Case Name: NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., National Telephone Cooperative Association, et al., American Telephone & Telegraph Co., Ameritech Operating Co., Mountain States Telephone & Telegraph Co., et al., Satellite Business Systems, U.S. Telephone Association, Telecommunication Research & Action Center, South Central Bell Telephone Co., Southwestern Bell Telephone Co., Intervenors; AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, U.S. Telephone Association, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors; The MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors; PACIFIC BELL, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors
Court: United States Court of Appeals for the District of Columbia Circuit
Jurisdiction: United States
Decision Date: 1987-08-21
Citations: 826 F.2d 1101
Docket Number: Nos. 85-1087, 85-1457, 85-1471, 85-1472
Parties: NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., National Telephone Cooperative Association, et al., American Telephone & Telegraph Co., Ameritech Operating Co., Mountain States Telephone & Telegraph Co., et al., Satellite Business Systems, U.S. Telephone Association, Telecommunication Research & Action Center, South Central Bell Telephone Co., Southwestern Bell Telephone Co., Intervenors. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, U.S. Telephone Association, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors. The MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors. PACIFIC BELL, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors.
Judges: Before MIKVA and BUCKLEY, Circuit Judges, and PARSONS, Senior District Judge.
Reporter: Federal Reporter 2d Series
Volume: 826
Pages: 1101–1120

Head Matter:
NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., National Telephone Cooperative Association, et al., American Telephone & Telegraph Co., Ameritech Operating Co., Mountain States Telephone & Telegraph Co., et al., Satellite Business Systems, U.S. Telephone Association, Telecommunication Research & Action Center, South Central Bell Telephone Co., Southwestern Bell Telephone Co., Intervenors. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, U.S. Telephone Association, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors. The MOUNTAIN STATES TELEPHONE AND TELEGRAPH COMPANY, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors. PACIFIC BELL, et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents, GTE Service Corp., et al., Mountain States Telephone & Telegraph Co., et al., Ameritech Operating Co., American Telephone & Telegraph Co., Bell Operating Companies, Southwestern Bell Telephone Co., Intervenors.
Nos. 85-1087, 85-1457, 85-1471, 85-1472.
United States Court of Appeals, District of Columbia Circuit.
Argued Oct. 30, 1986.
Decided Aug. 21, 1987.
Raymond F. Scully, with whom Alan B. Sternstein, Katherine I. Hall, Washington, D.C., Saul Fisher, Bedminster, N.J., John B. Messinger, Robert L. Barada, Los Angeles, Cal., Stanley J. Moore, Susan E. Barisone, San Francisco, Cal, Vincent L. Sgrosso and R. Frost Branon, Jr., Atlanta, Ga., were on the joint brief for New England Tel. and Tel. Co., et al., petitioners in nos. 85-1087 and 85-1472 and intervenors in nos. 85-1457 and 85-1471.
Jules M. Perlberg, Chicago, Ill., with whom David J. Lewis, Washington, D.C., Francine J. Berry, New York City, Mark C. Rosenblum, Basking Ridge, N.J., and Jonathan S. Hoak, Washington, D.C., were on the brief for AT & T Co., petitioner in no. 85-1457 and intervenor in nos. 85-1087, 85-1471 and 85-1472. J. Richard Devlin, Bedminster, N.J., entered an appearance for AT & T.
Robert B. McKenna, Jr., Robert W. Barker, L. Andrew Tollin and Kenneth B. Pat-rich, Washington, D.C., were on the joint brief for Mountain States Telephone & Telegraph Co., et al., petitioners in no. 85-1471 and intervenors in nos. 85-1087, 85-1457 and 85-1472. Jeffrey B. Bork, Washington, D.C., entered an appearance for Mountain States Tel. & Tel. Co.
John E. Ingle, Deputy Associate Gen. Counsel, F.C.C., with whom Jack D. Smith, Gen. Counsel, Daniel M. Armstrong, Associate Gen. Counsel, Jane E. Mago, Counsel, F.C.C., Catherine G. O’Sullivan and Robert J. Wiggers, Dept. of Justice, Washington, D.C., were on the brief for respondents in nos. 85-1087, 85-1457, 85-1471 and 85-1472. Andrea Limmer, Dept, of Justice, and Linda L. Oliver, Counsel, F.C.C., Washington, D.C., entered appearances for respondents.
Alfred Winchell Whittaker, Washington, D.C., and Thomas J. Reeman were on the brief for intervenor, Ameritech Operating Companies in nos. 85-1087, 85-1471 and 85-1472.
Thomas J. O’Reilly and Patricia McClary, Washington, D.C., were on the brief for intervenor, U.S. Telephone Ass’n in nos. 85-1087 and 85-1457.
William Malone and James R. Hobson, Washington, D.C., were on the brief for intervenors, GTE Service Corp., et al. in nos. 85-1087, 85-1457, 85-1471 and 85-1472.
Daniel Davidson, Washington, D.C., entered an appearance for intervenor, Telecommunications Research and Action Center in no. 85-1087.
Kevin H. Cassidy, J. Manning Lee, McLean, Va., and Jeffrey H. Matsuura, Washington, D.C., entered appearances for intervenor, Satellite Business Systems in no. 85-1087.
William C. Sullivan, Linda S. Legg, Liam S. Coonan, Mary Whitten Marks and Michael J. Zpevak, St. Louis, Mo., entered appearances for intervenor, Southwestern Bell Telephone Co. in nos. 85-1087, 85-1457, 85-1471 and 85-1472.
David Cosson, Washington, D.C., entered an appearance for intervenors, Nat. Telephone Co-op. Ass’n, et al. in no. 85-1087.
J. Roger Wollenberg, Sally Katzen, Andrea Timko, John S. Hannon, Jr. and Ruth E. Sigler, Washington, D.C., were on the brief for amicus curiae, Communications Satellite Corp., urging reversal in nos. 85-1087, 85-1457, 85-1471 and 85-1472.
Before MIKVA and BUCKLEY, Circuit Judges, and PARSONS, Senior District Judge.
Of the United States District Court for the Northern District of Illinois, sitting by designation pursuant to 28 U.S.C. § 294(d).

Opinion:
Opinion for the Court filed by Circuit Judge MIKVA.
MIKVA, Circuit Judge:
Dissenting opinion filed by Circuit Judge BUCKLEY.
Petitioners American Telephone and Telegraph Company ("AT & T") and numerous former Bell operating telephone companies ("BOCs") seek review of orders of the Federal Communications Commission ("the Commission") requiring them to grant rate reductions. The reductions are designed to reimburse consumers for earnings enjoyed by AT & T and the BOCs in 1978 which were over and above a rate-of-return ceiling previously prescribed by the Commission. Petitioners challenge the orders on a number of grounds, the most substantial of which is that the Commission had no authority under the Communications Act to impose such a remedy. We conclude that the Commission had ample authority to order reductions to enforce its prior rate-of-return prescription, and we deny the petitions for review.
I. Background
A. Regulatory Structure
The Communications Act of 1934, ch. 652, 48 Stat. 1064 (codified as amended at 47 U.S.C.) (the "Act"), provides the regulatory ratemaking scheme within which these petitions arise. Section 203 of the Act places primary responsibility for initiating rate revisions upon the carrier. 47 U.S.C. § 203. Once a carrier initiates a revision, the Commission is empowered under section 204 of the Act to suspend implementation of the proposed tariff for up to five months while it investigates the lawfulness of the proposed rates. 47 U.S.C. § 204. If the Commission's investigation is not completed within that time, the proposed tariff automatically goes into effect. In such a case, however, section 204 empowers the Commission to make the increases subject to an accounting and refund order: if the Commission later determines that the revisions are excessive, it may order the carrier to refund the unjustified amount to those customers who have been overcharged. Id.; see Nader v. FCC, 520 F.2d 182, 198 (D.C.Cir.1975).
Section 205 of the Act, which is of particular relevance to this dispute, governs the Commission's authority to regulate existing rates. Under section 205, the Commission can initiate an investigation into any carrier rate or practice. If the Commission determines that a carrier rate is or will be unlawful under the Act, it may prescribe the "just and reasonable charge . to be thereafter observed." 47 U.S.C. § 205. This power of prescription is a potent tool: once the Commission issues a prescription order under section 205, the carrier must "cease and desist from such violation . and shall not thereafter publish, demand, or collect any charge other than the charge so prescribed, or in excess of the maximum . so prescribed." Id.
The Commission in this case also relied on section 4(i) of the Act. That section authorizes the Commission to "perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this Act, as may be necessary in the execution of its functions." 47 U.S.C. § 154(i). As we detail below, section 4(i) previously has been held to justify the use of rate-of-return prescriptions, as opposed to prescriptions of actual rates.
B. Regulatory History
Although it had recommended appropriate return levels as early as 1967, the Commission first began to use its section 205 powers to prescribe a rate of return, as opposed to a prescription of actual rates, for the AT & T system in 1972. The Commission decided to undertake a rate-of-return prescription because AT & T had become so huge and diverse that individual rate determinations for each service were impractical. The 1972 order fixed a rate of return of 8.5% and rejected proposed AT & T tariffs that would have provided the company with a higher return. AT & T's challenge to that order called on this court to determine whether the Commission's section 205 powers permitted the agency to prescribe rates of return as well as rates. See Nader v. FCC, 520 F.2d 182, 199-205 (D.C.Cir.1975). In Nader, we determined, as a threshold matter, that the Commission's order fixing a rate of return was indeed a prescription. We concluded that "[w]e would be shirking reality if we did not recognize that the practical effect of the Commission's . order was to limit prospectively AT & T's rate of return to 8.5%, and thus [the order] was a prescription under section 205." Id. at 201; see also id. at 202 (the Commission's order was intended "to have the prospective effect of a prescription, thus, limiting the utility to that return.").
We then found that the Commission's prescription of a rate of return was consonant with the agency's statutory authority under the Act. Id. at 203-05. Even though section 205 refers only to the Commission's power to prescribe "charges, clas sifications, regulations and practices," we found that prescription of a rate of return was proper under section 4(i), which gives the Commission the power to issue such orders "as may be necessary in the execution of its functions." Id. at 203. In holding that "the Commission lawfully prescribed a rate of return for AT & T," id. at 204, we noted that "the effect of the prescription is to protect AT & T from the possibility of refunds on the ground that an 8.5% rate of return was too high, [although] the Commission retains full latitude to order refunds on all other grounds." Id. at 205 n. 25.
With the issue of its power to prescribe rates of return thus settled, the Commission proceeded in 1976 to set a rate of return of 9.5% for the AT & T system. See American Tel. & Tel. Co., 57 F.C.C.2d 960 (1976). The Commission added to the 9.5% figure a buffer of .5% "in order to provide an incentive to increase productivity and efficiency." Id. at 973. In effect, while the Commission prescribed a 9.5% rate, it let AT & T know in advance that it would tolerate "a level or range of interstate earnings not to exceed 10%" before it took remedial action. Id.
AT & T responded to the Commission's prescription by filing a tariff structure designed to produce no more than a 10% rate of return. Without making a specific finding that they were just and reasonable, the Commission permitted these rates to go into effect on March 1, 1976. In 1976 and 1977, the rates produced a rate of return under 10%. However, the same rates in 1978 resulted in a rate of return which all parties agree exceeded the prescribed 10% ceiling.
Although it took a great deal of time to do so, see Telecommunications Research & Action Center v. FCC, 750 F.2d 70 (D.C.Cir.1984), the Commission eventually responded to AT & T's excessive rate of return in December of 1984, when it ordered the company to reduce its rates to refund the excess earnings to consumers. See J.A. 23-33. In its order, the Commission rejected AT & T's argument that the 1976 prescription was meant to be not a ceiling on AT & T's rate of return but only a target for setting rate levels; the Commission observed that the plain language in the prescription order restricted AT & T to a return of not more than 10%. J.A. 27. The Commission cited to sections 205 and 4(i) of the Act, as well as our decision in Nader, in justifying its authority to enforce its prescription by ordering refunds. J.A. 28. The Commission also rejected AT & T's argument that changing economic conditions had rendered the 10% rate of return unlawfully low and therefore precluded the Commission's enforcement of the rate. The Commission explained that under the Act the carrier bears primary responsibility for initiating changes in existing prescriptions; since AT & T had initiated no such revision, the 1976 prescription remained in effect in 1978. J.A. 27.
The Commission determined that AT & T had enjoyed a 10.22% rate of return in 1978. The Commission derived the 10.22% figure from AT & T's own Interstate Monthly Report ("IMR"), which AT & T had filed with the Commission in January 1979. AT & T subsequently had submitted an "FDC Report" in which the company maintained that its rate of return for 1978 had been 10.09%. In the proceeding leading up to the orders under review, AT & T urged the Commission to compute the rate reductions based on the 10.09% figure. AT & T insisted that the 10.22% figure did not adequately account for certain services and facilities provided to other common carriers, and that integrating the relatively slight earnings of those services and facilities into the computation resulted in a net rate of return of 10.09%. The Commission, however, chose to rely on the IMR, as it had for the previous 28 years in computing AT & T's rate of return. The 10.22% reflected excessive 1978 earnings for AT & T in the amount of one hundred one million dollars. The Commission ordered AT & T and its former operating companies (AT & T had by this time been divested) to lower its rates by an amount sufficient to reimburse ratepayers for that amount plus interest. J.A. 26.
In two reconsideration orders, the Commission substantially reaffirmed its Decern ber 1984 order, imposing only slight alterations not at issue here. See J.A. 43-80. Specifically, the Commission again concluded that it had the statutory authority to impose the refunds on AT & T and the BOCs, that its decision did not represent a reversal of longstanding policy not to impose refunds for violations of prescriptions, and that AT & T had earned a 10.22% rate of return in 1978. AT & T and ten BOCs responded with these consolidated petitions for review. The petitioners' efforts to overturn the Commission's orders are championed in whole or in part in intervenors' briefs filed by the Ameritech Operation Companies, the United States Telephone Association, and GTE, and an amicus curiae brief filed by the Communications Satellite Corporation.
II. Discussion
Petitioners make three basic challenges to the Commission's orders. The first, and most important, of their contentions is that the Commission has no authority under the Communications Act to impose refunds for earnings in excess of a prescribed rate of return. A second and related argument is that even if the order did not violate the Act, it departed from prior policy without adequate explanation and with unfairly retroactive effect. Third, petitioners allege various infirmities in the Commission's methods of calculating the amount of the refund liability. We address each of these contentions in turn.
A. Statutory Authority
Petitioners' challenge to the Commission's authority to issue the orders under review reveals two points of fundamental opposition to the agency's view of its regulatory authority. First, petitioners differ with the Commission as to the effect of the 1976 prescription. They contend that the nature of their obligation was merely to try in good faith to formulate rates that would not produce an excessive return. In the Commission's view, by contrast, the prescription imposed a maximum return that the carriers could not exceed, however innocently. Petitioners also argue that in any event the Commission has no power to impose refunds to remedy a violation of rate-of-return prescriptions. This argument as to remedy is linked to the first contention: if the prescription obliged the carriers only to design responsive rates, the Commission would be overreaching in adopting a remedy that in effect retroactively adjusts rates that appeared reasonable when implemented. We consider first the nature of the Commission's power to prescribe rates of return and then take up the related issue of the Commission's remedial reach.
Petitioners acknowledge that once the Commission prescribes a rate of return, they are required to submit rates designed to achieve no more than that rate. Under petitioners' view of the regulatory scheme, however, that is all they are required to do; if they err, and rates designed to achieve a lawful return turn out to generate an excess, the prescription has not been violated. Petitioners' argument, in short, is that the Commission may prescribe constraints only on carriers' subjective efforts, not on future events. We see no reason to adopt this narrow reading of "prescription," especially when it is opposed by a more reasonable interpretation by the Commission. See Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). The Commission's chief concern in issuing prescriptions is protecting just and reasonable rates, not policing carriers' states of mind. The idea of a prescription under section 205 is that the agency has proclaimed that a certain situation — here a return in excess of 10% — is unlawful and shall not occur. Certainly carriers cannot intentionally try to violate an outstanding prescription, but that does not mean that they may achieve through inadvertence what they are forbidden from doing by design.
A central defect in petitioners' argument is a failure to recognize the import of our prior decision in Nader approving the Commission's authority to prescribe rates of return. Nader established that the Commission may determine what rate of re turn must be thereafter observed in the same way it may set a just and reasonable rate to be thereafter observed. We expressly recognized as much when we wrote that the Commission's order had "the prospective effect of a prescription, thus, limiting the utility to that return." Nader, supra, 520 F.2d at 202 (emphasis added). Here the Commission has exercised its legal prerogative to prescribe a rate of return, rather than a rate. The teaching of Nader is that such a prescription is no less binding. If the order setting the maximum rate of return was a valid section 205 prescription, as it clearly was after Nader, it had "the force of a statute____ The carrier . is bound to conform." Arizona Grocery v. Atchison Ry., 284 U.S. 370, 52 S.Ct. 183, 76 L.Ed. 348 (1931). See also American Telephone & Telegraph Co. v. FCC, 487 F.2d 865, 874 (2d Cir.1973) (carriers are compelled to adhere to prescriptions by Commission).
Having established that the Commission reasonably determined that AT & T's 1978 earnings violated the outstanding prescription, we turn to the question of remedy. Petitioners insist that no section of the Act empowers the Commission to grant refunds for a violation of a prescription. Petitioners point out that section 204 is the only provision in the Act to expressly mention "refunds," and it applies only to Commission action following suspension of new or revised rates; the order under review corrected rates that already had been in effect for two years. Section 205, petitioners observe, is forward-looking: the Commission uses it to prescribe charges and practices "to be thereafter observed." In petitioners' view, by contrast, the Commission's order was a classic example of retroactive ratemaking, which is forbidden under a plethora of case law interpreting sections 204 and 205 and similar provisions in analogous regulatory schemes. Finally, petitioners argue that the Commission cannot cure its lack of authority by reliance on section 4(i), because that provision authorizes only such orders as are "not inconsistent with this Act," and retroactive refunds are inconsistent with the Act.
The petitioners buttress their textual arguments with an observation that the prohibition against retroactive ratemaking is designed to achieve an overall regulatory balance between the interests of consumers, who need protection from unreasonably high rates, and those of carriers, who need assurance of a reasonable rate of return. Under a prospective ratemaking scheme, carriers are precluded from recouping shortfalls during lean years, but they are compensated by being permitted to retain excess earnings from unexpectedly profitable years. This balance, petitioners argue, is destroyed if the Commission can order refunds to enforce a ceiling on a carriers' return without also guaranteeing the carriers some minimum reasonable return.
In addressing petitioners' concerns, we note at the outset that although petitioners and the Commission both refer to the rate reductions as a "refund," the order does not impose a refund in the classic sense of restitution to an overcharged party. Here the reductions will accrue to the benefit of a different customer base from the base that contributed to AT & T's excessive earnings. The Commission's order therefore is more precisely considered a prospective rate adjustment to compensate for past surpluses. See J.A. 26. This case does not, however, turn on the arguably over-fine semantic distinction between a refund and a prospective adjustment: even allowing for argument's sake that the Commission imposed a refund, the order was well within the agency's statutory authority.
As petitioners observe, section 204 is the only provision of the Act explicitly to mention refunds, and it does not apply to the circumstances of this case. The Commission, however, relied on another section of the Act — section 4(i) — to impose rate reductions in the amount of AT & T's excessive 1978 earnings. That provision empowers the agency to perform any act "not inconsistent with this Act, as may be necessary in the execution of its functions." We find this wide-ranging source of authority adequately supports the Commission's remedial action. In a strictly technical sense, the Commission's choice of remedy was abso lutely necessary; without the reductions, the carriers in fact would not be limited to a return of 10% and the prescription would be violated. More generally, the Commission enjoys significant discretion to choose among a range of reasonable remedies, including refunds. See Las Cruces TV Cable v. FCC, 645 F.2d 1041, 1047 (D.D.Cir.1981). The Commission does not have to show that it selected the only conceivably appropriate remedy in order to invoke its 4(i) powers. See North American Telecommunications Ass'n v. FCC, 772 F.2d 1282, 1292 (7th Cir.1985) (section 4(i) is a "necessary and proper clause" empowering the Commission to "deal with the unforeseen . to the extent necessary to regulate effectively those matters already within the boundaries"). Although, as petitioners point out, there are other corrective measures the Commission might have chosen, the measure it adopted in this case was appropriate and reasonable. As we said recently in another case approving of an agency's refund order, "[t]he question eventually reduces to one of judgment, informed by the policy of the statute that Congress has seen fit to enact. We find the agency's judgment . to be fully consistent with the Commission's broad mandate from the Article I branch to assure that all rates are just and reasonable." Southern California Edison Co. v. FERC, 805 F.2d 1068, 1072 (D.C.Cir.1986).
Petitioners nevertheless insist that a refund remedy is inconsistent with the Act, and therefore an inappropriate exercise of power under section 4(i), because it amounts to retroactive ratemaking. This argument again overlooks the force of our decision in Nader and the Commission's subsequent 1976 rate-of-return prescription. There was not retroactive ratemaking here, because the carriers' obligations were set prospectively in 1976, when the Commission forbade AT & T from earning more than 10%. The 1984 order under review merely recognized that the prior prescription had been violated and imposed a remedy for that violation. As the Commission explained, the refund order is a "dispassionate remedy for a violation in fact of an earnings ceiling. The carriers are being required merely to give up what they never should have collected in light of the rate of return prescription." FCC Br. 25 n. 31. This case is thus no different from one in which the Commission prescribed actual rates and the carrier, either intentionally or inadvertently, collected higher charges. Although no carrier has yet been so brazen, there can be little doubt under such circumstances but that the Commission would be well within its authority in forcing the carrier to disgorge the unlawful excess. Cf. United States v. Corrick, 298 U.S. 435, 56 S.Ct. 829, 80 L.Ed. 1263 (1936) (Commission can reject rate filings in excess of prescribed rates). The Commission has no more engaged in retroactive ratemaking here just because it is acting to enforce a rate-of-return prescription rather than a rate prescription.
Nor does the Commission order foster an impermissible imbalance between the interests of carriers and those of consumers. First, the Commission's 1976 prescription did provide a measure of protection for the carriers. As we noted in Nader, "the effect of the prescription is to protect AT & T from the possibility of refunds on the ground that an 8.5% rate of return was too high." 520 F.2d at 205 n. 25. Thus, had the cost of capital plunged in 1977, so that AT & T's return in that year of 9.59% was far above the reasonable minimum necessary to attract continued investment, the Commission nevertheless would not have been able to order a refund; rather, it would have had to initiate a new Section 205 proceeding and issue a new rate-of-return prescription, which would have had prospective force only.
It is true that the current regulatory scheme is asymmetric on another level. Since the Commission has so far declined to set minimum guaranteed rates of return for the carriers (although it has not foreclosed the possibility of doing so in the future), carriers must refund excess earnings, but they are not compensated for shortfalls. The carriers, however, have no statutory entitlement to a perfectly balanced regulatory scheme; rather, they are entitled only to earn an overall reasonable return. The Commission has concluded that a guaranteed minimum annual return is not essential to protect that right. That conclusion is a reasonable one. Under the Act, the carriers have the opportunity and responsibility to file rates that provide an adequate return. In this sense they are unlike consumers, who rely predominantly on the Commission to protect their right to just and reasonable rates. Moreover, the Commission supplements its rate-of-return prescriptions with a buffer, in this case amounting to .5%. This added increment makes it easier for the carriers to design charges that provide a rate of return in the vicinity of the prescribed ceiling. This scheme, in fact, more than adequately protected the carriers' interests in relation to the 1976 rate-of-return prescription at issue. During the five-year period in which the prescription was in effect, AT & T earned less than the prescribed ceiling of 9.5% in only one year, 1976, when it earned 9.25%. Overall, its average earnings during that period were 9.69%, well above the prescribed limit. In three of the five years, the carrier's rates were designed precisely enough to produce a return above the ceiling but not so far above as to trigger a Commission remedy. Finally, the carriers can always initiate a request to increase their rates when the current tariff appears likely to result in a shortfall. Thus, the current system appears to provide ample protection for the carriers' interests without any guaranteed minimum rate of return. Should this state of affairs not hold in the future, the Commission and the courts can address the situation at that time.
In sum, the Commission was justified in finding that AT & T's excessive earnings in 1978 violated the agency's outstanding rate-of-return prescription. Having made that finding, the Commission properly exercised its authority under section 4(i) to remedy the violation by ordering rate reductions in the amount of AT & T's excessive earnings in 1978.
B. Retroactive Application of a Newly-Announced, Policy
Several petitioners argue that even if the Commission's order did not violate the Act, it represented an abrupt reversal of prior Commission policy which could not lawfully be applied to parties who relied on the previous state of affairs. As AT & T sees it, for example, the Commission previously had followed a "target/trigger" policy, under which rate-of-return prescriptions served as targets for carrier tariffs, and excessive earnings triggered prospective relief in the form of rate adjustments. AT & T argues that it is being unfairly subjected to newly-adopted regulatory standards to which it has not had an opportunity to conform its behavior.
In large part, this claim relies on the same premise as the argument that the prescription obliged the carriers only to design rates not to exceed the Commission's ceiling. To the extent it does, we reject it for the same reasons. Once the Commission prescribed a maximum rate of return of 9.5% with a .5% buffer, it was not reasonable for the carriers to think that the agency had an affirmative policy of permitting carriers who earned above 10% to retain the unlawful excess. It is true that the Commission had not put the carriers on specific notice that it would respond to unlawfully high returns by ordering refunds. Importantly, however, the Commission had not had occasion to do so; never before had a carrier exceeded a rate-of-return prescription.
The dissent contends that carriers twice before — in 1967 and 1968 — exceeded the prescribed rate of return. Dissent at 4, 9-10. This contention is a cornerstone of the dissent's argument that the enforcement scheme adopted in this case represented a radical change in policy. The dissent overlooks the vital point that the Commission first prescribed a rate of return in 1972. Although it incorporated a rate-of-return recommendation, the 1967 order was not a rate-of-return prescription, and thus the portion of that order the dissent cites, see dissent at 4, is immaterial. The whole point behind our decision today, and our previous holding in Nader, is that the rate-making regime changed in 1972 when the Commission began to use its section 205 powers to prescribe rates of return. That action represented a new approach to rate regulation, and its legitimacy was precisely what the fight was about in Nader.
Given that no carrier had ever exceeded a prescribed rate of return and that the Commission had never foreclosed the remedy it imposed in this case, the most petitioners can claim is that the order under review instituted a new policy for a new situation. This action is something very different from a departure from a clear prior policy. We recently recognized the distinction in rejecting a very similar claim that an agency refund order was a departure from prior precedent. Petitioner in that case contended that the Federal Energy Regulatory Commission retroactively applied a new policy when it ordered a refund of excessive earnings. See Southern California Edison Co. v. FERC, 805 F.2d 1068 (D.C.Cir.1986). The court noted, "no agency precedent expressly addresses this precise issue____ We are in new territory here." Id. at 1071. Confronted with a novel set of circumstances, as we are in this case, the court rejected petitioner's claim that the Commission had departed from prior policy.
Finally, even if the enforcement order instituted a departure from a previous clearly articulated policy, petitioners would have no right to have the "new" policy not apply to them. Generally speaking, an agency may be prevented from applying a new policy for one of two reasons (in addition to the standard constraints that apply to any agency decision). First, a departure from prior policy cannot stand when the agency fails to explain the reason for the change. See Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). Second, under certain circumstances an agency may be prevented from applying a new policy retroactively to parties who detrimentally relied on the previous policy. See RKO General v. FCC, 670 F.2d 215, 223 (D.C. Cir.1981), cert. denied, 456 U.S. 927, 102 S.Ct. 1974, 72 L.Ed.2d 442 (1982). Petitioners can avail themselves of neither of these doctrines. As we detailed above, the Commission amply explained the source and need for its authority to remedy violations of its prescriptions by imposing refunds. This explanation fulfilled the Commission's responsibilities under Greater Boston. As for the retroactivity claim, petitioners have made no showing whatsoever of detrimental reliance. Indeed, it is difficult to imagine how they might make such a showing. Petitioners have insisted, as they must, that they made every effort to comply with the prescription by designing rates that would produce earnings of less than 10%. Presumably they would have behaved no differently had they clearly understood that excessive earnings might trigger a refund order. Thus, there is no evidence that petitioners relied to their detriment on their understanding of the Commission's prior policy. In sum, even had petitioners demonstrated, which they have not, that the Commission's order departed from pri- or policy, they would have no equitable claim to shield them from application of the order to them.
The dissent posits that AT & T relied on an enforcement scheme that precluded refunds by not filing for rate increases and by not having an opportunity in 1978 to convince the agency that its earnings were reasonable under then-prevailing economic conditions. Dissent at 13-15. But AT & T had every incentive and opportunity to file for an increase if it believed that the outstanding rate-of-return prescription was inadequate. It is irrational to surmise that the carrier would have declined to try to maximize its allowable profits in 1979 because it believed it would be able to retain its windfall of 1978. As for its opportunity to protest the decision, AT & T has offered a fierce challenge now, so no remedy has been assessed without the carrier's having had a full opportunity to air all its claims. We thus can perceive no possibility of detrimental reliance in this case.
C. Computation of the Refund
Three final arguments address the Commission's actual computation of petitioners' liability. First, petitioners claim that the Commission should have calculated the carriers' rate of return over the entire period during which the rates at issue were in effect, rather than isolating AT & T's excessive earnings for 1978. The rates were in effect from 1976 to 1980, during which they produced an overall rate of return of 9.69%. The Commission admittedly gave only a cursory explanation for its decision to enforce the prescription on an annualized basis. It reasoned in a footnote that it adopted a calendar-year measure because carriers' revenues, expenses, and income tax liabilities are typically evaluated on a fiscal year basis, and AT & T's own fiscal year coincided with the calendar year. J.A. 25-26 n. 12. This explanation, while brief, is sensible enough, especially since the Commission was enforcing a prescription of an annual rate of return. Moreover, prescriptions usually remain in effect for an indefinite period. Under petitioners' preferred scheme, the Commission would never be able to find and remedy a violation until it opted to issue a new prescription, because the agency would not know until then over what period the prior prescription was in force. In short, while the Commission perhaps might have opted for a different interval of measurement, cf. Authorized Rates of Return, 50 Fed.Reg. 41350 (October 10, 1985) (two-year interval), its choice of the traditional calendar year certainly was not unreasoned.
Petitioners also urge that the FCC failed to meet its burden of adducing substantial evidence for its determination that AT & T earned a 10.22% return in 1978. The Commission, however, amply supported its decision to rely on the 10.22% figure in the IMR that AT & T filed in January 1979 rather than the 10.09% figure in the subsequent FDC Report. First, the Commission pointed out that the agency and the industry had relied on the IMR return figures for 28 years, whereas the FDC Reports first had been submitted in 1977. J.A. 25. Second, certain of the computations in AT & T's FDC Report relied on extrapolations from the month of June 1978, even though, in the Commission's opinion, AT & T had not shown that the June figures were perfectly representative of the year's earnings. Id. Thus, the Commission adduced substantial evidence for both its confidence in the traditional IMR and its lack of confidence in the FDC Report that AT & T urged the Commission to employ. We therefore have no cause to doubt the reasonableness of the Commission's reliance on the 10.22% figure.
Finally, intervenor United States Telephone Association argues that the Commission should not be able to require petitioners to pay interest on the excess earnings for the entire period between January 1, 1979, and the date on which carriers file tariffs to implement the refund. USTA believes the Commission abused its discretion in ordering full interest payments in light of the Commission's own prolonged delay in responding to the violation. While this court does not condone the Commission's delinquency in resolving this matter, see Telecommunications Research & Action Center v. FCC, 750 F.2d 70 (D.C.Cir.1984), we perceive no inequity in requiring petitioners to pay full interest on earnings they had no right to retain in the first place.
III. Conclusion
The order under review was a straightforward and legitimate means for the Commission to enforce its 1976 rate-of-return prescription. In ordering a rate reduction in the amount of petitioners' excessive earnings, the Commission acted within its authority under the Communications Act and did not depart from prior policy. Finally, the Commission's method of computing the excess was reasonable and supported by substantial evidence. For these reasons, the petitions for review are denied.
It is so ordered.