion excreised by vie court under 47 U.S.C. § 405 is the

same as that exercised in applying the general nonstatutory requirement

of exhaustion of administrative remedies; for the doctrine “is substantially

the same whether or not it happens to be embodied in such a statutory

provision.” K. Davis, Administrative Law Treatise § 20.06, at 92 (1958).

See also MeKart v. United States, 395 U.S. 185, 193 (1969). The factors

to be considered are spelled ont in MeGee v. United States, 402 U.S.

479 (1971), and MeciXart v. United States, 395 U.S. 185 (1969). See

also Crayeroft v. Ferrall, 408 F.2d 587 (9th Cir. 1969).

City of New York v. United States, 337 F. Supp. 150 (E.D.N.Y. 1972)

(three iudge court), dees not l:old that the general doctrine requiring

exhaustion of administrative remedies is inapplicable to NEPA issues.

In that case the NEPA issues were presented to the agency during the

alministrative process,

4la

Iederal Communications Commission, ct al. 41

Commission cider on the ground NAR

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