Allen R. Frischkorn, Jr., Ruth L. Prokop and Timothy N. Seward, Washington, D. C., were on the brief for petitioners in No. 75-1148.

Warren E. Baker, Westwood, Kan., John M. Lothschuetz, Mansfield, Ohio, and Carolyn C. Hill, Washington, D. C., were on the brief for petitioner in No. 75-1227.

Abe Fortas and Kenneth E. Hardman, Washington, D. C., were on the brief for petitioner in No. 75-1266.

Jack Werner, Washington, D. C., was on the brief for petitioner in Nos. 75-1394 and 75-1395. Laurence Singer, Washington, D. C., also entered an appearance for petitioner in Nos. 75-1394 and 75-1395.

Philip M. Walker and Donald E. Ward, Washington, D. C., were on the brief for petitioner in No. 75-1401. Arthur G. House, Chevy Chase, Md., also entered an appearance for petitioner in No. 75-1401.

Herbert E. Forrest, Washington, D. C., Thormund A. Miller, San Francisco, Cal., and James M. Tobin, Washington, D. C., were on the brief for petitioner in No. 75-1404.

Michael H. Bader, Kenneth A. Cox, William J. Byrnes and Raymond C. Fay, Washington, D. C., were on the brief for petitioners in No. 75-1422.

Robert E. McKee and Howard A. White, New York City, were on the brief for petitioner in No. 75-1453.

William K. Coulter and Cynthia R. Clarke, Washington, D. C., were on the brief for petitioner in No. 75-1459.

Denis J. Brion, Washington, D.C., Carl J. Cangelosi, New York City, Eileen Lerman, Washington, D.C., and Donald J. Elardo, New York City, were on the brief for petitioner in No. 75-1513.

John B. Gantt, Washington, D. C., was on the brief for petitioner in No. 75-1558.

James T. Roche, John M. Scorce, Vienna, Va., and Kevin H. Cassidy, Washington, D. C., were on the brief for intervenor in No. 75-1143.

Robert E. Conn, New York City, entered an appearance for intervenor in Nos. 75-1453 and 75-1513.

Before MacKINNON and ROBB, Circuit Judges, and BRODERICK,** United States District Judge for the Eastern District of Pennsylvania.

Opinion for the court filed by MacKINNON, Circuit Judge.

Petitioners-appellant1 (hereinafter, "petitioners") in these 14 consolidated cases are common carriers or equipment manufacturers regulated by the Federal Communications Commission (FCC) who seek review of the orders establishing the Commission's 1975 fee schedule2 insofar as that schedule relates to them. They therefore challenge the validity of the following specific fees: (1) common carrier application, filing, and grant fees; (2) common carrier tariff filing fees; and (3) equipment type approval, type acceptance and certification fees.3 In accordance with the disposition made in a companion case decided this same date, National Cable Television Assn. v. FCC (National Cable),4 we remand this case to the FCC for reconsideration and clarification of the 1975 fee schedule in accordance with the principles set forth in this and the companion cases also decided this date.5

The fees at issue in this case appear to have been fixed in essentially the same way as were the other fees in the 1975 FCC fee schedule. This process, described in greater detail in National Cable, was designed to recover the costs associated with the processing of applications and tariff filings, and involved three steps: (1) calculation of "total projected costs" of the particular bureau6 by adding a pro-rata share of certain indirect costs7 to "all costs" which could be directly attributed to that bureau; (2) multiplication of this "total projected costs" figure by a percentage representing the portion of the bureau's activity that was devoted to application processing or tariff filing; (3) addition of a portion of the cost of the Antenna Survey Program conducted by the Field Operations Bureau, where applicable, to arrive at a "fee recoverable cost."8 Fees were then set by proportionately scaling down previous rates until a projected total revenue equal to the fee recoverable cost was reached.9

We have criticized this method of setting fees in National Cable, and there determined that the cable television annual authorization fee did not comply with the requirements set out by the Congress in the independent Offices Appropriation Act of 1952 (IOAA)10 and by the Supreme Court in National Cable Television Assn. v. United States (NCTA), 415 U.S. 336, 94 S. Ct. 1146, 39 L. Ed. 2d 370 (1974), and FPC v. New England Power Co., 415 U.S. 345, 94 S. Ct. 1151, 39 L. Ed. 2d 383 (1974). We adopt those criticisms here and reach a similar conclusion. Despite the wide variety in the composition of the fees for the Cable TV Bureau and the bureaus involved here, and the very substantial difference in duties, the controlling principles are the same. Since the Commission followed the same principles in setting all the fees, the bureau fees here in question should similarly be corrected. The belated revision of the figures for projected and recoverable costs in the Common Carrier Bureau, see note 8 supra, also compels remand. We therefore return this case along with its companions to the Commission for reconsideration and clarification of the 1975 fees.

Petitioners have raised many significant arguments concerning the validity of the particular fees at issue here. It is our conclusion that compliance with the requirements set out in the other cases decided today, see note 5 supra, will also settle many if not all of the disputes which have given rise to this lawsuit. Certain of the contentions of the petitioners in this case bear discussion, however. In the following sections, we discuss several unique questions which bear upon the application of the principles of National Cable by the agency on remand.

The contention most strongly urged by petitioners is that the Commission has no authority to assess any fee for tariff filings and equipment approvals and certifications, even assuming that such fees would be constructed so as to comply with the requirements set out in the companion cases. Petitioners' argument is that the public interest in these activities is so strong that it is unfair to assess any of their cost against any private party. In support of this view, they cite language in NCTA which they allege indicates that the inclusion of charges for services rendered to the public in a fee assessed against a private party will transform that fee into a tax, which the agency has no authority to levy. 415 U.S. at 341-42, 94 S. Ct. 1146.

Examination of the two Supreme Court decisions, supra, on this subject fails to reveal support for this broad proposition. What the Court does hold is that " 'value to the recipient' is . . . the measure of the authorized fee," 415 U.S. at 342-43, 94 S.Ct. at 1150, and that to the extent that the Commission expended moneys for the "public policy or interest . . . and other pertinent facts," 415 U.S. at 343, 94 S.Ct. at 1150, such expenses could not be recovered from those regulated by the agency. The Court quoted a statement from the legislative history which indicated that the cost of granting a "franchise," and the cost of services which result in "protection" of franchise holders (presumably apart from protecting the public), were examples of benefits to recipients which were of value to them and for which they could be required to pay. In connection therewith, the statement observed that the recipient "should pay some of the cost of the hearings." 415 U.S. at 342-43, 94 S. Ct. at 1150. See note 17 infra. This indicates the Court recognized that the problem involved separating out the costs of issuing the franchise and of protecting it from operational interference, and of collecting for such expenses as distinguished from "costs (of services which) inured to the benefit of the public."

Therefore it is clear that under NCTA expenditures made to benefit the public are required to be excluded from a proper fee. 415 U.S. at 341-43, 94 S. Ct. 1146. But the Court has not held that no fee can be assessed in situations which partially benefit the public. To the contrary, it explicitly recognized that "some of the costs (of the FCC regulation of the cable television industry) inured to the benefit of the public, unless the entire regulatory scheme is a failure, which we refuse to assume," 415 U.S. at 343, 94 S. Ct. at 1150, but held that a fee related to costs could still be assessed against the private recipient so long as it was measured by a "value to the recipient" standard and the cost of providing public benefits was excluded. 415 U.S. at 342-44, 94 S. Ct. 1146.

Application of that principle to these cases presents difficult practical questions on matters about which the record contains insufficient data. Because of that void, a detailed analysis by this court of the problems involved is impossible. We can, however, provide some general guidelines for the Commission which we see as being presented by the discernable facts.

First, we interpret the Court's language in NCTA to require a certain nexus, a threshold level of private benefit, between the regulatee and the agency before a fee can be assessed against the recipient of the service:

A fee, however, is incident to a voluntary act, e. g., a request that a public agency permit an applicant to practice law or medicine or construct a house or run a broadcast station. The public agency performing those services normally may exact a fee for a grant which, presumably, bestows a benefit on the applicant, not shared by other members of society.

415 U.S. at 340-41, 94 S. Ct. at 1149 (emphasis added). This only means that the private recipient must be "identifiable" or, to state it another way, that no fee should be charged to a private party "when the identification of the ultimate beneficiary is obscure and the service can be primarily considered as benefitting broadly the general public." This language, taken from a Bureau of the Budget Circular,11 was approvingly quoted by the Supreme Court in New England Power, where the Court stated "(w)e believe that is the proper construction of the (IOAA)." 415 U.S. at 350-51, 94 S.Ct. at 1154-1155.12

Second, the FCC can include in the cost basis of its fees only those expenses which the agency incurs to confer value on the payor. In National Cable, we explained that the "value conferred" measure of a valid fee means that the fee assessed cannot exceed the cost of the service rendered, thus prohibiting fees such as the tariff filing fees here13 which increase with the revenues or profits of the payor without reflecting a reasonable relationship to the actual cost of rendering the service.14 This principle also requires that a fee only charge for those expenses which are necessary to service the applicant or grantee. Expenses incurred to serve some independent public interest cannot, under NCTA, be included in the cost basis for a fee, although the Commission is not prohibited from charging an applicant or grantee the full cost of services rendered to an applicant which also result in some incidental public benefits.

A hypothetical example will illustrate our meaning. If the Commission, in granting an equipment type approval under 47 U.S.C. § 302a (1970) and 47 C.F.R. § 2.803 (1975), is required to incur expenses for testing or inspection, such expenses can be charged in full to the applicant. These activities have undisputed private benefits although they may also create incidental public benefits as well.15 But if the agency were to engage in further activity to determine whether a piece of equipment which has already been found to have no potential for creating "harmful interference" under section 302a meets standards for consumer safety it would be doing so to satisfy some independent public interest, and the charge for these additional expenses could not be included in fees imposed on equipment owners. Although there may be some private benefit in safety testing, it is not a part of the service the agency must render to the manufacturer in order for him to comply with the statute: the additional tests serve an independent public interest, with only incidental private effects.

This holding effectively disposes of the arguments of petitioners that no fee can be assessed for tariff filings or for equipment testing and approval. Both activities are required by statute, and the FCC is entitled to charge for services which assist a person in complying with his statutory duties. Such services create an independent private benefit. Tariff filings are required by 47 U.S.C. § 203(a) (1970) and provide a means for the carrier to obtain its revenues and to regulate subscriber use of its facilities. Although this statute was enacted in order to protect the public against excessive or unreasonably discriminating or preferential charges,16 that result is only an incidental benefit from the service which is rendered by the agency, i. e., assisting the carriers in complying with the statute. Similarly, equipment certification, acceptance, and approval is required by47 U.S.C. § 302a (1970) and 47 C.F.R. § 2.803 (1975), and assists the manufacturer in marketing a quality product and gives him credibility in the market place. Other commission fees at issue in this case can be justified by the statutory requirement of a permit for construction of new or extended lines or the discontinuance of service by a common carrier,47 U.S.C. § 214 (1970), and by the requirement of an operating license and station construction permit under 47 U.S.C. §§ 301, 319 (1970).

However, it remains to be seen whether the Commission can justify charging fees in the amount it has attempted to do in the 1975 fee schedule. For example, it strains the limits of credulity to value the services rendered to applicants or grantees at 94 percent of the annual budget of the Common Carrier Bureau. Surely more than six percent of the work of that bureau had justifications independent of the services rendered to private parties. We therefore direct the Commission to reexamine and explain the basis for its allocation of costs.

A second significant question raised by the petitioners in this action is how far the Commission must break down the costs which form the basis for its fees. It is argued that the FCC is wrong in apportioning the total costs of common carrier regulation among the whole mass of common carriers because the amount of work and the complexity of problems presented by applications, filings, and authorizations varies greatly between classes of carriers. National Assn. of Radiotelephone Systems (NARS) Brief at 14-15. For example, an application for new facilities made by AT & T might be much more complex than a similar application made by a small independent telephone company or a radio common carrier (RCC). Or, possibly such an AT & T application, because of their much greater frequency and similarity, might require less processing. Also, it is contended that some classes of carriers in practice do not utilize particular activities. Thus, NARS argues that there are few, if any, hearings on RCC tariff rates because RCC's are required to file tariffs only if their coverage areas cross state lines, and yet under the present fee schedule the costs of holding such hearings are apportioned among all classes of carriers, including RCC's. NARS Brief at 25.

Initially, we note that the Commission has shown some sympathy for this argument, with the result that it attempted to make certain fees (in the instant case, tariff filing fees) vary with the revenue of the applicant. The problem with this collection scheme was not its intention but the means chosen to effect it. We have today held that, unless graduated fees are clearly related to graduated costs, it may be improper to measure a fee solely according to the revenues of the payor. See note 13 supra. However, we see no objection to a sliding scale using a proper measure i. e., the cost of work performed or value conferred on the recipient. Whether it is feasible to separate the Commission's activities into various classes based on increasing costs and complexity, we do not know. If the agency can do so, such a fee schedule would be valid under the statute.

In any case, we interpret the statute and the Supreme Court decisions to require reasonable particularization of the basis for the fees, accomplished by an allocation of costs to the smallest unit that is practical. In most cases, we expect this unit will be classes of carriers or applicants or grantees or services which the Commission has already singled out for separate treatment in its 1975 fee schedule. Classification is always a difficult problem, involving as it does the drawing of lines; but the solution is not to group dissimilar entities together. The Commission must examine its expenses and set forth the maximum particularization of costs which it conveniently can make, so that the correctness of its actions can be reviewed.

Here again, because of the bare record before us, we are able to give the agency only the most general guidance. Many of the expenses will no doubt separate naturally among classes of carriers and services, and others will be easily apportioned on this basis. Some expenses, however, may be more appropriately charged to individuals, and the Commission may wish to consider setting separate fees for those activities. For example, a substantial portion of the expenses of the administrative law judges (ALJ's) and certain hearing expenses17 are perhaps most fairly charged to those individuals whose applications and acts require the hearings. Also, there may be justification for apportioning part of the cost of an activity to regulated companies or individuals who make little use of that service, if the Commission finds that expenses were nonetheless incurred in maintaining a competent staff to perform the essential service when it is furnished.

In conclusion, we will attempt to summarize the major requirements which we have today decided must be met by the Commission when it reviews its fee schedule on remand. First, the Commission must justify the assessment of a fee by a clear statement of the particular service or benefit which it is expected to reimburse. Second, it must calculate the cost basis for each fee assessed. This involves (a) an allocation of the specific direct and indirect expenses which form the cost basis for the fee to the smallest practical unit; (b) exclusion of any expenses incurred to serve an independent public interest; and (c) a public explanation of the specific expenses included in the cost basis for a particular fee, and an explanation of the criteria used to include or exclude particular terms. Finally, the Commission must set a fee calculated to return this cost basis at a rate which reasonably reflects the cost of the services performed and value conferred upon the payor. The fees may be imposed only on beneficiaries of agency services who satisfy the criteria of NCTA and New England Power.

We are very cognizant of the extreme difficulty of this task which resembles unscrambling eggs but, as we interpret the law, it is necessary in order to bring the agency into compliance with the statute and the Supreme Court decisions. We therefore remand this case to the FCC for recalculation of its 1975 fee schedule. In doing so, it is not our intent that our remand be narrowly interpreted as requiring only a review of the particular fees at issue herein; rather, we consider that a general review of the entire schedule is required.

Judgment accordingly.