Opinion ID: 560450
Heading Depth: 1
Heading Rank: 3

Heading: The Cable Programmers' Petitions

Text: 11 In its 1989 Order, the Commission concluded that in view of all the circumstances, the record does not warrant ordering Americom to give refunds to its 1988 Fixed Term Transponder customers. 4 FCC Rcd at 6599. That judgment stemmed from the Commission's earlier recognition, see 1987 Order, 2 FCC Rcd at 2368, that Americom reasonably targeted a 15 percent rate of return. In reality, however, it appears that Americom's actual return never approached 15 percent for any year during the relevant period, 1980-1986. See Joint Appendix (J.A.) at 349, 854. Nor have the cable programmers disputed Americom's claim that, after the loss of SATCOM F-3 in 1979, the value of 1988 fixed-term service far exceeded Americom's tariffed rates even with the increases. See J.A. at 335-37; Brief of Intervenor GE American Communications, Inc. at 354. These characteristics of the case weigh heavily in our determination that the FCC's orders should not be disturbed. Keeping in mind these marked features, we consider the particular challenges presented by the cable programmers.
12 The cable programmers charge that the FCC merely articulated, but did not genuinely apply the substantial cause test when it ruled on Americom's rate increases. Looking to the carrier's side of the test, the programmers fault the Commission for failing to quantify the impact of the unforeseen events (steep inflation, loss of SATCOM F-3, and space shuttle launch schedule delays) on the cost of providing service to the 1988 fixed-term customers. 5 Although the Commission did not endeavor to detail the precise effects of events that would obviously tend to increase Americom's costs, it generally credited Americom's submissions 6 and found them, in the main, sufficient to justify the rate increases. Even with the rate increases, the FCC constantly emphasized, Americom's rate of return remained substantially below its target figure. See 1987 Order, 2 FCC Rcd at 2368. 13 The cable programmers stress that the FCC's 1981 Order rejecting Americom's entire tariff, in contrast to the Commission's 1987 order on rates, required a particularized showing, not merely a generalized assertion, of a connection between rising costs and a proposed change. See Brief for Petitioners Showtime et al. at 24. But the language from the 1981 Order highlighted by the programmers concerned the connection between rising costs and a structural change in the tariff, one that would have prohibited Americom's customers from cancelling service. There was not a plain and certain link, the Commission indicated, between rising costs and Americom's proffered structural changes. There is, however, an altogether evident connection between rising costs and the need for more revenue. 14 Concerning the burden on customers, the FCC emphasized that, offsetting the rate increase, Americom had eliminated the subscriber's liability for early termination of service. Thus, customers could switch to another provider if a more favorable opportunity were available. Americom pointed out that despite new competition, both from other satellites and from new fiber optic technologies, see J.A. at 312-15, and despite elimination of liability for termination of service, its customers largely remained Americom subscribers. 7 Nor did the cable programmers identify any alternative, cheaper transmission service that they might have used instead of Americom's 1988 fixed-term service, had they known that Americom would increase its rates. 15 In essence, the cable programmers would like the court to direct the Commission to apply the substantial cause test to rate increases in a more muscular way. 8 We have no warrant on this record to so instruct the Commission. We recall, in this regard, our own direction to the FCC to use the test as an aid in ascertaining whether newly-filed modifications to [Americom's] long-term service tariffs are within the zone of reasonableness, and not as an additional hurdle that [Americom's] otherwise reasonable new tariff ha[s] to overcome. RCA Communications, Inc. v. FCC, mem. op. at 352, D.C.Cir. No. 81-1558 (July 21, 1982). The FCC's application of the substantial cause test is consistent with the limited role we marked out for that test. RCA American Communications, Inc. v. FCC, mem. op. at 350, D.C.Cir. No. 81-1558 (Mar. 8, 1984). 9
16 The programmers argue, further, that the FCC departed from established Commission precedent when it permitted Americom to include in its rate base the construction costs of satellites launched more than twelve months after Americom filed its 1981 tariff. We note at the outset that the Commission enjoys broad discretion in deciding whether to include plant under construction (PUC) in the current rate base. [S]uch inter-temporal distributional decisions are for the agency to make, we have held, and so long as it shows that it knows what it is doing, and gives a rational reason for doing it, we will not interfere with the result. Illinois Bell Tel. Co. v. FCC, 911 F.2d 776, 782 (D.C.Cir.1990). We have further recognized that any of a large number of rate base theories are acceptable, and require[ ] only that the chosen theory be consistently applied, and result in a reasonable rate of return. Communications Satellite Corp. v. FCC, 611 F.2d 883, 890-91 (D.C.Cir.1977). With these principles in full view, we turn to the cable programmers' two particular challenges. 17 First, the programmers renew their contention that two of Americom's satellites--SATCOM I-R and II-R, both scheduled for launch in 1983--were, from the start, dedicated to services other than cable programming, and therefore were not useful to the programmers. Furthermore, they assert, Americom later expressly limited access to SATCOM IV by 1988 fixed-term customers and sold space on its ground spare satellite on a non-common carrier basis. Accordingly, the cable programmers maintain, the Commission should have required Americom to exclude altogether the construction costs of SATCOM I-R and II-R from the rate base, and it should have required Americom to allocate the costs of the other two satellites (SATCOM IV and the ground spare) among the discrete services that used them. Brief for Petitioners Showtime et al. at 34 & n. 46. 18 Americom, in contrast, described its satellites as fungible. Each was capable of carrying all of the various types of C-band transponder service. Americom therefore tariffed its C-band services on a system-wide rather than a satellite-specific basis. 10 The Commission recognized that Americom has the right to move its customers to another satellite if it sees fit, 1987 Order, 2 FCC Rcd at 2368, and it further accepted Americom's contention that the four satellites benefit[ ] all users of [Americom's] satellite system by providing redundant and replacement capacity. Id. at 2369. Accordingly, the Commission concluded, Americom's system-wide method of rate-base calculation was appropriate, and Americom had properly included the costs of the four newer satellites in the rate base for the cable programmers' service. Recalling our prior rulings that the widest latitude is to be permitted public regulatory commissions in their determination of a rate base, Communications Satellite Corp., 611 F.2d at 890, we cannot say that either the Commission's resolution of the conflict between the programmers' and Americom's claims as to the satellites' usefulness, or the FCC's ultimate conclusion as to the propriety of rate-base treatment, is unreasonable. 11 19 The programmers contend, alternately, that even if it was proper to include, after launch, the costs of the four satellites on which the programmers did not ordinarily receive service, the FCC erred in giving these satellites rate-base treatment as of 1981. The Commission, they argue, should have required Americom to defer inclusion until the satellites were fully operational--in 1983, for SATCOM I-R and II-R, and 1984, for the ground spare. According to the cable programmers, the Commission has traditionally disallowed inclusion of long-term PUC in regulated rate bases, Brief for Petitioners Showtime et al. at 28; in the present case, according to the programmers,, the Commission departed from that policy without explanation. 20 The FCC correctly observes, however, that the programmers too readily identify the used and useful principle with exclusion of PUC. As the programmers admit, the Commission has not always required the investment to be used and useful immediately; rather, it has allow[ed] carriers to include in their rate bases ... property that is 'used and useful' in providing service to ratepayers either presently or within a reasonable period of time. Id. at 28 (emphasis added); see also American Tel. & Tel. Co., Phase II Final Decision & Order, 64 F.C.C.2d 1, 47 (1977) (same). And [t]he question of what length of time constitutes 'the near future' has no strict, economically sound answer. It is thus subject to Commission judgment and discretion, and depends upon the particular circumstances of each case. Id. In determining what constitutes a reasonable period of time, the Commission has explained, it is guided by the principle that ratepayers must not be forced to pay a return on investment which may not be used for a considerable length of time or is not needed to serve as a reserve for currently used investment. Id. (emphasis added). 21 In the present case, the Commission found that the four newer satellites were useful to Americom's subscribers, even before launch, as ground spares that assure[d] system reliability and provide[d] redundant or replacement capacity in the event of a malfunction of on-line equipment. 1987 Order, 2 FCC Rcd at 2369. Given this finding, the Commission rationally could rank their construction costs as property needed to serve as a reserve for currently used investment. 22 The FCC's resolution of this issue is consistent with its ultimate disposition of the Comsat litigation--apparently the only other Commission case raising PUC rate-base issues in the satellite context. In that case, the FCC approved as just and reasonable a settlement agreement that allowed the carrier to include satellite construction costs in the current rate base. See Communications Satellite Corp., 68 F.C.C.2d 941, 948-49 (1978). The Commission noted that, compared with terrestrial facilities, satellites have much shorter useful lives and thus require more frequent replacement. Accordingly, the Commission reasoned, satellite construction is necessary just to maintain current levels of service for existing customers. Id. at 949. The Commission has found that the four newer satellites performed the same function in the present case. 12 The FCC's approval of PUC inclusion, we therefore conclude, is both reasonable and consistent with Commission precedent. 23
24 After the 1979 loss of SATCOM F-3, Americom received insurance proceeds covering both the asset value of the satellite and lost revenues. Americom paid the $20.8 million proceeds representing lost revenues to its corporate parent, then RCA. The Commission found in its 1987 Order that Americom's subscribers, not its corporate parent, had paid the premiums on the SATCOM F-3 insurance policy; it concluded, therefore, that Americom should credit its 1988 fixed term transponder service customers in some manner for some portion of the insurance proceeds of SATCOM F-3. 2 FCC Rcd at 2370. The Commission requested supplemental briefing on the issue of how the customers should be credited. Id. at 2370-71. 25 In its 1989 Order, the FCC credited the $20.8 million to Americom's customers as revenue received from them over SATCOM F-3's projected useful life. The Commission reasoned that because Americom had never attained its authorized rate of return during that period, it would not order Americom to pay refunds to its customers or otherwise adjust its rates. See 4 FCC Rcd at 6598-99. 26 The cable programmers argue that the Commission's decision not to order refunds amounts to a retroactive rate increase. We reject this argument, for the simple reason that the Commission's order is not a rate increase, nor even its functional equivalent. Reply Brief for Petitioners Showtime et al. at 15. Rather, the Commission simply refused to require Americom to reduce the programmers' rates, because, as it reasonably found, even when the $20.8 million was credited as revenue received, Americom had earned far less than its authorized rate of return. 13
27 The cable programmers additionally urge that the Commission failed to address adequately a host of other issues. The programmers' main brief spotlights three: (1) Americom's use of a 30 percent debt/70 percent equity ratio in calculating its rate of return; (2) Americom's alleged change in its cost methodology; and (3) Americom's inclusion in its rate base of an inflated number of transponders. We are satisfied that the cable programmers' objections on these points do not warrant unsettling the Commission's orders. 28 Concerning the debt/equity ratio, it is not genuinely disputed that, since 1975, Americom consistently used 30/70 for purposes of its rate filings. See J.A. at 351, 527-28. Because the 1981 tariff made no change in this regard, the substantial cause standard is not even arguably implicated in the FCC's acceptance of Americom's use of the 30/70 ratio. Moreover, as Americom noted, Americom is a wholly-owned subsidiary, hence its balance sheet is managed to achieve corporate-wide objectives and changes frequently as funds flow between the parent and subsidiary. J.A. at 710 n. 2. Americom's actual debt/equity figure is thus somewhat artificial. 29 The cable programmers pointed to evidence in the record showing that, at one point in time, 1981, Americom's actual ratio was 39/61. The Commission properly demurred. Use of the 39/61 ratio would have decreased Americom's permissible rate of return from 15 percent to 14.5 percent, but the record demonstrated that Americom's achieved rate of return was significantly lower than 14.5 percent throughout the relevant period. In sum, we cannot reject as arbitrary the FCC's acceptance of the 30/70 figure as within the zone of reasonableness. 30 Americom, in its 1981 filing, used a first cost less accumulated depreciation method to calculate its investment in the satellite facilities. Before the Commission, the cable programmers unsuccessfully challenged that method as inappropriate. In this court, the programmers do not assail the chosen method per se, but assert that Americom had used a different method, an average net investment method, in previous filings and had shown no substantial cause for switching. 31 The Commission's 1987 Order appeared to hold that Americom had not changed its accounting methods with its 1981 filing. See 1987 Order, 2 FCC Rcd at 2368. In its current brief, however, the FCC tells us it never determined that the methodology used by Americom [in 1981] was the same methodology that had been used in previous filings. Brief for Respondents at 45. It simply determined that the method Americom chose and employed was reasonable. Essentially, the Commission again demurred to the cable programmers' plea, resting on these determinations: (1) Americom had substantial cause, based on large and unanticipated cost increases, to change material provisions of its tariff, i.e., its rates; (2) Americom's first cost accounting method choice was reasonable, i.e., consistent with accepted practices; and (3) the end result was reasonable. Substantial cause, the Commission noted, applies to material provisions of a tariff, not to auxiliary matters such as changes in a carrier's cost methodology. For such matters, the FCC maintains, the reasonableness standard suffices. 32 The Commission's opinion that Americom's 1981 use of a first cost method was reasonable, and not subject to a substantial cause test, survives our review. In applying the more stringent test only to material provisions of a tariff, the FCC is proceeding in accord with this court's understanding of the limited role properly assigned to the substantial-cause-for-change criterion. RCA American Communications, Inc. v. FCC, mem. op. at 3, D.C.Cir. No. 81-1558 (Mar. 8, 1984). 33 To the cable programmers' charge that Americom had included in its rate base an inflated number of protection transponders, the Commission recounted that it had authorized Americom to construct as a ground spare a satellite Americom had originally proposed as an in-orbit spare. There was thus no change in the number of transponders. In their Reply Brief, the cable programmers first announced that, in their opening brief, they had miscast the matter of the protection transponders as a rate-base issue. Reply Brief for Petitioners Showtime et al. at 18. They then presented, in light of their [f]urther review of the record, id., further argument. The Commission adequately answered the programmers' opening argument. We end the matter there and rule out of order the recasted reply. See, e.g., McBride v. Merrell Dow & Pharmaceuticals, Inc., 800 F.2d 1208, 1210-11 (D.C.Cir.1986); Environmental Defense Fund, Inc. v. Costle, 657 F.2d 275, 284 n. 32 (D.C.Cir.1981).