Simplification of the Depreciation Prescription Process

FEDERAL COMMUNICATIONS COMMISSION

[CC Docket No. 92-296; FCC 94-256]

Simplification of the Depreciation Prescription Process

AGENCY: Federal Communications Commission.

ACTION: Notice; further order inviting comments.

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SUMMARY: The Federal Communications Commission has adopted a Further

Order Inviting Comments on selected accounts and proposed projection

life and future net salvage ranges for use by local exchange carriers

(LECs) regulated under its price cap regulatory scheme. The Further

Order Inviting Comments identifies eight accounts for which the

Commission proposes to establish ranges for use beginning in 1995. The

Commission has also proposed different simplification methods for four

other accounts. The rule change is intended to lessen the depreciation

prescription burden on price cap LECs in light of regulatory and market

changes without sacrificing protection for consumers.

DATES: Comments are due on November 14, 1994. Reply comments are due on

December 14, 1994.

ADDRESSES: All comments should be filed with the Office of the

Secretary, Federal Communications Commission, Washington, DC 20554. A

copy should be sent to Fatina K. Franklin, Accounting and Audits

Division, 2000 L Street NW., Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT:

Fatina K. Franklin, Common Carrier Bureau, Accounting and Audits

Division, (202) 418-0840.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's

Further Order Inviting Comments on Simplification of the Depreciation

Prescription Process, CC Docket No. 92-296, FCC 94-256, adopted October

7, 1994 and released October 11, 1994. The full text of this Commission

decision is available for inspection and copying during normal business

hours in the FCC Dockets Branch (Room 230), 1919 M Street NW.,

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.

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 future net salvage

and projection life estimates that are used to compute depreciation

rates for plant categories. The new procedures generally permit price

cap LECs to make streamlined filings for changes in depreciation rates

for these categories, as long as these estimates fall within the

prescribed ranges. In our Second Report and Order, 59 FR 35632 (July

13, 1994), we adopted underlying factor ranges for 22 depreciation rate

categories. By this Further Order Inviting Comments, we invite comments

on our proposals for setting ranges for the remaining 12 plant

categories.

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\1\Simplification of the Depreciation Prescription Process,

Report and Order, 8 FCC Rcd 8025 (1993) (Depreciation Simplification

Order), 58 FR 58788 (November 4, 1993).

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2. Prior to adoption of the Depreciation Simplification Order, the

depreciation prescription process required carriers to submit extensive

data to support the underlying depreciation basic factors that are the

future net salvage, projection life, and survivor curve estimates used

to compute proposed depreciation rates. These data requirements often

resulted in voluminous submissions, consisting of up to 25 pages of

analysis for each of 34 plant categories. In recognition of the

regulatory, technological, and market changes that price cap LECs face,

we decided to simplify the process by establishing ranges that specify

maximum and minimum amounts for two of the basic depreciation factors,

the future net salvage and projection life estimates. Under our new

process, if a price cap LEC meeting the requisite criteria selects

future net salvage and projection life estimates that are within the

established ranges, it need not submit the detailed supporting data

otherwise required. In addition, under the new procedures, price cap

LECs can change these basic factors annually, as opposed to the current

triennial represcription cycle. These streamlined procedures are

intended to simplify the depreciation process, achieve administrative

savings, and allow the price cap LECs greater flexibility in the

depreciation process, while continuing an appropriate oversight of

their depreciation rates.

3. We determined that the new, streamlined procedures should be

implemented in two phases, beginning with the accounts most readily

adaptable to the range approach. We have completed phase one of the

streamlining process and adopted ranges for 22 plant categories. We now

begin phase two by proposing ranges for eight of the remaining

categories. If we implement these proposals, we will have established

ranges of projection life and future net salvage factors for 30 of the

34 plant categories. These plant categories represent 85% of the total

plant investment. In addition, we propose in this notice alternate

simplified procedures for the other four accounts. We solicit public

comment on the following proposals for phase two.

4. We propose to establish ranges for eight of the remaining twelve

plant categories. (See Appendix). In the Depreciation Simplification

Order, we set forth a number of specific data that should be considered

in establishing the projection life and future net salvage ranges, and

we used these data to formulate the ranges listed in the attached

Appendix. For each plant category, we first developed a range of one

standard deviation from the mean of each of the projection life and the

future net salvage basic factors underlying the currently prescribed

LEC depreciation rates. We then determined whether there are

technological trends or recent changes in carrier investment plans that

might not be fully reflected in the LECs' prescribed factors. Finally,

we considered the number of LECs with basic factors that fall within

the initial ranges and altered the ranges where appropriate. We

recognized, however, that these specifically enumerated data must be

considered in light of our obligation to prescribe reasonable

depreciation rates:

We wish to make the ranges wide enough to accommodate a

significant number, if not all, of the LECs. On the other hand, we

must not make the ranges so wide that they would no longer enable us

to exercise effective oversight of depreciation rates.

Thus, in developing the proposed ranges, we considered both the

specific data enumerated in the Depreciation Simplification Order and

our overriding responsibility to prescribe reasonable depreciation

rates. We set forth in the Appendix our proposed projection life and

future net salvage ranges for these light plant categories.

5. We do not propose to establish ranges for Account 2211, Analog

Electronic Switching; Account 2215, Electro-mechanical Switching; and

Account 2431, Aerial Wire. These are ``dying accounts'' as LECs are

replacing the plant in these accounts with newer technologies. The LECs

are rapidly phasing out this obsolete equipment in accordance with

specific retirement schedules that are based on company plans to

modernize their networks. Depreciation rates for this equipment can be

readily calculated from these retirement schedules. We believe that

depreciation rates for such equipment that are based upon a LEC's

specific retirement plans are more accurate than rates based upon

national averages. Moreover, the calculations are less complicated than

those for other plant accounts, since detailed statistical analyses are

not required to forecast lives.

6. In addition, we do not propose to set ranges for Account 2121,

Buildings. For depreciation study purposes, we have permitted the LECs

to subdivide this account and estimate lives for each subcategory.

Moreover, we allowed the LECs flexibility to develop individual methods

of categorization. As a result, some LECs subdivided this account based

on the size of the buildings, some by location, and others based on

use. Because of the significant differences among the categorization

methods, the LECs' current basic factors for the subaccounts cannot be

used to establish nationwide ranges. If ranges are to be developed for

the buildings account, the LECs' data must be recast into new, uniform

subcategories.

7. We believe that the cost of establishing such subcategories

would outweigh the benefits. The LECs have indicated that the cost of

compiling the information necessary to develop new subcategories would

be substantial. Moreover, the LECs do not have plans to add or retire a

significant number of buildings in the next few years. As a result, the

underlying depreciation factors applicable to Account 2121 likely will

not change, and an extensive analysis of the building account probably

will not be necessary within the next few years. Accordingly, we

propose to maintain the basic factors underlying the current prescribed

depreciation rates for the buildings account, until our three-year

range review when we will reconsider whether ranges would be

appropriate for this account. In the interim, we believe that the data

required under the streamlined procedures will be adequate, and we

propose to require that the price cap LECs provide only these data for

the buildings account.

8. This is a non-restricted notice and comment rulemaking

proceeding. Ex Parte presentations are permitted, except during the

Sunshine Agenda period, provided they are disclosed as provided in the

Commission's rules.

9. We certify that the Regulatory Flexibility Act of 1980 does not

apply to this proceeding because if the proposals in this Order

Inviting Comments are adopted, there will not be a significant economic

impact on a substantial number of small business entities, as defined

by Section 601(3) of the Regulatory Flexibility Act. Because of the

nature of local exchange and exchange access service, the Commission

has concluded that small telephone companies are dominant in their

fields of operation and therefore are not ``small entities'' as defined

by that Act. The Secretary shall send a copy of this Order Inviting

Comments, including this certification, to the Chief Counsel for

Advocacy of the Small Business Administration in accordance with

Section 603(a) of that Act.

10. We invite comment on the proposals set forth above. Pursuant to

applicable procedures set forth in Sections 1.415 and 1.419 of the

Commission's Rules, interested parties may file comments on or before

November 14, 1994, and reply comments on or before December 14, 1994.

To file formally in this proceeding, interested parties must file an

original and four copies of all comments and reply comments. If

commenters want each Commissioner to receive a personal copy of their

comments, they must file an original plus nine copies. Interested

parties should send comments and reply comments to Office of the

Secretary, Federal Communications Commission, Washington, D.C. 20554.

Parties should also file one copy of any documents filed in this docket

with the Commission's copy contractor, International Transcription

Services, Room 246, 1919 M Street, N.W., Washington, D.C. 20554. We

also ask that parties send a courtesy copy of their comments to the

Accounting and Audits Division, 2000 L Street, N.W., Washington, D.C.

20036. Comments and reply comments will be available for public

inspection during regular business hours in the FCC Reference Center

(Room 239) of the Federal Communications Commission, 1919 M Street,

N.W., Washington, D.C. 20554.

11. Accordingly, It is Ordered, pursuant to Sections 1, 4(i), 4(j),

and 220(b) of the Communications Act of 1934, as amended, 47 U.S.C.

Secs. 151, 154(i), 154(j), and 220(b), that Notice is Hereby Given of

proposed plant accounts for which basic factor ranges should be

established and the ranges proposed for those accounts to be used in

the depreciation prescription process as described in the Depreciation

Simplification Order.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Proposed Accounts and Ranges

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Projection life range Future net salvage range

Depreciation (years) (percent)

Account No. Account name rate ---------------------------------------------------

category Low High Low High

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2220.................. Digital switching..... Digital 16 18 0 5

Switching

2220.................. Operator systems...... Combined 8 12 0 5

2232.................. Circuit equipment..... Digital 11 13 0 5

2411.................. Poles................. Poles 25 35 -75 -50

2421.................. Aerial Cable.......... Metallic 20 26 -35 -10

2423.................. Buried Cable.......... Metallic 20 26 -10 0

2426.................. Intrabuilding network Metallic 20 25 -30 -5

cable.

2426.................. Intrabuilding network Non-metallic 25 30 -15 0

cable.

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[FR Doc. 94-26489 Filed 10-25-94; 8:45 am]

BILLING CODE 6712-01-M