On November 19, 2020, the Commission released a memorandum on the use of economics and analysis in rulemakings after the Commission voted to establish the Office of Economics and Analytics (“OEA”) in January 2018. The memorandum focuses on explaining 1) the legal and policy role of Regulatory Impact Analysis (“RIA”) and other economic analysis; and 2) the elements of a “rigorous, economically-grounded cost-benefit analysis” required by the Commission’s rules for major rulemakings. A major rulemaking is defined as having an annual economic impact of $100 million or more.
Apart from the Commission’s rules established when it voted to create OEA, there is no statute or similar authority which expressly requires the Commission to conduct a formal cost-benefit analysis during rulemaking proceedings. However, several statutory provisions in the Communications Act ask the Commission to consider economic issues or imply a need to consider economic issues. The Commission also found that the Administrative Procedure Act (“APA”) may require economic analysis to ensure that an agency’s decision is not deemed “arbitrary and capricious.” The memorandum discusses several examples of case law where the ability of a Commission rule to withstand an APA challenge was based on whether the Commission considered economic factors. The examples included Verizon Communications, Inc. v. FCC, and Citizens Telecommunications Co. v. FCC, and ALLTEL Corp. v. FCC. However, the memorandum makes clear that the APA does not require economic analysis in all circumstances.
The Commission states that a cost-benefit analysis for major rulemakings should have three elements: (1) a statement of the need for the regulation; (2) an examination of alternative approaches; and (3) an evaluation of the benefits and costs of the proposed regulation and its main alternatives. For element (1), a rule may be justified for a number of reasons including the improvement of government processes, interpreting provisions in statutes that the Commission administers. forbearing from statutory obligations where such forbearance is in the public interest, or addressing market failures or further other social purposes. For element (2), examples of regulatory alternatives are different compliance dates, different degrees of stringency, or informational measures rather than regulation.
Element (3) of the cost-benefit analysis for major rulemakings requires 4 steps: (1) developing a baseline against which to measure the costs and benefits of a proposed regulation; (2) identifying and describing the most likely economic benefits and costs of the proposed rule and alternatives; (3) quantifying those costs and benefits, to the extent possible; and (4) taking steps to ensure that the analysis is transparent and reproducible.
Where practicable, a Notice of Proposed Rulemaking (“NPRM”) should be informed by the major points of an RIA, and include questions designed to elicit comments and data that could improve the analysis. The Report and Order following the NPRM should then discuss all relevant comments, and refine or confirm the RIA as needed. Bureaus and Offices should, when possible, coordinate with OEA in the early stages of all Commission-level and major Bureau-level proceedings that are likely to have an economic impact. Even if OEA involvement was not deemed necessary at an earlier stage like the NPRM, the initiating Bureau or Office should consult with OEA prior to taking additional steps (such as writing the Reporter and Order).
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