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.
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.