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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-2335 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of) ) United States Telephone Association ) Petition for Waiver of Sections 61.47, ) CCB/CPD No. 97-56 69.153(c)(1), 69.153(d)(1)(i) ) and 69.153(d)(2)(i) of the Commission's Rules ) ) MEMORANDUM OPINION AND ORDER Adopted: November 5, 1997 Released: November 5, 1997 By the Acting Chief, Common Carrier Bureau: I. INTRODUCTION 1. On October 22, 1997, the United States Telephone Association (USTA) filed a petition requesting a waiver of sections 61.47, 69.153(c)(1), 69.153(d)(1)(i) and 69.153(d)(2)(i) of the Commission's rules to: (1) revise the service band indices (SBIs) for price cap local exchange carriers (LECs) so they can reflect the effects of the targeting among and within the price cap baskets for the January 1, 1998 tariff filing required under the Access Reform Order; and (2) permit price cap LECs to utilize base period demand in the calculation of the presubscribed interexchange carrier charges (PICCs) adopted in the Access Reform Order, as modified by the Access Reform Second Reconsideration Order. We grant the waiver of the specified rule provisions at this time. II. BACKGROUND 2. The price cap rules establish two types of price ceilings on interstate access charges that the incumbent LECs file with the Commission. First, the price cap indices (PCIs) are limits on the prices of broad groups (baskets) of services. Second, SBI upper limits are ceilings on annual price increases for categories (and subcategories) of services within each basket. The SBI upper limit is reset each year to equal the prior year's SBI plus its upper limit (typically 5%) net of basket PCI change. For example, if the prior year's SBI were to equal 100 (100%), its SBI's upper limit equals 5%, and the PCI change equals minus 3%, then the SBI upper limit for the next year equal 100% + 5% - 3% or 102%. In other words, the category's price during the next year could increase no more than 2%, the difference in the existing SBI (100%) and the new upper limit (102%). Because each category's SBI upper limit depends on basket PCI change, all SBI upper limits change by the same percentage whenever the basket PCI changes. 3. The Access Reform Order changed the system of interstate access charges so that the charges for the various access elements better reflect the costs incumbent LECs incur to provide those elements. Among other changes, the Commission required that price cap LECs: (1) reduce the amount of their transport interconnection charge (TIC) by targeting the price cap productivity adjustment to the TIC category; and (2) make further cost reassignments to specific categories through exogenous cost adjustments. Because these exogenous cost changes are being made at the category level, rather than at the basket level, the individual upper limits will no longer necessarily change by the same percent each time the PCI changes. 4. Since 1983, the Commission has maintained a comprehensive mechanism for incumbent LECs to recover the costs associated with the provision of access service required to complete interstate and foreign telecommunications. In the Access Charge Order, the Commission created the flat-rated Subscriber Line Charge (SLC), which is assessed on end users. The SLC allows incumbent LECs to recover a portion of common line costs, which are non-traffic sensitive, in the manner in which they are incurred, instead of through per- minute charges. In the Access Reform Order, the Commission recognized that all common line costs are non-traffic sensitive and are best recovered through flat charges. Accordingly, the Commission established the PICCs, which are flat-rated charges assessed on the interexchange carriers, to recover common line revenues not recovered by the Subscriber Line Charges (SLCs). III. POSITIONS OF THE PARTIES A. Waiver Petition 5. In its October 22, 1997 Petition, USTA proposes that the SBI upper limit formulae be modified to account for both the targeted and non-targeted exogenous cost amounts. USTA asserts that the revisions it proposes in waiving section 61.47(e), (g), and (h) will allow the SBI upper limits to reflect both the effects of the specific targeting and appropriate distribution of any untargeted amounts required under the Access Reform Order for the January 1, 1998 tariff filing. USTA states that its waiver request is in the public interest as it will permit price cap LECs to calculate the SBI upper limits in a manner that reflects the Commission's intent as well as its rules. 6. USTA also proposes that the Commission waive sections 69.153(c)(1), 69.153(d)(1)(i), and 69.153(d)(2)(i) of its rules so that price cap LECs can utilize base period demand in the calculation of the PICCs. These rules require the use of projected revenues and projected lines in the calculation of the PICCs. USTA observes that the SLC rate elements are integrated into the rate calculation using the current rate multiplied by the base demand period, and states that its waiver request would permit the SLC methodology to be used to develop the PICCs. USTA claims that using projected amounts in the rate calculations would require extensive changes to the Tariff Review Plan, and additional rules to detemine how to use projected demand in subsequent filings. USTA states that its waiver request serves the public interest by eliminating the problems inherent in the use of projected data, facilitating consistent results, and reducing administrative burdens. B. Comments 7. AT&T generally agrees with USTA's request to substitute its formulae for the Commission's rules to incorporate the effects of both targeted and untargeted exogenous cost adjustments to calculate the SBI upper limits. AT&T, however, asserts that USTA has failed to provide definitions for certain terms that USTA uses in its proposed formulae, and provides definitions for those terms. Among other things, AT&T asks that the total revenues used in the formulae be defined as of the last PCI update. AT&T also requests that the Bureau's forthcoming Tariff Review Plan (TRP) order identify which exogenous cost adjustments should be treated as "TargExog" versus "UntargSvcExog" or "UntargSubSvcExog," as those terms are used in the formulae proposed by USTA. AT&T argues that the Bureau should take such action to ensure that incumbent LECs do not exercise unwarranted flexibility in targeting or distributing exogenous costs. In addition, AT&T asks that the Commission modify the TRP to add a new column in its proposed EXG- 2 Form to list all "UntargSvcExog" costs and "UntargSubSvcExog" costs, as those terms are used in the formulae proposed by USTA, for all sub-bands and density zones. The Sprint Local Telephone Companies (Sprint LECs) indicate that they support USTA's petition for waiver. C. Reply Comments 8. Although the reply period does not expire until November 6, 1997, USTA has indicated that it will not file a Reply. IV. DISCUSSION 9. Section 1.3 of the Commission's rules empowers the Commission to grant waivers of its rules "if good cause therefor is shown." Courts have interpreted this rule to require petitioners to demonstrate that special circumstances justify a departure from the general rule and that such a deviation will serve the public interest. A. Targeting 10. We grant USTA's petition to waive section 61.47 of the Commission's rules. USTA's petition would revise the SBI upper limit to account for cases where exogenous cost or other PCI changes are targeted below the basket level to any specific category or subcategory within a basket. USTA maintains that such targeting presents a unique situation that requires a different formula to calculate the SBI upper limits. We agree with USTA that the formula in USTA's Attachment A, attached hereto as Attachment A, correctly calculates the upper limits by accounting for the effect of both designated and undesignated PCI changes. In the USTA formula, each SBI upper limit is a function of three things: (1) the prior SBI upper limit; (2) the PCI dollar changes that are being designated to a specific category; and (3) the undesignated dollars that are being assigned to the category as a subset of dollars designated to the basket or a higher level category. We believe that granting USTA's petition on this matter is in the public interest, because it results in a better calculation of the SBI upper limits, and prevents prices for categories not subject to targeting from being affected by a targeted exogenous adjustment. 11. We accept the definitions that AT&T proposes for the terms used in the SBI upper limit formulae proposed by USTA. Specifically, we agree with AT&T that the total revenue terms used in USTA's SBI upper limit formulae should use those revenues as of the last PCI update. Defining these revenues as of the last PCI update is consistent with how the Commission allocates exogenous cost adjustments to the PCI. We disagree with AT&T's assertion that we should identify which exogenous cost adjustments should be treated as "TargExog" versus "UntargSvcExog" or "UntargSubSvcExog" in the TRP order, as we believe that such identification is unnecessary. We also disagree with AT&T on the need to add a column to the TRP EXG-2 Form to list all "UntargSvcExog" costs and "UntargSubSvcExog" costs for all sub-bands and density zones. We believe that the information provided in the TRP adequately reports these costs. B. PICC Calculation 12. We grant USTA's petition to waive sections 69.153(c)(1), 69.153(d)(1)(i), and 69.153(d)(2)(1). We agree with USTA that continued application of these rules as presently written would be contrary to the public interest in these circumstances. As noted above, no parties opposed this waiver request. The rules as presently written would create a PICC whose method of calculation conflicts with the calculation of the SLC. Because the PICC takes into account the revenues recovered from the SLC, maintaining this difference of calculating methods between the PICC and SLC could result in incorrect revenue recovery. Although for most price cap LECs there would be no effect on prices or revenues during the current tariff year, not granting the waiver request would require extensive changes to the Tariff Review Plan forms to reflect the use of projected revenue and demand, thereby creating additional burdens both on price cap LECs and the Commission. The waiver permits price cap LECs to apply the rules USTA appended to its waiver petition as Attachment B, attached hereto as Attachment B. V. ORDERING CLAUSES 13. Accordingly, IT IS ORDERED, that pursuant to Sections 4(i) and 201-205 of the Communications Act, 47 U.S.C.  154(i) and 201-205, and Section 1.3 of the Commission's rules, 47 C.F.R.  1.3, the petition for waiver of Sections 61.47, 69.153(c)(1), 69.153(d)(1)(i) and 69.153(d)(2)(i) of the Commission's Rules, 47 C.F.R.  61.47, 69.153(c)(1), 69.153(d)(1)(i) and 69.153(d)(2)(i), filed by United States Telephone Association IS GRANTED as discussed herein. 14. This action is taken by the Chief, Common Carrier Bureau, pursuant to authority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R.  0.91 and 0.291. FEDERAL COMMUNICATIONS COMMISSION A. Richard Metzger, Jr. Acting Chief, Common Carrier Bureau ATTACHMENT B USTA's October 22, 1997 Proposal  69.153 Presubscribed interexchange carrier charge (PICC) (c) The maximum monthly PICC for primary residential subscriber lines and single- line business subscriber lines shall be the lower of: (1) One twelfth of the sum of projected annual common line revenues and residual interconnection charge revenues permitted under our price cap rules divided by the projected average number of historical base period local exchange service subscriber lines in use during such annual period, minus the maximum subscriber line charge calculated pursuant to  69.152(d)(2); or (d) To the extent that a local exchange carrier cannot recover its full common line revenues, residual interconnection charge revenues, and those marketing expense revenues described in  69.156(a) permitted under price cap regulation through the recovery mechanisms established in  69.152, 69.153(c), and 69.156(b) and (c), the local exchange carrier may assess a PICC on multi-line business subscriber lines and non-primary residential subscriber lines. (1) The maximum monthly PICC for non-primary residential subscriber lines shall be the lower of: (i) One twelfth of the projected annual common line, residual interconnection charge, and  69.156(a) marketing expense revenues permitted under our price cap rules, less the maximum amounts permitted to be recovered through the recovery mechanisms under  69.152, 69.153(c), and 69.156(b) and (c), divided by the total number of projected historical base period non-primary residential and multi-line business subscriber lines in use during such annual period; or (2) If the maximum monthly PICC for non-primary residential subscriber lines is determined using paragraph (d)(1)(i) of this section, the maximum monthly PICC for multi-line business subscriber lines shall equal the maximum monthly PICC of non-primary residential subscriber lines. Otherwise, the maximum monthly PICC for multi-line business lines shall be the lower of: (i) One twelfth of the projected annual common line, residual interconnection charge, and  69.156(a) marketing expense revenues permitted under parts 61 and 69 of our rules, less the maximum amounts permitted to be recovered through the recovery mechanisms under  69.152, 69.153(c) and (d)(1), and 69.156 (b) and (c), divided by the total number of projected historical base period multi-line business subscriber lines in use during such annual period; or ATTACHMENT C Definitions for use in USTA's Formulae: SBIul: Proposed SBI Upper Limit. SBIult-1: Existing SBI Upper Limit. TargExog: Exogenous cost amount targeted to adjust the SBI Upper Limit of a specific band, sub-band, or density zone. UntargBsktExog: Total of Basket's exogenous costs that are not targeted for the SBI Upper Limit calculations of specific bands and that should be uniformly distributed among all bands, sub-bands, and density zones in the basket. UntargSvcExog: That portion of the "TargExog" cost of the service band that must be allocated among the sub-bands and density zones based on their revenue weight. UntargSubSvcExog: That portion of the "TargExog" cost of the sub-band that must be allocated among the density zones based on their revenue weight. RBsktt-1: Total basket revenues as of last PCI update. RSvct-1: Total band revenues as of last PCI update. RSubSvct-1: Total sub-band revenues as of last PCI update. RDZt-1: Total density zone revenues as of last PCI update.