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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 97-593 In the Matter of ) Material to be Filed in Support of ) 1997 Annual Access Tariff Filings ) TARIFF REVIEW PLANS Adopted: March 21, 1997; Released: March 21, 1997 By the Chief, Competitive Pricing Division: I. INTRODUCTION 1. We set forth herein the summary material that local exchange carriers (LECs) should file to support the annual revisions to the rates in their interstate access service tariffs scheduled to become effective on July 1, 1997. Pursuant to the LEC Streamlined Tariff Filing Report and Order, price cap LECs are required to file a tariff review plan (TRP) to revise the price cap indices, absent any information regarding their proposed rates by April 2, ninety days prior to July 1, 1997. The completion of the TRPs appended to this document will partially fulfill the requirements established in Sections 61.38, 61.39, 61.41 through 61.49, and 61.50 of the Commissions's Rules. The TRPs display basic data on rate development in a consistent manner, thereby facilitating review of the LEC rate revisions by the Commission and interested parties. The annual TRPs have served this purpose effectively in past years. 2. Based on the Bureau's experience in reviewing the TRPs in prior years, and as a result of certain changes in the Commission's rules, we are modifying this year's TRPs in certain respects. These modifications were developed through public comment and discussions with telecommunications industry representatives. In Section II, we discuss the modifications affecting the price cap TRPs contained in Appendix A and Appendix B, and other matters affecting the 1997 annual filings. The rate-of-return TRP contained in Appendix C is discussed in Section III. Guidelines for LECs filing under Sections 61.39 and 61.50 are also discussed in Section III. Attachment 1 describes filing procedures applicable to price cap LECs and their April 2 TRP. Attachment 2 describes filing procedures applicable to all LECs that will file a 1997 annual access tariff filing. II. PRICE CAP TARIFF REVIEW PLAN 3. In the LEC Price Cap Order, the Commission adopted price cap regulation for LECs, effective January 1, 1991. Companies that currently file interstate access tariffs pursuant to the price cap rules include the regional Bell Operating Companies, Aliant Communications Corporation (Aliant), Citizens Telecommunications Companies (Citizens), GTE Telephone Companies (GTE), Frontier Corporation (Frontier), Southern New England Telephone Company (SNET), and Sprint Local Telephone Companies (Sprint LTCs). Any other company may elect price cap regulation as part of its 1997 annual filing. All companies that file pursuant to price cap regulation in the 1997 annual filing should file the price cap TRPs outlined below and contained in Appendix A and Appendix B. A. Modifications to the TRP 4. In the 1997 TRP, we have adopted certain needed adjustments in presentation. We have also adopted the modifications we proposed in the 1997 TRP Public Notice to: (1) eliminate TRP information on the Video Dialtone Basket, for there is no revenue or demand for this service; (2) eliminate reporting on lower band limits on service band indices (SBIs), pursuant to the Access Reform NPRM and Order; (3) remove a one-time adjustment made to the price cap index (PCI) calculations in Chart PCI-1; (4) develop a condensed TRP that excludes information on proposed access rates for price cap LECs, pursuant to the LEC Streamlined Tariff Filing Report and Order; (5) establish a 21-day comment and a 7-day reply cycle pertaining to those April 2 TRP filings; and (6) have LECs file a complete TRP to accompany their annual access tariff filing. 5. As modified, the price cap TRP to be filed on April 2 includes three of the six standard TRP charts: 1) the historical indices in Chart IND-1; 2) the full version of Chart PCI-1; and 3) the full version of Chart EXG-1. It excludes the proposed indices in Chart IND-1 and all of Charts SUM-1, RTE-1, and CCL-1. In their comments, AT&T and MCI maintain that the April 2 TRP should include additional information from Charts SUM-1, RTE-1, CCL-1, and the rate detail workpaper typically filed with the TRP. Specifically, AT&T and MCI seek information concerning base year (1996) demand and revenues for the service categories within baskets. AT&T and MCI maintain that the data are needed to achieve the purpose of the April 2 TRP, to verify the PCIs. AT&T and MCI maintain that reporting the additional information: (1) would not involve proposed rate information; (2) is necessary to verify the basket revenues (the "R" variables) used to develop the PCIs in Chart PCI-1; and (3) would allow parties to verify immediately upper SBI limits filed on streamlined notice with the annual access tariff filings, rather than first having to confirm the reasonableness of TRP inputs. 6. In view of the requirement of the LEC Streamlined Tariff Filing Report and Order, our proposals in the 1997 TRP Public Notice to modify the price cap TRP to be filed on April 2 sought to balance the early filing of information concerning exogenous costs and recalculations of PCIs against the streamlined notice period for proposed access rates. Even though AT&T and MCI's suggestions would permit full PCI verification without revealing specific rate changes, parties could discern potential rate changes in service categories. Further, even though the PCI and exogenous cost information the LECs will file on April 2 is incomplete, we believe based on past experience it will allow us to resolve most of the major issues that may arise in the annual access tariff filings. Most price cap issues in the past have involved the overall level of exogenous cost claims rather than the distribution of those claims among baskets. We emphasize that AT&T and MCI will be afforded, albeit on streamlined notice, an opportunity to complete the review of PCIs since the information they seek will be included in the complete TRP to accompany the price cap LECs' annual access tariff filings. 7. The price cap LECs calculate subscriber line charges (SLCs) in a specific manner that requires a forecast of common line cost and subscriber lines, atypical of the pricing flexibility applicable to other service rates under price cap regulation. AT&T maintains that to adequately review those common line forecasts and proposed SLCs, reviewers need to analyze the accuracy of the LECs' forecast models by assessing the degree to which historical results have tracked the LECs' forecasts. Because the LECs have not consistently provided this information in past annual filings, AT&T maintains that delays in resolving SLC issues have resulted while a record was gathered. AT&T recommends that price cap LECs provide a chart displaying the common line forecasts from previous annual filings, as well as historical common line costs and subscriber line counts. According to AT&T, this would reduce the time it would take to resolve any SLC issues that may arise in the 1997 annual filings. 8. In previous annual filings, petitioners have raised issues concerning the LECs' forecasts of common line costs, when those forecasts have departed from trend-line cost growth. Because the annual filings of price cap LECs in some cases lacked a record that would have explained those departures, parties expended considerable time developing the record during the comment and reply cycle. For example, information on extraordinary charges incurred in the previous year would have explained the LEC's forecast of low cost growth. By providing this type of information in the filing support material, any forecast issue that may arise can be resolved more quickly than otherwise. Section 61.49(a) requires supporting material to accompany price cap tariff filings that is sufficient to calculate index adjustments. Because the SLC level in part determines the maximum carrier-common-line rate under price caps, we would expect information on the SLC calculation to be included in the annual access tariff filing. We believe that the information filed should explain any forecast that deviates from the historical cost or demand trend, and significant differences between actual results and predictions produced by forecast models used in recent annual filings. Because those explanations may reasonably vary, we decline to require a standardized chart as suggested by AT&T. Finally, this supporting information is not required as part of the April 2 TRP, because it would reveal the common line cost per line, and the SLC that LECs may propose at a later date on a streamlined basis. 9. While SBC and others supports most of our modifications, SBC maintains that the comment and reply cycle (21 days and 7 days) for the April 2 TRP is inconsistent with the intent of the Telecommunications Act of 1996, and at a minimum with the 25-day comment and 8-day reply cycle in Section 1.773 of the Commission's rules. We disagree with SBC's contention that the rules would require a 25-day comment and 8-day reply cycle. First, it is appropriate to shorten the cycle length in comparison to previous annual TRP filings, because the price cap LECs will be filing a condensed TRP on April 2 and, thus, there will be less information to assess. Second, the April 2 TRP filing is a general filing not subject to the 25-day comment and 8-day reply cycle for tariff filings, because this filings does not include information regarding the LECs' tariff rates, charges, classifications, or practices. B. TRP Charts and Workpapers 1. Chart IND-1 10. IND-1 displays price cap indices (PCIs), actual price indices (APIs), service band indices (SBIs), and upper SBI limits. It is unchanged from the version in the 1996 TRP, except for the removal of the Video Dialtone Basket and lower SBI limits. The April 2 TRP contains only the historical index portion of IND-1, and not the proposed indices. To assist in verifying the historical indices reported in IND-1, LECs should continue to file a workpaper that identifies transmittals in which the current index levels became effective. 2. Chart CCL-1 11. CCL-1 displays the calculation of the maximum carrier-common-line (CCL) rate according to the formula in the Rules. It is unchanged from the version in the 1996 TRP, and is not included in the April 2 TRP. 3. Chart PCI-1 12. PCI-1 displays the calculation of the PCIs for the price cap baskets, and includes the following data: (1) the Gross Domestic Product Price Index (GDP-PI) measuring inflation; (2) the productivity offset (X-Factor); (3) the change in access charge expense (Y) imputed for LEC toll services, which affects the Interexchange Basket PCI; (4) the exogenous cost change (Z); (5) the base-year (calendar-year 1996) revenue (R) for each basket; (6) the weighting factor (w) used in computing the PCIs; and (7) the growth in minutes per line (g). We have modified PCI-1 to remove a one-time adjustment pertaining to the 1996 annual filings, and eliminate the reporting of information on the Video Dialtone Basket. PCI-1 is included in the April 2 TRP. 4. Chart SUM-1 13. This is a summary chart displaying the revenues in baskets and categories. It displays the base-year (calendar year 1996) service demand multiplied by (1) current rates and (2) proposed rates. SUM-1 is used to calculate the difference in revenues using base-year demand, under current and proposed rates. This chart is unchanged from the version in the 1996 TRP, and is not included in the April 2 TRP. 5. Chart EXG-1 14. This chart displays the exogenous cost changes to the PCIs attributable to any changes in (1) Long Term Support payments; (2) FCC regulatory fees; (3) excess deferred taxes; (4) amortization of investment tax credits; (5) a sharing or low-end adjustment that was reported in the 1996 annual filing and is now being removed in the 1997 annual filing; (6) any revision to that sharing or low-end adjustment; (7) any new sharing or low-end adjustment; (8) fees associated with Telecommunications Relay Service; and (9) other exogenous cost change the LECs may file. EXG-1 is unchanged from the version in the 1996 TRP, and is included in the April 2 TRP. 15. As noted above, EXG-1 reports any sharing amount or low-end adjustment that was reported in the 1996 annual filing and is now being removed, and any revision to that sharing or low-end adjustment. EXG-1 also reports any new sharing or low-end adjustment, and this amount must reflect earnings in calendar-year 1996. A LEC is required to base its sharing or low-end adjustments for the first-half of 1996 on the X-Factor in the 1995 annual filing and the rate of return in calendar-year 1996. The levels for the second-half of 1996 are based on the X-Factor chosen in the 1996 annual filing and the rate of return for calendar-year 1996. LECs are required to provide workpapers showing the full calculation of the sharing or low-end adjustment, including its addback component, and cite the transmittals that reported sharing or low-end adjustments in previous annual filings. 16. Price Cap LECs are required to submit their Form 492A for calendar years 1995 and 1996 as part of their April 2 TRP support material, and use the footnote page provided on Form 492A to explain the development of composite tax rates. As in the 1996 annual filing, the earnings of services excluded from price cap treatment should be removed based on the assumption the excluded services earned the same interstate rate of return as price cap services. 17. LECs are required to include additional information in the April 2 TRP on each exogenous cost change, including the calculation of the cost change, tax rates used in calculations, identification of total and interstate amounts, and the method of basket allocation. 6. Chart RTE-1 18. This chart displays information used to compute the APIs, SBIs, and upper SBI limits. It displays calendar year 1996 demand, current rates, proposed rates, and revenues computed by multiplying the 1996 demand by current and proposed rates. Chart RTE-1 enables us to verify the accuracy of "R," the revenue variable in the PCI formula that equals base period (1996) demand multiplied by rates. Demand and price data are reported in the aggregate under the primary rate elements of each category. The level of aggregation in RTE-1 allows rapid, consistent verification of index calculations across all companies. RTE-1 is unchanged from its 1996 version, and is not included in the April 2 TRP. 19. In their 1996 annual filings, LECs provided a chart that gave complete rate element detail, i.e., demand, existing rates, proposed rates. LECs should again file this chart on a 3.5-inch computer disk with their 1996 annual access tariff filing. This chart need not be filed with the April 2 TRP. We leave unspecified the exact format of the rate detail charts because each price cap LEC has a different number of rate elements. For each rate element, however, LECs should display the rate element name, base period demand, current rates, and proposed rates. LECs may also include a rate identifying code. The revenue amounts for baskets and categories should be totaled, to assist in verifying the agreement between this chart and the revenue amounts in RTE-1. The variation in the number of rate elements among LECs prevents us from specifying the row numbers, but each row of this chart should correspond to only one rate element. The rows should reflect the basket and service category sequence used in RTE-1. Price cap LECs should also include with their support materials a separate list of new services that are being incorporated into the APIs in this annual filing for the first time. This list should contain all services introduced as new services under the price cap rules during calendar year 1996, and the basket and service category to which the new service is assigned. C. Miscellaneous 20. In addition to the above specifications, price cap LECs should include with their support materials in the April 2 TRP filing a list of all currently applicable Part 69 waivers. The list should include the following information: (1) a citation to the Commission or Bureau Order granting the waiver; (2) a brief description of the waiver, including whether any new rate elements were authorized; and (3) the basket and, if applicable, service category of each rate element authorized by the waiver. 21. If LECs file to revise their TRP after April 2, the TRP should be refiled in its entirety, rather than just the parts of the TRP that are changed. The latest TRP filed becomes the TRP of record. Other parts of the original filing, e.g., portions of the explanations, description and justification, and workpapers, may be omitted if unchanged by the revision. III. TARIFF REVIEW PLAN FOR NON-PRICE CAP COMPANIES 22. LECs not electing price caps must file pursuant to either (1) Section 61.38 (rate-of-return); 2) Section 61.39 (small telephone rules); or 3) Section 61.50 (optional incentive regulation). LECs that file under Section 61.38 should complete the TRP contained in Appendix C. As in the past, there is no TRP for companies filing pursuant to either Section 61.39, the small company rules, or Section 61.50, optional incentive regulation. Requirements for carriers electing to file under the small company rules are described below in Subsection B, as are the requirements for optional incentive regulation LECs. A. Rate-of-Return Regulation 23. Companies filing under rate-of-return regulation are subject in part to the filing requirements adopted in the Regulatory Reform Order, which established a biennial filing cycle. The Rules require that rates be targeted to earn the authorized rate of return. 24. The rate-of-return TRP contained in Appendix C has been framed to place the smallest possible regulatory burden on LECs while allowing us to evaluate the proposed rates. The 1997 TRP is the same as the 1996 TRP except for needed adjustments in presentation. We are adopting our 1997 TRP Public Notice proposal that requires rate-of-return LECs to file their computer file containing the TRP in a LOTUS Version-3 file. A 3.5-inch disk containing the TRP file will be sent directly to all LECs. This TRP file is similar to the format of the price cap TRP file that has proven successful. 25. Rate-of-return LECs are required to file one year of historical data and one year of forecast data. All proposed rates must be based upon the forecast data. The time frame of the historical data, termed the past year cost-of-service (PYCOS) period, and of the forecast data, termed the test year, are determined pursuant to Section 61.38 of the Rules. The PYCOS period is calendar year 1996 and the test year runs from July 1, 1997 through June 30, 1998 for the 1997 annual filings. B. Small Telephone Companies 26. LECs that qualify as small telephone companies may elect to file pursuant to the small telephone company rules under Section 61.39, for either their traffic sensitive rates, common line rates, or both. Companies filing under the small company rules must file access tariffs for their traffic sensitive and common line rates in odd-numbered years, and are thus required to make a 1997 annual filing in most circumstances. 27. LECs filing under the small company rules need not submit supporting material at the time of the access tariff filing. Companies, however, should be prepared to submit the data promptly upon reasonable request by the Commission or interested parties. 28. In contrast to rate-of-return regulation, the small company rules rely on historical costs. For its first annual filing, a LEC is required to propose rates based on the cost of service and demand for the most recent twelve months. For subsequent annual filings, a LEC bases rates on the cost and demand for the two years since the last annual filing. C. Optional Incentive Regulation 29. Any non-price cap company may elect optional incentive regulation for either its traffic sensitive rates only, or for both its traffic sensitive and common line rates. In contrast to rate-of-return regulation, optional incentive regulation relies more heavily on historical costs, establishes broader earnings bands, and affords the LECs greater pricing flexibility. 30. We have not adopted a TRP for companies filing under optional incentive regulation. For any carrier planning to file in 1997 under optional incentive regulation, the Competitive Pricing Division will provide guidance regarding specific support material. 31. For its first annual filing, a LEC must base its rates on the cost of service and related demand for the most recent twelve months. For subsequent annual filings, a LEC is required to base its rates on the cost of service and demand for the two year period since the last annual filing. IV. GUIDELINES APPLICABLE TO NECA 32. We have not adopted a TRP for NECA, although NECA should refer to the rate-of-return TRP for guidance on the level of Section 61.38 support material to provide in its annual filing. As in the past, NECA should provide: (1) earnings data using the Chart ERN-1 format; (2) average schedule company settlements using the Chart COS-1 format; and (3) a workpaper showing the calculation of Long Term Support. V. GENERAL INSTRUCTIONS 33. The following general instructions apply to all LECs except as noted. Except for Section V.B., infra, the following general instructions also apply to NECA. These instructions pertain to the TRPs and other documentation filed in support of access charges. A. Certification 34. The filing of inaccurate or incomplete data may seriously detract from the ability of the Commission and interested parties to evaluate the revised rates. The LECs and NECA must certify that their historical and forecast data are accurate by including a signed statement that the support data are true, correct, and complete to the best of the carrier's knowledge. This certification will apply to all data submitted in support of revised rates, including the data that are filed in the TRP. The text of the certification is the same as that adopted in the 1987 Waiver Order. The certification should be displayed as the last page in the binder containing each company's TRP. LECs are also under a legal obligation to correct any inaccurate or incomplete data discovered in the TRP or other support data. B. Geographic Aggregation 35. Except for the RTE and ERN charts, all TRP information should be displayed at the same level of geographic aggregation as the LEC's proposed rates. RTE and ERN carriers should be consistent with the current level of geographic aggregation. In addition, if the tariff rates are based on data from a number of study areas or operating companies, levels of aggregation associated with each study area (state) and operating company should be provided by carriers (except for Charts RTE, ERN, and REV). C. Assistance from United States Telephone Association (USTA) 36. As in past years, to assist the Commission and interested parties in evaluating the national impact of revised rates, we request that USTA provide us with aggregated TRP data for all price cap LECs, except for those charts or portions of charts for which aggregation is inappropriate. D. Waivers 37. If carriers find that they are unable to provide data in the TRP, they may file applications for waiver. These waiver applications should demonstrate good cause for reporting a different or lower level of detail than specified and should indicate how the carrier intends to report complete TRP data in the future. Each carrier requesting any waiver of Commission Rules should include all such requests in a single application. Carriers should not delay undertaking development of data for the 1997 TRP in anticipation that waiver requests will be granted. E. Technical Instructions 38. Consistent with TRP filings in previous years, all companies that file a TRP should provide the data in a computer disk file, as detailed in the Attachments. F. Compliance with the Paperwork Reduction Act 39. The TRPs are subject to approval by the Office of Management and Budget (OMB) in accordance with the provisions of the Paperwork Reduction Act, 44 U.S.C.,  3506 et seq. On September 23, 1996, OMB approved the TRPs through September 30, 1999 (OMB Control No. 3060-0400). In compliance with the Paperwork Reduction Act, we estimate burden-hours and place the Office of Management and Budget form number and date on the formats included in the Appendices. We note that these TRPs were developed after informal discussions with LECs and other industry representatives and after evaluation of comments filed in response to our 1997 TRP Public Notice. We minimize the regulatory burden on the LECs by deleting obsolete sections of the TRP that have not proved useful, and carriers need not file historical data that have been filed in previous years. Overall, the burden this year is unchanged from that imposed by the 1996 annual access tariff charge filings, and smaller LECs continue to report significantly fewer data than larger companies. G. Procedural Matters 40. This document will be sent directly to all carriers that will file their own annual access tariffs. A copy of the document and all attachments will be available for inspection at the Public Reference Room, Common Carrier Bureau, Room 574, 2000 M St., N.W., Washington, DC, 20037. The Commission will publish the text of this document in the FCC Record. Copies of Appendices can be obtained through International Transcription Service, Inc. (ITS), the Commission's contractor for public records duplication. Further details regarding the procedures applicable to the 1997 annual access tariff filings are provided in the Attachments. FEDERAL COMMUNICATIONS COMMISSION James D. Schlichting Chief, Competitive Pricing Division Common Carrier Bureau