United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 4, 2002 Decided May 21, 2002

No. 01-1059

ACS of Anchorage, Inc.,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

General Communication, Inc.,

Intervenor

\-\-\-\-\-\-\-\--

On Petition for Review of an Order of the

Federal Communications Commission

\-\-\-\-\-\-\-\--

Richard P. Bress argued the cause for petitioner. With him on the briefs
were Karen Brinkmann and Richard R. Cameron.

Jeffrey J. Peck and David W. Zesiger were on the brief for amicus curiae
Independent Telephone and Telecommunications Alliance in support of
petitioner. Lewis A. Tollin entered an appearance.

John E. Ingle, Deputy Associate General Counsel, Federal Communications
Commission, argued the cause for respondents. With him on the brief were
Laurel R. Bergold, Counsel, Federal Communications Commission, and
Charles A. James, Assistant Attorney General, and Robert B. Nichol-son
and Robert Wiggers, Attorneys, U.S. Department of Justice. Laurence N.
Bourne, Counsel, Federal Communications Commission, entered an
appearance.

Joe D. Edge argued the cause and filed the brief for intervenor General
Communication, Inc. With him on the brief were Tina M. Pidgeon and
Kathleen S. O\'Neill.

Before: Edwards and Randolph, Circuit Judges, and Williams, Senior
Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge Williams.

Williams, Senior Circuit Judge: Petitioner ACS of Anchorage, Inc.
challenges a Federal Communications Commission order finding that ACS
exceeded its permissible rate of return for 1997-98. As a remedy, the
Commission ordered ACS to pay damages plus prejudgment interest to a
complaining customer, General Communications, Inc. (\"GCI\"). See In re
General Communication, Inc. v. Alaska Communications Systems Holdings,
Inc., Memorandum Opinion and Order, FCC 01-32, at 2, p 1 (Jan. 24, 2001)
(\"Order\"); id. at 31, p 77. ACS poses three claims. First, it says
that the Commission erroneously required it to allocate to its
intrastate services the traffic-sensitive costs associated with calls to
internet service providers (\"ISPs\"). Second, it argues that even if
the Commission were right on that issue, ACS\'s filing of tariffs under
47 U.S.C. § 204(a)(3), a provision for \"stream-lined tariffs,\" barred
any damages for overcharges for the period those tariffs were in effect,
namely calendar year 1998. See In re Implementation of Section
402(b)(1)(A) of the Telecommunications Act of 1996, Report and Order, 12
FCC Rcd 2170 (1997) (\"Streamlined Tariff Order\"). Third, as to any
damages that were due, ACS challenges the rate chosen by the FCC for
calculating prejudgment interest. We deny ACS\'s petition on the first
issue, grant its petition on the second, and remand for further
proceedings on the third.

\* \* \*

ACS is the incumbent local exchange carrier (\"LEC\") in Anchorage,
Alaska. Order at 3, p 4. As a \"rate-of-return\" carrier (i.e., one
whose rates are limited in terms of the rate of return rather than via
price caps, see 47 C.F.R. § 65.1(b)), ACS files tariff rates for a
two-year period, 47 C.F.R. § 69.3(a); the rates must be chosen with a
view to yielding a rate of return no greater than the
Commission-prescribed maximum. See In re Amendment of Parts 65 and 69 of
the Commission\'s Rules to Reform the Interstate Rate of Return
Represcription and Enforcement Processes, 10 FCC Rcd 6788, 6791-94, p p
7-12, 6847-48, p 135 (1995). In addition, such carriers periodically
submit monitoring reports showing their actual rates of return. 47
C.F.R. § 65.600. These reports may lead carriers to file revised rates,
see 47 C.F.R. § 69.3(b), or cause the Commission to start proceedings
under 47 U.S.C. § 205 to prescribe new rates \"to be thereafter
followed.\"

Three tariff filings by ACS are pertinent. In April 1996 it filed tariff
rates for the two-year period from July 1, 1996 to June 30, 1998 (the
\"1997 Tariff\"), and in December 1997 a \"mid-course correction\"
tariff covering the balance of that period (January 1, 1998 to June 30,
1998) (the \"January 1998 Tariff\"). See 47 C.F.R. § 69.3(b) (permitting
mid-course corrections); Southwestern Bell Telephone Co. v. FCC, 10 F.3d
892, 893-94 & n.1 (D.C. Cir. 1993) (describing use of mid-course
corrections). ACS filed the January 1998 Tariff under the streamlined
tariff provisions of 47 U.S.C. § 204(a)(3), which in this instance
required a 15-day notice period. Order at 4, p 8. During this notice
period, apparently, the Commission took no action to suspend the tariffs
and initiate a hearing on the rates, see 47 U.S.C. § 204(a)(3)
(cross-referencing 47 U.S.C. § 204(a)(1)), and the tariffs went into
effect without any hearing being ordered.

In June 1998, ACS filed its rates for the two-year period from July 1,
1998 to June 30, 2000 (the \"July 1998 Tariff\"), also pursuant to the
streamlined tariff provisions. The July 1998 Tariff, however, allocated
to ACS\'s interstate service the traffic-sensitive switching costs
associated with ISP calls. Order at 5, p 9. Previously, ACS had treated
ISP calls as intrastate. See id. at 5, p 8 & n.18; see also ACS Br. at
15. This accounting change had the effect of increasing ACS\'s reported
interstate costs, thereby making its expected rate of return lower than
it otherwise would have been. See Order at 17, p 39. Again, however, the
Commission took no action during the notice period, and the tariffs went
into effect without any hearing being ordered.

In September 1999, ACS filed its final monitoring report for the
two-year period from January 1, 1997 to December 31, 1998.[^1] The
report continued to classify ISP-related traffic as interstate.
Anchorage Telephone Utility, Rate of Return Report (Sept. 30, 1999);
Order at 6, p 11. Had ISP costs been classified as intrastate, ACS\'s
cumulative rate of return would have been 26.66% or 32.12% (depending on
other accounting practices not challenged here), see Order at 6, p 12;
Responses of Alaska Communications Systems Holding, Inc. and ACS of
Anchorage, Inc. to Interrogatories, In re General Communication, Inc. v.
Alaska Communications Systems Holdings Inc., File No. EB-00-MD-016, at
ex. 1 (Oct. 20, 2000), well in excess of the prescribed maximum rate of
return of 11.65%, see In re Represcribing the Authorized Rate of Return
for Interstate Services of Local Exchange Carriers, 5 FCC Rcd 7507, p 1
(1990) (prescribing maximum rate of return of 11.25%); 47 C.F.R. §
65.700(a) (stating that maximum allowable rate of return for any access
service category is the prescribed rate of return plus 0.4%).

In August 2000, GCI filed a complaint with the Commission alleging that
ACS had improperly calculated its interstate costs by treating ISP calls
as interstate, and had violated its prescribed rate of return during the
1997-98 monitoring period. Order at 6-7, p 13. The Commission agreed
with GCI, id. at 10, p 22, 20, p 48, and ordered ACS to pay damages of
about \$2.7 million plus prejudgment interest assessed at the Internal
Revenue Service\'s corporate over-payment rate, id. at 31, p 77.

Petitioning for review, ACS challenges the Commission\'s classification
of ISP calls, its failure to treat the § 204(a)(3) tariff filings as a
bar to damages for 1998, and the rate selected for prejudgment interest.

\* \* \*

ISP calls classification. Because the same telecommunications equipment
is often used for both intrastate and interstate communications,
carriers must apportion their costs (for regulatory purposes) through
what is called the \"separations\" process. See generally 47 C.F.R. §§
36.1-36.3. ACS argues that because FCC has previously recognized ISP
calls as interstate for jurisdictional purposes under its \"end-to-end\"
analysis, e.g., In re Implementation of the Local Competition Provisions
in the Telecommunications Act of 1996, 14 FCC Rcd 3689, 3695-3703, p p
10-20 (\"Reciprocal Compensation Order\"), ISP calls should be
interstate for separations purposes as well.

Of course, generally speaking, separations will follow jurisdiction.
This basic norm is inherent in the separations formulas found at 47
C.F.R. § 36.125(a)(3), (a)(5) & (b), the Supreme Court\'s decision in
Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 150-51 (1930), and our
decision in MCI Telecommunications Corp. v. FCC, 750 F.2d 135, 137,
140-41 (D.C. Cir. 1984). But practical considerations may justify
divergent treatment\--at least temporarily. See Smith, 282 U.S. at 150
(recognizing the \"practical difficulty of dividing the property between
interstate and intrastate services\" and requiring \"only reasonable
measures\" for separation). Indeed, in MCI, we explicitly upheld a
deviation from the jurisdictional norm where the Commission was
implementing (a) an interim ratemaking solution (b) justified by a
substantial policy objective. MCI, 750 F.2d at 140-41.

While the Order does not explicitly invoke the MCI exception, we can
reasonably discern the path from its reasoning and citations. See Bowman
Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S.
281, 285-86 (1974); Syracuse Peace Council v. FCC, 867 F.2d 654, 665
(D.C. Cir. 1989). The interim nature of the decision is quite
explicit\--and, of course, a natural concomitant of the novelty of the
internet itself. Compare, e.g., WorldCom v. FCC, No. 01-1218, 2002 WL
832541 (D.C. Cir. May 3, 2002). As the Order explains, the Commission
views its treatment of ISP calls as derivative of its policy exempting
ISPs and other enhanced service providers (\"ESPs\") from paying
interstate \"access\" charges\--the charges normally paid by an
interexchange carrier (\"IXC\") such as AT&T and MCI for access to the
LECs originating and terminating an interexchange call. Order at 8, p
17, 14, p 32. Insofar as the ESP exemption is clearly temporary, it
follows that the intrastate classification would be as well. See, e.g.,
id.; In re Amendments of Part 69 of the Commission\'s Rules Relating to
the Creation of Access Charge Subelements for Open Network Architecture,
Report and Order, 6 FCC Rcd 4524, 4535, p 60 (1991) (\"ONA Order\")
(retaining exemption temporarily to provide stability during open tariff
architecture reforms); In re Amendments of Part 69 of the Commission\'s
Rules Relating to Enhanced Service Providers, 3 FCC Rcd 2631, 2631 p 2
(1988) (\"ESP Exemption Order\") (characterizing ESP exemption as a
temporary measure to avoid \"unduly\" burdening the ISP industry).
Furthermore, recent letters issued by the Commission\'s Common Carrier
Bureau explicitly note that the intrastate classification \"is an
interim measure only.\" Common Carrier Bureau Issues Letter to Bell
Atlantic Regarding Jurisdictional Separations Treatment of Reciprocal
Compensation for Internet Traffic, Public Notice, 14 FCC Rcd 13148,
13148 (1999); see also Common Carrier Bureau Issues Letter to SBC
Regarding Its Jurisdictional Separations Treatment of Internet Traffic,
Public Notice, 14 FCC Rcd 8178, 8180 n.9 (1999).

The Commission\'s primary policy justification for the intrastate
classification matches the language it has used for the ESP exemption.
Rather than directly exempting ESPs from interstate access charges, the
Commission defined them as \"end users\"\--no different from a local
pizzeria or barber shop. See Order at 16, p 37; In re Amendments of Part
69 of the Commission\'s Rules Relating to the Creation of Access Charge
Subelements for Open Network Architecture, Notice of Proposed
Rulemaking, 4 FCC Rcd 3983, 3988, p 39 & n.89 (1989) (\"ONA NPRM\"); see
also 47 C.F.R. § 69.2(m). While this categorization exempted ISPs from
interstate access charges paid by IXCs, it left them obliged to purchase
access through intrastate tariffs\--namely, local business line charges.
The Commission contends that ACS\'s allocation of ISP costs to
interstate service would thus create a cost-revenue mismatch. Order at
14-16, p p 32-37. The tariff revenue would be allocated to intrastate
and the costs to interstate, disrupting rate-of-return calculations.

Once the Commission has allotted the revenue to intrastate service,
plainly it makes sense to allocate the costs there as well. But that
might be said merely to relocate the question: as the functional
significance of the ESP exemption is to channel the revenue to
intrastate service, one might ask if such an allocation was reasonable.
Indeed, ACS\'s brief addresses the cost-revenue matching principle in
economic terms, i.e., the proposition that, in the interest of aligning
incentives correctly, costs should be borne by the customers who cause
them to be incurred. See Union Elec. Co. v. FERC, 890 F.2d 1193, 1198
(D.C. 1989). Noting that in creating the ESP exemption the Commission
had recognized that it would cause economic distortions, making non-ESP
users of interstate access bear disproportionate costs, ACS argues that
the Commission cannot now rely on the cost-revenue matching principle.
See ACS Br. at 34 (citing ESP Exemption Order, 3 FCC Rcd at 2631, p 2).
But the Commission needn\'t rely on the economic cost-revenue principle.
All it invokes is a more modest principle of regulatory orderliness. And
because we must take the ESP exemption as given, with its concomitant
potential for economic distortions, the principle of regulatory
orderliness indeed supports the Commission.

We are left, then, with the Commission matching its separations
treatment of costs for ISP-bound calls with its classification of those
calls for tariffing and revenue purposes. Further, not only is the
latter unchallenged here, but the Commission appears to be working on a
number of interconnected parts of the puzzle. The ESP exemption itself
is temporary. And the Commission has set out to reform the regime to
which it is an exception, the regime of interstate access charges, see
Order at 14, p 32; In re Access Charge Reform, First Report and Order,
12 FCC Rcd 15982, 16133, p 345 (1997), and is investigating future
regulatory schemes for ISPs, In re Usage of Public Switched Network by
Information Service and Internet Access Providers, Notice of Inquiry, 11
FCC Rcd 21354, 21490-93, p p 311-18 (1996). Further, it is fundamentally
rethinking the separations process in light of ISPs and other market
changes. In re Jurisdictional Separations Reform and Referral to the
Federal-State Joint Board, Notice of Proposed Rulemaking, 12 FCC Rcd
22120 (1997); see also Report Filed by State Members of Joint Board of
Jurisdictional Separations, Public Notice, 14 FCC Rcd 3482 (1999).
Clearly, as we stated in MCI, the Commission is entitled to substantial
deference \"when it acts to maintain the status quo so that the
objectives of a pending rulemaking proceeding will not be frustrated,\"
MCI, 750 F.2d at 141, including the objective of implementing
large-scale revisions \"in a manner that would cause the least upheaval
in the industry,\" id. Accordingly, we cannot find the Commission\'s
interim intrastate classification of ISP-related costs to be arbitrary
or capricious.

\* \* \*

Damages for rates filed in \"streamlined tariffs\". ACS next argues that
47 U.S.C. § 204(a)(3), as elaborated upon by the Commission in its
Streamlined Tariff Order, is a bar to damages for its purported
overcharges in 1998. 47 U.S.C. § 204(a)(3), part of the
Telecommunications Act of 1996, states:

A local exchange carrier may file with the Commission a new or revised
charge, classification, regulation, or practice on a streamlined basis.
Any such charge, classification, regulation, or practice shall be deemed
lawful and shall be effective 7 days (in the case of a reduction in
rates) or 15 days (in the case of an increase in rates) after the date
on which it is filed with the Commission unless the Commission takes
action under paragraph (1) before the end of that 7-day or 15-day
period, as is appropriate.

Id. (emphasis added).

The terms \"legal\" rate and \"lawful\" rate come to us burdened with
(or illuminated by) the Supreme Court\'s decision in Arizona Grocery Co.
v. Atchison, Topeka & Santa Fe Railway Co., 284 U.S. 370 (1932), as the
Commission recognized in its Streamlined Tariff Order, 12 FCC Rcd at
2181-82, p p 19-20 & nn.62, 65. \"Legality\" mainly addresses procedural
validity. \"\[T\]o render rates definite and certain, and to prevent
discrimination and other abuses,\" rates must be filed and published,
and deviation from published rates is subject to criminal and civil
penalties. Arizona Grocery, 284 U.S. at 384. A particular rate thus
becomes \"legal\" when it is filed with an agency and becomes effective.
But a rate\'s legality is not enough to establish its substantive
reasonableness or \"lawfulness.\" See id. (noting that a rate\'s
legality does not abrogate \"the common-law duty to charge no more than
a reasonable rate\"). A carrier charging a merely legal rate may be
subject to refund liability if customers can later show that the rate
was unreasonable. Id. Should an agency declare a rate to be lawful,
however, refunds are thereafter impermissible as a form of retroactive
ratemaking. See id. at 387-89.

Informed by this dichotomy, the Commission in its Streamlined Tariff
Order interpreted the \"deemed lawful\" language in § 204(a)(3) as
\"establish\[ing\] a conclusive presumption of reasonableness.\"
Streamlined Tariff Order, 12 FCC Rcd at 2181-82, p 19. Therefore, \"a
streamlined tariff that takes effect without prior suspension or
investigation is conclusively presumed to be reasonable and, thus, a
lawful tariff during the period that the tariff remains in effect.\" Id.
at 2182, p 19. In accordance with Arizona Grocery, these \"deemed
lawful\" tariffs are not subject to refunds. If a later reexamination
shows them to be unreasonable, the Commission\'s available remedies will
be prospective only. Id. at 2182-83, p p 20-21. As the Commission
emphatically recognized, § 204(a)(3) effected a considerable change in
the regulatory regime: before, tariffs that became effective without
suspension or investigation were only legal (not conclusively lawful),
and thereby remained subject to refund remedies. Id. at 2176, p 8
(describing no-refund rule as differing \"radically\" from past
practice); id. at 2182-82, p 20 (describing previous practice).

Clearly then, to the extent that the streamlined tariff provisions apply
to ACS tariff filings, the Commission may not now impose refund
liability for covered rates\--even ones it concludes were unreasonable.
The Commission, however, argues that the streamlined tariff provisions
do not apply.

First it asserts a critical distinction between rates and rates of
return. Order at 23, p 57. It claims that since the Order found ACS in
violation of its prescribed rate of return, the fact that ACS\'s rates
might have been deemed lawful under § 204(a)(3) does not immunize it
from refund liability. In support, the Commission relies on New England
Telephone and Telegraph Co. v. FCC, 826 F.2d 1101 (D.C. Cir. 1987), in
which we upheld the Commission\'s use of a refund remedy for violations
of prescribed rates of return. Id. at 1109; see also MCI
Telecommunication Corp. v. FCC, 59 F.3d 1407, 1413 (D.C. Cir. 1995).
Since neither § 204(a)(3) nor the Streamlined Tariff Order directly
addressed the issue of rate-of-return violations, the Commission
contends that the \"longstanding rules concerning liability for
rate-of-return violations\" should be left unscathed. Order at 25, p 59.

The Commission\'s position, however, overlooks the language of its
statutory mandate. Under the Communications Act of 1934, it is empowered
to ensure just and reasonable rates (\"charges\"), not rates of return.
See 47 U.S.C. § 201(a). The Commission acquires the authority to
prescribe rates of return only as a means to achieve just and reasonable
rates. See Nader v. FCC, 520 F.2d 182, 203 (D.C. Cir. 1975). As we
explained in Nader, rates of return are but one element in the task of
ratemaking, but the Commission can prescribe them\--sometimes in
separate phases from the other necessary elements\--if doing so will
help the Commission \"carry out its functions in an expeditious
manner.\" Id. at 204. Over the years, rate-of-return violations have
developed into proxies for finding rates unreasonable. MCI, 59 F.3d at
1414 (noting that the Commission may \"treat a violation of \[a
rate-of-return\] prescription as a per se violation of the requirement
\... that a common carrier maintain \'just and reasonable\' rates\").
But we have never suggested that rates of returns could be ends in
themselves, rather than means to the end of reasonable rates.

Here, of course, no proxy for (un)reasonableness is needed. Since §
204(a)(3) deems ACS\'s rates to be lawful, the inquiry ends. This
situation is quite different from New England Telephone, which was
decided before the passage of § 204(a)(3). In that case, the carrier\'s
rates had gone into effect with neither a Commission finding of
reasonableness, 826 F.2d at 1105, which under Arizona Grocery would bar
refunds, nor a suspension of the rates and initiation of a hearing, for
which § 204(a) (a precursor to the current § 204(a)(1)) specifically
allowed refunds. Section 204 as it then read was silent as to the
permissibility of refunds where the Commission simply allowed the
company\'s filed rate to go into effect without suspension or initiation
of a hearing, and in effect New England Telephone read the silence as
permitting the Commission to order refunds (in certain circumstances).
For the cases covered by § 204(a)(3), Congress has now broken the
silence.

Recall that the Streamlined Tariff Order read § 204(a)(3)\'s \"deemed
lawful\" language to create a conclusive bar to refunds. 12 FCC Rcd at
2175-76, p p 8-9, 2181-82, p p 18-19. In doing so, it reasoned that
\"deemed lawful\" was \"unambiguous\" in the \"consistent\"
interpretation of the courts. Id. at 2181-82, p 18; see also, e.g., Ohio
Power Co. v. FERC, 954 F.2d 779, 783 (D.C. Cir. 1992) (discussing
\"deemed\" as establishing a conclusive presumption); H.P. Coffee Co. v.
Reconstruction Finance Corp., 215 F.2d 818, 822 (Emer. Ct. App. 1954)
(reporting \"almost unanimous judicial determination that the word
\[\'deemed\'\], when employed in statutory law, creates a conclusive
presumption\"). This being so, and bearing in mind that Commission
control over the rate of return is under the statute merely a tool for
determining the reasonableness of rates, see 47 U.S.C. § 201, we find §
204(a)(3) equally unambiguous in barring refunds purportedly for
rate-of-return violations.

The Commission next suggests that § 204(a)(3) does not protect the
January 1998 Tariff from refunds because neither of the two challenged
cost allocation practices appeared in that filing. Order at 23, p 56.
(Apparently, the earliest public disclosure was a March 1998 preliminary
monitoring report, see Anchorage Telephone Utility, Rate of Return
Report (Mar. 31, 1998); Order at 5, p 9.) Accordingly, the Commission
contends that these \" \'practices\' were not \'filed\' in \[ACS\'s\]
January 1998 Tariff in accordance with section 204(a)(3).\" Order at 23,
p 56. We find this argument somewhat mystifying. By the Commission\'s
own account, the methods used in the January 1998 Tariff were the proper
ones. Surely the Commission cannot now criticize ACS for failing to use
in January 1998 the new accounting methods that the Commission maintains
are impermissible and which ACS had not yet adopted.

Alternatively, the Commission may be claiming that ACS\'s changes in
computation, implemented between the January 1998 Tariff and the July
1998 Tariff, were changes in \"practices\" within the meaning of §
204(a)(3) (authorizing filing of \"a new or revised charge,
classification, regulation, or practice\"), so that ACS\'s failure to
file a tariff announcing the computational change nullified any right of
ACS to rely on the previously filed January 1998 Tariff. But we see no
basis for understanding § 204(a)(3)\'s word \"practice\" to include
internal computations underlying a rate. The Streamlined Tariff Order
expressly addresses filings that are hard to classify as rate reductions
or rate increases (thus entailing 7- or 15-day waiting periods), and
reads the 15-day language of § 204(a)(3) broadly as covering any
non-rate change in \"terms and conditions\" or even introduction of new
service; yet it nowhere suggests that any of the words used by §
204(a)(3) encompasses purely internal changes in computation, as opposed
to terms or conditions of service, which, like rate changes, are
directly experienced by customers. See 12 FCC Rcd at 2200-03, p p 62-68.

The Commission may have been confused by its pre-s 204(a)(3) habit of
retroactively assessing the lawfulness of a rate long after it had taken
effect without advance suspension or initiation of hearing. See FCC Br.
at 40. As we noted in our 1995 MCI decision, it is virtually impossible
to tell in advance just what rate of return a given rate may yield. 59
F.3d at 1415-16. In a world where the lawfulness of a rate is in almost
endlessly suspended animation, the Commission may understandably feel
entitled to receive ongoing updates of a company\'s calculations showing
the links between its rates and its rate of return. But that is not the
world of § 204(a)(3), where the rate itself, if filed and not suspended,
is \"deemed lawful.\"

We do not, of course, address the case of a carrier that furtively
employs improper accounting techniques in a tariff filing, thereby
concealing potential rate of return violations. The Order here makes no
claim of such misconduct.

Finally, the Commission argues that § 204(a)(3) does not protect the
July 1998 Tariff because ACS failed to satisfy the statutory notice
period. Order at 23, p 54. ACS filed the July 1998 Tariff on 7-days
notice. The Commission contends that because the Tariff changed
accounting methods, it altered \"terms and conditions,\" and thus had to
be filed on 15-days notice. Order at 25-26, p p 61-63; see also
Streamlined Tariff Order, 12 FCC Rcd at 2203, p 68 (discussing treatment
of \"tariffs that change terms and conditions or apply to new services
even where there is no rate increase or decrease\"). Again, nothing in
the statute or even the Streamlined Tariff Order supports the
classification of a filing that changes only underlying calculations as
an \"increase in rate\" requiring 15-days notice.

We note that since § 204(a)(3) immunizes ACS\'s rates for 1998, it is
unclear how its rate of return should be calculated for 1997 in light of
Virgin Islands Telephone Corp. v. FCC, 989 F.2d 1231 (D.C. Cir. 1993).
In Virgin Islands we held that the Commission could not evaluate a
carrier\'s rate-of-return using a period different from the two-year
period the Commission had itself prescribed. Id. at 1238 (holding
invalid Commission use of a six-month monitoring period). But there the
truncation of the two-year period was at the instigation of the
Commission, while here it is a result of ACS\'s use of § 204(a)(3). As
the Commission has not yet had the opportunity to address rate of return
violations for a period cut short in this fashion, we express no opinion
and remand the case to the Commission for its consideration of the
issue.

\* \* \*

Prejudgment Interest. ACS lastly argues that the Commission erred in
using the IRS\'s rate for corporate overpayment for the calculation of
prejudgment interest. ACS contends that it should instead have used the
rate for \"large\" corporate overpayments. See Order at 29-30, p p
72-74.

Under 26 U.S.C. § 6621, the IRS calculates five rates of interest, all
functions of the Treasury\'s rate for short-term borrowing. The rates
depend on whether taxes are overpaid or underpaid, whether the party is
an individual or a corporation, and whether the amount is \"large\"
(exceeds \$10,000). See 2002-12 I.R.B. 637, 638-43 (2002). The
Commission apparently co-opts these rates for the calculation of
prejudgment interest. The following, for example, are the rates for
January 1, 1999 to March 31, 1999, the first period of prejudgment
interest charged against ACS:

Noncorporate over- and underpayment: 7%

Corporate overpayment: 6%

Large corporate overpayment: 4.5%

Corporate underpayment: 7%

Large corporate underpayment: 9%

Id.

The Commission found that the rate for non-large corporate overpayments
was most appropriate because it was \"the overpayment rate that the
Commission has most recently applied, despite the apparent availability
of the rate for large corporate overpayments.\" Order at 30, p 74. The
precedents offered by the Commission generally support this position.
See In re Time Warner Entertainment/Advance-Newhouse Partnership, 14 FCC
Rcd 9149, 9154 n.36 (1999); In re Section 208 Complaints Alleging
Violations of the Commission\'s Rate of Return Prescriptions, 12 FCC Rcd
4007, 4020-21 app. B (1997). The Ameritech case, in which the FCC held
that the appropriate interest rate was the individual overpayment rate
(as opposed to the corporate overpayment rate) is somewhat anomalous,
but in any case offers no support for ACS\'s proposed use of the large
corporate over-payment rate. See In re Long-Term Telephone Number
Portability Tariff Filings of Ameritech Operating Companies, et al., 14
FCC Rcd 17,339, p p 1, 4 (1999). Indeed, ACS presents no cases in which
the Commission has ever applied the large corporate overpayment rate.
See Order at 30 n.160.

Fair enough. But the Commission acknowledged the possibility of applying
the large corporate overpayment rate, in words contradicting its prior
simple reasoning from precedent:

Although we might appropriately apply the rate for large corporate
overpayments exceeding \$10,000 when a defendant has simply
miscalculated revenue or demand and accidently exceeded its rate of
return, such is not the case here.

Order at 30, p 74. The Commission went on to justify the higher rate by
arguing that ACS \"had at least constructive knowledge\" of the
intrastate classification rule because \"the Commission had rejected
other carriers\' attempts to assign ISP traffic to the interstate
jurisdiction.\" Id. But those rejections happened in 1999, well after
ACS filed its 1997 tariffs. See id. at 30 n.161 (cross-referencing id.
at 9-10, p 21). And while the rejections did occur before ACS filed its
1997-98 Monitoring Report in September 1999, it is unclear why a
company\'s acquisition of \"constructive knowledge\" of Commission views
after its collection of disputed rates should affect its culpability for
that collection.

As the Commission alleges no bad faith (or quasi-bad faith) in the 1997
tariff filings, we fail to understand how this case differs from one in
which \"a defendant has simply miscalculated revenue or demand and
accidently exceeded its rate of return.\" Id. at 30, p 74. We therefore
remand the case for further explanation on this issue.

\* \* \*

We (1) deny ACS\'s petition for review of the Commission\'s
classification of ISP-related traffic-sensitive costs as intrastate, (2)
grant its petition regarding the Commission\'s failure to honor §
204(a)(3)\'s bar on refunds as to ACS\'s 1998 rates and vacate the Order
insofar as it grants damages for over-charges in 1998, and (3) remand
the case to the Commission for (a) its consideration of the treatment of
a rate-of-return violation for a monitoring period cut short by §
204(a)(3) filings, and (b) its reconsideration of the use of the IRS
rate for non-large corporate overpayments for prejudgment interest.

So ordered.

[^1]: Commission regulations specify two-year monitoring reports running
    with the calendar year, even though the tariffs are filed for
    periods starting July 1. Compare 47 C.F.R. § 69.3(a) (specifying
    periodicity for rate-of-return monitoring reports), with 47 C.F.R. §
    65.701 (specifying periodicity for rate-of-return monitoring
    reports).