WASHINGTON (Reuters) - The U.S. Supreme Court is set on Wednesday to hear the Federal Communications Commission's defense of the mechanism it uses to fund a multi-billion dollar effort to expand phone and broadband internet access to low-income and rural Americans and other beneficiaries.

The FCC and a coalition of telecommunications firms and interest groups have appealed a lower court's ruling that found that the agency's funding operation effectively levied a "misbegotten tax" on American consumers in violation of the U.S. Constitution's vesting of legislative authority in Congress. It is the latest case to come to the Supreme Court challenging the power of federal agencies.

A law called the Telecommunications Act passed by Congress in 1996 authorized the FCC to operate a "Universal Service Fund," to be drawn from regular contributions by telecommunications companies. The fund draws around $9 billion annually, with the vast majority of telecommunications companies passing on the cost to customers.

At issue in the case is a legal principle called the non-delegation doctrine that involves limits on the ability of Congress to confer powers derived from the Constitution to government agencies like the FCC. 

The FCC's handoff of authority to the Universal Service Administrative Company, the private company that administers the fund, involves a related concept known as the private non-delegation doctrine.

The FCC appointed the company to help determine contribution amounts, collect payments from telecommunications businesses and deliver funding to such beneficiaries as low-income Americans, people living in rural areas and Native American tribal lands, as well as schools and libraries. 

A set of challengers composed of the conservative group Consumers' Research, a telecommunications carrier and consumers asked the New Orleans-based 5th U.S. Circuit Court of Appeals in 2022 to review the legality of funding mechanism.

They argued that Congress had effectively handed off legislative power to the FCC, including the authority to raise revenue, by giving the agency open-ended latitude to operate the universal service fund. The challengers also argued that the FCC had unlawfully transferred authority to the Universal Service Administrative Company and given it an outsized role in determining contribution amounts to be paid by telecommunications companies.

The 5th Circuit in a 9-7 ruling in 2024 deemed the funding arrangement unconstitutional. It did not make individual determinations as to the public and private non-delegation claims, but rather concluded that "the combination of Congress's sweeping delegation to FCC and FCC's unauthorized subdelegation" to the private company violated the constitutional provision giving the legislative power to Congress.

Federal appellate courts have reached different conclusions on the legal question at issue in the case.

The FCC has argued that Congress lawfully conferred power to the agency in authorizing its operation of the fund, and that the 5th Circuit understated the amount of guidance and constraint lawmakers included in the 1996 federal law. It also argued it did not delegate governmental power to the private company that administers the fund.

The FCC was established as an independent federal agency in 1934 and is overseen by Congress.  

The Supreme Court, which has a 6-3 conservative majority, has reined in the actions of federal regulatory agencies in a series of rulings in recent years, though those cases did not involve the non-delegation doctrine.

A decision in the case is expected by the end of June.