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                            Before the
                Federal Communications Commission
                     Washington, D.C.  20554
                                                  
In the Matter of                   )
1993 Annual Access Tariff Filings       )         CC Docket No. 93-193,
                              )         Phase I, Part 2
                              )
GSF Order Compliance Filings       )                   
                              )
In the Matter of                   )
1994 Annual Access Tariff Filings       )         CC Docket No. 94-65
                              )                             
In the Matter of                   )
1995 Annual Access Tariff Filings       )         
                              )
In the Matter of                   )
1996 Annual Access Tariff Filings       )
 

                   MEMORANDUM OPINION AND ORDER

        Adopted: April 15, 1997; Released: April 17, 1997

     
By the Commission:

                      TABLE OF CONTENTS    
                                                        paragraph

I. EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . .  1-7  
II.     INVESTIGATION ISSUES. . . . . . . . . . . . . .  8- 70
   A.   Background. . . . . . . . . . . . . . . . . . .  8-12 
   B.   US West Exogenous Impact of Dial Equipment Minutes 
        Transition. . . . . . . . . . . . . . . . . . . 13-23
        1.  Background. . . . . . . . . . . . . . . . . 13-17
        2.  Positions of the Parties. . . . . . . . . . 18-20 
        3.  Discussion. . . . . . . . . . . . . . . . . 21-23 
   C.   Calculation of the "g" Factor by Bell Atlantic and SNET. 24-30
        1.  Background. . . . . . . . . . . . . . . . . 24-27
        2.  Positions of the Parties. . . . . . . . . . 28-29
        3.  Discussion. . . . . . . . . . . . . . . . . 30
   D.   Bell Atlantic's and Pacific Bell's Omission of End 
        User Revenues from the Common Line Basket for
         Sharing Purposes . . . . . . . . . . . . . . . 31-42
        1.  Background. . . . . . . . . . . . . . . . . 31-33
        2.  Positions of the Parties. . . . . . . . . . 34-36 
        3.  Discussion. . . . . . . . . . . . . . . . . 37-42 
   E.   General Support Facility Costs. . . . . . . . . 43-50 
        1.  Background. . . . . . . . . . . . . . . . . 43
        2.  Positions of the Parties. . . . . . . . . . 44-47 
        3.  Discussion. . . . . . . . . . . . . . . . . 48-50
   F.   Category Assignment for Line Information Data Base 
        Query Charge. . . . . . . . . . . . . . . . . . 51-63 
        1.  Background. . . . . . . . . . . . . . . . . 51-52
        2.  Positions of the Parties. . . . . . . . . . 53-58 
        3.  Discussion. . . . . . . . . . . . . . . . . 59-63
   G.   Roseville Cash Working Capital. . . . . . . . . 64-70
        1.  Background. . . . . . . . . . . . . . . . . 64
        2.  Positions of the Parties. . . . . . . . . . 65-66
        3.  Discussion. . . . . . . . . . . . . . . . . 67-70 

III.    AT&T'S APPLICATION FOR REVIEW . . . . . . . . . 71-82
        1.  Background. . . . . . . . . . . . . . . . . 71-75
        2.  Positions of the Parties. . . . . . . . . . 76-80
        3.  Discussion. . . . . . . . . . . . . . . . . 81-82

IV.     SOUTHWESTERN'S PETITION FOR CLARIFICATION OR 
   RECONSIDERATION. . . . . . . . . . . . . . . . . . . 83-92 
        1.  Background. . . . . . . . . . . . . . . . . 83-85
        2.  Positions of the Parties. . . . . . . . . . 86-89
        3.  Discussion. . . . . . . . . . . . . . . . . 90-92

V. REMEDIAL ACTIONS . . . . . . . . . . . . . . . . . . 93-107
   A.   Overview. . . . . . . . . . . . . . . . . . . . 93-96
   B.   PCI and Pricing Band Recalculations to Correct for Violations of
          the Rules . . . . . . . . . . . . . . . . . . 97-103
   C.   PCI and Pricing Band Recalculations to Effectuate Refund 
        Liability                                        . . . . 104-106
   D.   Roseville                                        . . . . 107

VI.     ORDERING CLAUSES. . . . . . . . . . . . . . . . 108-118

APPENDIX A

APPENDIX B
                     I.  EXECUTIVE SUMMARY

     1.  On April 2, 1993, local exchange companies (LECs) filed their 1993 annual access tariffs,
with an effective date of July 1, 1993.  The Common Carrier Bureau (Bureau) suspended in part the
1993 annual access rates for one day, imposed an accounting order, and initiated an investigation
of the tariffs to resolve a number of issues.  On April 2, 1994, the LECs filed their 1994 annual
access tariffs, with an effective date of July 1, 1994, and on May 9, 1995, their 1995 annual access
tariffs, with an effective date of August 1, 1995.  On April 2, 1996, the LECs filed their 1996 annual
access tariffs, with an effective date of July 1, 1996.  The Bureau suspended in part the tariff
revisions for the 1994 through 1996 tariffs filings and made them subject to the 1993 tariff
investigation and the accounting order instituted in CC Docket No. 93-193.
 
     2.  This Order resolves the Bureau's investigation with respect to most of the issues
designated for investigation in the 1993 Annual Access Order in CC Docket No. 93-193 and several
of the issues raised by the 1994, 1995, and 1996 annual access filings that were made subject to that
investigation.  This Order also denies an application for review filed by AT&T that claims that the
Bureau, in the 1994 Annual Access Orders, erred by failing to suspend and investigate the LECs'
1994 annual access tariff filings because the LECs did not reduce their price cap indices (PCIs) to
reflect the full amortization of their equal access expenses as an exogenous cost change.  Finally,
this Order grants in part and dismisses in part a petition filed by Southwestern of the First 1994
Annual Access Order requesting that the Commission"clarify or reconsider that part of its [Order]
that implies that local exchange carriers (LECs) subject to price cap regulation and wishing to treat
the new [Commission] regulatory fees as exogenous costs should petition for a waiver of the
Commission's rules" and "clarify that [Southwestern's] proposed $6.04 fixed mileage charge for
DS1 services with zero miles of interoffice transport is not subject to the expanded interconnection
investigation."

     3.  In the 1993 Annual Access Order, the Bureau designated the following issues for
investigation: (1) whether US West's method of calculating its exogenous cost adjustment associated
with a change in the prescribed method of allocating local switching equipment costs complies with
Section 61.45(d) of the Commission's rules; (2) whether Bell Atlantic and SNET correctly calculated
the growth factor ("g" factor) used to establish the PCI for the common line basket; (3) whether Bell
Atlantic should be permitted to exclude end user charge revenues from the common line basket for
purposes of allocating its sharing obligations; (4) whether the LECs have properly reallocated
general support facility (GSF) costs in accordance with the GSF Order; (5) whether LECs have
assigned to the proper category or categories the line information data base (LIDB) per query
charges; and (6) whether Roseville, a rate-of-return regulated company, has justified its cash working
capital requirement and underlying study in support of its annual access rates.  On July 27, 1993, the
LECs filed their direct cases in response to the 1993 Annual Access Order and, on August 24, 1993,
filed their comments.

     4.  While the 1993 access tariff investigation was open, the LECs filed their 1994, 1995, and
1996 annual access tariffs which generally followed the same costing and ratesetting methodologies
used in the 1993 access tariff filings set for investigation.  In the First 1994 Annual Access Order,
the Price Cap Carriers' 1995 Annual Access Order, and the 1996 Annual Access Order, the Bureau
suspended for one day Bell Atlantic's tariff revisions regarding the calculation of the "g" factor and
made those tariff revisions subject to the investigation of Bell Atlantic's "g" factor calculation in CC
Docket No. 93-193.  In the 1994 Annual Access Orders, the Price Cap Carriers' 1995 Annual
Access Order, and the 1996 Annual Access Order, the Bureau suspended for one day Bell Atlantic's
and Pacific Bell's tariff revisions that reflected the exclusion of end user charge revenues from the
common line basket for purposes of allocating their sharing obligations and made those tariff
revisions subject to the investigation of those issues in the 1993 access tariff investigation.  In
addition, the 1994 Annual Access Orders rejected proposals advanced by AT&T and MCI to treat
the expiration of equal access cost amortization exogenously.   Further, the 1994 Annual Access
Orders held that certain carriers' proposals to treat Commission regulatory fees as exogenous costs
in their tariff filings violated the price cap rules and stated that, absent a rulemaking, the only way
to obtain exogenous treatment for these fees is through a waiver of the Commission's rules. 
Finally, in the First 1994 Annual Access Order, the Bureau held that Southwestern's proposed fixed
mileage charge for DS1 services with zero miles of interoffice transport raised sufficient risk of
double recovery to warrant an investigation and incorporated this issue into the Commission's
ongoing expanded interconnection investigation.

     5.  In this Order, we reach the following conclusions with respect to issues designated for
investigation in CC Docket No. 93-193.   First, we conclude that, in its 1993 annual access tariff
filing, US West's method of calculating the exogenous cost change associated with the change in the
method of allocating local switching equipment costs is incorrect.   Second, we find that Bell
Atlantic, in its 1993, 1994, 1995, and 1996 annual access filings, and SNET, in its 1993 annual
access filings, have incorrectly calculated the "g" factor used to establish the common line PCI. 
Third, we find that Bell Atlantic and Pacific Bell incorrectly excluded end user charge revenues for
purposes of allocating sharing obligations among price cap baskets.  Fourth, we find the GSF tariff
filings of most carriers to be consistent with the GSF Order but conclude that there may have been
a double recovery of a portion of GSF costs by carriers that participated in NECA's common line
tariff but filed individual tariffs for traffic sensitive rates pursuant to Section 61.39.  Fifth, we
determine that the LIDB per query charge should be assigned to the data base access services
category within the traffic sensitive basket.  Sixth, we find that Roseville has not adequately justified
its cash working capital calculations.

     6.  In this Order, we also deny AT&T's application for review and affirm the Bureau's
decision that the completion of the eight-year amortization of equal access costs may not be treated
as an exogenous cost event.  In addition, we dismiss in part and grant in part   Southwestern's
petition for clarification or reconsideration of the Bureau's decisions in the First 1994 Annual Access
Order regarding exogenous treatment of regulatory fees and Southwestern's DS1 zero mileage
charge.

     7.  In this Order, we direct the price cap LECs whose annual access tariff filings are in
violation of the Commission's rules and determinations herein to recalculate their PCIs, pricing
bands and maximum carrier common line rates.  We decide how these recalculations should be
done and what remedies should apply for violation of our rules.  In addition, we require Roseville,
a rate-of-return regulated company, to refund the amount attributable to the miscalculation of its cash
working capital allowance and to submit its calculations of this refund amount and a refund plan to
the Bureau.  We also require the carriers that participated in NECA's common line pool and filed
individual tariffs for traffic sensitive rates pursuant to Section 61.39 to provide explanations  of  their
GSF allocations and revisions to traffic sensitive rates and if necessary, to submit a plan for any
corrective action to eliminate any double recovery of GSF costs. 

                   II.  INVESTIGATION ISSUES

A.   Background

     8.  In its price cap decisions, the Commission replaced rate-of-return regulation with an
incentives-based system of regulation that rewards companies that become more productive and
efficient, while ensuring that they share productivity and efficiency gains with their ratepayers. 
The theory of price caps is to harness the profit-making incentives common to all businesses to
produce a set of outcomes that advance the public interest goals of just, reasonable, and
nondiscriminatory rates, as well as a nation-wide communications system that offers innovative, high
quality services.  

     9.  Under the LEC price cap plan, a carrier's interstate services are grouped into baskets. 
Under the Commission's initial price cap plan, the four services baskets were the common line,
traffic sensitive, special access, and interexchange services baskets.  For each basket, a PCI limits
the prices carriers charge for services in that basket.  The PCI is adjusted each year based on a
formula that includes a measure of inflation which is offset by a "productivity" factor or "X-Factor." 
 The X-Factor reflects the fact that changes in telephone companies' costs per unit of output (unit
costs) have historically been below that of the economy as a whole due to greater productivity gains
and lower input price changes enjoyed by the telecommunications sector. Carriers that are able to
generate productivity gains in excess of the X-Factor they elect are allowed to keep at least a portion
of earnings higher than those experienced under rate-of-return regulation.  Carriers also benefit
because price cap regulation gives them increased flexibility in setting rates and is simpler to
administer.  Ratepayers benefit because the price cap rules encourage greater efficiency and reduced
rates by requiring LECs to out-perform historical trends.  Generally, changes in costs are not
relevant to price cap regulation and carriers must control their costs if they are to remain profitable. 
Through these incentives, ratepayers receive the benefits of improved efficiency and reduced rates.

     10.  Although changes in a carrier's costs are not generally relevant for rate making under the
price cap system, the Commission determined in the LEC Price Cap Order  that certain costs
incurred by LECs caused by administrative, legislative, or judicial requirements beyond their control
should result in an adjustment to their PCIs.  The Commission found that not recognizing these
costs in the PCIs would either unjustly punish or reward the carrier by attributing these
uncontrollable changes to the carrier's efficiency.  The Commission designated those changes in
costs for which an adjustment in the PCI would be allowed as "exogenous."  The Commission,
however, determined that not all changes that lie beyond the carrier's control warrant exogenous
treatment.  For example, the Commission noted that, although a change in tax rates applicable to all
companies is beyond the carrier's control, that change will be captured in the general inflation
component of the price cap formula.  Exogenous treatment of this kind of tax change would
"double count" its impact, once in the inflation measure, and again as an exogenous cost change. 
The Commission decided that only those tax changes that "uniquely or disproportionately" affect
the LECs would be eligible for exogenous treatment.  Similarly, although a carrier cannot control
changes in generally accepted accounting principles (GAAP), the Commission stated that "[i]f a
GAAP change is universal enough to be reflected in the inflation measure, exogenous cost treatment
would result in double counting within the context of the PCI."  Therefore, we decided to accord
exogenous treatment to costs associated with GAAP changes that have been adopted by the Financial
Accounting Standards Board, have become effective, and are shown not to be reflected already in
changes to the GNP-PI.

     11.  Exogenous cost changes specified in our rules include cost changes that result from: (1)
completing the amortization of depreciation reserve deficiencies; (2) amendments to the Uniform
System of Accounts (USOA) as the Commission shall permit or require; (3) changes in the
Separations Manual; (4) reallocation of regulated investment to nonregulated activities; (5)
changes in transitional and long term support; (6) inside wire amortizations; and (7) tax law changes
and other "extraordinary" changes to the extent we may permit or require.  The Commission has
declined to extend or has explicitly rejected exogenous treatment for other cost categories, including
depreciation rate changes and amortization of equal access costs.  

     12.  Within certain price cap baskets, services are grouped into service categories and
subcategories and rate changes within the categories and subcategories are limited by upper and
lower pricing bands.  Before the Commission adopted the LEC Performance Review, the pricing
band limits for most of the service categories and subcategories were set at 5 percent above and
below a subindex of the prices for each category or subcategory (called the Service Band Index
(SBI)), as adjusted by the change in the PCI for the basket.  A presumption of lawfulness and a
relatively short tariff filing notice period apply to rate changes that conform to the limits set by a
LEC's PCIs and pricing bands.   Substantial cost justification and longer tariff filing notice periods
are required if rates exceed the price cap for a basket or are above or below the applicable pricing
bands for a service category or subcategory. 





B.   US West Exogenous Impact of Dial Equipment Minutes Transition

     1.   Background

     13.  Part 36 of the Commission's jurisdictional separations rules allocates investment costs
of local switching equipment between the interstate and intrastate jurisdictions by the use of Dial
Equipment Minutes (DEM).  Dial equipment minutes are the minutes of holding time of the
originating and terminating local dial switching equipment (i.e., the time local switching equipment
is in actual use either by a customer or an operator), and the DEM factor for allocating local
switching equipment costs to interstate service is the ratio (expressed as a percentage) of interstate
minutes of use to the total minutes of use. 

     14.  Before 1988, local switching equipment costs were allocated between the state and
federal jurisdictions through a two-step process.  First, switch costs were categorized as traffic
sensitive or non-traffic sensitive.  How costs were categorized depended upon the type of switch
(digital or analog).  Non-traffic sensitive costs were allocated to the interstate jurisdiction based on
the interstate subscriber plant factor (SPF); traffic sensitive portions were allocated based on the
DEM factor.  The Commission then changed this rule to require that the DEM factor alone be used
to divide all local switching equipment costs between the two jurisdictions.  The Commission
decided that the change to exclusive use of the DEM allocation factor should be phased in over a
five-year period from 1988 to 1992.  Each year during the transition period, the allocation factor for
assigning costs to the interstate jurisdiction was calculated by assigning decreasing weight to the
1987 allocator (called the "composite" allocator)  and increasing weight to the DEM allocator, and
then summing the two weighted amounts.  The transition was complete at the end of 1992, and the
DEM allocator alone is now used to allocate local switching equipment costs between jurisdictions. 


     15.  The Commission's price cap rules required LECs to include as an exogenous cost change
the dollar effect attributable to the change in the interstate allocation formula each year.  In this
case, this means that LECs were required to treat as an exogenous cost change the dollar effect of
using the allocation formulas in effect for the current tariff period (e.g., 1993-94) as compared to the
prior period (e.g., 1992-93), "measured at the base period level of operations."  Because the LECs
are to use "base period level of operations" when measuring the cost change attributable to the
change in the interstate allocation formula, the LECs are required to calculate the DEM factor for
purposes of the 1992-93 and 1993-94 interstate allocation formulas based upon 1992 minutes of
use. 

     16.  To determine the exogenous cost change attributable to the change in the interstate
allocation formulas for purposes of the 1993-94 annual access tariff year, US West calculated its
interstate allocation formula for the current tariff year (i.e., 1993-94) using projected minutes of use,
while using 1992 minutes of use to calculate its interstate allocation formula for the prior tariff year
(i.e., 1992-93).  In contrast, all the other price cap LECs used 1992 minutes of use in calculating their
interstate allocation formulas for both the prior and the current tariff periods.

     17.  In the 1993 Annual Access Order, the Bureau determined that US West's method of
calculating its exogenous adjustment due to the DEM transition differed from the practice of other
LECs.  The Bureau also found that this difference had a significant effect on US West's proposed
access rates and apparently violated the Commission's rules.  The Bureau therefore suspended US
West's rates for one day and designated the issue of its DEM calculations as part of this
investigation.

     2.   Positions of the Parties

     18.  US West asserts that, even if its DEM methodology differs from that of other LECs, it
has fully complied with all Commission rules governing the exogenous treatment of DEM.  US
West maintains that its DEM methodology has produced a rate reduction of $5.6 million more than
would have been expected if exogenous treatment had not been ordered for the transitional change
amounts.  

     19.  US West further asserts that the Commission's rules do not define the allocator for the
transition years, beyond requiring that carriers should complete the transition to DEM by January
1, 1993.  US West argues that DEM is not a constant number, but changes continually as the relative
number of interstate and intrastate minutes changes.  Thus, US West contends, every LEC is moving
toward a different allocation factor.  

     20.  In response, AT&T and MCI assert that nothing in US West's direct case refutes the
Bureau's determination in the 1993 Annual Access Order that US West's method of calculating its
exogenous amount was different from that used by other LECs and that its method did not appear
to comply with the Commission's rules.  AT&T asserts that "US West used 1992/93 measured
DEM to calculate the 1992/93 DEM allocator and then shifted position and relied on 1993/94 data
to calculate the 1993/94 DEM allocator."  This miscalculation, AT&T asserts, resulted in the
understatement of the exogenous decrease to be reported by US West for the DEM transition. 
AT&T and MCI assert that US West has understated its reduction in exogenous costs associated with
the DEM transition by approximately $5.5 million.

     3.   Discussion

     21.  The Commission's rules require a LEC to recognize exogenous cost changes attributable
to the transition to using the DEM factor alone as the method of allocating local switching equipment
costs between interstate and intrastate jurisdictions.  As discussed above, during each transition
year, the interstate allocation factor was computed as the weighted average of two elements.  The
first element was the percentage of switching costs allocated to the interstate jurisdiction as of
December 31, 1987, weighted by a factor that decreased each year of the transition.  The second
element was the interstate DEM allocator, weighted by a factor that increased each year of the
transition.  Beginning with tariff year 1993-94, the transition to total reliance on DEM to allocate
costs was complete.  

     22.  As discussed above, the DEM allocator is the ratio of interstate minutes of holding time
of the originating and terminating local switching equipment to total minutes of such holding time. 
The exogenous separations event is the change in the interstate allocation formula.  The exogenous
event is not, as US West suggests, the change in the DEM factor attributable to a change in the
relative number of interstate and intrastate minutes of holding time.  If there were no transition, there
would be no exogenous event simply because US West's DEM factor changed.  To capture the dollar
effect of the change in the allocations method, it is necessary to isolate the change in costs allocated
to the interstate jurisdiction attributable to our modification of the allocation formula, from the
change in such costs attributable to a change in the ratio of interstate to intrastate holding time for
US West.  

     23.  Our rules required US West to hold the DEM factor constant at the base year level. 
Thus, the LEC should have used the 1992 minutes of use as reported in its ARMIS 43-04, March
1993 report to compute its interstate allocation factors for both the 1992-93 base tariff period and
the tariff period under investigation.  US West's methodology incorrectly treated the change in the
DEM allocator itself as exogenous by using forecasted minutes of use to derive a 1993 allocation
factor for purposes of its 1993-94 annual access tariff filing.  This led to an understatement of the
cost changes attributable to the change in the different separations formulas applied in the 1992-93
and 1993-94 tariff years.  We therefore direct US West to recalculate its exogenous cost change by
substituting 1992 minutes of use for the forecasted minutes of use, and to revise its price cap indices,
upper limits on the service band indices in the service categories and subcategories, and maximum
carrier common line rates, and to implement refunds in accordance with the directions in Section V
of this Order.   

C.   Calculation of the "g" Factor by Bell Atlantic and SNET

     1.   Background

     24.  The LECs' common lines are loops linking the end user's premises to the LEC's central
office.  The actual costs of these loops are non-traffic sensitive; that is, the cost of a loop does not
depend on how much it is used.  Although common line costs are non-traffic sensitive, these costs
are nonetheless recovered in part through per minute charges.  Specifically, the LECs recover a
portion of common line costs through carrier common line charges assessed on interexchange
carriers and other access customers using switched, interstate access services based on minutes of
use.  The LECs recover the remainder of common line costs through flat rates charged to end users. 
The rules governing how a LEC must compute interstate rates to recover common line costs appear
in Part 69 of our rules.  Price cap regulation treats these elements 
collectively in the common line basket.

     25.  The price cap formula for the common line basket is slightly different from the formula
used to cap the other baskets.  This difference stems from the fact that, although actual common line
costs are non-traffic sensitive, a portion of those costs is recovered through the per minute carrier
common line charge.  In fashioning the price cap plan, the Commission sought  to devise a formula
for the carrier common line rates that would pass a portion of the benefits of the growth in minutes
per line for the common line element to the interstate ratepayers, while allowing a LEC to continue
to recover a reasonable level of common line costs and providing incentives for increased LEC
productivity.  The carrier common line formula therefore includes a surrogate growth factor based
on the LECs' historical common line demand growth (i.e., growth in minutes per line) to protect
ratepayers from paying common line charges that are unreasonably high in light of demand growth. 
Changes in common line demand growth are measured by a factor known as the "g" factor.  The
price cap rules define the "g" factor as "the ratio of minutes of use per access line during the base
period, to minutes of use per access line during the previous base period, minus 1."  The
Commission's rules define the "base period" for price cap LECs as "the 12-month period ending six
months prior to the effective date of annual price cap tariffs . . . ."  The higher the "g" factor, the
lower the common line PCI will be.
  
     26.  In their "g" factor calculations for the 1993 annual access filings, Bell Atlantic
annualized its fourth quarter 1992 line count and SNET annualized its December 1992 line count
instead of using the actual line count for the full calendar year 1992 base period.  The "g" factor
calculations of Bell Atlantic and SNET were therefore designated for investigation.

     27.  In its "g" factor calculations for the 1994, 1995, and 1996 annual access filings, Bell
Atlantic again annualized its prior year fourth quarter (1993, 1994, and 1995, respectively) line
count.   The Bureau suspended Bell Atlantic's calculation of the "g" factor for purposes of its 1994,
1995, and 1996 filings for one day and incorporated them into the 1993 investigation.  The Bureau
also ordered that Bell Atlantic's 1994, 1995, and 1996 transmittals be subject to the 1993 accounting
order.

     2.   Positions of the Parties

     28.  Bell Atlantic asserts that it correctly calculated the "g" factor in its annual price cap tariff
filings.  Bell Atlantic states that it has consistently used the end-of-year number of access lines.  Bell
Atlantic and SNET argue that the basis for determining minutes and lines must be consistent from
year to year to avoid distortions in the PCI.  Bell Atlantic contends that since all of the individual
factors underlying the "g" calculations represent annualized amounts, there is no distortion in the
calculation.  Applied consistently over time, Bell Atlantic argues, its method leads to reasonable
rates.  SNET asserts that there is no material difference in its "g" factor whether using a December
comparison, or a comparison based on annual figures.  This conclusion notwithstanding, SNET
expresses a willingness to use the full year methodology if the Commission so requires.

     29.  AT&T responds that the Commission should not permit SNET and Bell Atlantic to
perpetuate an erroneous practice merely for the sake of preserving historical consistency for those
carriers.  AT&T argues that the carriers' reliance on a partial year's line count data to develop their
"g" factors has resulted in substantial overstatements of their common line basket PCIs.  According
to AT&T, Bell Atlantic's PCI was overstated by $5.45 million, while SNET's price cap for that
basket was overstated by $104,000.  AT&T argues that relying on partial year data could impede
administration and enforcement of the LEC price cap plan because it is impossible to validate the
accuracy of Bell Atlantic's and SNET's "g" factor computations from the full annual line count data
reported in tariff review plans (TRPs) for these tariff filings.

     3.   Discussion

     30.  We find that SNET (in its 1993 annual access filing) and Bell Atlantic (in its 1993, 1994,
1995, and 1996 annual access filings) incorrectly calculated the "g" factor.  Section 61.45(c) of the
rules, as previously stated, defines "g" as "the ratio of minutes of use per access line during the base
period, to minutes of use per access line during the previous base period, minus 1."  Revenues
included in the PCI calculation are based on an entire year period.  The various factors in the PCI
formula should therefore be defined using similar periods to avoid distortions based on seasonal
variations.  Thus, a count of access lines in the appropriate year should reflect the average line count
"during the base period" year instead of the line count during some portion of the year.  Use of
partial year data creates the risk that seasonal fluctuations in demand occurring during the year will
skew the PCI calculations.  Full year data are required to avoid this risk.  We note that a full year's
average should be used in both the base year and the prior base year to avoid the inaccuracy that
would occur if data from different periods were used to calculate average line counts in the two
years.  We therefore direct Bell Atlantic and SNET to correct their "g" calculations, and to revise
their price cap indices, upper limits on the service band indices in the service categories and
subcategories, and maximum carrier common line rates, and to implement refunds in accordance
with the directions in Section V of this Order.   

D.   Bell Atlantic's and Pacific Bell's Omission of End User Revenues from the Common Line
     Basket for Sharing Purposes

     1.   Background

     31.  Under the rules in effect at the time of the 1993 and 1994 annual access filings, price cap
LECs electing the 3.3 percent productivity factor were permitted to retain all of their earnings up to
12.25 percent, but were required to share 50 percent of their earnings between 12.25 percent and
16.25 percent, and 100 percent of their earnings in excess of 16.25 percent.  LECs selecting the 4.3
percent productivity factor were permitted to retain all of their earnings up to 13.25 percent, but were
required to share with their customers 50 percent of their earnings between 13.25 percent and 17.25
percent, and 100 percent of their earnings in excess of 17.25 percent.   Under the LEC price cap
sharing mechanism, the customer's share plus interest is effectuated through a one-time reduction
in the PCI for the next rate period, calculated in the same manner as other exogenous changes in the
formula.  On the other hand, the low-end adjustment mechanism entitled carriers whose earnings
dropped below 10.25 percent to retarget rates to that level in the following tariff year.  Together,
these adjustments were safeguards against possible errors the Commission may have made in setting
the productivity factor.  Section 61.45(d)(4) of the Commission's rules requires carriers to allocate
exogenous cost changes, such as sharing adjustments, among price cap baskets on a "cost-causative"
basis.  

     32.  In its 1993 annual access tariff filing, Bell Atlantic subtracted end user revenues (also
known as subscriber line revenues) from total common line basket revenues for purposes of
allocating sharing amounts among the four price cap baskets.  In the 1993 Annual Access Order, the
Bureau designated the issue of whether this action by Bell Atlantic was correct.  In its direct case
filed in response to the 1993 Annual Access Order, Pacific stated that Pacific Bell (but not Nevada
Bell) also omitted end user revenues from the common line basket for purposes of allocating sharing
amounts among price cap baskets.

     33.  In their 1994, 1995, and 1996 annual access tariff filings, Bell Atlantic and Pacific Bell
again subtracted end user revenues from total common line basket revenues for purposes of
allocating sharing amounts among the four price cap baskets.  In the 1994 Annual Access Orders, the Price Cap Carriers' 1995 Annual Access Order, and the 1996 Annual Access Order, the Bureau
found that the exclusion of subscriber line revenues from the computation that allocates the sharing
obligation among different baskets was one of the issues designated for investigation in CC Docket
No. 93-193, suspended Bell Atlantic's and Pacific Bell's 1994, 1995, and 1996 tariffs for one day,
and incorporated them into the tariff investigation in CC Docket No. 93-193.  The Bureau also
ordered that Bell Atlantic's and Pacific Bell's 1994, 1995, and 1996 transmittals be subject to the
accounting order in CC Docket 93-193.  

     2.   Positions of the Parties

     34.  In its direct case, Bell Atlantic argues that sharing was incorporated in the price cap rules
for two purposes: (1) to function as a safety mechanism, if the Commission's productivity factor was
set incorrectly; and (2) to share with customers the benefits of interstate earnings above designated
levels.  Bell Atlantic asserts that end user rates are based on forecasted costs and demand and, unlike
other rates, "are not affected by the Price Cap indices, including the productivity factor."  Bell
Atlantic maintains that, because sharing amounts are based on productivity gains, "allocating sharing
amounts on revenues that are not affected by productivity is not a cost-causative approach."

     35.  Pacific states that the Commission's price cap rules and its decisions do not specify in
detail how sharing is to be allocated because the sole criterion is that sharing must be allocated on
a cost-causative basis.  Pacific maintains that to allocate sharing based on all interstate revenues,
including end user subscriber line revenues, would assign 63 percent of the total sharing amount to
common line, which, excluding the end user revenues, generates only 16 percent of the total
interstate revenues.  This result, according to Pacific, violates the Commission's rules that amounts
be allocated on a cost-causative basis.  

     36.  AT&T and Allnet argue that the Bureau's 1992 Annual Access Order rejected a similar
attempt by Bell Atlantic and others to target their sharing allocations to particular access services
that the LECs claimed had contributed most to productivity gains.  AT&T asserts that the
Commission should conclude that Bell Atlantic's and Pacific's PCIs based upon the exclusion of end
user revenues from their sharing allocation are unreasonable, and require carriers to recompute those
indices following correct assessment of cost causation.

     3.   Discussion

     37.  Bell Atlantic and Pacific Bell maintain that end-user revenues should be removed from
the common line basket before a carrier calculates the basket revenue allocators (each basket's
revenue as a percent of the total revenue) used to allocate sharing among the baskets.  Bell Atlantic
and Pacific argue that end-user charges are designed to earn the LEC a net return of 11.25 percent,
the prescribed rate, and thus a sharing obligation is irrelevant because sharing is based on earnings
in excess of 12.25 percent. Their basket-by-basket approach to sharing has been rejected by the
Commission in the LEC Price Cap Order and LEC Price Cap Reconsideration Order.  The sharing
mechanism was created as a backstop to the price cap plan as a whole and is based on overall
interstate earnings rather than individual rates or basket earnings. This unitary approach to sharing
is consistent with the unitary productivity X-factor, that is based on the overall performance of the
interstate access market. 

     38.  Section 61.45(d)(4) of the Commission's rules provides that exogenous cost changes,
such as sharing adjustments, shall be allocated among the price cap baskets on a cost-causative
basis.  Basket revenues in appropriate circumstances can be used as a proxy for costs.  To exclude
EUCL revenues from the common line basket distorts the use of revenues as a proxy for costs
because total revenues would not used.  Therefore, we reject Pacific and Bell Atlantic's contention
that EUCL revenues may be excluded for purposes of allocating sharing amounts.

     39.  For these reasons, we conclude that Bell Atlantic in its 1993, 1994, 1995, and 1996
annual access tariff filings, and Pacific, in its 1994, 1995, and 1996 annual access tariff filings, by
excluding end user revenues from their calculations, have incorrectly allocated their sharing
obligations among the various service baskets.  We therefore direct Bell Atlantic and Pacific Bell
to correct how they allocate their sharing adjustments among baskets, and to revise their price cap
indices, upper limits on the service band indices in the service categories and subcategories, and
maximum carrier common line rates, and to implement refunds in accordance with the directions in
Section V of this Order. 

     40.  Although the issue was not designated for investigation, we also find unlawful Pacific's
method of allocating its sharing obligations in its 1993 annual access filing, in the facts of this
particular case, because it is the same method used by Pacific Bell in its 1994, 1995, and 1996
annual access filings, and by Bell Atlantic in its 1993, 1994, 1995, and 1996 annual access filings. 
We do not direct Pacific to make a refund for incorrectly allocating its sharing obligations in its 1993
annual access tariff filing because under Section 204(a)(1), the rates must be suspended before
refunds can be ordered and the Commission did not suspend Pacific's rates with respect to this issue
in its 1993 annual filing for its sharing adjustments. 
   
     41.  In the Second 1994 Annual Access Order, the Bureau stated that, after the termination
of the 1993 investigation and prior to the termination of the 1994 investigation, we would permit
Pacific to present any legal argument or factual circumstances that might lead us to conclude that
the decisions reached in CC Docket No. 93-193 on sharing allocation issues should not control our
treatment of Pacific Bell's 1994 access transmittals.  As noted above, the issue raised by Pacific's
1994 annual access tariff filing (i.e., whether our price cap rules permit the exclusion of subscriber
line revenues from the computation of revenues used to allocate the sharing obligation among
baskets) is the same issue raised by Bell Atlantic's 1993 (and 1994, 1995, and 1996) annual access
tariff filings and designated for investigation in CC Docket No. 93-193.  Pacific filed comments and
replies in CC Docket No. 93-193 addressing this issue in response to the 1993 Annual Access
Order.  

     42.  We find that Pacific has had sufficient opportunity to present evidence and argument on
this issue and, in fact, has done so.  As discussed above, Pacific has failed to persuade us that the
LECs should be permitted to exclude end user revenues from the common line basket for the
allocation of sharing adjustments.  For these reasons, and because the issue presented is precisely
the same for each year, we believe it is unnecessary to provide Pacific further opportunity to
comment, and we resolve our investigation of this issue for purposes of Pacific Bell's 1994, 1995,
and 1996 annual access filings. 

E.   General Support Facility Costs

     1.   Background

     43.  On May 19, 1993, the Commission released an order adopting rules correcting the
misallocation of GSF investment and related expenses among the access categories in Part 69.  GSF
investment includes items such as land, buildings, computers, motor vehicles, and furniture that
support the operations of the carrier.  Prior to the GSF Order, the Commission required LECs to
exclude GSF investment from the common line category, which increased the GSF allocation to the
other Part 69 categories.  The GSF Order modified the Commission's rules to require that GSF
investment also be allocated to the common line category.  The Commission held that the exclusion
of the common line category from the formula for allocating GSF investment resulted in an under-
allocation of GSF investment to the common line category and an over-allocation of such investment
to other access categories.  The Commission also concluded that price cap LECs should be
allowed to treat as exogenous the reallocation of GSF costs and that these LECs should adjust their
PCIs to reflect the reallocation.  The GSF Order directed the LECs to file tariff revisions reflecting
the effect of the changed allocation process on fourteen days' notice, to become effective July 1,
1993, the same date their 1993 annual access tariff filings were to go into effect.  The LECs filed
their transmittals reflecting the tariff revisions on June 17, 1993.  During its review of the LECs'
annual access tariff filings, the Bureau considered the GSF tariff filings.  The Bureau noted that
petitions to suspend or reject the GSF filings were due at virtually the same time that the Bureau was
to release the 1993 Annual Access Order.   Because it had only limited time to review the GSF
filings, the Bureau concluded that it should initiate an investigation to permit a more thorough
review to determine whether these filings comply with the Commission's GSF Order.  The Bureau
therefore suspended tariffs filed pursuant to the GSF Order for one day and imposed an accounting
order.




     2.   Positions of the Parties

     44.  The LECs that refiled their 1993 access rates based on the GSF reallocation assert that
they reallocated their GSF costs properly and that the resulting rates are just and reasonable.  Sugar
Land Telephone Company (Sugar Land), a LEC that participates in NECA's common line pool but
files its own traffic sensitive tariff pursuant to Section 61.39, states that its GSF costs were properly
reallocated and that the revised rates were developed for the biennial period from July 1, 1993 to
June 30, 1995 as required by the GSF Order.  Moreover, Sugar Land states that the impact of the
reallocated GSF costs resulted in a decrease in its traffic sensitive switched and special access rates
consistent with the GSF Order.  Bay Springs et al., also assert that their rates were properly
adjusted by applying the GSF costs reallocations to their actual historical costs pursuant to the GSF
Order.

     45.  AT&T asserts that the 26 companies that participate in the NECA common line pool,
but file their own traffic sensitive rates based on historical costs pursuant to Section 61.39, received
the benefits of the increase in the NECA common line charge due to the requirements of the GSF
Order, but did not simultaneously reduce their traffic sensitive rates as also required by the GSF
Order.  AT&T maintains that these 26 companies are receiving an unwarranted double recovery
of approximately $3.4 million because of this failure.  AT&T argues that although NECA may
have no authority to compel these 26 companies to file tariffs that reflect the appropriate traffic
sensitive reductions, NECA must still make reasonable efforts to ensure that all LECs in the NECA
pool comply with the Commission's rules.  Finally, AT&T argues that if LEC data submitted to
NECA do not comply with the Commission's rules, NECA must correct the data in its revenue
requirement computations.  AT&T claims that NECA is obligated by Commission order to adjust
the common line revenue requirement to eliminate the $3.4 million double recovery.

     46.  NECA contends that AT&T would have the Commission contradict its own rules
regarding the allocation of GSF related costs to the common line category.  Further, although
NECA states that it does not dispute AT&T's claim that it has the responsibility to ensure that the
Commission's rules are followed as they relate to the revenue requirement and revenue distribution
processes of its tariff participants, NECA claims that its filing does reflect the accurate common line
revenue requirement data.   NECA argues, however, that it does not have the authority to withhold
common line payments to LECs that have provided accurate common line revenue requirements in
accordance with Commission rules.  

     47.  Among the LECs identified by AT&T that allegedly double recovered GSF costs,
Coastal et al. (Coastal), the LECs represented by GVNW, Inc./Management (GVNW), and the
City of Brookings Municipal Telephone filed rebuttals.  Coastal and GVNW argue that the small
LECs that participate in NECA's common line pool but file their own traffic sensitive tariffs, were
not required to retroactively apply the changes in the GSF reallocation which became effective on
July 1, 1993, subsequent to the historic period ending December 31, 1992, upon which their 1993
traffic sensitive rates were based.  GVNW asserts that the GSF changes would be reflected in the
1995 tariff filing based upon 1993 historical data.  The City of Brookings Municipal Telephone
which participates in NECA's common line pool but elected to file its own traffic sensitive tariff for
the first time in 1993, asserts that it correctly based its traffic sensitive rates on NECA's average
schedule pool settlement method pursuant to Section 61.39 (b)(2). 

     3.   Discussion

     48.  We have reviewed each carrier's GSF tariff transmittal and all associated pleadings and
conclude that most carriers' costs and rates properly reflect the GSF allocation in the 1993 annual
filings.  We conclude that there may have been a double recovery of a portion of GSF costs by
carriers that participated in NECA's common line tariff but filed individual tariffs for the traffic
sensitive rates, pursuant to Section 61.39 of the Commission's rules.  These overcharges would
have occurred from July 1, 1993 through June 30, 1995; for these carriers the GSF reallocation may
have been first reflected in traffic sensitive rates effective on July 1, 1995.  These carriers fully
recovered their GSF expense through their traffic sensitive rates, because their traffic sensitive rates
were based on 1992 costs before the GSF reallocation on June 17, 1993.  At the same time, NECA's
rates which became effective on July 1, 1993 reflected the reallocation of GSF cost to the common
line category, pursuant to Section 61.38 of the Commission's Rules.  Therefore, there was a double
recovery for these Section 61.39 companies that recovered their full GSF expense through their
traffic sensitive rates and again through the NECA common line pool, unless they adjusted their
individual traffic sensitive rates. 

     49.  Coastal and GVNW are correct that the GSF reallocation occurred after the 1992
calendar year upon which the traffic sensitive rates were based.  The rates in question, however, were
unreasonable to the extent carriers were recovering the same cost through both the carrier common
line (CCL) rates and traffic sensitive rates and should have eliminated this double recovery in light
of the Commission's determination in the GSF Order that it was necessary to correct for the
misallocation of GSF costs because the exclusion of the common line category from the formula for
allocating GSF investment allocated too little GSF investment to the common line category and too
much GSF investment to other access categories.

     50.  The record is not clear that each of these LECs did not correct their individually filed
traffic sensitive rates.  We direct the carriers that participated in NECA's common line pool and filed
individual tariffs for traffic sensitive rates pursuant to Section 61.39 to provide a complete
explanation of any rate adjustments they made to prevent the double recovery described above.  This
shall include explanations detailing the allocation of GSF costs and revisions to traffic sensitive rates
and tariffs previously filed to eliminate any double recovery.  We further direct these LECs to submit
a plan for any corrective action that may be necessary to eliminate the double recovery of GSF costs. 
Carriers may be required to make refunds, depending on the facts submitted.  We require this
information to be submitted by May 1, 1997.  We will delegate to the Chief, Common Carrier
Bureau authority to review the LECs' explanations of GSF allocations, rate adjustments, and any
plans for corrective action that may be necessary to correct for double recovery of GSF costs, as well
as to take any further actions that may be necessary to ensure compliance with our requirements.

F.   Category Assignment for Line Information Data Base Query Charge

     1.   Background

     51.  When setting up calls, interexchange carriers pay LECs for access to the Line
Information Data Base (LIDB) to validate LEC-issued calling cards through the LEC data bases. 
In the 1993 annual access filings, the LECs incorporated LIDB service for the first time into the
price cap baskets and placed that service in the traffic sensitive basket.  With the exception of one
LEC, they included the per query charges (LIDB query and LIDB transport) in the local transport
service category within that basket.  The LIDB query charge is the charge for making a data base
inquiry to validate a customer's calling card number.  The LIDB transport charge, for connection
between the switching transfer point port and a LIDB data base, is also charged on a per query
basis.  United is the only carrier that placed the per query elements in the local switching category
of the traffic sensitive basket. 

     52.  On January 29, 1993, the Commission created a new, separate service category within
the traffic sensitive basket for data base access services, effective March 1, 1993.  As noted
previously, the LECs filed their 1993 annual access tariffs on April 2, 1993.  In the 1993 Annual
Access Order, we concluded that we should investigate the proposed tariff changes of those price
cap companies that incorporated LIDB charges into the price cap baskets.

     2.   Positions of the Parties

     53.  United and Allnet assert that transporting a LIDB query from the interexchange carrier
(IXC) to the LEC switching transfer point requires the use of transport facilities, while transporting
the query among the facilities of the LEC and determining where to route the underlying call
requires only the use of switching facilities. United and Allnet maintain that switching facilities
are used to route calls to their destination or to determine whether calls should be completed at all. 
According to these parties, the LIDB similarly makes logical decisions concerning call routing. 
Thus, they reason, LIDB should be included in the local switching category of the traffic sensitive
basket.

     54.  Many of the LECs, however, argue that the LIDB per query charges should be assigned
to the transport category in the traffic sensitive basket.  Ameritech asserts that, because LIDB
includes a charge for call transport, both the LIDB per query charges should be placed in the local
transport service category within the traffic sensitive basket.  Southwestern argues that LIDB
validates billing information; it does not provide call routing and delivery information.  The fact that
the query is associated with a call is not enough to justify placing LIDB in the local switching
category, according to Southwestern.  Several LECs assert that because LIDB validation service
is dependent on network interconnection, and because network interconnection costs and revenues
are included in the transport category, LIDB validation service costs and revenues should also be
placed in the transport category.

     55.  A number of LECs also argue that the LIDB rates are properly placed in the local
transport category because this placement corresponds to how LIDB investment is assigned.  They
maintain that under Part 32 of the Commission's rules, LIDB investment is recorded in Account
2212 - Digital Electronic Switching.  These LECs state that the investment is then categorized as
central office equipment (COE) Category 2 - Tandem Switching in Part 36 of the rules.  Under Part
69, Tandem Switching Investment is assigned to the local transport category.  Therefore, in order
to maintain consistency between the assignment of investment and revenues, these carriers argue,
LIDB rates are properly placed in the local transport category.

     56.  AT&T argues that a new service category, with five percent upper and lower band limits,
should be established within the traffic sensitive basket for the LIDB per query charges because there
is no competition for LIDB and, therefore, there is the danger that the LECs will raise the LIDB per
query charges in order to lower the prices for other more competitive services. 

     57.  The LECs generally oppose establishing a new service category for the LIDB query
element, arguing that a new category is unnecessary and would conflict with the Commission's price
cap goal of simplifying regulation.  They assert that the practical effect of establishing a new
service category for the LIDB query charge would be to create rate element level banding, which the
Commission rejected during the price cap proceeding.

     58.  GTE asserts that, while it believes that the most appropriate category for the LIDB query
charge is the local transport category in the traffic sensitive basket, as an alternative, the charge could
be included in the 800 data base category, the category established by the 800 Data Base Access
Order.  This alternative, GTE argues, should resolve AT&T's concern that the LECs might
increase the rate for this element in order to reduce other rate elements in the local transport
basket.

     3.   Discussion

     59.  As discussed above, the Commission in the 800 Data Base Order created a separate
service category within the traffic sensitive basket for data base service.  Interexchange carriers
pay LECs' LIDB rates to verify LEC-issued calling cards through the LECs' data bases.  Thus, LIDB
service is actually a data base service and, therefore, is most appropriately placed in the data base
service category within the traffic sensitive basket.

     60.  Including the LIDB charges in the data base service category, along with services such
as 800 data base services, is consistent with the price cap principle that calls for grouping similar
services together to limit the LECs' ability to shift costs among services in a potentially anti-
competitive manner.  Specifically, grouping services with common characteristics, such as similar
functionalities and levels of competition, within the same category is intended to give the LECs
pricing flexibility with respect to comparable services and to restrict the ability of LECs to offset
increases for some services with rate decreases for dissimilar services.  LIDB service and 800 data
base services are not only functionally similar (in that they both provide access to data base
information), but they share similar competitive circumstances (i.e., neither service is subject to
competitive pressures).  

     61.  The fact that the LIDB service involves switching functions (i.e., call routing and
completion functions) does not persuade us that the LIDB charge should be included in the former
local switching category of the traffic sensitive basket, as United proposes.  Further, because
transport services face increasing competition as a result of the Commission's expanded
interconnection policies, while the LECs have a virtual monopoly over the information contained
in the line information data base, placing the LIDB query charges in the transport category would
be inconsistent with the Commission's price cap principle of grouping services with similar demand
elasticities.  

     62.  We conclude that the data base service category within the traffic sensitive basket is the
appropriate category in which to place the LIDB query charges.  We therefore direct the LECs
referenced in Appendix B to place the LIDB query charges in the data base service category within
the traffic sensitive basket and to revise their price cap indices, upper limits on the service band
indices in the service categories and subcategories, and maximum carrier common line rates, and to
implement refunds for the 1993 annual access tariff in accordance with the directions in Section V
of this Order.   

     63.  Although the issue of the proper service category placement for LIDB query charges was
not designated for investigation in the 1994, 1995, and 1996 annual access filings, we also find the
LECs' placement of the LIDB query charges in service categories other than data base service
category in these years to be unlawful for the reasons discussed, supra.  We do not direct the LECs,
referenced in Appendix B, to make a refund for placing the LIDB query charges in the incorrect
service category for the 1994, 1995, and 1996 annual access filings because under Section 204(a)(1),
the rates must be suspended before refunds can be ordered and the Commission did not suspend the
1994 through 1996 annual access rates of these LECs with respect to their placement of LIDB query
charges in service categories other than the data base service category. 

G.   Roseville Cash Working Capital 

     1.   Background

     64.  Cash working capital is an estimate of the average amount of investor-supplied capital
needed to fund a carrier's day-to-day operations.  This amount is one element of the investment
component of a rate-of-return carrier's revenue requirement used to compute rates.  In order to
determine the working capital requirements for day-to-day operations, lead-lag studies measure the
patterns of cash inflows and outflows relative to the time when service associated with those costs
and revenues is rendered.  "Lead" describes those revenues and expense items that are received or
paid before a service is rendered.  "Lag" describes those revenue and expense items that are received
or paid after service is rendered.  The Commission's rules permit carriers to compute their cash
working capital by using either a full lead-lag study, the "Simplified Formula Method," or the
"Standard Allowance Method."  Because the computation by Roseville, a rate-of-return carrier,
of its cash working capital was inconsistent with those of other LECs, the Common Carrier Bureau
suspended its filing for one day, issued an accounting order and included it in this investigation.  

     2.   Positions of the Parties

     65.  Roseville admits that, in amending Part 65, the Commission concluded that "properly
developed lead-lag studies are the most appropriate method for determining interstate cash working
capital."  Nonetheless, Roseville contends that nothing in those orders precluded a carrier from
using a lead-lag study based on individual company circumstances.

     66.  Roseville contends that its cash working capital allowance was based on a properly
performed lead-lag study.  According to Roseville, evaluating the reasonableness of its cash working
capital allowance by comparing it with those of carriers using the Standard Allowance Method is
improper because Roseville's result is more accurate.  Therefore, Roseville maintains, its calculation
of its cash working capital allowance results in just and reasonable rates.  No oppositions or
rebuttal were filed addressing this issue.

     3.   Discussion

     67.  We have reviewed Roseville's lead-lag study and have determined that this study
contains several flaws.  First, the lead-lag study is outdated because it used 1989 data and there is
no way for us to determine if these data are representative of Roseville's 1993 operations covered
by the tariff under review.  

     68.  Second, the months studied for individual revenue categories were not consistent.  For
example, Roseville used September-December 1989 to calculate the Carrier Access Billing revenue
lag, but used April-June 1989 to calculate the Other Common Carrier Revenue lag.  

     69.  Third, Roseville included in its lead-lag study adjustments to prior period data that,
although permitted under NECA's internal procedures, lead to unreasonable results when computing
cash working capital requirements.  NECA's procedures allow for adjustments to prior period data
for up to 24 months after rates based on the data became effective.  NECA's retroactive adjustment
mechanism allows carriers to adjust their previously submitted data to account for such events as
erroneous separations studies, clerical errors, rule changes, and extraordinary accounting
adjustments.  For its lead-lag study, Roseville chose a 12-month period that included a substantial
retroactive adjustment (i.e., an adjustment that resulted in Roseville's receiving a large late payment
from the NECA settlement process) that significantly increased Roseville's revenue lag.  Because
there is little, if any, correlation between retroactive adjustments and current expenses, we conclude
that the former are not a reasonable indicator of the cash working capital needed by Roseville to
finance its day-to-day operations.  We note also that LECs have not previously included these types
of retroactive adjustments from NECA in their lead-lag studies and we believe that the inclusion of
such adjustments by Roseville distorted its lead-lag results.  

     70.  Finally, Roseville's computation of its income tax lag is flawed because it includes
delays in the receipt of tax refunds for overpayment of estimated taxes.  We find it is inappropriate
to permit Roseville to include tax overpayments as part of its lead lag study used to support its 1993
cash working capital allowance.  Ratepayers should not bear the cost of management's decision to
overpay the company's estimated taxes.  The overpayment of taxes is not a day-to-day cost of doing
business and thus, it does not warrant inclusion in a carrier's working capital allowance. 
Collectively, these observations lead us to conclude that Roseville's lead-lag study cannot be used
to compute its cash working capital allowance because the study produces an inaccurate estimate of
its revenue requirement.  We therefore require Roseville to utilize the standard 15-day allowance
method to calculate its cash working capital, and to implement refunds in accordance with the
directions in Section V.D. of this Order.  To determine the carrier's working capital allowance under
the standard 15-day allowance method, the carrier's total annual cash operating expenses are divided
by 365 days to determine the average daily cash operating expenses.  A carrier's average daily cash
operating expenses are then multiplied by the standard cash working capital allowance of 15 days
to derive its cash working capital determination.  

              III.   AT&T'S APPLICATION FOR REVIEW

1.   Background

     71.  In a companion order to the Modification of Final Judgment (MFJ), the U.S. District
Court required AT&T to guarantee the Bell Operating Companies' (BOCs') recovery of the costs of
providing equal access to IXCs.  The District Court also directed AT&T and the BOCs to develop
a procedure to account for equal access and network reconfiguration (EANR) costs.  In 1985,
AT&T and the BOCs petitioned the Commission to approve an accounting plan for EANR costs. 
AT&T and the BOCs estimated that total equal access expenditures would exceed $2.6 billion and
would be incurred over a short time.  

     72.  In response, the Commission in the EANR Order identified only certain costs that would
be treated as equal access costs, including: (1) initial additional costs for hardware and software
related directly to the provision of equal access, and not otherwise required; (2) costs of connecting
offices that serve competitive IXCs; and (3) costs that have been incurred as a result of bona fiderequests for conversion to equal access.  The Commission required the BOCs to amortize equal
access costs over an eight-year period that would expire on December 31, 1993.  The Commission
concluded that the establishment of a fixed amortization period with a definite termination point of
December 31, 1993, would avoid substantial irregular fluctuations in rates and reduce the
administrative burdens of tracking equal access costs.

     73.  In the LEC Price Cap Order, the Commission decided to treat all equal access costs
endogenously because the mandatory price cap LECs had converted most of their end offices to
equal access and most of these equal access costs were embedded in their initial price cap rates.  The
Commission thus found that it was unnecessary to further promote equal access conversion among
price cap carriers by treating those costs as exogenous. The Commission also noted the potential
difficulties associated with assessing future equal access exogenous cost claims by LECs, and the
corresponding risk that carriers "could willfully or inadvertently shift switched access costs into the
equal access category. . . ."
 
     74.  In the LEC Price Cap Reconsideration Order, the Commission affirmed its decision
to treat equal access costs endogenously.  In addition, the Commission rejected a proposal that
would have required a downward exogenous cost adjustment to the BOCs' PCIs upon the
termination of the equal access cost amortization.  In reaching its decision, the Commission found
that endogenous cost treatment for the elimination of equal access costs is consistent with its
treatment for changes in depreciation levels.  The Commission determined that nothing in the
"meager factual record" persuaded the Commission "to depart from our practice of not adjusting
PCI levels to reflect levels of cost recovery" so as to require a downward exogenous cost
adjustment in 1994 to eliminate all equal access costs.

     75.  In the 1994 Annual Access Orders, the Bureau denied AT&T's and MCI's petition to
suspend and investigate the 1994 annual LEC access tariff filings on the grounds that the price cap
carriers had failed to make adjustments to their price cap indices to reflect the full amortization of
equal access costs.  The Bureau stated that, in the LEC Price Cap Reconsideration Order, the
Commission had rejected a proposal that would "require a downward adjustment in PCI levels in
1994 to eliminate all equal access costs."  The Bureau found that, even if the equal access cost
amortization did warrant exogenous treatment, such treatment would require a substantive rule
change because Section 61.45(d) does not provide for exogenous treatment of the equal access cost
amortization and no LEC has otherwise petitioned for, and been granted, a waiver of that rule. 
AT&T filed an application for review of that decision.  MCI filed comments in support of AT&T's
application for review.  Bell Atlantic, BellSouth, NYNEX, Pacific, Southwestern, and US West
filed oppositions. 

2.   Positions of the Parties

     76.  AT&T alleges that the Bureau erred in "deny[ing] exogenous treatment of [the expiration
of] equal access cost amortizations for . . . LECs subject to price cap regulation." AT&T contends
that, because equal access costs were fully amortized on December 31, 1993, the LECs should be
required to treat the expiration of the equal access cost amortization as an exogenous adjustment. 
AT&T asserts that, contrary to the Bureau's finding in the 1994 Annual Access Orders, the
Commission's decision in the LEC Price Cap Order to accord endogenous treatment to the ongoing
costs of equal access conversion "did not preclude exogenous treatment of the LECs' equal access
cost amortization."  AT&T claims that the Commission in the LEC Price Cap Order "addressed
the appropriate treatment of the LECs' ongoing costs of converting to equal access, rather than the
amortization of non-capitalized equal access costs previously incurred by those carriers under rate
of return regulation."  AT&T contends that the Commission's decision in the LEC Price Cap
Order "to treat ongoing equal access costs endogenously" was based on the difficulty of assessing
equal access costs and to prevent deliberate or inadvertent cost shifting.  AT&T claims that these
considerations are inapplicable to the "amortization of previously incurred equal access conversion
expenses because those amounts had already been reflected in the carriers' books well prior to the
adoption of incentive regulation, thereby obviating the likelihood of deliberate or unintentional
misallocation of switched access costs."  

     77.  AT&T contends that the LEC Price Cap Reconsideration Order similarly does not
preclude exogenous treatment of the termination of equal access cost amortization.  AT&T asserts
that the LEC Price Cap Reconsideration Order declined to treat the expiration of the amortization
as exogenous based on the "meager factual record" that was then available.  AT&T argues that
"[n]o such concerns are present . . . because all of the BOCs have made filings with the Decree Court
affirming that they have fully recovered their equal access and network reconfiguration expenses." 
AT&T also states that none of the other LECs subject to the equal access cost amortization submitted
any showing in their 1994 annual access tariff filings that they have not also fully recovered those
costs.  AT&T argues that the Bureau incorrectly determined in the 1994 Annual Access Ordersthat allowing exogenous cost treatment of the LECs' equal access expense amortization requires a
rulemaking or a successful LEC waiver request because Section 61.45(d)(1)(vi) provides exogenous
cost treatment for "such . . . other extraordinary exogenous costs changes as the Commission shall
permit or require . . . ." 

     78.  MCI urges the Commission to grant AT&T's application for review.  MCI maintains that
the BOCs "will experience [a] . . . cost change in 1994 that stems from factors beyond their
control" because "there is a reduction in the LECs' costs which results from the completion of a
Commission-mandated amortization, and not from productivity-enhancing efforts undertaken by the
LECs."  

     79.  Bell Atlantic, BellSouth, Pacific, Southwestern, NYNEX, and US West contend that the
Commission has repeatedly rejected arguments that the ongoing costs of converting to equal access,
as well as the completion of the amortization of such costs, should be accorded exogenous cost
treatment. They assert that the Commission has consistently held that all equal access costs are
to be treated endogenously.  Bell Atlantic and NYNEX claim that there has been no relevant
change in the law or the facts since the Commission first decided this issue that would warrant a
change in the treatment of these costs.  Bell Atlantic, BellSouth, NYNEX, and Pacific argue that
the Bureau would violate the Commission's rules if it were to provide for exogenous treatment for
the expiration of equal access costs.  NYNEX asserts that a change in the classification of equal
access costs would require a rulemaking proceeding or a grant of a LEC petition to waive the rule. 
NYNEX argues that the "meager factual record" noted by the Commission in the LEC Price Cap
Reconsideration Order concerned the issue of control over equal access costs. NYNEX asserts that
AT&T has failed to present any new facts that were not before the Commission in the original price
cap orders to warrant a change in the treatment of equal access costs.  

     80.  Southwestern asserts that AT&T's claim that the BOCs have made filings with the
Decree Court affirming that they have all fully recovered their equal access and network
reconfiguration expenses is incorrect.  For example, Southwestern states that it is currently making
equal access conversion by means of alternate technology to 73 Oklahoma central offices, and is
upgrading 11 other Oklahoma central offices to equal access by full switch replacement.

3.   Discussion

     81.  In the LEC Price Cap Order and in the LEC Price Cap Reconsideration Order, we
determined that the amortization of equal access costs, as well as the expiration of the amortization
of such costs, should be treated endogenously under the LEC price cap plan.  Section 61.45(d)
restricts the categories of cost changes that price cap LECs are allowed to treat exogenously to those
specifically listed in that rule and those that the Commission may subsequently designate as
exogenous.  That section does not include equal access costs among those eligible for exogenous
cost treatment.  Therefore, a plain reading of Section 61.45(d) precludes exogenous treatment of
equal access costs.  In addition, even if the completion of the equal access cost amortization does
warrant exogenous treatment, such treatment would require a substantive rule change or a waiver
of Section 61.45(d) of the Commission's rules.  

     82.  Because exogenous treatment of amortized equal access expenses would require a
rulemaking, a waiver application, or an application for declaratory ruling, we deny AT&T's
application for review of the 1994 Annual Access Orders.  We have invited comment in the access
charge reform rulemaking proceeding on whether to amend our rules to require incumbent LECs to
make an exogenous decrease to one or more of their PCIs to account for the completion of the equal
access expense amortization on December 31, 1993.  We will address this issue in that rulemaking
proceeding. 

IV.   SOUTHWESTERN'S PETITION FOR CLARIFICATION OR RECONSIDERATION

1.   Background

     83.  Southwestern's petition addresses two issues raised by the 1994 investigations.  First,
in the 1994 Annual Access Orders, the Bureau concluded that certain carriers' proposals to treat
Commission regulatory fees as exogenous costs in their tariff filings violated the price cap rules. 
The Bureau reasoned that Section 61.45(d) limits the categories of exogenous costs to those listed
in the rule and those designated as such by Commission order and that Commission regulatory fees
are neither listed as exogenous in the rule nor have they been designated as such by Commission
order.  The Bureau stated that, absent a rulemaking, the only means available to obtain exogenous
treatment for the regulatory fees is to secure a waiver of Section 61.45(d).  Southwestern, although
it was not one of the carriers that included Commission regulatory fees as exogenous costs in its
tariff filings, requested that the Commission "clarify or reconsider that part of . . . [the First 1994
Annual Access Order] that implies that local exchange carriers (LECs) subject to price cap regulation
that wish to treat the new regulatory fees as exogenous costs should petition for a waiver of the
Commission's rules." 

     84.  The second issue raised in Southwestern's petition concerns its $6.04 fixed mileage
charge for DS1 services with zero miles of interoffice transport, applicable to the link between the
distribution (DSX) bay and the switch.  In the First 1994 Annual Access Order, the Bureau found
that Southwestern's DS1 zero mileage rate element was below the applicable PCIs and within the
governing service bands.  The Bureau also found that Southwestern had sufficiently responded to
a petition filed by MFS Communications Company concerning this charge.  Nonetheless the Bureau,
concerned about the potential for double recovery through the DS1 direct-trunked transport charge
(DTT) for transmission between the DSX bay and the switch and again through the residual
interconnection charges (RICs), suspended the tariff revisions that increased the fixed mileage
charge for DS1 services with zero miles of interoffice transport and made them subject to  the
Commission's on-going expanded interconnection investigation in CC Docket No. 93-162 and the
accounting order in that proceeding.  In its current petition, Southwestern has requested that the
Commission "clarify that. . . [Southwestern's] proposed $6.04 fixed mileage charge for DS1 services
with zero miles of interoffice transport is not subject to the expanded interconnection
investigation."

     85.  As previously stated, in its 1994 annual access filing, Southwestern had proposed the
$6.04 DS1 zero-mileage charge in the switched transport portion of its tariff under Transmittal No.
2344.  Then in response to an informal request from Commission staff, Southwestern also provided
for the $6.04 charge in the expanded interconnection portion of its tariff under Transmittal No. 2364. 
Prior to these two transmittals, Southwestern  filed Transmittal No. 2330, which clarified that the
$6.04 DS1 charge for a given link would be paid by either the expanded interconnection customer
using the link or the switched transport customer using the link but not by both.  The Bureau's
Order made both Transmittal Nos. 2344 and 2364 subject to the expanded interconnection
investigation.  The Bureau did not designate the matter of these transmittals for investigation in any
subsequent supplemental designation orders that would have established a notice and comment filing
cycle.  

2.   Position of the Parties

     86.  With respect to the treatment for ratemaking purposes of Commission regulatory fees
paid by price cap LECs, Southwestern claims that LECs have not always been required to file
petitions for waiver to obtain exogenous cost treatment of items not included under Section
61.45(d)(1)(vi) of the Commission's rules, and that absent a rule change, a petition for waiver
should not be required.  With respect to the carrier's fixed mileage charge for DS1 services with
zero miles of interoffice transport, Southwestern notes that the Bureau found in the First 1994
Annual Access Order that the charge was below the applicable price cap indices and within the
applicable service bands.  Southwestern maintains that in light of that determination, the $6.04
charge for the DS1 zero-mileage rate element should have been allowed to take effect without further
investigation.

     87.  BellSouth, filing comments in support of Southwestern's petition concerning exogenous
costs, stated that the Bureau misinterpreted the Commission's rules when it claimed that Section
61.45(d) limited the categories of costs eligible for exogenous treatment to those listed in the rule
and that carriers must file waiver requests to obtain exogenous treatment for unlisted costs. 
BellSouth argues that Section 61.45(d) does not present an exhaustive list of exogenous cost
changes, but also includes any other cost changes that the Commission shall permit.  BellSouth
also argues that the Commission has in the past permitted, without a waiver request, exogenous
treatment of cost changes that were neither specifically listed in Section 61.45(d) nor designated as
permitted exogenous cost changes by Commission order.  

     88.  MCI filed comments urging the Commission to reject Southwestern's petition concerning
exogenous costs.  MCI points to the Commission's United Depreciation Order in which the
Commission ruled that, "since general depreciation rate changes are treated endogenously under
price caps, United used the correct procedural device by seeking waiver of the Commission's rules
when it sought exogenous treatment for plant-related expenses."  MCI claims that there is no basis
for distinguishing between costs previously denied exogenous treatment and costs not specifically
granted exogenous treatment.  MCI argues that the Bureau was correct to reject exogenous claims
until a cost is declared to be exogenous in some forum other than the tariff review process.  MCI
claims that this requirement would confer the fullest due process on all affected parties.  

     89.  In its reply, Southwestern argues that the tariff process does allow parties to comment
on exogenous cost issues to the extent that they affect rates.  Southwestern claims that the tariff
process thus adequately protects the due process rights of all parties and that the waiver process is
thus unnecessary for evaluating exogenous cost issues.  Southwestern also challenges MCI's claim
that there is no difference between costs previously denied exogenous treatment and costs not
specifically granted exogenous treatment until the Commission deems otherwise through a
rulemaking or a waiver.  Southwestern argues that a waiver is only necessary when there is a
request to deviate from an established rule.  Southwestern claims that under Section 61.45(d)(1)(vi),
there is no need to request a waiver to allow a price cap carrier to file for exogenous cost treatment
for a cost for which the propriety of such treatment has not been specifically addressed in the past. 


3.   Discussion

     90.  In the Regulatory Fees Order, the Bureau on its own motion, granted common carriers
subject to price cap regulation a waiver of the rules to permit them to treat as exogenous costs
regulatory fees and changes to those fees imposed by Section 9 of the Communications Act of 1934,
as amended.  In light of the Bureau's decision, the issue raised by Southwestern is now moot.  We
thus dismiss as moot Southwestern's petition for clarification or reconsideration of this issue.
  
     91.  As for the second issue raised in Southwestern's petition, we find upon reconsideration
that Southwestern's $6.04 DS1 zero-mileage charge does not warrant an investigation at this time. 
We note that the Bureau found that the $6.04 switched transport charge was below the applicable
PCIs and within the governing service bands.  The price cap rules grant pricing flexibility for rate
elements within an individual basket as long as the average price of all the rate elements within that
basket falls below the applicable PCI and the rate elements are within the governing service bands. 
Therefore, Southwestern Bell's $6.04 charge is a presumptively reasonable rate under price caps
because it falls below the applicable PCIs and within the governing service bands.  We note further
that no party has filed an opposition to Southwestern's petition on this issue.  We therefore grant
Southwestern's petition for reconsideration of this issue.

     92.  We conclude further that Southwestern Bell's $6.04 DS1 charge is a switched access rate
element which under price cap regulation is in the trunking basket because it is not a rate element
that an interconnector would have to obtain in order to achieve interconnection to Southwestern's
facilities. It is, however, a rate element that a switched access customer, either directly or through
an interconnector, would have to obtain in order to connect a high capacity circuit to the switch.  To
avoid any customer confusion, and more importantly, to ensure that an interconnector is not assessed
this charge to obtain interconnection, we instruct Southwestern to eliminate the $6.04 charge for the
DS1 zero-mileage rate element from the expanded interconnection portion of its tariff as filed under
Transmittal No. 2364 and to eliminate the language filed under Transmittal No. 2330 stating that
either the switched transport customer or the expanded interconnection customer would be assessed
the $6.04 rate element but not both.

                     V.  REMEDIAL ACTIONS 

A.   Overview

     93.  We direct the LECs found by this Order to have violated the Commission's rules and
decisions, to apply the remedial actions in this Section V.  In Subsection B, we describe the
method for price cap LECs to lower on a going-forward basis the price cap indices and other pricing
limits to the pricing limits that would have been in place had they been set consistent with the
Commission's rules and decisions.  These new PCIs will become effective on June 30, 1997, and will
be used to calculate annual PCI adjustments on July 1, 1997.  

     94.  In Subsection C, we direct each LEC to lower the PCIs for one year from July 1, 1997
through an exogenous cost change, as a refund of overcharges that may have occurred during the
course of this investigation.  The LECs' 1997 tariff review plans (TRPs) were filed on April 2,
1997.  We direct these LECs to document the development of the PCI changes in Subsections B
and C in amended TRPs to be filed on May 1, 1997, in support of their annual PCI adjustments.  The
effects on rates from these PCI changes must be reflected in the annual access tariff filings to
become effective on July 1, 1997. 

     95.  In Subsection D, we direct Roseville, a rate-of-return carrier, to implement a refund for
its overstated cash working capital allowance by using the standard 15-day allowance method
discussed in Section II.G.3., supra.  Roseville is directed to submit its refund plan and supporting
documentation on May 1, 1997, and is required to implement refunds by lowering its tariff rates over
a one-year period from July 1, 1997 through June 30, 1998.

     96.  These remedial actions are applicable to: 1) U.S. West's incorrect method of calculating
exogenous costs associated with a change in the method of allocating local switching equipment
costs between state and interstate jurisdictions in its 1993 annual access tariff;  2) Bell Atlantic and
SNET's incorrect calculation of growth in minutes of use per line and, consequently, the maximum
carrier common line rates in their 1993, 1994, 1995, 1996 annual access tariffs and 1993 annual
access tariff, respectively;  3) Bell Atlantic's and Pacific Bell's improper exclusion of end-user
revenues from the common line basket, which led to an incorrect allocation of sharing obligations
among the price cap baskets in their 1993, 1994, 1995, and 1996 annual access tariffs and 1994,
1995, and 1996 annual access tariffs, respectively; 4) price cap LECs' incorrect placement of LIDB
charges in service categories other than the data base service category within the traffic sensitive
basket in their 1993 annual access tariffs; and 5) Roseville's use of an overstated allowance for cash
working capital, which resulted in an unjustifiably high increase in the revenue requirement in its
1993 annual access tariff.  We will delegate to the Chief, Common Carrier Bureau authority to
review the remedial actions discussed in this Section V and to take any action necessary to ensure
compliance with these remedial actions.

B.   PCI and Pricing Band Recalculations to Correct for Violations of the Rules

     97.  In this Subsection B, we provide instructions for the price cap LECs needing to correct
their PCIs and other pricing limits on a going-forward basis so that those PCIs are what would have
been in place had they been calculated consistent with the Commissions rules and decisions. 
Recalculations are to be made for the price cap index in each basket, the SBI upper limit in each
service category and subcategory, and the maximum CCL rates in the common line basket, from the
date the tariffs subject to this investigation took effect through the date the PCIs, SBI upper limits,
and maximum CCL rate changes pursuant to this Order take effect on June 30, 1997.  Our method
accounts for the intertemporal nature of the LEC price cap system -- i.e., each tariff year's PCIs, SBI
upper limits, and maximum CCL rates depend upon the prior year's values.  Accordingly, LECs
must recalculate their PCIs, SBI upper limits, and maximum CCL rates as required by the decisions
in this Order, starting with the PCIs, SBI upper limits, and maximum CCL rates in effect during the
1993 tariff year.  The LECs must then recalculate their PCIs, SBI upper limits, and the maximum
CCL rates in effect during the 1994 tariff year as required by the decisions in this Order, using the
recalculated 1993 PCIs, SBI upper limits, and maximum CCL rates.  This process is to be repeated
to recalculate the PCIs, SBI upper limits, and maximum CCL rates for the 1995 and 1996 tariff
years.

     98.  The tariff year begins on July 1st and ends on June 30th; e.g., the 1993 tariff year is the
period from July 1, 1993 through June 30, 1994.  Even though the LECs revise the PCIs, SBI upper
limits, and maximum CCL rates at the start of each tariff year, the LECs sometimes adjust those
PCIs, SBI upper limits, and maximum CCL rates as the tariff year progresses.  Because it would be
burdensome to recalculate each and every change to PCI, SBI upper limit, and maximum CCL rate
as it occurred throughout each year, we will only require recalculations at the beginning and middle
of each tariff year.  This procedure will reasonably approximate the changes that occurred
throughout the tariff year, because the preponderance of those changes became effective at the
beginning and middle of the tariff year and, thus, the benefit from recalculating at more frequent
intervals is insignificant.  Therefore, in addition to recalculating the PCIs, SBI upper limits, and
maximum CCL rates in effect on July 1st of each year, the LECs must recalculate the PCIs, SBI
upper limits, and maximum CCL rates in effect on January 1st of each year.  In the 1995 tariff year,
the LECs must substitute the PCIs, SBI upper limits, and maximum CCL rates in effect on August
1, 1995 for those in effect on July 1, 1995 because of the one-month deferral in the 1995 annual
filings.  Thus, the price cap LECs are to apply the following four steps to recalculate their PCIs,
SBI upper limits, and maximum CCL rates to become effective on June 30, 1997.  

     99.  Step 1:  Recalculate the PCI for each basket as required by the decisions in this Order,
for the PCIs in effect on July 1, 1993.  The LECs must then recalculate the PCIs in effect on
January 1, 1994, as required by the decisions in this Order, using the recalculated July 1, 1993 PCIs. 
This recalculation process must be repeated with respect to the PCIs for the remaining half-year
periods in the 1994, 1995 and 1996 tariff years except that for tariff year 1995, the half-year periods
would fall on August 1, 1995 and January 1, 1996, as explained above.

  Step 2:  Recalculate the SBI upper limits in each service category and subcategory in effect on July
1, 1993, using the recalculated July 1, 1993 PCIs -- e.g., if a basket is composed of four service
categories, each containing two subcategories, the LECs must reduce a total of twelve SBI upper
limits: the limits in the four service categories and the limits in the eight service subcategories.

     100.  If any service subcategory SBI in effect on July 1, 1993 exceeds its recalculated upper
limit then lower that subcategory SBI to its recalculated upper limit.  This procedure will produce
the subcategory SBI that should have been in effect.  There is no change to a service subcategory
SBI, if the SBI in effect is at or below the recalculated upper limit.  This part of Step 2 may be
omitted if there are no service subcategories within the service category.

     101.  For any service subcategory SBI exceeding its recalculated upper limit, adjust the
service category SBI to which the subcategory belongs, since a service category SBI is a weighted
average of its subcategory SBIs.  If  any service category SBI in effect on July 1, 1993, as adjusted,
exceeds its recalculated upper limit then lower that service category SBI to its recalculated upper
limit.  This procedure will produce the category SBI that should have been in effect.  Adjust the
basket API in effect on July 1, 1993, since an API is a weighted average of its service category SBIs. 
 In addition, the LECs are directed to recalculate the maximum CCL rate in effect on July 1, 1993,
using the recalculated PCI in Step 1.  
 
     102.  Step 3:  Lower the subcategory SBIs on January 1, 1994 to flow through any
adjustments to the previous period's SBI as calculated in Step 2.  Lower the service category SBI to
reflect these adjusted subcategory SBIs on January 1, 1994.  If  any service category SBI in effect
on January 1, 1994, as adjusted, exceeds its recalculated upper limit then lower that service category
SBI to its recalculated upper limit.  Adjust the API to reflect these adjustments to the service
category SBIs on January 1, 1994.  In addition, the LECs are directed to recalculate the maximum
CCL rate in effect on January 1, 1994 to flow through any adjustment to the maximum CCL rate as
calculated in Step 2.

     103.  Step 4:  Return to Step 2 to recalculate upper SBI limits for the service categories and
subcategories, and the maximum CCL rate on January 1, 1994.  The LECs are directed to apply the
PCIs adjusted in Step 1, the maximum CCL rate and the service category and subcategory SBIs
adjusted in Step 3 for January 1, 1994.  The LECs must repeat this procedure for the remaining half-
year intervals in the 1994, 1995, and 1996 tariff years.  The  PCIs, SBI upper limits, and maximum
CCL rate recalculated for June 30, 1997 are the ones to be adjusted in the tariff filings making the
annual adjustments to the PCIs on July 1, 1997, as adjusted for other index revisions that may occur
beforehand.  The amended TRPs to be filed May 1, 1997, showing the PCIs to become effective on
July 1, 1997, must include documentation demonstrating that those indexes will comply with the
decisions in this Order.  Any rate effects from lowering the PCIs, SBI upper limits, and maximum
CCL rates pursuant to this Subsection B must be reflected in each LEC's 1997 annual access tariff
filing.  The LECs not subject to remedial action are not required to file such documentation. 

 C.  PCI and Pricing Band Recalculations to Effectuate Refund Liability

     104.  In this Subsection C, we set forth the refund mechanism for price cap LECs that based
on the findings of this investigation must compensate customers for overcharges incurred during the
course of this investigation.  The LECs, specified in paragraph 96, supra, tariff filings of which
were suspended, set for investigation, and made subject to accounting orders must refund to their
customers all amounts, plus interest, collected as a result of overcharges.  The refunds will be
implemented through a one-year exogenous cost adjustment to the PCIs incorporated in the annual
access tariff filings to become effective on July 1, 1997.  We conclude the LECs overcharged
customers to the extent that:
 
          1) any API, adjusted in Step 2 or 3 of Subsection B to incorporate changes
          to its service category SBIs, exceeds its PCI as recalculated in Step 1 of
          Subsection B;

          2) any service category SBI, adjusted in Step 2 or 3 of Subsection B to
          incorporate changes to its subcategory SBIs, exceeds its SBI upper limit as
          recalculated in Step 2 of Subsection B; 

          3) any subcategory SBI in effect exceeds its upper limit as
          recalculated in Step 2 of  Subsection B; and 

          4) any CCL rate in effect exceeds the maximum CCL rate as recalculated in Step 
          2 in Subsection B.

     105.  We direct the price cap LECs to apply the following six steps in order to calculate the
exogenous cost change to implement refunds:

          1)  calculate the percent by which any API exceeds its PCI, or  any
          SBI exceeds its SBI upper limit, or any CCL rate exceeds the
          maximum CCL rate in the four instances set forth in the preceding
          paragraph, at the beginning and middle of each tariff year from 1993
          through 1996, from July 1, 1993 through June 30, 1997, except that
          LECs should substitute August 1, 1995 for July 1, 1995 as a result of
          the one month deferral in the 1995 annual filings;

          2)  multiply the relevant basket, or service category or subcategory
          revenue by the above percentages, using the base year revenue in
          effect for the tariff year;

          3)  multiply each amount calculated in Step 2 by the relevant basket,
          service category or subcategory ratio of revenue in 1993, the last year
          of this investigation, to the base year revenue to reflect the change in
          index value over time;

          4)  convert the amounts calculated in Step 3 from an annual basis to
          a half year basis by multiplying each amount by the ratio of number
          of days in the half-year interval to number of days in the tariff year;

          5)  add interest to each amount calculated in Step 4, using the lowest
          of the overpayment interest rates of the US Internal Revenue Service
          in effect at the midpoint of this investigation, July 1, 1995, and
          compound the interest at the end of each half-year refund interval
          until June 30, 1997; and

          6)  sum the amounts calculated in Step 5 by service basket.  These are
          the exogenous cost changes to the corresponding basket's PCI.

     106. These exogenous cost changes will become effective on July 1, 1997, and the LECs may
remove these PCI adjustments on July 1, 1998.  The amended TRPs to be filed on May 1, 1997,
showing the PCIs that will become effective on July 1, 1997, must include documentation
demonstrating compliance with the decisions in this Order.  Any rate effects from lowering the PCIs,
SBI upper limits, and maximum CCL rates pursuant to this Subsection C must be reflected in each
LEC's annual access tariff filing to become effective on July 1, 1997.  The LECs not subject to
remedial action are not required to file such documentation. 

D.   Roseville

     107.  With respect to Roseville, we conclude that the refund plus interest should reflect the
amount by which Roseville's calculations for cash working capital allowance exceeded the
permissible allowance in the 1993 tariff year, to be recalculated using the standard 15-day allowance
method as discussed in Section II.G.3., supra.  Interest shall be added to the refund amount, using
the lowest of the overpayment interest rates of the US Internal Revenue Service in effect at the
midpoint of this investigation, July 1, 1995, and compounded at six month intervals from January
1, 1995 through June 30, 1997.  Roseville is directed to submit its refund plan and supporting
documentation on May 1, 1997, and is required to implement refunds by lowering its tariff rates over
a one-year period from July 1, 1997 through June 30, 1998.

                     VI.  ORDERING CLAUSES
 
     108.  Accordingly, IT IS ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),
204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j),
201(b), 202(a), 203(a), 204(a), 205, 403, that the price cap local exchange carriers found to be liable
for refunds SHALL FILE: recalculations of their PCIs, SBI upper limits, and maximum CCL rates;
information showing the relationship of these limits to their APIs, SBIs and CCL rates; refund plans,
and supporting documentation, as discussed in Section V of this Order, supra, to the Common
Carrier Bureau pursuant to our delegation of authority, in an amended 1997 Tariff Review Plan to
be filed May 1, 1997, and it is ORDERED that any refunds plus interest as specified in Section V.C.,
supra, shall be reflected in the revised tariff rates to be filed with the 1997 annual access tariffs to
become effective on July 1, 1997.

     109.  IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),
204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j),
201(b), 202(a), 203(a), 204(a), 205, 403, that Ameritech Operating Companies, Bell Atlantic
Telephone Companies, BellSouth Telecommunications, Inc., GTE Service Corporation (GTE),
Lincoln Telephone Company, Nevada Bell, NYNEX Telephone Companies, Pacific Bell, Rochester
Telephone Corporation, Southern New England Telephone Company, Southwestern Bell Telephone
Company, United Telephone Companies (Centel Telephone Companies), and US West
Communications, Inc., SHALL PLACE the Line Information Data Base query charges in  the data
base service category within the traffic sensitive basket to become effective on June 30, 1997.

     110.  IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),
204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j),
201(b), 202(a), 203(a), 204(a), 205, 403, that the Roseville Telephone Company (Roseville) SHALL
FILE its refund plan and supporting documentation displaying its calculation of the refund amount
to the Common Carrier Bureau pursuant to our delegation of authority May 1, 1997, and it is
ORDERED that Roseville SHALL FILE its revised tariffed rates to correct for its incorrect
calculation of cash working capital and to effectuate any refunds, plus interest as specified in Section
V.D., supra, to become effective on July 1, 1997.

     111.  IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),
204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j),
201(b), 202(a), 203(a), 204(a), 205, 403, that the carriers that participate in NECA's common line
tariff but file individual tariffs for the traffic sensitive rates, pursuant to Section 61.39 of the
Commission's rules, 47 C.F.R.  61.39, SHALL FILE the information regarding the allocation of
General Support Facility costs as discussed in Section II.E.3., supra, on May 1, 1997.

     112.  IT IS FURTHER ORDERED that the investigation and accounting order imposed by
the Common Carrier Bureau in CC Docket No. 93-193 with respect to the tariff filings of local
exchange carriers in compliance with the Amendment of the Part 69 Allocation of General Support
Facility Costs, 8 FCC Rcd 3697 (1993), as discussed in Section II.E.3 of this Order, supra, IS
TERMINATED. 

     113.  IT IS FURTHER ORDERED that the investigation and accounting order imposed by
the Common Carrier Bureau in CC Docket No. 93-193 with respect to the local exchange carriers
specified in Appendix B for the designated issues in the corresponding annual access tariff filings
as discussed herein IS TERMINATED.

     114.  IT IS FURTHER ORDERED, pursuant to Section 5(c)(5) of the Communications Act
of 1934, as amended, 47 U.S.C.  155(c)(5) and Section 1.115 of the Commission's Rules, 47 C.F.R.
 1.115, that the application for review filed by AT&T of the Common Carrier Bureau's decision in
the 1994 Annual Access Tariff Filings, CC Docket No. 94-65, National Exchange Carrier
Association Universal Service Fund and Lifeline Assistance Rates, Transmittal No. 612,
Memorandum Opinion and Order Suspending Rates, 9 FCC Rcd 3705 (Com. Car. Bur. 1994) (First
1994 Annual Access Order); 1994 Annual Access Tariff Filings, CC Docket No. 94-65, Nevada Bell,
Transmittal No. 196, Pacific Bell, Transmittal No. 1701, Rochester Telephone Corporation,
Transmittal No. 222, Vista Telephone Companies, Transmittal No. 30, Memorandum Opinion and
Order Suspending Rates, 9 FCC Rcd 3519 (Com. Car. Bur. 1994) (Second 1994 Annual Access
Order) (collectively, 1994 Annual Access Orders), with respect to exogenous treatment for the
completion of the equal access expense amortization IS DENIED.

     115.  IT IS FURTHER ORDERED, pursuant to Section 5(c)(5) of the Communications Act
of 1934, as amended, 47 U.S.C.  155(c)(5) and Section 1.115 of the Commission's Rules, 47 C.F.R.
 1.115, that the petition for clarification or reconsideration filed by Southwestern Bell Telephone
Company of the Common Carrier Bureau's decisions in the First 1994 Annual Access Order with
respect to exogenous treatment of regulatory fees IS DISMISSED but with respect to Southwestern
Bell Telephone Company's $6.04 DS1 zero mileage charge IS GRANTED.

     116.  IT IS FURTHER ORDERED that the investigation and accounting order imposed by
the Common Carrier Bureau in CC Docket No. 93-162 with respect to Southwestern Bell Telephone
Company's $6.04 DS1 zero mileage charge IS TERMINATED and Southwestern Bell Telephone
Company SHALL FILE tariff revisions as discussed in Section IV.3, supra, to become effective on
July 1, 1997.

     117.  IT IS FURTHER ORDERED that Section 61.59 of the Commission's Rules, 47 C.F.R.
 61.59, IS WAIVED for the purposes of compliance with this Order.  Carriers should cite the
"FCC" number of this Order as authority for the tariff filings.





     118.  IT IS FURTHER ORDERED, pursuant to Sections 4(i) of the Communications Act of
1934, as amended, 47 U.S.C.  154(i), that authority is delegated to the Chief, Common Carrier
Bureau, as set forth, supra, in paragraphs 50 and 96.



                                                                                                FEDERAL COMMUNICATIONS COMMISSION
                                                                
                                                                
                                                                William F. Caton
                                                                Acting Secretary
                                                            APPENDIX A

                          DIRECT CASES

The following parties filed direct cases in response to the 1993 Annual Access Order.  The names
in parentheses are used for these parties throughout the instant order.

ALLTEL Service Corporation (ALLTEL), filing for: Sugar Land Telephone Company   (Sugarland)
Ameritech Operating Companies (Ameritech)
Anchorage Telephone Utility (Anchorage)
Bay Springs Telephone Company, Inc., Elkhart Telephone Company, Inc., United Telephone 
     Association, Inc., TEC Communications Services  (TEC) (Bay Springs et al.)
Bell Atlantic Telephone Companies (Bell Atlantic)
BellSouth Telecommunications, Inc. (BellSouth)
Century Telephone of Ohio, Inc. and Century Telephone of Wisconsin, Inc. (Century) 
Chillicothe Telephone Company (Chillicothe) 
Cincinnati Bell Telephone Company (Cincinnati) 
Citizens Telephone Companies (Citizens)
Coastal Utilities, Inc., Farmers Telephone Cooperative, Inc., Hargray Telephone      Company, Inc.,
                                                                                     Horry Telephone Cooperative, Inc., Millington Telephone Company, Inc., Mt. Horeb Telephone
                                                                                     Company, Pineland Telephone Cooperative, Inc. and Southeast Telephone Company of Wisconsin,
                                                                                     Inc. (Coastal et al.)
Concord Telephone Company (Concord) 
Dunkirk & Fredonia Telephone Company (Dunkirk & Fredonia) 
Granite State Telephone, Inc. (Granite State) 
GTE Service Corporation (GTE)
GVNW, Inc./Management (GVNW), filing for: C-R Telephone Company, Home Telephone 
     Company, Kerman Telephone Company, Madison Telephone Company, Montrose Mutual 
     Telephone Company, Moultrie Independent Telephone Company, and West River 
     Telecommunications Inc.,  
Illinois Consolidated Telephone Company (ICT)
The Lincoln Telephone and Telegraph Company (Lincoln) 
Lufkin-Conroe Telephone Exchange, Inc. (Lufkin-Conroe) 
Merrimack County Telephone (Merrimack) 
National Exchange Carrier Association (NECA) 
NYNEX Telephone Companies (NYNEX) 
Ogden Telephone Company (Ogden) 
Pacific Bell and Nevada Bell (Pacific)
Rhinelander Telephone Company (Rhinelander) 
Rochester Telephone Corporation (Rochester) 
Roseville Telephone Company (Roseville) 
Southeast Telephone Company of Wisconsin, Inc. (Southeast) 
Southern New England Telephone Company (SNET) 
Southwestern Bell Telephone Company (Southwestern) 
United Telephone Companies and Central Telephone Companies (United) 
US West Communications, Inc. (US West)  
Utelco, Inc. (Utelco) 
Virgin Islands Telephone Corporation (Vitelco) 
Warwick Valley Telephone Company (Warwick Valley) 
West River Telecommunications, Inc. (West River) 
Wilkes Telephone and Electric Company (Wilkes) 
Wood County Telephone Company (Wood County)


          COMMENTS ON AND OPPOSITIONS TO DIRECT CASES

The following parties filed comments in response to the direct cases. 

Ad Hoc Telecommunications Users Committee (Ad Hoc)
Allnet Communications Services, Inc. (Allnet)
American Telephone and Telegraph Company (AT&T)
MCI Communications Corporation (MCI)


                            REPLIES

The following parties filed replies in response to the comments and oppositions.

Ameritech
Bell Atlantic
BellSouth
City of Brookings Municipal Telephone (Brookings)
GTE
GVNW
NECA
NYNEX
Pacific
Rochester
Roseville
SNET
Southwestern
US West                            APPENDIX B

DEM
US West


 "g" Factor
Bell Atlantic
SNET


End User Sharing
Bell Atlantic 
Pacific


GSF Cost Reallocation
All LECs that joined in NECA's common line tariff and filed individual tariffs for traffic sensitive
rates pursuant to Section 61.39 but may have recovered their GSF costs twice.


LIDB per Query Charge
Ameritech 
Bell Atlantic
BellSouth
GTE 
Lincoln
Pacific 
Rochester  
Nevada Bell
NYNEX 
SNET
Southwestern 
United 
US West


Cash Working Capital
Roseville