Opinion ID: 757345
Heading Depth: 1
Heading Rank: 2

Heading: Bell Atlantic Parties

Text: 38 The Bell Atlantic parties argue that the FCC acted arbitrarily, abandoning its long-held position to the contrary, when it announced in the Order that LECs subject to price-cap regulation must adjust their price-cap indices downward to reflect the completed amortizations of extraordinary, one-time equal access conversion expenses. While it is true that this decision marks a change in course by the FCC, such a change, if satisfactorily explained, is permissible. Cf. id. at 57, 103 S.Ct. 2856 (reversing agency action and noting that agency failed to explain its decision). Because we are satisfied that the Commission has adequately justified its changed position and its decision to require this downward adjustment, we conclude that the FCC has not acted arbitrarily. 39 In 1985, the FCC directed that certain expenses associated with equal access conversion, ordinarily fully accounted for in the year in which the expenses were incurred, be identified separately and amortized over a period of eight years, ending December 31, 1993. 11 See In re Petitions for Recovery of Equal Access and Network Reconfiguration Costs, Memorandum Opinion and Order FCC No. 86-470, 1 FCC Rcd No. 3 434, p 25 (released Nov. 5, 1986) [hereinafter Petitions for Recovery of Equal Access Costs ]. On January 1, 1991, during the recovery period for these equal access conversion expenses, the FCC converted from rate of return regulation to price-cap regulation. In conjunction with this conversion, the FCC chose a set of baseline rate levels, those in effect on July 1, 1990, to which the price-cap indices were tied as the starting point for measuring subsequent incremental cost changes. See In re Policy and Rules Concerning Rates for Dominant Carriers, Second Report and Order (CC Docket No. 87-313) FCC 90-314, 5 FCC Rcd No. 23 6786, p 230 (released Oct. 4, 1990) [hereinafter LEC Price Cap Order ], petitions dismissed, National Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C.Cir.1993). The one-time equal access expenses that would have been recovered in the same year in which they were incurred were reflected in these 1990 baseline figures, resulting in an artificially high starting point from which the FCC allowed subsequent increases. The FCC now concedes that, in prior decisions, it has not addressed properly the question of whether equal access expenses that were embedded within original baseline rates pursuant to the one-time amortizations should have been removed through downward adjustments when the amortizations expired. In the Order, however, the FCC reversed the position it had taken on this issue and determined that price-cap LECs should be required to make downward price-cap adjustments to reflect the expiration of their equal access expense amortizations. See Order p 309. The FCC likened the equal access amortizations to the depreciation reserve deficiency and inside wiring cost amortizations that were given exogenous cost treatment when they expired because they reflected temporary, one-time treatment of costs under ROR [rate of return] regulation that, due to the mid-stream switch to price-cap regulation, would have become permanent (even though the costs already had been recovered) absent an exogenous cost adjustment. Id. p 310. 40 The Bell Atlantic parties first claim that the equal access amortizations cannot be compared to the depreciation reserve deficiency and inside wiring amortizations because the costs associated with the latter amortizations were incurred entirely before the switch to price-cap regulation, while LECs continued to incur equal access costs after the price-cap regime commenced. As the FCC explained, however, the amortized costs in all three instances were extraordinary 12 and were reflected in the baseline rate levels adopted by the FCC as the starting point from which future adjustments would be made. As the FCC explained when it categorized these expenses as extraordinary, they are distinguishable from normal recurring expenses due to the unusually high concentration of expenses ... incurred over a limited time. Petitions for Recovery of Equal Access Costs p 24; see also, Equal Access and Network Reconfiguration Costs, FCC 85-628, 50 Fed.Reg. 50910, 50914 p 33 (Dec. 13, 1985); Order p 300. We cannot conclude that the FCC improperly determined that the one-time equal access conversion amortizations should be subject to treatment similar to that accorded depreciation reserve deficiency and inside wiring amortizations. 41 The Bell Atlantic parties further criticize the FCC's decision to refuse an upward cost adjustment for subsequent equal access costs, while requiring a downward cost adjustment to reflect the expiration of the original equal access conversion amortizations. Bell Atlantic Brief at 33. This argument, however, fails to acknowledge that the original conversion costs, unlike any subsequent costs, were extraordinary, one-time costs. Furthermore, the FCC categorizes the ongoing costs of providing equal access as part of the normal costs of providing telephone service. Exogenous treatment of these costs is unnecessary. Order p 312. The FCC's refusal to allow an upward cost adjustment to account for ongoing costs associated with equal access is not arbitrary. 42 We conclude that the FCC's decision to require LECs to adjust their price-cap indices downward to reflect the completed amortizations of extraordinary, one-time equal access conversion expenses is neither arbitrary nor capricious. [T]he mere change of an administrative opinion after a lawful reconsideration can hardly be arbitrary and capricious on its face. Southwestern Bell Tel. Co. v. FCC, 138 F.3d 746, 753 (8th Cir.1998). Upon further reflection, the FCC determined that this downward adjustment, although rejected in past decisions, was an equitable and necessary one. As the Commission explained, [R]atepayers should not be forced to pay for a cost that, were it not for the way price-cap regulation occurred in this instance, they would no longer be paying. Order p 311. We cannot fault the Commission for reconsidering its position and ordering the necessary adjustment.