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

Heading: Reinitialization for only one year

Text: 40 MCI claims that the FCC should have reinitialized the X Factor all the way back to 1991 (the first year of the price-cap regime). It says the agency has a policy of correcting errors in X-Factor determinations and that it decided in the current rule that prior determinations were in error. In the alternative, MCI argues that the FCC should reinitialize back to 1995, the year in which the previous X-Factor was adopted. 41 In the 1995 interim price cap review, the FCC determined that a single year's productivity estimate generated by its former method was understated, based in large part on the estimate's discrepancy with the results of a TFP study. See Performance Review Order, 10 FCC Rcd at 9053, p 208. It then calculated a new X-Factor designed to eliminate the effects of the understatement and required LECs to set their price caps as though the new X-Factor had been in effect since the advent of price cap regulation. See id. at 9069, p 245. In 1997 the Commission determined that its former method had systematically understated productivity relative to the TFP method, but required reinitialization for one year only. See 1997 Order, 12 FCC Rcd at 16,713-14, pp 178-79. 42 The situations are somewhat similar, but the FCC adequately distinguished them. It rested its 1997 decision to limit reinitialization on the need to limit harm to LEC productivity incentives that could result from the perception that our regulatory policies unnecessarily lack constancy. 1997 Order, 12 FCC Rcd at 16,714, p 179. It seems clear that a second extensive reinitialization would considerably aggravate such a perception. Universal, complete reinitialization would impair the supposed incentive advantages of price caps--which derive from firms' supposing that their efficiencies will not come back to haunt them. 43