******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Section 208 Complaints Alleging Violations) File Nos. E-88-51S et al. of the Commission's Rate of Return) Prescriptions ) MEMORANDUM OPINION AND ORDER ON RECONSIDERATION Adopted: April 3, 1997 ; Released: April 4, 1997 By the Commission: I. INTRODUCTION 1. In this Memorandum Opinion and Order on Reconsideration, we first address an unopposed petition for reconsideration, filed by Pacific Bell ("Pacific"), of our order recalculating damages in several rate-of-return complaint proceedings pursuant to an order of the Court of Appeals for the District of Columbia Circuit. In its petition, Pacific alleges that we erred in recalculating damages in two complaint proceedings filed against it by the Competitive Telecommunications Association ("CompTel"). For the reasons and to the extent discussed below, we grant Pacific's petition. We also grant a related motion to dismiss filed by LDDS Communications, Inc. (LDDS). In addition, we clarify a matter raised by MCI Telecommunications Corporation ("MCI") and Southwestern Bell Telephone ("SWBT") regarding the recalculation of damages in MCI Telecommunications Corp. et al. v. Southwestern Bell Telephone Co., File No. E-93-138. II. BACKGROUND 2. Between February 1993 and April 1995, the Commission issued a series of orders in rate-of-return complaint proceedings. In these orders, the Commission found that the complainants had met their burden of establishing that the defendant local exchange carriers ("LECs") had violated Section 201(b) of the Communications Act of 1934, as amended (the "Act"), by earning in excess of the Commission's prescribed rate of return for interstate access services during the relevant monitoring periods. The Commission also found that several of the defendant LECs had made persuasive claims for offsets based on the complainants' purchases of access services in categories in which the defendants realized earnings shortfalls during the same monitoring period for which damages were awarded based on overearnings. Accordingly, the Commission determined the portion of each defendant's overearnings that were attributable to each complainant ("overearnings"), determined the portion of each defendant's underearnings that were attributable to each complainant ("offsets"), and calculated damages by subtracting the offsets from the overearnings. Petitions for review were filed in the U.S. Court of Appeals for the District of Columbia Circuit in a number of these proceedings. 3. On August 1, 1995, the court issued an opinion in which it affirmed the Commission's orders in all respects, except for the underearnings offsets awarded by the Commission. The court ruled that the Commission properly found the defendant LECs liable for damages for charging complainants interstate access rates that produced earnings above the levels prescribed by the Commission. The court further agreed that a permissible measure of the damages incurred by the complainants as a result of the violations is the difference between the rates they actually paid for the defendants' access services and the rates they would have paid if the defendants had earned at or within the prescribed levels. The court held, however, that the Commission exceeded its authority by permitting the defendant LECs to offset damages claims by showing that a particular complainant had purchased other access services at rates that produced earnings below the authorized levels during the same rate-of-return monitoring period. The court's remand order directs the Commission to recalculate the complainants' damages by removing the underearnings offsets from the damages calculations. The court also remanded in part the 1989-90 ROR Orderto permit the Commission to recalculate the damage awards in accordance with the court's decision in the MCI Remand Order. 4. The staff requested the parties to provide lists of those rate-of-return proceedings for which they needed damages awards recalculated as a result of the court's orders. Responding to the Branch Letters, CompTel advised, inter alia, that the damages awards in File Nos. E-89-389 and E-93-117 needed to be recalculated. Accordingly, in the Recalculation Order, the Commission recalculated the damages awards in these proceedings by removing all offsets from the calculations. Pacific then filed the instant petition for reconsideration. Also in response to the Branch Letters, MCI advised that damages awards in File No. E-93-138 needed to be recalculated. SWBT objected to MCI's request. The Recalculation Order did not contain recalculated damages for File No. E-93-138 and MCI has requested a clarification of this matter. III. DISCUSSION A. File No. E-89-389 5. Pacific contends that the Commission's recalculation of the damages award in this proceeding was erroneous because the Commission removed all offsets from the original calculation of damages rather than removing only such offsets as were affected by the court's orders. The remainder of the offsets, Pacific claims, reflected a reduction in the damages award for overearnings refunds that it had already given to the complainants. 6. Pacific is correct that only that portion of the offsets relating to underearnings was affected by the court's orders. As noted above, the court invalidated only the offsets-for- underearnings portion of the Commission's damages calculation and remanded the proceedings to the Commission to recalculate damages by removing these offsets from the calculations. The court upheld the Commission's orders in all other respects. Thus, in the Recalculation Order, we should have removed from the damages calculation in this proceeding only the offsets for underearnings. We therefore correct our recalculation of the damages award in File No. E-89-389 as indicated in Appendix A. For the convenience of the parties in calculating interest in accordance with our rate- of-return orders, also attached as Appendix B is a listing of the Internal Revenue Service interest rates for tax overpayments. B. File No. E-93-117 7. Pacific states that it reached a settlement with LDDS in File No. E-93-117 on January 22, 1996, but the complainant failed to inform the Commission of the settlement. Pacific further states its understanding that LDDS will immediately file a motion to dismiss with prejudice, and urges the Commission to dismiss the complaint. On the day Pacific filed its petition, LDDS filed a motion to dismiss with prejudice its damages claims. In support of its motion, LDDS states that it has settled with Pacific. 8. We are satisfied that granting LDDS' motion will serve the public interest by eliminating the need for further litigation and the expenditure of further time and resources of the parties and of this Commission. Accordingly, Pacific's petition and LDDS' motion will be granted with respect to File No. E-93-117, and the proceeding terminated. C. File No. E-93-138 9. In adjudicating the claims made in File No. E-93-138, the Commission found SWBT's rates for special interstate access service for the 1989-90 monitoring period to be unjust and unreasonable in violation of Section 201(b) of the Act because they produced earnings that exceeded our rate of return prescription for that period. This determination was based primarily on information taken from SWBT's final rate of return monitoring report, Form 492, filed September 30, 1991, which showed that SWBT had earned in excess of the prescribed rate of return in the special access category. We declined to consider adjustments SWBT attempted to make to its Form 492 in March 1992 that would have reduced its rate of return for the special interstate access category to prescribed levels. We emphasized that the final Form 492 filed on September 30, 1991 is a conclusively binding determination of a carrier's earnings for purposes of enforcing our rate-of- return prescription and that SWBT failed to show extraordinary circumstances warranting a waiver of the Form 492 filing deadlines. 10. Based on the violations, we ordered SWBT to pay MCI $74,974 in damages, plus interest, which we determined MCI incurred as a consequence of SWBT's unreasonable special access rates. This damages amount represented our calculation of the difference between the rates MCI paid for SWBT's interstate access service and the rates MCI would have paid if SWBT had earned at the prescribed level. We also determined that SWBT failed to establish that it was entitled to offsets against this damages amount. On January 3, 1995, MCI filed a petition for review of the 1989-90 ROR Order which was later resolved in the NYT Remand Order. 11. On January 23, 1995, SWBT filed a petition for reconsideration of the Commission's findings in the 1989-90 ROR Order, requesting first that the Commission reconsider its decision to reject SWBT's adjustments to its Form 492 and, based on the amended Form 492, reverse the Commission's liability finding. Secondly, SWBT contended that the Commission erroneously found that SWBT failed to provide sufficient evidence to offset MCI's damages claims. Finally, SWBT requested that the Commission modify its damages calculation to reflect an allegedly more precise rate of return for the access services at issue. The Commission found that SWBT had submitted adequate evidence of offsets and concluded that because of offsets, the net damages due to MCI from SWBT were zero. Given that finding, the Commission determined that the additional two issues raised by SWBT were moot. As discussed more fully above, however, subsequent to the release of the Commission's 1989-90 Reconsideration Order, the court also remanded in part the 1989-90 ROR Order to permit the Commission to recalculate the damage awards in accordance with the court's decision in the MCI Remand Order denying such offsets. 12. In MCI's Initial Letter, MCI advised the Commission that File No. E-93-138 was part of the review proceedings in the NYT Remand Order and remained open. MCI therefore requested that the Commission recalculate damages awarded in E-93-138 according to the court's remand. Responding to MCI's letter, SWBT stated that the Commission found that SWBT owed nothing to MCI in the 1989-90 Reconsideration Order. SWBT argued that because MCI did not seek review of the 1989-90 Reconsideration Order, the Commission's finding in that order is final and cannot be reopened. 13. MCI then submitted another letter arguing that because it had sought judicial review of the 1989-90 ROR Order on the issue of offsets, it did not need to seek review of the 1989-90 Reconsideration Order on that same issue. According to MCI, the NYT Remand Order requires the Commission to recalculate damages for all remanded cases. The court did not distinguish between cases seeking review of the 1989-90 ROR Order and the 1989-90 Reconsideration Order. In SWBT's Second Response, SWBT again maintains that because MCI sought review of only the 1989-90 ROR Order, the Commission should not recalculate damages for File No. E-93-138. In addition, SWBT points out that in the 1989-90 Reconsideration Order the Commission found it unnecessary to reach a conclusion on two issues raised by SWBT. SWBT contends that should the Commission recalculate damages for File No. E-93-138, it must address those two unresolved issues. 14. We agree with MCI that the Commission is required by the NYT Remand Order to recalculate damages for all complaints included under the 1989-90 ROR Order. Because File No. E-93-138 was one of the matters decided by the 1989-90 ROR Order, we are required to recalculate damages consistent with the court's decision in the MCI Remand Order, in which the court determined that we must remove the underearnings offsets. Accordingly, we have recalculated MCI's claim against SWBT in File No. E-93-138 and have set forth those calculations as indicated in Appendix A. 15. We agree with SWBT, however, that the issues rendered moot by our determination to offset MCI's damages award in the 1989-90 Reconsideration Order have effectively been revived by the NYT Remand Order directing the Commission to recalculate damages by removing offsets. We address those issues here. 16. First, SWBT requested that the Commission reconsider its decision to reject SWBT's adjustments to its Form 492 and, based on the amended Form 492, reverse its liability finding. According to SWBT, the Common Carrier Bureau (Bureau) permitted U S West to make adjustments to its Form 492 for the 1989-90 monitoring period nearly three years after SWBT attempted to amend its Form 492 for the same monitoring period. SWBT argues that there is no justification for accepting U S West's adjustments while rejecting those requested by SWBT. 17. As the Commission has previously held, the final Form 492 filed by carriers is a "conclusively binding determination of a carrier's earnings" for purpose of enforcing its rate of return prescription. The Commission's rules clearly state that all adjustments to Forms 492 for the period January 1, 1989 to December 31, 1990 had to be made by September 30, 1991. As we previously explained in the 1989-90 ROR Order, SWBT failed to offer any reasons as to why it was unable to file what it considered to be an accurate Form 492 by the filing deadline despite discovering the alleged errors in its accrual accounts before the September 30, 1991 filing date. In fact, SWBT did not file an amended form until six months after the filing deadline, a delay for which it has offered no explanation. We continue to find that SWBT has made no showing of extraordinary circumstances that would warrant a waiver of the Form 492 filing deadlines. 18. Moreover, SWBT's reliance on the decision involving US West is misplaced because the two situations are not analogous. Unlike SWBT, any amendments made by US West will not be for the purpose of correcting internal miscalculations, as SWBT seeks to do. Instead, the Bureau imposed the amendment requirement upon US West in an order involving US West's request for authority to make a permanent reduction in its price cap indices (PCI) in order to settle certain overearnings complaints. In that Order, the Bureau directed US West to account for any effects of a reduction in its PCI as later adjustments to its FCC Form 492 earnings reports filed with the Commission for the 1989-90 monitoring period. Such direction was consistent with the Commission requirement that LECs treat overearnings payments as adjustments to the period in which the overearnings occur, rather than to the period in which the payment is made. Thus, unlike the instant case, US West was not requesting an amendment to correct any internal miscalculations known to it before the Form 492 filing date, but instead was making a filing demanded by the Bureau in the context of settling various complaints. 19. Second, SWBT claims that we should base the damages calculation for the special access category on a rate of return of 12.438129 percent rather than the rounded 12.44 percent it reported on its Form 492. SWBT claims that use of this unrounded number would produce a damages award of $71,477 rather than the $74,984 calculated by the Commission. Although SWBT itself chose to report 12.44 percent as its rate of return on Form 492, it urges now that this unrounded figure be substituted in order to reduce the damages for which it is liable. 20. We find that the 12.44 percent rate of return reported by SWBT on its Form 492 is the proper rate of return to utilize in calculating damages. The Commission has specifically designated the Form 492 monitoring reports to be a "final" and "conclusively binding determination of a carriers' earnings." In calculating overearnings, the Commission has used the rate of return submitted to the Commission by the parties on the Form 492 and has not allowed adjustment to those figures or, as SWBT proposes, recalculations to produce numbers at odds with those designated on those forms. Finally, in the MCI Remand Order, the Court did not disturb the methodology we employed for calculating refunds other than barring the underearnings offsets. We see no reason to handle SWBT's damages calculations any differently from those of the other parties and, accordingly, decline to revisit that methodology here by allowing SWBT to employ a figure that differs from that which it chose to report as its rate of return on Form 492. V. CONCLUSION AND ORDERING CLAUSES 21. Pacific's petition for reconsideration is granted to the extent indicated. The damages calculations in File No. E-89-389 are corrected as set forth in Appendix A. In addition, the complaint in File No. E-93-117 is dismissed with prejudice insofar as it relates to LDDS. Further, the damages calculation for File No. E-93-138 is provided per MCI's request and is set forth in Appendix A. 22. Accordingly, IT IS ORDERED pursuant to Sections 1, 4(i), 4(j), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), and 208 that the Petition for Reconsideration filed in these proceedings by Pacific Bell on January 3, 1997 IS GRANTED. 23. IT IS FURTHER ORDERED pursuant to Sections 1, 4(i), 4(j), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), and 208 that the damages calculations in those complaint proceedings identified in Appendix A ARE RECALCULATED to remove offsets for underearnings as described herein and as set forth in Appendix A. 24. IT IS FURTHER ORDERED pursuant to Sections 1, 4(i), 4(j), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), and 208 that the Motion for Partial Dismissal filed by LDDS Communications in File No. E-93-117 IS GRANTED. 25. IT IS FURTHER ORDERED pursuant to Sections 1, 4(i), 4(j), and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j), and 208 that LDDS' damages claims in File No. E-93-117 ARE DISMISSED WITH PREJUDICE and the proceeding IS TERMINATED insofar as it relates to LDDS. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A PACIFIC TELESIS GROUP [amounts in dollars] Pacific Bell Telephone Company OFFSETS OFFSETS CORRECTED Complainant OVEREARNINGS ALLOWED CORRECTEDDAMAGES Competitive Telecommuni- cations Assoc., et al., File No. E-89-389 American Sharecom 2,561 (1,130) 562 1,993 (562) under (568) refund American Telco 100 (44) 22 78 (22) under (22) refund OFFSETS OFFSETS CORRECTED Complainant OVEREARNINGS ALLOWED CORRECTED DAMAGES Execuline of 28,479 (3,740) 1,859 26,598 Sacramento (1,859) under (1,881) refund Express Tel 78,986 (34,842) 17,316 61,460 (17,316) under (17,526) refund ITT 36,452 (84,040) 41,765-0- (41,765) under (42,275) refund Metromedia 9,901 (4,367) 2,170 7,704 (2,170) under (2,197) refund Tel-Am of S.L. 10,638 (4,693) 2,332 8,277 (2,332) under (2,361) refund Telus 6,133 (2,705) 1,344 4,772 (1,344) under (1,361) refund Wylon 161 (71) 35 125 (35) under (36) refund SOUTHWESTERN BELL TELEPHONE COMPANY [amounts in dollars] OFFSETS OFFSETS CORRECTED Complainant OVEREARNINGS ALLOWED CORRECTED DAMAGES MCI Telecommuni- 74,984 (8,137,390) 8,137,390 74,984 cations, Corp. File No. E-93-138 APPENDIX B Effective Period Rate Internal Revenue Service Citation 01/01/87 - 03/31/87 8% Rev.Rul. 146, 1986-2 C.B. 208 04/01/87 - 06/30/87 8% Rev.Rul. 87-23, 1987-13 I.R.B. 46 07/01/87 - 09/30/87 8% Rev.Rul. 87-62, 1987-29 I.R.B. 10 10/01/87 - 12/31/87 9% Rev.Rul. 87-87, 1987-36 I.R.B. 8 01/01/88 - 03/31/88 10% Rev.Rul. 87-131, 1987-50 I.R.B. 6 04/01/88 - 06/30/88 9% Rev.Rul. 88-17, 1988-10 I.R.B. 6 07/01/88 - 09/30/88 9% Rev.Rul. 88-50, 1988-25 I.R.B. 39 10/01/88 - 12/31/88 10% Rev.Rul. 88-86, 1988-41 I.R.B. 1 01/01/89 - 03/31/89 10% Rev.Rul. 88-105, 1988-51 I.R.B. 4 04/01/89 - 06/30/89 11% Rev.Rul. 89-36, 1989-1 C.B. 309 07/01/89 - 09/30/89 11% Rev.Rul. 89-69, 1989-1 C.B. 310 10/01/89 - 12/31/89 10% Rev.Rul. 89-99, 1989-2 C.B. 256 01/01/90 - 03/31/90 10% Rev.Rul. 89-125, 1989-2 C.B. 257 04/01/90 - 06/30/90 10% Rev.Rul. 90-19, 1990-1 C.B. 186 07/01/90 - 09/30/90 10% Rev.Rul. 90-47, 1990-1 C.B. 187 10/01/90 - 12/31/90 10% Rev.Rul. 90-71, 1990-35 I.R.B. 4 01/01/91 - 03/31/91 10% Rev.Rul. 90-94, 1990-46 I.R.B. 16 04/01/91 - 06/30/91 9% Rev.Rul. 91-20, 1991-11 I.R.B. 1 07/01/91 - 09/30/91 9% Rev.Rul. 91-33, 1991-21 I.R.B. 1 10/01/91 - 12/31/91 9% Rev.Rul. 91-50, 1991-37 I.R.B. 1 Effective Period Rate Internal Revenue Service Citation 01/01/92 - 03/31/92 8% Rev.Rul. 91-65, 1991-51 I.R.B. 1 04/01/92 - 06/30/92 7% Rev.Rul. 92-21, 1992-14 I.R.B. 14 07/01/92 - 09/30/92 7% Rev.Rul. 92-44, 1992-24 I.R.B. 86 10/01/92 - 12/31/92 6% Rev.Rul. 92-77, 1992-38 I.R.B. 12 01/01/93 - 03/31/93 6% Rev.Rul. 92-110, 1992-52 I.R.B. 15 04/01/93 - 06/30/93 6% Rev.Rul. 93-24, 1993-14 I.R.B. 5 07/01/93 - 09/30/93 6% Rev.Rul. 93-40, 1993-23 I.R.B. 9 10/01/93 - 12/31/93 6% Rev.Rul. 93-63, 1993-30 I.R.B. 40 01/01/94 - 03/31/94 6% Rev.Rul. 93-94, 1993-42 I.R.B. 42 04/01/94 - 06/30/94 6% Rev.Rul. 94-21, 1994-14 I.R.B. 14 07/01/94 - 09/30/94 7% Rev.Rul. 94-39, 1994-26 I.R.B. 9 10/01/94 - 12/31/94 8% Rev.Rul. 94-58, 1994-39 I.R.B. 6 01/01/95 - 03/31/95 8% Rev.Rul. 95-15, 1995-9 I.R.B. 9 04/01/95 - 06/30/95 9% Rev.Rul. 95-33, 1995-33 I.R.B. 17 07/01/95 - 09/30/95 8% Rev.Rul. 95-46, 1995-26 I.R.B. 6 10/01/95 - 12/31/95 8% Rev.Rul. 95-59, 1995-35 I.R.B. 10 01/01/96 - 03/31/96 8% Rev.Rul. 95-78, 1995-49 I.R.B. 6 04/01/96 - 06/30/96 7% Rev.Rul. 96-17, 1996-13 I.R.B. 5 07/01/96 - 09/30/96 8% Rev.Rul. 96-28, 1996-24 I.R.B. 11 10/01/96 - 12/31/96 8% Rev.Rul. 96-44, 1996-38 I.R.B. 4 01/01/97 - 03/31/97 8% Rev.Rul. 96-52, 1997- I.R.B. 24