Court Opinion

ID: 7838316
Source: CourtListenerOpinion
Date Created: 2022-09-08 16:42:16.923408+00
Date Added: 2024-06-11T15:54:29.045083
License: Public Domain

FAHY, Senior Circuit Judge
(dissenting):
I
By its order of November 22, 1972, the Commission authorized AT&T to submit new rate schedules to effectuate another interim increase in its rate of return, set by the order at 8.5%-9%. This was to enable AT&T to realize annually $145 million in addition to the January, 1971 interim increase allowed of $250 million, thus approving a total yearly earnings increase of $395 million. The earnings of AT&T’s wholly-owned subsidiary Western Electric — constituting a known material factor relevant to a reasonable rate of return — were not evaluated as they might affect the appropriate rate of return. Such evaluation was deferred to be considered in Phase II. In this connection the Commission stated in its finding No. 103 accompanying the November 22 order:
103. We agree with the Staff that it would be appropriate for the Commission to take into account the return received by AT&T from its investment in Western Electric in determining the rate of return for interstate and foreign communication service. However, we are not prepared on the basis of the limited record in this case to make the specific adjustment recommended by the Staff. We believe that this question warrants a thorough examination in Phase II which deals, among other things, with all ramifications of the relationship of Western Electric to the Bell System and its effect upon telephone rates and revenue requirements. Accordingly, we conclude that it is not appropriate for us to make any adjustments in Bell’s rate of return with respect to Western Electric’s earnings in this proceeding.
The deferment has continued and its end is not in sight. The result is that each year AT&T’s income and rate of return may be, and according to information available when the November 22 order was entered, are likely to be, in *27excess of a just and reasonable amount. The consumer interest thus clearly involved is a basic interest entitled to protection by the Commission, qualified as it is by the need for a rate of return which enables the regulated utility “to operate successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks assumed. . . .” Power Commission v. Hope Gas Co., 320 U.S. 591, 605, 610, 612, 64 S.Ct. 281, 289, 88 L.Ed. 333 (1944). No reason appears for believing that these needs outweigh the consumer interests in the matter now considered.
The court holds that the rate of return was “prescribed” by the Commission. The court then further holds that under the decision of the Supreme Court in Arizona Grocery v. Atchison Ry., 284 U.S. 370, 52 S.Ct. 183, 76 L.Ed. 348 (1932), AT&T is protected, with an exception to be noted, from accountability to refund any realization of income on the basis that the rate of return it was allowed was unreasonably high. The opinion of the court states:
although the Commission made AT&T’s rates subject to an accounting and refund order, the Arizona Grocery doctrine protected AT&T from having to refund revenue collected on the ground that an 8.5% overall rate of return was unreasonably high. However, AT&T would not be protected from a refund order on cross-subsidization grounds, since the Commission has not yet prescribed the rate relationships among the classes of AT&T’s interstate service. (Footnote omitted.)
I do not interpret the proceedings to have the result thus attributed to them upon the authority of Arizona Grocery. In Arizona Grocery a rate, not a rate of return as here, had been unqualifiedly fixed by the Interstate Commerce Commission; and there was no deferment, as here, of evaluation, as it might affect the rate of return, of a material factor known by the agency at the time to be relevant to the decision reached. It followed from the statutory plan, as the Court held, that reparations could not be recovered from the carrier by a shipper who had been required to pay the rate which had been fixed as reasonable, although in new proceedings it was found to have been unreasonable. That the earnings of Western Electric were known when the November 22 order was entered to constitute a material and relevant factor respecting,the rate of return, and were explicitly deferred for evaluation in that respect, appears from finding No. 103, supra. The brief of the Commission in this court states the matter as follows:
In its decision the Commission agreed in principle with the Trial Staff’s contention that Western Electric’s earning be taken into consideration [in determining the rate of return. See finding 103, supra.] but it refused to make the specific adjustment recommended on the basis of the very limited record evidence. Rather the Commission stated that this question should be the subject of “a thorough examination in Phase II which deals, among other things, with all ramifications of the relationship of Western Electric to [AT&T] and its effect upon telephone rates and revenue requirements.” AT&T, 38 FCC 2d 213, 244 (A. 96). Since the rate adjustments made at the conclusion of the rate of return phase were of an interim nature, not prescribed by the Commission, and subject to accounting and possible refund, the public was protected. (Footnote omitted.) (Bracketed language added.)
I think protection of the consumer interest requires in this situation accountability by AT&T, should it be found in the proceedings still to be concluded that the 8.5%-9% rate of return was unreasonably high due to the omission to evaluate the effect of the earnings of Western Electric. While actual refunds to consumers might be impossible, it would be well within the powers of the Commission, as of the court, to make an appropriate remedial provision to inure to the general benefit of the consuming public should a downward adjustment be found *28appropriate. Cf. Bebchick v. Public Utilities Commission, 115 U.S.App.D.C. 216, 318 F.2d 187, 203-204 (1963). Such a provision would seem also to be within the literal scope of paragraph 124 of the Commission’s own order of November 22, in its reference to “such findings as we may make in Phase II hereof and Docket 18128,” although I cannot be certain as to the Commission’s intention in the use of this language in the full context of paragraph 124.1
As stated infra in Part II I agree with dissenting Commissioner H. Rex Lee that the earnings of Western Electric, constituting a source of revenue to AT&T, are a Phase I factor. The position I take, however, avoids the necessity of deciding whether the failure of the Commission to evaluate those earnings in Phase I fatally flaws the rate of return portion of the November 22 order, since I would interpret the proceedings as leaving open the issue of the reasonableness of the rate as it might be affected by the Western Electric earnings.
It seems to me that our case in no respect is governed by Arizona Grocery.
The authority of the Commission to structure its proceedings in such a case as this must be recognized. The exercise of such authority is accompanied, however, by a responsibility in the end not to separate the inseparable. The court in my opinion should not give a status of unconditional finality to the rate of return allowed in Phase I when the Commission then knew that the earnings of Western Electric were a material and relevant factor which might require a downward adjustment in the percentage then allowed. A right to defer evaluation of the effect of those earnings I think did not dissolve the relationship of this source of revenue to the appropriate rate of return to be realized.
II
While I would not now approve the increase in the rate of return allowed by the order of November 22, neither would I now set it aside. Since the earnings of Western Electric which AT&T was then receiving and continues to receive, have not been evaluated as they bear upon the reasonableness of the increase, as well as upon the implementing rates, I would either defer decision as to the justness and reasonableness of the increase or in the alternative require the Commission within a period fixed by the court to render an informed judgment respecting it, the court in the meanwhile to withhold its decision. In this situation “the zone of reasonableness” latitude allowed the Commission is irrelevant to the appropriate response the court should now make to the November 22 order. As noted above, I agree with dissenting Commissioner H. Rex Lee that the Western Electric earnings are a Phase I subject,2 a position inherent also in the dissent of Commissioner Johnson; but even on the assumption the matter was reasonably relegated to Phase II, the omission of the Commission as yet to reach any decision with respect to it I think calls upon the reviewing court to defer its own decision. The importance of the Western Electric earnings is recognized. In findings Nos. 101 and 102 accompanying its order the Commission states that its Trial Staff, “recommends a further downward adjustment in Bell’s *29rate of return on its interstate and foreign communications services to compensate for AT&T’s earnings from Western Electric,” that “Bell does not deny the validity of the Trial Staff’s position” but contends that these issues are “clearly Phase II issues . . ..” The Commission then states its position in its finding No. 103, set forth supra in Part I.3
Ill
The court also leaves undisturbed the manner in which AT&T has formulated its tariff to enable it to realize the increased rate of return allowed by the November 22 order. In this connection Microwave Communications, Inc. and MCI Telecommunications Corporation, petitioners in No. 73-2051, challenge the validity of the allocation of the charges among the services of AT&T. Microwave Communications describes itself as “the first of the specialized common carriers who have been authorized by the Commission to compete with AT&T in the provision of interstate private line communications services.” Petitioner MCI Telecommunications proposes to provide specialized communications services on a nationwide basis.to a number of large cities. Thus AT&T faces competition in providing interstate private line service, in contrast to its monopoly of interstate long distance telephone services. In this factual situation petitioners point out that the Commission has permitted the increase in charges to be borne entirely by the services of which AT&T has a monopoly, thus subsidizing AT&T’s special services with which petitioners and others compete. This they contend calls upon the Commission to protect the public against “the dangers of cross-subsidization and the anti-competitive conduct” thus made possible. They point out that as long ago as 1965 the Commission stated that the importance of a determination of the lawfulness of rate levels and rate relationship within AT&T’s interstate rate structure,
is underscored by the fact that certain of the services involved are furnished by the Bell System in direct competition with services offered by other carriers. To the extent that these services may be underpriced by the Bell System, this may have a competitive impact on such other carriers.
AT&T, 2 F.C.C.2d 871, 872 (1965).
In 1969, we are also reminded, the Commission stated:
It was . . . and still remains, our concern that the basic message toll telephone service (m.t.t.), for which there is no directly competitive service, should not be burdened by, or required to subsidize, the so-called competitive services.
AT&T, 18 F.C.C.2d 761, 762 (1969).
Again:
We were concerned that the basic message toll telephone (MTT) classification of service and the closely related wide area telephone service (WATS), for which there are no directly competitive services and for which the earnings level were relatively high, should not be burdened by, or required to subsidize the so-called competitive services for which the earnings level were relatively low.
AT&T, 23 F.C.C.2d 503-504 (1970).
Having reached its position respecting the rate of return in the November 22 order the Commission authorized the company to submit a proposed rate schedule, which it did in a manner which required the increased charges to be borne entirely by MTS — interstate message telecommunications' service— AT&T’s monopoly services. The AT&T services which compete with private line services were thus left free of any in*30crease in the charges placed in effect to realize the rate of return allowed by the Commission.
Though the Commission has not prescribed those charges as the result of a section 205 proceeding, they and their allocation among AT&T’s services have been promulgated in response to the Commission’s request that AT&T implement the manner in which the rate of return would be realized. Both the 8.5%-9% rate of return and the rates charged bear sufficient imprimatur of the Commission, by its action and inaction, to bring the result within our reviewing responsibilities. The court is not disabled from passing upon alleged discriminatory or otherwise unreasonable features residing in the rate of return or the manner in which it is sought to be realized. Since the rates exempt AT&T’s competitive services, imposing the total burden of the increase upon its monopoly services, they are prima facie discriminatory and inconsistent with sound public policy.
In the exercise of its equitable powers4 at least some clarification of the situation should be required by the court which is reviewing the proceedings in which this appears. It is clearly within the power of the court to structure as it does the further proceedings to be had, but I think the court would be well advised to be more insistent with respect to the matter now considered and require the Commission to show cause why the cross-subsidization of AT&T’s competitive services should not be terminated, the court’s order to that effect to be returnable within a reasonable period to be fixed by the court.

. The full text of paragraph 124 follows:
124. IT IS FURTHER ORDERED. That such rate increase proposal which the Commission may allow to become effective shall be subject without further order of the Commission to the same accounting and refund provisions heretofore applicable to the currently effective MTS rates that were suspended and set for hearing herein in our Order of January 21, 1971, 25 F.C.C.2d 151 and to such findings as we may make in Phase II hereof and Docket 18128.

. As he states:
While the majority appears to accept the logic of such an adjustment [downward due to the earnings of Western Electric], it defers any appropriate action until conclusion of Phase II. Since the actual return received by AT&T from its investment in Western Electric is identifiable and should be considered in assessing the telephone company’s overall rate of return on interstate and foreign operations, I would adjust the allow*29able return accordingly. (Footnote omitted.) (J.A. 131.)

. The appropriate resolution of the issue arising from the Western Electric earnings of course does not depend upon whether or not Bell agreed with the position of the Trial Staff.

. Mobil Oil Corp. v. FPC, 417 U.S. 283, 311, 94 S.Ct. 2328, 41 L.Ed.2d 72 (1974).