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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $//R&O, Florida PSC Inter. of Limit on Interstate Alloc., DA 96-405//$ $/Section 36.154(f) of Commission Rules/$ "Record Only" Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) DA 96-405 Florida Public Service Commission ) ) Request for Interpretation of the ) AAD 95-77 Applicability of the Limit on Change in ) Interstate Allocation, Section 36.154(f) ) of the Commission's Rules ) REPORT AND ORDER Adopted: March 22, 1996 Released: March 22, 1996 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1. On May 12, 1995, the Florida Public Service Commission ("Florida") filed a Request for Interpretation concerning the application of the subscriber plant factor ("SPF") transition rules specified in Section 36.154 of the Commission's rules. In a Public Notice dated June 7, 1995, the Common Carrier Bureau ("Bureau") invited comments from interested parties regarding the request. Comments were filed by eight parties and reply comments by five parties. In this order we clarify when the SPF transition rules apply. II. BACKGROUND 2. Jurisdictional separations is the process used by telecommunications carriers to apportion their costs and revenues between the state and interstate jurisdictions. The jurisdictional separations rules are set forth in Part 36 of the Commission's rules. The Florida request concerns the separations rules carriers use to allocate their loop costs. These rules are contained in Sections 36.154(c) through (f) for Category 1.3, Exchange Line Cable and Wire Facilities ("C&WF"), and Section 36.126(c)(3) for Category 4.13, Exchange Line Circuit Equipment. Until 1982, a carrier's loop costs were allocated using the SPF. In the 1970s and early 1980s, the interstate SPF for many carriers grew at a unusually rapid rate. As a result, the Commission asked the Federal-State Joint Board in CC Docket No. 80-286 to review the SPF allocation procedure, and to recommend any necessary changes. In November 1981, the Joint Board recommended that the Commission freeze each carrier's interstate SPF at its 1981 level while the Joint Board continued its review of the issue. The Commission adopted this interim recommendation effective January 1, 1982. Upon further review, the Joint Board recommended, in November 1984, that the Commission establish a fixed 25 percent interstate allocation factor for all carriers. On December 1, 1983, the Commission adopted this recommendation. 3. The Joint Board and the Commission recognized that changing from the SPF allocator, which allowed an interstate allocation as high as 85 percent for some carriers, to using a 25 percent allocator would produce significant cost shifts from the interstate to the state jurisdiction. To moderate the effect of these cost shifts, the Commission adopted a transition plan. Originally, the Commission adopted a four-year transition period with a maximum reduction in the interstate allocation factor of ten percentage points per year. Subsequently, the Commission increased the transition period from four to eight years (1986 through 1993), with a maximum reduction in a carrier's interstate allocation factor of five percentage points per year. In measuring the annual five percent limit for decreasing a carrier's interstate loop cost allocation, the rules specified the use of a test that considers both the SPF transition and the transition of the newly-created Universal Service Fund ("USF"). The USF transition figures were included in the 5 percent test, because the USF rules allowed certain carriers to increase the interstate allocation of their loop costs, while the SPF was being decreased. Under the SPF and USF transition rules, carriers would achieve a 25 percent interstate SPF by 1993, unless the 5 percent limit slowed the transition. III. REQUEST FOR INTERPRETATION 4. Florida requests an interpretation concerning the continued applicability of the Commission rule prescribed in Section 36.154(f), "Limit on Change in Interstate Allocation," if a study area's SPF reaches a level of 25 percent after 1993. Florida states that, in its view, the Commission's rules are clear that the 5 percent limit applied through 1993, but that it is not clear whether the limit applied after 1993, or after a study area's SPF has reached 25 percent. Florida notes that the purpose of Section36.154(f) was to mitigate potentially large intrastate cost shifts and thereby to help stabilize a carrier s earnings and rates. Florida states that "this purpose is still valid." IV. COMMENT S 5. GVNW, NTCA, and ITCs argue that, under the Commission's rules, the 5 percent limit test applies after 1993, and GVNW and NTCA further argue that the 5 percent limit test applies after a carrier's interstate SPF reaches 25 percent in order to mitigate large cost shifts from the interstate to the state jurisdiction. Also, we have not exhaustively listed all of the arguments of the commenting parties. Where appropriate, we have combined and/or shortened all arguments of a similar nature. NECA makes similar arguments and cites two orders to support its claim. Union, a LEC, states that it does not qualify for USF payments, and that its SPF will not reach 25 percent until 1997 because of the 5 percent annual limit. It argues that it, and other LECs similarly situated, should be allowed to continue the SPF transition after 1993, as it has been doing. 6. ALLTEL and United argue that the Commission intended that once a carrier's interstate SPF reaches 25 percent, it must continue at that percentage. MCI argues that by 1993 all LECs should be using the 25 percent allocator, and that there is no provision for any further transition to a 25 percent allocator after 1993. V. DISCUSSI ON 7. The ultimate goal of the Commission in adopting Section 36.154 of the rules was to achieve a 25 percent interstate SPF for every carrier. The purpose of the SPF transition was to allow achievement of the 25 percent interstate factor without causing an undue shift of costs in any one year for any carrier. The 5 percent limit test contained in Section 36.154(f) provides that, during the transition to the 25 percent interstate SPF, the total annual decrease in the percentage of a carrier's loop costs allocated to the interstate jurisdiction shall not exceed 5 percent. For purposes of determining whether the 5 percent limit is reached, the rule requires consideration of both the decrease in SPF allocations resulting from the SPF transition and the increase in USF amounts resulting from the USF transition. Both the Joint Board and the Commission recognized that, although most carriers would complete the transition from the frozen SPF to the 25 percent interstate factor by 1993, the 5 percent limit test could extend the transition period beyond 1993 for certain carriers due to individual, unique circumstances. For example, a carrier whose frozen SPF was 73 percent, and who is not eligible for USF support, would not have reached the 25 percent interstate factor in eight years. Instead, by 1993, its interstate SPF would have declined 40 percent (8 years times 5 percent) to 33 percent. Other carriers whose frozen SPFs were very high and whose USF support was very low could also have had interstate SPFs in excess of 25 percent in 1993. 8. There is, however, no provision in the Commission's rules that would allow a carrier's interstate allocation factor to change, once it has reached 25 percent. The purpose of the rule is to reach a 25 percent interstate factor. If we were to interpret the transition portion of the rule as allowing the interstate factor to reach the 25 percent goal and thereafter increase, we would be allowing the transition portion of the rule to subvert the primary goal of the rule. 9. Finally, we conclude that, although not all carriers reached the 25 percent factor at the end of 1993, the 5 percent limit test applies after that time only in the conditions the Commission contemplated in that test. For example, a carrier could substantially change the makeup of its operation through the purchase or sale of exchanges during the transition period. Because the transition rules were designed for use for the study areas in existence during the transition, it is not clear that the transition rules would apply to study areas that have undergone significant changes. VI. ORDERIN G CLAUSE 10. Accordingly, IT IS ORDERED that, pursuant to authority delegated under Section 0.291 of the Commission's rules, 47 C.F.R.  0.291, Sections 36.154 (b) through (f) and 36.641(a) and (b) of the Commission's rules, 47 C.F.R.  36.154(b)-(f) and 36.641(a) and (b), shall be INTERPRETED AS PROVIDED HEREIN. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran, Chief Accounting and Audits Division Common Carrier Bureau