Opinion ID: 799751
Heading Depth: 2
Heading Rank: 3

Heading: Partial reliance on AT&T estimates

Text: 18 Finally, the LECs argue that in its treatment of AT&T's X-Factor estimates the FCC implicitly endorsed methodologies that it had earlier discredited. LEC Br. at 27. The FCC incorporated the aspects of AT&T's method that it deemed reasonable into its own method, see 1997 Order, 12 FCC Rcd at 16,658, p 33, and then gave independent weight to AT&T's X-Factor estimates in deciding to extend the range of reasonableness upward, see 1997 Order, 12 FCC Rcd at 16,697, p 140, and to select a value near the top of the range. Id. at p 141. We agree that both these uses of AT&T's estimates appear irrational; any differences between the FCC's and AT&T's estimates presumably resulted from elements of AT&T's analysis that the FCC specifically rejected. The FCC's argument that AT&T's estimates were help-ful because AT&T's methodology was similar, FCC Br. at 37, fails to overcome that logic. If there is an explanation--for example, conceivably the Commission gave some weight to AT&T's conclusions out of concern for the risk that it had erred in rejecting specific elements of AT&T's analysis--the FCC has failed to mention it. 19 The Commission having failed to state a coherent theory supporting its choice of 6.0%, we remand for further explanation. II. Consumer productivity dividend 20 The second component of the X-Factor is a consumer productivity dividend (CPD) of 0.5%. At the time of the 1990 order instituting price-cap regulation, the FCC expected ... that incentive regulation would result in greater productivity gains than rate of return regulation, Bell Atlantic, 79 F.3d at 1198, and instituted the CPD, as it said, to assure that the first benefits of price caps flow to customers in the form of reduced rates, In the Matter of Policy and Rules Concerning Rates for Dominant Carriers, 5 FCC Rcd 6786, 6799, p 100 (1990) (Price Cap Order). It retained the 0.5% CPD without specific explanation in a 1995 interim rule, Bell Atlantic, 79 F.3d at 1204, and retained it again in the current rule. See 1997 Order, 12 FCC Rcd at 16,690, p 123. 21 The LECs challenge the 0.5% CPD as based on an obsolete justification. The Commission's earlier data on historic productivity improvement derived from the rate-of-return era, so an adjustment to reflect the expected incentive effects of price caps was in order; but the post-1990 data presumably reflect those effects. 22 FCC counsel responds that the agency believes that an innovation in the current rule--the Commission's elimination of the sharing of profits exceeding certain benchmarks-will give the LECs still further productivity incentives, and that the FCC relied on that in retaining the CPD. Even if the agency relied on this justification (which the LECs dispute), it never explained retention of the old percentage, a retention that required some comparison of the current change with the initial one in terms of their likely impacts on productivity. Thus we must remand for an explanation of the Commission's choice of the amount--0.5%. 23 The LECs claim that the FCC did not rely on the expected effects of sharing elimination and that it gave no other reason justifying the retention of any CPD. We do not reach these arguments because the FCC will be able to give a clearer statement of its reasons in the remand on the amount and since the LECs do not dispute the argument FCC's counsel is presently making--that it is defensible to include a CPD corresponding to whatever productivity increase may be expected from the elimination of sharing.