Interstate Rate of Return Represcription and Enforcement Processes

The Federal Communications Commission (``Commission'') has adopted a Report and Order (``Order'') that reforms its rules that govern the procedures and methodologies for prescribing and enforcing the rate of return certain Local Exchange Carriers (``LECs'') may earn on interstate access services. First, the Order replaces the existing rule, which calls for the initiation of rate of return represcription proceedings biennially, with a semiautomatic trigger activated by changes in capital costs. Second, the Order modifies the paper hearing rules set out in part 65 to streamline represcription proceedings. Third, the Order simplifies and streamlines the methodologies used to estimate the cost of capital for those LECs still subject to rate of return regulation. Finally, the Order removes the Commission's rule authorizing an automatic refund, with interest, of earnings in excess of ``the maximum allowable rate of return.'' The Commission adopted this Order to streamline the procedures and methodologies of the rate of return represcription and enforcement processes and reduce the burdens these regulations impose on the remaining rate of return LECs, while allowing each the opportunity to maintain its credit and to attract capital. These reforms reflect the Commission's experience in the 1990 Represcription Proceeding,\1\ with incentive (``price cap'') regulation for the largest LECs, and with incentive regulation proposals for those LECs not subject to price cap regulation.