Opinion ID: 603765
Heading Depth: 2
Heading Rank: 2

Heading: Vitelco's Interim Rates

Text: 10 On September 17-18, 1989, the U.S. Virgin Islands were devastated by Hurricane Hugo. See generally Michael York, Deadly Hugo Slams Puerto Rico, Virgin Islands; Storm Leaves Thousands Homeless, WASH.POST, Sept. 19, 1989, at A1. Hugo cut a swath of damage across the archipelago, destroying, among other things, approximately 90% of the telephone lines on St. Croix and 60% of the lines on St. Thomas. See Direct Case of Vitelco, Docket No. 90-124 (Apr. 6, 1990) at 2 (Direct Case ), reprinted in Joint Appendix (J.A.) at 56. Because of reductions in hardware capacity, Vitelco anticipated a dramatic decrease in demand for interstate access services. See id. at 1-2. Thus, Vitelco sought special permission from the FCC to increase its access service charges for the first six months of 1990. See Letter from Gertrude J. White, Counsel for Vitelco, to Judith A. Nitsche, Chief, FCC Tariff Review Branch (Nov. 16, 1989) (Application No. 1 ), reprinted in J.A. at 1. 11 In its request, Vitelco explained that the rule against retroactive ratemaking prevented Vitelco from waiting until the actual extent of the decrease became known before recouping its losses through higher rates. See Letter from Gertrude White to John Cimko, Chief, FCC Tariff Division (Dec. 1, 1989), reprinted in J.A. at 4. Instead, the company asked for permission to increase its switched and special access rates for the first half of 1990 while telephone systems on the islands were restored. [300 U.S.App.D.C. 363] See Letter from Gertrude White to Donna R. Searcy, Secretary, FCC (Dec. 8, 1989) at 1 and Appendix A (Application No. 2 ), reprinted in J.A. at 8. The requested increase was designed not to compensate Vitelco for costs directly attributable to the hurricane (e.g., hardware damage not covered by insurance), but to protect the company's income stream. See id. at 3-4; Application No. 1 at 2-3. 12 In order to estimate the hurricane's effect on demand for access services, Vitelco analyzed demand data for August, the month immediately preceding Hugo, and October, the month immediately following Hugo. See Application No. 2 at Appendix C. In addition, the company adjusted its projected minutes-in-use data to reflect a decrease in the number of access lines expected to be in service for the first six months of 1990. See id. Based on these and other adjustments detailed in the attachments to Application No. 2, Vitelco requested special permission to increase its interstate access rates for the first six months of 1990. At the end of that time, Vitelco's annual access tariff revisions, which were to be filed by the company on April 2, 1990, were to take effect as scheduled. To expedite matters, Vitelco also requested that the FCC waive its 45-day notice and supporting data requirements for standard rate revisions. See id. at 4. 13 On December 12, 1989, the FCC's Common Carrier Bureau (the Bureau) notified Vitelco that it would grant the company's request for an interim rate increase. See Letter from John Cimko to Gertrude White (Dec. 12, 1989), reprinted in J.A. at 41. In addition, the Bureau agreed to waive the two procedural rules identified in Vitelco's application. See id. However, the Bureau emphasized that the Commission had not approved the interim rates and that the Bureau's letter allowing the rates to go into effect did not prejudice any subsequent action which the Commission or Bureau may take. Id. Shortly thereafter, the Bureau issued an order in which it explained that it had granted Vitelco's request in order to preserve the company's pre-hurricane income stream and protect Vitelco's financial integrity. See Virgin Islands Tel. Corp., 5 FCC Rcd 112 (1989). Nonetheless, because the possibility exist[ed] for Vitelco to accumulate earnings above its authorized rate of return, the Bureau suspended the interim rates for one day, issued an accounting order, and initiated an investigation into the reasonableness of the rates pursuant to section 204(a) of the Communications Act, 47 U.S.C. § 204(a). Id. In its order designating issues for investigation, the Bureau explained that the purpose of [the] investigation [was] to determine whether the [interim] rates may be excessive, i.e., whether the rates ... produce revenues that exceed a revenue requirement that is computed in accordance with ... the Commission's Rules. Virgin Islands Tel. Corp., 5 FCC Rcd 1622 (1990). In furtherance of the investigation, Vitelco was ordered to submit a direct case demonstrating that the interim rates were not excessive, including cost and demand data beginning September 1, 1989 and ending with the most recent data available. Id. 14 As the company accumulated actual data from the first three months of 1990, it became apparent that the expected decline in demand had not materialized. See Direct Case at 10 (demand for January and February of 1990 is higher than originally anticipated). Indeed, demand over the first three months of 1990 was higher than Vitelco would have projected even in the absence of Hugo. See Supplement to Direct Case of Vitelco, Docket No. 90-124 (May 15, 1990) at 3 (Supplemental Direct Case ), reprinted in J.A. at 73. Vitelco attributed the unusually heavy volume to the use of coin telephones, customers sharing telephones with other residents and pent-up tourist demand. Direct Case at 11. In addition, because only about half of Vitelco's equipment was in service during the first quarter of 1990, Vitelco enjoyed a corresponding decrease in operating expenses. See Supplemental Direct Case at 3. As a result of the coincidence of heavy volume and diminished operating expenses, Vitelco's annualized earnings for interstate access services over the first three months of 1990 were in excess of [300 U.S.App.D.C. 364] thirty-six percent; roughly three times the company's twelve percent authorized rate of return. See Supplemental Direct Case at Exhibit I. 15 This data became available to Vitelco as the company prepared to file its annual access rate revisions on April 2, 1990, in which the company would propose tariffs for the service year beginning July 1, 1990 (at the termination of the interim period). In response to its surprisingly strong earnings through the first quarter of the year, Vitelco vastly reduced its standard access rates. AT & T Response and Opposition to Direct Case, Docket No. 90-124 (June 14, 1990) at 3 (AT & T Response ), reprinted in J.A. at 81. However, because the standard access rates did not take effect until July of that year, and [b]ecause demand remained above forecast levels, the rate of return for the remainder of the period during which the [interim] rates were in effect continued to be above authorized levels. Further Direct Case of Vitelco, Docket No. 90-124 (Dec. 21, 1990) at 2 (Further Direct Case ), reprinted in J.A. at 102. 16 In light of Vitelco's performance during the first half of 1990, the FCC concluded that Vitelco had overearned during that time and that the interim rates were therefore unjust and unreasonable. Virgin Islands Tel. Corp., 6 FCC Rcd 7350, 7351 (1991) (Refund Order ). In reaching its conclusion, the FCC did not find that Vitelco's demand projections in December of 1989 were based upon incorrect data, or that the company made erroneous calculations using that data. Nor did the FCC find that Vitelco's earnings from January 1, 1989 through December 31, 1990, had exceeded the authorized 12% rate of return for that period. Instead, the FCC simply annualized the return Vitelco had earned during the six-month interim rate period and found it to be above authorized levels. Id. Consequently, the FCC ordered Vitelco to refund, with interest, any amounts earned during the six-month interim period in excess of the then applicable 12% rate. See id. at 7352. 17 On January 3, 1992, Vitelco filed a motion to stay the refund order so that it might seek agency reconsideration or judicial review. See Motion for Stay of Vitelco, Docket No. 90-124 (Jan. 3, 1992), reprinted in J.A. at 117. However, the company did not actually file its motion for reconsideration with the FCC until January 16, 1992, one day beyond the filing deadline established by section 405 of the Communications Act, 47 U.S.C. § 405(a). See Vitelco Petition for Reconsideration, Docket No. 90-124 (Jan. 16, 1992), reprinted in J.A. at 157. In an accompanying motion for leave to file a late petition for reconsideration, Vitelco explained that the untimeliness of the petition resulted from miscommunications within the undersigned counsel's law firm, which was wholly the result of error on the part of undersigned counsel. Vitelco Motion to File Petition for Reconsideration One Day Late, Docket No. 90-124 (Jan. 16, 1992), reprinted in J.A. at 149. In a separate filing, Vitelco argued that the Commission should treat its motion for stay as a timely filed petition for reconsideration. See Vitelco Reply to Opposition, Docket No. 90-124 (Jan. 31, 1992) at 6-9, reprinted in J.A. at 193. While these motions were pending, Vitelco filed a petition for review of the refund order, No. 90-1063, with this court. 18 The FCC eventually granted Vitelco's motion to stay the refund order, see Virgin Islands Tel. Corp., 7 FCC Rcd 4235, 4237 (1992), declined to consider the stay motion as a timely filed petition for reconsideration, denied Vitelco's motion to file one day late, and dismissed Vitelco's petition for reconsideration as untimely. See Virgin Islands Tel. Corp., 7 FCC Rcd 4238 (1992). On August 10, 1992, Vitelco filed another petition for review with this court, No. 92-1347, this time challenging the FCC's dismissal of its motion for reconsideration. We have consolidated the two petitions and herein resolve both.