December 04, 2020

FCC Memo Reinforces Commitment to Economic Analysis

Jerry Ellig

Shortly before Thanksgiving, the Federal Communications Commission (FCC) released a joint memo from its Office of Economics and Analytics (OEA) and Office of General Counsel (OGC) titled “Legal Framework and Considerations for Regulatory Impact Analysis.” The memo marks a significant milestone in the FCC’s ongoing initiative to encourage objective economic analysis and ensure that decision-makers have access to that analysis.

The biggest step, of course, was the creation of OEA, which commenced operations in late 2018. Prior to the creation of this office, the FCC’s economists were spread among its various policymaking bureaus (such as Wireless, Wireline Competition, etc.) and usually managed by attorneys. Creation of OEA brought most of the FCC’s economists into a single organization where they are managed by other economists. The internal working group of career FCC employees that designed the office, however, recommended that numerous informal practices and procedures be established to ensure that the organizational change would actually transform the conduct and role of economic analysis. One key recommendation was that OEA and OGC develop an internal guidance memo that outlines how economic analysis is to be incorporated into the commission’s work. The OEA-OGC memo implements that recommendation.

The memo explains why the FCC should incorporate economic analysis into its decisions, outlines the major elements an economic analysis should include, and specifies procedures to integrate economics into rule development. Consider each in turn.

The memo notes that no statute requires the FCC to conduct benefit-cost analysis of rules. However, the FCC’s rules establishing OEA specify that OEA must review each rulemaking to ensure that any economic impacts are adequately assessed, conduct a rigorous benefit-cost analysis of any rule with an annual economic impact greater than or equal to $100 million, and review any other item with economic or data implications that goes before the commission. The memo also notes several statutes that require the FCC to consider the effects of certain decisions on competition and notes that Michigan v. EPA will likely increase judicial expectations that the FCC will consider economic issues when it issues regulations. Finally, it cites examples of cases where the quality of the FCC’s economic analysis helped determine whether regulations survived legal challenge under the Administrative Procedure Act’s “arbitrary and capricious” standard.

The memo offers six pages of guidance on the elements an economic analysis should include. The list includes an assessment of the need for regulation, development of alternatives, and assessment of the benefits and costs of alternatives. The description extensively cites the principles of regulation articulated in Executive Order 12866 and OMB Circular A-4. The memo’s title and text even use the term regulatory impact analysis—the term of art that describes the analysis conducted by agencies subject to Executive Order 12866—to describe the economic analysis that is expected to inform commission decisions. (As one might expect, though, the memo also notes that as an independent agency, the FCC is not subject to the executive order.)

A final section lays out procedures intended to integrate economic analysis into the FCC’s rulemaking and other work. Some of these include:

  • Regulatory impact analysis should be included with a notice of proposed rulemaking, and the final report and order should discuss any comments received on the economic analysis.
  • If the proceeding begins with a notice of inquiry, that notice should outline and seek comment on the approach the regulatory impact analysis could take.
  • Economists should work with program staff from the earliest stages of a proceeding to frame key questions and evaluate options.
  • OEA will dedicate a “practice group leader” and a manager to coordinate the supply of analysis to each policymaking bureau.
  • OEA will inform the bureau or office in charge of a matter as early as possible about the extent of economic content and analysis that is likely to be required.
  • Economists will be involved in review of comments to ensure that economic issues raised by commenters are adequately addressed in the final report and order.
  • Rulemakings and other matters that may have significant economic impacts cannot be circulated to the commission until OEA has signed off on the draft. OEA can provide the chairman’s office and commissioners’ offices with a nonpublic memo discussing any concerns it has with the treatment of economic issues in the draft.

The memo did not commit to any substantive standard for adopting regulations, such as maximizing net benefits or ensuring that benefits justify costs. Rather, it focuses on ensuring that economists have the flexibility to offer frank assessments of the likely economic impacts of alternatives, and that the ultimate decision-makers receive that advice.

Readers who follow other independent agencies will recognize some common themes here. The FCC memo is similar to the 2012 economic analysis guidance memo published by the Securities and Exchange Commission’s Office of General Counsel and Division of Risk, Strategy and Financial Innovation (the name of the office where SEC economists were located at the time). Like the FCC, the SEC used the principles in Executive Order 12866 and Circular A-4 to develop a set of best analytical practices, without claiming to be subject to the executive order.

The SEC memo and related changes were followed by significant improvement in the quality of SEC analysis of regulations. The FCC seems likely to follow suit.

Jerry Ellig

Research Professor

Jerry Ellig is a research professor at The George Washington University Regulatory Studies Center.