dissenting:
Section 4(i) of the Communications Act is sufficiently broad and the principles of deference to agency decisionmaking sufficiently strong that, in the judgment of the majority, the FCC has statutory authority to enforce a prescribed maximum rate of return. Correct or not, the majority over*96states the case. For more than fifty years, the Communications Act has been understood to establish a precise, express statutory scheme governing refunds and the setting of rates. Never before has section 4(i) been held to authorize refunds. While there is always a time for firsts, I think it must be admitted that, even if lawful, the FCC here operates at the feather edge of its statutory authority.
This is not the occasion to decide the statutory issue. Without notice, the FCC altered its fundamental policy basing rates of return exclusively on current market conditions, and instead ordered a reduction in future rates based on past surplus. The Refund Order should be set aside because it contradicts the system of ratemaking previously articulated and applied by the FCC.
I. Retroactivity Doctrine
In this circuit, as we have so recently confirmed, the test presented in Retail, Wholesale & Dep’t Store Union v. NLRB, 466 F.2d 380, 390 (D.C.Cir.1972), “provides the framework for evaluating retroactive application of rules announced in agency adjudications.” Clark-Cowlitz Joint Operating Agency v. FERC, 826 F.2d 1074 at 1081 (D.C.Cir. 1987) (en banc). Five “non-exhaustive” factors are set forth therein to distinguish between legitimate retroactive application of policy and those instances when an agency must proceed prospectively:
(1) whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of the burden which a retroactive order • imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard.
Retail, Wholesale, 466 F.2d at 390.
Taking the test in reverse order, I summarize my objection to the 1984 Refund Order: (1) Unlike the typical case in which an agency announces a rule through an adjudication, the FCC has formally and expressly admitted that the 1984 refund order “was not intended to establish a rule for all future proceedings____” Return Interstate Services of AT & T Communications and Exchange Telephone Carriers, 50 Fed. Reg. 33,786, 33,788 (1985) (proposed Aug. 21, 1985). Instead, the FCC subsequently engaged in formal rulemaking to announce a policy of automatic refunds under specified circumstances. Authorized Rates of Return for Interstate Services of AT & T and Exchange Telephone Carriers, 50 Fed. Reg. 41,350 (1985) (final rule); Return Interstate Services of AT & T Communications and Exchange Telephone Carriers, 51 Fed.Reg. 1,795 (1986) (to be codified at 47 C.F.R. Part 65). Hence the retroactive application of the policy in the present case advances no statutory purpose; (2) The Refund Order imposes a $101 million penalty on AT & T plus interest for rates filed in 1976 and never changed until 1980. This is a burden by any standard. See NLRB v. Bell Aerospace Co., 416 U.S. 267, 295, 94 S.Ct. 1757, 1772, 40 L.Ed.2d 134 (1974) (prospective application favored when “fines or damages” are assessed and agency imposes new liability “for past actions which were taken in good-faith reliance on [agency] pronouncements.”); (3) AT & T relied on the settled statutory scheme, confirmed in countless cases, that refunds, to be lawful, can only arise by operation of section 204 of the Communications Act. Furthermore, this court finds that were it not for section 4(i), the FCC order would be conclusively and without question unlawful. See Maj. at 1107, 1109; see also MCI Telecommunications Corp. v. FCC, 765 F.2d 1186, 1195 (D.C.Cir.1985) (“In enacting Sections 203-05 of the Communications Act, Congress intended a specific scheme for carrier initiated rate revisions. A balance was achieved after careful compromise. The Commission is not free to circumvent or ignore that balance. Nor may the Commission in effect rewrite this statutory scheme on the basis of its own conception of the equities of a particular situation.”) (quoting American Tele*97phone and Telegraph Co. v. FCC, 487 F.2d 865, 880 (2d Cir.1973)); Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 189 n. 7 (D.C. Cir.1986) (The Commission “may not order a retroactive refund based on a post hoc determination of the illegality of a filed rate’s prescription.”); (4) The FCC cannot and does not cite a single sentence from among hundreds of pages of its regulatory decisions detailing the policy upheld today. Rarely are departures from established policy as abrupt; (5) The majority states that “the Commission first prescribed a rate of return in 1972. Although it incorporated a rate-of-return recommendation, the 1967 order was not a rate-of-return prescription, and thus the portions of that order the dissent cites ... are immaterial.” Maj. at 1109 (emphasis added). Yet the FCC in its own rulemaking expressly holds to the contrary:
This . Commission established a prescribed rate of return for the interstate telecommunications services of [AT & T in 1967 \ That prescription was revised in 1972, 1976, and 1981.
50 Fed.Reg. at 33,786 (1985) (footnotes omitted); see also 57 F.C.C.2d 960, 960 (1976) (“This proceeding represents the third time [1967,1972, & 1976] the Commission has considered the fair rate of return of [AT & T]____”). As a matter of logic, it is untenable to argue that remedying an excess rate of return represents a case of “first impression.” This is a core function of any rate regulator. As a matter of fact, the FCC twice before was confronted by AT & T rates in excess of the prescribed return. See infra at 1115-16.
It ultimately took the FCC six years to reach the conclusion that it (a) had the authority and (b) had given AT & T lawful notice that returns earned in excess of the prescribed rate of return would be subject to future disgorgement. The majority says this power came into being in 1972. The FCC nowhere in its brief or on the record makes this argument. Indeed, the alteration in the FCC position is dazzling. In 1967, the FCC said “the policies we are establishing on the basis of the record of this proceeding require no drastic change in any of the standards heretofore applied and represent no new or essentially different approach by this Commission to the regulation of respondents’ interstate rates and earnings.” 9 F.C.C.2d 30, 116 (1967). In its brief in the instant case, the agency said “[t]he fundamental flaw in the carrier parties’ arguments in this case is that they either fail or refuse to recognize that the 1976 prescription order altered the normal pattern of carrier initiated rates under the Communications Act.” Brief for Respondents at 17. At oral argument, counsel withdrew this statement. In 1987, the FCC states that it first announced the refund policy in 1984, or perhaps as early as 1979 when it issued a notice calling for comments on the subject. Brief for Respondents at 47-48, 48 n. 62, American Telephone and Telegraph Co. v. FCC, Nos. 85-1778, et al. (argued before D.C.Cir. May 21, 1987).
Fortunately, an administrative record exists to sort out which of these various arguments were actually set down on paper to guide the conduct of the industry the FCC is charged with regulating.
II. The Record
The FCC in 1984 ordered prospective rate reductions to compensate consumers for revenues earned by AT & T in 1978 based on tariff rates filed in 1976. The majority correctly describes this remedy as a policy of “prospective rate adjustment to compensate for past surpluses." Maj. at 1107. The majority incorrectly describes the remedy as a new policy meeting a novel set of circumstances.
FCC policy governing rate-of-return regulation is contained in the administrative rulings pertaining to changes in tariffs for AT & T in 1967, 1969, 1972, and 1976. 9 F.C.C.2d 30 (1967); 21 F.C.C.2d 654 (1969); 38 F.C.C.2d 213 (1972); 57 F.C.C.2d 960 (1976). As I read these decisions, the FCC policy to remedy excessive tariffs consists of the exercise of agency authority at three successive stages: (a) pre-filing establishment of target revenues, (b) post-filing accounting pursuant to section 204 of the Act, 47 U.S.C. § 204, and (c) prospective *98rate adjustment, up or down, as demanded by the current economic forces in the marketplace. 47 U.S.C. § 205. The coordinated exercise of the agency authority in the first two stages in large measure eliminates the likelihood of overcharges. The option to reset future rates based on then-current conditions provides the vehicle to insure that rates continue to be appropriate over time. As this schema assures adequate protection against excessive charges, the FCC has not been faced by a novel threat. Furthermore, FCC decisions amply document these propositions.
In 1967, the FCC adopted a new method for regulating telephone rates. Instead of working from a reconstruction of each cost component incurred by AT & T, a technical and time-consuming nightmare, the FCC settled on a top-down approach based on rate of return. The required rate of return, also known as the cost of capital, is that rate “sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital,” balanced against the public interest in just and reasonable rates. 9 F.C. C.2d at 53 (quoting the Supreme Court’s “landmark” case, Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591, 603, 64 S.Ct. 281, 288, 88 L.Ed.2d 333 (1944)).
Conceptually, the cost of capital is divided into two components: the cost of debt, which is the interest rate enterprises must offer to attract secured funds; and the cost of equity, which is the rate of return investors must be offered to compensate them for the risk of investing in a company’s stock. Because investors have numerous alternative investment prospects, the cost of capital approach to ratemaking necessarily focuses on the prospective return demanded by investors for investments of comparable risk. Thus, AT & T’s cost of capital will change as necessary to reflect marketplace reassessments of these alternatives. If the rate of return earned by AT & T is set too low, it will not be able to attract either the debt or equity capital necessary to serve current consumers and meet future increases in demand. If set too high, the public interest suffers. See, e.g., 9 F.C.C.2d at 52.
Rate regulation thus shifted in 1967 to a two-step process. The FCC would fix the target rate of return, and the carrier would set tariff rates designed to earn this rate of return. In either system, whether before or after 1967, there is the risk of error. In the first, historical costs can be misestimated and long delays and expense incurred in gathering accurate data. In the second, the FCC has recognized, and therefore so must we, that there is an inherent imprecision to measuring the prospective and changing rate of return demanded in the marketplace and a further imprecision in then requiring the carrier to set tariff rates that will produce the exact level of revenues which, after expenses have been deducted and the rate base fixed, will produce the anticipated return. See, e.g., 9 F.C.C.2d at 51-88; 38 F.C.C.2d at 248-51. The so-called “novel circumstance” of a surplus rate of return is in fact a central feature of rate-of-retum regulation.
Notwithstanding these differences in the approach to setting tariff rates, only the means of regulation changed in 1967, not the basic policy. As noted, the FCC put this point beyond doubt:
[T]he policies we are establishing on the basis of the record of this proceeding require no drastic change in any of the standards heretofore applied and represent no new or essentially different approach by this Commission to the regulation of respondents’ interstate rates and earnings. On the contrary, the record and our decision confirm the regulatory standards we have generally applied over the years. Thus, prior to 1964, we permitted the respondents to maintain a level of interstate earnings within the range of 7 to 7.5 percent. When the level of earnings tended to exceed this range, we were successful, under our program of continuing surveillance, in negotiating corrective rate adjustments.
9 F.C.C.2d at 116.
The decision also affirmed that “corrective rate adjustments” would continue to *99be the mechanism employed to adjust for prior year excesses:
As, and when, the going level of respondents’ interstate earnings approaches either the upper or lower limits of this [7 to 7.5 percent] range, we will promptly consider what further action may be required in light of then current conditions. This is not to be construed to mean that any future level of earnings which exceeds 7.5 percent or falls below 7 percent will warrant immediate action looking toward rate adjustments. Whether or not remedial action will be required will depend upon all the relevant circumstances obtaining at the time.
Id. (emphases added).
When read in context, and in light of subsequent decisions, it is evident that “remedial action” contemplated the filing of revised tariff schedules designed to reduce or increase future rates in accordance with the rate of return appropriate to circumstances at that time. The cost of capital approach can make no sense otherwise. Investors lending funds or buying equity always focus on present alternative investments, not prior circumstances.
In 1970, AT & T filed a proposal to increase interstate charges on message telephone service by “some $760 million.” 38 F.C.C.2d at 215. AT & T estimated the new charges would yield a rate of return approximating 9.5 percent, the rate required by current conditions according to AT & T. In the 1972 proceedings, the FCC specified “a range of 8.5-9.0% as the range of reasonableness for the earnings of Bell on its interstate operations at the tariff rates that we are allowing Bell to file herein.” Id. at 245. This is the prospective rate adjustment system in action. Only after evaluating operating results and revenue requirements did the FCC translate the increase in rate of return into a permissible tariff rate increase designed to produce $145 million in incremental revenue. Id. at 248-51. In the decision, the FCC reiterates that adjustments in the system come through prospective adjustments in tariff filings. See id. at 226-27.
Last, we reach the 1976 round of increases at issue in this case. AT & T, as usual, initiated the process in 1975 with a proposed $717 million rate increase. The FCC, exercising its prospective powers to control rates, determined the increase would exceed the rate of return then in place, and denied the proposal. 51 F.C.C.2d 619, 626-27 (1975). In other words, the policy functioned in 1976 exactly as designed — it prevented an increase in rates the FCC concluded to be unwarranted by then current conditions as measured by the rate of return.
The filing, however, prompted the FCC to investigate and update the rate of return applicable in 1976 from 8.5-9.0 percent to 9.5 percent, plus .5 percent as an efficiency incentive. 57 F.C.C.2d 960, 972-73 (1976). Once again, in accordance with its established practice, the FCC ordered a prospective adjustment in the target increase for revenues. Moreover, by suspending the 1976 tariff filing for one day, the FCC triggered its statutory authority to control rates retroactively pursuant to section 204 of the Act, which states in pertinent part:
[U]pon completion of the hearing and decision [the FCC] may by further order require the interested carrier or carriers to refund, with interest, to the persons in whose benefit such amounts were paid, such portion of such charge for a new service or increased charges as by its decision shall be found not justified.
47 U.S.C. § 204(a) (1982). Although the agency did not see fit to pursue the section 204 remedy in this case, the essential point in terms of the regulatory regime is that the agency is empowered by the statute to conduct an accounting of actual results and, after a hearing, order a refund if necessary to reimburse consumers who had paid excessive charges.
III. Application To Retroactivity
This survey of the relevant FCC decisions compels the conclusion that the FCC’s 1984 refund order abruptly reversed its prior policy by basing prospective tariff rates on prior returns in excess of the target levels, instead of on market condi*100tions. Until 1984, the FCC’s regulation of AT & T’s rates was based exclusively on a foreward-looking assessment of economic conditions. After 1984, the FCC order holds that rates may be reduced to compensate for past experience. The majority neatly encapsulates this abrupt switch by describing the new refund policy as a “prospective rate adjustment to compensate for past surpluses. ” Maj. at 1107 (emphasis added).
A. Novel Circumstance
The majority seeks to justify the refund policy as a licit response to novel circumstances. In the first instance, this premise of novelty stretches the facts. In 1967, the FCC established a rate of return in the range of 7 to 7.5 percent. Based on this rate, the FCC calculated that AT & T’s rates then in place were excessive. The remedy ordered was to reduce future rates to produce a $120 million reduction in revenues. At the new rate level, AT & T would earn the rate of return required by then current conditions. It was never suggested that the return should be lowered by $120 million to reflect current conditions, and then further reduced to collect the past overage. See 9 F.C.C.2d at 116.
Likewise, the agency in 1969 determined that actual charges in 1967 exceeded the allowed rate of return. 21 F.C.C.2d at 655. Again, the FCC neither ordered nor contemplated refunds. Rather, it expressed the familiar policy that “when there were departures from this range, [it would] consider the matter in light of conditions obtaining at that time.” Id. The FCC thereupon reviewed the excess earnings on the basis of “changes which have taken place since 1967 in the economic, financial, and other conditions that affect AT & T’s revenue requirements and its ability to attract new capital”; and concluded that earnings exceeding the 1967 rate of return “[were] not unreasonable.” Id. (emphasis added). AT & T was not required to reduce its filed tariffs.
The rate-of-return method of regulation was new in 1967, and, according to the majority, the rate-of-return prescription did not fix a maximum cap on the allowable return until 1972. This claim of a major sea-change in the 1972 proceeding is contradicted in the record, see supra at 1114-15, disavowed by the FCC, Brief for Respondents at 19 (“The [1976] rate of return prescription enforced in this case, like every other such prescription the FCC has made, was implemented ... with prospective, binding effect.” (footnote omitted)), and unsupported by, the Nader decision. See 50 Fed.Reg. at 33,786 n. 1 (“The Nader opinion interpreted prior FCC decisions [back to 1967] as prescribing a rate of return for AT & T____”). In any event, in terms of the assertion of novelty, these are distinctions without a difference. The FCC even in the pre-1967 regime used rates of return to evaluate the revenues allowed after costs. Moreover, the regime between 1967 and 1972 prescribed rates and hence presented the precise issue whether the increment over the targeted rate of return should be retained. Pursuant to the majority’s logic, the FCC had the authority to order prospective rate adjustments as the enforcement remedy. The fundamental fact is that the agency twice before explicitly faced the problem of actual charges in excess of the announced range.
Second, common sense rebuts the majority’s contention. It cannot be argued that the FCC simply failed to anticipate the essential issue of rate regulation, namely, what steps the agency should take to ensure compliance with its rate-of-return orders. In a system of carrier-initiated rates, it is unreasonable to suppose that the agency established the rate-of-return framework without giving a single thought to the prospect of what would happen if the filed tariffs produced a return in excess of the allowed maximum.
Finally, the FCC concedes, as it must, that not a single sentence in any report suggested that prospective rate adjustments might be ordered to compensate for past surplus. The omission would be almost inexplicable in a system of rate regulation that inherently can produce errors resulting in overshooting or undershooting the targeted rate of return. The FCC’s three coordinate powers, as summarized *101below, explain the silence that the majority inaccurately construes to be evidence of a novel circumstance.
As part of the process setting the rate of return, the FCC approves or disapproves specific requests for target increases in tariff revenues. The revenues analysis is conducted to confirm that AT & T’s probable earnings will fall within the range of the targeted rate of return. The agency’s advance control over tariff rates minimizes the risk that AT & T will generate unauthorized revenues. The power to call for an accounting and order a refund allows the agency to remedy excessive returns that occur after the fact. Finally, if, as here, rates already approved subsequently produce higher than anticipated returns, the FCC can respond by analyzing present conditions to determine if the higher return is appropriate. If not, the Commission can order the carrier to file reduced tariffs targeted to meet the lower rate of return required by current circumstances.
Thus, in the present case, the FCC observed that the tariffs produced a return of 9.25 percent in 1976, confirming that the target limitation on increased revenues operated as anticipated. Hence there was no need to continue the section 204 process. In 1977, the tariffs produced a 9.59 percent return. Only in 1978 did the unchanged tariffs produce the .22 percent surplus.
It has taken the agency six years to come to the conclusion that its policy necessarily allows it to reduce future rates to remedy the situation. Based on the policy in effect when AT & T filed its tariffs, however, the FCC should have determined whether the conditions in 1978 and thereafter warranted a prospective reduction in rates. The relevant circumstances for analysis would have included the fact that (1) in an inherently imperfect regime, the excess amounted to less than one-fourth of one percent; (2) the 1976 tariff rates produced a return below 10 percent in every year other than 1978; (3) the rate of return for the entire period 1976 to 1980 averaged 9.69 percent; (4) the governing rate of return was implemented in 1976 based on economic conditions obtaining in 1975; and (5) the relevant period for analyzing prospective rates, if the FCC had acted in timely fashion, would have been in 1979 or soon thereafter.
Whatever the outcome of this analysis, the fundamental point is clear. The FCC would have asked whether the overage signaled a need to reset tariff rates based on current conditions. The 1984 order confirms at a minimum that the rate of return established in 1976 continued to apply in 1978. Therefore, had AT & T in fact lowered rates in 1979 in response to the .22 percent excess in 1978, they would have realized a shortfall below even the allowed 10 percent rate of return (i.e., at the unchanged rates, the 1979 annual rate of return was 9.90 percent).
In sum, the FCC cannot cite a single passage in its regulatory decisions forecasting the refund policy announced in 1984. See Brief for Respondents at 22-26. The record documents two prior instances in which actual rates exceeded the target rate of return. Most important, the 1984 order — reducing future rates based on past surplus — contradicts the central premise of the FCC’s rate-of-retum regulation as a forward-looking assessment of capital needs, instead of an historically based estimation of actual costs. In these circumstances, the FCC violated the well-established prohibition against retroactive application of a newly announced policy. See Boston Edison Co. v. FPC, 557 F.2d 845, 849 (D.C.Cir.), cert. denied sub nom. Town of Norwood, Mass. v. Boston Edison Co., 434 U.S. 956, 98 S.Ct. 482, 54 L.Ed.2d 314 (1977); FERC v. Triton Oil and Gas Corp., 750 F.2d 113, 116 (D.D.Cir.1984).
B. Reliance
•The prohibition applies with special force when, as here, the party subject to the change has relied to its detriment on the prior policy. Whereas the majority is unable to find any such reliance, I believe the reliance is self-evident. Prior to today’s ruling, AT & T had every reason to believe that section 204 provided the only statutory mechanism for ordering a retroactive refund. The FCC concedes that this section *102does not apply here. Therefore, the only other provision that could arguably provide such authority, section 4(i) aside,1 is the section 205 authority to set “just and reasonable [rates] ... to be thereafter observed,” 47 U.S.C. § 205(a) (emphasis added); cf. the regulatory analog in section 206 of the Federal Power Act, 16 U.S.C. § 824e(a), and section 5 of the Natural Gas Act, 15 U.S.C. § 717d(a).
By long-established principle, these three parallel statutory provisions “bar[] utility refunds for past excessive rates, or the Commission’s retroactive substitution of an unreasonably high or low rate with a just and reasonable rate.” City of Piqua, Ohio v. FERC, 610 F.2d 950, 954 (D.C.Cir.1979); Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 578, 101 S.Ct. 2925, 2931, 69 L.Ed.2d 856 (1981); Indiana & Michigan Elec. Co. v. FPC, 502 F.2d 336, 345 (D.C. Cir.1974), cert. denied, 420 U.S. 946, 95 S.Ct. 1326, 43 L.Ed.2d 424 (1975). While the majority finds that section 4(i) could support the particular remedy ordered here in the future, it is evident that prior to this ruling AT & T could reasonably have believed that sections 204 and 205, and the analogs in the electric and gas industry, contained the relevant statutory framework. As the FCC concedes, see AT & T Earnings on Interstate and Foreign Services During 1978, 49 Fed.Reg. 49,502, 49,507 (1984), and the panel holds, maj. at 14, this framework provides no authority for the 1984 refund order.
The majority believes AT & T should have foreseen the true novelty here, namely, the location of refund power in the section 4(i) authorization to perform such acts “as may be necessary in the execution of its function.” 47 U.S.C. § 154(i). This first use of section 4(i) to authorize the 1984 refund does not void the FCC’s construction of the statute. Bankamerica Corp. v. United States, 462 U.S. 122, 131, 103 S.Ct. 2266, 2272, 76 L.Ed.2d 456 (1983) (“[authority actually granted by.Congress ... cannot evaporate through lack of administrative exercise.” (quoting FTC v. Bunte Bros., Inc., 312 U.S. 349, 352, 61 S.Ct. 580, 582, 85 L.Ed. 881 (1941))). It does mean, however, that persons subject to enforcement proceedings can reasonably rely “on what was universally perceived as plain statutory language,” id. at 133, 103 S.Ct. at 2273, or, as here, the plain statutory scheme. See National Classification Comm. v. United States, 746 F.2d 886 (D.C.Cir.1984) (agency cannot retroactively expose carriers to antitrust liability for reasonable reliance on a settled prior construction of an agreement).
Other factors independently demonstrate AT & T’s reliance. Absent notice of the refund policy, the carrier went five years without a change in its tariff even though it could have increased its revenues in every year except 1978 without exceeding the 10 percent rate of return limit. The increased revenues would have more than offset the $101 million rate reduction ordered here. Moreover, although the agency in 1984 held that conditions in 1978 fell “within the correlative range of economic and financial market conditions,” considered in 1976, 49 Fed.Reg. at 49,506 n. 34, a quick perusal of the FCC opinions fixing the appropriate rate of return in a given period indicates the subject admits to less than scientific certainty. For example, the decisions document the multiple assumptions used to compile this deceptively simple rate-of-retum figure and the multiple underlying debates among economists over the proper measurement of the cost of debt and equity. See, e.g., 9 F.C.C.2d at 72-86; 38 F.C.C.2d at 226-46; 57 F.C.C.2d at 962-72.
In this context, the FCC’s post-hoc determination in 1984 that 1976 economic conditions still prevailed in 1978 does not mean the agency would have necessarily rejected a .22 percent increase in the allowable rate of return if vigorously pressed and documented at the time by AT & T. With such large sums of money at stake, I believe the majority is unduly formalistic when it asserts as fact that AT & T would *103not have behaved any differently even with explicit knowledge that a .22 percent overshoot in its calculated rate of return would produce a $101 million refund order.
C. Inhetent Remedy
A final justification relied upon by the FCC, see Brief for Respondents at 23, and the majority, maj. at 1109, is that the rate-of-return prescription inherently encompasses the remedy of setting a rate of return appropriate to say 1985, but then reducing that rate by a fixed sum (here $101 million plus $77 million in interest) to adjust for past surplus. FCC practice has been otherwise. FCC decisions describe a contrary system. No other regulators have seen fit to follow this system. Indeed, the FCC only began using the word “prescription” in 1973, in a discussion to which it attached no special significance, six years after adopting a policy that “represent[s] no new or essentially different approach” to rate regulation. 9 F.C.C.2d at 116. See 42 F.C.C.2d 293, 300 (1973); 51 F.C.C.2d at 625 n. 12. To the extent the word has application here, it is to signify that the rate of return prescribes the allowable rate of return. This court said no more in Nader v. FCC, 520 F.2d 182 (D.C. Cir.1975). Now the FCC claims long after the fact that a prescriptive rate-setting regime silently conveys the additional prospect of an enforcement policy reducing prospective rates to remedy past surplus. In these circumstances and in light of the FCC’s insistence that rates relate exclusively to current conditions, I believe the Supreme Court has pronounced decisively. The 1984 enforcement scheme “is too unprecedented a departure from the conventions of ratemaking to rest on mere inference.” Transcontinental & Western Air, Inc. v. CAB, 336 U.S. 601, 607, 69 S.Ct. 756, 759, 93 L.Ed. 911 (1949).
D. The Rulemaking Order
The posture of this case would be substantially altered if the FCC were arguing its right to engage in rulemaking in an adjudicatory setting. Yet here we have the anomalous circumstance that the refund order directed at AT & T was expressly a single party adjudication. See supra at 1112. The subsequent decision to engage in prospective rulemaking conclusively establishes that the FCC has no statutory interest in the outcome of this particular case. Cf. Triton Oil, 750 F.2d at 116 (“The Commission may not abuse its discretion by arbitrarily choosing to disregard its own established rules and procedures in a single, specific case.”). In the context of Retail, Wholesale, the substantive rationale for allowing retroactive rulemaking is sharply diminished.
Moreover, pursuant to the actual rules adopted, AT & T would most likely not be liable for a “refund" in the instant case. Specifically, the Commission, in its preliminary rulemaking, recognized the “inability of carriers ‘to target their earnings with precision’ as a result of ‘unpredictable factors.’ The Commission recognized that ‘disallowing any earnings ‘peaks,’ while ignoring the ‘valleys, ’ would tend to induce a systematic bias that would cause a carrier to fall short of its targeted rate of return over the long run.’ ” Brief for Respondents, Nos. 85-1778, et al. at 11 (citations to record omitted) (emphasis added).
The final rules establish several specific provisions to deal with the inherent fluctuation in return, i.e., the precise issue of this case. See id. at 31-34. Significantly, the measuring period for the return is two years, not one. AT & T earned 9.59 percent in 1977 and 10.22 in 1978, which produces a two-year average return of 9.91 percent. Moreover, the two-year provision allows for “mid-course corrections, thereby lessening the possibility that the enforcement mechanism would have to be invoked.” Id. at 13 (citations to record omitted). AT & T, of course, was given no such opportunity to make corrections in the present case. Indeed, it is startling that under the new rules, AT & T is expressly allowed to file increases if actual earnings are below the prescribed return during the first year. Id. at 33. Had AT & T been allowed the benefit of this procedure, it could have raised rates in 1976 (9.25 percent actual), 1977 (9.59 percent), 1979 (9.90 *104percent), and 1980 (9.90 percent) and still been below the allowable ten percent ceiling. With perfect targeting, AT & T would have earned an additional 1.36 percent, less the .22 percent surplus in 1978 for a net gain of 1.16 percent. If a .22 percent overcharge resulted in a $101 million refund order, AT & T actually could have charged approximately an additional half-billion dollars during this period without violating the established, lawful rate of return.
IV. Conclusion
The FCC has the statutory authority to insure that actual rates filed are likely to fall within the required range (by targeting the allowable revenue increment pursuant to section 205), and that the rates in fact do fall within the range (via a section 204 accounting). Over time the FCC can force prospective adjustment in rates by lowering or raising the allowed rate of return, as required by current economic conditions. Notwithstanding this comprehensive program, the majority credits the FCC with a policy that cannot be found in the record. The opinion further ignores the carrier's reliance upon the statutory refund scheme as it existed in 1978, and rejects outright the prospect that hundred million dollar refund orders would sharpen the carrier’s interest to earn all revenues to which it was entitled. Finally, the majority ignores the implications of the FCC’s subsequent decision to engage in formal rulemaking. Application of well-established retroactivity doctrine requires that the 1984 Refund Order be set aside. I respectfully dissent.
. "The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions." 47 U.S.C. § 154(i) (1982).