Opinion ID: 442118
Heading Depth: 2
Heading Rank: 2

Heading: FCC Regulations on Depreciation.

Text: 7 Regulatory power over the telecommunications industry is exercised by both federal and state governments. In 1934, Congress enacted the Communications Act of 1934, 47 U.S.C. Sec. 151, et seq., to make available, so far as possible ... a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges. 47 U.S.C. Sec. 151. To achieve this goal, Congress gave the Federal Communications Commission (FCC) regulatory authority to establish depreciation practices and to require the keeping of prescribed accounts. 2 The FCC's power, however, was carefully curtailed not to extend to intrastate communications. 3 Under the Communications Act, state regulatory commissions, such as the Louisiana Public Service Commission, retain the authority to regulate intrastate rates, facilities, and practices of the telecommunications industry. See La. Const. art. IV, Sec. 21; La.Rev.Stat.Ann. Sec. 45:1161, et seq. 8 In 1980, after seven years of study, the FCC adopted the remaining-life and straight-line equal life group (SLELG) depreciation methods. Docket No. 20,188, 83 F.C.C.2d 267 (1980), on reconsideration, 87 F.C.C.2d 916 (1981). According to the FCC, use of these depreciation methods would calibrate more closely the flow of revenues with the recovery of capital, 83 F.C.C.2d at 281, and thus provide communications utilities with additional cash flow needed to meet the construction requirements of a rapidly changing technology. 4 The FCC acknowledged that use of the accelerated depreciation methods would result in increased revenue requirements over the short term, but stated that the relative size of the increment will be repaid many times over in future years as the ability of regulated telephone companies to provide '... rapid, efficient ... communication service with adequate facilities at reasonable charges is enhanced.'  5 Id. For similar reasons, the FCC in 1981 ruled that station connections were to be expensed immediately instead of capitalized and recovered over their useful life through depreciation. Docket No. 79-105, 85 F.C.C.2d 818 (1981). 9 In April 1982, the FCC, in response to a petition for clarification submitted by the National Association of Regulatory Utility Commissioners (NARUC), declared that its prior rulings on depreciation methodologies and station connections were not applicable to the states. 89 F.C.C.2d 1094 (1982). Refusing to repudiate forty years of administrative practice and court precedent, the FCC ruled that, when state regulation is reconcilable with federal policies or rules, there is no occasion for us to override state agency actions in furtherance of legitimate state regulatory objectives. 6 Id. at 1108. 10 Following the FCC's preemption ruling, on June 7, 1982, the American Telephone and Telegraph Company (AT & T), on behalf of itself and associated Bell System Operating Companies, filed a petition for reconsideration. On the same day, General Telephone Company of Ohio sought a declaratory ruling ordering the Public Utilities Commission of Ohio to use the same depreciation rates for intrastate purposes as had been prescribed by the FCC. After a joint reply period for the two petitions, the FCC, in a Memorandum Opinion and Order released on January 6, 1983 (Preemption Order), reversed itself and declared that its depreciation policies and rates, including the expensing of inside wiring, preempt inconsistent state depreciation policies and rates. 92 F.C.C.2d 864, 880 (1983). The FCC based its Preemption Order on both the preemptive effect of Sec. 220 of the Act and the agency's own regulatory power. 7 Although conceding that its depreciation methods would have an immediate upward impact on rates, the FCC reasoned that more timely capital recovery would encourage greater technological progress, which would, in turn, result in more efficient service and lower costs. According to the FCC, [i]f competition is to be viable, it is necessary for prices to reflect depreciation expenses that are realistic for a competitive market. 92 F.C.C.2d at 877. The FCC concluded: [W]e find it imperative to declare today that inconsistent state prescribed depreciation rates are preempted by the Communications Act and are accordingly void. 92 F.C.C.2d at 879. 11