WASHINGTON (Reuters) -The U.S. Supreme Court appeared sympathetic on Wednesday to 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 justices heard arguments in an appeal by the agency and a coalition of telecommunications firms and interest groups of a lower court's ruling that the FCC funding operation effectively levied a "misbegotten tax" on consumers in violation of the U.S. Constitution's vesting of legislative authority in Congress. 

It was the latest case to come to the Supreme Court challenging the power of federal agencies.

A majority of the nine justices, citing a range of concerns, seemed wary of adopting the lower court's ruling against the FCC.

Liberal Justice Elena Kagan pushed back on an argument made by Trent McCotter, a lawyer for a group that challenged the funding arrangement, that Congress had placed too few constraints on the FCC in operating the fund.

"This statute has plenty in it that imposes limits on what the FCC is doing," Kagan told McCotter, who characterized the funding arrangement as "taxation without representation."

Several liberal and conservative justices voiced worries that striking down the part of law that authorized the FCC's fund would imperil the agency's universal service effort, as well as similar funding setups at the Federal Reserve Board and the Federal Deposit Insurance Corporation.

Conservative Justice Amy Coney Barrett asked McCotter to respond to the argument that "the consequences of holding the statute unconstitutional would be devastating for universal service."

McCotter replied: "Just as a disclaimer, it's not relevant to the constitutional question."

"I understand that," Barrett said, "but I think it's a fair question to consider the consequences of your position."

The fund has been used to expand service not only to low-income Americans and people living in rural areas and Native American tribal lands but to other beneficiaries as well such as schools and libraries.

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.

The law lays out six principles to guide the fund's operation, including that "quality services should be available at just, reasonable and affordable rates," that "access to advanced telecommunications and information services should be provided in all regions of the nation," and requiring that "sufficient" mechanisms be in place to "preserve and advance universal service."

NON-DELEGATION DOCTRINE

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 called the private non-delegation doctrine. The FCC appointed the company to help determine contribution amounts, collect payments from telecommunications businesses and deliver funding to beneficiaries.

Conservative Justice Samuel Alito was among the minority of justices who seemed mostly receptive to the arguments by the challengers. Alito expressed concern that this company wields undue influence in determining the amount of contributions to the fund that telecommunications companies must pay.

Acting Solicitor General Sarah Harris, arguing on behalf of the FCC, responded that the company merely recommends a proposed amount to the FCC - a sum subject to the agency's approval.

"The bottom line is, I think the 5th Circuit and (challengers) are misconceiving of exactly what (the company) does," Harris said. "It is doing math." 

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 the funding mechanism.

They argued that Congress effectively handed off legislative power to the FCC by giving the agency open-ended latitude to operate the fund. They 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 2024 concluded that "the combination of Congress's sweeping delegation to FCC and FCC's unauthorized subdelegation" to the private company violated Constitution's provision giving the legislative power to Congress.

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 FCC case is expected by the end of June.

(Reporting by John Kruzel; Editing by Will Dunham)