Capital Investment Allowance Rules Revised for Cost-Based Legacy Rate-of-Return
Author: Jamie Becker
During its April 20, 2017, Open Meeting, the Federal Communications Commission (FCC) voted unanimously to adopt an Order on Reconsideration (Recon Order) of the Rate-of-Return Reform Order (Order).
This Recon Order makes a significant improvement to the Maximum Average Per-Location Construction Project Limitation rules. The Recon Order and applicable portions of the original order only apply to cost-based legacy (nonmodel adopting) companies. The National Telecommunications Cooperative Association (NTCA) requested the FCC revise the Maximum Average Per-Location Construction Project Limitation rule to only exclude the costs that exceed the construction allowance limitation. NTCA argued that excluding the full amount would likely lead to higher cost areas being permanently stranded to bring the per-location cost of a project below the Construction Allowance Limitation. The FCC voted to grant the portions of NTCA’s Petition for Reconsideration related to the Maximum Average Per-Location Construction Project Limitation rule.
In the Order, the Maximum Average Per-Location Construction Project Limitation rule excluded from the Universal Service Fund (USF) any project with a per-location cost in excess of the $10,000 baseline limit established in the Order. The $10,000 baseline limit must be adjusted annually for each cost-based legacy rate-of-return company based on its total loop investment per location compared against the total loop investment per location for all rate-of-return study areas. This adjusted amount is called the construction allowance limitation. The Universal Service Administrative Company has an official template for use in calculating the construction allowance limitation.
In 30 days after the Recon Order is published in the Federal Register, the Maximum Average Per-Location Construction Project Limitation will be revised to only exclude the costs of a project that exceeds the construction allowance limitation per location.
XYZ Telephone Company has a $220,000 project that will serve 20 customers, and the company’s construction allowance limitation for that year is $10,000.
$220,000 / 20 = $11,000 per location
Current Order limitation:
The entire $220,000 project is ineligible to receive USF support.
Recon Order limitation:
Up to $10,000 per location is eligible to receive USF support, or $200,000 ($10,000 times 20 customers) of the $220,000 amount; the remaining $20,000 is ineligible to receive USF support.
The FCC didn’t provide further guidance on project definition or locations in this context. For now, these definitions remain in the hands of the rate-of-return legacy companies. If you need assistance defining locations or projects or calculating the per-location cost of your projects, contact your BKD advisor.