Task: songer_exhaust

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Opinion for the Court filed by Circuit Judge STARR.
STARR, Circuit Judge:
This case concerns the manner in which certain local telephone companies are reimbursed for providing their subscribers with access to long-distance common carriers. In the order under review, the Federal Communications Commission approved a modified system of reimbursement proposed by the National Exchange Carrier Association, the entity obligated under FCC regulations periodically to examine the formulas for compensation and to suggest revisions to those formulas.
Petitioners are twelve small “average schedule” companies, an appellation that we shall presently explain. They mount a two-pronged attack on the decision. First, they fault the Commission for failing to follow the notice-and-comment rulemaking procedures of the Administrative Procedure Act, 5 U.S.C. § 553 (1982). Second, they contend that approval of the reimbursement modifications proposed by NECA in the face of significant methodological flaws in NECA’s approach constituted arbitrary and capricious decisionmaking in violation of the APA, Id. § 706(2)(A). We decline to reach petitioners’ procedural objections for the simple reason that they were not raised before the Commission and thus cannot be advanced here. As to their second line of attack, however, we are constrained to conclude that the agency’s approval of NECA’s proposal was arbitrary and capricious. We therefore grant the petition for review.
I
The path that an interstate telephone call takes as it wends its way from one subscriber to a user at the other end of the line raises two regulatory issues of significance to this case. To state the obvious, a caller uses some of the same facilities to telephone the neighbor next door as are necessary to place a call across the continent. And thus the first issue: because interstate calls originate and terminate over local telephone company (or “exchange company” ) facilities that also carry intrastate calls, the question arises as to how to apportion the costs of these exchange facilities (known as “local plant”) between intrastate and interstate jurisdictions. This apportionment is not of mere academic or internal bookkeeping interest but must be performed because the FCC enjoys jurisdiction over interstate rates, whereas the several States reign supreme over intrastate rates. See 47 U.S.C. §§ 151,152(b) (1982 & Supp. III 1985); Louisiana Public Service Commission v. FCC, 476 U.S. 355, 106 S.Ct. 1890, 1894, 90 L.Ed.2d 369 (1986); National Association of Regulatory Utility Commissioners v. FCC (NARUC), 737 F.2d 1095, 1104-05 (D.C.Cir.), cert. denied, 469 U.S. 1227, 105 S.Ct. 1224, 84 L.Ed.2d 364 (1984). Second, because transmission of an interstate call involves more than one carrier, revenues from subscribers must be divided among the carriers in a manner that allows them to recover the interstate costs of local plant.
To address the first issue, the FCC has devised the rather bureaucratic nomenclature of “jurisdictional separation” procedures. See MCI Telecommunications Corp. v. FCC, 750 F.2d 135, 137 (D.C.Cir. 1984); see also MCI Telecommunications Corp. v. FCC, 712 F.2d 517, 523 n. 4 (D.C. Cir.1983). To address the second, it has developed a “settlement process.” Because of their bearing on this case, each warrants what we shall try to limit to a modest description.
A
For purposes of “jurisdictional separation” procedures, the Commission distinguishes traffic sensitive costs from non-traffic sensitive costs. As their names suggest, these terms refer respectively to exchange company costs that vary with the extent of phone usage and those that do not. See NARUC, 737 F.2d at 1104. In general, the FCC has separated traffic sensitive costs of local plant attributable to the interstate jurisdiction on the basis of relative minutes of use. FCC Brief at 4-5.
Allocation of non-traffic sensitive (“NTS”) costs of local plant, in contrast, has presented a thornier problem. See MCI, 750 F.2d at 137. Beginning in 1970, the Commission adopted for NTS separations a method based on the “subscriber plant factor” (“SPF”). See id. at 137-38 & n. 2. See generally Prescription of Procedures for Separating & Allocating Plant Investment, 26 F.C.C.2d 247 (1970). Whatever its benefits, this approach had the “effect of assigning approximately 3.3 percent of the non-traffic sensitive costs of subscriber plant equipment to the interstate jurisdiction for every 1 percent of interstate calling.” MCI, 750 F.2d at 137 (citation omitted). This skewing of cost allocation permitted exchange companies to recover through interstate revenues NTS costs properly recoverable through intrastate rates. See id. at 138. As an interim remedial measure, the Commission in 1982 froze the percentage of NTS costs allocable to the interstate jurisdiction at 1981 average levels. See id. at 139, affg Amendment of Part 67 of the Commission’s Rules & Establishment of a Joint Board, 89 F.C.C.2d 1 (1982). In 1984, the Commission finally abandoned the SPF factor method entirely in favor of assigning to the interstate jurisdiction a flat 25% of the NTS costs of each exchange company. Amendment of Part 67 of the Commission’s Rules & Establishment of a Joint Board, 96 F.C.C.2d 781 (1984), reconsid. denied, FCC No. 85-56 (Jan. 30, 1986), pet’n for review pending sub nom. Rural Telephone Coalition v. FCC, No. 84-1110 (D.C.Cir. filed Mar. 22, 1984).
Recognizing that the shift from SPF to a fixed allocatur would work a “major change[],” id. at 802, the Commission decided to delay implementation until January 1, 1986, two years from the date of its decision. In addition, the FCC determined that no exchange company subject to the new separation procedures would lose more than 5% of its interstate allocation per year. See MTS & WATS Market Structure & Establishment of a Joint Board; Amendment, 50 Fed. Reg. 939, app. A (1985) (amending part 67 of the Commission’s rules, 47 C.F.R. pt. 67); see also 47 C.F.R. § 67.124(d)(7) (1986). By virtue of the fact that since 1971 exchange companies employing the SPF separations procedure had been able to assign no more than 85% of their NTS costs to the interstate jurisdiction, this decision meant that some companies would take as long as twelve years to reach the much-reduced 25% limit. See NECA Modification of Average Schedules, app. B (Sept. 16, 1985), J.A. at 63-65; see also Petitioners’ Brief at 8-9 & n. 18.
Now all this assumes the availability of accurate cost data, the basic ingredient needed for the FCC’s recipe. But this assumption is not borne out by reality, at least in respect of smaller telephone companies. Here is why. To determine interstate costs accurately, it is necessary to begin with reliable estimates of total intrastate and interstate costs, known collectively as “unseparated” costs. Most local telephone (or “exchange”) companies obtain data on their unseparated costs by periodically performing lengthy, expensive cost studies, thereby earning the name “cost companies.” However, the Commission traditionally has recognized that “[pjrecise determination of a local company’s costs in all relevant areas may require extensive data collection, analysis, reporting and auditing, which can be a difficult and costly burden for small telephone companies.” NARUC, 737 F.2d at 1127. Accordingly, the FCC permits certain small exchange companies to estimate costs through use of an average schedule that “adopts generalized industry data to reflect the costs of a hypothetical exchange company.” Id.; see also MTS & WATS Market Structure: Average Schedule Companies, 103 F.C.C.2d 1017, 1019 (1986) [hereinafter Average Schedule Order], Joint Appendix (“J.A.”) at 1, 2.
This, then, is the genesis of the term “average schedule companies,” a group which consists, in essence, of local telephone companies that are typically smaller than the sometimes behemoth members of the “cost company” species. It is NECA’s efforts to adapt the changes in separations procedures that we have just discussed for application to these smaller, “average schedule” companies that form one aspect of the dispute now before us.
B
Before turning to the particulars of this dispute, however, we are well advised to dscribe — briefly—the settlement process by which revenues for interstate service are apportioned among participating carriers. Prior to the AT & T reorganization, exchange companies recovered their costs— both traffic sensitive and non-traffic sensitive — through charges imposed on interstate callers. NARUC, 737 F.2d at 1104-05. These charges were, in general, usage-sensitive, increasing with the distance and duration of calls. Id. AT & T was responsible for pooling these revenues and distributing them to exchange companies in proportion to their total (traffic sensitive and NTS) interstate investment. Id. at 1104-05 n. 5.
The Commission reexamined this traditional settlement process in light of technological advances and AT & T’s impending divestiture. It determined that recovery of interstate NTS costs through usage-sensitive charges required heavy interstate users to pay more than their fair share of interstate NTS costs and therefore impeded growth and development in the nationwide communications network. Id. at 1105-10.
The Commission’s reexamination led to the present system of “access charges.” Id. Under this new regime, exchange companies recover a large part of their interstate NTS costs through flat charges per access line billed to end users. To enable exchange companies to calculate access charges, the Commission promulgated detailed regulations that classify the cost components of providing interstate access into access elements and prescribe methods of calculating charges for each element. See generally 47 C.F.R. pt. 69 (1986). Those charges designed for recovery of the NTS costs of local plant that is used to carry interstate and intrastate messages are known as “common line” charges. See Access Charges Order, 93 F.C.C.2d at 268-69, 279-80.
In adopting access charge regulations, the Commission addressed the anomaly of traffic sensitive charges for NTS costs that was embedded in average schedule formulas. This anomaly resulted from the “Average Revenue Per Message” (“ARPM”) methodology then in effect, which tied average schedule company settlements, covering NTS as well as traffic sensitive costs, to the number of interstate messages carried. See Average Schedule Order, 103 F.C.C.2d at 1019, 1023 n. 81, J.A. at 3, 8 n. 31. The Commission promulgated a rule requiring as follows:
Payments shall be made in accordance with a formula approved or modified by the Commission. Such formula shall be designed to produce disbursements to an average schedule company that simulate the disbursements that would be received... by a company that is representative of average schedule companies.
47 C.F.R. § 69.606(a) (1986). This rule, in effect, required revision of average schedules to reflect the change.in the way cost companies are reimbursed, which for NTS costs is no longer usage-sensitive.
Under section 69.606, AT & T was responsible for submitting average company schedules for 1984. Id. § 69.606 (b) (1984). Since AT & T’s role in the industry was to be drastically altered following divestiture, however, the Commission provided that after 1984, average schedules would be filed by an association of exchange companies. Id. Elsewhere the Commission prescribed the composition and duties of the association, now incarnated as the National Exchange Carrier Association. See id. § 69.-601-.603.
C
The controversy before us arose when in September 1985 NECA filed for Commission approval proposed modifications to average schedules to take effect June 1,1986. The filing took the form of a forty-five page document in which NECA stated its determination that the usage-sensitive ARPM system for recovery of NTS costs should be abandoned. In its stead, NECA proposed to fix settlements for interstate NTS costs of local plant that carried interstate and intrastate calls (known as “common line settlements,” see supra note 9) at $8.06 per access line. See NECA Modification at 12, app. A, at 14, J.A. at 32, 57.
NECA also outlined a three-part transition plan for implementation of its average schedule revisions. See id., app. A, at 12, J.A. at 55. First, the new formulas would apply immediately to exchange companies whose settlements would increase under the revision. Id. Second, under a so-called “flash cut” feature of the plan, companies that were recovering common line settlements that exceeded 85% of their unseparated (i.e., interstate and intrastate) common line revenue requirements would immediately be limited to 85%. This 85% cap, NECA claimed, was analogous to the 85% SPF limit that had been placed on cost companies in 1971. Id. at 18-19, J.A. 38-39. The third feature of the transition plan covered other companies whose settlements decreased because of the revisions; it provided that reductions would amount to no more than $1.25 per access line per month each year over a four-year period, resulting in a maximum reduction over four years of $5.00 per line per month. Id.
D
Following the procedure it had employed the previous year for reviewing AT & T’s average schedule filing, the FCC released public notice of NECA’s proposal on October 9, 1985; it did not, however, publish this notice in the Federal Register. See FCC Mimeo 0189 (Oct. 9, 1985), J.A. at 67 (notice of NECA filing); see also FCC’s Brief at 40 n. 51. The notice described the filing simply as “revised formulas and supporting data that update the schedules that are associated with average schedule company interstate settlement disbursements.” See Notice, J.A. at 67. The Commission invited comments within 30 days, with reply comments due 30 days thereafter.
Soon after notice was given, two average schedule companies asked the Commission to order NECA to release additional information on its proposal. They sought, in particular, the data underlying NECA’s composition of an “average” schedule company and further details on the calculations leading to NECA’s flat rate common line settlements figure. Before the Commission ruled on the production requests, NECA volunteered to produce additional material and on November 18, 1985 released some 900 pages of data. NECA prefaced this additional submission by admitting that “certain deliberative steps” were never reduced to writing and could not be documented; likewise, it explained that some “critical calculations” had not been preserved at the time they were performed and had only been reconstructed in response to the request for more data. See NECA Data Submission, notes 2, 4 (Nov. 18, 1985), J.A. at 402. The Commission extended the comment period by 30 days— through December 6, 1985 for initial comments — to permit further examination of the released information. MTS & WATS Market Structure: Average Schedule Filing, CC No. 78-72, Mimeo No. 0757 (Nov. 7, 1985).
Dissatisfied with NECA’s further efforts, petitioners renewed their motion for production of data and sought further extension of the comment period. They complained generally that “[t]he data wholly fail[ed] to provide the information necessary to ascertain whether NECA’s proposed revisions have any reasonable relationship to average schedule costs or revenue requirements.” Id. at 3, J.A. at 85. To make matters worse, they complained, NECA’s data contained many obvious mathematical errors that, to their mind, called into doubt the reasonableness of the results. Id. at 6-7, J.A. at 88-89. The Commission, however, was unmoved and denied the motion. MTS & WATS Market Structure: Average Schedule Filing, CC No. 78-72, FCC Mimeo No. 1319 (Dec. 6, 1985), J.A. at 111.
Petitioners’ comments detailed their criticisms, faulting NECA’s proposed revision for what it included as well as what it omitted. They noted several instances in NECA’s data where basic calculations had been incorrectly performed; in several, for example, NECA had multiplied non-zero numbers by a factor of zero to arrive at non-zero results. Petitioners objected, furthermore, to NECA’s omission of critical analytic steps in its derivation of the proposed flat rate figure for interstate common line settlements. Id. at 19-27, J.A. at 137-45. Adding insult to injury, in petitioners’ view, NECA had not even accurately informed average schedule companies what, if any, reductions they would suffer under NECA’s revisions. According to petitioners, the “impact statements” furnished in July 1985 were flawed. See supra note 13. In an effort to correct what it admitted were “logical inconsistencies,” NECA had sent out a second set of impact statements in November 1985, but this second set, petitioners contended, was also inaccurate. Id. at 15-16, J.A. at 133-34; see also NECA Reply to Production Requests at 2, J.A. at 79. As a result, petitioners concluded, many companies could not meaningfully comment on the revisions.
Finally, petitioners attacked two aspects of NECA’s transition plan for implementing the revisions. First, petitioners asserted, in proposing a “flash cut” NECA had not justified the manner in which it translated the 85% limit on cost companies’ allocation of interstate NTS costs into a measurement that could be applied to average schedule companies. Id. at 27-28, J.A. at 145-46. Second, NECA’s proposal to limit reductions in settlements to $1.25 per access line per month over four years was, they charged, harshly discriminatory compared to the twelve-year period applicable to cost companies under the transition to a 25% fixed allocatur. Id. at 11-12, J.A. at 129-30.
NECA responded by submitting additional documents to correct the obvious errors that petitioners had discovered. In reply to charges that it had omitted important calculations and analytic steps from prior submissions, NECA chastised petitioners for holding the Association to an “unrealistic” standard of statistical precision. “[Ejxpert judgment,” NECA explained, necessarily played a significant role in formulating the modifications and was not susceptible to rigorous statistical support. Id. at 9-10, J.A. at 270-71. NECA defended its revised formulas as “what realistically could be accomplished in the time frame and with the resources available.” Id. at i, J.A. at 259.
NECA maintained, moreover, that its revisions represented a significant improvement over existing average schedules. For one thing, they were based on more recent data than existing schedules. See id. at 23-24, J.A. at 284-85. For another, the revisions took into account recent changes in separations procedures by classifying data according to the twenty-one categories of investment, expense, and income adjustments prescribed for cost companies in part 67 of the Commission’s rules. See id. at 14, 24, J.A. at 275, 285; see also 47 C.F.R. § 67.1(c) (1986). Finally, NECA asserted, the revisions reflected the logic of the system of access charges outlined in part 69 of the Commission’s Rules. See NECA Reply Comments at 24, 28, J.A. at 285, 289.
NECA also defended its transition plan. To translate the 85% SPF applicable to cost companies into a measurement applicable to average schedule companies, NECA had determined that “the average point at which an average schedule company’s common line settlement recovery exceeds 85% of its unseparated NTS costs is 15.9 messages per line.” Id. at 19, J.A. at 280 (footnote omitted). NECA dismissed petitioners’ charge that this equation was unjustified, contending that the two measurements were highly correlated. Id. NECA likewise waved off attacks on the four-year implementation of settlement reductions. This transition, NECA explained, was no harsher than that to which cost companies were subject, because average schedule formulas were based on cost company data and would necessarily incorporate the more gradual transition applied to cost companies. “Therefore, the transition of the average schedule companies... is occurring on the same schedule as the cost companies.” Id. at 21, J.A. at 282.
E
The Commission approved NECA’s modifications to average schedule formulas in a decision released April 18, 1986. It acknowledged at the outset that “improvements are possible in the studies, methodologies, and data that NECA employed in developing new average schedules.” Id. at 1023 (footnote omitted), J.A. at 8. Nonetheless, the Commission noted, revisions were necessary so that the average schedules reflected changes in the separation procedures and settlement process applicable to cost companies. Id. at 1024, J.A. at 8. Thus, the pertinent inquiry in the Commission’s view was whether NECA’s revisions were an improvement over existing schedules. The FCC concluded that they were, for “reasons... stated in the supporting comments.” Id. (footnote omitted). Its reasoning is set out in full:
[T]he NECA revisions: (1) more closely simulate the principles that are contained in Part 69 of our rules; (2) take more fully into account the effects of changes in jurisdictionally separated costs under Part 67 of our rules that have occurred since the last revision to the average schedules; (3) use more recent data; and (4) employ a residue ratio that more closely parallels the residual risk sharing that occurs under cost company pooling.
Id. (footnote omitted). Thus, the first three reasons mirror those presented by NECA. The fourth refers to the process by which revenues that remain in the interstate pool after initial distribution of expenses (i.e., the residue) are distributed to companies in proportion to their share of the risk of the overall enterprise. FCC Brief at 30 n. 38; see also 47 C.F.R. § 69.607-.610 (1986).
The Commission addressed the transition plan with similar dispatch. The “flash cut” was reasonable, it found, because it affected only those companies that were receiving more than 100% of their total NTS revenue requirements from the interstate jurisdiction through average schedule settlements. Average Schedule Order, 103 F.C.C.2d at 1026, J.A. at 11. Those companies, in the Commission’s view, were in no position to complain about immediate reductions. More generally, any average schedule company that believed itself adversely affected by the revisions could elect to be treated as a cost company and thereby recover its full costs. “No company,” the Commission observed, “has a legal or equitable right to obtain more than its full costs.” Id. at 1027, J.A. at 12.
F
In the wake of the Commission’s decision, several parties sought relief or modification of the order in various respects. Three exchange companies sought waiver of the application of the average schedule revisions. The FCC denied two of the three requests and delayed ruling on the third pending further investigation. The Commission did decide, however, to grant limited relief to “small” average schedule companies. Specifically, it permitted average schedule companies with fewer than 5,000 local subscriber access lines to waive application of the revisions through July 31, 1986. In addition, small average schedule companies that elected by December 1, 1986 to become cost companies could choose to be compensated on a cost basis retroactively from August 1, 1986. Id. None of these subsequent rulings, it should be noted, is presently before us.
Shortly after the Commission’s order on reconsideration, petitioners filed this petition for review. NECA, among others, has intervened.
II
Petitioners’ challenges to the Commission’s decision fall into two broad categories. First, they argue that the proceedings were procedurally defective when measured against the requirements prescribed by the APA for informal rulemaking. See 5 U.S.C. § 553. Second, they contend that the FCC’s decision was substantively flawed. In petitioners’ view, NECA’s description of the methodology underlying its proposal was so incomplete and the data supporting its revised formulas so riddled with errors and omissions that the Commission acted arbitrarily and capriciously in approving the revisions without addressing these shortcomings and without considering alternatives to NECA’s methodology outlined in comments submitted to the Commission.
A
Petitioners present a litany of objections to the manner in which the FCC conducted its proceedings. They fault the Commission because it did not publish notice of NECA’s filing in the Federal Register. See 5 U.S.C. § 553(b). In the notice it did provide, they complain, the Commission adequately described neither “the terms or substance” of the filing nor “the subjects and issues involved.” Id. § 553(b)(3). Notice of NECA’s filing was also deficient, according to petitioners, because the Commission did not disclose its views on the proposal or the alternatives it was considering. See, e.g., Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 (D.C.Cir.), cert. denied, 434 U.S. 829, 98 S.Ct. 111, 54 L.Ed.2d 89 (1977). Finally, petitioners maintain that by failing to order NECA to produce more information on how it derived the average schedule revisions, the Commission ran afoul of the principle that an agency must disclose the data upon which a proposed rule is based. See, e.g., Connecticut Light & Power Co. v. NRC, 673 F.2d 525, 530-31 (D.C.Cir.), cert. denied, 459 U.S. 835, 103 S.Ct. 79, 74 L.Ed.2d 76 (1982).
We decline to rule on petitioners’ procedural arguments, for they were not raised before the Commission. Our decision flows from section 405 of the Communications Act, which in relevant part provides: 47 U.S.C. § 405 (1982). This court has construed section 405 to “codify the judicially-created doctrine of exhaustion of administrative remedies.” Washington Association for Television & Children v. FCC (WATCH), 712 F.2d 677, 681-82 (D.C.Cir.1983) (interpreting § 405(2)); accord Office of Communication of the United Church of Christ v. FCC, 779 F.2d 702, 706-07 (D.C.Cir.1985) (interpreting § 405(1)); see also North Texas Media, Inc. v. FCC, 778 F.2d 28, 33-34 (D.C.Cir.1985). As incorporated in section 405, this doctrine “require[s] complainants, before coming to court, to give the FCC a ‘fair opportunity’ to pass on a legal or factual argument.” WATCH, 712 F.2d at 681 (quoting Alianza Federal de Mercedes v. FCC, 539 F.2d 732, 739 (D.C.Cir.1976)). It is clear that in this case the Commission has been seised of no such opportunity.
The filing of a petition for reconsideration shall not be a condition precedent to judicial review of any... order, decision, report, or action, except where the party seeking such review (1) was not a party to the proceedings resulting in such order, decision, report, or action, or (2) relies on questions of fact or law upon which the Commission... has been afforded no opportunity to pass.
Although we have recognized the salutary, commonsense notion that the exhaustion doctrine is to be applied flexibly, none of the traditional exceptions to the requirement avails petitioners. Their objections do not fall within that class of issues which, “by their nature could not have been raised before the agency.” WATCH, 712 F.2d at 682. On the contrary, we have previously deemed procedural objections premised on the APA to be precisely the sort appropriately raised before the Commission in the first instance. American Radio Relay League, Inc. v. FCC, 617 F.2d 875, 879 n. 8 (D.C.Cir.1980).
Nor do we find any evidence to suggest that it would have been “futile” for petitioners to lodge their procedural complaints in the agency proceedings, another basis for withholding application of the exhaustion requirement. See WATCH, 712 F.2d at 682 & n. 9. Nowhere in the administrative proceedings did the Commission hint that it was wedded to the procedures that it employed. Cf. Action for Children’s Television v. FCC, 564 F.2d 458, 469 (D.C. Cir.1977) (exhaustion not required where Commission’s general views on issue were already known). Nor has the Commission previously had the opportunity to decide the applicability of Section 553 to average schedule revisions. Cf Great Falls Community TV Cable Co. v. FCC, 416 F.2d 238, 239-40 (9th Cir.1969) (exhaustion not required where issue had been specifically addressed in prior rulemaking). See generally 4 K. Davis, Administrative Law Treatise § 26.11 (2d ed. 1983) (discussing futility exception). Finally, this is not a situation in which another party to the proceedings voiced the objection now championed by petitioners. See WATCH, 712 F.2d at 682 & n. 10; see also L. Jaffe, Judicial Control of Administrative Action 457-58 (1965).
Assuming arguendo our discretion to craft an exception to the exhaustion requirement to accommodate petitioners, see WATCH, 712 F.2d at 683, we would decline to do so. For one thing, petitioners themselves are at least partly responsible for the agency’s failure to address whether notice-and-comment rulemaking procedures were necessary, cf. id. at 683; their motions and comments emphasized NECA’s alleged failure to produce sufficient data rather than the FCC’s role in the proceedings. For another, the question of the applicability of notice-and-comment procedures of the APA does not yield an obvious answer. Respect for the proper court-agency relationship, see Alianza, 539 F.2d at 739, therefore counsels against permitting petitioners to bypass the agency with respect to this issue.
B
1
Before addressing the particulars of petitioners’ substantive challenge, we take an obligatory pause to set forth the legal standard governing our review. In a familiar passage, the APA directs us to “hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). This statutory mandate clearly applies to the Commission’s decision, whether it constituted informal rulemaking or, as the Commission argues, merely implementation of a prior rule, namely section 69.606, 47 C.F.R. § 69.606. Under this “arbitrary-and-eapricious” standard, courts are to conduct an inquiry that is “ ‘searching and careful,’ yet, in the last analysis, diffident and deferential.” Natural Resources Defense Council, Inc. v. SEC, 606 F.2d 1031, 1049 (D.C.Cir.1979) (McGowan, J.) (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971)) (footnote omitted).
We have recently had occasion to observe the “wide range of reasons why agency action may be judicially branded as ‘arbitrary and capricious.’ ” FEC v. Rose, 806 F.2d 1081, 1088 (D.C.Cir.1986). Here, the focus of petitioners’ arguments is that the Commission failed to demonstrate that an adequate basis in the administrative record existed rationally to conclude that NECA’s revisions represented “an improvement over the existing schedules.” Average Schedule Order, 103 F.C.C.2d at 1024, J.A. at 8. To withstand this assault, the FCC must demonstrate a “rational connection between the facts found and the choice made.” Farmers Union Central Exchange, Inc. v. FERC, 734 F.2d 1486, 1499 (D.C.Cir.) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962)), cert. denied, 469 U.S. 1034, 105 S.Ct. 507, 83 L.Ed.2d 398 (1984); accord Aeron Marine Shipping Co. v. United States, 695 F.2d 567, 577 (D.C.Cir.1982) (quoting Sierra Club v. Costle, 657 F.2d 298, 323 (D.C.Cir.1981)). We must be able to discern this connection in the record and the agency decision. See SEC v. Chenery Corp., 318 U.S. 80, 87-88, 63 S.Ct. 454, 459, 87 L.Ed. 626 (1943); Vermont Department of Public Service v. FERC, 817 F.2d 127, 139 (D.C.Cir.1987). Post hoc rationalizations advanced to remedy inadequacies in the agency’s record or its explanation are bootless. See National Coalition Against the Misuse of Pesticides v. Thomas, 809 F.2d 875, 882-83 (D.C.Cir.1987). Upon review of the proceedings before the Commission, we are convinced that, in an admittedly imperfect world, the FCC’s decision nonetheless fails muster.
2
NECA’s initial submission adumbrated a three-step process for arriving at average schedule formulas. See NECA Modification at 14, J.A. at 34. Because petitioners allege that deficiencies pervade the whole process, each step, unfortunately, requires some further description than was possible in our earlier recitation of the background underlying the present controversy.
First, NECA developed “access element allocation factors.” Id.; see also 47 C.F.R. § 69.101-115 (1986). This mind-numbing turn of phrase can best be described by borrowing NECA’s own words. NECA conceived these factors as a means of “allocating total average schedule company amounts of major categories of expense, investment, and income adjustments to access categories,” which are the categories into which access elements are grouped, namely common line (comprising NTS costs), traffic sensitive, and billing and collection. NECA Modification, app. A, at 1-3, J.A. at 44-46; see supra note 11; see also NECA Data Submission, J.A. at 767-85. To derive these factors, NECA began by selecting 255 cost companies that it considered representative of average schedule companies. NECA Modification at 14-15, app. A, at 1, J.A. at 34-35, 44. For every company

Question: Did the court determine that it would not hear the appeal for one of the following reasons: a) administrative remedies had not been exhausted; or b) the issue was not ripe for judicial action?
A. No
B. Yes
C. Mixed answer
D. Issue not discussed
Answer:

Answer: A