556
Opinion of Breyer, J.
Second, the FCC points out that a state commission can adjust permissible profit rates. In theory, such an adjustment could offset many of the improper investment incentives described in Part II, supra. But, like the depreciation regulations, the profit regulations say nothing about the matter. Indeed, like the depreciation regulations, they suggest the opposite. The relevant FCC regulations say that "the currently authorized rate of return at the federal or state level is a reasonable starting point." Order ¶ 702 (emphasis added). They, too, add an exception, available to "incumbent LEC's" that successfully "bear the burden of demonstrating with specificity that the business risks that they face in providing unbundled network elements and interconnection services would justify a different risk-adjusted cost of capital." Ibid. But this exception, like the depreciation exception, cannot respond to the critics' claims in the ordinary case for similar reasons.
The FCC adds that it did not have "time" to offer more than "tentative guidance," Reply Brief for Federal Parties 11-12, that profits now may be too high, Order ¶ 702, and that the incumbents may find other ways to lower their capital costs, id., ¶ 687. These additions, however, concede the critics' basic point—that the "profit" rules as written do not provide an answer to Part III's claims. Rather, considered as a response to those claims, they must rest upon no more than hope for a regulatory coincidence. Most significantly, they hope that current market conditions mean that current profit rates somehow magically offset the adverse effects of the Commission's other regulations, see Part III, supra. See Reply Affidavit of J. Hausman ¶ 9, n. 8, submitted with Reply Comments of the United States Telcom Association, CC Docket No. 96-98 (FCC filed May 30, 1996), App. 197 (testifying for critics that profit rates would have to double or triple to secure investment). Cf. G. Hubbard & W. Lehr, Capital Recovery Issues in TELRIC Pricing: Response to Professor Jerry A. Hausman (July 18, 1996), App. 216, 221
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