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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 17, 2006 Decided May 26, 2006
No. 05-1171
AT&T CORPORATION,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS
BELLSOUTH CORPORATION, ET AL.,
INTERVENORS
On Petition for Review of an Order of the
Federal Communications Commission
David W. Carpenter argued the cause for petitioner. With
him on the briefs were David L. Lawson, James P. Young,
Christopher T. Shenk, and Judy Sello.
Joel Marcus, Counsel, Federal Communications
Commission, argued the cause for respondents. With him on the
2
brief were Thomas O. Barnett, Acting Assistant Attorney
General, U.S. Department of Justice, Robert B. Nicholson and
Robert J. Wiggers, Attorneys, Samuel L. Feder, General
Counsel, Federal Communications Commission, Richard K.
Welch, Associate General Counsel, and John E. Ingle, Deputy
Associate General Counsel. Laurel R. Bergold, Counsel,
entered an appearance.
Scott H. Angstreich argued the cause for intervenors. With
him on the brief were Michael K. Kellogg, Mark L. Evans, Sean
A. Lev, Michael E. Glover, Edward H. Shakin, and Bennett L.
Ross.
Before: SENTELLE, ROGERS and GRIFFITH, Circuit Judges.
Opinion for the Court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: This case involves the proper
ratemaking treatment of “OPEBs,” post-retirement benefits
other than pensions, including health and life insurance for
retirees, following a change in the method of accounting for
them. AT&T Corporation petitions for review of an order of the
Federal Communications Commission allowing Verizon
exogenous treatment of OPEB costs by treating those costs as
beyond Verizon’s control even though Verizon implemented the
accounting change before the compliance deadline, and allowing
local exchange carriers (“LECs”), like intervenors Verizon and
Bellsouth, to use their 1996 tariffs to rectify the consequences of
an erroneous staff order that OPEB liabilities be deducted from
their rate bases. Because the Commission’s interpretation of its
control test is consistent with precedent and because the
Commission’s approval of the 1996 tariffs placed the LECs in
the position they would have been in had the staff not erred, we
conclude that AT&T has failed to show that the Commission’s
rulings were arbitrary and capricious. Accordingly, we deny the
3
petition.
I.
Before 1990, the Commission set interstate access charges
under a rate-of-return regime. LECs reported their costs to
establish a rate base and the Commission set prices that allowed
LECs to earn a formulated rate of return on their investor-
supplied capital. See Nat’l Rural Telecom. Ass’n v. FCC, 988
F.2d 174, 177-78 (D.C. Cir. 1993). In 1990, the Commission
adopted a price cap regime. See Second Report and Order,
Policy and Rules Concerning Rates for Dominant Carriers, 5
F.C.C.R. 6786 (1990) (“1990 Price Cap Order”). Carriers’
services are grouped into various “baskets” for which a
maximum price, the price cap index (“PCI”), is determined.
From the initial price cap, rates are adjusted annually based on
inflation and expected productivity advances. Unlike the rate-
of-return system, costs do not generally affect the prices LECs
may charge. Thus, if carriers reduce costs, they earn greater
profits than the set rate of return under the former system. See
Bell Atlantic Tel. Cos. v. FCC, 79 F.3d 1195, 1198 (D.C. Cir.
1996).
Two exceptions by which costs affect the PCI are relevant
to this appeal. First, the “exogenous costs” rule allows carriers
to adjust price caps to account for “costs that are triggered by
administrative, legislative or judicial action beyond the control
of the carriers.” 1990 Price Cap Order, 5 F.C.C.R. at 6807.
Changes in generally accepted accounting principles (“GAAP”)
ordered by the Financial Accounting Standards Board (“FASB”)
can be treated exogenously if the Commission determines the
changes are “compatible with [its] regulatory accounting needs.”
Id. Second, the sharing rules (repealed in 1997, see Price Cap
Performance Review, 12 F.C.C.R. 16,642, 16,699-703 (1997))
require a carrier whose rate of return on its rate base is
4
abnormally high to share a portion of the excess with ratepayers,
like AT&T, by reducing its PCI for the following year, a cost-
based check harkening back to the rate-of-return regime. See
Bell Atlantic, 79 F.3d at 1199.
In December 1990, the FASB adopted “SFAS-106,” which
requires carriers to account for OPEB obligations in the year in
which they accrue rather than when they are paid. See
FINANCIAL ACCOUNTING STANDARDS BOARD, STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 106, EMPLOYERS’
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS (Dec. 1990). The transition from cash to accrual
accounting applied to “ongoing amounts,” i.e., the annual
expense that a firm recognizes when its current employees earn
retirement benefits to be paid in the future, and to the
“transitional benefit obligation,” i.e., the unfunded OPEBs owed
at the time of adopting SFAS-106. In 1991, the Common
Carrier Bureau required LECs to implement SFAS-106 because
the change in GAAP was consistent with the Commission’s
regulatory objectives and stated that “[t]he effective date of
SFAS-106 is for fiscal years beginning after December 15,
1992, although earlier implementation is encouraged by the
FASB.” Order, Notification of Intent to Adopt SFAS No. 106, 6
F.C.C.R. 7560 (1991).
The accounting change presented both rate base and
exogenous treatment issues. The Bureau issued “RAO Letter
20” to LEC accounting officers, explaining that because OPEBs
“are similar to pension expenses” they should be “given the
same rate base treatment,” such that “the interstate portion of
unfunded accrued [OPEBs] should be deducted from the rate
base.” RAO Letter 20, Re: Uniform Accounting for
Postretirement Benefits Other than Pensions in Part 32, 7
F.C.C.R. 2872 (1992) (“RAO Letter 20”). In 1996, the
Commission rescinded the rate base portion of RAO Letter 20 on
5
the ground that the Bureau had exceeded its authority by adding
an exclusion not provided for in the Commission’s rate base
rules. See Order, RAO Letter 20, 11 F.C.C.R. 2957, 2961
(1996); 47 C.F.R. § 65.830 (1992). The following year, the
Commission, upon determining that the Bureau had come to the
right policy conclusion, amended its regulations to require that
OPEBs be deducted from the rate base in future years. See
Report and Order, RAO Letter 20, 12 F.C.C.R. 2321, 2327
(1997).
Through the exogenous cost feature of the ratemaking
regime, several LECs sought in 1992 to increase their PCIs to
reflect the new costs booked as a result of SFAS-106. The
Commission rejected the rate increases on the ground that
“LECs can exercise substantial control over the level and timing
of OPEB expenses,” such that the costs were not beyond the
carriers’ control in a way that would justify exogenous treatment
under Commission rules. Order, Treatment of LEC Tariffs
Implementing SFAS, 8 F.C.C.R. 1024, 1033 (1993). In
Southwestern Bell Telephone Co. v. FCC, 28 F.3d 165 (D.C. Cir.
1994), the court concluded that the Commission’s rejection was
arbitrary and capricious because earlier orders showed that “the
Commission meant for the ‘control’ test to be satisfied simply
by the fact of exogenous imposition of the accounting rule,
without concern for the underlying costs covered by the rule.”
Id. at 170. The court held that a “FASB change adopted by the
Commission is not a change under control of the carrier, and,
once mandated by the Commission, the change satisfies the
control criterion [of the exogenous cost rule].” Id.
Thereafter, the LECs renewed their requests for exogenous
treatment for OPEB adjustments in their 1994 tariffs. Verizon,
which had implemented SFAS-106 in 1991 and 1992 — after it
was approved by the Commission but before the deadline for
compliance — sought exogenous PCI increases to recover
6
OPEB costs from those earlier years. See Order, Bell Atlantic
Tel. Cos. Tariff FCC No. 1, 10 F.C.C.R. 1594, 1597-98 (1994).
The Common Carrier Bureau suspended the Verizon tariffs for
one day, imposed an accounting order, and began an
investigation. Id. at 1598. While that investigation was
pending, the Commission adopted a rule that prohibited
exogenous treatment of OPEBs in the future because they do not
have cash-flow or actual economic impact. See Order, Price
Cap Performance Review, 10 F.C.C.R. 8961, 9089-95 (1995)
(“1995 Price Cap Order”).
After the Commission rescinded RAO Letter 20, the LECs
restated their rate bases for the years during which the letter had
wrongly instructed them to deduct OPEBs from their rate bases.
Because they had incurred greater sharing obligations as a result
of the exclusion of OPEBs during those years, the LECs sought
in their 1996 tariffs a one-time increase in their PCIs as an
“exogenous cost” to recoup the amount they lost as a result of
complying with RAO Letter 20. See Order, 1996 Annual Access
Tariff Filings, 11 F.C.C.R. 7564, 7568 (1996). The Common
Carrier Bureau suspended the tariffs for one day, imposed an
accounting order, and began an investigation. See id. at 7605.
The Commission resolved these investigations in March
2005. See Order Terminating Investigation, 1993 Annual Access
Tariff Filings Phase 1, 20 F.C.C.R. 7672 (2005) (“Order”). It
approved Verizon’s request for exogenous treatment of OPEB
costs incurred before January 1, 1993. The Commission stated
that it would apply the price cap rules in effect when the tariffs
were filed, see id. at 7680-81, whereby an accounting change
proposed by the FASB was considered “outside the control of
carriers” (requiring exogenous treatment) once it had been
“actually approved” by the FASB and the Commission had not
objected within ninety days to a carrier’s notification that it
would implement the change, see id. at 7681. The Commission
7
concluded that “Verizon has justified exogenous treatment for
accrued OPEB costs for the years 1991 and 1992” because the
costs “were associated with implementing a FASB-prescribed
change in the GAAP that the Commission had approved and had
directed to be put into effect ‘on or before January 1, 1993.’” Id.
at 7682. Rejecting AT&T’s view that Verizon actually had
control over the costs because it did not have to implement
SFAS-106 until the Commission deadline of January 1, 1993,
the Commission explained that the real “control” test turned on
“whether the accounting change itself was ‘mandated by the
Commission.’” Id. at 7684. Verizon’s early implementation of
the change — in accordance with the encouragement of the
FASB and the Commission — thus did not make its compliance
with SFAS-106 “voluntary.”
The Commission also approved the LECs’ 1996 filings
seeking exogenous increases in their PCIs to recoup the sharing
obligations they incurred from understating their rate bases
while RAO Letter 20 was effective. Id. at 7695-96. The
Commission ruled that its pre-1997 rate base rules required the
LECs to include accrued OPEB costs in the rate base. Id. at
7689-90. Because the LECs were obliged to comply with RAO
Letter 20 until it was rescinded, the Commission found it
reasonable that the LECs adjusted their computations to comport
with the correct regulatory interpretation after the rescission.
See id. at 7693-95. The Commission therefore concluded that
it should permit exogenous treatment to “put[] the parties in the
position they would have been in had the error not been made”
and to “rectify the effects of the vacated RAO Letter 20.” Id. at
7695. In response to AT&T’s claim that the PCI increases were
precluded by two rules — 47 C.F.R. § 65.600(d)(2), which bars
rate base changes more than fifteen months after the calendar
year to which the rate base calculations apply, and 47
C.F.R. § 61.45(d), which prohibits exogenous adjustments
without a rulemaking, rule waiver, or declaratory ruling — the
8
Commission, assuming the rules applied, waived them. Id. at
7694. The Commission found that it would be “inequitable” to
enforce the fifteen-month deadline because “[t]hese carriers
hardly could have been expected to file rate base adjustments
reversing the effects of the RAO Letter 20 before the
Commission vacated that staff decision in 1996.” Id. at 7695.
“Given the unusual circumstances,” the Commission also found
that “the public interest is served by a waiver” of 47
C.F.R. § 61.45, which when combined with the 1995 Price Cap
Order limits exogenous cost adjustments to economic cost
changes, because a waiver “enable[s] the LECs to rectify the
effects of the vacated RAO Letter 20 and [ensures] that their rate
bases are consistent with the agency’s regulations.” Id.
II.
AT&T challenges the Commission’s rulings in the Order as
arbitrary and capricious. Under the Administrative Procedure
Act, 5 U.S.C. § 706(2)(A), the court’s review is deferential. See
Consumer Elecs. Ass’n v. FCC, 347 F.3d 291, 300 (D.C. Cir.
2003). The burden lies with AT&T to show that the
Commission failed to consider relevant factors or made a
manifest error in judgment. See id.; see also Citizens to
Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-16
(1971). That standard applies to review of a Commission
decision to waive its rules. See AT&T Wireless Servs., Inc. v.
FCC, 270 F.3d 959, 965 (D.C. Cir. 2001). Moreover, an
agency’s interpretation of its own orders and rules is entitled to
substantial deference. See Lyng v. Payne, 476 U.S. 926, 939
(1986); MCI Worldcom Network Servs., Inc. v. FCC, 274 F.3d
542, 547 (D.C. Cir. 2001).
A.
AT&T contends that the Commission’s approval of the
9
increase in Verizon’s tariffs based on 1991 and 1992 OPEB
costs was arbitrary and capricious because these costs were not
beyond Verizon’s control but resulted from Verizon’s decision
to implement SFAS-106 before the January 1, 1993 deadline for
all carriers to make the accounting change and before the
FASB’s December 15, 1992 “effective date.” According to
AT&T, the rate increases were barred by two separate rules in
effect at the time the tariffs were filed.
The first rule permits exogenous treatment only for costs
that are “beyond the control of the carrier[].” 1990 Price Cap
Order, 5 F.C.C.R. at 6807. The Commission interprets its
control test simply to ask why a cost change occurs, not when it
occurs. See Order, 20 F.C.C.R. at 7684. Costs imposed by
regulation are categorically beyond the carrier’s control, even if
the carrier has the option of incurring the cost before a deadline
rather than at the deadline. The Commission compares a carrier
changing its accounting practices to a taxpayer filing a return:
Filing a tax return is no less mandatory because the taxpayer has
the option of filing on April 1 rather than April 15. See id.
Similarly, Verizon’s implementation of SFAS-106 before
January 1, 1993 did not bring the costs within its control. See
id.
The Commission’s categorical definition of “control” is
bolstered by Southwestern Bell. There, the court concluded that
OPEB costs should not be denied exogenous treatment because
LECs have some control over the level and timing of underlying
expenses, stating that a “FASB change adopted by the
Commission is not a change under control of the carrier, and,
once mandated by the Commission, the change satisfies the
control criterion.” Southwestern Bell, 28 F.3d at 170.
Southwestern Bell did not decide the question presented because
AT&T does not contend that the level and timing of the OPEB
expenses place these costs within Verizon’s control but rather
10
that the accounting change itself was within Verizon’s control
during 1991 and 1992. Nevertheless, Southwestern Bell
indicates the limited nature of the Commission’s control inquiry,
which for a GAAP change turns solely on whether it is adopted
by the Commission as consistent with its regulatory objectives.
See id. Given the historically limited nature of the control test,
AT&T cannot point to any Commission rule or order that
contradicts the Commission’s interpretation of the test as
requiring exogenous treatment for any cost changes resulting
from a “GAAP change . . . adopted by the FASB and mandated
by the Commission.” Order, 20 F.C.C.R. at 7684. In light of
the deference courts accord to agencies in interpreting their own
rules, see Capital Network Sys., Inc. v. FCC, 28 F.3d 201, 206
(D.C. Cir. 1994), we find no reason to conclude that the
Commission was arbitrary or capricious in treating Verizon’s
implementation of SFAS-106 as beyond its control.
Second, AT&T contends that the Commission erred in
treating Verizon’s pre-1993 OPEB costs exogenously because
the Commission violated its own rule that “no GAAP change
can be given exogenous treatment until [FASB] has actually
approved the change and it has become effective.” 1990 Price
Cap Order, 5 F.C.C.R. at 6807. The nub of the parties’ dispute
is over what it means for an accounting change to “become
effective.” The FASB announced that SFAS-106 “shall be
effective for fiscal years beginning after December 15, 1992.”
The Commission rejected AT&T’s argument that a rule must
“become effective” on the effective date provided by the
promulgator of the rule. Not only had the FASB affirmatively
encouraged firms to put SFAS-106 in place before that date, see
Order, 20 F.C.C.R. at 7683, but “[m]ore significantly, Verizon
implemented SFAS-106 after the Commission’s staff under
delegated authority directed carriers to put SFAS-106 in effect
‘on or before January 1, 1993 as a mandatory practice for
purposes of the [regulatory accounting system].’” Id.
11
Because the question of when an accounting change
“become[s] effective” is subject to a number of reasonable
interpretations, for a LEC regulated by the Commission, it is
plausible to say that a change “become[s] effective” for
Commission purposes when the Commission authorizes it to put
that change into effect, even if the FASB does not yet consider
it effective. Indeed, it would be strange for the Commission to
encourage adoption of an accounting change but to require a
carrier to pretend that the change had not occurred for
ratemaking purposes until the FASB effective date arrived.
Both the Commission and the FASB encouraged early
implementation, and absent a prior Commission order treating
the FASB’s “effective date” as controlling, the Commission’s
plausible interpretation of its 1990 order is due deference by the
court. See Capital Network Sys., 28 F.3d at 206. Although
AT&T maintains that the Commission’s interpretation created
unfair outcomes because LECs controlled their own effective
date for the accounting change, ultimate control rested with the
Commission, which made the change effective when it approved
implementation of SFAS-106. And, as Verizon explains, its
earlier recognition of OPEB costs meant that it would have
stopped benefitting from OPEB recognition earlier than other
carriers because the transitional costs were to be amortized over
twenty years. Had the Commission policy on OPEB costs
remained constant, Verizon would have stopped recognizing its
OPEB costs years before the other LECs. Therefore, AT&T’s
concern about strategic manipulation of exogenous costs is
misplaced.
B.
AT&T also contends that the Commission’s approval of the
exogenous rate increases in the LECs’ 1996 tariffs was unlawful
because it required an arbitrary and capricious waiver of the
price cap rules.
12
For “good cause,” the Commission may waive “[a]ny
provision of the rules.” 47 C.F.R. § 1.3. A waiver is
permissible “where particular facts would make strict
compliance inconsistent with the public interest.” Northeast
Cellular Tel. Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990).
The Commission concluded that waivers were necessary to
“permit[] the LECs to correct the errors arising solely from their
compliance with the staff’s legally deficient [RAO Letter 20]
order.” Order, 20 F.C.C.R. at 7695. As the court has exhorted,
“when the Commission commits legal error, the proper remedy
is one that puts the parties in the position they would have been
in had the error not been made.” Exxon Co. v. FERC, 182 F.3d
30 (D.C. Cir. 1999) (quoting Public Utils. Comm’n of Cal. v.
FERC, 988 F.2d 154, 168 (D.C. Cir. 1993)). The Commission
found that RAO Letter 20 was legal error, see Order, RAO Letter
20, 11 F.C.C.R. at 2961, and that the error harmed the LECs
because their rate bases were artificially depressed, driving up
their reported rates of return and, in turn, their sharing
obligations. See Order, 20 F.C.C.R. at 7677. Thus, the
Commission characterizes the waivers as “an exercise in error
correction,” Verizon Tel. Cos. v. FCC, 269 F.3d 1098, 1111
(D.C. Cir. 2001), within its authority to “undo what was
wrongfully done,” Se. Mich. Gas. Co. v. FERC, 133 F.3d 34, 42
(D.C. Cir. 1998) (quoting United Gas Improvement Co. v.
Callery Props., Inc., 382 U.S. 223, 229 (1965)) (alteration
omitted).
However, AT&T contends that the Commission failed to
explain adequately why it would allow price increases in
contravention of its rule that accounting changes without
economic effect should not be treated exogenously. Rule
61.45(d) provides that carriers may receive exogenous treatment
only for “cost changes that the Commission shall permit or
require by rule, rule waiver, or declaratory ruling.” 47 C.F.R
§ 61.45. In the 1995 Price Cap Order, the Commission
13
determined that accounting changes that do not represent actual
increases in economic costs, like the SFAS-106 changes for
OPEBs, could not receive exogenous treatment. See 1995 Price
Cap Order, 10 F.C.C.R. at 9089-97. The Commission here
assumed without deciding that Rule 61.45, when combined with
the 1995 order, would bar exogenous treatment of the OPEBs at
issue despite the fact that they accrued in years before the 1995
order. See Order, 20 F.C.C.R. at 7694. AT&T maintains that
the Commission’s decision produced an economic result —
allowing OPEB costs to affect rates — that the Commission has
rejected as unsound policy.
Although the Commission eventually implemented the
policy of RAO Letter 20 through a rulemaking, see Report and
Order, Responsible Accounting Officer Letter 20, et al., 12
F.C.C.R. 2321, 2325-26 (1997), such that the LECs would not
thereafter be able to recover for accrued OPEB costs, that does
not render the letter harmless. The Commission’s 1995
prospective adoption of exogenous cost rules did not eliminate
the LECs’ obligation to comply with the rate base rules in effect
from 1992 to 1995. As “it is elementary that an agency must
adhere to its own rules and regulations,” Reuters Ltd. v. FCC,
781 F.2d 946, 950 (D.C. Cir. 1986), the Commission
understandably insisted on applying the regulations that were in
effect at the time of the accounting. See Order, 20 F.C.C.R at
7693 & n.169 (citing Southwestern Bell, 28 F.3d at 169).
Consequently, it was neither arbitrary nor capricious for the
Commission to waive its rule to assure that it abided by its own
regulations and ameliorated the harm to the LECs created by the
staff error.
AT&T’s invocation of policy considerations is
unpersuasive. AT&T’s claim that the Commission lacked good
cause to waive its rules because the LECs would be free to
restate their rate bases without a waiver ignores the fact that,
14
absent a waiver of the exogenous cost rule, the restatements
would have no economic effect and the Commission would be
unable to put the parties in the positions they would have been
in absent RAO Letter 20. Contrary to AT&T’s view that the
Commission did not explain why it was more concerned with
adhering to its rate base rules than to the exogenous cost rules,
it is clear from the Order that the Commission considered it
more important to ensure consistency with the rules in place
during the years of the accounting than to ensure consistency
with rules that were not promulgated until after the costs
accrued. See Order, 20 F.C.C.R. at 7693.
AT&T’s suggestion that because there was no wrong to
undo, the Commission could not rely on its discretion to “undo
what was wrongfully done,” Se. Mich. Gas. Co., 133 F.3d at 42,
recasts regulatory history. Although the policy in RAO Letter 20
was later endorsed by the Commission, AT&T’s attempt to cast
the Commission’s rescission of RAO Letter 20 as premised on
a mere procedural error is contrary to the Commission’s
conclusion that its rescission of RAO Letter 20 was an
authoritative interpretation of Commission rules requiring the
LECs to include rather than exclude OPEB costs from the rate
base. See Order, 20 F.C.C.R. at 7693-94. The regulatory
history indicates, despite AT&T’s claim that the Commission
always intended to exclude OPEBs from the rate base, that the
Commission’s attitude was somewhat unsettled. See id. at 7690
& n.147 (citing 2 F.C.C.R. 332, 337 (1987)). To deny the
LECs’ 1996 attempt to recover for the understated rate bases
while RAO Letter 20 controlled would be to deny any effect to
the Commission’s rescission of the letter.
Again, the Commission could reasonably conclude that it
would be inequitable not to waive the fifteen-month deadline in
47 C.F.R. § 65.600(d) because “the LECs had a statutory
obligation to adhere to the RAO Letter 20 during the time period
15
in which that order was in effect,” and the “carriers hardly could
have been expected to file rate base adjustments reversing the
effects of the RAO Letter 20 before the Commission vacated that
staff decision.” Order, 20 F.C.C.R. at 7694-95. Because the
rate base rule in effect at the time of the accounting required
LECs to include OPEBs in their rate bases, see 47 C.F.R.
§ 65.830 (1992), there is no inconsistency in the Commission’s
decision to waive the deadline to implement the law in effect at
the time rather than to implement the policy it later adopted
through rulemaking.
Delving into pure conjecture, AT&T persists that even if the
Commission was justified in waiving its rules to some extent to
correct for RAO Letter 20, it was improper to waive the rules for
the entire period because if the staff had recognized that the rate
base rule actually required inclusion of OPEBs, it would not
have issued RAO Letter 20 and the Commission would have
addressed the issue earlier by promulgating a rule excluding
OPEBs from the rate base. However likely this speculation
about what might have happened had the Commission staff not
erred, it is insufficient to force the LECs to bear the burden of
the staff error.
Finally, whatever the requirements of the Commission’s
regulations, AT&T protests that the Commission violated the
underlying statute by failing to consider whether the rates that
allowed recovery for OPEB costs were “just and reasonable”
under § 201(b) of the Communications Act. See 47 U.S.C.
§ 201(b). If the old rate base rule, 47 C.F.R. § 65.830 (1992), or
any other regulations led to “unjust or unreasonable” rates,
AT&T maintains that the Commission was obliged to depart
from those regulations to meet its statutory obligation. Although
the Commission, as a creature of statute, is bound by its
congressional mandate, § 201(b) does not demand a full-fledged
“just and reasonable” analysis in every case. See 47 U.S.C.
16
§ 154(j). The Commission has the authority to determine the
scope of its investigations, id. § 204(a); FCC v. Schreiber, 381
U.S. 279, 289 (1965), and AT&T has no authority to force a
separate inquiry by the Commission without filing a complaint
under 47 U.S.C. § 208. Moreover, AT&T suggests no means by
which the Commission might determine whether these rates are
just and reasonable beyond determining whether they were
calculated in accordance with price cap regulations, which, as
the Commission observes, are designed to produce just and
reasonable rates. See 1990 Price Cap Order, 5 F.C.C.R. at
6787-88; Policy and Rules Concerning Rates for Dominant
Carriers, 6 F.C.C.R. 2637, 2731 (1991). Because the ultimate
issue in any Commission tariff investigation is whether the
underlying rates are “just and reasonable,” see 47 U.S.C. §§
201(b), 204(a), in determining that the LECs’ filings complied
with the then-applicable price cap rules, the Commission was
determining that the PCIs were just and reasonable. Even when
the Commission chose to bar exogenous treatment of OPEB
costs in 1995, it did not do so on the ground that exogenous
treatment had created unjust or unreasonable rates. See 1995
Price Cap Order, 10 F.C.C.R. at 9096. To the contrary, it
directed that its ruling would only operate prospectively. See id.
Accordingly, because the Commission’s interpretation of its
control test is consistent with precedent and the Commission’s
approval of the 1996 tariffs had the effect of placing the LECs
in the position they would have been in had the staff not erred,
we conclude that AT&T has failed to show that the
Commission’s rulings were arbitrary and capricious, and we
deny the petition for review.