NPRM seeks input on overarching goals and nitty-gritty methodology of reg fee process.

We all know that regulatory fees are imposed annually. The precise fees to be paid each year are proposed in the spring and then, after a notice-and-comment period, finally announced in summer, usually to be paid in September. It happens with mundane regularity. 

But did you ever wonder how the Commission comes up with the actual numbers?

In a Notice of Proposed Rulemaking (NPRM), the FCC has pulled back the curtain on that process, inviting us all into the sausage factory so that we can take a look around and maybe provide our own input into possible changes in the system. The deadline for comments is September 17, 2012; reply comments are due by October 16. If you think you might want to toss in your two cents’ worth, you should probably get started now – the NPRM is pretty dense and requires considerable patience (and some NoDoz®) to wade through.

To get you oriented, here’s a thumbnail sketch of what’s going on. (Caution: this is only a thumbnail sketch. If you want to get fully immersed in the NPRM, you’re on your own.)

The FCC is required by Congress to collect reg fees annually to “recover the costs of . . . enforcement activities, policy and rulemaking activities, user information services, and international activities.”  (It’s in Section 159 of the Communications Act – you can look it up.) That means that the total amount of fees collected should amount to the total amount of funds appropriated for the FCC’s activities by Congress. Essentially, Congress is looking to have the FCC pay for itself through reg fee collections.

The Act requires that fees be allocated among the FCC’s regulatees based on the “full-time equivalent number of employees” (FTEs) in “the Private Radio Bureau, the Mass Media Bureau the Common Carrier Bureau and other offices of the Commission”. We put that quaint listing in quotes because that’s just what the Act said when it was first adopted nearly two decades ago, and that’s what it still says. In the meantime, of course, the names of the Bureaus have changed, and a number of their responsibilities have been shifted to the International Bureau. Nowadays, notwithstanding the statutory language, the FCC treats its present Media, Wireline Competition, Wireless Telecommunications and International Bureaus as the “core licensing bureaus” for reg fee calculation purposes.

The various activities of each of the core licensing bureaus fall into categories. Based on historical data (more on that below), the FCC determines how many FTEs are attributable to each category. The total fees to be collected per category are then calculated by multiplying the total appropriations amount by a fraction, the numerator of which is the FTEs for that category and the denominator of which is the total number of FTEs overall.

Once the fees-per-category have been calculated, the Commission comes up with the fees to be charged individual regulatees within each category by dividing the gross fee for a given category by the total number of “fee payors” in that category. The concept of “fee payor” is somewhat flexible – it depends on “characteristics appropriate to each service, such as the number of licenses or number of subscribers the fee payor has.” (That’s why the Commission prefers to refer to “fee payors” as “units”.)

Some FTEs can’t be allocated to specific categories. Those are deemed to be “indirect FTEs”; they get allocated proportionately among the various core licensing bureaus.

So one thing is clear: the calculation of reg fees depends crucially on the allocation of FTEs. But check this out: the FTE data currently in use are based on data collected in 1998. Back then Commission employees’ time cards tracked their time based on reg fee categories. The FCC abandoned such tracking in 1999 because, among other things, time card entries “prove[d] subjective and unreliable.” Oddly, that subjectivity and unreliability hasn’t stopped the Commission from continuing to rely on the last batch of such apparently subjective and unreliable data (i.e., the 1998 collection) for the last 14 years.

The Commission is now, at long last, asking how it can best update its approach to fee calculations, including (but not limited to) the FTE data on which it relies. In doing so, the FCC is also looking more broadly to establish “overarching goals” to govern its reg fee program. The goals currently envisioned by the Commission are fairness, ease of administration, and sustainability. (Comments on those goals – and any others that might come to mind – are specifically requested in the NPRM.)

As far as the specific fee calculation mechanisms go, the FCC is looking at three general areas for possible change. First, it could jigger with the allocation of FTEs within each bureau. Second, it could update and adjust FTE allocation percentages among the bureaus. And third, it could reallocate FTEs among the fee categories within each of the core bureaus. (If those all sound somewhat duplicative, that’s what we thought, too. The NPRM spells out the intricacies of each of those areas over four-and-a-half single-space pages of bureaucratese, if you’re inclined to wade deep into the weeds on this.)

The bottom line here was perhaps best described by Commissioner Pai:

In 1998, each industry segment largely still played in its own sandbox – telephone companies offered telephone service, cable operators offered cable television, and so on. But today’s currency is convergence: Telephone companies have entered the video market, cable operators are winning voice customers, satellite operators offer competitive radio, television, and broadband services, and wireless providers have unleashed a mobile revolution few if any saw coming.

The Commission must strive to keep pace with this swiftly changing industry – especially when, as here, Congress has affirmatively told us to do so in Section 9 of the Communications Act.

The extent to which any revision in the Commission’s approach – whether broad-brush or finely-tuned – might alter any particular reg fee for any particular regulatee is far from clear. But since reg fees are now a permanent fixture, it would be nice if the calculation of those fees were based on (a) some formula that makes sense and (b) data that are not, by the FCC’s own admission, subjective and unreliable. The NPRM is a welcome step in that direction.

Again, comments on the NPRM are due by September 17, 2012. Reply comments are due by October 16.