# Appendix — Public Utilities Commission v. Federal Communications Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0161%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1985 - **Citation:** 474 U.S. 809 ## Text 84-1054 CASE NO. Inu The Supreme Court of the Hnited OCTOBER TERM, 1984 - . PUBLIC UTILITIES COMMISSION OF OHIO, ET AL.., ] Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, Respondents. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI ANTHONY J. CELEBREZZE, JR. Attorney General of Ohio ROBERT S. TONGREN Assistant Attorney General Counsel of Record MARTIN J. MARZ MARY R. BRANDT Assistant Attorneys General Office of the Ohio Attorney General Public Utilities Section 180 East Broad Street Columbus, Ohio 43215 Telephone (614) 466-4396 Attorneys for Petitioner The Public Utilities Commission of Ohio WILLIAM A. SPRATLEY Consumers’ Counsel RICHARD P. ROSENBERRY JANINE L. MIGDEN LAWRENCE E. BARTH ASSOCIATE CONSUMERS’ COUNSEL 137 East State Street Columbus, Ohio 43215 Telephone: (614) 466-9539 Attorneys for Ohio Office of Consumers’ Counsel i TABLE OF CONTENTS Virginia State Corporation Comm'n v. Federal Communications Comm'n, 737 F.2d 388 (4th Cir. 1984) ..... A-l Amend. of Part 31, 92 F.C.C.2d 864 (1983) .............. A-24 Amend. of Part 31, 89 F.C.C. 2d 1094 (1982) ............. A-61 Order Denying Rehearing, Case No. 83-1136, NUE ccccccccewcececcccccsceccces A-90 A-l VIRGINIA STATE CORPORATION COMMISSION, Petitioner, Vv. FEDERAL COMMUNICATIONS COMMISSION AND United States of America, Respondents, North American Telephone Association, et al., Intervenors. No. 83-1136. United States Court of Appeals, Fourth Circuit. Argued Oct. 7, 1983. Decided June 18, 1984. Before WIDENER, MURNAGHAN and SPROUSE, Circuit Judges. MURNAGHAN, Circuit Judge: The controversy here presented involves an order of the Federal Communications Commission (FCC) entitled “Uniform System of Accounts and Petition for Declaratory Ruling on Question of Federal Preemption. ” CC Docket No. 79-105, FCC 82-581 (released Jan. 6, 1983). The order provides that, when the FCC has prescribed A-2 depreciation rates and methods for classes of property used by telephone companies, state regulation of the same mat- ter is thereby preempted. Petitioner, Virginia State Corporation Commission, along with multiple Petitioner-Intervenors representing regulatory agencies of other states, argues that the states’ fixing of depreciation rates and accounting methods for in- trastate ratemaking purposes is preempted neither by the express language of the Federal Communications Act of 1934, 47 U.S.C. § 151 et seg. (1976) (the Act), nor by FCC rules explicitly governing depreciation of telephone equip- ment and facilities that are used interchangeably to pro- vide both interstate and intrastate service. We agree with the FCC that its order released January 6, 1983 preempts state regulation of the depreciation rates and methods here involved, and thereby reemphasize our recognition in North Carolina Utilities Commission v. F.C.C., 552 F.2d 1036 (4th Cir.1977) (““NCUC II”), cert. denied, 434 U.S. 874, 98 S.Ct. 222, 54 L.Ed.2d 154 (1977), that “FCC reguia- tions must preempt any contrary state regulations where the efficiency...of the national communications network is at stake....’” Jd. at 1046. I. Background Under the current state of the telecommunications art, local telephone companies provide ‘‘telephone plant” (facilities and equipment) that serve both interstate and in- trastate communications needs. Section 152 of the Act pro- vides in subsection (a) that the statute ‘‘shall apply to all interstate and foreign communication by wire,’’ but in subsection (b) that ‘“‘nothing in this chapter shall be con- strued to apply or to give the Commission jurisdiction with respect to (1) charges, classifications, practices, services, A-3 facilities, or regulations for or in connection with intrastate communication service by wire.....’ Within this framework of divided authority, the Commission's statutory mandate is a broad one, ‘to make available...to all the people of the United States a rapid, efficient, Nation-wide, and world- wide wire...communication service with adequate facilities at reasonable charges....'" 47 U.S.C. § 151. In order to achieve the mandated goal, the FCC is specifically empowered under 47 U.S.C. § 220 to prescribe depreciation practices to be followed by interstate carriers.! At the same time, the Act recognizes the con- tinued vitality of state regulation of intrastate service. Sec- tion 221(b) provides that ‘‘nothing in this chapter shall be construed to apply, or to give the Commission jurisdiction, with respect to charges, classifications, practices, services, facilities, or regulations for or in connection with wire... T Section 220(b) provides that: The Commission shall, as soon as practicable, prescribe for such carriers the classes of property for which depreciation charges may be properly included under operating expenses. and the percentages of depreciation which shall be charged with respect to each of such classes of property.... The Com- mission may, when it deems necessary, modify the classes and percentages so prescribed. Such carriers shall not, after the Commission has prescribed the classes of property for which depreciation charges may be included. charge to operating expenses any depreciation charges on classes of property other than those prescribed by the Commission. or after the Commission has prescribed percentages of depreciation, charge with respect to any class of property a percentage of depreciation other than that prescribed therefor by the Commission.... (g) After the Commission has prescribed the forms and man- ner of keeping of accounts...it shall be unlawful for [the car- rier] to keep any other accounts...than those so prescribed ..0r to keep accounts in any manner other than that prescribed or approved by the Commission.... A-4 exchange service...even though a portion of such exchange service constitutes interstate...communication, in any case where such matters are subject to regulation by a State commission or by local governmental authority.’’ Because most of the nation’s telephone plant is used inter- changeably to serve both interstate and intrastate telecom- munications needs, the potential for conflict between federal and state regulatory action is obvious.” The conflict at issue on this appeal had its genesis in two separate orders issued by the FCC in 1980 and 1981; both orders were designed to compel carriers to employ depreciation practices that more truly reflected actual depreciation rates in light of technological reality. After seven years of study, the FCC first determined in 1980 that the prior practice of ‘‘vintage year’ grouping for deprecia- tion purposes was inaccurate, and ordered that the “equal life group’’ method be used. See Docket No. 20188, 83 F.C.C.2d 267 (1980). The equal life method permitted greater precision in allocating costs of service to current consumers, and allowed more rapid capital recovery for plant having a short useful life.* 2 This Court has already recognized that tandem use of telephone plant to serve both interstate and intrastate needs is quite common. See North Carolina Utilities Commission v. F.C.C., 537 F.2d 787, 794 (4th Cir.1976) (““NCUC I"), cert. denied, 429 U.S. 1027, 97 S.Ct. 651, 50 L.Ed.2d 631 (1976) (quoting Katz v. A. T. & T., 43 F.C.C. 1328, 1332 (1953)), to the effect that, ‘‘[wjere the Commission to exercise its jurisdic- tion only where the telephone facilities in question were exclusively in- terstate in character, it would result in virtually complete abdication from the field of telephone regulation...."’ 3 For example, under the ‘‘vintage year’’ method, all types of telephone cable installed during one year (regardless of variations in useful lives of the cables) would be classed together and depreciated over the average useful life of the group. By contrast, the ‘‘equal life’ method broke plant into smaller subgroups (e.g., indoor cable as opposed to underground cable) that were depreciated separately, more in keeping with the plant's actual useful life. A-5 Thus, while the prior ‘‘vintage year’’ method was thought to ‘‘stifle innovation and inhibit the introduction of new technology,’ 83 F.C.C.2d at 281, the ‘equal life’’ method was intended to bolster the competitive market structure that the FCC sought to foster. The same 1980 order also replaced the ‘‘whole life’’ method of depreciation with the “‘remaining life’’ method, which allowed a carrier to recoup the full cost of plant by making corrections in useful life estimates over time. 83 F.C.C.2d at 288-90.4 The FCC's 1981 order provided that inside wiring in homes and businesses no longer should be treated as a capital investment to be depreciated over time, but rather as a cogt to be ‘“‘expensed’’ to current users. Again, the thrust of the rule change was to ensure that consumers ac- tually requesting and benefitting from installed wiring pay for that benefit. By expensing the wiring, the burden of costs associated with such station connections would be placed on the causative ratepayer, and other consumers would not be forced to bear rates unduly inflated by a depreciation component for wiring services previously pro- vided. 85 F.C.C.2d 818, 824 (1981). The two orders were first challenged on April 30, 1981, when the National Association of Regulatory Utility Commissioners (“‘NARUC’"’) filed a Petition for Clarifica- tion of the 1981 wiring order. Specifically, NARUC re- quested that the FCC issue a statement that the provisions of the wiring order were not binding upon state regulatory commissions insofar as intrastate communications service was concerned. The FCC responded to the petition in a 4 Under the “whole life” method. underrecovery had become a common problem, since carriers were locked into inaccurate. overly long estimates of useful life in an industry in which innovation and resulting obsolescence were the order of the day. See 83 F.C.C.2d at 289-90. A-6 Memorandum Opinion and Order of April 27, 1982, in which it concluded that in light of the relevant legislative history of the Act, ‘‘where state [accounting and deprecia- tion] 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.’’ 89 F.C.C.2d 1094, 1108 (1982). In response to the FCC’s opinion and order, the American Telephone and Telegraph Company filed a Peti- tion for Reconsideration on June 7, 1982. General Telephone Company of Ohio likewise petitioned for a Declaratory Ruling that inconsistent state action was foreclosed under the Act.® After further pleadings and comments, the FCC reversed its earlier position in a second Memorandum Opinion and Order of January 6, 1983. C.C. e ° Writing for a 4-3 majority of the Commissioners, Secretary William J. Tricarico found that portions of the Act were geared ‘‘to achieve as much uniformity as possible without coercing any state com- mission to use ratemaking methods it found unacceptable.”’ Tricarico also emphasized that the Commission had always given “special con- sideration to the needs and views of state commissions in developing ac- counting and depreciation rules and most State commissions have chosen to follow most accounting and depreciation rules prescribed by this Commission." 89 F.C.C.2d at 1106. Commissioners Fogarty, Jones, and Rivera issued a Joint Dissen- ting Statement, in which they recognized the ‘clear preemptive thrust’ of the wiring order and refused to defer to the states on a “‘critical capital recovery [issue] affecting the continued viability and com- petitiveness of our Nation's telephone industry in providing increasing- ly essential interstate, as well as intrastate, facilities and services.’ /d. at 1111. 6 In its petition, General Telephone noted that the Ohio state regulatory agency had explicitly rejected use of the ‘‘remaining life’’ and “equal life group’’ methods adopted in the FCC's 1980 order. General Telephone therefore perceived a direct conflict between federal and state regulatory action, which would frustrate important interests of national communications policy. A-7 Docket No. 79-105, F.C.C. No. 82-581, slip op. (Jan. 6, 1983). After it carefully resurveyed the legislative history and decisional law, and reexamined the express language of the Act, the FCC adopted the view that the most logical and reasonable interpretation of the Act ‘‘is that where the Commission prescribes depreciation rates for classes of property [and the depreciation methods to be used], state commissions are precluded from departing’ from those rates and methods. /d. at 17, € 44. In reversing itself, the FCC espoused the notion that the plain terms of section 220 of the Act appear ‘‘clearly to preempt the states in con- nection with depreciation expense determinations and the related accounting.’ Jd. at 6, € 17. Moreover, the FCC found that, even if section 220 did not possess a preemptive effect as a matter of law, the FCC's own policies and rul- ings would preempt inconsistent state regulatory action as a matter of federal supremacy. /d. at 17, € 45. Supported by numerous state and local regulatory commissions, the Virginia State Corporation Commission (‘‘VSCC"’) filed a Petition for Review of the January 6, 1983 Order. VSCC alleged that preemption was required neither as a matter of law nor as a result of regulatory action taken by the FCC Relying in part on this Court's prior decisions in NCUC I and NCUC II, and relevant decisions of other Circuits,’ we hold that inconsistent state regulation of T See Computer and Communications Industry Ass'n v. F-CC., 693 F.2d 198 (D.C.Cir.1982). cert. denied. U.S. _. 103 S.Ct. 2109, 77 L.Ed.2d 313 (1983); New York Telephone Co. v. F.C.C., 631 F.2d 10459 (2nd Cir.1980); and Puerto Rico Telephone Co. v. F.C.C., 553 F.2d 694 (1st Cir. 1977), discussed in text infra. Contra Southwestern Bell Telephone Co. v. Arkansas Public Service Comm‘n, 584 F.Supp. 1087 (D.C.Ark.1984) (Court holds that FCC lacked jurisdiction to issue the January 6, 1983 Order and refuses to enforce it as u/tra vires). 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C801 .T8OL qqued b8é wv mimo) soiuwe. sikdu4 enz -nsA1A od) zsb1O €8@! .8 visunsl od) sueei 03 moissibemu{ bexaos! 904 jed3 nsixitts sbivor1g 03 s36bnem 2'991 Jimsq 0) eseute Iwo) JoiseiC ese “yniiqmesigq oni tleeti qa1JeJood 03 DD 9d3 wolls” 03 sxivise sbiwnoijsn (enoiisnimisieb gnidsmsjs1 s3ejesrini A-22 need not even be specified, as it was not here. The logical result of this decision is to permit the FCC to abrogate completely the state regulation of intrastate ratemaking for the carriers’ intrastate operations in violation of the Communications Act. Ironically, the FCC recognized established law and practice in holding, before it reversed itself only a little more than eight months later, that ‘“[w]here 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. Section 2(b) [47 U.S.C. § 152(b)] makes clear that Con- gress did not intend this Cgmmission to foreclose state ratemaking actions unless those actions im- periled ‘important interests of national com- munications policy... NCUC II, 552 F.2d at 1047. We have found in this instance that federal regulation will not be frustrated if carriers main- tain additional records for intrastate ratemaking purposes.’’ Jn re Amendment of Part 31, 89 F.C.C.2d 1094, 1108 (1982), rev'd, CC Docket No. 79-105 (F.C.C. Jan. 6, 1983). The Supreme Court requires that ‘‘an agency chang- ing its course...supply a reasoned analysis,’’ Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Co., __ U.S. __, 103 S.Ct. 2856, 2873, 77 L.Ed.2d 443 (1983), which must include a ‘‘rational con- nection between the facts found and the choice made.’ At 2866, citing Burlington Truck Lines v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962). The FCC's post-hoc reinterpretation of legislative history, on which the majority here quite properly does not depend, A-23 combined with the unsupported and _ unsupportable statements as to the effect on competition of inconsistent state depreciation methods, do not provide even a modicum of reasoned analysis supporting the FCC's decision to in- terfere in state ratemaking after several decades of affir- matively espousing the opposite conclusion. The upshot of the case is that the FCC decided that the carriers needed more revenue than the state regulatory agencies were willing to provide, so it decided to impose dif- ferent depreciation rates on intrastate equipment for the very purpose of, and thus effectively, raising the intrastate rates of the subscribers® just as surely as if it had done so directly. I can find neither justification nor authority in the Communications Act for this action. The final irony is the FCC justification of its action on the ground that it will ‘* .bring the benefits of competition to the ratepayers of this country.’ The ‘benefits of competition’ are higher telephone bills for local ratepayers, and I| feel confident that, like the man being ridden out of town on a rail, were it not for the honor of the thing, they had rather walk. 3 Remarkable as it may seem. these facts are either expressly or implicitly acknowledged in para. 37 of the FCC order as well as other parts. I note in passing that, as late as NCUC / (1976) 97% of the telephone calls in the country were local. [he proportion could not be too different today. A-24 Before the Federal Communications Commission Washington, D.C. 20554 CC Docket No. 79-105 RM-3017 In the Matter of Amendment of Part 31, Uniform System of Ac- counts for Class A and Class B Telephone Com- panies, of the Commission’s Rules and Regula- tions with respect to accounting for station con- nections, optional payment plan revenues and customer provided equipment and sale of ter- minal equipment. Petition for Declaratory Ruling on Question of Federal Preemption Involving Order Of the Public Utilities Commission of Ohio in Conflict with (i) FCC Prescriptions Under Section 220 of the Communications Act and (ii) Established FCC Policies. MEMORANDUM OPINION AND ORDER Adopted: December 22, 1982 Released: January 6, 1983 BY THE COMMISSION: COMMISSIONER FOGARTY ISSUING A SEPARATE STATEMENT. 1. The Commission has before it a Petition for Recon- sideration filed on June 7, 1982, by the American Telephone and Telegraph Company, on behalf of itself and the associated Bell System Operating Companies (AT&T). AT&T seeks reconsideration of the Commission's decision A-25 in Amendment of Part 31, 89 FCC 2d 1094 (1982) (hereinafter cited as Preemption Order), in which the Com- mission determined that Sections 220(a) and 220(b) of the Communications Act of 1934, as amended, 47 U.S.C. 220(a) and 220(b), did not preempt state commissions from apply- ing different accounting and depreciation procedures for purposes of intrastate ratemaking proceedings.! The Preemption Order was a reconsideration of Amendment of Part 31, 85 FCC 2d 818 (1981) (hereinafter cited as Expens- ing Order). 2. The Commission also has before it a Petition for Declaratory Ruling filed on June 7, 1982, by General Telephone Company of Ohio (GTE of Ohio). This petition requests that the Commission preempt an order of the Public Utilities Commission of Ohio (Ohio) that denied GTE of Ohio the same depreciation rates for intrastate pur- poses as had been prescribed by this Commission. GTE of Ohio contends that Section 220(b) established the rate prescribed by the Commission as the only depreciation rate the company could utilize. 3. The Commission established a joint reply period for the two petitions, utilizing the pleading cycle for com- ments in response to the Petition for Reconsideration, and allowed parties to cross-reference their pleadings where ap- propriate. In addition to pleadings filed by the petitioners and the GTE parties, comments or reply comments were I On June 8, 1982, GTE Service Corporation, on behalf of itself. United Telephone System. Inc., and Continental Telecom, Inc. (hereinafter referred to as GTFE). filed a Petition for Clarification of the Commission's Preemption Order. This petition was dismissed as untime- lv. Amendment of Part 31, Mimeo No. 4766 (released June 24, 1982). However. the Commission stated that it would consider the substance of the petition in connection with AT&T's petition. A-26 filed by the Arkansas Public Service Commission (Arkan- sas), Ohio, the People of the State of California and the Public Utilities Commission of the State of California (California), the Virginia State Corporation Commission (Virginia), the National Association of Regulatory Utility Commissioners (NARUC), the United States Independent Telephone Association (USITA), the Office of Consumers’ Counsel, State of Ohio (Consumers’ Counsel), the United Telephone System Inc. and the Idaho Public Utilities Com- mission (Idaho). A summary of the comments is contained in Appendix A. Below we consider the issues raised on reconsideration, after which we shall consider the question presented by GTE of Ohio's Petition for Declaratory Ruling. I. Background 4. In Docket No. 19129, 64 FCC 2d 1, 54-56 (1977), we concluded that it would be desirable to have the causative rate payer bear the costs associated with station connec- tions. We directed AT&T to file a plan for accomplishing this objective. Following AT&T's submission we initiated this proceeding, albeit with a somewhat different approach for modifying the accounting for station connections than proposed by AT&T. 5. After reviewing the comments, we concluded that the drop, block and protector portion of station connec- tions should not be included in any accounting or regu- latory revisions. We also concluded that our objective of placing the costs of station connections on the cost causative customer could not be achieved by means of an accounting change alone. This is so because costs as- © sociated with the provision of inside wiring must be appor- tioned between the federal and state jurisdictions as long A-27 as inside wiring is provided as a tariffed service subject to dual jurisdiction. Complete unbundling could be achieved by requiring inside wiring to be provided on a detariffed basis, as was done with customer premises equipment. Ac- cordingly, we initiated a further inquiry to explore the detariffing concept further, Amendment of Part 31, 86 FCC 2d 885 (1981). 6. Nevertheless, we concluded that changes in ac- counding and depreciation procedures that would begin ex- pensing the inside wiring portion of the station connection account would be in the public interest, and would facilitate the deregulation of the provision of inside wiring if the Commission should later decide to take that approach. The principal changes required that future costs of installing in- side wiring and similar costs be included as an expense in Account 605, Repair of Station Equipment. Such costs were previously capitalized in Account 232, Station Con- nections. The expensing of these costs would be phased in over a four year period unless a carrier obtained state com- mission approval to expense one hundred percent im- mediately. The Expensing Order also required that the pre- sent net investment in inside wiring and the investment capitalized during the phase-in period be amortized over a ten year period. These expensing and amortization rules replaced the depreciation procedures that had previously applied to the inside wiring portion of the station connec- tion account. 7. On reconsideration, we concluded that the Expens- ing Order was not intended to preempt state commissions from utilizing other depreciation or accounting procedures for intrastate ratemaking proceedings, unless such preemp- tion occurs as a matter of law. Our discussion was based in part on an assumption that most or all of the state A-28 commissions would follow our lead. We also indicated that Section 220 does not preclude state commissions from departing from accounting and depreciation rules prescrib- ed by this Commission for purposes of regulating in- trastate communications services. In reaching this conclu- sion, we reviewed Section 20(5), the Interstate Commerce Act predecessor of the accounting and depreciati« > provi- sions contained in Section 220. We concluded that nothing in the history of Section 20(5) provided any indication of whether that provision had been intended to preempt state commissions from prescribing divergent depreciation rates when the Interstate Commerce Commission (ICC) had prescribed a rate. We stated: {ijmasmuch as Section 20 had never been con- strued to restrict state commissions from requir- ing carriers to keep additional records for pur- poses of intrastate ratemaking and court deci- sions in analagous contexts did not adopt an ex- pansive interpretation of that provision, the reenactment of that language should not be inter- preted to restrict state commissions from keeping such additional records in the absence of clear evidence that the 1934 Congress intended to pro- duce that result. Preemption Order, supra at 1102. 8. We also reviewed the legislative history of the Communications Act and concluded that Congress had been uncertain of the preemptive effect of reenacting the Interstate Commerce Act language and that it apparently did not want to resolve the question at that time. We con- cluded that Congress had been attempting to obtain as much uniformity as possible without coercing any state commission to use ratemaking methods which it might find A-29 unacceptable. We found that we had proceeded in a manner consistent with this purpose for nearly four decades, noting that we had recognized divergent practices by state com- missions from time-to-time. The language of Section 2(b)(1) was found to support the interpretation that state commis- sions are not precluded from applying different accounting and depreciation procedures from this Commission. The Preemption Order concluded by finding that nothing in the Act precluded us from preempting state commission ac- tions that might interfere with or tend to frustrate policies or rules we have adopted to carry out statutory objectives with respect to interstate or foreign communications, but we also found that federal regulation would not be frustrated if carriers maintain additional records for in- trastate ratemaking purposes. II. Discussion 9. The question presented in the reconsideration peti- tion is a clearly delineated controversy over whether Sec- tion 220(b) preempts state depreciation prescriptions that are inconsistent with the rates prescribed for classes of pro- perty by this Commission, or, whether Section 2(b)(1) or Section 221(b) reserve to the states the right to prescribe their own depreciation rates for intrastate regulatory pur- poses. Alternatively, it is argued that the Commission should preempt inconsistent state depreciation rates pur- suant to its authority to preempt state actions which would frustrate or interfere with the accomplishment of federal objectives. See North Carolina Utilities Commission v. FCC, 537 F.2d 787 (4th Cir. 1976), cert. denied, 429 U.S. 1027 (1976) (hereinafter cited as NCUC /). The Preemption Order was the first time the Commission had squarely ad- dressed the preemptive effect of a prescribed depreciation rate, despite having prescribed rates for more than thirty A-30 years. No federal court has addressed the question of the preemptive effect of a Commission prescribed depreciation rate.” 10. It is argued that the Commission erred in the earlier decision by concentrating on Sections 220(a) and 220(g) rather than properly analyzing Section 220(b), the provision dealing directly with depreciation. A careful review of AT&T’s and GTE’s pleadings and a thorough reevaluation of the entire question of the Commission's depreciation jurisdiction leads to the conclusion that the evaluation in the Preemption Order did not sufficiently consider the effect of Section 220(b). Accordingly, we shall undertake to evaluate anew the scope of the Commission's jurisdiction under Section 220(b). 11. Before turning to the analysis of the statutory provisions, it is necessary to understand the relationship between capitalizing and expensing a transaction or economic event. When an event is capitalized, its cost is recorded on the company’s books to be recovered over some future period through depreciation charges to operating expense. Depreciation as used here is an accoun- ting convention for allocatively spreading the original cost, less net salvage, over the useful life of a capital asset. Thus, for there to be depreciation there must be costs that are to be recovered over more than one accounting period. However, when the decision to expense is made, all costs are to be recovered at one time. Thus, the decision to * The United States Supreme Court has held that state commis- sions may prescribe depreciation rates where the empowered federal commission has not prescribed rates. Northwestern Bell Telephone Co. v. Nebraska State Railway Comm., 297 U.S. 471 (1936). The Court specifically reserved judgment on the effect of prescribed rates by the federal commission. A-31 expense is a determination that there is no category of asset for which depreciation expense will be allowed. It is therefore clear that the decision to commence expensing the inside wiring portion of station connections involves questions of depreciation policy. 12. The law is clear that federal regulation should not be presumed to preempt state regulations without clear evidence of either congressional design to preempt the field or that state regulatory activities would obstruct the ac- complishment and execution of the full purposes and objec- tives of Congress. Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 141 (1963), Hines v. Davidowitz, 312 U.S. 52, 67 (1941). Our review reveals that both criteria are satisfied in this case. In reaching this conclusion we analyz- ed the language of Section 220, the legislative history, rele- vant court cases, and our regulatory objectives. A. Statutory Language 13. The Commission's express jurisdiction with respect to depreciation is set forth in Section 220(b). That section provides: The Commission shall, as soon as practicable, prescribe for such carriers the classes of property for which depreciation charges may be properly included under operating expenses, and the percentages of depreciation which shall be charg- ed with respect to each of such classes of proper- ty, classifying the carriers as it may deem proper for this purpose. The Commission may, when it deems necessary, modify the classes and percen- tages so prescribed. Such carriers, shall not, after the Commission has prescribed the classes of pro- perty for which depreciation charges may be A-32 included, charge to operating expenses any depre- ciation charges on classes of property other than those prescribed by the Commission, or, after the Commission has prescribed percentages of de- preciation, charge with respect to any class of property a percentage of depreciation other than that prescribed therefor by the Commission. No such carrier shall in any case include in any form under its operating or other expenses any depreciation or other charge or expenditure in- cluded elsewhere as a depreciation charge or otherwise under its operating or other expenses. 14. The plain language of the statute is express and unequivocal. Section 220(b) says the Commission ‘‘shall’”’ make depreciation prescriptions, and that carriers ‘‘shall not’’ charge depreciation different than that prescribed by the Commission. That this preempts inconsistent state ac- tion is further indicated in Section 220(h) which gives the Commission discretion to ‘“‘except’’ carriers from the re- quirements of Section 220 ‘‘where such carriers are subject to state commission regulation.” 15. The requirement of Section 220(i) that states be given an opportunity to comment before the Commission prescribes ‘‘any requirements as to accounts, records and memoranda’™’ is consistent with an interpretation that states are preeempted when the Commission has acted in the depreciation area. By providing that states be given notice, Congress ensure that state needs for accounts, records and memoranda brought to the Commission's at- tention would be considered. Such a procedure assures that the states’ needs and legitimate interests are met. 16. In setting the duties of the Commission and the prohibitions on the carriers subject to the Act, Congress A-33 spoke of depreciation in general terms without any attempt to make distinctions between either ‘‘intrastate’’ or ‘‘in- terstate’’ property. This is significant because when Con- gress wanted to make such distinctions in the Act it did so. See, e.g., 47 U.S.C. 221(c) and (d), and 410(c). The fact that Congress did not make such a distinction here indicates that it intended no distinction. 17. Taken as a whole, the language of Section 220 ap- pears clearly to preempt the states in connection with depreciation expense determinations and the related ac- counting. The language strongly implies that the states may not depart from depreciation rules prescribed by the FCC unless the Commission in its discretion allows them to do so. Otherwise, the federal statute would govern state depreciation practies in form only, allowing the states to treat substantive depreciation matters as they might choose. While that might be a plausible construction of Section 220, after full analysis we do not believe that Con- gress intended such a feeble gesture. There would be little purpose to require the carriers to keep all their books pur- suant to an FCC prescription, and then allow the states to require the carriers to follow inconsistent depreciation practices. Instead, the language of the section and the com- prehensive treatment given to this matter by the Congress demonstrate that more was intended. Accordingly, we find that the statutory language indicates that FCC deprecia- tion prescriptions are to be followed in both the federal and state jurisdictions unless the FCC provides otherwise. As demonstrated below, this construction is also consistent with the legislative history. B. Legislative History 18. In the Preemption Order we found that the A-34 legislative history of Section 220 was inconclusive and at most indicated that Congress was ‘‘not sure’ about the preemptive effect of the new legislation. 89 FCC 2d at 1106. However, the reconsideration petition and comments sup- porting it show that Congress believed that the language ultimately adopted would preempt the states from prescribing depreciation rates for subject carriers when the Commission had prescribed rates. 19. In our Preemption Order, we observed that Sec- tion 220 of the Communications Act had been adopted from Section 20 of the Interstate Commerce Act, and our review of the few ICC cases touching upon preemption did not reveal the ICC to have possessed the kind of broad preemptive power now urged by GTE and AT&T. How- ever, after reviewing the pre-1934 cases again, we find that, while not dispositive, they lean more toward GTE and AT&T's views than against them. 20. The closest the ICC came to delineating its posi- tion on this matter came in Depreciation Charges of Telephone Companies, 118 1.C.C. 295, 332 (1926), where it said: It seems to be well established that where a local telephone company undertakes to originate or deliver toll messages, and most of them do so undertake, practically all of its property is open for use in interstate commerce and at any time may be so used. Under such circumstances, no doubt would seem to exist as to the power of Con- gress to regulate the accounting practices of such companies with respect to their property. in- cluding the accounting for depreciation. In the Preemption Order we focused on the fact that the A-35 ICC had not actually prescribed depreciation rates and thus there was uncertainty regarding the ICC's actual authority. However, after reviewing that case again we find that the better and more sensible interpretation is that if the ICC had prescribed depreciation rates, the state com- missions wuuld have been precluded from prescribing rates that diverged from those it prescribed. We cited Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 159 (1930), in the Preemption Order as supporting our conclusion that the ICC decision did not preempt the states. In that decision the Supreme Court held that absent ICC action prescribing depreciation rates, Section 20(5) did not preclude states from prescribing depreciation rates. Since the ICC pro- ceeding did not actually prescribe depreciation rates, but only began a proceeding looking toward the ultimate prescription of depreciation rates, there were no deprecia- tion rates prescribed that could have preempted state- prescribed depreciation rates. Thus Smith only stands for the proposition that until the ICC actually prescribed rates, there was no basis for preempting the states. It did not reach the question of whether Section 20(5) would preempt the states if the ICC prescribed depreciation rates.° 21. At the hearings pertaining to the Communica- tions Act the then chairman of the ICC indicated his belief that the ICC depreciation rulings would govern both federal and state depreciation practices: 3 Similarly, [nterstate Commerce Commission v. Goodrich Transpor- tation Co., 224 U.S. 194 (1912) and Kansas City Southern Ry. Co. v. LRS. 52 F.2d 372 (8th Cir. 1931) do not appear to have any pertinance to the issue at hand. As noted in 89 FCC 2d at 1099, Goodrich did not raise any question with respect to the effect of ICC accounting rules upon activities not subject to ICC rate regulation. The Kansas holding simply reconciles two federal statutes, the Internal Revenue Code and the Interstate Com- merce Act. It did not purport to establish new law on state preemption. A-36 Paragraph (j)...should be most carefully consid- ered. It unquestionably directly conflicts with, and destroys the uniformity of systems of ac- counts and depreciation accounting required by the preceding provisions of the section. That is not true under the present law.4 22. Other witnesses who appeared at the hearing repeated the same view. See statements of Mrs. Gifford,” Mr. Benton,® and Dr. Irvin Stewart.’ 23. The Preemption Order relied heavily on the ‘silence contained in the Congressional Reports,”’ 89 FCC 2d 1105, in concluding that the legislative history did not support a finding that Section 220 was intended to preempt state commissions from prescribing their own depreciation rates for intrastate purposes. However, a reexamination of the legislative history in light of the comments on recon- sideration indicates that the committee reports accompa- nying the bills did contain language indicating that the committees believed that the predecessor provision had preempted the states. The House Report, in discussing the Section 220(j) provision (which was not adopted) that would have reserved jurisdiction over depreciation rates to the states for purposes of intrastate ratemaking, stated that the provision was “responsive to the requests of the 4 Ltr. of F. McManamy. Hearings on S. 2910. p. 208. 5 Hearings on H.R. 8301. pp. 191-192 (See 89 FCC 2d at 1105. fn.17). The Preemption Order had indicated that Mr. Gifford’s preemp- tion views were tentative. However. careful review of that testimony reveals that Mr. Gifford’s uncertainty may have concerned the date Sec- tion 20(5) was enacted, not preemption. 6 Hearings on S. 2910. 73rd Cong.. 2d Sess.. p. 181 (1943). U Hearings on H.R. 8301. 73rd Cong.. 2d Sess.. p. 17 (1934). A-37 State commissions that the present law be changed so as to permit those bodies to exercise, for State purposes, cer- tain jurisdiction over...depreciation accounting. "8 24. In remarks on the House floor, Representative Rayburn, Chairman, House Committee on Interstate and Foreign Commerce explained Section 220 of the proposed bill as follows: [plaragraphs (a) to (g), relating to accounts records, memoranda, and depreciation, is based upon sections 20(5) to (8) of the Interstate Com- merce Act with changes necessary to permit State commissions to prescribe the systems of ac- counts for the intrastate operation of carriers. Paragraphs (h) to (j) are new...paragraph (j) removes any limitation upon the power of a State commission to prescribe, for the purposes of the exercise of its jurisdiction, rates of depreciation. The last three paragraphs named were placed in the bill at the request of the State commissions which feel that their task of regulating intrastate communications will be greatly facilitated by the adoption of these paragraphs.” 25. The Senate version of Subsection (j) took a totally 8 H.R. Rep. No. 1850, 73rd Cong.. 2d Sess. 7 (1934) (emphasis add- ed). The section (j) proposed by the House would have provided: Nothing in this section shall (1) limit the power of a State commission to prescribe for the purposes of the exercise of its jurisdiction with respect to any carrier the percentage rate of depreciation to be charged to any class of property of such carrier, or the composite depreciation rate, for the purpose of determining charges, accounts, records, or prac- tices; (2) relieve any carrier from keeping any accounts. records, or memoranda which may be required to be kept by any State commission in pursuance of authority granted under State Law.” H.R. 8301. 73 Cong.. 2d Sess. Section 2201i) (February 27, 1934). \ 9 74 Cong. Rec. 10314 (1934) (emphasis added). A-38 different approach than the House version. It called ‘‘for in- vestigation and report to Congres instead of immediately turning over these matters to the State."’ S. Rep. No. 781, 73rd Cong., 2d Sess. 5 (1934).!° The version of Section 220(j) finally enacted was the result of agreement in the conference committee. The conferees agreed to adopt the ’ House provisions as to Sections 220(h) and (i), but decided against the House Section 220(j) proposal to remove any limitation upon the power of states to prescribe rates of depreciation. Instead, Section 220(j) was modified along the lines of the Senate proposal to require the Commission to “investigate and report to Congress as to the need for legislation to define or further harmonize the powers of the Commission and of State commissions with respect to other matters to which this section relates."’ Conf. Comm. Rep. No. 1918, 73rd Cong., 2d Sess. 17 (1934). The obvious inference to be drawn is that the conferees were not prepared at that time to allow the states to prescribe depreciation rates different than those established at the federal level, but that matter might be considered later if the report required by Section 220(j) indicated it to be appropriate. 26. The hearing testimony and Committee reports therefore indicate that the language being recodified from Section 20(5) of the Interstate Commerce Act preempted 10 The Senate version of Section 2201 j) provided: “The Commis- sion shall investigate and report to the Congress whether in its opinion legislation is desirable (1) authorizing the Commission to except the car- riers of any particular class or classes in any State from any of the re- quirements under this section in cases where such carriers are subject to State commission regulation with respect to matters to which this section relates; and (2) permitting the State commissions. in pursuance of authority granted under State Law, to prescribe their own percentage rates of depreciation or systems of accounts records. or memoranda to be kept by carriers.’ S. 3285. 73rd Cong.. 2d Sess. Section 220(j) (March 28, 1934). SE A-39 the state commissions’ jurisdiction over depreciation. The rules of statutory construction provide that where Con- gress enacts a provision from an existing statute, it intends that the construction applicable to the existing provision apply as well to the new provision.'!! The legislative history thus supports the actual language of Section 220(b) and indicates that Congress intended to preempt state commission jurisdiction over depreciation rates for subject carriers when it recodified the language from the Interstate Commerce Act. Accordingly, we conclude that the analysis of the legislative history contained in the comments of AT&T and GTE accurately represents the intent of Con- gress and that the more persuasive reading of the legislative history supports the construction that Section 220(b) preempts inconsistent state action where the Com- mission has prescribed depreciation rates for a carrier. C. Administrative and Court Decisions 27. The Preemption Order cited Accounting Rules for Telephone Companies, 203 ICC 13 (1934), as evidence that the FCC could not preempt state depreciation practices. There the ICC recognized that states might have additional accounting needs and indicated that it had permitted state- prescribed sub-accounts within the federally-required books of account. However, the adoption of a blanket sub- division rule does not lead to the conclusion that federally adopted accounting and depreciation rules are not preemp- tive. Rather, it reflects an awareness that state commis- sions may have special data requirements to properly i Courts have given weight to interpretations of the Interstate Commerce Act in interpreting the Communications Act. See, e.g., American Telephone and Tel graph Company v. FCC, 487 F.2d 865 (2d Cir. 1973). A-40 administer their regulatory policies which may require ad- ditional detail beyond that prescribed by the federal agen- cy. A subdivision rule, however, does not permit what is ac- counted for as an expense to be capitalized in the guise of subdividing an expense account. While we may allow sub- divisions of accounts, we will not allow inconsistent ac- counting or depreciation methods unless such practices are otherwise consistent with the public interest. Any other policy would obliterate the prescriptive effect of our adop- tion of a uniform system of accounts. 28. In fact we have approved variations from the prescribed uniform system of accounts. For example, our rules give carriers blanket authority to subdivide certain prescribed accounts “provided such subdivisions do not impair the integrity of the accounts prescribed.” 47 C.F.R. 31.01-2(d\(1). C.F. 31.01-2(f), authorizing carriers to sub- divide accounts ‘‘in the manner ordered by any state com- mission having jurisdiction...."" We also have approved state commission rate making treatment of plant under construction different from that adopted by us. See 89 FCC 2d at 1107. 29. There may well have been some instances of in- consistent state treatment of depreciation in the past. However, we do not seek controversy unless it is necessary to protect vital federal interests. Either such instances did not come to our attention or they may not have appeared threatening to federal interests.!? In the past the commun- ications marketplace was typified by monopoly conditions Te Pacific Telephone and Telegraph Company v. California. 40} P. 2d 353 (1965), was cited in the Preemption Order to support nonpreemp- tion. However, the California Supreme Court did not analyze Section 220(b) or its legislative history and its determination is therefore unpersuasive. A-41 and life and salvage factors underlying the state rates were generally very similar, if not identical, to those used by the Commission. In that environment it was not essential that the Commission assert all the authority granted it. See Computer and Communications Industry Association v. FCC, No. 80-1471 (D.C. Cir. November 12, 1982). As discussed, infra., in the more competitive conditions prevailing today, the utilization of proper methods and rates is more critical if the proper incentives are to be created to insure that the marketplace will function effi- ciently to bring the benefits of the competition to the ratepayers of this country. Therefore, where it is necessary to protect important federal policies against frustration by inconsistent state actions, we will exercise the full breadth of our depreciation powers. See para. 14 above. 30. Nor is there any merit to the argument that federal preemption of depreciation practices constitutes in- trastate ratemaking, which might run afoul of 47 U.S.C. 152(b). Section 220(b) only prohibits the states from setting depreciation rates for telephone property inconsistent from those prescribed by the FCC. It does not require that any particular tariff for intrastate service be accepted by the state commissions. The setting of depreciation rates and classes of depreciable property only resolves a single issue impacting the ratemaking process. It does not restrict the state commission's broad discretion in setting charges for individual services. In any event, Section 2(b) of the Act, 47 U.S.C. 152(b), has a well defined purpose which would not be implicated here: ‘‘to restrain the Commission from in- terfering with those essentially local incidents and prac- tices of common carriage by wire that do not substantially encroach upon the administration and development of the interstate telephone network.’ NCUC IJ, supra at 794 n.6. Here the setting of depreciation rates is not an essentially A-42 local incident or practice and it has substantial effects upon the administration and development of the interstate telephone network.!3 D. Preemption Under Federal Supremacy 31. Even if one were to assume that Section 220(b) did not automatically preempt the states whenever this Commission has acted, federal preemption of inconsistent state depreciation would be justified in this case to avoid frustration of validly adopted federal policies. The Fourth Circuit has stated: We have no doubt that the provisions of section 2(b) deprive the Commission of regulatory power over local services, facilities and disputes that in their nature and effect are separable from and do not substantially affect the conduct or develop- ment of interstate communications. But beyond that, we are not persuaded that section 2(b) sanc- tions any state regulation, formally restrictive only of intrastate communication, that in effect encroaches substantially upon the Commission's authority under sections 201 through 205. NCUCI, supra at 793. to the same effect, see Computer and Communications Industry Association v. FCC, supra at 35. Nor is federal preemption of depreciation practices inconsistent with 47 U.S.C. 221(b). Section 221(b) was intended to reserve state jurisdiction over exchange rates where exchange boundaries extend over two states. That provision was not intended to create new reserva tions to the states beyond that contained in Section 2(b) and the narrow circumstance encompassed by interstate exchanges. See Computer and Communications Industry Association v. FCC, supra, and North Carolina Utilities Commission v. FCC, 552 F.2d 1036, 1046 (4th Cir.1976). cert. denied, 434 U.S. 874 (1977) (hereinafter cited as NCUC II). A-43 32. The D.C. Circuit recently addressed the preemp- tion question, observing: We fail to see any distinction in this case between preemption principles applicable to state ratemak- ing authority and those applicable to other state powers. The operative principle [is that]...preemp- tion of state tariffs on CPE is justified because state tariffs would interfere with the consumer's right to purchase CPE separately from transmis- sion service and would thus frustrate the validly adopted federal policy. Id. at 38. The court went on to find that conflicting state regulation may be preempted even though there is some in- direct effect on state ratemaking discretion, noting: the Act itself does not distinguish between authori- ty over rates and authority over other aspects of communications. Sections 2(a) and (b) of the Act allocated federal and state authority with regard to both ‘charges [and]...facilities.'’ Therefore, con- flicting federal and state regulations regarding dual use CPE are no more acceptable under the Act when equipment rates are involved, as here, than when interconnection policies are involved, as in the NCUC cases. Id. at 38-39. 33. The provision for adequate capital recovery is im- portant to ‘‘make available, so far as possible, to all the peo- ple of the United States a rapid, efficient, Nation-wide, world- wide wire and radio communication service with adequate facilities at reasonable charges...... 47 U.S.C. 151. State depreciation rate prescriptions that do not adequately pro- vide for capital recovery in the competitive environment, A-44 which constitutes this Commission's policy in those markets found capable of supporting competition, would frustrate the accomplishment of that policy and are preemptable by this Commission. 34. Over the past decade the Commission has em- barked in several areas of telecommunications to pursue a policy of encouraging competition wherever the market conditions will support such a policy and produce benefits to the public interest. In MTS-WATS Market Structure In- quiry, 81 FCC 2d 177 (1980), the Commission opened the domestic MTS-WATS market to competitive entry, reserv- ing the question of entry to Alaska to a later phase since concluded with the adoption of a similar open entry policy, MTS-WATS Market Structure Inquiry, FCC 82-515 (releas- ed November 30, 1982). In Computer Inquiry II, 77 FCC 2d 384 (1980), recon., 84 FCC 2d 50 (1980), recon., 88 FCC 2d 512, aff'd subnom., Computer and Communications In- dustry Association v. FCC, supra, the Commission opened the areas of enhanced services and customer premises equipment to competitive provision. These are just two ex- amples of the policies which the Commission has pursued. However, they do point up the fact that if this policy is to be successful, it will be necessary for the marketplace to operate efficiently. Such efficient operation requires proper price signals generating from supply and demand conditions. 35. Capital recovery is an important determinant of the price at which services can be offered and significantly affects the amount of facilities provided to supply the needs of the communications industry. In Amendment to Part 31, 83 FCC 2d 267 (1980), recon., 87 FCC 2d 916 (1981), the Commission adopted remaining life and straight line equal life group depreciation methods that recover capital A-45 on a basis that approximates straight line unit depreciation more closely than did the previously used methods. More timely capital recovery was anticipated to result in faster technological innovation with its accompanying benefits of more efficient service provision and lower costs resulting from more productive use of facilities. 36. Capital recovery issues are important in the im- plementation of Computer Inquiry II due to the part depreciation plays in the determination of net book value and the resultant gain or loss that may occur on the transfer of assets to the new subsidiary. It will also be significant in any later transfer of assets from the provi- sion of regulated service to unregulated service or vice- versa. Thus, appropriate capital recovery will ease the regulatory burdens associated with supervising the transi- tion to the new structure. 37. Depreciation is a significant portion of the revenue requirement of the regulated telephone companies. As such, it plays an important role in determining the price at which they offer their services. If competition is to be viable, it is necessary for prices to reflect depreciation ex- penses that are realistic for a competitive market. Absent such depreciation levels, improper signals will be given to the market. Since most plant is used interchangeably to provide interstate and intrastate communications service, supply and demand is determined by the combination of in- puts from service demand in both regulatory jurisdictions. Approximately 75 percent of exchange plant is allocated to the intrastate jurisdiction. It is clear that unless telephone plant, including that portion subject to allocation to the in- trastate jurisdiction, is depreciated at a reasonable rate, improperly time capital recovery will occur. Indeed, in a in- creasingly competitive environment, it is possible that A-46 improper capital recovery could delay or prevent moder- nization which would add to the costs borne by ratepayers and could, ultimately, threaten carriers’ ability to fully recover their invested capital. Moreover, the extent of state action attempting to prevent carriers from utilizing our depreciation prescriptions places substantial burdens on carriers and could well impair their ability to raise the in- vestment capital they will need to fully compete in the con- tinually evolving competitive telecommunications marketplace.!4 Such a result could undermine the achieve- ment of the Commission's objective to develop policies that will engender a dynamic, efficient telecommunications marketplace with services being provided at reasonable prices. 38. NARUC contends that preemption with respect to station connections is unnecessary and will not produce competitive benefits because expensing is not the same as unbundling. While NARUC is correct in a strict sense, it avoids the critical issue, which is the proper timing of cost recovery. If the Commission preempts with respect to sta- tion connections and all states must expense these costs, current ratepayers will be paying these costs instead of future ratepayers as would be the case with capitalization. Thus, future prices will reflect the appropriate costs for providing those services. Moreover, if these costs are 14 ATAaT and GTE indicate several state commission have refus- ed to follow. have indicated an intent not to follow. or are being urged not to follow Commission determinations with respect to the expensing of inside wiring and/or the adoption of straight-line equal life group or remaining life depreciation methods. A staff review of state action in conjunction with AT&T intrastate tariff proceedings reveals that all but two states have approved expensing of station connections, that 13 states have rejected and 12 have approved equal life group depreciation. and that 9 states have rejected and 22 have approved remaining life group depreciation. Prior to issuing our Order in this docket we did not expect that such significant variance would be required by states. A-47 expensed and state commissions must allow rates to cover these costs, it is likely that the cost causative ratepayer will in many cases be charged for the costs being expensed in connection with the provision of inside wiring. Thus, the Commission's objective may be substantially achieved by preempting state commissions from departing from our ex- pensing rules. 39. In 1971 Congress amended the Communications Act to change the procedures for allocating costs between federal and state jurisdictions by adding Section 410(c). The Commission was given the ultimate authority with respect to such allocations, further solidifying its superintendency over common carrier communications. See NCUC I, supra at 795. Section 410(c) procedures pro- vide for uniformity in the separations process, thereby in- suring that plant, expenses and revenues will be rationally accounted for in the dual jurisdictional environment. The utilization of one depreciation rate is the most effective method for insuring that this uniformity will be maintained and to insure that no jurisdiction bears a greater burden than another in the transition to a fully competitive marketplace. Several parties suggest that under or over recovery will result from one jurisdiction or another because of the shifting usage patterns for telephone plant over time and argue that if such a result were to occur, significant inequities would result to both ratepayers and carriers. A uniform depreciation rate for each class of pro- perty applicable to all property whether allocated to the federal or state jurisdiction clearly eliminates these poten- tial problems. 40. For all of these reasons, it is apparent to us that a substantial impact on federal policies could result if state commissions were allowed to diverge from Commission A-48 prescribed depreciation rates and practices. Accordingly, it is essential to preempt inconsistent state depreciation practices to avoid frustration of these vital national policies. III. Declaratory Ruling Petition. 41. GTE of Ohio seeks to have the Commission preempt an order of the Ohio Public Utilities Commission that did not approve remaining life and equal life group rates for intrastate ratemaking purposes. As alleged by GTE of Ohio, the differential in rates amounts to seven million dollars per year. GTE of Ohio states that failure of this Commission to preempt the state will frustrate the achievement of federal policies adopted by this Commis- sion. Its argument is similar to those cited in connection with the reconsideration petition. 42. Essentially the same arguments are made against the GTE of Ohio petition as were urged on recon- sideration with regard to the substance of the issue. However, Ohio cites an Ohio statute that precludes the state commission from adopting remaining life deprecia- tion for intrastate purposes. 43. One procedural argument is raised by Ohio with respect to the petition. It contends that the question presented is premature since the order is subject to further reconsideration before the Ohio Commission pursuant to a request filed by GTE of Ohio. We do not agree since the purpose of declaratory rulings is to give guidance to af- fected persons in areas where uncertainty or confusion ex- ists. A case or controversy in the judicial sense is not re- quired, NCUC I, supra at 790-1. In this case, it appears necessary to issue such a ruling to clarify for the state A-49 commissions and the carriers the effect of our depreciation prescriptions. The fact that reconsideration proceedings are under way in Ohio does not mitigate against such a course in light of the divergencies from this Commission's depreciation methods and rates that are occurring to the detriment of federal policies. Thus, we find it imperative to declare today that inconsistent state prescribed deprecia- tion rates are preempted by the Communications Act and are accordingly void. The existence of a state statute preventing a state commission from adopting a particular method does not affect this determination. When federal preemption is involved, there is no difference between a statute or a regulation of a state commission. Both must fall in the face of overriding federal concerns and policies. IV. Conclusion 44. We have carefully reviewed the record upon reconsideration. The issues raised concerning the Preemp- tion Order caused us to reevaluate the statutory language of Section 220(b), the legislative history of the provision, and the relevant judicial and administrative proceedings relating to the subject. Our considered judgment after this review is that the Preemption Order must be reconsidered. We find that the most logical and reasonable interpretation of Section 220(b) of the Act is that where the Commission prescribes depreciation rates for classes of property, state commissions are precluded from departing from those rates. Since the depreciation method utilized is a material part in determining the rate to be applied, state commis- sions are also precluded from departing from the deprecia- tion methods prescribed by the Commission. Thus, the Ex- pensing Order is binding upon state commissions and they must expense additions to inside wiring in accordance with the plan established therein. Moreover, they must follow A-50 the amortization procedures adopted in that decision for the embedded inside wiring and any additions to the capitalized amount as a result of the phase-in of the expens- ing of inside wiring. 45. Even if Section 220(b) does not preempt state commissions, we would act under our authority to preempt state actions that interfere with the accomplishment of federal policies and objectives. Computer and Communica- tions Industry Associaton v. FCC, supra, and NCUC I]. We note that petitioner and the parties supporting the peti- tion cite several states that have indicated they do not in- tend to follow the Commission's depreciation prescriptions or expensing of inside wiring, or have refused to follow either. In light of the concerns expressed about an efficient- ly functioning market, we must find that inconsistent depreciation rates prescribed by state commissions will in- terfere with the efficient operation of the communications marketplace and thereby frustrate the achievement of the Commission's policies. Accordingly, we find that this Com- mission's depreciation policies and rates, including the ex- pensing of inside wiring, preempt inconsistent state depreciation policies and rates. 46. Accordingly, IT IS ORDERED, pursuant to Sec- tion 1, 4(i), and 220(b) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), and 220(b), That the Petition for Reconsideration filed by the American Telephone and Telegraph Company IS GRANTED. 47. IT IS FURTHER ORDERED, That the Petition for Declaratory Ruling filed by General Telephone Com- pany of Ohio IS GRANTED to the extent reflected herein. 48. IT IS FURTHER ORDERED, That the A-51 Secretary shall cause this order to be published in the Federal Register. 49. IT IS FURTHER ORDERED, That the Secretary shall cause a copy of this order to be served on each state commission. FEDERAL COMMUNICATIONS COMMISSION William J. Tricarico Secretary Appendix A. Summary of Comments 1. AT&T argues that the Commission on reconsidera- tion should find that state commissions are precluded from departing from the depreciation methods and rates establish- ed by this Commission in order to allow the carriers to achieve timely capital recovery. It views the Preemption Order as a retreat from the Commission's competitive policies. 2. AT&T asserts that realistic depreciation rates are essential to attain accurate cost-based pricing decisions to prevent artificial barriers to competition, to foster technological innovation which will enhance network efficien- cy and the availability of competitive alternatives, to facilitate the timely implementation of the detariffing of customer premises equipment! and to insure the financial viability of the carriers. It contends that competitive conditions result in faster obsolescence and shorter asset lives, requiring that depreciation methods and rates be inseparable from ratemak- ing to insure capital recovery. 1 It contends that different depreciation rates between jurisdictions will result in disagreements about net book value in deregulating CPE and that the application of the Separations Manual will create uncertain- ty as to which plant a particular book value relates. A-52 3. AT&T proposes two legal theories for preempting state commission action. First, it asserts that the Commis- sion may preempt under Sections | and 2 of the Act, citing California v. FCC, 567 F.2d 84, 86 (D.C. Cir. 1977), cert. denied, 434 U.S. 1010 (1978), NCUC II, NCUC I, and NARUC v. FCC, 533 F.2d 601 (D.C. Cir. 1976). It states that because of the central role depreciation, including the depreciation aspects of station connections, plays in the achievement of the Commission's policies, preemption is necessary to avoid interference with or frustration of these policies. 4. AT&T's second theory is that Section 220(b) preempts states on its face, asserting that in its earlier pleadings it did not rely on Section 220(g) as suggested by the Commission's decision. It argues that Section 220 gives the Commission discretion with respect to accoun- ting rules, but does not give it such discretion with regard to depreciation prescriptions. AT&T states that the Com- mission's rule allowing carriers to subdivide an account to comply with a state commission order does not mean that a state can require capitalization when this Commission re- quires expensing. Finally, it submits that the Commission misread the legislative history of the Communications Act by failing to consider statements in the committee reports and remarks of members at committee hearings that in- dicate Congress believed the Interstate Commerce Act pro- visions from which Section 220(b) was taken did in fact preempt the states. See also Depreciation Charges of Telephone Companies, 118 1.C.C. 295 (1926). 5. GTE asserts that the Commission's policies in the areas of competition and faster capital recovery will be frusstrated if the state commissions are allowed to depart from the depreciation rates and methods prescribed by the A-53 Commission. It contends that Section 220(b) preempts the states and distinguishes Section 220(a) as being discre- tionary on the Commission and argues that the Commis- sion focused only on the provisions of Section 220(a) in its earlier decision. It submits that there is no doubt that a state can require a carrier to keep additional records and memoranda. However, GTE argues that the Commission's decision is overly broad. It is clear, GTE contends, that the Commission can preempt inconsistent state action when it conflicts with national telecommunications policies, and it should do so in this case. GTE also argues that the legislative history and the rules of statutory construction indicate that Congress intended to preempt the states in the area of depreciation, submitting that property cannot be successfully depreciated at two different rates prescrib- ed by different regulatory bodies because under or over recovery from one or the other jurisdiction will occur from the use of shifting usage factors. 6. The oppositions generally argue that the states have the jurisdiction to determine the extent to which in- trastate rates reflect depreciation and expensing ad- justments promulgated by the Commission. Sections 2(b) and 221(b) are cited as reserving jurisdiction over local and intrastate telephone rates to the states as intended by Con- gress when it distinguished between “‘‘interstate’’ and ‘‘in- trastate’’ in Sections 1 and 2. Ohio argues that the preemp- tion argument was rejected in the only case of which it is aware, Pacific Telephone and Telegraph Company uv. California, 401 P. 2d 353 (1965). 7. Ohio asserts that the courts have distinguished between ratemaking and interconnection policies, NCUC I] and NCUC I, and submits that it is the ratemaking jurisdiction reserved to the states that is in questicn in this A-54 proceeding. To permit the Commission to prescribe depreciation rates applicable to all property whether used for interstate or intrastate services would, in Ohio's view, be equivalent to giving the FCC a hand in setting state rates. 8. Ohio is concerned that under some methods, such as remaining life, costs will not be charged to consumers who receive the benefits of the property being depreciated. Finally, it contends that Sections 220(i) and (j) are consis- tent with concurrent jurisdiction. 9. Ohio argues that GTE is attempting to have the Commission read Section 2(b) out of the Act, and asserts that it is inappropriate to ignore language in a statute, to extend a statute beyond its clear import, or to embrace sub- jects not specifically enumerated. Section 2(b)(1) is stated by Ohio to have been intended to reverse the Supreme Court decision in Houston East and West Texas Ry. v. U.S., 234 U.S. 342 (1914), wherein the ICC was given the power to suspend intrastate rates enabling carriers to raise intrastate rates to federal levels for similar distances. NARUC and Ohio argue that section 2(b) was intended to ensure that state jurisdiction was not limited by the 1934 legislation. 10. Several parties assert that there is considerable Commission precedent recognizing the states’ independent reatemaking authority, including departures from Commis- sion prescribed accounting, for intrastate rates. They note that the Commission has encouraged state commissions to devote more resources to depreciation matters. Amend- ment of Part 31, 83 FCC 2d 267 (1980) recon., 87 FCC 2d 916 (1981), has recognized in this proceeding the state jurisdiction over expensing of station connections for state A-55 ratemaking purposes, has recognized divergent treatment of interest during construction and has not contested California’s use of remaining life for approximately thirty years. Ohio argues that there is nothing to suggest that there needs to be national uniformity in depreciation pro- cedures and that local diversity is desirable, noting that even a GTE of Ohio witness in an Ohio rate case has in- dicated that local diversity in setting depreciation rates is pr-ferable. 11. Ohio contends that McDonnell Douglas Corp. v. General Telephone Company of California, 594 F.2d 720 (9th Cir. 1979), recognized the validity of intrastate regulatory jurisdiction under the Act by finding that Con- gress in enacting Section 2(b) had intended to give states considerable power with respect to wire communications that are wholly intrastate in nature. 12. California argues that the Commission's refusal to preempt state power to prescribe depreciation rates for intrastate ratemaking purposes will not undermine the Commission's procompetitive policies or signal a retreat since many states have adopted policies that foster com- petition. AT&T's assertion that preemption must be exer- cised to promote procompetitive policies is rejected by NARUC as unsupported. It states that expensing of sta- tion connection costs can have no competitive effect because expensing is not the same as unbundling. More- over, it contends that the Commission did not adopt re- maining life and equal life group depreciation procedures to promote competition but, rather, to more properly time capital recovery and insure that any deficiency in past depreciation was adjusted. Finally, NARUC states that the speculative statements about the numbers of states that are not following the Commission's policies are A-56 inadequate to justify preempting state commission jurisdic- tion on the theory that federal policies are being frustrated. 13. NARUC argues that the attempted distinction of Section 220(a) from Section 220(b) on the basis that Section 220(b) is mandatory while Section 220(a) is discretionary does not address the question of the preemptive effect of either section. It contends that neither reason nor case law provides support for asserting that preemption of state regulation of intrastate communications is automatic with respect to sub- ject areas which the FCC must regulate on the interstate level. It further notes that the language of Section 220(g) with respect to the effect of prescribed depreciation rates, accounts or records other than as prescribed by the Com- mission. NARUC states that the relationship between ac- counting and ratemaking is self evident and argues that state control over intrastate rates would have little vitality if state commissions were deprived of the power to disallow expenses and depreciation claimed by carriers. NARUC asserts that the fact that a proposed Section 220(j) that would have ex- pressly reserved depreciation prescription powers to the states was not adopted does not mean that states must be bound by Commission depreciation prescriptions, stating that the final provision adopted was a compromise. 14. Consumers’ Counsel supports the Commission's Preemption Order and generally cites from that Order in sup- port of its position. Idaho also agrees with the conclusion of the Order and states that it believes that administrative costs of separate record keeping to meet state requirements will be small. Arkansas filed to indicate that its opinions had not rejected the new depreciation methods outright but had left the decision to individual cases for resolution. 15. AT&T's reply submits that the setting of A-57 depreciation rates does not constitute the exercise of jurisdiction with respect to charges for intrastate services. It argues that Section 2)b) does not deprive this Commis- sion of jurisdiction over jointly used property where its regulation affects the conduct or development of interstate communications. AT&T states that if a state utilized the depreciation rate prescribed by the Commission, it may make adjustments to the test period data to reflect con- cepts of used and useful property or other pro forma ad- justment to reflect conditions during the period during which the tariff will be in effect. 16. AT&T distinguishes Houston East and West Texas Ry. Co. v. U.S., supra, by asserting that that case in- volved actual preemption of service rates. It notes that while Congress may have sought to reverse that decision in the communications field, the issue here is only the jurisdiction to prescribe depreciation rates. Thus, it con- tends that the case actually suggests that Section 2(b) should be narrowly interpreted. Moreover, while use of federally prescribed depreciation rates may significantly affect intrastate rates, the states remain free to price in- dividual service rates. See e.g., NCUC I. 17. USITA submits that federal preemption of jurisdiction over depreciation rate prescriptions for car- riers for which the Commission has prescribed depreciation rates would not interfere with state commission ability to set intrastate service rates in accordance with any ratemaking method desired. It contends that the setting of depreciation rates is not a ratemaking function pursuant to Sections 201-205, but is the exercise of a specific power granted to the Commission by Congress. USITA argues that divergent depreciation rates create confusion and raise problems of capital recovery. A-58 18. GTE contends that state action whether in the nature of ratemaking or otherwise which ‘‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’”’ will be preempted. Fidelity Federal Savings and Loan Association v. de la Cuesta, 50 LW 4916, 4919 (1982). GTE concludes that the states do not have the power through the guise of ratemak- ing to negate FCC action designed to give effect to federal statutory objectives. GTE does not challenge state rights pursuant to state statutes to regulate rates for intrastate services. It asserts that no preclusion of state ratemaking jurisdiction would result from FCC preemption under Sec- ‘tion 220(b), although failure to preempt will endanger im- portant national policies. 19. GTE submits that Section 220(b) charges the Commission with the responsibility of prescribing depreciation rates for carriers subject to the Act and recognizes only two exceptions. First, the Commission should act as soon as possible. Second, Section 220(h) recognizes that certain classes of carriers may be exemp- ted. The Commission, according to GTE, has not exercised its authority pursuant to this provision in this proceeding. Finally, GTE argues that reliance on NCUC I and NCUC II as supporting a finding that the Commission cannot preempt state commission depreciation prescriptions for carriers subject to the Act is inconsistent with the holdings and analysis of those cases. AT&T and GTE submit that Section 221(b) is inapplicable because that provision was intended only to give states the jurisdiction to regulate local exchange service extending over a state boundary. A-59 SEPARATE STATEMENT OF COMMISSIONER JOSEPH R. FOGARTY IN RE: RECONSIDERATION OF DOCKET NO. CC 79-105. Having dissented from the Commission's original deci- sion declining to preempt State accounting and depreciation rules inconsistent with those prescribed by the FCC,' I am pleased that the Commission has reconsidered this issue and acted to preempt such inconsistent State regulation. As this Order establishes in detail, a true reading of the statutory language and legislative history of Section 220(b) of the Communications Act clearly demonstrates that Congress intended FCC depreciation rules and policies to con- trol the field. ‘ Even if preemption were not explicity mandated by Section 220(b), the effective implementation of our pro- competitive federal telecommunications policies dictates that inconsistent State depreciation regulation be preempted by this Commission. We cannot ‘‘defer to the States’’ on capital recovery issues. Telephone companies must be able to recover their cost of capital in a timely and effective manner if they are to price their services efficiently and to improve and ex- pand their facilities to meet the challenges of competition and technologic innovation. This preemption imperative is not merely theoretical. Too many States (e.g., Alabama, Louisiana, Nebraska, Ohio, New Jersey, Michigan, Arkansas) have already refused to ! Amendment of Part 31, Joint Dissenting Statement of Commis- sioners Joseph R. Fogarty and Anne P. Jones, 89 FCC 2d 1109-1111 (1981). A-60 recognize the critical necessity of the FCC's cost recovery principles. The resulting depreciation rate differentials are alarming: GTE of Ohio has indicated that it will be denied $7 million in capital recovery this year if the State of Ohio's disparate depreciation treatment is allowed to prevail. The FCC cannot ignore the detrimental impacts of in- consistent State treatment of depreciation if our pro- competitive policies are to have any integrity and viability. This Commission now recognizes that preemption is both mandated as a matter of law and essential as a matter of policy, and our action today has my full endorsement and support. 2 eae A-61 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 CC Docket 79-105 In the Matter of Amendment of Part 31, Uniform System of Ac- counts for Class A and Class B Telephone Com- panies, of the Commission's Rules and Regula- tions with respect to accounting for station con- nections, optional payment plan revenues and related capital costs, customer provided equip- ment and sale of terminal equipment. MEMORANDUM OPINION AND ORDER Adopted: April 1, 1982; Released: April 27, 1982 BY THE COMMISSION: COMMISSIONERS FOGAR- TY AND JONES DISSENTING AND ISSUING A JOINT STATEMENT; COMMISSIONER RIVERA DISSENTING. 1. We have before us a petition for clarification of our First Report and Order in this proceeding (85 FCC 2d 818 (1981)) filed by the National Association of Regulatory Utility Commissioners (NARUC) and a petition for recon- sideration of that Report and Order filed by the People of the State of California and the Public Utilities Commission of the State of California (California). The First Report and Order, commonly known as ‘‘Expensing of Station Connec- tions,’ adopted a number of changes in Part 31 of this Commission's Rules (Uniform System of Accounts for Class A and Class B Telephone Companies). The principal A-62 changes required that future costs of installing new inside wiring and similar costs be included as an expense in Account 605 (Repair of Station Equipment). Such costs have previous- ly been capitalized in Account 232 (Station Connections). The First Report and Order also required that the present net in- vestment in inside wiring and investment that will be add- ed during a transition period be amortized over a period of 10 years. That requirement superseded existing depreciation prescriptions for such investment. 2. Both petitions raise the question of whether, and to what extent, the adoption of the First Report and Order limits the discretion of state commissions to follow different accoun- ting and depreciation procedures for purposes of computing revenue requirements for intrastate telecommunications ser- vices. NARUC seeks a clarification of the First Report and Order declaring that it does not restrict the discretion of the state commissions and California seeks reconsideration of our decision to the extent that it purports to restrict the discre- tion of state commissions. GTE Service Corporation (GTE) and American Telephone and Telegraph Company (AT&T) have filed oppositions to the petitions. Those companies con- tend that the First Report and Order does and should restrict the discretion of the state commissions. 3. We have concluded that the First Report and Order does not preclude state commissions from using other accoun- ting or depreciation procedures for intrastate ratemaking pro- ceedings. Thus, we are granting the NARUC petition insofar as it seeks such a clarification. In view of our conclusion that state commissions are not precluded from using their own accounting and depreciation procedures for intrastate ratemaking purpose, it is unnecessary to consider further the California petition and it will be dismissed as moot. Hf ain uh 2 he er et ON ay ticioe aO R O Mm Aiy o Hm —m a eRe TRUER ot A-63 I. Nature of the First Report and Order 4. In our Phase II Final Decision and Order in Docket 19129, 64 FCC 2d, 1, 54-56 (1977), we concluded that it would be desirable to place costs associated with station connections on the causative ratepayer. We accor- dingly ordered AT&T to submit a plan for changing the ac- counting treatment of station connection costs that would be consistent with that objective. Jd. at 110. AT&T responded by filling a petition for rulemaking (RM-3017) that proposed amendments to Part 31 of our Rules. After reviewing that petition, we instituted this proceeding by in- viting comments upon a somewhat different proposal to modify accounting for station connections. ! 5. After reviewing the comments, we concluded that any changes in the accounting or other regulatory treat- ment of station connections should not include drop or block lines and protectors. We also concluded that changes in accounting procedures would not be sufficient in and of themselves to place other station connection costs on the causative ratepayer. This is the case because costs associated with the provision of inside wiring necessarily must be apportioned between the federal and state jurisdic- tions as long as inside wiring is provided as a tariffed ser- vice subject to dual regulation. Complete unbundling can- not be achieved by expensing rather than capitalizing such costs because both the telephone operations investment and telephone operations expenses are apportioned for pur- poses of computing an interstate and an intrastate tele- communication service revenue requirement. Complete ! Notice of Proposed Rulemaking (CC Docket 79-105), 44 F.R. 48988 (August 14, 1979). We also invited comment upon some other pro- posed accounting changes that are closely related to station connections. A-64 unbundling could be achieved by determining that the pro- vision of inside wiring should be provided on a detariffed basis. We have, of course, made such a determination with respect to customer premises equipment and have adopted rules to separate that business from the telephone opera tions that are subject to tariff regulation.2 We concluded that it would be premature to adopt such a fundamental change in the regulatory status of inside wiring without conducting further inquiry. 6. Nevertheless, we concluded that changes in ac- counting and depreciation procedures that would facilitate implementation of any decision to change the regulatory status of inside wiring would be desirable in the absence of such a change. We accordingly issued a First Report and Order adopting changes in accounting and depreciation rules and a separate Further Notice of Inquiry (86 FCC 2d 885 (1981)) inviting additional comments with respect to possible changes in the regulatory status of inside wiring. The First Report and Order does not produce any change in regulatory status. The interstate portion of the embedd- ed net investment will be reflected in the return component of the interstate telecommunication service revenue re- quirement and the interstate portion of the annual amor- tization and the new installation expenses will be reflected in the expense component of that revenue requirement. Unless and until we determine that inside wiring should not be provided as part of a tariffed service, the new ac- counting rules will not have a greater or different effect than any other accounting rules we have prescribed for the “ See Primary Instrument Concept (PIC). 68 FCC 2d 1157 (1978): Second Computer Inquiry Final Decision, 77 FCC 2d 384 (1980). recon., 84 FCC 2d 50 (1980); further recon., (FCC 81-481, released October 30, 1981). “tee © een ed) Wrenn A-65 purpose of computing the interstate telecommunication service revenue requirement. 7. Insofar as the petitions seek a determination with respect to this Commission's purpose and intent, we con- clude that the First Report and Order was not intended to have any preemptive effect that does not arise by operation of law. The discussion of the effects of expensing upon in- trastate rates and revenue requirements in thet Order was based upon the assumption that all or most state commis- sions would choose to follow those rules for purposes of computing intrastate telecommunications service rates. Our decision to permit carriers to accelerate the transition to expensing with the approval of state regulatory commis- sions was also based on the assumption that few, if any, of the state commissions would choose to prohibit expensing for intrastate ratemaking purposes. Such assumptions ap- peared reasonable because most state commissions have followed most accounting and depreciation procedures prescribed by this Commission in the past and the con- siderations that led us to conclude that expensing will benefit both carriers and consumers in the long run are equally applicable to intrastate ratemaking. No policy of this Commission would be furthered by requiring state commissions to adhere to the rules we have adopted for purposes of computing the interstate revenue requirement. If carriers adhere to our rules for purposes of computing the interstate revenue requirement, our purpose will be achieved. 8. The participants in this proceeding may not view the preemption issue as a question of intent, but rather as a matter of statutory interpretation. The petitioners may be contending that this Commission could not require state commissions to follow our accounting or depreciation rules A-66 for ‘intrastate ratemaking purposes and AT&T and GTE apparently contend that Section 220 of the Communica- tions Act precludes state commissions from departing from any accounting or depreciation rule that has been prescribed by this Commission. To the extent this is the case, this controversy might more appropriately be characterized as a request for a declaratory ruling with respect to the meaning and effect of Section 220 that is not limited to these particular rules. We do not propose to deny relief because the petitions or oppositions may not be pro- perly labeled. We have concluded, for reasons explained in Part II, that Section 220 does not preclude state commis- sions from departing from accounting or depreciation rules prescribed by this Commission for purposes of regulating intrastate telecommunication service rates. Il. Effect of Section 220 9. AT&T and GTE rely primarily upon Subsection 220(g) to support their contention that Section 220 precludes the states from departing from our accounting and depreciation rules for purposes of computing in- trastate telecommunication service revenue requirements. Subsection (g) provides: (g) After the Commission has prescribed the forms and manner of keeping of accounts, records, and memoranda to be kept by any person as herein provided, it shall be unlawful for such person to keep any other accounts, records or memoranda than those so prescribed or such as may be approved by the Commission or to keep the accounts in any other manner than that prescribed or approved by the Commission. Notice of alterations by the Commission in the re- quired manner or form of keeping accounts shall oe ial ts ee Oi at 8 ci a Re Meee al. en ee ee A-67 be given to such persons by the Commission at least six months before the same are to take ef- fect. (Emphasis added) [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0161%3A03. Public record. Not legal advice.