269 F.3d 1098 (D.C. Cir. 2001)
Verizon Telephone Companies, et al., Petitionersv.Federal Communications Commission and United States of America, RespondentsSprint Corporation, et al., Intervenor
No. 00-1207
United States Court of Appeals  FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 6, 2001Decided November 9, 2001

On Petitions for Review of Orders of the Federal Communications Commission
Aaron M. Panner argued the cause for petitioners and  supporting intervenors.  With him on the briefs were Michael  K. Kellogg, Michael E. Glover, John M. Goodman, James D. Ellis, Roger K. Toppins, Jeffry A. Brueggeman, Jay C.  Keithley, and Michael B. Fingerhut.
John E. Ingle, Deputy Associate General Counsel, Federal  Communications Commission, argued the cause for respondents.  With him on the briefs were Daniel M. Armstrong,  Associate General Counsel, Laurel R. Bergold and Lisa E.  Boehley, Counsel, John M. Nannes, Acting Assistant Attorney General, United States Department of Justice, Robert B.  Nicholson and Robert J. Wiggers, Attorneys.  Christopher J.  Wright, General Counsel, Federal Communications Commission, and Lisa S. Gelb, Counsel, entered appearances.
Michael J. Thompson, Albert H. Kramer, Katherine J.  Henry, and Andrew J. Phillips were on the joint brief of  intervenors ABTEL Communications, Inc., et al.  Robert F.  Aldrich entered an appearance.
Michael E. Glover, John M. Goodman, James D. Ellis,  Roger K. Toppins, Jeffry A. Brueggeman, Michael K. Kellogg, Aaron M. Panner, Jay C. Keithley, and Michael B.  Fingerhut were on the brief of Local Exchange Carrier  intervenors.
Before:  Ginsburg, Chief Judge, Edwards and Sentelle,  Circuit Judges
Opinion for the Court filed by Circuit Judge Edwards.
Edwards, Circuit Judge:


1
A group of local phone companies  (known as "local exchange carriers," or "LECs") seek review  of an order of the Federal Communications Commission  ("FCC" or "Commission") holding them liable for violating  the unreasonable charge provisions of 47 U.S.C.( 201(b)  (1994).  The violations occurred when the LECs wrongfully  imposed so-called End User Common Line ("EUCL") fees on  certain "independent payphone providers" ("IPPs").  In an  agency adjudication that addressed complaints challenging  the fees, the FCC initially construed the rules enunciated in  an earlier rulemaking, In re MTS and WATS Market Structure, 97 F.C.C.2d 682 (1983) ("Access Charge Reconsideration") (setting rules by which LECs could recover costs  associated with calls made on payphones), to allow the imposition of the fees.  However, the FCC's decision did not survive  judicial review.  In C.F. Communications Corp. v. FCC, 128  F.3d 735 (D.C. Cir. 1997), the court held that the Access  Charge Reconsideration did not allow for the fees.  The case  was remanded, leading the Commission to reverse itself in  the order now under review.  See In re C.F. Communications  Corp. v. Century Tel. of Wisconsin, Inc., 15 F.C.C.R. 8759  (2000) ("Liability Order").  In changing its position following  judicial review, the FCC conclusively determined that the  LECs had violated the applicable Access Charge Reconsideration rules by imposing the EUCL charges;  the Commission  decided, however, that the question of what damages should  flow from that violation was best reserved for another day.


2
In their present petition, the LECs contend, first, that the  Liability Order is final, and thus immediately reviewable by  this court.  Second, they argue that the agency may not now  sanction them for conduct that had been expressly approved,  and may have even been compelled, by the Commission itself. The FCC responds that we lack jurisdiction at this time,  because by leaving the issue of damages unresolved, the  Liability Order was rendered non-final.  Moreover, the Commission asserts that even if we do reach the merits, the  LECs' retroactivity argument must fail, as whatever reliance  those carriers placed on ultimately erroneous FCC pronouncements cannot excuse their violations of governing  law as that law is properly construed.  We conclude that  the Liability Order is final, and that we therefore have  jurisdiction to review it.  It is true that the general rule is  that an adjudicatory decision resolving only liability and not  damages is not final.  In this case, however, the relevant  jurisdiction-conferring statute, 47 U.S.C. 208(b), provides  that an order "concluding an investigation ... of the lawfulness of a charge" is a final order subject to immediate appeal. We are presented with just such an order here.


3
On the merits, we hold that it was appropriate for the FCC  to find the LECs liable for their EUCL charges, even though  the Commission initially construed the Access Charge Reconsideration rules to allow the charges.  We do not believe that  the Commission should be prevented from stating the law correctly merely becauseit may have misconstrued the applicable rules in the past.  We emphasize, however, that this  holding does not necessarily doom the LECs' retroactivity  arguments.  Because the FCC has not yet fixed the means by  which it will calculate damages, the LECs are not foreclosed  from presenting their equitable concerns to the agency during  the next phase of the proceedings.  We therefore express no  opinion as to the Commission's authority to impose damages  on the LECs for charges that they may have collected in  reliance on the agency's initial (and mistaken) interpretations  of the Access Charge Reconsideration rules.

I. Background

4
Much of the regulatory and procedural background to the  present petition is set out in C.F. Communications.  See 128  F.3d at 736-38.  We will not repeat that entire discussion  here, but rather will concentrate on the most salient points. The underlying issue in this case is how local phone companies are to recover the costs that they incur when longdistance calls are made on coin-operated telephones.  The  story begins in 1983, when the FCC issued general rules  establishing a regulatory mechanism for LECs to be compensated for providing long-distance carriers (known as "interexchange carriers" or "IXCs") access to their local networks. In re MTS and WATS Market Structure, Third Report and  Order, 93 F.C.C.2d 241 (1983) ("Access Charge Rulemaking"),  modified on recon., 97 F.C.C.2d 682 (1983), modified on  further recon., 97 F.C.C.2d 834 (1984), aff'd and remanded in  part sub nom. Nat'l Ass'n of Regulatory Util. Comm'rs v.  FCC, 737 F.2d 1095 (D.C. Cir. 1984).  For most phones, the  Commission decided that these costs were to be footed by  "end users" who would be assessed EUCL charges by the  LECs.  Pay telephones, however, which tend to have no  predetermined end-user, required a different solution.  Accordingly, the FCC decided to exempt public payphones from  EUCL fees altogether, instead allowing the LECs to recover  their costs from the IXCs directly, in the form of Carrier  Common Line ("CCL") charges.  See Access Charge Reconsideration at 705.  Not all payphones were exempted, however.  Instead, the FCC distinguished between true "public"  payphones such as those in airports and on street corners  and those which it labeled "semi-public" a category that  included coin-operated phones found in restaurants and gas  stations, where "there is a combination of general public and  specific customer need for the service."  Id. at 704 & n.40. Reasoning that this latter class could be linked to identifiable  subscribers, the Commission allowed the LECs to impose flat  EUCL charges on those subscribers, just as they would do  for ordinary private phones.  See id. at 706.


5
At the time when the Access Charge Reconsideration was  issued, all of the nation's payphones were owned by the LECs  themselves.  This situation was soon undermined when the  FCC allowed a group of "independent" providers to enter the  payphone market.  See Registration of Coin Operated Telephones, 49 Fed. Reg. 27,763 (July 6, 1984).  These IPPs  brought with them a technological advantage:  so-called  "smart" phones, which connected to ordinary phone lines  rather than to the special coin lines that linked the LECowned phones to the central processors that supervise their  calls.  The new phones, which were able to perform this  managerial task internally, needed no such specialized hookup.  However, despite their architectural and cognitive differences, the two types of phones are found in the same kinds of  places and are basically indistinguishable from the lay user's  perspective.  Nevertheless, when it came toEUCL charges,  the LECs decided to treat the smart phones rather differently from their less sophisticated cousins.  Acting at first  without any guidance from the Commission other than the  original Access Charge Reconsideration, the LECs imposed  EUCL fees on all of the new phones not merely those  located in semi-public places and assessed these tolls on the  IPPs directly.


6
Unsurprisingly, the IPPs balked at these charges.  Their  concerns, however, were not well received by officials at the  FCC.  In 1988 and 1989, informal complaints filed by two  IPPs generated two letters from Anita J. Thomas, an analyst  in the Enforcement Division of the Commission's Common  Carrier Bureau.  In both of these letters, Thomas declared that by imposing EUCL fees on IPPs, the LECs violated  neither their own tariffs nor the agency's regulations.  See  Letter from Anita J. Thomas to LeRoy A. Manke, Manager,  Coon Valley Farmers Telephone Co. (Apr. 4, 1989), reprinted  in Joint Appendix ("J.A.") 154;  Letter from Anita J. Thomas  to Lance C. Norris, Vice President, American Payphones, Inc.  (Sept. 14, 1988), reprinted in J.A. 152.  In May of 1989,  another IPP, C.F. Communications Corp. ("CFC"), filed a  formal complaint, alleging that the LECs' conduct had violated various provisions of the Communications Act and seeking  reparations for the wrongfully collected EUCL charges.  This  challenge proved unsuccessful at the agency level, as both the  Common Carrier Bureau and ultimately the Commission itself sided with the LECs.  In re C.F. Communications Corp.  v. Century Tel. of Wisconsin, 8 F.C.C.R. 7334 (Com. Car.  Bur. 1993);  10 F.C.C.R. 9775 (1995) ("EUCL Decisions").  In  rejecting CFC's complaint, the FCC concluded that IPPs  were properly considered "end users" and thus could be  subjected to EUCL charges.  Moreover, the agency held that  the IPPs' payphones were "semi-public" within the meaning  of the Access Charge Reconsideration no matter where they  were located or how they were used.


7
CFC sought review of the FCC decision in this court and  found some success.  In C.F. Communications, the court  vacated the EUCL Decisions, holding both that the classification of IPPs as "end users" was an unreasonable interpretation of the relevant regulation, 47 C.F.R. 69.2(m), and that  the FCC had not adequately justified allowing EUCL charges  to be collected for IPP phones while exempting similarly  situated LEC-owned payphones from such fees.  See 128  F.3d at 738-42.  In deciding this second issue, the court  pointedly rejected the FCC's theory that a payphone should  be denied "public" (and thus EUCL-exempt) status under the  Access Charge Reconsideration merely because it was capable of private use.  Rather, the court stated that the relevant  question was how a phone was actually used, that is, the  manner in which it was held out to the public.  Id. at 741-42. These holdings were significant because they undermined the  legal basis on which the LECs had relied to rationalize their disparate treatment of independently owned "smart" payphones.  And, without such support, the LECs' actions seem  to collapse into the kind of unreasonable discrimination proscribed by the Communications Act.  See 47 U.S.C. 202(a). However, the court in C.F. Communications declined to  decide "whether the Commission's interpretation compelled  LECs to discriminate under Section 202(a), or the precise  consequences if it did," leaving those issues for another day. 128 F.3d at 742.


8
On remand, the FCC chose not to mount a renewed  defense of its decision to allow the LECs to assess end-user  fees on the IPPs.  Instead, the Commission decided to hold  the LECs liable for devising and implementingthat policy in  the first place.  In the Liability Order now on review, the  FCC concluded that, in light of the C.F. Communications  decision, a EUCL fee imposed on an independent payphone  that is used in the same manner as a LEC-owned "public"  payphone is an "unreasonable charge" under 47 U.S.C.  201(b).  See Liability Order at 8766, p 20.  The agency  then concluded that an award of damages for such liability  was appropriate.  Id. at 8768-69, p p 27-29.  At the same  time, however, the agency postponed a final ruling on damages, reasoning that further briefing and argument were  needed in order to fix the proper amount of the award.  Id. at  8771, p p 33-34.  The LECs filed the present petition for  review before that phase of the proceedings commenced.

II. Discussion

9
This petition presents two central questions, one jurisdictional and one merits-based.  The first is whether the FCC's  Liability Order is final and therefore subject to immediate  judicial review.  We answer this question in the affirmative. The second is whether it was permissible for the Commission  to hold the LECs liable for imposing charges that had  previously been condoned by the FCC itself.  We answer this  question in the affirmative as well.  At the same time,  however, we note that, because the agency has not yet  conclusively determined how it will measure damages, the  LECs still will be able to raise their concerns about retroactivity and reliance with the FCC during the next phase of  these proceedings.  And, until the Commission reaches a  conclusion on that issue, we are unable to review the propriety and permissible extent of damages in this case.

A. Finality under 47 U.S.C. 208(b)

10
Under 28 U.S.C. 2342(1) (1994), this court has jurisdiction to determine the validity of "all final orders of the  Federal Communications Commission made reviewable by  section 402(a) of title 47."  In turn, 47 U.S.C. 208(b) states  that "[a]ny order concluding an investigation" of, inter alia,  "the lawfulness of a charge" commenced at the behest of a  party complaining about the actions of a common carrier  "shall be a final order and may be appealed under section  402(a) of this title."  The jurisdictional question in this case,  then, is whether the Liability Order "concluded" the investigation that began with CFC's original 1989 complaint against  the LECs.


11
All parties agree that, in the Liability Order, the FCC  reached a final determination that the LECs had imposed  unreasonable charges in collecting EUCL fees from the IPPs,  thereby violating 47 U.S.C. 201(b).  See Liability Order at  8773, p p 40-41.  This decision is undoubtedly final, in the  sense that there is no indication that the agency will revisit it  in future proceedings.  Indeed, neither the Commission's  brief nor agency counsel's argument on appeal claimed that  the finding of liability is subject to further review by the FCC  sans a court order requiring it.  Nonetheless, the Commission  contends that its decision to bifurcate the damages phase of  its investigation from the liability phase stripped the entire  Liability Order of its finality.  In other words, according to  the FCC, an investigation under 208 of a single complaint  that seeks a determination of liability and an award of  damages is not over until the Commission has resolved both  aspects of the complaint.  See Br. for Respondents at 27.


12
As a general proposition, an FCC order is final if it "(1)  represents a terminal, complete resolution of the case before  the agency, and (2) determines rights or obligations, or has some legal consequence."  Capital Network Sys., Inc. v. FCC,  3 F.3d 1526, 1530 (D.C. Cir. 1993) (internal quotations and  citations omitted). Here, we are sure that the Liability  Order, even without a concomitant determination of damages,  has "some legal consequence" for the LECs.  The actions of  the FCC bear this out.  Agency officials have relied on the  Liability Order at least twice in unrelated cases to deny  requests made by SBC Communications, one of the named  LECs, to have sanctions against it mitigated.  See In re SBC  Communications, Inc., 16 F.C.C.R. 10963, 10968, p 15 & n.38  (Enf. Bur. rel. May 24, 2001);  In re SBC Communications,  Inc., 16 F.C.C.R. 5535, 5543, p 19 & n.53 (Enf. Bur. rel. Mar.  15, 2001).  If the Liability Order now furnishes the basis for  agency judgments in subsequent cases, the FCC is hard  pressed to deny that the finding of legal liability is sufficient  to satisfy the second prong of the finality test.  Cf. Consolidation Coal Co. v. Fed. Mine Safety & Health Review Comm'n,  824 F.2d 1071, 1078 (D.C. Cir. 1987) (holding that an agency  designation that "became a part of [the regulated party's]  permanent record, thereby exposing [it] to more severe sanctions for later violations" supplied "the 'modicum of injury'  necessary to support jurisdiction") (quoting Meredith Corp. v.  FCC, 809 F.2d 863, 868 (D.C. Cir. 1987)).


13
The FCC is, however, quite correct to point out that, under  a well-established principle of finality, when a tribunal elects  to resolve the issue of liability in a particular action while  reserving its determination of damages on that liability, that  decision generally is not considered "final" for purposes of  judicial review.  See Franklin v. District of Columbia, 163  F.3d 625, 628 (D.C. Cir. 1998) ("In damage and injunction  actions, a final judgment in a plaintiff's favor declares not  only liability but also the consequences of liability--what, if  anything, the defendants must do as a result.");  see also  Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 744 (1976)  (holding that a summary judgment order imposing liability is  not considered final under 28 U.S.C. 1291 where "assessment of damages or awarding of other relief remains to be  resolved").  This basic understanding of finality is the norm  not only in civil litigation, but also in the administrative context, at least where the relevant statute does not embrace  a non-traditional view of finality.  See, e.g., Rivera-Rosario v.  United States Dept. of Agric., 151 F.3d 34, 37 (1st Cir. 1998)  ("A final decision in an adjudicatory proceeding is one that  resolves not only the claim but, if liability is found, also the  relief to be afforded.");  Washington Metro. Area Transit  Auth. v. Dir., Office of Workers' Comp. Programs, 824 F.2d  94 (D.C. Cir. 1987);  accord AAA Eng'g & Drafting, Inc. v.  Widnall, 129 F.3d 602, 603 (Fed. Cir. 1997) (holding that an  order of the Armed Service Board of Contract Appeals was  not final because it resolved only "entitlement" (liability)  while reserving decision as to "quantum" (damages)).


14
In this case, however, this norm of finality has been supplanted by statute.  Congress added subsection (b) to 47  U.S.C. 208 in 1988.  See Pub. L. No. 100-594, 8(c), 102  Stat. 3021 (1988).  This amendment converted what had been  208 which allowed a broad group of entities to bring  complaints to the FCC challenging the actions of common  carriers, thus triggering investigations by the Commission of  the "matters complained of" into what is now subsection (a). In turn, the new provision, subsection (b), established time  limits pursuant to which certain investigations cognizable  under subsection (a) had to be concluded, and decreed that  dispositions in those investigations would be subject to immediate judicial scrutiny.  Thus, when the FCC conducts an  investigation into the "lawfulness" of a (1) charge, (2) classification, (3) regulation, or (4) practice, "any order concluding"  such an investigation is deemed to be a final order under  208(b). This case falls squarely within the meaning of this  expediting amendment.


15
Our conclusion is compelled by the statutory text.  The  crucial word in 208(b) is "lawfulness," which must be read  to mean what it says, namely that which is "allowed or  permitted by law."  Webster's Third New International  Dictionary 1279 (1993);  cf. Holland v. Williams Mountain  Coal Co., 256 F.3d 819, 826 (D.C. Cir. 2001) (Sentelle, J.,  concurring) ("While it is fashionable in some legal circles to  deride 'hyper-technical reliance upon statutory provisions,'  this Court does not and should not move in them.") (citing Palm Beach County Canvassing Bd. v. Harris, 772 So.2d  1220, 1227 (Fla. 2000), vacated, 531 U.S. 70 (2000)).  As such,  interpreted literally (as we think is proper), 208(b) applies  to final determinations of liability of the sort that the FCC  has delivered here.


16
This conclusion is further buttressed by the fact that  208(b) does not mention damages.  By contrast, damages  are specifically covered in three other sections of the chapter:  206 makes common carriers who do anything "declared to  be unlawful" liable for damages;  207 allows any party  harmed by the actions of a common carrier to file a complaint  with the FCC seeking damages;  and  209 authorizes the  Commission to "make an order directing the carrier to pay to  the complainant the sum to which he is entitled" if it determines that damages are appropriate.  Given that 208(b)  was designed to render only a limited category of FCC  decisions final, the failure of that provision to mention damages, set against the explicit reference to damages in these  other provisions, militates in favor of applying 208(b) as it  is written.


17
It is also noteworthy that  201(b) declares all "charges,  practices, classifications, and regulations" that are "unjust or  unreasonable" to be "unlawful."  The categories listed in  201(b) are coterminous with those cognizable under  208(b), further suggesting that, as to this class of investigations, a determination of lawfulness is separate and distinct  from a determination of what damages (if any) should flow  from a violation of the law.  For, even if the FCC ultimately  decides that the LECs need not pay any damages for their  EUCL charges, it would not follow from such a decision that  they had done nothing unlawful.  One can violate the law  without being made to pay for it.  Accordingly, when the  FCC conclusively resolved that the EUCL charges were  unreasonable within the meaning of 201(b) and the Access  Charge Reconsideration, see Liability Order at 8766, p 20, it  simultaneously and necessarily concluded its investigation  into the "lawfulness" of those charges, as it left nothing more  to be said on the question of whether the LECs had run afoul  of the statute's proscriptions.


18
To the argument that the original "investigation" has not  been concluded because CFC's original complaint sought  damages, and the agency's failure to determine damages  means that it has not resolved all of the "matters complained  of" under  208(a), our answer is simple.  The class of  investigations contemplated by  208(b), and subject both to  that subsection's time limitations and finality rules, is narrower than the class of investigations contemplated by 208(a). Indeed, the FCC has conceded as much.  See Br. for Respondents at 32.  This difference in coverage is stark, and plain on  the face of the statute.  Under  208(a), investigations can be  launched regarding "anything done or omitted to be done by  any common carrier subject to this chapter in contravention  of the provisions thereof."  By contrast, 208(b) governs  only the four types of investigations enumerated above.  Its  text refers not to investigations "of thematters complained  of," but rather to investigations "of the lawfulness of a  charge, classification, regulation, or practice."


19
Taken together, then, the language of  208(b), which  speaks only of lawfulness, and the structure of the common  carrier chapter, which contemplates separate determinations  of lawfulness and damages, compel the conclusion that when  the FCC enters an order dealing solely with the lawfulness of  a charge, that order is final under 208(b)(3) even if it fails  to resolve a complainant's properly presented claim for damages.  Our holding in no way limits how the Commission may  elect to investigate complaints under  208.  No FCC order  is subject to review under 208(b)(3) unless it actually  terminates an investigation of the lawfulness of a common  carrier's activities.  Thus, had the agency not bifurcated the  proceedings in this case, but instead reserved final judgment  on the LECs' liability until it was in a position to consider  damages simultaneously, this court would have been compelled to wait as well.  But, having elected to bifurcate, and  thus to render a conclusive finding that the LECs acted  unlawfully, the FCC subjected its decision to immediate  review.  Accordingly, we proceed to the merits of the LECs'  petition.


20
B. The LECs' Liability for Imposing EUCL Charges


21
The LECs argue that the Liability Order was arbitrary  and capricious for two related reasons.  First, they contend  that the Supreme Court's decision in Arizona Grocery Co. v.  Atchison, Topeka & Santa Fe Railway Co., 284 U.S. 370  (1932), precludes a finding of liability where a common carrier  imposes charges pursuant to and in reliance on the Commission's official mandate.  Second, they assert that the FCC's  change in position amounted to a "new" rule, and, therefore,  the agency was foreclosed from applying it retroactively.  We  reject both claims.  In doing so, we emphasize that our  analysis here is limited to the question of whether it was  permissible for the FCC to hold the LECs liable for violating  the Communications Act.  We do not decide the question of  whether the FCC may award damages for the LECs' charges  that have been found to be unlawful.


22
1. The Arizona Grocery Rule In Arizona Grocery, the Supreme Court held that the  Interstate Commerce Commission could not order a common  carrier to pay reparations for charging a rate that the agency  had explicitly approved at the time it was collected, but  subsequently determined to have been unreasonable.  In that  case, the ICC had, in a proceeding described by the Court as  "quasi-legislative," 284 U.S. at 388-89, ordered railroads shipping sugar from California to Phoenix, Arizona to charge no  rate exceeding 96.5 cents per 100 pounds.  In response, the  carriers adopted a rate of 86.5 cents, which they later reduced  to 84 cents;  these rates were then challenged before the  Commission.  In that proceeding, which the Court described  as "quasi-judicial," id. at 389, the agency determined that this  rate was unreasonable to the extent that it exceeded 71 to 73  cents and awarded the sugar shippers reparations from the  carriers for the difference.  The Supreme Court ultimately  held that this damages award was improper:


23
Where the Commission has, upon complaint and after hearing, declared what is the maximum reasonable rate to be charged by a carrier, it may not at a later time, and upon the same or additional evidence as to the fact  situation existing when its previous order was promulgated, by declaring its own finding as to reasonableness erroneous, subject a carrier which conformed thereto to the payment of reparation measuredby what the Commission now holds it should have decided in the earlier proceeding to be a reasonable rate. Id. at 390.


24
Despite the superficial appeal of this passage, the rule  enunciated therein is of no help to the LECs in this case. First, Arizona Grocery deals only with the power of the ICC  to award reparations to shippers for unreasonable rates that  they had paid to carriers.  See id. at 381 ("This case turns  upon the power of the Interstate Commerce Commission to  award reparations with respect to shipments which moved  under rates approved or prescribed by it.").  Arizona Grocery has been and should be understood in the terms in which  it was decided, as a proscription against the retroactive  revision of established rates through ex post reparations. See, e.g., Alabama Power Co. v. ICC, 852 F.2d 1361, 1373  (D.C. Cir. 1988) (suggesting that Arizona Grocery stands for  the proposition that requiring railroads "to pay refunds,  based on a determination that the earlier Commissionapproved rates were impermissible, runs counter to the wellestablished prohibition against retroactive ratemaking"); AT&T v. FCC, 836 F.2d 1386, 1394-95 (D.C. Cir. 1988) (Starr,  J., concurring) (citing Arizona Grocery for the "basic rule of  ratemaking" that "when the Commission determines that  existing rates are excessive, it cannot order a refund of past  payments under the revoked rate");  cf. Sea Robin Pipeline  Co. v. FERC, 795 F.2d 182, 189 n.7 (D.C. Cir. 1986) ("FERC  may not order a retroactive refund based on a post hoc  determination of the illegality of a filed rate's prescription.").


25
As such, neither Arizona Grocery nor the rule it announced  are concerned with a situation such as the one presented  here, in which we must decide not whether the FCC may  force the LECs to repay that which they took through EUCL  charges, but rather whether the Commission may make a  retroactive determination that those charges were unlawful at the time that they were imposed.  Indeed, the rule against  retroactive ratemaking is premised on the implicit understanding that an established rate is not made illegal if it is  later found to be impermissible or unreasonable.  See, e.g.,  Arizona Grocery, 284 U.S. 370, 389 (1932) (the ICC "could  repeal the order as it affected future action, and substitute a  new rule of conduct as often as occasion might require, but  this was obviously the limit of its power, as of that of the  legislature itself");  Town of Norwood, Mass. v. FERC, 53  F.3d 377, 381 (D.C. Cir. 1995) ("The retroactive ratemaking  doctrine prohibits the Commission from authorizing or requiring a utility to adjust current rates to make up for past errors  in projections.  If a utility includes an estimate of certain  costs in its rates and subsequently finds out that the estimate  was too low, it cannot adjust future rates to recoup past  losses.");  Sea Robin, 795 F.2d at 189 n.7 ("Sea Robin had a  right to rely on the legality of the filed rate once the  Commission allowed it to become effective.").  The subsequent determination rejecting the earlier rate prescription is  similar to a congressional action revising an earlier statutory  enactment the later action may suggest that the original  legislative act was ill-advised, but this will not justify reparations for persons who were disadvantaged by the original  legislative enactment.  This case does not involve the sort of  ratemaking contemplated by Arizona Grocery, so the same  assumptions do not apply here.


26
Second, in light of the implicit assumptions underlying the  rule against retroactive revision of established rates through  ex post reparations, it is not surprising that the Court in  Arizona Grocery observed that the ICC had prescribed a  legal rate in its "quasi-legislative capacity."  284 U.S. at 388. The Court recognized that ratemaking "fixing rates or rate  limits for the future" is a legislative function, and held that  once the Commission had exercised such a power it could only  undo the results prospectively.  Id. at 388-89.  In other  words, Arizona Grocery, by its own terms, does not apply  where an adjudicating agency alters, even with retroactive  effect, a policy established in a previous quasi-judicial action. Nor has it ever been so applied.  The lines between these categories of activity are not always clear indeed, in Arizona Grocery itself the quasi-legislative rates were established in an adjudicatory proceeding, see id. at 388.  Nevertheless, the Court in Arizona Grocery made clear that there  is an important distinction between rules resulting from  quasi-adjudication and rules resulting from quasi-legislation. We are therefore bound to follow the Court's mandate and  apply this distinction.


27
With these principles in mind, we are constrained to conclude that the FCC's actions in this case are not governed by  the rule established in Arizona Grocery.  The Access Charge  Reconsideration, a rulemaking designed to establish how the  LECs were to recover end-user costs in the future, was  undoubtedly legislative in character.  But this rulemaking  was not "revised" by the Liability Order that the LECs now  challenge.  Rather, the Liability Order merely corrected the  EUCL Decisions, agency adjudications that had erroneously  interpreted the original Access Charge Reconsideration by  holding that particular instances of challenged conduct on the  part of the LECs did not violate the regulations arising from  that rulemaking.  In those decisions, the FCC did not purport to substitute a new legislative rule for an old one. Moreover, when the court in C.F. Communications vacated  the judgment in the EUCL Decisions, it did so on the  grounds that the FCC had misconstrued the Access Charge  Reconsideration rulemaking.  See 128 F.3d at 741-42.  Our  opinion in that case did not, however, suggest that the  underlying rulemaking was in any way infirm.  And on  remand, the FCC issued the Liability Order to rectify the  errors found pursuant to the judicial review of the EUCL  Decisions.


28
Therefore, the FCC's actions in issuing the orders in the  EUCL Decisions and the Liability Order were not analogous  to the situation in Arizona Grocery.  In Arizona Grocery, the  ICC purported to retroactively revise an established rate  (that was the product of a "quasi-legislative" action);  in this  case, by contrast, the FCC purported to interpret and apply  legislative regulations in succeeding adjudications.


29
There is no doubt that the EUCL Decisions were intended  to have prospective application, in the sense that these adjudicatory actions purported to interpret the Access Charge Reconsideration rulemaking, which remained in force all along. But this fact does not advance the LECs' argument.  It is  well understood that judicial interpretations of legislative  enactments have consequences for parties in the future;  yet,  this does not render the statutory construction a legislative  activity.  See Japan Whaling Ass'n v. Am. Cetacean Soc., 478  U.S. 221, 230 (1986) ("[u]nder the Constitution, one of the  Judiciary's characteristic roles is to interpret statutes ..."); Northwest Airlines, Inc. v. Transport Workers Union of Am.,  451 U.S. 77, 95 & n.34 (1981) (emphasizing that "the federal  lawmaking power is vested in the legislative, not the judicial,  branch of government," but that once the legislature speaks,  "the task of the federal courts is to interpret and apply  statutory law").  So too with adjudication by administrative  agencies.  See Bowen v. Georgetown Univ. Hosp., 488 U.S.  204, 216-17 (1988) (Scalia, J., concurring) ("Adjudication ...  has future as well as past legal consequences, since the  principles announced in an adjudication cannot be departed  from in future adjudications without reason.");  Goodman v.  FCC, 182 F.3d 987, 994 (D.C. Cir. 1999) ("[T]he nature of  adjudication is that similarly situated non-parties may be  affected by the policy or precedent applied, or even merely  announced in dicta, to those before the tribunal.").  To suggest, as the LECs do here, that the EUCL Decisions were  somehow "legislative" merely because they interpreted a  rulemaking or because they had some future impact would  entirely collapse the distinction between rulemaking and adjudication, and thus the very distinction on which Arizona  Grocery rests.  As such, we hold that when the FCC departed from the EUCL Decisions in a subsequent adjudication, it  was not constrained by Arizona Grocery's blanket prohibition  on retroactive repeals of quasi-legislative ratemaking.


30
2. The Retroactivity Doctrine This is not to say that agency adjudications that modify or  repeal rules established in earlier adjudications may always  and without limitation be given retroactive effect.  To the contrary, there is a robust doctrinal mechanism for alleviating  the hardships that may befall regulated parties who rely on  "quasi-judicial" determinations that are altered by subsequent  agency action.  Over fifty years ago, in SEC v. Chenery  Corp., 332 U.S. 194, 203 (1947), the Supreme Court cautioned  that the ill effects of retroactivity "must be balanced against  the mischief of producing a result which is contrary to a  statutory design or to legal and equitable principles."


31
In the ensuing years, in considering whether to give retroactive application to a new rule, the courts have held that  [t]he governing principle is that when there is a "substitution of new law for old law that was reasonably clear," the new rule may justifiably be given prospectively-only effect in order to "protect the settled expectations of those who had relied on the preexisting rule."  Williams Natural Gas Co. v. FERC, 3 F.3d 1544, 1554 (D.C. Cir. 1993).  By contrast, retroactive effect is appropriate for "new applications of [existing] law, clarifications, and additions."  Id.


32
Pub. Serv. Co. of Colo. v. FERC, 91 F.3d 1478, 1488 (D.C. Cir.  1996) ("PSCC").  See also Aliceville Hydro Assocs. v. FERC,  800 F.2d 1147, 1152 (D.C. Cir. 1986) (discussing the distinction between "new applications of law" and "substitutions of  new law for old law").  In a case in which there is a  "substitution of new law for old law that was reasonably  clear," a decision to deny retroactive effect is uncontroversial. Epilepsy Found. of N. Ohio v. NLRB, No. 00-1332, slip op. at  12-13 (D.C. Cir. Nov. 2, 2001).  In cases in which there are  "new applications of existing law, clarifications, and additions," the courts start with a presumption in favor of retroactivity.  See, e.g., Health Ins. Ass'n of Am. v. Shalala, 23 F.3d  412, 424 (D.C. Cir. 1994). However, retroactivity will be  denied "when to apply the new rule to past conduct or to  prior events would work a 'manifest injustice.' "  ClarkCowlitz Joint Operating Agency v. FERC, 826 F.2d 1074,  1081 (D.C. Cir. 1987) (en banc) (quoting Thorpe v. Housing  Auth. of the City of Durham, 393 U.S. 268, 282 (1969));  see  also Consol. Freightways v. NLRB, 892 F.2d 1052, 1058 (D.C.  Cir. 1989).


33
This court has not been entirely consistent in enunciating a  standard to determine when to deny retroactive effect in  cases involving "new applications of existing law, clarifications, and additions" resulting from adjudicatory actions.  In  Clark-Cowlitz, the en banc court adopted a non-exhaustive  five-factor balancing test, see 826 F.2d at 1081-86 (citing  Retail, Wholesale & Dep't Store Union v. NLRB, 466 F.2d  380, 390 (D.C. Cir. 1972).  In a subsequent case, however, we  substituted a similar three-factor test.  See Dist. Lodge 64 v.  NLRB, 949 F.2d 441, 447-49 (D.C. Cir. 1991) (citing Chevron  Oil Co. v. Huson, 404 U.S. 97, 106-07 (1971)).  And in other  cases, the court has jettisoned multi-pronged balancing approaches altogether.  See Cassell v. FCC, 154 F.3d 478, 486  (D.C. Cir. 1998) (declining to "plow laboriously" through the  Clark-Cowlitz factors, which "boil down to a question of  concerns grounded in notions of equity and fairness");  PSCC,  91 F.3d at 1490 (concluding that "the apparent lack of detrimental reliance ... is the crucial point supporting retroactivity").


34
In the present case, the LECs argue that the Liability  Order should not be given retroactive effect, because it would  be grossly unfair to punish them for imposing EUCL charges  that were approved, and perhaps even required, by the  authoritative pronouncements of the Commission itself.  Before addressing these concerns, we note that even if we were  to accept the LECs' argument in full, there would still remain  a period of approximately four years from the IPPs' entry  into the payphone market in 1984 until the first Thomas letter  in 1988 during which no claim of reliance can possibly be  maintained.  During this period, the LECs imposed EUCL  fees on the IPPs wholly on their own initiative, i.e., without  specific guidance from the FCC, and thus entirely at their  own risk.


35
That said, we conclude that the FCC's decision to hold the  LECs liable for EUCL charges levied even after the Commission had spoken on the issue was not an abuse of discretion or  otherwise impermissible.  In reaching this determination, we  rely primarily on two factors.  The first is the fact that the  FCC's policy regarding the propriety of imposing end-user fees on IPPs was never authoritatively articulated outside of  the same complaint proceeding in which it was eventually  reversed.  Indeed, the two EUCL Decisions, on which the  LECs' reliance argument primarily rests, were part of a  single chain of decisions triggered by CFC's original complaint, a chain whose natural progression led to this court,  where the Commission's holdings were vacated.  Thus, the  agency orders on which the LECs claim to have relied not  only had never been judicially confirmed, but were under  unceasing challenge before progressively higher legal authorities.  Our cases indicate that under such circumstances reliance is typically not reasonable, a conclusion that significantly  decreases concerns about retroactive application of the rule  eventually announced.  See Clark-Cowlitz, 826 F.2d at 1083  n.7 ("[A] holding of nonretroactivity ... cannot be premised  on a single, recent agency decision ... that is still in the  throes of litigation when it is overruled.").


36
Indeed, our holding in PSCC is directly on point here.  In  that case, a group of natural gas producers increased the  prices that they charged their pipeline customers in order to  recover an ad valorem tax imposed by the state of Kansas; the legal theory behind this increase was that this tax was a  severance tax under  110 of the Natural Gas Policy Act. These price hikes were challenged before FERC, which sided  with the producers, holding that the Kansas tax came within  the meaning of 110.  Reviewing this decision, this court  found that FERC's statutory interpretation was unreasonable  and reversed.  On remand, the Commission retreated from  its earlier analysis and found that the tax did not qualify as a  severance tax, and therefore that the producers had overcharged the pipelines. We upheld the retroactive application  of this decision, in the process rejecting the claims of reliance  advanced by the producers, claims that uncannily echo those  made by the LECs in the present case.  91 F.3d at 1488-91. The court held that as soon as the pipelines had petitioned  the Commission for a ruling that the producers' preferred  interpretation of 110 was incorrect, the producers were put  on notice that the recoverability of the tax was "in dispute." Once this challenge had been lodged, it was then unreasonable for the producers to rely on that interpretation, even  though it was explicitly endorsed by the agency before ultimately being reversed by this court.  Id. at 1490.  Thus, we  concluded that it was appropriate for FERC to hold the  producers liable for that which they had taken when the law  was uncertain but the Commission was on their side.  Just so  here.  Because the object of the LECs' reliance was neither  settled (but rather was perpetually enmeshed in litigation)  nor "well-established," see Clark-Cowlitz, 826 F.2d at 1083  ("[T]he Commission's ruling in that solitary proceeding can  scarcely be viewed as 'well-established.' "), we are skeptical  that retroactive liability against the LECs would actually  impose a manifest injustice.  In light of the ongoing legal  challenges to the EUCL Decisions, whatever reliance the  LECs placed on those rulings was something short of reasonable for purposes of the retroactivity analysis.


37
The second factor pointing toward retroactive liability is  that the agency pronouncements on which the LECs relied  were subsequently held by this court to be mistaken as a  matter of law.  As such, the FCC's Liability Order was  largely an exercise in error correction.  We have previously  held that administrative agencies have greater discretion to  impose their rulings retroactively when they do so in response to judicial review, that is, when the purpose of retroactive application is to rectify legal mistakes identified by a  federal court.  See Exxon Co., USA v. FERC, 182 F.3d 30,  49-50 (D.C. Cir. 1999);  cf. Pub. Utils. Comm'n of the State of  Cal. v. FERC, 988 F.2d 154, 161-63 (D.C. Cir. 1993) (noting  that the normal rule against retroactive ratemaking may be  relaxed where the original order was challenged and determined by this court to be unlawful).  Indeed, there can be  little dispute that had the FCC originally (whether in 1993 or  1995) held in favor of the IPPs, the Commission at that point  would have been well within its rights to have held the LECs  liable for violating the unreasonable charge provisions of 47  U.S.C. 201(b).  As such, the LECs' argument that the FCC  may not reach the same conclusion now reduces to the  assertion that the agency may not retroactively correct its  own legal mistakes, even when those missteps have been highlighted by the federal judiciary.  But this is not the law. See United Gas Improvement Co. v. Callery Props., Inc., 382  U.S. 223, 229 (1965) ("An agency, like a court, can undo what  is wrongfully done by virtue of its order.");  Natural Gas  Clearinghouse v. FERC, 965 F.2d 1066, 1073 (D.C. Cir. 1992)  (reading Callery to embody the "general principle of agency  authority to implement judicial reversals").


38
In sum, then, the IPPs should not be denied now what they  asked for in their original complaint a determination that  the LECs violated the law merely because the FCC bungled their case the first time around.  To do so would make a  mockery of the error-correcting function of appellate review. It would be to say that the LECs must prevail now because  they (wrongfully) prevailed below.  We are unwilling to tie  the Commission's hands in this way.  Cf. Exxon USA, 182  F.3d at 49 ("There is also a strong equitable presumption in  favor of retroactivity that would make the parties whole."). As such, we conclude that the Liability Order representeda  permissible exercise of the FCC's discretion and therefore  deny the LECs' petition for review.


39
Having upheld the imposition of retroactive liability, we  decline to address whether a similar finding regarding damages would be equally permissible.  As described above, the  FCC has not yet entered a final order with respect to  damages.  Both the amount that the LECs will ultimately  have to pay, and the time period that those payments will  cover, remain for determination.  As such, the LECs' contention that equitable restitution, and not legal damages, is the  sole remedy available to the IPPs, see Atlantic Coast Line  R.R. Co. v. Florida, 295 U.S. 301 (1935);  Moss v. Civil  Aeronautics Bd., 521 F.2d 298, 314 (D.C. Cir. 1975), is plainly  not ripe for adjudication at this time.  See Abbott Labs. v.  Gardner, 387 U.S. 136, 149-50 (1967).  Only after the Commission both commits itself to a method for calculating the  proper amount of the award, and concretely applies that  method to the LECs, will this court be in a position to  evaluate the arguments regarding damages.  See EaglePitcher Indus., Inc. v. EPA, 759 F.2d 905, 915 (D.C. Cir.


40
1985).  By bifurcating the proceedings as it did, the FCC left  those decisions for another day.


41
As we read the Liability Order, the FCC has suggested a  possible means for figuring damages, but has not foreclosed  the possibility of modifying that suggestion during the next  phase of the proceedings.  See Liability Order at 8771,  p p 33-34.  Specifically, the FCC has not reached a conclusive  determination that it will compel the LECs to return all of  the monies that they collected in possible reliance on the  FCC's official pronouncements.  Nor has it rendered a final  judgment that the LECs are not entitled to some kind of  equitable offset in light of such reliance.  We will not prejudge these issues in advance of the agency.

III. Conclusion

42
For the reasons given above, we hold that the Liability  Order is final despite its failure to reach the issue of damages. Rejecting the LECs' arguments that either the Arizona  Grocery doctrine or the rule against retroactivity bars the  FCC from imposing liability, we deny the petition for review  and uphold the Commission's finding that the LECs violated  the unreasonable charge provisions of the Communications  Act.  At the same time, we express no opinion as to whether  damages or some other monetary remedy are appropriate in  this case, or whether such a remedy, if appropriate, may be  imposed retroactively.

