RESPONDENT: Federal Communications Commission
LOCATION: Playtime Theatres, Inc.
DOCKET NO.: 84-871
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Fourth Circuit
CITATION: 476 US 355 (1986)
ARGUED: Jan 13, 1986
DECIDED: May 27, 1986
Charles Fried - on behalf of the federal parties
Lawrence G. Malone - on behalf of the appellant and petitioners
Michael Boudine - for respondents AT & T and former Bell System Operating Companies
Michael Boudin - on behalf of AT&T and the former Bell System Operating Companies
Facts of the case
Media for Louisiana Public Service Commission v. Federal Communications Commission
Audio Transcription for Oral Argument - January 13, 1986 in Louisiana Public Service Commission v. Federal Communications Commission
Warren E. Burger:
We will hear arguments next in Louisiana Public Service Commission against the Federal Communications Commission and related cases.
Mr. Malone, you may proceed whenever you are ready.
Lawrence G. Malone:
Mr. Chief Justice, and may it please the Court, this is a consolidated case.
It is here on three petitions for writs of certiorari to the Fourth Circuit Court of Appeals.
They have been brought by California, Ohio, and Florida.
And there is a separate appeal which has been instituted by the state of Louisiana.
The issue raised by these cases is whether the 1934 Communications Act empowers the FCC to preempt the state's regulation of depreciation in accounting matters for local telephone ratemaking purposes.
From 1934 to 1983, the FCC did not attempt to preempt.
It took the position that the Act as written deserved a system of dual, that's state and federal regulation over these matters.
So this dual regulation took hold, and a primitive telephone network eventually became the most technologically advanced, efficient, and reliable system in the world.
Then in 1983 the Commission took a new position.
It found at the behest of the utility industry that the Act as originally written not only allowed but required preemption, and that even if its new reading of the Act was inaccurate, it still could preempt because a failure to do so would frustrate the implementation of its general responsibility to maintain an efficient interstate telephone network.
So it told the states to base local rates on its perception of the correct way to depreciate and to account for the costs in plant which are assigned to the states under the long accepted separations principle.
Now, that decision, if upheld by the courts, will require local telephone customers to pay very substantial telephone rate increases with no assurance that a single dollar of those added payments will go to fulfilling the purpose for which the FCC preempted.
That is, plant modernization.
On appeal, the lower court, the Fourth Circuit, had affirmed by a two to one vote, and it has done so based not on agreement with the Commission's new reading of the Communications Act, but rather on this implied preemption theory, the syllogism that competition will breed a need for plant replacement or accelerated depreciation, and that can be facilitated by preemption.
The lower court should be reversed for several reasons.
The first is that it ignores the will of Congress.
It ignores the fact that Congress back in 1934 carefully constructed a jurisdictional boundary which divided the FCC's jurisdiction from that of the states, and in doing so preserved to the states local depreciation and accounting regulation.
Now, depreciation by definition is the recovery of a capital asset over its life.
So in sitting down to set up depreciation accruals, a company manager or a regulator asks him or herself three questions.
Is this cost or is this asset depreciable?
That is, they classify the property.
The second question is, what is it worth?
What is its value?
That is the valuation of the property.
And the third question is, how long is this going to live, because I want to allow the company to recover this capital value over its life, and that is the process that results in the calculation of a specific depreciation percentage.
Harry A. Blackmun:
That is straight line depreciation.
Lawrence G. Malone:
That is straight line depreciation, Your Honor.
Now, having developed this percentage, you then simply apply that to the capital asset and derive specific dollar and cent depreciation charges to recover each year.