[Federal Register Volume 60, Number 107 (Monday, June 5, 1995)]
[Rules and Regulations]
[Pages 29485-29488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13565]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 43
[CC Docket No. 92-296; FCC 95-181]
Simplification of the Depreciation Process
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Federal Communications Commission is adopting ranges for
the underlying factors that are used to compute depreciation rates for
the local exchange carriers (LECs) regulated under the price cap
incentive regulatory plan. Under new procedures, LECs may make
streamlined filings for changes in depreciation rates, if their
underlying depreciation factors fall within the prescribed ranges. The
Commission implemented the streamlined procedures in two phases. The
Second Report and Order (released June 28, 1994) adopted underlying
factor ranges for 22 of the 34 depreciation rate categories. This Third
Report and Order adopts ranges and alternate simplified procedures for
the remaining 12 accounts and completes the implementation process. The
rule change will lessen the depreciation prescription burden on price
caps LECs in light of regulatory and market changes without sacrificing
protection for consumers.
EFFECTIVE DATE: July 5, 1995.
[[Page 29486]] FOR FURTHER INFORMATION CONTACT:
Fatina K. Franklin (202-418-0859) or John Hays (202-418-0875), Common
Carrier Bureau, Accounting and Audits Division.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Third
Report and Order in the Simplification of the Depreciation Prescription
Process, CC Docket No. 92-296, FCC 95-181, adopted May 2, 1995 and
released May 4, 1995. The full text of this Commission decision is
available for inspection and copying during normal business hours in
the FCC Dockets Branch (room 230), 1919 M St., Washington, DC. The full
text will be published in the FCC Record and may also be purchased from
the Commission's copy contractor, International Transcription Services,
room 246, 1919 M Street, NW., Washington, DC 20554 (202-857-3800).
Paperwork Reduction Act
The Federal Communications Commission has submitted the following
information collection request to OMB for review and clearance under
the Paperwork Reduction Act of 1980, 44 U.S.C. 3507. Persons wishing to
comment on this information collection should contact Timothy Fain,
Office of Management and Budget, room 3225, New Executive Office
Building, Washington, DC 20503, (202) 395-3561. For further
information, contact Judy Boley, Federal Communications Commission,
(202) 418-0214.
Please note: The Commission has requested expedited review of this
collection by June 23, 1995, under the provisions of 5 C.F.R. Section
1320.18.
Title: Section 43.43--Report of Proposed Changes in Depreciation Rates
OMB Control No.: 3060-0168
Action: Revised collection
Respondents: Businesses or other for-profit entities
Frequency of response: On occasion; Triennially; Annually
Estimated Annual Burden: 12 responses; 5625 hours per response; 67,500
hours total
Needs and Uses: In the Report and Order in CC Docket No. 92-296
(released 10/20/93), the Commission streamlined its depreciation
prescription process for local exchange carriers (LECs) regulated under
its price cap regulatory scheme by adopting a modified form of the
basic factor range option. The Second Report and Order (released 6/28/
94) adopted the initial set of accounts and ranges for the price caps
LECs. The Third Report and Order adopts ranges and alternate simplified
procedures for the remaining accounts and completes the implementation
process. The Commission has modified its information collection
requirements whereby large LECs must submit analyses on proposed
changes in depreciation rates. The changes should reduce by 43.75% the
amount of time needed to prepare and review these analyses. The
information will be used by the Commission staff to establish proper
depreciation rates to be charged by the carriers pursuant to Section
220(b) of the Communications Act, as amended. 47 U.S.C. 220(b).
The foregoing estimates include the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the burden
estimates or any other aspect of the collection of information
including suggestions for reducing the burden to the Federal
Communications Commission, Records Management Branch, Paperwork
Reduction Project (3060-0168), Washington, DC 20554 and to the Office
of Management and Budget, Washington, DC 20503.
Summary: 1. On September 23, 1993, we adopted streamlined
depreciation prescription procedures for the local exchange carriers
(``LECs'') regulated under our price cap incentive regulatory plan.\1\
These procedures require us to establish ranges for the underlying
factors that are used to compute depreciation rates for plant
categories. The new procedures generally will permit carriers to make
streamlined filings for changes in depreciation rates for these
categories, as long as their underlying factors fall within the
prescribed ranges. By adopting these streamlined procedures, we hoped
to simplify the depreciation process, achieve administrative savings,
and allow the LECs greater flexibility\2\ in the depreciation process,
while remaining consistent with the public interest.
\1\Simplification of the Depreciation Prescription Process,
Report and Order, 58 FR 58788 (1993) (Depreciation Simplification
Order).
\2\Flexibility allows a LEC to select, within established
ranges, the life and salvage factors it uses in prescribed
depreciation rates without undergoing the expense of submitting
studies to justify its specification of those factors. In addition,
under the new procedures, the LECs can change their basic factors
annually, as opposed to the current triennial represcription cycle.
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2. We further concluded that the streamlined procedures should be
implemented as soon as practicable, beginning with the plant accounts
most readily adaptable to the range approach. To that end, we decided
to implement the new procedures in two phases. In the Second Report and
Order (released 6/28/94), we completed phase one of the streamlining
process and adopted ranges for 22 plant categories.\3\
\3\Simplification of the Depreciation Prescription Process,
Second Report and Order, 59 FR 35632 (1994) (Second Report and
Order).
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3. On October 7, 1994, we adopted a Further Order Inviting
Comment\4\ proposing streamlined procedures for the remaining 12 plant
categories. The FOIC sought comments on the proposed projection life
and future net salvage ranges proposed by the Bureau for eight of these
categories and alternate simplified procedures for the remaining four
categories.
\4\Simplification of the Depreciation Prescription Process,
Order Inviting Comments, 58 FR 62083 (1993) (OIC).
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4. In response to the FOIC, the United States Telephone Association
(USTA) and most of the LEC commenters urge the Commission to adopt the
ranges so that the LECs can use them during the 1995 depreciation
represcription process. These commenters, however, give limited support
to the ranges as proposed in the FOIC. They state that those ranges are
based on ``historical'' data that are not forward looking. In addition,
they argue that the proposed projection life ranges encompass useful
lives that are too long.
5. The General Services Administration (GSA), MCI
Telecommunications Corporation (MCI), and the National Association of
Regulatory Utility Commissioners (NARUC) support the ranges proposed in
the FOIC. They state that the methodology the Commission used to
determine the ranges is sound and that the ranges are reasonable and
should be adopted without modification. MCI and NARUC further state
that the proposed ranges appear to provide flexibility to a majority of
the LECs, but are not so broad as to be meaningless.
6. On the other hand, the Idaho Public Utilities Commission (Idaho
Commission) and the Missouri Public Service Commission (Missouri
Commission) contend that the ranges are based on inadequate data. They
state that, while the data are useful for determining the depreciation
factors for a specific company, they are not adequate to establish
industry-wide ranges. The Missouri Commission and the Idaho Commission
indicate that the proposed ranges are too wide and that the ranges
could substantially increase the carriers' depreciation expense. The
Missouri Commission indicates that these ranges would give the price
cap LECs discretion over approximately $1 billion in depreciation
expense. In addition, the Missouri Commission [[Page 29487]] contends
that the ranges' width should vary inversely with the size of the
account so that the potential depreciation change would equal some
``target discretion value.'' Thus, according to the Missouri
Commission, accounts with large balances should have relatively small
ranges and accounts with small balances should have relatively large
ranges.
7. In the Depreciation Simplification Order, we set forth the
specific methodology that should be used to establish the projection
life and future net salvage ranges. We have already used that
methodology in establishing ranges for 22 depreciation rate categories
in our Second Report and Order. In this Order, we are again using that
methodology to set ranges for eight additional plant categories. This
methodology requires that we consider certain specifically enumerated
data. To apply it for each account and for each of the two basic
factors, we first developed a range of one standard deviation around
the mean of the basic factors underlying the currently prescribed
depreciation rates for each of the LECs. From that point, we determined
whether there were technological trends or changing carrier plans that
might not be fully reflected in some of the LECs' prescribed factors.
We then considered the number of LECs with basic factors that fall
within the initial ranges and altered the ranges where appropriate. We
recognized, however, that these specifically enumerated data must be
considered in light of our obligation to prescribe reasonable
depreciation rates. Thus, in developing the proposed ranges, we
considered both the specific data enumerated in the Depreciation
Simplification Order and our overriding responsibility to prescribe
reasonable depreciation rates.
8. After reviewing the comments, we have decided to adopt the
ranges proposed in the FOIC. (See Appendix). As indicated above, these
ranges are based on statistical studies of the most recently prescribed
factors. These statistical studies required detailed analyses of each
carrier's most recent plant retirement patterns, the carriers' plans,
and the current technological developments and trends. Because the
proposed ranges reflect these data, we do not believe that the ranges
are too high, too low, or not accurate as several commenters contend.
Moreover, the ranges are not so broad as to be considered meaningless
by including all prescribed factors.
9. As we stated in the Second Report and Order, our objective in
this rulemaking is to streamline the process used by the Commission to
prescribe depreciation rates, not to change those rates. We believe
that the ranges adopted in this Order, and in the Second Report and
Order, provide a reasonable degree of confidence that the basic factors
falling within their bounds will produce depreciation rates accurately
reflecting plant retirements, company plans, and technological trends.
On the other hand, they allow the LECs sufficient flexibility in the
selection of the final factors. Consequently, we have decided not to
deviate from any of the proposed ranges at this time. We believe that
some experience with the ranges should be developed before we consider
modifying them. As suggested by most of the commenters, this will also
allow us to establish the ranges as quickly as possible so that the
LECs can use them during the 1995 represcription process. If changing
conditions require revisions in the ranges, we can modify them during
our three-year range review.
10. In the FOIC, we did not propose ranges for Account 2211, Analog
Electronic Switching; Account 2215, Electro-mechanical Switching; and
Account 2431, Aerial Wire.\5\ We stated that the LECs are rapidly
phasing out the obsolete equipment recorded in these ``dying
accounts''\6\ and replacing it with equipment based on newer
technologies. We proposed to calculate the depreciation rates for these
accounts from specific plant retirement schedules that the LECs have
developed based on company plans to modernize their networks. We stated
that these rates would be more accurate and easier to calculate than
rates based on national averages that require detailed statistical
analyses of forecasted basic factors.
\5\47 CFR 32.2211, 32.2115, 32.2431.
\6\``Dying accounts'' are asset accounts in which little or no
new investment is being made, and for which substantial retirements
are impending.
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11. In addition, we did not propose a range for Account 2121,
Buildings.\7\ We stated that, for depreciation study purposes, we had
permitted the LECs great flexibility in subdividing this account and
estimating lives for each subcategory. We also stated that, because of
the significant differences among the categorization methods, the LECs'
current basic factors for the subaccounts could not be used to
establish nationwide ranges. In the FOIC, we proposed to maintain the
basic factors underlying the currently prescribed depreciation rates
for the buildings account, until our three-year range review when we
will reconsider whether ranges would be appropriate for this account.
In the interim, we proposed to require that the price cap LECs submit
the same data for the buildings account that would be required under
our streamlined study procedures.\8\
\7\47 CFR 32.2121.
\8\Depreciation Rates Branch, The Federal Communications
Commission, The Federal Communications Commission Depreciation Study
Guide Sec. I (1995) describes these streamlined study procedures.
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12. The parties commenting on these matters support our proposals.
MCI, the Southwestern Bell Telephone Company (Southwestern), and USTA
indicate that there is no need to establish ranges for ``dying
accounts.'' NARUC agrees that our proposed method for determining the
rates for the three ``dying accounts'' would be more accurate than
rates based on national averages. NARUC maintains that these rates can
be readily calculated using individual company retirement schedules
without the need for statistical analyses to forecast lives. The
commenters also concur with our proposed treatment of the buildings
account.
13. We conclude that the public interest would be best served by
adopting the alternate streamlined procedures for these accounts
proposed in the FOIC. We find that the cost of establishing and
administering ranges for these accounts would outweigh the benefits. As
we stated in the FOIC, depreciation rates on obsolete equipment
recorded in ``dying accounts'' can be readily calculated from
retirement schedules using a methodology less complicated than the
range approach. Moreover, to establish ranges for the buildings account
would require that the LECs' present data be recast into new, uniform
subcategories. The LECs have indicated that the cost of compiling the
information necessary to develop new subcategories would be
substantial.\9\
\9\See Letter from Thomas R. Whittaker, Chairman, United States
Telephone Association Ad Hoc Depreciation Committee, to Ms. Fatina
Franklin, Chief, Depreciation Rates Branch (June 21, 1994).
14. Furthermore, we find that the depreciation rates calculated for
these accounts using our alternate streamlined procedures will be more
accurate than depreciation rates based on the range approach. For the
``dying accounts,'' the rates will reflect company-specific retirement
schedules rather than national averages of the underlying basic
factors. For the building account, we believe the present rates will
reflect company operations over the next few years. The LECs do not
have plans to add or retire a significant number of buildings during
that period. As a result, the underlying depreciation
[[Page 29488]] factors applicable to Account 2121 likely will not
change, and an extensive analysis of the buildings account probably
will not be necessary within the next few years. In the interim, we
believe that the data required under the streamlined study procedures
will be adequate, and will allow price cap LECs to submit only these
data for the buildings account.
15. Under our depreciation prescription process, one-third of the
carriers for which we prescribe rates have their rates reviewed each
year. LECs scheduled for review in 1996 and 1997 may file for changes
in their depreciation rates in 1995 as long as they use basic factors
within the ranges we have selected and ranges chosen are consistent
with their operations. These carriers must file these depreciation rate
changes by July 1, 1995.
Ordering Clauses
16. Accordingly, it is ordered, pursuant to Section 4(i), 201-205
and 220(b) of the Communications Act of 1934, as amended, 47 U.S.C.
154(i), 201-205 and 220(b), that the ranges for the future net salvage
and the projection life factors for the accounts listed in the Appendix
are Hereby Adopted as specified in the Appendix.
17. It is Further Ordered, that this order is effective thirty days
after publication in the Federal Register.
18. It is Further Ordered, that carriers may use the ranges
established herein for federal filing purposes prior to the effective
date of this order.
List of Subjects in 47 CFR Part 43
Communication common carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
LaVera F. Marshall,
Acting Secretary.
Appendix.--Accounts and Ranges
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Projection life Future net
range (years) salvage range
Account No. Account Name Depreciation rate category ------------------ (percent)
-----------------
Low High Low High
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2220............ Digital switching........... Digital switching........... 16 18 0 5
2220............ Operator systems............ Combined.................... 8 12 0 5
2232............ Circuit equipment........... Digital..................... 11 13 0 5
2411............ Poles....................... Poles....................... 25 35 -75 -50
2421............ Aerial cable................ Metallic.................... 20 26 -35 -10
2423............ Buried cable................ Metallic.................... 20 26 -10 0
2426............ Intrabuilding network cable. Metallic.................... 20 25 -30 -5
2426............ Intrabuilding network cable. Non-metallic................ 25 30 -15 0
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[FR Doc. 95-13565 Filed 6-1-95; 8:45 am]
BILLING CODE 6712-01-M
