Report No. CC 95-39                                                   COMMON CARRIER ACTION           June 30,  1995
     
     COMMON CARRIER BUREAU ADOPTS ORDER DESIGNATING ISSUES
                 FOR INVESTIGATION OF CLAIMS FOR EXOGENOUS TREATMENT OF
     THE AMOUNTS ASSOCIATED WITH OTHER POSTRETIREMENT
     EMPLOYEE BENEFITS
     
         The Common Carrier Bureau (Bureau) adopted an Order designating issues for
     investigation concerning the amount of claims for exogenous treatment of other
     postretirement employee benefits (OPEBs) that AT&T Communications (AT&T) and
     the local exchange carriers (LECs) can claim for purposes of price cap adjustments. 
     Under price cap regulation, costs deemed "exogenous" may be used by the carrier to
     increase, or decrease, the price cap indexes (PCI) to the extent that those costs are not
     otherwise represented in the formula used to set the PCI and are not within the
     carrier's control.
     
         In December 1990, the Financial Accounting Standards Board (FASB) adopted
     SFAS-106, which changes the way businesses following Generally Accepted
     Accounting Principles (GAAP) must account for OPEBs that are provided to retired
     employees.  OPEBs are typically medical benefits, but may also include life insurance
     and any postretirement benefit other than pensions provided to retired employees. 
     Regulated LECs and AT&T historically accounted for these benefits on a "pay-as-
     you-go" (cash) basis, recognizing the amounts actually paid to retired employees each
     year.  SFAS-106, however, requires accounting recognition of these benefits as they
     are earned by employees during their working years -- accrual accounting. 
     
         In January 1993, the Commission adopted an Order denying the LECs' request
     for exogenous treatment of OPEBs.  On July 12, 1994, the United States Court of
     Appeals for the District of Columbia Circuit reversed and remanded the
     Commission's Order denying exogenous treatment of OPEBs.  Although the court
     directed the Commission to grant exogenous treatment for OPEBs, it remanded to the
     Commission the question of determining the specific amount of OPEB-related costs
     that are eligible for exogenous treatment.  Accordingly, the Bureau has designated
     issues relating to both the costs of the change from cash-basis to accrual accounting as
     well as the amounts that can be claimed for the transitional benefit obligation (TBO). 
     The TBO reflects the amount that a company would have accrued on its books as of
     the effective date of the accounting change if it had been operating under the accrual
     method. 
     
     
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         The Common Carrier Bureau has also made AT&T a party to this proceeding
     because the rates AT&T proposed in a number of transmittals were designed to
     recover LEC access charges that included the SFAS-106 costs claimed by the LECs as
     well as AT&T's own SFAS-106 amounts.  In addition, the Bureau included in this
     investigation a number of transmittals filed by certain LECs in which they claim
     exogenous treatment of SFAS-106 amounts not previously claimed.
         
         The carriers' Direct Cases on the designated issues are due on August 14,
     1995.  Comments on the Direct Cases are due on September 13, 1995 and rebuttals
     by the carriers to the comments are due on September 28, 1995.
     
         Action by the Chief, Common Carrier Bureau on June 26, 1995 by Order
     Designating Issues for Investigation (DA 95-1485).
     
      -FCC-
                                     
     News Media contact: Susan Lewis Sallet at (202) 418-1500
     Common Carrier Bureau contacts: Suzan Friedman at (202) 418-1530, or Geraldine
     Matise at (202) 418-1520.