WPC 2MB;RKZ3|j X0#Xj\  P6G;ynXP#"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""\4  pG;sW!@(#,h@\  P6G;hPtH5!,),5\  P6G;,P\u{,W80,%BZW*f9 xr G;X\5hC:,%rXh*f9 xr G;XX7jC:,ynXj\  P6G;XP7nC:,Commission's rules. These rules govern the allocation of loop costs between the state and  X-  jinterstate jurisdictions. yO'-ԍA loop consists of cable and wires and associated circuit equipment between customer premises and the serving local switch. The transition was designed to change a carrier's loop allocation from   the traffic sensitive subscriber plant factor (SPF) to a flat rate 25 percent interstate allocation factor.  X0-  Q2.` ` The Order's interpretation rejected the guidance provided and enforced by the  X-  National Exchange Carrier Association (NECA) for reporting of pool settlement data.XB yO !-ԍNECA is responsible, under Subpart G of Part 69 of our rules, for administering the interstate access charge pools. NECA's Cost Issues Manual provides guidance to ensure that data reported to the pools comply with Commission rules. In   !response to the Order, NECA issued two letters stating that, to comply with the Order's  X-  interpretation, certain carriers must adjust monthly settlement data for the period from April 1994"b 0*''ZZm"  X-  to the present.= yOy-ԍLetter from NECA to All Cost Companies (March 27, 1996); Letter from NECA to All Cost Companies (April 23, 1996). On April 22, 1996, GVNW Inc./Management (GVNW), on behalf of itself and   its clients, filed a Motion for Partial Stay of the retroactive application of the Order. That Motion  X-was granted on May 22, 1996.l\ = yO-ԍFlorida Public Service Commission, Request for Interpretation of the Applicability of the Limit on  {Ok-Change in Interstate Allocation, Section 36.154(f) of the Commission's Rules, Order Granting Motion for Partial  {O5-Stay, DA 96405 (Accounting and Audits Div. May 22, 1996).l  X-  3.` ` On April 22, 1996, the Commission also received the following submissions in   response to the Order: Applications for Review from GVNW, the National Telephone   Cooperative Association (NTCA), and TriCounty Telephone Association, Inc., (TCTA) jointly   with TCT West, Inc. (TCTW); a Request for Clarification from the Organization for the   Promotion and Advancement of Small Telecommunications Companies (OPASTCO); Requests   for Clarification or Reconsideration from NECA and John Staurulakis Inc., (JSI); and a Petition for Reconsideration from TCA Inc., (TCA).  X -  54.` ` On May 2, 1996, MCI Communications Corporation (MCI) submitted an   zOpposition to the above pleadings. Also on May 2, the Sprint Local Telephone Companies   (SPRINT) submitted an Opposition in part to NTCA's application. On May 6, 1996, the   Commission issued a Public Notice soliciting comments from interested parties. We received  X-comments from 39 partiesD= yO-ԍComments were filed by the United States Telephone Association (USTA), the Florida Public Service Commission (Florida PSC), Cathey, Hutton and Associations (CHA), ICORE, Inc. (ICORE), the Colorado Independent Telephone Association (CITA), the Montana Telephone Association (MTA), ALLTEL Telephone Services Corporation (ALLTEL), the Rural Telephone Finance Cooperative, the Coleman County Telephone Cooperative, NECA, JSI, TCA and GVNW. Sixteen of GVNW's client companies filed essentially a form response supporting GVNW's petition. These parties are listed in Appendix A. Ten of JSI's clients filed a form response urging the Commission not to apply the order retroactively. These parties are listed in Appendix B. Thirty eight of GVNW's clients filed comments which were either received late or were not received by the Secretary's Office. These parties are listed in Appendix C. and reply comments from 7 parties.X= yOU-ԍReply comments were filed by the Rural Utilities Service of the U.S. Department of Agriculture (RUS), the Wyoming Public Service Commission (Wyoming), AT&T Corporation (AT&T), MCI, NECA, NTCA and GVNW. "y40*%%ZZK"Ԍ X-  A5.` ` The petitions and comments raise three issues: whether the Order's interpretation  X-  of the five percent limit is correct; whether the Order must be applied retroactively; and how  X-study area$= yOK-ԍA study area is a geographical segment of a carrier's telephone operations. Generally, a study area  {O-corresponds to a carrier's entire service territory with a state. See U S West Communications, Inc. and Eagle Telecommunications, Inc., Joint Petition for a Waiver of Definition of "Study Area" Contained in Part 36,  {O-AppendixGlossary of the Commission's Rules, Memorandum Opinion and Order, 10 FCC Rcd 1771 (1995). changes affect the operation of the SPF transition rules.  X-  II. LIMIT ON CHANGE IN INTERSTATE ALLOCATION lU  Xv- A.Background  XH-  6.` ` The procedures for allocating loop costs between the state and interstate   jurisdictions are set forth in sections 36.154(a) through (f) of our rules. Prior to 1982, these costs   were allocated using a traffic sensitive interstate allocation factor known as the subscriber plant  X -  factor (SPF).v  = {Oh-ԍSeparations Procedures, Docket No. 18866, 26 FCC 2d 247 (1970).v By the early 1980's, increases in relative interstate usage caused carriers' SPFs  X -  to escalate rapidly, reaching 85 percent for some carriers.n Z F= {O-ԍFor each local exchange carrier, the Separations Manual rendered SPF as equal to .85 SLU + (2SLU x CSR), with SLU (subscriber line usage) as a measure of relative use and CSR (composite station rate) as a factor related to interstate toll rates at the carrier's average length of haul for interstate toll calls.n As a result, the Commission decided to reevaluate its allocation procedures.  X -  a7.` ` In a series of proceedings,X  h = {O-ԍSee Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, Decision  {O-and Order, CC Docket No. 80286, 89 FCC 2d 1 (1982) (adopting Joint Board's recommendation to freeze SPF  {OT-at 1981 levels); Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, Decision  {O-and Order, CC Docket No. 80286, 96 FCC 2d 781 (1984) (adopting Joint Board's recommendation to establish a fixed 25 percent interstate allocation factor to be phased in over four years with a maximum reduction in a carrier's interstate allocation factor of ten percentage points per year); MTS and WATS Market Structure and  {Ox-Amendment of Part 67 of the Commission's Rules and Establishment of a Joint Board, Decision and Order, CC Docket Nos. 7872 and 80286, 50 Fed. Reg. 939 (December 1984) (increasing transition period from four to eight years with a maximum reduction in a carrier's interstate allocation of five percentage points per year.)X the Commission instituted a flatrate 25 percent   interstate allocation factor that would be phased in during an eightyear period, 1986 to 1993,   subject to the limitation that a carrier's transitional interstate allocation factor would not decrease   more than five percent each year (SPF transition). Concurrent with the institution of the SPF   [transition, the Commission established the universal service fund (USF) that allows incumbent   local exchange carriers (ILECs) with high local loop costs to allocate a portion of those costs to"4B 0*%%ZZ "  X-  the interstate jurisdiction. = yOy-ԍ47 C.F.R. Part 36, Subpart F. The USF enables state jurisdictions to establish lower local exchange rates in study areas receiving such assistance. The USF was phased in during the same eightyear transition period  X-  as the SPF transition.  = yO-ԍWhile a variety of circumstances extended the duration of the SPF transition, the USF transition was a fixed duration and was complete for all carriers in 1993. The SPF transition's five percent limit on the change in interstate   -allocation measured the combined impact of both the SPF transition and USF transition. Carriers   with very high SPFs were directed to extend their transition, subject to the five percent limitation,  X-until the 25 percent allocation was reached.x= {O -ԍAmendment of Section 36.154 of the Commission's Rules, Memorandum Opinion and Order, 6 FCC Rcd. 1873 (1991).  Xv-  8.` ` In a letter dated May 12, 1995, the Florida PSC requested an interpretation of the   Lapplicability of the five percent limit on the change in interstate allocations after 1993 and after   La study area's interstate allocation factor has reached a level of 25 percent pursuant to the SPF   transition. The Florida PSC stated that, in its view, the purpose of section 36.154(f) was to   .mitigate potentially large intrastate cost shifts and thereby to help stabilize a carrier's earnings and rates. According to the Florida PSC, that purpose remained valid after 1993.  X -  9.` ` Essentially, the Florida PSC sought to confirm that the interpretation set forth by  X -  NECA, in its February 1991 Cost Issue 5.3, was correct. z = yOA-ԍALLTEL states that the Florida PSC's petition was based on a matter involving ALLTEL Florida and the Florida PSC. ALLTEL Florida completed the transition to 25 percent in 1993. Apparently, the Florida PSC, based on NECA's interpretation, believed the five percent limit was still applicable and directed ALLTEL Florida to adjust its pool reporting and underlying cost studies accordingly. ALLTEL reports that NECA overrode the pool reports and resultant settlement flows for those LECs who did not agree with NECA's interpretation. ALLTEL reports that ALLTEL Florida and the Florida PSC agreed that the Florida PSC would  {O-ask the Commission which interpretation was correct. See ALLTEL comments at 2.  NECA there stated that the five   percent limit found in section 36.154(f) was to be applied on a yeartoyear basis until the rule  X-  ywas eliminated.= yOU-ԍNECA Cost Issues Manual, Issue No. 5.3, The Five Percent Limitation Rule, page 3. Based on NECA's interpretation, carriers that had completed the transition to   a 25 percent allocation nevertheless increased their interstate allocations to offset the impact of  Xb-  study area changes and reductions in USF payments.Db= yO!-ԍNECA petition at 2.D The Order, however, clarified that the   overriding purpose of the transition was to establish a 25 percent interstate allocation factor and   that, once a carrier had reached a 25 percent allocation, nothing in the rules would permit it to change. "40*%%ZZ)"Ԍ X-ԙ B.Positions of Parties  X-   10.` ` GVNW, NTCA and TCTA/TCTW contend that the Order's interpretation of   section 36.154(f) conflicts with the language of the rule, the policy behind it, and previous   .reliable interpretations. They state that the overall purpose of reaching a 25 percent interstate  X-  allocation factor cannot be discerned from the language of section 36.154(f).= yO-ԍGVNW application at 7; TCT application at 5; NTCA application at 3 and reply comments at 2. Instead, they   argue that the rule is intended to smooth ongoing fluctuations in interstate allocations resulting  X_-from reductions in USF support._X= yOh -ԍGVNW application at 9, comments at 3 and reply comments at 5; NTCA application at 3 and reply comments at 2.  X1-  A 11.` ` NECA, JSI and others maintain that NECA's former interpretation was reasonably  X -  /supported by the rule language and prior Commission decisions. = {O{-ԍNECA petition at 2; JSI request at 2 and comments at 4, TCA comments at 2. See also Florida PSC comments at 1; CHA comments at 2; ICORE comments at 4; USTA comments at 4. In fact, the Florida PSC   >observes that the Order does not cite any provision prohibiting the applicability of the five   percent limit after 1993 and after a study area has reached the 25 percent interstate allocation  X -  factor.K = yO-ԍFlorida PSC comments at 3.K It claims the test may still be used to limit fluctuations in interstate allocations.: = {O -ԍId.: Other   commenters assert that NECA's interpretation better reflects the purposes of the rule to  X -  [promote and develop a more competitive market and foster universal service goals.v , = yO-ԍMTA comments at 2; CITA comments at 2; Wyoming reply comments at 12.v Many of   GVNW's clients individually submitted financial impact data to support GVNW's application.   These small ILECs warn that they may "review future construction plans to avoid significant   irevenue shortfalls which will occur" as a result of the Order's interpretation and the "inherent lag"  XK-in USF support.xK = {O-ԍSee comments submitted by companies listed in Appendices A and C.x  X-  A 12.` ` Sprint, MCI, ALLTEL and AT&T support the Order's interpretation.N = yO"-ԍSprint opposition at 1; MCI opposition at 1 and reply comments at 1; ALLTEL comments at 3; AT&T reply comments at 1. They base   [their support on the language of the rule and observe that the method for determining whether  X-  -the interstate allocation has decreased is based on the transitional allocations set forth in section"0*%%ZZ "   36.154(d). They note that, because the transitional allocations expired in 1992, it is impossible  X-  jto calculate the five percent limit using the method required by section 36.154(f).= yOb-ԍMCI opposition at 4 and reply comments at 3; Sprint opposition at 3; and AT&T reply comments at 3.  {O*-See also ALLTEL comments at 2. In addition,   AT&T and ALLTEL argue that previous Commission decisions support the Order's  X-interpretation.`"= yO-ԍAT&T reply comments at 5; ALLTEL comments at 3.`  X- C.Discussion  X_-   13.` ` Section 36.154 sets forth the apportionment procedures for Exchange Line Cable   and Wire Facilities Category One. Sections 36.154(c) through (f) pertain to Subcategory 1.3:  X1-  <"subscriber or common lines that are jointly used for local exchange service and exchange access  X -  for state and interstate interexchange services."J = yO}-ԍ47 C.F.R.  36.154(a).J Section 36.154(c) provides that "except as   provided in  36.154(d) through (f), effective January 1, 1986, 25 percent of the costs assigned  X -  yto subcategory 1.3 shall be allocated to the interstate jurisdiction."J B= {O-ԍId.  36.154(c).J Subsection (e) describes   jhow to calculate the SPF and subsection (d) supplies the mathematical formula to apply during  X -the transition from the SPF to the 25 percent interstate allocation factor.  = yOC-ԍThe eightyear transition period, beginning in 1986, was originally codified in Section 67.124(d)(6) of the Commission's rules. When the Part 36 rules for jurisdictional separations replaced those in Part 67, effective January 1, 1988, the transition had been in effect for two years. Thus, the transition plan currently codified in Section 36.154(d) begins with the year 1988.  X-   14.` ` Section 36.154(f) is the source of petitioners' dispute. Captioned "Limit on Change in Interstate Allocation," subsection (f)(1) provides that:  XNo study area's percentage interstate allocation for Subcategory 1.3 Exchange Line  C&WF and COE, Exchange Line Circuit Equipment Excluding Wideband  Category 4.13 investment as well as associated maintenance and depreciation shall  2decrease by a total of more than five percentage points from one calendar year to  #the next as a result of the combined operations of  36.154(d) and 36.641(a) and  X-(b).S = yOE#-ԍ47 C.F.R.  36.154(f)(1).S   X-"L 0*%%ZZ"Ԍ  .The Order explains that section 36.154(f) was adopted for the limited purpose of mitigating the  X-  <yeartoyear impact of the transition from SPF to the 25 percent interstate allocation factor.< = yOb-ԍOrder at 5.< The   Order states that "no provision in the Commission's rules. . . would allow a carrier's interstate  X-allocation factor to change, once it has reached 25 percent.":!X= {O-ԍId.:  X-  ~15.` ` Opposition to the Order's interpretation stems in large part from dissatisfaction  Xv-  =with the operation of the USF mechanism."v= {O -ԍSee, e.g., GVNW comments at 7; NTCA reply comments at 4; TCA comments at 1. NECA's interpretation directed carriers to use the   five percent limitation to moderate the impact on intrastate rates resulting from reductions in USF  XH-  payments.D#H|= yOu-ԍNECA petition at 3.D Petitioners contend that the reference to section 36.641(a), which provides that the   USF expense adjustment "for 1993 and subsequent years shall be the amount computed in  X -  \accordance with section 36.631,"J$ = yO-ԍ47 C.F.R.  36.641(a).J means that section 36.154(f) remains in effect until a rule  X -  change is enacted.u% = {OP-ԍSee, e.g., GVNW application at 7; NTCA application at 3.u They cite the general caption of the subsection, "Limit on Change in  X -Interstate Allocation" to support their view of the rule's purpose.~& . = yO-ԍGVNW application at 7; TCTA/TCTW application at 4; and NTCA application at 4.~  X -  16.` ` We disagree. Petitioners' interpretation of section 36.154(f) is contrary to both   zthe language of the rule and the intent of the Commission. Section 36.154(f) is a transitional   provision created only to mitigate the impact of the SPF transition while the USF support   mechanism was being phasedin. Significantly, the application of section 36.154(f) is not   conditioned on the ongoing interstate allocation factor and USF expense adjustment provisions,  XK-  sections 36.154(c) and 36.631 respectively. Instead, section 36.154(f) refers to the transitional  X4-  SPF and USF provisions, sections 36.154(d) and 36.641(a) and (b) respectively,'4 = yO-ԍSections 36.641(a) and (b) are together captioned "Transitional Expense Adjustment." 46 C.F.R.  36.641. which   reinforces our conclusion that the limitation was not intended to apply beyond the period of the SPF transition.  X-  17.` ` Unlike the SPF transition, in which carriers generally reduced their interstate   allocations, under the USF transition, carriers could allocate an increasing portion of their costs"'0*%%ZZ"  X-  to the interstate jurisdiction.( = yOy-ԍThe rules governing the USF transition directed carriers to calculate their expense adjustments in accordance with section 36.631 and then multiply that figure by a fraction to determine the expense adjustment for each year of the transition. The fraction increased by increments of oneeighth each year until eighteighths was reached and the transition was complete. At the time the SPF and USF transition rules were drafted, it was   not contemplated that USF support would decline, but rather that the phasein of the USF would   =offset the reduction of the interstate allocation stemming from the replacement of SPF with the   M25 percent interstate allocation factor. The five percent limitation found in section 36.154(f)   provided additional protection by limiting the change in interstate allocations in those situations   where, taking into account the USF expense adjustment, the overall decrease in a carrier's   interstate allocation factor would nevertheless be greater than five percent from the previous  X_-  year.)_= {O -ԍSee FederalState Joint Board, Second Recommended Decision and Order, CC Docket No. 80286, 48 Fed. Reg. 46556 (Oct. 13, 1983). Therefore, section 36.154(f) provides that a carrier's allocation shall not decrease more   ithan five percentage points as a result of the "combined operations" of the SPF transition and the  X1-USF transition.J*1 = yO-ԍ47 C.F.R.  36.154(f).J  X -  18.` ` Further support for this interpretation can be found in a Memorandum Opinion and  X -  Order released April 4, 1991.+ = yO7-ԍUnited States Telephone Association, Amendment of Section 36.154 of the Commission's Rules, 6 FCC Rcd 1873 (1991) (USTA Order). In that matter, USTA had claimed that the current procedures   Kcreated significant unanticipated hardships for certain small carriers and proposed eliminating the USF offset to alleviate the problem. The Commission denied USTA's petition, stating that:  RXWhen the Commission adopted the current rules, it believed that an annual  limitation of five percentage points for the decrease in interstate [nontraffic  Psensitive] costs, taking into consideration the USF adjustment, would provide for  #an orderly transition to the 25 percent allocator without placing an undue burden  X4-on the local rates of any company.D,4 = yO-ԍUSTA Order at 1874.D   X-  19.` ` Nothing in the administrative history of the SPF transition rules supports the view  X-  that section 36.154(f) was intended to mitigate yeartoyear fluctuations in interstate allocations   kresulting from changes in USF support alone. In fact, because reductions in USF payments   signify that carriers' local loop costs declined relative to the national average, mitigating their" ,0*%%ZZ"  X-  impact would undermine the operation of the USF support mechanism.-= yOy-ԍWe note that the USF support mechanism is currently being reevaluated. FederalState Joint Board on  {OA-Universal Service, Recommended Decision, FCC 96J3, CC Docket No. 9645 (rel. Nov. 8, 1996). Accordingly, we  X-  conclude that the Order's interpretation is supported by the language, context, and history of the   SPF transition rules and therefore we affirm the Order's interpretation. Once a carrier's transition   to a 25 percent interstate allocation factor has been achieved, the limitation on the change in interstate allocation found in section 36.154(f) is no longer operative.  Xv- III. CORRECTIVE ACTION Đ X_-lU  l"t   XH- l"t A.Background  X -  20.` ` Our rules require ILECS, on a monthly basis, to report to NECA their revenue,  X -  expense and investment data.U. "= yO-ԍ47 C.F.R  36.611 and 36.612.U NECA uses these data to compute each ILEC's monthly pool   shares. Because ILECs do not have complete data available when they first report to NECA, the   !ILECs initially report estimated data. In the following months, the ILECs are required to   ireconcile their estimates with actual results. To ensure the accuracy of the reconciliation process,   {NECA's procedures allow the ILECs twentyfour months from the date their data are first  X-  .reported to the pools to reconcile and correct previously submitted data.D/= yO-ԍNECA petition at 3.D Because the Order   jrepresents an interpretation of an existing rule, NECA informed certain carriers that they would   Mbe required to adjust all settlement data filed within the 24month period to comply with the  XK-Order's interpretation.h0KB= yO>-ԍNECA letter dated March 27, 1996 to All Cost Companies.h  X-  21.` ` Our rules also require NECA and those ILECs not subject to price cap regulation   to file onepage rateofreturn reports that show total revenues, total expenses and taxes, operating   income, rate base and rate of return for each tariff pool and study area. These reports enable the   Commission to monitor the pool's and carriers' actual performance on an access elementby X-  element basis and to determine whether maximum rates of return were exceeded.1"= {OD -ԍSee 47 C.F.R.  65.700 and 65.701. Interstate earnings are measured over a twoyear period to determine whether the maximum allowable rate of return was exceeded. The maximum allowable rate of return for any interstate access service category is 11.65% calculated by adding .4% to the prescribed rate of return 11.25%. Under section" 10*%%ZZq"  X-  208 of the Act,E2= yOy-ԍ47 U.S.C.  208. E any person injured by unlawful rates may file a complaint for damages with the  X-Commission.3X= {O-ԍSee, e.g., MCI Telecommunication Corp. v. Pacific Northwest Bell Telephone Co., 5 FCC Rcd 216  yO-(1990), recon. denied, 5 FCC Rcd 3463 (1990), appeal dismissed sub nom. Mountain Sates Tel. and Tel. Co. v.  yO-FCC, 951 F.2d 1259 (10th Cir. 1992) (per curiam) (MCI Liability Order); Section 208 Complaints Alleging  {OL-Violations of the Commission's Rate of Return Prescription for the 19891990 Monitoring Period, Memorandum  {O-Opinion and Order, 10 Fcc Rcd 3657 (rel. Dec. 23, 1994). Ă  X- B.Positions of Parties  X-  #22.` ` All seven petitioners urge the Commission not to apply the Order retroactively.T4X= yOL -ԍGVNW application at 11, comments at 8 and reply comments at 1; NTCA application at 5 and reply comments at 5; TCTA/TCTW application at 6; NECA petition at 1, comments at 3 and reply comments at 4; JSI request at 4 and comments at 3; OPATSCO request at 2; TCA petition at 1 and comments at 3.T   LThey argue that the Order represents an abrupt departure from NECA's interpretation that was  X_-  reasonable and upon which they relied.Y5_. = {O>-ԍSee, e.g., GVNW application at 13.Y Retroactive application of the Order's interpretation  XH-  {would result in millions of dollars of revenues being taken back from small, rural ILECs.W6H = {O-ԍSee, e.g., NECA comments at 34.W  X1-  jGVNW estimates the total impact to its client companies as $11 million.E71R = yO4-ԍGVNW petition at 13.E JSI estimates that the  X -  lcollective impact on its clients would be $4.7 million.B8 = yO-ԍJSI request at 4.B Because their states do not allow  X -  retroactive ratemaking, petitioners contend, these losses could not be recovered.g9 r= {O&-ԍ See, e.g., JSI request at 4; TCA petition at 1.g The petitioners   -assert that these losses are likely to impact network improvements, new technologies and service  X -enhancements.U: = {O-ԍSee, e.g., GVNW comments at 6.U  X -  23.` ` The overwhelming majority of commenters support the petitioners' arguments.; = yO"-ԍCHA comments at 2; CITA comments at 1; MTA comments at 2; RUS comments at 1; Florida PSC comments at 2; ICORE comments at 2; USTA comments 4; Wyoming reply comments at 1.   !GVNW's clients argue against retroactive application because "[c]ost recovery must be" ;0*%%ZZ<"   .predictable, so that auditors, lenders and ILECs can have confidence in NECA's interpretation  X-  and implementation of the Commission's rules."N<= {Ob-ԍSee Appendices A and C.N JSI's clients similarly cite the magnitude of  X-  losses that will occur as a result of the retroactive application of the Order.F=Z= {O-ԍSee Appendix B.F MTA estimates  X-losses of approximately $3 million for its members.C>= yOX-ԍMTA comments at 2.C  X-  $24.` ` AT&T, ALLTEL and MCI dismiss petitioners' and commenters' arguments for  Xv-  \applying the Order only prospectively.?v|= yO -ԍAT&T reply comments at 3; ALLTEL comments at 4; MCI opposition at 6 and reply comments at 6. AT&T states that it is "inappropriate. . . for these  X_-  carriers to insist that the Commission interpret a rule in a manner it did not intend."J@_ = yO-ԍAT&T reply comments at 7.J AT&T and  XH-  ALLTEL point out that mandating prospective application means carriers who complied with the  X1-rule would be forced to file a waiver to continue to do so.VA1= {O~-ԍId. at 7; ALLTEL comments at 5.V  X - C.Discussion  X -  25.` ` As a general rule, declaratory rulings that interpret, but do not change, obligations  X -  under existing Commission rules have the effective date of the rule.B . = {O-ԍSee, e.g., Standard Oil Co. v. Doe, 596 F.2d 1029 (Emer. Ct. App. 1978). Petitioners' arguments   against retroactivity are rooted in the perception that the Order represents a new policy. We   disagree. The Order corrects a misinterpretation put forth by NECA but does not change the   purpose or operation of the underlying rules. Similarly, petitioners' claims that the Order's   interpretation was unexpected are unpersuasive. This proceeding does not involve an unforeseen   application of a rule, but rather the exact fact situation the rules were designed to address: the   implementation of a flat 25 percent interstate allocation factor for loop costs for all carriers   ythrough a gradual transition. Petitioners ask us to substitute NECA's rule for our own because   they relied on it. Their reliance was misplaced. Although parties such as TCA may have  X-  presumed that NECA had "informal communication with the FCC" prior to issuing Cost Issue  X-  x5.3,CC = yOI#-ԍTCA comments at 2.C nothing in the record supports that claim. Because it interprets but does not change section  X-36.154 of our rules, the Order has the effective date of the rules. " P C0*%%ZZ"Ԍ X-  26.` ` NECA's interpretation of section 36.154(f) is so entirely in conflict with the literal  X-  meaning and clear intent of our rules that it gives us cause for concern that NECA may not be  X-  fulfilling its responsibilities to the Commission.DD= yOK-ԍThis is not the first time that NECA's activities were the subject of Commission scrutiny. As recently as 1995, we issued an Order designed to address past instances of apparent director misconduct and manipulation of NECA's processes. In that proceeding, an audit disclosed that several NECA directors appeared to have participated in an attempt to influence improperly common line pool earnings by inducing certain large LECs to report data to NECA that were inconsistent with our accounting, separations and access charge rules. The resulting Order required that NECA correct any data that it reasonably believes do not comply with our rules.  {O-See Safeguards to Improve the Administration of the Interstate Access Tariff and Revenue Distribution Processes,  {O -Report and Order to Show Cause, CC Docket No. 936, RM 7736, 10 FCC Rcd 6243, 6245 (rel. Mar. 8, 1995). NECA was established at the direction of the   /Commission to administer important Commission programs, including the common line and   traffic sensitive pools, the universal service fund, the lifeline assistance program and the long   term support program. We remind NECA that it must administer these pools in accordance with   Lour requirements and has no authority to implement its own policy. As with any other parties,   jNECA may file a request that the Commission resolve any uncertainty about the operation of a   rule. When NECA provides its own guidance in the absence of a Commission directive, it does   so at the risk that its interpretation is incorrect and is subject to appropriate enforcement actions.  X -   27.` ` To the extent that its pool members overallocated costs to the interstate  X -  jurisdiction, NECA's quarterly+EZ = yOq-ԍIn CC Docket No. 9623, the Commission reduced the filing frequency of Form 492 by eliminating the  {O9-quarterly reports. Revision of Filing Requirements, Report and Order, CC Docket No. 9623, DA 961873 (rel. Nov. 13, 1996).+ and annual rateofreturn reports Form 492 contained   /incorrect data. Without corrected data, neither the Commission nor affected interexchange   =carriers can determine whether the Carrier Common Line pool exceeded the maximum allowable  X -  rate of return.JF = yON-ԍ47 C.F.R.  65.700(a).J In order to assess possible violations of our rateofreturn prescription,BGZ = yO-ԍWe observe that the 2 year statute of limitations found in section 415 of the Act does not begin to run  {O-until discovery of the right or wrong or of the facts on which such knowledge is chargeable in law. See MCI Liability Order, 5 FCC Rcd at 225.B we  X-  =require that NECA file in this docket corrected Form 492s for each of the years in which NECA  Xy-  required pooling companies to be in conformance with its misinterpretation of section 36.154(f),DHy= yO -ԍNECA petition at 3.D  Xb-thereby causing incorrect settlement data for the Carrier Common Line pool to be reported.IX\b8= yOK#-ԍAlthough section 65.600 of our rules establishes a ninemonth limit for out of period adjustments, the Commission reserves the right to determine the appropriate treatment on a casebycase basis for those rare occurrences when out of period adjustments would raise a company's earnings above its allowed maximum rate"$H0*%%$"  {O-of return. See Amendment to Part 65, Interstate Rate of Return Prescription: Procedures and Methodologies to  {OZ-Establish Reporting Requirements, Memorandum Opinion and Order, 2 FCC Rcd 5340, 5341 (rel. Aug. 28, 1987)."b I0*%%ZZJ"Ԍ X-  Qԙ28.` ` Even if the incorrect interstate allocations did not give rise to violations of our   rateofreturn prescription, the overassignment means that some members of the NECA pool   received greater interstate returns than the rules would allow at the expense of many members   -who suffered somewhat lower interstate rates of return. We decline to address whether intrapool   adjustments should be required because no NECA pool members have sought redress for the  X-damage.J= yO* -ԍWe also note that, because the Commission is taking no action that will result in significant adverse economic consequences for small carriers, its action is fully consistent with and furthers the overall congressional mandate reflected in section 257 of the Act, which requires the Commission to eliminate market entry barriers  {O -for small businesses in the provision and ownership of telecommunications services. 47 U.S.C.  257. See  {OL -generally Section 257 Proceeding to Identify and Eliminate Market Entry Barriers for Small Businesses, Notice  {O-of Inquiry, GN Docket No. 96113, FCC 96216, 11 FCC Rcd 6280 (rel. May 21, 1996).  l  X_-+  IV. EFFECT OF STUDY AREA CHANGES Đ XH-lU  X1-A.Background  X -  P29.` ` The SPF transition rules incorporate the definition of study area contained in Part   Z36 AppendixGlossary of the Commission's rules which state that boundaries of a study area shall  X -  be frozen as they were on November 15, 1984.UK j = yO-ԍ47 C.F.R Part 36, AppendixGlossary.U When the Commission decided to freeze study   area boundaries, it sought to discourage carriers from establishing their high cost exchanges as   jseparate study areas in order to maximize high cost support and at the same time to remove the  X-disincentive for purchasing high cost carriers or expanding into high cost areas.*LZ = yO;-ԍMTS and WATS Market Structure, Amendment of Part 67 of the Commission's Rules and  {O-Establishment of a Joint Board, Recommended Decision and Order, CC Docket No. 80286 (FederalState Joint Board rel. Nov. 23, 1984) at 3738.*  Xy-  Xb-  30.` ` Under the approach adopted by the Commission, a holding company may either   treat a newly purchased or newly created service territory separately or fold it into one of its   existing study areas. The Commission expected that carriers would merge study areas "when the  X-  benefits of consolidated operations exceed the reduction in high cost support."AM= {O"-ԍId. at 38.A To form a new   -study area or change existing study area boundaries, carriers are required to seek a waiver of that" M0*%%ZZ"  X-  provision freezing study area boundaries.N= yOy-ԍThe Commission's three primary concerns when it reviews study area boundary change petitions are: (1) that the change does not have an adverse impact on the USF support program; (2) that the state commission(s) having regulatory authority do not object to the change; and (3) that the public interest supports such a change.  {O-See U S West Communications, Inc. and Eagle Telecommunications, Inc., Joint Petition for Waiver of Definition  {O-of "Study Area" Contained in Part 36, AppendixGlossary of the Commission's Rules, Memorandum Opinion  {Oe-and Order, 10 FCC Rcd 1771 (1995). The March 22, 1996 Order acknowledges that   ="because the transition rules were designed for use for the study areas in existence during the   transition, it is not clear that the transition rules would apply to study areas that have undergone  X-significant changes."<OF= yO -ԍOrder at 5.<  X-  X- l"t B.Positions of Parties  X_-  31.` ` NECA and JSI seek clarification of the effect of study area changes on the  XH-  iapplication of the SPF transition rules.hPH= yO-ԍNECA petition at 5; JSI request at 6 and comments at 4.h JSI argues that the uncertainty "violates the 'predictable'  X1-  Land 'sufficient' mandate of the 1996 Telecommunications Act.BQ1f = yOH-ԍJSI request at 6.B USTA agrees that the Order is  X -not clear and "urges the Commission to release clarifying language."DR = yO-ԍUSTA comments at 6.D  X - C.Discussion  X -  32.` ` The SPF transition rules were designed to mitigate the impact of the change to a   25 percent interstate allocation factor for existing carriers that had high frozen SPFs when the   <transition began. Newly established and newly purchased service territories that were separately   incorporated were not eligible for the transition rules but instead were subject to the 25 percent  Xb-interstate allocation factor set forth in section 36.154(c).JSb = yO-ԍ47 U.S.C.  36.154(c).J  X4-   33.` ` In the past, the Commission granted carriers' petitions to recalculate their  X-  Ztransitional SPFs in conjunction with study area waiversT\= yO"-ԍTo be eligible for a waiver, companies must demonstrate exceptional upward pressure on intrastate rates  {O#-and rates that would be unusually high compared to the national average. See, e.g., WaitsfieldFayston  {Ov$-Telephone Company, Petition for Waiver of Section 36.154(f) of the Commission's Rules, Memorandum Opinion"v$S0*%%$"  {O-and Order, 5 FCC Rcd 5933 (Com. Car. Bur. 1990); United States Telephone Association, Amendment of  {OZ-Section 36.154 of the Commission's Rules, Memorandum Opinion and Order, 6 FCC Rcd 1873 (1991). in order to prevent study area changes"$T0*%%ZZ)"  X-  yfrom disrupting the gradual transition contemplated by the rules.U$= {O-ԍSee, e.g., CONTEL of the West, Petition for Waiver of Section 36.125(f), Sections 36.154(e)(1) and (2), and the Definition of "Study Area" Contained in Part 36, AppendixGlossary, of the Commission's Rules and OregonIdaho Utilities, Inc., Petition for Waiver of the Definition of "Study Area" contained in Part 36,  {O/-AppendixGlossary, of the Commission's Rules, Memorandum Opinion and Order, AAD 91944 (Com. Car. Bur. July 16, 1990). At this point, the benefit of   .a gradual transition has been achieved. Most carriers completed the transition to a 25 percent   interstate allocation by 1993. Because no study area had a frozen SPF higher than 85 percent  X-  when the transition began, most remaining carriers will reach 25 percent by 1997.FVX= yOD -ԍSection 36.154(f) specifies that carriers' interstate allocations may not decrease at a rate of more than five percent; for some carriers, however, the method for calculating transitional SPF allocations may have resulted in a rate of decrease of less than five percent yearly.F We conclude   that the rationale supporting the transition no longer applies to carriers whose existing study areas   Kundergo changes because the potential for disruption no longer exists. As a result, these carriers will be subject to the 25 percent interstate allocation factor set forth in section 36.154(c).  XH-6 V. ORDERING CLAUSES ĐlU  X -  o!34.` ` Accordingly, IT IS ORDERED, pursuant to sections 4(i), 5(c)(5), 218 and 220 of   the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 155(c)(5), 218 and 220, and   \section 1.115 of the Commission's Rules, 47 C.F.R.  1.115, that the Applications for Review   |filed April 22, 1996 by GVNW Inc./Management, the National Telephone Cooperative   [Association, and TriCounty Telephone Association Inc. and TCT West, Inc.; the Request for   \Clarification filed April 22, 1996 by the Organization for the Promotion and Advancement of   jSmall Telecommunications Companies, and the Petition for Reconsideration filed April 22, 1996 by TCA Inc., ARE DENIED.  XK-  q"35.` ` IT IS FURTHER ORDERED, pursuant to sections 4(i), 218 and 220 of the   Communications Act of 1934, as amended, 47 U.S.C.  154(i), 218 and 220, and section 1.429   Pof the Commission's Rules, 47 C.F.R.  1.429, that the Requests for Clarification or   .Reconsideration filed by the National Exchange Carrier Association and John Staurulakis Inc., are GRANTED IN PART, as discussed in paragraphs 28 through 32, and otherwise DENIED.  l"t " V0*%%ZZ5"  X-  q l"t #36.` ` IT IS FURTHER ORDERED, pursuant to sections 4(i), 218 and 220 of the   Communications Act of 1934, as amended, 47 U.S.C.  154(i), 218 and 220, and section 1.429   of the Commission's Rules, 47 C.F.R.  1.429, that NECA file corrected Form 492s in accordance with paragraph 26 of this Order. X` p x (#%'0*,.8135@8: