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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 ) ) Citizens Utilities Company ) Petition for Waiver of )AAD 96-4 Sections 43.21, 43.22, 64.903 and 64.904) of the Commission's Rules ) ORDER Adopted: June 26, 1997Released: June 27, 1997 By the Chief, Accounting and Audits Division: I. INTRODUCTION 1.On December 4, 1995, Citizens Utilities Company ("Citizens") filed a petition for waiver of the Commission's automated reporting management information systems ("ARMIS") reporting requirements, the cost allocation manual ("CAM") filing requirement, and the Part 64 annual independent audit requirement. Citizens requests that it be treated as a holding company and its telephone operating divisions, which individually have revenue below the $100 million revenue reporting threshold, be treated as separate entities for the purposes of the ARMIS and CAM filing requirement and the independent audit requirement for the 1995 reporting year. On February 23, 1996, the Bureau solicited comment on Citizens' petition. No comments were filed. The United States Telephone Association (USTA), however, filed reply comments in support of Citizens' petition. In this Order, we grant the petition for waiver. II. BACKGROUND 2.Sections 43.21, 43.22, 64.903 and 64.904 of the Commission's rules contain filing requirements for incumbent local exchange carriers with annual operating revenues of $100 million or more indexed to inflation. Sections 43.21 and 43.22 contain the Commission's ARMIS reporting requirements. The ARMIS reporting requirements were established by the Commission to facilitate the timely and efficient analysis of carrier operating costs and rates of return, to provide an improved basis for audit and other oversight functions, and to enhance the Commission's ability to quantify the effects of alternative policy proposals. Sections 43.21 and 43.22 require subject carriers to file with the Commission reports containing data on their accounting, cost allocation, separations, and access charge results. 3.Sections 64.903 and 64.904 contain requirements related to the carriers' allocation of costs between their regulated and nonregulated operations. Section 64.903 requires carriers to file with the Commission CAMs which describe the procedures they use to allocate costs between their regulated and nonregulated operations. Section 64.904 requires carriers that file CAMs with the Commission to have annual independent audits on the results of their cost allocation procedures. 4. Citizens is a diversified utility company with gas, water, electric and wastewater operations in addition to its telephone operations. Citizens' corporate structure is complex. While many of its utility operations are structured as divisions of the parent company, other utility operations, including most telephone operations, are structured as separate subsidiaries of Citizens. The Commission's Part 43 and 64 filing requirements contain no provisions that exempt a carrier from certain filing requirements when it structures its telephone operations as divisions of a parent company. III. PETITION 5.In its petition, Citizens stated that while most of its telephone operations are conducted through separate subsidiaries, its Tennessee, West Virginia and Arizona telephone operations are structured as separate divisions of the parent company. Citizens stated that the annual operating revenue of each telephone division does not meet the Commission's revenue reporting threshold for ARMIS and CAM reporting requirements and the independent audit requirement. The revenue of the parent company, which includes gas, water, electric and wastewater divisions in addition to telephone operating divisions, exceeds the revenue reporting threshold. Since these telephone operations are structured as divisions of the parent company, the parent company, based on its revenue, must comply with the Commission's Part 43 and 64 reporting requirements. Citizens claimed that these requirements would be burdensome to its telephone operating divisions and would subject the entire parent company, which includes utilities regulated by other state and federal agencies, to a costly annual independent audit. Citizens stated that all of its telephone operations, including the divisions subject to this waiver, follow the Commission's Parts 32 Uniform System of Accounts and 64 cost allocation procedures. 6.In its petition, Citizens' stated that it planned to restructure all of its telephone operating divisions as separate companies by 1996. Citizens claimed that the annual operating revenue of these restructured companies individually would not meet the Commission's revenue reporting threshold. Citizens requests that its telephone divisions be treated as separate entities for compliance with the Commission's ARMIS and CAM filing requirements and the independent audit requirement for the 1995 reporting year. 7.On April 10, 1996, Citizens informed us that its Tennessee telephone operating division had been restructured as a separate subsidiary in 1995. It also provided 1995 revenue figures for its Arizona and West Virginia telephone divisions. As reported, the 1995 revenue from Citizens telephone operations did not exceed the revenue reporting threshold in any single telephone operating division; however, the combined revenue of these telephone operating divisions exceeded the indexed revenue threshold for 1995. On April 27, 1997, Citizens submitted a letter stating that the restructure of its West Virginia and Arizona telephone operations became effective April 30, 1996, and December 31, 1996, respectively. IV. DISCUSSION 8.We grant Citizens' request for waiver to the extent that it was required to comply with the Commission's ARMIS and CAM filing requirements and the independent audit requirement for the 1995 reporting year. Citizens acquired these telephone operating divisions in 1994 and restructured them into separate companies by 1996. Citizens states that the operating revenue of the newly restructured companies will not reach the Commission's operating revenue threshold in the foreseeable future. We find that requiring Citizens to incur substantial costs to implement ARMIS reporting and to engage an independent auditor for the 1995 reporting year would be unduly burdensome and not in the public interest. Although we waive these reporting requirements for the 1995 reporting year, in the event that the operating revenue of a restructured telephone company reaches the revenue reporting threshold, that company will be fully subject to the Commission's ARMIS and CAM reporting requirements and the annual independent audit requirement. V. ORDERING CLAUSE 9.Accordingly, IT IS ORDERED, pursuant to Sections 4(i) and 5(c) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i) and 155(c) and Sections 0.91 and 0.291 of the Commission's Rules, 47 C.F.R. 0.91, 0.291, that Citizens Utilities Company Petition for Waiver of Sections 43.21, 43.22, 64.903 and 64.904 of the Commission's Rules for the 1995 reporting year IS GRANTED. FEDERAL COMMUNICATIONS COMMISSION Kenneth P. Moran Chief, Accounting and Audits Division