Opinion ID: 501656
Heading Depth: 2
Heading Rank: 2

Heading: Interstate NTS Allocation

Text: 51
52 Allocating twenty-five percent of NTS costs to interstate jurisdiction in effect transfers those costs to the rate bases of interstate carriers, forces them to recover those costs through their rates, and reduces their profitability. The Supreme Court, however, has reviewed statutorily authorized economic regulation with great deference. The Court's recent decision in FCC v. Florida Power Corp., --- U.S. ----, 107 S.Ct. 1107, 94 L.Ed.2d 282 (1987), follows that pattern. In that case, the Court held that Commission regulations limiting the rate an electric utility can charge television cable operators for the use of electricity poles constitute neither a per se taking of the utility's property, nor a taking under more traditional Fifth Amendment principles. 53 On the per se taking issue, the Court distinguished Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982), on the basis that the FCC did not require the power company to allow the cable operators to use its poles. Florida Power, 107 S.Ct. at 1112. The Court then applied the Takings Clause principle that [s]o long as the rates set are not confiscatory, the Fifth Amendment does not bar their imposition. Id. at 1113 (citing St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 53, 56 S.Ct. 720, 726-27, 80 L.Ed. 1033 (1936), and Permian Basin Area Rate Cases, 390 U.S. 747, 770, 88 S.Ct. 1344, 1361-62, 20 L.Ed.2d 312 (1968)). 54 In this case, nothing in the record suggests that the Commission's allocation of twenty-five percent of NTS costs to the interstate jurisdiction constitutes a confiscation of MCI's property. Indeed, MCI cannot operate general long distance service without using the facilities of local exchange companies. The proposition cannot seriously be entertained that requiring MCI to absorb part of the NTS costs of local exchanges amounts to a confiscation. See Jersey Cent. Power & Light Co. v. Federal Energy Regulatory Comm'n, 810 F.2d 1168, 1181 n. 3 (D.C.Cir.1987) (en banc) (absent deep financial hardship ... there is no taking). 55 More fundamentally, we find the facts in this case analogous to the situation confronting the Court in Florida Power, except that the parties here are inverted. In Florida Power, the television cable companies needed the utility's plant to reach their subscribers, and the utility challenged the FCC rate as a taking. Here, MCI needs local companies' NTS plant to reach its subscribers, but it is MCI that challenges the rate indirectly resulting from FCC jurisdictional action. 56 It is the nature of the rate action, rather than the identity of the party challenging it, that controls the decision whether the rate is a taking. Comparing the rate action in Florida Power to the probable effect of the twenty-five percent allocation on MCI's profits, we can discern no difference rising to the level of a Takings Clause objection. The Commission has attempted to balance various public and private concerns, acknowledged MCI's reliance on local company plant, and established an allocation figure which, on the average, scarcely differs from the frozen SPF. 57
58 We also find unacceptable MCI's argument that the twenty-five percent allocation is an exercise of taxing power that Congress has not delegated to the Commission, and that could not be delegated without violating the Taxing Clause, U.S. Const. art. I, Sec. 8. In Brock v. Washington Metropolitan Area Transit Auth., 796 F.2d 481, 489 (D.C.Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 1887, 95 L.Ed.2d 494 (1987), we warned that [t]he definition of 'tax' in the abstract is a metaphysical exercise in which courts do not have occasion to engage. Rather, a regulation is a tax only when its primary purpose judged in legal context is raising revenue. Id. at 488-89. There is no reasonable way to construe the NTS cost allocation as having the primary purpose of raising federal revenue. Cf. South Carolina ex rel. Tindal v. Block, 717 F.2d 874, 887 (4th Cir.1983) (it is not an exercise of taxing power, but of the power to regulate commerce, to exact deductions from sales of all commercially marketed milk to offset cost of milk price support program), cert. denied, 465 U.S. 1080, 104 S.Ct. 1444, 79 L.Ed.2d 764 (1984). 59 As MCI has not cited any precedent holding that an agency's exercise of a power to allocate costs among state and federal jurisdictions for purposes of ratemaking is equivalent to an exercise of the power to tax, we adhere to circuit precedent and reject MCI's contention that the twenty-five percent allocation is a tax. 60
61 Finally, MCI contends that in enacting the Communications Act, Congress intended to preserve the previous court decisions which interpreted the sections so transferred, Brief for MCI at 58, including Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 51 S.Ct. 65, 75 L.Ed. 255 (1930). According to MCI, the twenty-five percent NTS allocation violates the doctrine of Smith because it is intended to create a subsidy or, in the alternative, has the effect of creating one. We have noted before that where there is no purely economic method of allocation ... elements of fairness and other noneconomic values inevitably enter the analysis of the choice to be made. MCI Telecommunications Corp. v. FCC, 675 F.2d 408, 416 (D.C.Cir.1982). MCI relies on Smith, however, to reason that each jurisdiction must stand independently and may not rely on the ratepayers in the other jurisdiction for support. Brief for MCI at 53. 62 This is not the first time MCI has attempted to convince this court that Smith requires a particular method of separating costs. See MCI v. FCC, 750 F.2d at 140-41. Smith holds only that intrastate and interstate telephone costs must be separated for jurisdictional purposes, and that such separation must be done according to reasonable measures. 282 U.S. at 150, 51 S.Ct. at 69. MCI's construction of Smith unduly emphasizes the Court's requirement of separation at the expense of its admonition that separation must be reasonably made. In the past, we have not interpreted the separation requirement in Smith so strictly. We have held that Smith does not constitutionally compel use of a particular formula. Smith compels 'only reasonable measures.'  MCI v. FCC, 750 F.2d at 141. See also id. at 141 n. 34. 63 Thus, we distinguish Smith because we view the twenty-five percent NTS cost allocation as a step on the road towards an efficient national telephone rate structure based primarily on access charges levied directly on customers. The allocation is a reasonable measure acceptable under Smith because it is part of a transitional process, and [i]nterim solutions may need to consider the past expectations of parties and the unfairness of abruptly shifting policies. MCI v. FCC, 750 F.2d at 141. Moreover, as we stated in NARUC, 64 [t]he shift from one type of nondiscriminatory rate structure to another may certainly be accomplished gradually to permit the affected carriers, subscribers and state regulators to adjust to the new pricing system, thus preserving the efficient operation of the interstate telephone network during the interim. 65 737 F.2d at 1135-36. 66 Accordingly, we affirm the twenty-five percent NTS cost allocation as a reasonable and carefully considered element of the transition towards the access charge regime approved in the Access Charge Decision.