WPC< 2 BT Z w (TT)3|P/C\  P6QPHP LaserJet IIISiHPLAIISI.WRSC\  P6Q,,,!onP20@@VLTimes New Roman (TT)"5@^*7DTT77T^*7*/TTTTTTTTTT//^^^Jxooxf\xx7Axfxx\xo\fxxxxf7/7NT7JTJTJ7TT//T/TTTT7A/TTxTTJP!PZ*7777BE7TTxJxJxJxJxJooJfJfJfJfJ7/7/7/7/xTxTxTxTxTxTxTxTxTxTxJxTxTxTxTxT\TxTxJxJoJoJoJfJfJfJxTxTxxTxTxTxTBT7T777TAxTf/fExTxTxTxo7oE\A\AN:*KT7JTTTTT.3}}T2T}277JJT77TT7J72t7[[[[^ee*B`^-wSTTn[Cfx`xWkRx[\[ceIfIs`Wx[rriwhe*7DTT77T^*7*/TTTTTTTTTT//^^^Jxooxf\xx7Axfxx\xo\fxxxxf7/7NT7JTJTJ7TT//T/TTTT7A/TTxTTJP!PZ7TJTT7\777JJ:T7A7xx*7TTTT!T7.T^7TB[227`K*723T}}}Jxxxxxxoffff7777xxxxxxx^xxxxxx\TJJJJJJoJJJJJ////TTTTTTT[TTTTTTT I. A. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)2m 3b@X@- Times New Roman (TT)Times New Roman (Bold) (TT)"5@^*7\TT/77T_*7*/TTTTTTTTTT77___TxoxxofAToxfx\oxxxxo7/7aT7T\J\J7T\/7\/\T\\JA7\TxTTJB%BW*7777BE7T\xTxTxTxTxTxxJoJoJoJoJA/A/A/A/x\TTTTx\x\x\x\xTxTx\TTxTxTf\xTxTxTxJxJxJoJoJoJTTTT\\B\A\A7A\T\o/oEx\x\TxxJxJ\A\AN:*ZT7TTTTTT27}}T2}}T}277TTT77TT7T72t7[[[[_ee*B`_-wSTTn[Cfx`xWkRx[\[ceIfIs`Wx[rriwhe*7\TT/77T_*7*/TTTTTTTTTT77___TxoxxofAToxfx\oxxxxo7/7aT7T\J\J7T\/7\/\T\\JA7\TxTTJB%BW7TTTT7\777TT:T7A7xx*7TTTT%T7}2T_7}TB[227`Z*727T}}}TxxxxxxxooooAAAAxx_xxxxxf\TTTTTTxJJJJJ////T\TTTTT[T\\\\T\y.C8*,/C\  P6QP.y.G8*,`G4  pQ7PC2,CXP\  P6QXP.7UC2,XU4  pQX"5@^2BRdd$BBdq2B28dddddddddd88qqqYzoBNzoozzB8B^dBYdYdYBdd88d8ddddBN8ddddY`(`l2BB!BBPRBddYYYYYYzYzYzYzYB8B8B8B8ddddddddddYdddddoddYYYYYzYzYzYddddddPdBdBBBdNdz8zRdddBRoNoNNF2ZdBYddddd7>d<d<BBYYdBBddBYBdYzzzzBBBBqodYYYYYYYYYYY8888dddddddnddddddd2@ FdvpU"5@^2Boddȧ8BBdr2B28ddddddddddBBrrrdzNdzoȐB8BtdBdoYoYBdo8Bo8odooYNBodddYO,Oh2BB!BBPRBdodddddȐYYYYYN8N8N8N8oddddooooddoddddzodddYYYYYYddddooPoNoNBNodo8RoodȐYYoNoNNF2ldBddddddd<d<BBoodBBddBoBddzzzzzzzzzzBBBBozdddddddYYYYY8888dddddddndddddYdy.C8*,/C\  P6QP.y.G8*,`G4  pQ7PC2,CXP\  P6QXP.7UC2,XU4  pQX5PC2,3fXP*f9 xQXXW!0(,߳h0\  P6QhPI(!,ϯ,(\  P6Q,P2<@/@2@6\Y9"5@^(1<0ЍqMO&O, 11 FCC Rcd at 4677.` The Bureau explained that the determining factor is whether the service is recorded in a regulated or nonregulated set of books; a nonregulated service provided to a carrier's nonregulated  YX0affiliate is governed by the affiliate transactions rules only if it is recorded in a regulated set  YC0of books.C : xPt 0ЍqThe Bureau gave two "good reasons" for this finding. First, costs recorded in regulated accounts for transactions between a carrier and its nonregulated affiliates may affect the overall apportionment of costs between regulated and nonregulated activitiesparticularly when such costs become the basis for allocating other costs. Second, these transactions potentially can lead to crosssubsidies because they can be links in  xP#0transactional chains that result in inflated costs being recorded in other Part 32 accounts. See MO&O, 11 FCC Rcd at 4678. Consequently, the affiliate transactions rules would not apply to transactions"C0*%%ZZ " where a carrier provides a nonregulated activity to an affiliate and the carrier records that  Y0nonregulated activity in a separate set of books.D: zPb0Ѝq47 C.F.R.  32.23(b). A carrier uses nonregulated books when it provides a nonregulated activity that  zP,0does not involve the joint and common use of assets or resources with its regulated activities. See MO&O, 11 FCC Rcd at 4678. In such situations, a carrier will create a separate division in order to record nonregulated  xP0transactions on a separate set of books. For example, an asset transferred from the regulated books to a division's nonregulated books would require two accounting entries: one on the regulated books to remove the asset and show an increased investment in the division and one on the division's books to record the asset and to record its increased net worth. We note that transactions between a carrier and a division that keeps a separate set of books are subject to our affiliate transactions rules pursuant to Section 32.23(b).      X0>  III. COMMENTS AND DISCUSSION Đ?K  Y0q 6. ` ` On May 21, 1996, Southwestern Bell filed an application for review of the MO&O. The gravamen of Southwestern Bell's application is that the Bureau erroneously applied the affiliate transactions rules to nonregulated services recorded in regulated books of account. The arguments presented in Southwestern Bell's application are essentially similar to those raised in its earlier petition for reconsideration. Specifically, Southwestern Bell argues that the Bureau "has exceeded the proper scope of its delegated authority" by attempting to change the affiliate transactions rules without complying with the notice and  Y 0comment procedures required by the Administrative Procedures Act ("APA"). : xPr0ЍqSee supra. note 3. See also Southwestern Bell AFR at 2. ğ  Y 0Furthermore, Southwestern Bell argues that the Citizens CAM Order is inconsistent with the  Y 0Joint Cost Order, the United Order,V d : xP0ЍqSouthwestern Bell AFR at 3.V and the Commission's Affiliate Transaction NPRM.HX : xPf0ЍqAmendment of Parts 32 and 64 of the Commission's Rules to Account for Transactions Between  xP.0Carriers and Their Nonregulated Affiliates, Notice of Proposed Rulemaking, CC Docket No. 93251, 8 FCC  xP0Rcd 8071 (1993).Hք GTE, the Sprint LECs, BellSouth, USTA, and Pacific filed comments in support of Southwestern Bell's application and raise no additional arguments. US West, APCC and California Cable filed replies. US West supports Southwestern Bell's position; APCC and CCTA oppose Southwestern Bell's Application.  Y90q 7. ` ` Southwestern Bell bases its argument on its interpretation of 47 C.F.R. Section 32.27, which states in pertinent part: " 0*%%ZZ`"Ԍ Y0  Services provided by an affiliate to the regulated activity, when the same services are also provided by the affiliate to unaffiliated persons or entities,  Y0shall be recorded at the market rate.y xPM0Ѝq47 C.F.R.  32.27(d) (emphasis added by Southwestern Bell).y   Southwestern Bell cites this provision for the proposition that only transfers between affiliates  Y0and the carrier's regulated operations or vice versa fall under the purview of Section 32.27.VX: xP0ЍqSouthwestern Bell AFR at 4.V According to Southwestern Bell, "[i]f Citizens receives services from a nonregulated affiliate which are not used in connection with a regulated activity of Citizens, then Section 32.27  YJ0does not apply."JJ: xP 0ЍqId.J Southwestern Bell asserts that the Citizens CAM Order represents a  Y50material shift in the policy of the Bureau because the Order would require that all transactions with affiliates comply with Section 32.27, even if the service provided to the affiliate involves a nonregulated activity. In support of its argument, Southwestern Bell cites  Y 0the Joint Cost Order and the United Order for additional authority that nonregulated services provided to a carrier's affiliates are beyond the reach of the affiliate transactions rules.  Y 0q 8. ` ` In general, the affiliate transactions rules define how a carrier must record  Y0affiliate transactions in its regulated books of account. With respect to services, the rules are specifically designed to prevent a carrier from circumventing the Part 64 cost allocation rules by providing services to affiliates at unreasonably low rates or receiving services from affiliates at unreasonably high rates, which may have the effect of transferring overstated expenses to the ratepayer to the advantage of the carrier and its affiliates. This objective is accomplished by prescribing the method by which carriers must value transactions regarding services furnished to affiliates. The Commission's rules merely establish the method by which a carrier must record these transactions on its books of account; the affiliate transactions rules do not govern the actual price the carrier charges its affiliates for these services.  Y0q 9. ` ` Carriers regularly provide both regulated and nonregulated services to their affiliates. All transactions that occur between a carrier and its nonregulated affiliates are subject to the affiliate transactions rules. This includes transactions involving the provision of nonregulated services to nonregulated affiliates. We note, however, that when a transaction is conducted between two nonregulated affiliates of the same carrier, the transaction is not governed by our rules. Similarly, when a carrier's nonregulated division conducts a transaction with a nonregulated affiliate and records the transaction on nonregulated books of account, the transaction is not subject to our affiliate transactions"x0*%%ZZ`"" rules. The general rule thus can be stated as follows: when both parties to a particular transaction are nonregulated and the transaction is not recorded in regulated books of accounts, the transaction is not subject to our affiliate transactions rules. This differs from our treatment of transactions conducted between a regulated carrier and a nonregulated  Y0entity, whether it be a nonregulated affiliate or a nonregulated division.b: xP0ЍqFormerly the affiliate transactions rules did not apply to transactions between two regulated affiliates. In a recent Report and Order, however, the Commission changed the affiliate transactions rules to apply the  xP0rules, in some cases, to transactions between regulated affiliates. See Implementation of the  xPu0Telecommunications Act of 1996: Accounting Safeguards Under the Telecommunications Act of 1996, Report  xP= 0and Order, CC Docket No. 96150, FCC 96490 (rel. Dec. 24, 1996).b Such transactions are subject to our affiliate transactions rules in accordance with the principles outlined above.  YH0q  10. ` ` A carrier may conduct a nonregulated activity through a division within its  Y20company using a separate, nonregulated set of books only if the activity does not share assets and resources with the regulated entity. A transaction that uses the carrier's common (or joint) assets or resources in the provision of a nonregulated service to a nonregulated affiliate must be recorded in regulated accounts pursuant to Section 32.23(c) of our rules and is also subject to the affiliate transactions rules.  Y 0q  11. ` ` This finding does not change or reinterpret the existing rules. Section 32.23(c) states that "[w]hen a nonregulated activity does involve the common or joint use of assets and resources in the provision of regulated and nonregulated products and services, carriers shall account for these activities within accounts prescribed in this system for telephone  YM0company operations."SMx: xPv0Ѝq47 C.F.R.  32.23(c).S Those accounts are regulated accounts.GXM: xP0ЍqThe costs of providing nonregulated services, when those services use common (or joint) assets or resources, are recorded in the carrier's regulated books of account and are allocated to the nonregulated activity using the Commission's Part 64 cost allocation rules. G As used here, the phrase "joint or common assets and resources" describes those assets and resources used to provide  Y0both regulated and nonregulated activities.( : xP0Ѝq#C\  P6QP#See MO&O, 11 FCC Rcd at 4766, n. 21. The Bureau's finding in the MO&O, and restated here, is a correct interpretation of Section 32.23(c).  Y0q  12. ` ` The proper interpretation was articulated by the Joint Cost Order proceeding  Y0and the United Order. Specifically, the Bureau's Order on reconsideration of the Joint Cost  Y0Order stated that "[t]he operation of the affiliate transaction rules applies . . . to transactions" 0*%%ZZ`"  Y0between regulated and nonregulated entities[.]"{: xPy0ЍqJoint Cost Reconsideration Order, 2 FCC Rcd at 6296.{ The United Order then clarified this finding by drawing a distinction between transactions recorded in regulated versus nonregulated  Y0accounts. The United Order stated, as we do here, that only those services recorded in a  Y0carrier's regulated books of account are governed by the requirements of Section 32.27.X: xP0ЍqUnited Telephone Companies' Permanent Cost Allocation Manual for the Separation of Regulated and  xP0Nonregulated Costs, Order, 7 FCC Rcd 4370, 4371 (Com. Car. Bur. 1992).  Y0 We also note that, contrary to Southwestern Bell's argument, the Affiliate Transaction NPRM merely sought to clarify the Bureau's position that the Commission's rules apply to transactions involving nonregulated activities and did not attempt to change or reinterpret a  Ye0previously existing rule.ze: xP 0ЍqAffiliate Transaction NPRM, 8 FCC Rcd 8071 at 8108.z  Y70q  13. ` ` Based on the foregoing, we find no basis to conclude that the Bureau erred when it required Citizens to report in its CAM transactions for nonregulated services provided to nonregulated affiliates. The Bureau applied the Commission's rules consistently in accordance with the requirements of Sections 32.23 and 32.27. The application of the affiliate transactions rules depends on whether the transaction is recorded in the carrier's Part 32 books of account or in a separate nonregulated set of books rather than on the nature of  Y 0the transaction. Thus, any transaction between a carrier subject to Part 32 and its nonregulated affiliate is governed by the affiliate transactions rules when the transaction is recorded in a regulated account.  YT0q  14. ` ` For these reasons, the Citizens CAM Order and subsequent MO&O do not change the Commission's policy governing the treatment of nonregulated services provided to nonregulated affiliates. Instead, they are consistent with prior interpretation of the Commission's longstanding policy on this subject. For this reason, the Bureau was not required to comply with the notice and comment procedures under the APA.  X0? "@0*%%ZZ`"  X0=IV. ORDERING CLAUSE Đ?K  Y0q 15. ` ` Accordingly, IT IS ORDERED, pursuant to Sections 5(c)(5), 218, and 220 of the Communications Act of 1934, as amended, 47 U.S.C. 155(c)(5), 218, and 220, and Section 1.115 of the Commission's rules, 47 C.F.R. 1.115, that the Application for Review filed by the Southwestern Bell Telephone Company is DENIED.  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