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In the Matter of THE CHESAPEAKE & POTOMAC TELEPHONE CO., WASHINGTON, D.C. Prescription of

Percentages of Depreciation Pursuant to Section 220(b) of the Communications Act of 1934, as Amended

 

FEDERAL COMMUNICATIONS COMMISSION

 

40 F.C.C.2d 286

 

RELEASE-NUMBER: FCC 73-14

 

January 31, 1973 Released

 

 Adopted January 4, 1973

 


JUDGES:

BY THE COMMISSION; COMMISSIONER JOHNSON DISSENTING AND ISSUING A STATEMENT


OPINION:

 [*286]  1.  The Commission having under consideration the matter of modifying, under the provisions of Section 220(b) of the Communications Act of 1934, as amended, certain of the percentages of depreciation prescribed previously by the Commission with respect to each of the classes of property of The Chesapeake and Potomac Telephone Company for which depreciation charges may be properly included under operating expenses;

2.  The Commission also having under consideration studies and data covering the service lives of such classes of property and other factors affecting depreciation;

3.  IT APPEARING, That notice of proposed rule making and public rule making procedure may be omitted in accordance with Section 4(a) of the Administrative Procedure Act as being unnecessary since (1) the interested State Commission, the District of Columbia Public Service Commission, has been notified of the matter pursuant to the provisions of Section 220(i) of the Communications Act and has offered no objection to the percentages of depreciation set forth in the Appendix to this Order, and (2) The Chesapeaks and Potomac Telephone Company has proposed the adoption of these percentages by its letter of November 17, 1972;

4.  IT FURTHER APPEARING, That authority for the prescription of the modified percentages of depreciation herein ordered is contained in Sections 4(i) and 220(b) of the Communications Act of 1934, as amended;

5.  IT IS ORDERED, That the percentages of depreciation set forth in the Appendix to this Order are prescribed for The Chesapeake and Potomac Telephone Company effective retroactively to January 1, 1972; and

 [*287]  6.  IT IS FURTHER ORDERED, That nothing shall be construed herein to amend or rescind that part of the Commission's Order of July 11, 1956 which requires that The Chesapeake and Potomac Telephone Company file with the Commission, until further ordered by the Commission, certain specified information relative to the Company's plans for replacing its central office equipment presently in service with electronic and other types of switching systems.

 

FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.


DISSENTBY: JOHNSON

 

DISSENT:

DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

ATT's property, or "rate base," is valued -- by the company -- about $50 billion.

Its "rate of return," recently set at an 8 1/2% to 9% level, is paid on that $50 billion (9% would be $4.5 billion).

"Depreciation" is treated as an "expense" item, and goes directly into ATT's $20 billion annual expenses -- fully underwritten by consumers.

The "service life" of items of property -- sometimes expressed in terms of a "percentage rate of depreciation" -- is initially determined by the company.  These determinations are then reviewed by the FCC staff, and "approved" by the full Commission.

 [*288]  On the schedules now before us, the "average service life" ranges from 5.5 years ("Account Number 232 Station Connections") to 60 years ("Account Number 244 Underground Conduit Exchange").  The percentage rates of depreciation range (on the same items) from 20.2% to 1.7%.

Obviously, when billions of dollars are involved, a few tenths of a percentage point can make millions of dollars of difference for consumers (and the company).

Nor is that the full impact of depreciation policies.  Their principal impact, perhaps, is upon rates of introduction of new technology into a society -- and the benefits and costs of alternative rates of introduction.

Take the "touch-tone" activated electronic switching system (ESS) and "picture phones" as examples.  Should they be introduced at all?  Within 10 years?  Forty years?  Such decisions will have a tremendous impact -- however they are made -- upon American business, the family, and many other facets of our economy and social structure.  They cannot be avoided merely by failing to address them frontally.  They are, then, simply decided by default, but they are decided.  Today, for example, we put a life of 21 years on the crossbar switching equipment that ESS is designed to replace.  (ESS is assigned a service life of 38 years.)

For the past six and one-half years I have been trying -- politely and repeatedly -- to get the staff to explain to the Commissioners our depreciation policies, their history, rationale, consequences, and alternatives.  For six and one-half years the staff and Commissioners have refused to even meet to discuss these issues.  We simply approve, without any discussion whatsoever, whatever the company and staff propose.  All agree we do not know what we are doing.  On the theory the staff does, I have been prepared patiently to concur in these items for some years now.  As my patience is now about to expire with my term, I believe this additional example of capitulation to ATT power and resources should be brought to light.

I, therefore, dissent, and will continue to do so until the Commission finally faces up to its responsibility in this area.


APPENDIX:

APPENDIX

 

Schedule of annual percentages of depreciation for the Chesapeake & Potomac Telephone Co. -- Effective January 1, 1972

 

Account

Average

Percent net

Percent of

 

No.

Class or subclass of plant

service life

salvage

depreciation

 

 

(years)

 

 

212

Buildings

41

5

n1 2.3

221

Central office equipment:

 

 

manual

11.3

_7

9.5

 

Panel

15.3

_7

7.0

 

Crossbar

21.0

_2

n1 4.9

 

Circuit

24.0

2

4.1

 

Radio

15.0

5

n1 6.3

 

ESS

38.0

3

2.6

231

Station apparatus:

 

 

Teletypewriter

8.4

6

11.2

 

Telephone and miscellaneous

11.8

1

8.4

 

Radio

7.9

2

12.4

232

Station connections

5.5

_11

n1 20.2

234

Large P.B.X

13.4

4

7.2

241

Pole lines

27.0

_33

4.9

242.1

Aerial cable exchange

24.0

_7

4.5

242.2

Underground cable:

 

 

Exchange

40.0

8

n1 2.3

 

Toll

40.0

26

1.8

242.3

Buried cable exchange

25.0

0

n1 4.0

242.4

Submarine cable exchange

25.0

0

n1.4.0

244

Underground conduit exchange

60.0

_4

n1 1.7

261

Furniture and office equipment

17.4

12

5.1

 

Computer systems

7.0

4

n1 13.7

264

Vehicles and other work equipment

8.1

10

11.1

 

Other work equipment

15.1

0

6.5

 

n1 Percentage of depreciation has been prescribed previously.


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