[Federal Register Volume 59, Number 206 (Wednesday, October 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26489]


[[Page Unknown]]

[Federal Register: October 26, 1994]


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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