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FCC, 905 F.2d 1217 (9th Cir.1990), the United States Court of Appeals  Y -  for the Ninth Circuit vacated and remanded the orders in the Computer III proceedingb  xP- x.ԍAmendment of Sections 64.702 of the Commission's Rules and Regulations, CC Docket No. 85-229, Phase  xI, Report and Order, 104 FCC Rcd 958 (1986) (Phase I Order), recon., 2 FCC Rcd 3035 (1987) (Phase I  xZReconsideration), further recon., 3 FCC Rcd 1135 (1988) (Phase I Further Reconsideration), second further recon.,  x4 FCC Rcd 5927 (1989) (Phase I Second Further Reconsideration), Phase I Order and Phase I Reconsideration  xvacated sub nom. California v. FCC, supra, appeal pending sub nom. Illinois Bell Telephone Co. v. FCC, No.  x88-1364 (D.C. Cir. pet. for review filed May 16, 1988); Phase II Order, CC Docket No. 85-229, Phase II, 2 FCC  xRcd 3072 (1987), recon., 3 FCC Rcd 1150 (1988) (Phase II Reconsideration), further recon., 4 FCC Rcd 5927  x(1989) (Phase II Further Reconsideration), Phase II Order vacated sub nom. California v. FCC, supra, appeal pending sub nom. California v. FCC, No. 88-7183 (9th Cir. filed May 13, 1988)b that   preempted state regulation of the provision of enhanced services by communications common  Y -  ycarriers.  xP-ԍThe Court vacated the Phase I Order, the Phase I Reconsideration, and the Phase II Order. This letter instructs carriers subject to the Commission's cost allocation rules to   continue classifying enhanced services as nonregulated activities for federal accounting purposes on an interim basis, pending further consideration of this matter.  OSection 32.23(a) of the Commission's Rules. 47 C.F.R.  32.23(a), describes the   xcircumstances under which carriers are to classify their activities as nonregulated for federal   accounting purposes. That section provides in part that preemptively deregulated activities must   be classified as nonregulated activities. It also provides that activities that have been deregulated   at the interstate level, but not preemptively deregulated, are to be classified as regulated activities until the Commission decides otherwise.  Because enhanced services were preemptively deregulated prior to the decision in   ,California v. FCC, Section 32.23(a) required carriers to classify those services as nonregulated   activities for federal accounting purposes. In the absence of preemption, however, Section   h32.23(a) would require regulated accounting for federal purposes until the Commission decides   otherwise. Although the Court did not address the subject, we believe that we should issue  Y-interim procedures for carriers to follow pending further consideration of this matter.TX  xPA(- xԍSee Inside Wiring Accounting Order, 5 FCC Rcd 3521, 3524 (1990), petition for recon. pending; cf. Mid-Tex  xElectric Cooperative Inc. v. FERC, 822 F.2d 1123 (D.C. Cir.1987) (agency may adopt interim measures to remain in effect during court-ordered remand proceedings).T",**UUK"Ԍ ԙThe nonregulated classification is the means the Commission has used to ensure that   interstate ratepayers do not bear the costs and risks of carrier enhanced services operations. We   believe that we should continue that classification on an interim basis pending a decision as to   -a permanent accounting classification. Retaining that classification on an interim basis will   minimize the possibility of cost misallocations without making unnecessary demands on federal,  YQ-  state, and carrier resources.cQM xP-ԍ Compare Inside Wiring Accounting Order, 5 FCC Rcd at 3523.c In contrast, conversion to an interim regulated classification would   : impose significant costs and would unnecessarily complicate the already difficult task of ensuring   that interstate telephone rates are just and reasonable. Such a conversion would require changes   in the Commission's cost allocation and access charge rules and policies, in the internal   accounting systems carriers use to implement those rules and policies, and in the automated   reporting management information system (ARMIS) the Commission uses to evaluate the   carriers' internal accounting systems. These costs and unnecessary complications should be   [avoided while the permanent federal accounting treatment for enhanced services is under consideration.   Accordingly, we require all carriers subject to the Commission's cost allocation rules to   Zcontinue classifying their enhanced services operations as nonregulated activities for federal   accounting purposes on an interim basis. We emphasize that this interim accounting requirement   does not affect the states' ability to determine the accounting and ratemaking practices carriers   should follow for intrastate purposes. As the Commission has repeatedly made clear, the federal    procedures for allocating costs between regulated and nonregulated activities leave the states free   x"to employ different cost allocation methods ... in intrastate ratemaking, and to mandate that  Y-carriers keep any side records required for the states' regulatory purposes."XM xP- xԍSeparation of Costs of Regulated Telephone Services from Costs of Nonregulated Activities, Report and Order,  xM2 FCC Rcd 1298, 1310 (1987) (Joint Cost Order), recon., 2 FCC Rcd 6283 (1987), further recon., 3 FCC Rcd  x6701 (1988), aff'd sub nom. Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C. Cir. 1990); accord Inside  x Wiring Accounting Order, 5 FCC Rcd at 3523. Carriers are, however, required to follow the Commission's  xjurisdictional separations rules. Hawaiian Telephone Co. v. PUC, 827 F.2d 1264 (9th Cir.1987), cert. denied, 403 U.S. 923 (1988).  This letter is issued pursuant to authority delegated under Section 0.291 of the   Commission's Rules, 47 C.F.R.  0.291. Applications for review under Section 1.115 of the   ;Commission's Rules, 47 C.F.R.  1.115, must be filed within 30 days of the date of this letter.  YO-See 47 C.F.R.  1.4(b)(2). ` `  hh,VppSincerely, ` `  hh,VppKenneth P. Moran ` `  hh,VppChief, Accounting and Audits Division