# Simplification of the Depreciation Process > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-16948 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** July 13, 1994 ## Text FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 43 [CC Docket No. 92-296; FCC 94-174] Simplification of the Depreciation Process AGENCY: Federal Communications Commission. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Federal Communications Commission is adopting range for the underlying factors that are used to compute depreciation rates for the local exchange carriers (LECs) regulated under the price cap incentive regulatory plan. This Second Report and Order establishes ranges for 22 of the 33 depreciation rate categories. LECs may make streamlined filings for changes in depreciation rates for these categories, if their underlying factors fall within the prescribed ranges. The rule change will lessen the depreciation prescription burden on price caps LECs in light of regulatory and market changes without sacrificing protection for consumers. EFFECTIVE DATE: August 12, 1994. FOR FURTHER INFORMATION CONTACT: Fatina K. Franklin or John Hays, Common Carrier Bureau, accounting and Audits Division, (202) 632-7500. SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second Report and Order in the Simplification of the Depreciation Prescription Process, CC Docket No. 92-296, FCC 94-174, adopted June 22 1994 and released June 28, 1994. The full text of this Commission decision in available for inspection and copying during normal business hours in the FCC Dockets Branch (room 230), 1919 M St., Washington, DC. The full text will be published in the FCC Record and may also be purchased from the Commission's copy contractor, International Transcription Services, room 246, 1919 M Street, NW., Washington, DC 20554. Paperwork Reduction Act The Federal Communications Commission has submitted the following information collection request to OMB for review and clearance under the Paperwork Reduction Act of 1980, 44 U.S.C. Section 3507. Persons wishing to comment on this information collection should contact Timothy Fain, Office of Management and Budget, Room 322, New Executive Office Building, Washington, DC 20503, (202) 395-3561. For further information, contact Judy Boley, Federal Communications Commission, (202) 632-7513. Please note: The Commission has requested emergency review of this collection by July 22, 1994, under the provisions of 5 C.F.R. Section 1320.18. Title: Section 43.43--Report of Proposed Changes in Depreciation Rates. OMB Control No.: 3060-0168. Action: Revised collection. Respondents: Businesses or other for-profit entities. Frequency of Response: On occasion; Triennially; Annually. Estimated Annual Burden: 12 responses; 7500 hours per response; 90,000 hours total. Needs and Uses: In the Report and Order in CC Docket No. 92-296 (released 10/20/93), the Commission streamlined its depreciation prescription process for local exchange carriers (LECs) regulated under its price cap regulatory scheme by adopting a modified form of the basic factor range option. The Second Report and Order adopts the initial set of accounts and ranges for the price caps LECs. The Commission has modified its information collection requirements whereby large LECs must submit analyses on proposed changes in depreciation rates. The changes should reduce by 25% the amount of time needed to prepare and review these analyses. The information will be used by the Commission staff to establish proper depreciation rates to be charged by the carriers pursuant to Section 220(b) of the Communications Act, as amended. 47 U.S.C. Sec. 220(b). The foregoing estimates include the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the burden estimates or any other aspect of the collection of information including suggestions for reducing the burden to the Federal Communications Commission, Records Management Division, Paperwork Reduction Project, Washington, DC 20554 and to the Office of the Management and Budget, Paperwork Reduction Project, Washington, DC 20503. Summary 1. On September 23, 1993, we adopted streamlined depreciation prescription procedures for the local exchange carriers (``LECs'') regulated under our price cap incentive regulatory plan.\1\ These procedures require us to establish ranges for the underlying factors that are used to compute depreciation rates for plant categories. The new procedures generally will permit carriers to make streamlined filings for changes in depreciation rates for these categories, as long as their underlying factors fall within the prescribed ranges. By adopting these streamlined procedures, we hoped to simplify the depreciation process, achieve administrative savings, and allow the LECs greater flexibility\2\ in the depreciation process, while remaining consistent with the public interest. --------------------------------------------------------------------------- \1\Simplification of the Depreciation Prescription Process, Report and Order, 58 FR 58788 (1993) (Depreciation Simplification Order). \2\Flexibility allows a LEC to select, within established ranges, the life and salvage factors it uses in prescribed depreciation rates without undergoing the expense of submitting studies to justify its specification of those factors. In addition, under the new procedures, the LECs can change their basic factors annually, as opposed to the current triennial represcription cycle. --------------------------------------------------------------------------- 2. We further concluded that the streamlined procedures should be implemented as soon as practicable. To that end, we decided to implement the new procedures in two phases. In phase one, we directed the Common Carrier Bureau to identify the accounts most readily adaptable to the range approach and propose ranges for them. In phase two, we will establish ranges for the remaining, more complex accounts, to the extent feasible. 3. On November 8, 1993, we adopted an Order Inviting Comment\3\ on 22 plant categories selected by the Bureau for initial implementation of the streamlined procedures. These categories represent two-thirds of the 33 plant categories for which carriers currently submit depreciation studies. In addition, the OIC sought comments on the proposed projection life and future net salvage ranges proposed by the Bureau for these categories. --------------------------------------------------------------------------- \3\Simplification of the Depreciation Prescription Process, Order Inviting Comments, 58 FR 62083 (1993) (OIC). --------------------------------------------------------------------------- 4. In response to the OIC, the LECs and the United States Telephone Association (USTA) maintained that, to maximize the benefits of the simplification procedures, ranges should be established for all accounts as quickly as possible. They argued that the limited number of accounts for which ranges have been proposed in phase one severely restricts the benefits of streamlining depreciation. On the other hand, MCI, the National Association of Regulatory Utility Commissioners (NARUC) and the state commissions supported the 22 plant categories proposed in the OIC for implementation in phase one of the simplification process. 5. We agree with the commenters that the ranges should be established as soon as possible. However, to begin the simplification process in 1994, it is necessary to implement the streamlined depreciation procedures in two phases and to limit the initial phase to certain categories of plant readily adaptable to the range approach. As we stated in the Depreciation Simplification Order, this schedule will make the most efficient use of our limited resources. To change our plans at this time and to perform the thorough analyses required to establish appropriate ranges for additional plant accounts would delay unnecessarily the use of the new procedures for the depreciation categories identified in the OIC. The commenting parties have presented no new information or arguments that would warrant a change in our plans. 6. Prior to the release of the Notice of Proposed Rulemaking in this proceeding, the staff of the Common Carrier Bureau had been considering ways to improve and to streamline the depreciation prescription process. The staff collected a substantial amount of data and performed analyses to determine the difficulty of establishing ranges for various accounts. Based on these analyses, it concluded that the 22 plant categories proposed in the OIC were the categories most adaptable to the range approach, because their life and salvage factors did not vary substantially among the carriers, or over time. The commenting state commissions generally concur with this conclusion. 7. We estimate that instituting these procedures for the 22 categories selected for phase one will reduce the size of a typical depreciation study by 50%. We recognize that a 50% reduction in the size of the study will not necessarily result in a reduction of the workload by 50%. Nevertheless, in our view, the elimination of so much of the detailed analyses currently required in the studies will produce a substantial administrative savings for both the LECs and our staff. Moreover, we plan to propose ranges for additional accounts later this year, and to adopt ranges for these accounts early in 1995. As a result, we expect that the simplification procedures will be in place for all accounts, to the extent feasible, for the 1995 depreciation prescription review process. The ranges we establish in this Second Report and Order will be used to establish depreciation rates for 1994. Considering that ranges for additional accounts will take effect in 1995, we believe that our two-phase plan will allow us to achieve a major improvement in the depreciation prescription process in a very short period of time. 8. In the OIC, we proposed to establish ranges at the account level for sixteen plant accounts and at a rate category level for four additional accounts. The majority of parties commenting on this matter supported our proposal. Pacific Bell further suggested that, where a carrier maintains levels of categorization more detailed than those proposed by the Commission, it should be allowed to use the streamlined procedures, if the ``composite'' factors of its individual rate categories are within the ranges established for the category as a whole. In addition, NYNEX made a special request that the Commission establish a separate rate category with appropriate ranges for interoffice cable plant, because it contends the life characteristics of this plant are significantly different from those of subscriber cables. 9. Based on these comments, we have decided to adopt the ranges for the 22 rate categories as proposed in the OIC (see Appendix below). As NARUC observed, establishing ranges at these levels should not require any additional record keeping or substantial effort on the part of the LECs, since they are presently required to maintain their accounting records at these levels under Part 32.\4\ --------------------------------------------------------------------------- \4\47 C.F.R. 32.12(b). The LECs for which we prescribe depreciation rates are Class A companies and must keep all the Class A accounts prescribed in Part 32. --------------------------------------------------------------------------- 10. We have decided not to develop special ranges for LECs that have chosen to study rate categories at levels not listed in the Appendix. The application of our range approach is based on national averages of prescribed depreciation factors. Consequently, to develop special ranges would slow the process significantly as it would be necessary to require many carriers to submit large amounts of data which we would then have to analyze in order to establish appropriate ranges. This would place an undue burden on the majority of the carriers that do not study the plant investment at the levels of detail desired by those LECs that seek ranges for additional categories. 11. Nevertheless, we will consider requests from LECs like Pacific, that study an account listed in the Appendix at a more detailed level than shown, but wish to qualify within the established range for that account. During the prescription process, we will consider their proposals on a case-by-case basis to use the basic factors computed at the more detailed levels to satisfy the range requirements. 12. In the OIC, we solicited comments on a specific set of proposed ranges for the future net salvage and projection life factors for 22 plant categories. USTA and the LECs argued that the proposed ranges are too narrow, because the LECs will be able to use the streamlined procedures for fewer than 50% of the 22 plant categories. They argued that the ranges should be expanded in order to streamline the process significantly. In addition, for a few of the plant categories, they argued that the proposed life ranges are too high. They suggested that, because of the rapid changes in technology, certain plant accounts should be written off more quickly. However, GSA, MCI, NARUC and most of the state commission commenters support the ranges proposed in the OIC. California CATV and GSA believe that the objections to the proposed ranges raised by the LECs are aimed at obtaining higher depreciation rates, rather than streamlining the depreciation process. 13. In the Depreciation Simplification Order, we set forth the specific data that should be considered in establishing the projection life and future net salvage ranges, and we used these data in proposing ranges in the OIC. We based the ranges on statistical studies of the most recently prescribed factors. These statistical studies required detailed carrier-by-carrier analyses of the most recent plant retirement patterns, the carriers' plans, and the current technological developments and trends. Because the proposed ranges reflect these data, we believe that the ranges provide a reasonable degree of confidence that the basic factors falling within their bounds will produce depreciation rates accurately reflecting plant retirements, company plans, and technological trends. Moreover, they allow the LECs sufficient flexibility in the selection of the final factors. 14. Furthermore, we do not believe that the ranges are too high, or too low, as some of the commenters contend. Our objective was not to change the depreciation rates, but to streamline the process used by the Commission to prescribe those rates. Consequently, we will not at this time modify any of the proposed ranges. We believe that some experience with the ranges should be developed before we consider modifying them. If changing conditions require revisions in the ranges, we can modify them at that time. 15. The LECs' assertion that they will be able to use the streamlined procedures for fewer than 50% of the 22 rate categories is incorrect.\5\ We have studied the potential application of the ranges to every carrier for which the Commission prescribes depreciation rates. We have found that today over two-thirds of the carriers would qualify for the streamlined procedures for the 22 proposed rate categories. Furthermore, our most recent depreciation rate reviews indicate that the proportion should increase over the next few years. --------------------------------------------------------------------------- \5\In the Depreciation Simplification Order, the Commission decided that ``if a LEC's current basic factors for any one account do not both fall within the established ranges for that account, the LEC may not use the range approach for that account.'' --------------------------------------------------------------------------- 16. In the past, we allowed two informal, alternative streamlined procedures for plant accounts representing less than 3% of a carrier's total depreciable investment in a jurisdiction. We are replacing these informal streamlined study procedures with the adoption of our range option. To have several streamlined procedures in place at the same time could prove confusing and could negate any streamlining achieved by the Commission. Moreover, these previous procedures had a minimal streamlining effect as compared with the new streamlined procedures. To illustrate, they only reduce the studies by 3 or 4 pages per category, whereas our new procedures reduce them by 15 pages. Therefore, we have decided to employ only the streamline range option adopted in our Depreciation Simplification Order. 17. Under our depreciation prescription process, one-third of the carriers for which we prescribe depreciation rates have their rates reviewed each year. In the Depreciation Simplification Order, we stated that price cap LECs scheduled for review in 1995 and 1996 could file for changes in their depreciation rates for 1994 as long as they used basic factors within the ranges we selected. These carriers must file these depreciation rate changes in a timely manner in accordance with the requirements set forth in the Depreciation Simplification Order. 18. Accordingly, it is ordered, pursuant to Section 4(i), 201-205 and 220(b), of the Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 201-205 and 220(b), that the ranges for the future net salvage and the projection life factors for the accounts listed in the Appendix are hereby adopted as specified in the Appendix. 19. It is further ordered, that this order is effective thirty days after publication in the Federal Register. 20. It is further ordered, that carriers may use the ranges established herein for federal filing purposes prior to the effective date of this order. List of Subjects in 47 CFR Part 43 Communications common carriers, Reporting and recordkeeping requirements, Telephone. Federal Communications Commission. LaVera F. Marshall, Acting Secretary. Appendix--Accounts and Ranges for Phase One Implementation ---------------------------------------------------------------------------------------------------------------- Projection life range Future net salvage range Depreciation rate (years) (percent) Account No. Account name category ----------------------------------------------------- Low High Low High ---------------------------------------------------------------------------------------------------------------- 2112.............. Motor Vehicles.... Motor Vehicles.... 7.5 9.5 10 20 2113.............. Aircraft.......... Aircraft.......... 7 10 30 60 2114.............. Special Purpose Special Purpose 12 18 0 10 Vehicles. Vehicles. 2115.............. Garage Work Garage Work 12 18 0 10 Equipment. Equipment. 2116.............. Other Work Other Work 12 18 0 10 Equipment. Equipment. 2122.............. Furniture......... Furniture......... 15 20 0 10 2123.1............ Office Support Office Support 10 15 0 10 Equip. Equip. 2123.2............ Co. Communications Co. Communications 7 10 -5 10 Equip. Equip. 2124.............. Gen. Purpose Gen. Purpose 6 8 0 5 Computers. Computers. 2231.............. Radio Systems..... Radio Systems..... 9 15 -5 5 2232.............. Circuit Equipment. Digital Data 7 11 -5 10 Service. 2232.............. Circuit Equipment. Analog............ 8 11 -5 0 2311.............. Station Apparatus. Station Apparatus. 5 8 -5 5 2341.............. Large PBX......... Large PBX......... 5 8 -5 5 2351.............. Public Telephone.. Public Telephone.. 7 10 0 10 2362.............. Other Terminal Other Terminal 5 8 -5 5 Equipment. Equipment. 2421.............. Aerial Cable...... Non-Metallic...... 25 30 -25 -10 2422.............. Underground Cable. Non-Metallic...... 25 30 -20 -5 2422.............. Underground Cable. Metallic.......... 25 30 -30 -5 2423.............. Buried Cable...... Non-Metallic...... 25 30 -10 0 2424.............. Submarine Cable... Submarine Cable... 25 30 -5 0 2441.............. Conduit Systems... Conduit Systems... 50 60 -10 0 ---------------------------------------------------------------------------------------------------------------- [FR Doc. 94-16948 Filed 7-11-94; 10:29 am] BILLING CODE 6712-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-16948. Public record. Not legal advice.