The Supreme Court yesterday issued a ruling that could save consumers billions of dollars a year in monthly telephone bills, deciding that the Federal Communications Commission cannot compel states to use federal depreciation methods to set intrastate telephone rates.
In a 5-to-2 ruling with two justices abstaining, the court said the FCC erred when it ordered state public utility commissions to change their method for depreciating telephone company equipment used on local and in-state long-distance calls.
Charges for equipment depreciation are one of the major components in setting telephone rates. State commissions balked at the rapid write-offs in the federal depreciation formula, which would have forced them to raise rates for local and in-state calls to provide phone companies with funds to replace equipment.
The court rejected arguments from more than two dozen telephone companies and the FCC that increased depreciation schedules were necessary to promote innovation and rapid replacement of aging equipment. Not having uniform depreciation schedules in all states would frustrate federal goals of having a modern communications industry, they said.
Justice William J. Brennan Jr., writing for the majority yesterday in Louisiana Public Service Commission v. FCC, said the federal agency had overstepped its authority by ordering its depreciation formula to cover local and in-state service, matters that are regulated by the states. The ruling does not affect the FCC's power to set depreciation formulas for equipment used on interstate calls.
"A federal agency may preempt state law only when and if it is acting within the scope of its congressionally delegated authority," Brennan said.
A section of the Communications Act of 1934 is a specific "congressional denial of power to the FCC to require state commissions to follow FCC depreciation practices for intrastate rate-making purposes," he said.
"What is really troubling the companies , of course, is their sense that state regulators will not allow them sufficient revenues" to modernize, Brennan said. "While we do not deprecate this concern, the act precludes both the FCC and this court from providing the relief sought," he said. "As we so often admonish, only Congress can rewrite this statute."
Chief Justice Warren E. Burger and Justice Harry A. Blackmun dissented without explanation. Justices Lewis F. Powell Jr. and Sandra Day O'Connor did not take part in the case.
Lee Selwyn, an economics consultant on telecommunications regulation who works with state public service commissions, estimated yesterday that the differences between the federal and state depreciation schedules "very conservatively could average between $1 billion and $2 billion a year, if not more," and that rate payers nationwide could stand to recover somewhere between $10 billion and $15 billion as a result of the ruling.
John Sodolski, president of the U.S. Telephone Association, representing 1,100 local telephone companies, including the Bell companies, said in a statement he was disappointed in the high court's ruling but believes that, in light of the decision, state commissions will recognize the importance of realistic depreciation policies that take into account the rapidly changing environment in the telecommunications industry.
The court, in reversing the 4th U.S. Circuit Court of Appeals, told the appeals court to reconsider its ruling in a related case, Public Service Commission of Maryland v. Chesapeake and Potomac Telephone Co. of Maryland, in light of yesterday's decision.
In other action yesterday, the court upheld a $75,000 jury award to an Alabama man against the International Longshoremen's Association who was fired from his job for his unionizing activities.
The worker, Larry Davis, who worked for a stevedoring company in Mobile, said he was afraid of being fired for participating in union activities, but that an ILA official promised he would get his job back with back pay if that happened.
After Davis was fired, he sued the ILA in Alabama state courts for fraud and misrepresentation.
The court, in an opinion by Justice Byron R. White, upheld the award in this case, but in one section, joined by four justices, said labor unions still maintain substantial protections from having to defend themselves from similar suits in state courts.
White, in International Longshoremen's Association v. Davis, said that unions may raise federal law issues as a defense on appeal even if they neglect to raise them before or during the trial.