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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 In the Matter of: ) ) AAD No. 95-67 ) BPS Telephone Co. ) Petition for Waiver of ) Section 69.605(c) ) of the Commission's Rules ) MEMORANDUM OPINION AND ORDER Adopted: March 27, 1997 Released: April 30, 1997 By the Chief, Accounting and Audits Division I. INTRODUCTION 1. On April 25, 1995 BPS Telephone Company Inc. ("BPS") filed a petition for waiver of Section 69.605(c) of the Commission's rules. BPS is seeking a waiver of our rules to permit it to convert from cost study settlements to average schedule settlements. BPS makes this request because, among other reasons discussed below in Section III, it believes that this waiver would serve the public interest by promoting cost-effective and responsive service to the subscribers in three newly purchased GTE exchanges in Missouri. After reviewing BPS's filings and the underlying record, we deny the petition. 2. On June 14, 1995, the Common Carrier Bureau ("Bureau") released a public notice soliciting comments on BPS's Petition. Comments were filed by United States Telephone Association and National Exchange Carrier Association. II. BACKGROUND 3. Section 69.605(c) of the Commission's rules states, in pertinent part, that "a telephone company that was participating in average schedule settlements on December 1, 1982, shall be deemed to be an average schedule company. " Average schedule status has certain advantages for small ILECs and for interstate ratepayers. Average schedule companies are able to avoid certain administrative burdens of performing interstate cost studies. The Commission has concluded, however, that an unrestricted opportunity for cost companies to convert to average schedule status is likely to operate to the detriment of interstate ratepayers because the conversion may result in inflated interstate revenue requirements. Hence ILECs may convert from an average schedule company to a cost company, but not from a cost company to an average schedule company without first obtaining a waiver. An ILEC must apply to the Commission for a waiver of the average schedule rule if it wishes to elect average schedule settlement status. 4. On December 22, 1982, the Commission adopted a comprehensive system of tariffed charges, generally known as the access charge plan, for the recovery of incumbent local exchange carrier (ILEC) costs associated with the origination and termination of interstate calls. The Commission's access charge rules also required the establishment of an association of exchange carriers to file tariffs and administer revenue pools on behalf of incumbent local exchange carriers. To fulfill this requirement, the ILECs formed NECA. Each company that participates in NECA charges rates appearing in that tariff. In the settlement process, each pool participant receives revenues from the pool to cover its cost of providing service plus a pro ratashare of the pool's earnings. NECA pool participants' costs are determined either on the basis of cost studies or average schedule formulas. 5. Prior to the implementation of the Commission's access charge rules, ILEC compensation arrangements were handled through private contractual agreements within the telephone industry. The industry's settlements mechanism based the amount of ILEC compensation on either ILEC cost studies or average schedule formulas that were developed using surrogate cost factors. Those formulas are based on company-specific variables such as the number of access lines or the number of switched interstate minutes. AT&T's divestiture of the Bell Operating Companies effectively eliminated the existing compensation system. To facilitate the implementation of its access charge rules, the Commission incorporated a modified version of the industry's existing average schedule arrangement into its access charge tariff scheme. The Commission defined average schedule companies as telephone companies that participated in average schedule settlements on December 1, 1982. 6. The Commission maintained the average schedule status of these ILECs based on the assumption that these small carriers lacked sufficient financial resources or expertise to justify a requirement that they perform jurisdictionally separated cost studies for determining their compensation in originating and terminating interstate telecommunications services. The average schedule procedure provided the advantage of reducing the costs imposed on small exchange carriers and borne, in part, by interstate ratepayers. While the Commission allowed small carriers to maintain their average schedule status, they were not required to do so. According to the Commission, "any exchange carrier that believes the average schedules do not provide appropriate compensation, however, is entitled to be compensated on a cost basis." III. REQUEST FOR WAIVER A. BPS Petition and Comments 7. BPS seeks this waiver to operate as an average schedule company. BPS argues that this waiver would serve the public interest by promoting cost-effective and responsive service to the subscribers in the small exchanges it serves and by allowing operating and administrative efficiencies. BPS maintains that operation as an "average schedule company" would permit BPS to avoid the significant burdens and costs of settling with NECA on a cost- basis. BPS states that allowing it to operate as an average shedule company would have a de minimus effect on its interstate revenue requirements. 8. According to BPS the three acquired exchanges were acquired from GTE without adequate financial supporting records, and to require that BPS develop these records would be overly burdensome. Moreover, BPS states that interstate burden would be augmented because BPS is not required to produce a cost study for intrastate settlement purposes in Missouri. Thus, if it were required to be a cost company, the entire expense of producing cost studies would be incurred for interstate operations only. 9. Comments were filed by NECA and USTA. Both commentors support the petition and argue that granting the waiver would reduce administrative expenses and would be in the public interest. B. Discussion 10. A petition for waiver of the Commission's rules may be granted for good cause shown. The Commission may exercise its discretion to waive a rule where particular facts would make strict compliance inconsistent with the public interest. The Court of Appeals has stated that a waiver may permit a more rigorous adherence to an effective regulation by allowing the agency to take into account considerations of hardship, equity, or more effective implementation of overall policy on an individualized basis, while also emphasizing that "[a]n applicant for waiver faces a high hurdle even at the starting gate." In WAIT Radio, the court explained that "[t]he very essence of a waiver is the assumed validity of the general rule...." Given the validity of the rule, the test identified in Wait Radio requires the party seeking the waiver to demonstrate that the rule is unjust as applied to the party given the unique circumstances of the situation. Waiver is thus appropriate only if special circumstances warrant a deviation from the general rule and such deviation will better serve the public interest than adherence to the general rule. Therefore, the test for whether petitioner may be granted a waiver is whether it has shown such special circumstances as individualized hardship or inequity that warrant deviation from our rule that cost companies may not change from cost-based settlements to average schedule settlements absent waiver of Section 69.605 of the Commission's rules. 11. BPS has shown no special circumstances to warrant a deviation from the general rule. As a cost company, BPS will recover all of its legitimate interstate costs, including the interstate portion of costs associated with performing the cost studies and a fair return on its investment, through the NECA pools. Therefore, we find no individual hardship or inequity that justifies waiver of the rule. In addition, as BPS states, the interstate rates charged by BPS would be nearly identical whether BPS settles with NECA on a cost or average schedule basis. For this reason, we further find that BPS has not demonstrated that grant of its requested waiver would better serve the public interest than adherence to the general rule. We therefore deny the petition of BPS. IV. ORDERING CLAUSE 12. Accordingly, IT IS ORDERED, pursuant to the authority that is contained in Sections 0.91, 0.291 and 1.3 of the Commission's rules, 47 C.F.R.  0.91, 0.291 and 1.3 that BPS's Petition for Waiver of Section 69.605(c) IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division Common Carrier Bureau