[Federal Register Volume 59, Number 133 (Wednesday, July 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16948]


[[Page Unknown]]

[Federal Register: July 13, 1994]


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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.

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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.
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    \1\Simplification of the Depreciation Prescription Process, 
Report and Order, 58 FR 58788 (1993) (Depreciation Simplification 
Order).
    \2\Flexibility allows a LEC to select, within established 
ranges, the life and salvage factors it uses in prescribed 
depreciation rates without undergoing the expense of submitting 
studies to justify its specification of those factors. In addition, 
under the new procedures, the LECs can change their basic factors 
annually, as opposed to the current triennial represcription cycle.
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    2. We further concluded that the streamlined procedures should be 
implemented as soon as practicable. 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.
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    \3\Simplification of the Depreciation Prescription Process, 
Order Inviting Comments, 58 FR 62083 (1993) (OIC).
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    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\
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    \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.
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    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.
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    \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.''
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    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                           
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                                                               Projection life range    Future net salvage range
                                         Depreciation rate            (years)                   (percent)       
    Account No.        Account name          category      -----------------------------------------------------
                                                                 Low          High          Low          High   
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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
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[FR Doc. 94-16948 Filed 7-11-94; 10:29 am]
BILLING CODE 6712-01-M