Rate Setting Category Of Takings Jurisprudence example essay topic

In Verizon, the incumbents sought to rely on a rule of constitutional avoidance to argue that cost should be construed by reference to historical investment to avoid a serious constitutional question: whether TELRIC leads to a taking of property in violation of the Fifth Amendment. A unanimous Court addressed the incumbents argument in terms of the above rate-setting cases, and it found that the result rather than the methodology must be examined so that the takings question was not ripe. Further, the ILECs made no argument that TELRIC jeopardized their financial integrity or that it failed to provide adequate compensation to current equity holders for the risk associated with their investments, so that TELRIC could not be shown to be confiscatory. Lastly, the Court rebuffed the idea of a regulatory contract creating some expectation that historical cost would be used by observing that no such promise was ever made.

As a result, it is clear that the rate-setting category of takings jurisprudence is applicable to access pricing, but to succeed in showing a taking, an ILEC must demonstrate the firms operations will be rendered unsuccessful or the rate fails to give a reasonable rate of return on equity given the risks of the regime. (Susan Rose-Ackerman & Jim Rossi) Verizon did not consider the other two categories of takings jurisprudence. The noninvasive regulatory takings category is applied through a three factor test that weighs the following considerations: economic impact of the regulation on the claimant, extent to which the regulation has interfered with distinct investment-backed expectations, and character of the governmental action. The distinct investment-backed expectations criterion limited takings to situations where the property owner could demonstrate that they purchased their property in reliance on a state of affairs that did not include the regulatory regime. If an owner bought property with knowledge of the regime then they have assumed the risk of any economic loss. The ILECs argue that the historical regulation of telecommunications created expectations that investments in specialized facilities would make compensatory returns.

The category has been argued to be inapplicable to access pricing because it is concerned with balancing financial burdens between a property owner and the public in general, while a telecommunications investor is able to spread risk and mitigate losses through an investment portfolio that the owner of physical property cannot do. Further, the finding in Verizon that there was no promise that could create the expectation that historical cost would be used suggests the lack of any interference with investment-backed expectations. Nonetheless, whether noninvasive regulatory takings law may be applicable remains an open question because it shares similar policy concerns with the rate regulation jurisprudence. In particular, the recognition that there is a need to balance government's need for a certain degree of leeway to be able to function with government action that may adversely affect the value of private property because the power to regulate can become the power to take.