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NevadaR)  Sh-R)hTransmittal No. 8 Tariff F.C.C. No. 1R) T  S-  MEMORANDUM OPINION AND ORDER ă  Si - xAdopted: June 1, 1998 hh@hppReleased: June 1, 1998  S -X01Í ÍX01Í ÍBy the Commission:  S - I. INTRODUCTION ă  S7-x1.` ` In this Memorandum Opinion and Order, we conclude our investigation of Transmittal  S-No. 8 filed on December 17, 1997 by Beehive Telephone Company, Inc. and Beehive Telephone, Inc. of Nevada (collectively "Beehive"). We find that Beehive has failed to meet its burden of proof under Section 204(a)(1) of the Communications Act (Act), 47 U.S.C.  204(a)(1), to justify its proposed interstate traffic sensitive switched access rates that are the subject of this investigation: premium and  S8-nonpremium local switching, local transport facility, and local transport termination charges.8{ yO-  #X\  P6G;ɒP#эxBeehive's tariff does not use terms specifically set out in Section 69.111 of the Commission rules, 47 C.F.R.  x 69.111, concerning tandemswitched transport transmission charges. 47 C.F.R.  69.111(a)(1). Sections  x69.111(e)(1)(i) and (ii) of the rules, 47 C.F.R.  69.111(e)(i) and (ii), provide that, through June 30, 1998, if the  xcompany employs distance sensitive rates, a distance sensitive component shall be assessed for the use of transmission  xhfacilities and a nondistancesensitive component shall be assessed for use of the circuit equipment at the ends of the  xinteroffice transmission links. Beehive's description of its offerings as "local transport facility" and "local transport  xtermination" charges appear to be consistent with the rate structure requirements of Sections 69.111(e)(1)(i) and (ii)  xKof the rules because the "local transport facility" charge includes a distance sensitive component and because the "local transport termination" charge is nondistance sensitive.  We further find for the reasons discussed below that we are unable to rely on supporting information submitted by Beehive for the purpose of prescribing rates. We, therefore, prescribe rates for these services using a methodology based on industry averages for comparably sized companies. We direct Beehive to refund to its customers, with interest, the difference between our prescribed rates and the rates filed in December, 1997.  S- II. BACKGROUND ă  Sm-x2.` ` Prior to 1994, Beehive charged interstate local switching and transport rates filed by the National Exchange Carrier Association (NECA) on behalf of incumbent local exchange carriers (LECs) that participate in NECA's trafficsensitive access tariff. In 1994, Beehive established its own"0*'',,"  S-interstate access rates pursuant to Section 61.39 of the Commission's rules,m* yOh-#X\  P6G;ɒP#эx47 C.F.R.  61.39.m which permits a LEC that qualifies as a small telephone company to file its own tariff for traffic sensitive interstate access  S-charges under more simple rules than those that apply to larger carriers.\X* yO-  >#X\  P6G;ɒP#эxSmall telephone companies are defined as those carriers with fewer than 50,000 access lines that also are  {OZ- xpart of NECA Subset 3, as defined by Section 69.602(a)(3) of the rules, 47 C.F.R.  69.602(a)(3). See Regulation  {O$-of Small Telephone Companies, CC Docket No. 86467, Report and Order, 2 FCC Rcd 3811 (1987).  This methodology generally permits qualifying LECs to base their rates for the next two access tariff years on their actual costs and demand during the previous two calendar years.  S-x3.` ` On July 22, 1997, Beehive filed Transmittal No. 6, which proposed the rates, terms, and conditions under which Beehive would offer interstate access service for the 19971999 access  Sh-years.0h|* S -  Mԍx#X\  P6G;ɒP#Beehive Access Tariff FCC No. 1, Transmittal No. 6, CC 97237 (filed, July 22, 1997) (Transmittal No.  x6). AT&T filed a petition urging the Commission to reject, or alternatively, to suspend and investigate Beehive's  {O$- xTransmittal No. 6 and alleged that Beehive's premium local switching rate was excessive. See AT&T Petition to  xYSuspend and Investigate and for Rejection of Beehive Transmittal No. 6, CC 97237 (filed, July 20, 1997). Beehive  {O- xfiled an opposition on August 4, 1997. See Beehive Reply to AT&T's Petition to Suspend and Investigate and for Rejection, CC 97237 (filed, August 4, 1997).0 The Common Carrier Bureau suspended Beehive's tariff filing on August 5, 1997 concluding that it raised significant questions of lawfulness, including whether the proposed rates were unreasonably discriminatory in violation of Section 202(a) of the Act; whether the proposed rates were unjust and unreasonable in violation of Section 201(b) of the Act; and whether Beehive had shown that its proposed traffic sensitive switched access rates were justified under the existing interstate  Si -access charge rules.i  * S-  0ԍ#X\  P6G;ɒP#xBeehive Telephone Company, Inc., Tariff F.C.C. No. 1, Transmittal No. 6, CC Docket No. 97237, Suspension Order, DA 971674 (Com. Car. Bur. Comp. Pric. Div., rel. August 5, 1997).  S -x4.` ` On January 6, 1998, we released the Beehive Tariff Investigation Order,j p * S-  ԍ#X\  P6G;ɒP#xIn the Matter of Beehive Telephone Company, Inc. and Beehive Telephone, Inc. Nevada, Transmittal No.  {O- xj6, CC Docket 97237, Memorandum Opinion and Order, FCC 981 (released January 6, 1998)(Beehive Tariff  {M-Investigation Order, Transmittal No. 6).đ concluding our investigation of the rates filed by Beehive in its 1997 annual access tariff. We found that Beehive had failed to provide an adequate explanation for the sharp increases in its operating costs in 1995 and 1996 and that its premium and nonpremium local switching rates were unjust and  S8-unreasonable.8* Sz!-ԍ#X\  P6G;ɒP#xBeehive Tariff Investigation Order, Transmittal No. 6 at 6, 7 (paras. 14, 16). In that order, we disallowed Beehive's operating expenses in excess of 25 percent of its total plant in service (TPIS) and prescribed rates for Beehive's premium and nonpremium local  S-switching services.B* S$-ԍ#X\  P6G;ɒP#xBeehive Tariff Investigation Order, Transmittal No. 6 at 10 (para. 25). We calculated the average ratio of operating expenses to total plant in service"0*&&,," among companies with a comparable number of access lines to Beehive in 1995 or 1996 using data  S-filed with NECA. * S5-ԍx#X\  P6G;ɒP#Beehive Tariff Investigation Order, Transmittal No. 6 at 7 (para. 18). We found that the average total operating expense to total plant in service ratio among LECs with a comparable number of access lines as Beehive was 21.55 percent. To account for the possibility that Beehive is a high cost carrier, we used an expense to total plant in service ratio of  S4-25 percent. 4h* S<-ԍ#X\  P6G;ɒP#xBeehive Tariff Investigation Order, Transmittal No. at 7 (para. 8). We also directed Beehive to refund the difference between the actual local switching revenues that it obtained between August 6, 1997 and December 31, 1997 and the local switching revenues that it would have obtained during this period based on the rates prescribed by the  S-Commission. Beehive filed a petition for reconsideration of the Beehive Tariff Investigation Order on February 5, 1998 seeking reconsideration of the rate prescriptions and the refund requirements. On  S6-May 6, 1998, we released the Beehive Reconsideration Order,which generally denied Beehive's  S-petition in part but found that we should have used Beehive's total 1995/1996 interstate premium and  S-nonpremium access minutes.  * Sy-  ԍx#X\  P6G;ɒP#Beehive Telephone Company, Inc. and Beehive Telephone, Inc. Nevada, CC Docket No. 97237, Order on Reconsideration, FCC 9883 at 3 (released May 6, 1998) (para. 5).   Sk -x5.` ` On December 17, 1997, Beehive Telephone Company, Inc. and Beehive Telephone, Inc. of Nevada (collectively "Beehive") filed Transmittal No. 8, which proposed to revise its interstate  S -access service rates in accordance with the Commission's Access Charge Reform Order.  p* {O-  #X\  P6G;ɒP#эxAccess Charge Reform Order, CC Docket No. 96262, First Report and Order, 12 FCC Rcd 15982 (1997)  {O- x-(Access Charge Reform Order). On December 23, 1997, AT&T Corp. (AT&T) filed a petition to suspend and  {O- xinvestigate Beehive's tariff. See Petition of AT&T Corp. on Rate of Return LEC Tariff Filings at 6 (filed December  {Os- x23, 1997) (AT&T Petition). On December 29, 1997, Beehive filed a response to AT&T's petition. See Letter from  {O=-Russell D. Lukas, Attorney for Beehive, to Magalie Roman Salas, FCC, dated December 29, 1997 (Beehive Reply). Beehive's Transmittal No. 8 proposes per minute switching rates of $0.028252 for premium local switching and  S -$0.01815 for nonpremium local switching. * * Sj-ԍx#X\  P6G;ɒP#Beehive Access Tariff FCC No. 1, Transmittal No. 8 (December 17, 1997)(Transmittal No. 8).ĸ Beehive also proposes to reduce its local transport facility rates by approximately 20 percent, and to raise its local transport termination rates by approximately 50 percent.  S-x6.` ` On December 23, 1997, AT&T filed a petition requesting that the Commission suspend and investigate Beehive's Transmittal No. 8, alleging that Beehive had failed to provide  Sn-supporting documentation with its filing and failed to justify the rates proposed.n * {O -#X\  P6G;ɒP#эxSee Petition of AT&T Corp. on Rate of Return LEC Tariff Filings at 6 (filed, December 23, 1997). Beehive submitted additional cost support with its reply to AT&T's opposition and urged the Commission to deny AT&T's request, alleging that Beehive had been prejudiced by AT&T's failure to serve Beehive with  S-AT&T's opposition in a timely manner.k\* yO$-#X\  P6G;ɒP#эxBeehive Reply at 1.k On December 30, 1997, the Competitive Pricing Division of"0*&&,,4"  S-the Common Carrier Bureau (Bureau) suspended Beehive's Transmittal No. 8 for one day, initiated an  S-investigation into the lawfulness of this tariff filing, and imposed an accounting order.Z* yO5-  #X\  P6G;ɒP#эxTariffs Implementing Access Charge Reform, Beehive Telephone Company, CC Docket Nos. 97250 and  x97249, Memorandum Opinion and Order, DA 972724 (Com. Car. Bur., Comp. Pric. Div., rel. Dec. 30, 1997)  {O-(Access Charge Reform Suspension Order).  Sg-x7.` ` On March 13, 1998, the Bureau released the Beehive Designation Order, designating for investigation whether Beehive's premium and non-premium local transport facility, local transport termination, and local switching rates filed in Transmittal No. 8 are just and reasonable. The Bureau  S-directed Beehive to file additional supporting documentation for its actual demand and costs during recent years and designated many of the same issues that were the subject of the investigation of  Si-Beehive's 1997 annual access tariff._i* yO -  #X\  P6G;ɒP#эxIn the Matter of Beehive Telephone Company, Inc., CC Docket No. 97249, Order Designating Issues for  {O -Investigation, DA 98502(Com. Car. Bur. Comp. Pric. Div., released March 13, 1998) (Beehive Designation Order)._ In particular, the Bureau directed Beehive to explain in detail why its ratio of operating expenses to TPIS, reflected in Transmittal No. 8, is significantly higher than its ratio in 1994 and 1995 and to explain in detail why its operating expenses to TPIS ratio in Transmittal No. 8 is significantly higher than the ratio among LECs with a similar number of access  S -lines. D* S-ԍx#X\  P6G;ɒP#Beehive Designation Order at 4 (para. 9). The Bureau also directed Beehive to provide detailed cost data for calendar years 1994, 1995, and 1996 in Table 1 of FCC ARMIS Report 4301 format; provide all investment, expense, and revenue account balances that it is required to keep as a Class B company under Part 32 of the  S -Commission's rules;0 * S-  ԍx#X\  P6G;ɒP#Part 32 of the Commission's rules contains the Uniform System of Accounts (USOA) for  xtelecommunications companies, which is a historical financial accounting system that companies use to book costs  xJin their various accounts. The USOA is comprised of different accounts, to which companies book associated costs. 47 C.F.R. Part 32. show the amounts in the access charge categories in Part 69 of the rules;_h * S-  kԍx#X\  P6G;ɒP#Part 69 of the Commission's rules outlines the separations procedures for telecommunications companies  xto apply to property costs, revenues, expenses, taxes, and reserves as recorded on the books of the company. 47 C.F.R. Part 69._  S - provide its general ledgers for calendar years 1994, 1995, and 1996; provide a detailed list of all its  S -expenses for corporate operations,bh * SJ-  ]ԍx#X\  P6G;ɒP#Corporate Operations Expense accounts must include the costs of performing executive and planning  xiactivities, and general and administrative activities described in the narratives for individual accounts. 47 C.F.R.  32.5999(e). b plant specific operations, <* Sz!-ԍx#X\  P6G;ɒP#See 47 C.F.R.  32.5999(b)(3),(4)(costs to be included as plant specific operations expense). plant nonspecific operations, * S#-ԍx#X\  P6G;ɒP#47 C.F.R.  32.5999(c)(costs to be included as plant nonspecific operations expense). and" |0*&&,,-"  S-customer operations;* Sh-ԍx#X\  P6G;ɒP#47 C.F.R.  32.6610, 32.661132.6613, and 32.6620. provide all subsidiary record information for each summary account for corporate operations, plant specific, plant nonspecific, and customer operations expenses required to be kept in accordance with Section  Sg-32.12 of our rules;jgh* So-  ԍx#X\  P6G;ɒP#Section 32.12 of the Commission's rules requires companies to keep financial records with sufficient  xparticularity to show fully the facts pertaining to all entries in the accounts. This rule also requires companies to  xmaintain financial and subsidiary records in a manner so that the type of information that does not warrant disclosure  x as an account or subaccount is readily available, and permits ready identification and examination by the Commission. j provide information regarding its lease agreements for switching equipment that  S4-constitute capital leaseso4(* S -ԍx#X\  P6G;ɒP#47 C.F.R.  32.2681.o or some other type of lease agreement; list all legal expenses included in the general and administrative expenses account, and describe the administrative proceedings or court actions for which Beehive incurred legal costs; and identify the specific costs incurred for each administrative proceeding or court action.  S5-x8.` ` The Bureau further directed Beehive to identify all of its nonregulated services, including, but not limited to, any cable, cellular and other wireless services it may offer. Further, the Bureau directed Beehive to show the development of its January 1, 1998 revenue requirement based  S -on its 1995 and 1996 actual costs as adjusted to reflect the Universal Service Orderh * S- xԍ#X\  P6G;ɒP# See FederalState Joint Board on Universal Service, CC Docket No. 9645, Report and Order, 12 FCC Rcd  xY8776 (1997); First Quarter 1998 Universal Service Contribution Factors Revised and Approved, CC Docket No. 9645, Public Notice, DA 972623 (rel. Dec. 16, 1997). and the Access  Sj -Reform Order,lj * S-Ѝ #X\  P6G;ɒP# Access Charge Reform Order, 12 FCC Rcd 15982; Access Charge Reform, Order on Reconsideration,  {O-12 FCC Rcd 10119 (1997); Second Order on Reconsideration, 12 FCC Rcd 16606 (1997) (collectively, Access  {O-Charge Reform Proceeding). and to show the development of all traffic sensitive rates, including transport and local switching rates, filed in Transmittal No. 8. Because the cost information filed by Beehive in  S -Transmittal No. 8 reflects several additional changes that Beehive made since it filed cost data in support of Transmittal No. 6, the Bureau further directed Beehive to provide an explanation of each change made to the cost data filed for Transmittal No. 6 that is reflected in the cost information filed  Sl-with Transmittal No. 8 and to state the specific reason for each change.U\l,* S8-  ԍ#X\  P6G;ɒP#xBeehive Designation Order at 6 (para. 10). On April 3, 1998, Beehive filed a motion requesting an  {O - xextension of one business day to file its direct case in response to the Beehive Designation Order. See Beehive  {O - xhMotion for Extension of Time, filed April 3, 1998 (Beehive Motion). On April 7, 1998, AT&T filed an opposition  xto Beehive's motion for an extension of time and requested an extension of time until April 20, 1998 to file its  {Ol"- x,rebuttal. AT&T Opposition to Motion for Extension of Time, CC Docket No. 97249, filed April 7, 1998 (AT&T  {O6#- xOpposition). On April 20, 1998, the Bureau granted Beehive's motion for an extension of time to file its direct case  {O$- xand AT&T's request for additional time to file its opposition. See In the Matter of Beehive Telephone Company,  {O$- xInc., CC Docket No. 97249, Order Designating Issues for Investigation, DA 98502(Com. Car. Bur. Comp. Pric."$0*&&%"  {O-Div., released March 13, 1998) (Beehive Designation Order).U "lZ0*&&,,"Ԍ S- Ù III. PLEADINGS  S- x9.` ` In its Direct Case, Beehive states that its accountant did not record its transactions in  Sg-accordance with Part 32 of the Commission's rules for the years 1994 through 1996.hgZ* Sa-  ԍx#X\  P6G;ɒP#Beehive Direct Case at 3435. Part 32 is a historical and financial accounting system that presents the  xresults of operational and financial events in a manner enabling regulators to assess these results within a specified  yO-accounting period. 47 C.F.R.  32.1 et seq. Beehive explains that its ratio of operating expenses to TPIS was significantly higher in 1995 than its ratio in 1994 because of significant increases in its plant specific and corporate operations expenses, specifically attributable to Beehive's efforts to stimulate usage of its system and to its involvement in  S-extraordinary litigation.q* S -ԍx#X\  P6G;ɒP#Beehive Direct Case at 7.q Beehive provides cost data for 1994, 1995, and 1996 in Table 1 of FCC  Sh-ARMIS Report 4301 format and its general ledgers for calendar years 1994, 1995, and 1996.} h** S2-ԍx#X\  P6G;ɒP#Beehive Direct Case at 13, Exhibit 1.} Beehive also submits its subsidiary record information, and provides information regarding its lease  S-agreements, and copies of the lease agreement covering switching equipment.!* Sl-ԍx#X\  P6G;ɒP#Beehive Direct Case at 13, Exhibits 2 through 4; see also Beehive Supplement to Direct Case.  S -x 10.` ` Beehive also includes a list of legal expenses and an explanation of the proceedings  Si -for which Beehive incurred legal costs.u"i j * Ss-ԍx#X\  P6G;ɒP#Beehive Direct Case at 1431.u Beehive's information regarding nonregulated activities includes information about its provision of customer premises wiring and Internet service, but no  S -information regarding any provision of cable, cellular, or other wireless service.r# * S-ԍx#X\  P6G;ɒP#Beehive Direct Case at 32.r Beehive also provides cost support information that shows the development of its revenue requirement and local  S -switching rates.}$ * S-ԍ#X\  P6G;ɒP#xBeehive Direct Case at 32, Exhibit 6.} Beehive explains that its 19951996 data differs from the data filed in support of Transmittal No. 6 for the following reasons: (1) Transmittal No. 6 was erroneously based on cost data for only calendar year 1996 instead of for calendar years 1995 and 1996, the total period since Beehive's last annual filing, as required by Section 61.39(b)(ii) of our rules; and (2) Transmittal No. 6 was based on interstate cost data determined using a weighted DEM jurisdictional separations  S-factor.u%J* S"-ԍx#X\  P6G;ɒP#Beehive Direct Case at 3335.u  S8-x 11.` ` In its opposition, AT&T contends that Beehive's cost support shows that its expenses are excessive in relation to its investment as a result of a revenue sharing agreement between Beehive"%0*&&,,q"  S-and Joy Enterprises, Inc. (JEI), a chat line provider operating in Beehive's service area.m&* Sh-ԍ#X\  P6G;ɒP#xAT&T Opposition at 3.m AT&T also contends that Beehive has failed to justify nearly all of the legal expenses Beehive claims contribute to  S-its high corporate operations expenses.m'h* S-ԍx#X\  P6G;ɒP#AT&T Opposition at 3.m AT&T states that Beehive's cost support contains numerous  Sg-entries for which it has provided no explanation and for which it has not met its burden of proof.m(g* S-ԍ#X\  P6G;ɒP#xAT&T Opposition at 3.m AT&T argues that the debits and credits in Beehive's general ledgers are an accounting fiction set up to mask the fact that Beehive is the owner of JEI, which generates 95 percent of the traffic that terminates in Beehive's territory. AT&T also alleges that Beehive erred in its local switching  S-calculations by using exchange minutes of use rather than total company minutes of use.n)* S -ԍ#X\  P6G;ɒP#xAT&T Opposition at 13.n  0  S5-x 12.` ` In its rebuttal, Beehive maintains that its relationship with JEI has allowed Beehive to  S-decrease its access rates.n*H* S-ԍx#X\  P6G;ɒP#Beehive Rebuttal at 3.n Beehive also disagrees with AT&T's statements regarding its relationship  S-with JEI and with AT&T's claims that Beehive's legal expenses are unjustified.q+* SW-ԍ#X\  P6G;ɒP#xBeehive Rebuttal at 6, 7.q Beehive also  S -provides an explanation for the ledger entries that AT&T found objectionable.o, * S-ԍx#X\  P6G;ɒP#Beehive Rebuttal at 20.o  S6 -  VI. DISCUSSION  ă  S -x 13.` ` As noted, Beehive states that its accountant has not maintained its cost accounts and records in accordance with Part 32 of the Commission's rules. Beehive has not explained what accounting procedures were employed, sought to identify specific departures from Part 32, or the extent to which its accounting system may have complied in certain respects with Part 32.  S-x 14.` ` Moreover, Beehive's cost data supporting its operating expenses show many inconsistent, questionable, and unexplained entries. For example, Account 6728, Other General and Administrative Expenses, which under normal Part 32 accounting would include only expenses incurred to perform general administrative activities not directly charged to the user and not provided  S-for in other accounts, y-( * S!-ԍ#X\  P6G;ɒP#xSee 47 C.F.R. 32.6728. y includes payments to dentists, florists, toy stores, the Immigration and" -0*&&,,b"  S-Naturalization Service, and the Internal Revenue Service..h* Sh-  ԍx#X\  P6G;ɒP#Beehive's Utah general ledger for 1995 contains entries such as $5540 for the Step Higher clinic, $25,000  xYfor Fran Brothers, $30,000 for Fran Brothers, $20,000 for Fran Brothers, $1727 for Aaron Goldberg, DDS, $75 for the Immigration and Naturalization Service, $1016.42 for Delta Airlines, and $868 for Aeroflot Airlines.  Beehive has not explained these entries.  S-x15.` ` Beehive's cost information also shows numerous unexplained or inadequately explained entries relating to JEI that raise serious questions regarding whether Beehive's proposed rates are based on costs legitimately related to the provision of interstate access service. For example, the record shows substantial, inadequately explained payments to JEI. Prior to 1995 Beehive compensated JEI for stimulation of traffic at a rate of four cents per minute of traffic originating from  S-JEI or about $1.2 million per year./* S3 -ԍx#X\  P6G;ɒP#AT&T Opposition at 4; Beehive Rebuttal at 6. Subsequently, this payment terminated, but in 1996 a new charge arose of $84,000 per month, or approximately $1 million annually for the leasing of switches from  S5-JEI.q05* Sm-ԍx#X\  P6G;ɒP#Beehive Direct Case at 9.q Beehive has submitted a copy of a lease agreement, but this agreement has few of the normal terms and conditions of an operating lease, such as term and descriptions of the switches or capabilities that will be provided. As another example, Beehive's general ledgers for its Utah company in 1995 includes $1,194,110.24 in expense paid to JEI posted to Account 7990  Si -(Nonregulated Net Income), an income account.1i 8* SA-  .ԍx#X\  P6G;ɒP#See 47 C.F.R.  32.7990. #X\  P6G;ɒP#The instructions for Account 7990 states that the account "shall be used by those  xcompanies who offer nonregulated activities that do not involve the use of assets or resources used in the provision  xxof both regulated and nonregulated products and services, and which have not established a separate subsidiary for  x,that purpose." Amounts recorded in Account 7990 represents the net of total revenues and total expenses for such activities.  Subsequently, at the end of 1995, Beehive divided this amount and transferred it to three expense accounts, and then consolidated it and transferred it to  S -yet another account, Account 6540 (Access Expense).D2 * S-  lԍx#X\  P6G;ɒP#Beehive Direct Case at 7. See 47 C.F.R.  32.6124, General Purpose Computer; 47 C.F.R.  32.6212, Digital Electronic Switching; 47 C.F.R.  6728, General and Administrative; 47 C.F.R.  32.6540, Access Expense. D Under Part 32, Account 6540 is used for "amounts paid by interexchange carriers or other exchange carriers to another exchange carrier for the  S -provision of access service."o3 `* S-ԍ#X\  P6G;ɒP#x47 C.F.R.  32.6540.o Beehive has failed to provide any explanation for this accounting treatment or how any expense associated with JEI could legitimately be for payment by Beehive for provision of access by JEI.  S-x16.` ` Beehive also recorded other payments to JEI in Account 5082 (Access Revenue).n4* Sq"-ԍ#X\  P6G;ɒP#xBeehive Rebuttal at 5.n Beehive's general ledger for its Utah company reflect debits attributable to JEI which are subsequently"40*&&,,"  S-nullified by credits in various amounts.5* yOh-Technical 8X` hp x (#%'0*,.8135@8:p* S -  Mԍx#X\  P6G;ɒP# For purposes of this investigation, we will assume that Beehive is not a carrier fully subject to Title II of  xthe Act, but is only subject to Sections 201205, because presumably it only provides interstate service through  {O"- xinterconnection with other carriers. See 47 U.S.C.  152(b)(2). Thus, Beehive is not subject to our prescription of  xiPart 32 pursuant to Sections 219 and 220 of the Act that is applicable to fully subject carriers. 47 U.S.C.  219,  x220. We do not here prescribe or require Beehive to comply with Part 32 as a general matter of company operations.  xWe merely find that it has not met its burden to justify its proposed rates because it has not presented costs in"$=0*&&%"  xaccordance with Part 32, has not demonstrated that it records costs and revenues in a manner that allows compliance with Parts 64, 36, and 69 of our rules, and has not otherwise adequately explained its accounting system. Accordingly, we will" >0*&&,,l"  S-prescribe rates for these services.?h * S-  ԍ#X\  P6G;ɒP#xOur investigation of Beehive's 1997 access rates only concerned its rates for local switching. Consequently,  xwe prescribed rates for local switching in that investigation but did not otherwise examine the sufficiency of Beehive's accounting practices generally or with respect to rates that were not subject to that investigation.  S-x22.` ` We find additionally that we are not able to base a prescription on any of the operating expense or net investment figures submitted by Beehive. Without an explanation of its system of accounting, if it has employed one, and in light of the other concerns discussed above, we are not persuaded that we could, with any degree of certainty, determine that any rates based on Beehive's expenses and investments, as reported here, are just and reasonable. We will therefore disregard the cost and investment information that Beehive has filed in support of its 1998 access tariff filing and base our prescription on costs of comparable companies as described immediately below.  S- x23.` ` We prescribe Beehive's rates by computing a total interstate revenue requirement based on the average total plant in service and net investment of similar companies using the same sample of comparable telephone companies in NECA that we used in our 1997 access tariff  Si -investigation.@i P* SY-ԍx#X\  P6G;ɒP#See infra text at paragraph 4 and accompanying note 9. We then compute the ratio of this revenue requirement to the total intersta te revenue requirement reported in Beehive's Direct Case. The prescribed rates are then computed by multiplying each of Beehive's filed rates by this ratio. Under this approach we preserve the manner in which Beehive has allocated its costs between interstate and intrastate services and among the various traffic sensitive services. We additionally use Beehive's reported interstate minutes of use.  S7-x24.` ` Accordingly, as set forth in Table I attached hereto, we prescribe Beehive's interstate revenue requirement by first multiplying 25 percent ratio of total expense to total plant in service, by  S-the sample's average unseparated total plant in service of $3,773,709.lA* Sa-ԍ#X\  P6G;ɒP#xSee Table 1, line 1.l We derived the 25 percent factor by first calculating the average total operating expense to total plant in service ratio among  Sk-LECs with a comparable number of access lines as Beehive.|Bk * S-ԍx#X\  P6G;ɒP#See infra text at paragraph 4.| That ratio was 21.55 percent. To account for the possibility that Beehive is a high cost carrier, we used an expense to total plant in service ratio of 25%. This is the same approach we used in our investigation of Beehives 1997 access rates to calculate its expenses for purposes of our prescription, except that we now rely on the sample's average total plant in service, instead of Beehive's data, because we have found the Beehive data unreliable. The resulting operating expenses of $943,427 are multiplied by the interstate allocation factor of 0.6234, which is based on Beehive's reported ratio of interstate to total company  S-plant in service (for 1995 and 1996).hC0 * S$-ԍx#X\  P6G;ɒP#Table 1, line 6.h This results in the allowable interstate operating expenses of" C0*&&,,"  S-$588,130.hD* Sh-ԍx#X\  P6G;ɒP#Table 1, line 7.h The total company return on investment is calculated by multiplying the maximum authorized rate of return of 11.25% by the average interstate net investment for the companies in the  S-NECA sample of $2,244,584.iEh* S-ԍx#X\  P6G;ɒP#Table 1, line 10.i We multiply the resulting total allowed return of $252,516 by 0.4678, the ratio of Beehive's reported interstate net plant to total net plant, to compute allowed interstate  S4-return of $118,128.iF4* S-ԍx#X\  P6G;ɒP#Table 1, line 14.i The allowed interstate return is allocated between the two states for income tax  S-purposes by the percent of net plant in each state.jG* SI -ԍx#X\  P6G;ɒP#Table 1, line 11a.j This produces taxable income of $96,624 in Utah  S-and $21,504 in Nevada.jHH* S -ԍx#X\  P6G;ɒP#Table 1, line 14a.j Beehive reports average interstate fixed charges of $10,499 in Utah, and these are subtracted from $118,128 to calculate the interstate return subject to taxes, $107,629, of  Sh-which $86,125 is allocated to Utah.iIh* S-ԍx#X\  P6G;ɒP#Table 1, line 16.i Allowance for federal and Utah income taxes are computed,qJh * S-ԍ#X\  P6G;ɒP#xTable 1, lines 17 and 18.q and Beehive's average interstate customer operations expenses are added to form the total allowed  S-interstate revenue requirement of $824,965.K( * yO-  #X\  P6G;ɒP#эxWe note that the NECA Universal Service Fund data excludes customer operations expenses and also that Nevada does not have state income tax. The ratio of allowed to reported interstate revenue  S-requirement is 0.3401, which we multiply by Beehive's filed rates to calculate the prescribed rates.iL* S-ԍx#X\  P6G;ɒP#Table 1, line 22.i  Si -x25.` ` Based on these calculations, we prescribe for Beehive a premium local switching rate of $0.009607 per minute of use and a nonpremium local switching rate of $0.004323 per minute of use. We prescribe a premium local transport facility rate of $0.000181 per mile per minute of use and a nonpremium local transport facility rate of $0.000082 per mile per minute of use. For Beehive's local transport termination, we prescribe a premium local transport termination rate of $0.009179 and a non premium local transport termination rate of $0.004116. We will require Beehive to refund with interest the difference between these prescribed rates and the actual rates charged during the course of this investigation.  S-x26.` ` We find that prescribing rates that are based on the average cost and investment of companies with a comparable number of access lines as Beehive is consistent with our authority under Section 205(a) of the Act. Section 205(a) provides in pertinent part that, whenever "after full opportunity for hearing . . . the Commission shall be of opinion that any charge . . . of any carrier or carriers is or will be in violation of any of the provisions of this Act, the Commission is authorized" L0*&&,,R"  S-and empowered to determine and prescribe what will be the just and reasonable charge."nM* Sh-ԍx#X\  P6G;ɒP#47 U.S.C.  205(a).n As noted in  S-our previous orders where a similar methodology has been successfully implemented,Nh* S-ԍx#X\  P6G;ɒP#Beehive Tariff Investigation Order, Transmittal No. 6 at 8 (paras. 18, 19, 21), Table 1. courts have consistently found in the Act a Congressional intent to grant us broad discretion in "selecting methods  Sg-. . . to make and oversee rates."vOTg* S-  \ԍ#X\  P6G;ɒP#xPermian Basin Area Rate Cases, 390 U.S. 747 (1968). See MCI Telecommunications Corp. v. FCC, 675  {O- xF.2d 408, 413 (D.C. Cir. 1982), quoting Aeronautical Radio v. FCC, 642 F.2d 1221, 1228 (D.C. Cir. 1980), cert.  {O - xdenied, 451 U.S. 920 (1981). See also, Western Union Int'l v. FCC, 804 F.2d 1280, 1292 (D.C. Cir. 1986)(the court  xZstated that the FCC's judgment about the best regulatory tools to employ in a situation is entitled to considerable  xdeference from the "generalist" judiciary.); MTS and WATS Market Structure, CC Docket No. 7872, Phase I, Third  x,Report and Order, 93 FCC 2d 241, 259 (1983) (We stated that a prescribed rate is just and reasonable under Section  x205(a) if its represents the best approximation of a rate that satisfies all of the statutory requirements that this Commission can devise within a reasonable period of time.). v Courts, and federal agencies with authority to prescribe and oversee rates similar to our own, evaluate whether an established regulatory scheme produces rates that fall within a "zone of reasonableness" rather than insisting upon a single method of determining whether  S-rates are just and reasonable.Pl$ * S-  ԍ#X\  P6G;ɒP#xSee e.g., FERC v. Pennzoil Producing Co., 439 U.S. 508, 517 (1979); AT&T v. FCC, 836 F.2d 1386, 1390  {Oj- x(D.C. Cir. 1988), quoting, Jersey Cent. Power & Light v. FERC, 810 F.2d 1168, 1177 (D.C. Cir. 1987). See also  {O4-Wisconsin v. FPC, 373 U.S. 294, 309 (1963); FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 58586 (1942).  Sh-+  V. CONCLUSION AND ORDERING CLAUSES ă  S-x27.` ` For the reasons stated herein, WE FIND that the rates subject to this investigation and identified in this Order, of Beehive Telephone Company, Inc. and Beehive Telephone, Inc. Nevada are unlawful.  S6 -x28.` ` IT IS ORDERED that Beehive Telephone Company shall file tariffs within five  S -business days of the release date of this Memorandum Opinion and Order, establishing the premium and nonpremium local switching, local transport facility, and local transport termination rates prescribed herein.  S7-x29.` ` Accordingly, IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), 203, 204(a), and 205(a) of the Communications Act, 47 U.S.C.  4(i), 201(b), 203, 204(a), 205(a),  S-Beehive Telephone Company, Inc. and Beehive Telephone, Inc. Nevada SHALL REFUND to its access customers with compounded daily interest, the difference between the actual local switching, local transport facility, and local transport termination revenues they obtained between January 1, 1998 and the effective date of tariffs filed in response to this order for each rate element and the local switching, local transport facility, and local transport termination revenues that they would have obtained during this period based on rates prescribed in this Memorandum Opinion and Order. Interest shall be computed on the basis of interest specified by the United States Internal Revenue Service."l XP0*&&,,"Ԍ S-ԙx 30.` ` IT IS FURTHER ORDERED that Beehive Telephone Company must submit its plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority under Section 0.291 of the Commission's rules, 47 C.F.R.  0.291, within 30 calendar days of the release date of this Memorandum Opinion and Order.  S-x 31.` ` IT IS FURTHER ORDERED that pursuant to Section 204(a) of the Communications Act, 47 U.S.C.  204(a), the investigation instituted by the Common Carrier Bureau in CC Docket No. 97249 for Beehive Telephone Company, Inc. and Beehive Telephone, Inc. Nevada, Transmittal No. 8  Sh- IS TERMINATED. x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhMagalie Roman Salas  S -x` `  hhSecretary     S-  S -