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A. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)X01Í ÍX01Í ÍMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""Zi44d4i_d_QQGiVr_ZVC&Cr000!0i4R0_i___________dZdZdZdZdZ44444444mii_i_i_i_riririri0Z__idi_i_dZi_dd__ii__dZdZdZdZiidZmZm_mmZmZriri4iii444iGidV4VRmimiii00iQiR_Q00N00Gd0V___d0____Z______000000000000000__t_|nnV_ny24Z_7c__nCzZhcnonvyXzXshn~|y00000000000000000000000000000000L0Ld_rw0CCL|0|0i__________00r|rV_idid_mr4GiVwmiiii_Zr_r_d_CCCi_0_dZdZ>Zi44d4i_d_QQGiVr_ZVC&Cr00000000000000000000000000000000000Z__d4di_______4|__0ZG00______V_______ddddd4444imiiiii_irrrrddi______ZZZZZ4444_i_____V_iiiiZd"5@^2CRdd$CCdq2C28dddddddddd88qqqYzoCNzoozzC8C^dCYdYdYCdd88d8ddddCN8ddddY`(`l2CC!CCPRCddYYYYYYzYzYzYzYC8C8C8C8ddddddddddYdddddoddYYYYYzYzYzYddddddPdCdCCCdNdz8zRdddCRoNoNNF2[dCYddddd7>d<d<CCYYdCCddCYCdYzzzzCCCCqodYYYYYYYYYYY8888dddddddnddddddd"5@^(1<>400000000009>9+@04242079$4+<744440-909020!!!4002-2--42O4020(($4+90-+!!94)0400000000000G2-2-2-2-2-744040404094949494-004240402-40220044002-2-2-2-442-7-7077-7-94944444$42++)7474444(4)0(N$2+00020000-00000000t0>77+0c7<&&209<!!&>>400000000009>9+@04242079$4+<744440-909020!!!4002-2--42O4020(($4+90-+!!9-002240000000>00-$000000+0000000222224744444049999224000000G-----0400000+04444-2"5@^2CTdd+CCd2C28ddddddddddCCdzzzzCYozzdozzooN8NTdCddYdY8dd88Y8ddddNN8dYYYNP7Pl2CC!CCPRCddzdzdzdzdzdYzYzYzYzYC8C8C8C8dddddddddoYzddddoYdzdzdzdzdYYYzYzYzYddddddPdCdCCCdYYo8oRdddzNzRdNdNNF2idNdddddd7>d<d<CCoodCCddCoCddzzzzzzzzzzCCCCozdddddddYYYYY8888dddddddndddddYd20 X-   X` hp x (#%'0*,.8135@8:-and Order, 5 FCC Rcd 6786, 6807 (1990); see also infra Section II.A.  In addition, we dismiss in part and grant in part  X- xSouthwestern's petition for clarification or reconsideration of the Bureau's decisions in the First  X- xZ1994 Annual Access Order regarding exogenous treatment of regulatory fees and Southwestern's DS1 zero mileage charge.  X-  x7. In this Order, we direct the price cap LECs whose annual accessx ( ܵ yO_%-ԍxFor background on the Commission's access charge rules, see Access Charge Reform, CC Docket No. 96262, Price Cap Performance Review for Local Exchange Carriers, CC Docket No. 941, Transport Rate Structure and Pricing, CC Docket No. 91213, Usage of the Public Switched Network by Information Service and Internet  yO'-Access Providers, CC Docket No. 96263, Notice of Proposed Rulemaking, Third Report and Order, and Notice of"',))))'"  yO-Inquiry, FCC 96488 at paras.2131 (rel. December 24, 1996), x tariff filings are in"X,))))"  x=violation of the Commission's rules and determinations herein to recalculate their PCIs, pricing  X- xbands and maximum carrier common line rates.Xܵ yO-ԍxThe LECs that are required to take certain actions as a result of this Order are identified in Appendix B. We decide how these recalculations should be  xdone and what remedies should apply for violation of our rules. In addition, we require  xRoseville, a rateofreturn regulated company, to refund the amount attributable to the  xmiscalculation of its cash working capital allowance and to submit its calculations of this refund  xamount and a refund plan to the Bureau. We also require the carriers that participated in NECA's  xycommon line pool and filed individual tariffs for traffic sensitive rates pursuant to Section 61.39  xto provide explanations of their GSF allocations and revisions to traffic sensitive rates and if  xnecessary, to submit a plan for any corrective action to eliminate any double recovery of GSF costs. II. INVESTIGATION ISSUESTP  X -A.xBackground  X -  {x8. In its price cap decisions,6( ܵ yO-ԍxSee Policy and Rules Concerning Rates for Dominant Carriers, Report and Order and Second Further  yO-Notice, 4 FCC Rcd 2873 (AT&T Price Cap Order), modified on recon., 6 FCC Rcd 665 (1991)(AT&T Price Cap  yO-Reconsideration Order); Policy and Rules Concerning Rates for Dominant Carriers, Second Report and Order, 5  yO`-FCC Rcd 6786 (1990) and Erratum, 5 FCC Rcd 7664 (1990)(LEC Price Cap Order), modified on recon., 6 FCC Rcd  yO(-2637 (1991)(LEC Price Cap Reconsideration Order), further recon., 6 FCC Rcd 4524 (1991)(ONA Part 69 Order),  yO-second further recon., 7 FCC Rcd 5235 (1992), aff'd, National Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993); Competition in the Interstate Interexchange Marketplace, Report and Order, 6 FCC Rcd 5880  yO-(1991)(Interexchange Order)(further streamlining and removing from price cap regulation most of AT&T's  yOH-business services), on recon., 7 FCC Rcd 2677 (1992); Revisions to Price Cap Rules for AT&T Corp., 10 FCC Rcd  yO-3009 (1995) (Commercial Services Order); Motion of AT&T Corp. to be Reclassified as a NonDominant Carrier, Order, FCC 95427, 11 FCC Rcd 3271 (1995)(finding that AT&T lacks market power in the interstate, domestic, interexchange market and, therefore, granting AT&T's motion to be reclassified as a nondominant carrier with respect to that market).6 the Commission replaced rateofreturn regulation with an  xincentivesbased system of regulation that rewards companies that become more productive and  Xy- xefficient, while ensuring that they share productivity and efficiency gains with their ratepayers.xyܵ yO -ԍxThe Commission required price cap regulation for the regional Bell Operating Companies and GTE, and permitted other LECs to adopt price cap regulation voluntarily, provided that all their affiliates also convert to price cap regulation, and that they withdraw from the pools administered by the National Exchange Carrier  yO"#-Association, Inc. LEC Price Cap Order, 5 FCC Rcd at 681820 (1990). Those LECs that chose not to adopt price cap regulation remain subject to rate of return regulation. Regulatory Reform for Local Exchange Carriers  yO$-Subject to Rate of Return Regulation, CC Docket No. 92135, 8 FCC Rcd 4545 (1993) on recon. FCC 9741 (rel. Feb. 18, 1997).  xThe theory of price caps is to harness the profitmaking incentives common to all businesses to  xproduce a set of outcomes that advance the public interest goals of just, reasonable, and  xnondiscriminatory rates, as well as a nationwide communications system that offers innovative,"4,))))"  X-high quality services.bܵ yOy-ԍxSee LEC Price Cap Order, 5 FCC Rcd at 6787.b  X-  0x9. Under the LEC price cap plan, a carrier's interstate services are grouped into baskets.  x.Under the Commission's initial price cap plan, the four services baskets were the common line,  X- xtraffic sensitive, special access, and interexchange services baskets. Xܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 6788. In the LEC Price Cap Order, the Commission divided services  yOu-among baskets according to the thenexisting interstate access structure set forth in Part 69 of the Rules. Id.;  yO= -see also LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2679. In January of 1994, the Commission in the  yO -Second Transport Order realigned the division of services among baskets by combining transport and special access services into the newlycreated trunking basket. As a result, the four service baskets became the common line, traffic sensitive, trunking, and interexchange services baskets. Transport Rate Structure and  yO] -Pricing, Second Report and Order, 9 FCC Rcd 615, 622 (1994) (Second Transport Order); id. at 622 (the Commission decided to "mov[e] transport services out of the traffic sensitive basket and into a basket with special access services . . . [to] prevent the LECs from offsetting rate reductions for transport services subject to competition with rate increases for switching and other traffic sensitive services, which are subject to much less competition at this time."). The Commission subsequently established a new, separate LEC price cap basket for video dialtone service. Price Cap Performance Review for Local Exchange Carriers; Treatment of Video Dialtone Services under Price Cap Regulation, Second Report and Order and Third Further Notice of Proposed  yO-Rulemaking, CC Docket No. 941, 10 FCC Rcd 11098 (1995) (VDT Price Cap Basket Order).  For each basket, a PCI  X- x<limits the prices carriers charge for services in that basket.hܵ yON-ԍxLEC Price Cap Order, 5 FCC Rcd 6787. h The PCI is adjusted each year based  xon a formula that includes a measure of inflation which is offset by a "productivity" factor or "X x[Factor." The XFactor reflects the fact that changes in telephone companies' costs per unit of  x[output (unit costs) have historically been below that of the economy as a whole due to greater  X1- x[productivity gains and lower input price changes enjoyed by the telecommunications sector.?( 1ܵ yO-ԍxIn the LEC Price Cap Order, the Commission set a minimum productivity offset of 3.3 percent and an optional productivity offset of 4.3 percent for the three access service baskets. Election of the higher productivity offset lowers the price cap further than the 3.3 percent productivity offset, thereby benefitting  yO-ratepayers. Election of the higher offset, however, permits a LEC to retain a larger share of its earnings. LEC  yO-Price Cap Order, 5 FCC Rcd at 6796, 6799; LEC Price Cap Reconsideration Order,  6 FCC Rcd at 2641. The Commission subsequently increased the 3.3 percent minimum productivity factor to 4.0 percent, and replaced the optional productivity offset of 4.3 percent with two new optional productivity factors of 4.7 and 5.3 percent.  yO-Price Cap Performance Review for Local Exchange Carriers, 10 FCC Rcd 8961, 900506 (1995) (LEC Performance  yO-Review); see also id. at n.11. The LEC Price Cap Order set the productivity factor for the interexchange basket at 3.0 percent to match the factor established for AT&T's interexchange services, and was not based on the studies used to set the productivity factor for the other baskets; the Commission did not change the  yO"-productivity factor for the interexchange basket. See also VDT Price Cap Basket Order at paras. 1 and 23  yO"-(assigning an initial productivity factor of zero for the LEC VDT price cap basket).?  x>Carriers that are able to generate productivity gains in excess of the XFactor they elect are  xallowed to keep at least a portion of earnings higher than those experienced under rateofreturn  X - xLregulation.o ܵ yO-'-ԍxLEC Price Cap Reconsideration Order, 6 FCC Rcd at 2641. o Carriers also benefit because price cap regulation gives them increased flexibility  xMin setting rates and is simpler to administer. Ratepayers benefit because the price cap rules"  ,)))) "  x encourage greater efficiency and reduced rates by requiring LECs to outperform historical  X- xLtrends.ܵ yOb-ԍxLEC Price Cap Order, 5 FCC Rcd at 6792; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2640. Generally, changes in costs are not relevant to price cap regulation and carriers must  xcontrol their costs if they are to remain profitable. Through these incentives, ratepayers receive the benefits of improved efficiency and reduced rates.  X-  x 10. Although changes in a carrier's costs are not generally relevant for rate making under  Xv- xthe price cap system, the Commission determined in the LEC Price Cap Order that certain costs  xincurred by LECs caused by administrative, legislative, or judicial requirements beyond their  XJ- xcontrol should result in an adjustment to their PCIs.^JXܵ yOS -ԍxLEC Price Cap Order, 5 FCC Rcd at 6807.^ The Commission found that not  x{recognizing these costs in the PCIs would either unjustly punish or reward the carrier by  X - xiattributing these uncontrollable changes to the carrier's efficiency.@ ܵ yO-ԍxId.@ The Commission designated  xthose changes in costs for which an adjustment in the PCI would be allowed as "exogenous."  xjThe Commission, however, determined that not all changes that lie beyond the carrier's control  xwarrant exogenous treatment. For example, the Commission noted that, although a change in tax  xjrates applicable to all companies is beyond the carrier's control, that change will be captured in  X - xthe general inflation component of the price cap formula.X xܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 6793; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 266871. The Commission recently substituted the Gross Domestic Product Price Index (GDPPI) for the GNPPI originally  yOb-used as the inflation factor in the LEC price cap formula. LEC Performance Review, 10 FCC Rcd at 911516. Exogenous treatment of this kind of  x/tax change would "double count" its impact, once in the inflation measure, and again as an  xexogenous cost change. The Commission decided that only those tax changes that "uniquely or  Xd- xdisproportionately" affect the LECs would be eligible for exogenous treatment.^dܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 6808.^ Similarly,  xalthough a carrier cannot control changes in generally accepted accounting principles (GAAP),  xthe Commission stated that "[i]f a GAAP change is universal enough to be reflected in the  xinflation measure, exogenous cost treatment would result in double counting within the context  X- xof the PCI."n ( ܵ yO-ԍxLEC Price Cap Reconsideration Order, 6 FCC Rcd at 2665.n Therefore, we decided to accord exogenous treatment to costs associated with  xGAAP changes that have been adopted by the Financial Accounting Standards Board, have  X-become effective,! ܵ yOC#-ԍxSee LEC Price Cap Order, 5 FCC Rcd at 6807 ("no GAAP change can be given exogenous treatment until the Financial Accounting Standards Board has actually approved the change and it has become effective."). and are shown not to be reflected already in changes to the GNPPI.Q" ܵ yO%-ԍxLEC Price Cap Order, 5 FCC Rcd at 6808; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2665; see  yOc&-also LEC Performance Review, 10 FCC Rcd at 8972 (revising the criteria that determine whether a cost change attributable to a change in accounting rules is eligible for exogenous treatment; LECs must now demonstrate that the cost change is beyond their ability to control, is not reflected in the formula used to adjust the PCIs,"'!,))))'" and affects their cash flow).Q" X",))))"Ԍ X-  ԙx 11. Exogenous cost changes specified in our rules include cost changes that result from:  x (1) completing the amortization of depreciation reserve deficiencies; (2) amendments to the  X- xLUniform System of Accounts (USOA) as the Commission shall permit or require;p#Xܵ yO-ԍxSee Part 32 of the Commission's rules, 47 C.F.R. Part 32.p (3) changes  X- xKin the Separations Manual;p$ܵ yOT-ԍxSee Part 36 of the Commission's rules, 47 C.F.R. Part 36.p (4) reallocation of regulated investment to nonregulated activities;p%xܵ yO -ԍxSee Part 64 of the Commission's rules, 47 C.F.R. Part 64.p  x(5) changes in transitional and long term support; (6) inside wire amortizations; and (7) tax law  X- xchanges and other "extraordinary" changes to the extent we may permit or require.{&ܵ yOF -ԍxSection 61.45(d)(1) of the Commission's rules; 47 C.F.R.  61.45(d)(1).{ The  xCommission has declined to extend or has explicitly rejected exogenous treatment for other cost  X_-categories, including depreciation rate changes and amortization of equal access costs.a'_ܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 680609.a  X1-  x 12. Within certain price cap baskets, services are grouped into service categories and  x-subcategories and rate changes within the categories and subcategories are limited by upper and  X - xZlower pricing bands.( ( ܵ yO-ԍxLEC Performance Review, 10 FCC Rcd at 912930. The two baskets that currently have service categories and subcategories are the traffic sensitive and trunking baskets. Before the Commission adopted the LEC Performance Review, the pricing  xband limits for most of the service categories and subcategories were set at 5 percent above and  xbelow a subindex of the prices for each category or subcategory (called the Service Band Index  X - xj(SBI)), as adjusted by the change in the PCI for the basket.)  ܵ yO-ԍxSee LEC Price Cap Order, 5 FCC Rcd at 6788, 6811; LEC Performance Review, 10 FCC Rcd at 912930. In  yO-the LEC Performance Review, the Commission increased the lower pricing bands that apply to most service  yO-categories to 10 percent and that apply to density pricing zones to 15 percent. LEC Performance Review, 10  yOI-FCC Rcd at 9141; see also Section 61.47 of the Commission's rules, 47 C.F.R.  61.47.  A presumption of lawfulness and  xa relatively short tariff filing notice period apply to rate changes that conform to the limits set  x[by a LEC's PCIs and pricing bands. Substantial cost justification and longer tariff filing notice  xperiods are required if rates exceed the price cap for a basket or are above or below the  Xd-applicable pricing bands for a service category or subcategory.*dhܵ yO}"-ԍxLEC Price Cap Order, 5 FCC Rcd at 6788; LEC Performance Review, 10 FCC Rcd at 912930.   X-B. xUS West Exogenous Impact of Dial Equipment Minutes Transition" *,))))"Ԍ X-ԙx1.` ` Background  X-  x 13. Part 36 of the Commission's jurisdictional separations rules allocates investment costs  x<of local switching equipment between the interstate and intrastate jurisdictions by the use of Dial  X- xEquipment Minutes (DEM).+ܵ yO-ԍxSee Section 36.125(b) of the Commission's rules, 47 C.F.R.  36.125(b). Dial equipment minutes are the minutes of holding time of the  X- xoriginating and terminating local dial switching equipment (  i.e.  , the time local switching  xequipment is in actual use either by a customer or an operator), and the DEM factor for  xallocating local switching equipment costs to interstate service is the ratio (expressed as a  XJ-percentage) of interstate minutes of use to the total minutes of use. ,JXܵ yOS -ԍxFor small LECs, defined as those with fewer than 50,000 access lines, the DEM is "weighted" (i.e., multiplied) to allocate a higher percentage of local switching costs to the interstate jurisdiction. The purpose of DEM weighting is to assist small LECs. This weighting reflects an assumption that smaller telephone companies generally have higher local switching costs per line because they cannot take advantage of certain economies of scale. The DEM factor is weighted for small carriers as follows: by a factor of 3.0 for carriers with 1 to 10,000 access lines; by a factor of 2.5 for carriers with 10,001 to 20,000 access lines; and by a factor of  yO-2.0 for carriers with 20,001 to 50,000 access lines. The maximum weighted DEM factor is 85 percent. See  yO-generally Section 36.125 of the Commission's rules, 47 C.F.R.  36.125. xThe Commission is currently considering the Joint Board's recommendations for changes to the universal service support mechanisms including DEM weighting. Those recommendations if adopted, would not  yO-apply retroactively to the period subject to this investigation. The Joint Board recommended that the DEM weighting benefits for small rural carriers continue under the present rules until December 31, 1997 but that beginning in 1998 and continuing through the year 2000, support payments for DEM weighting as well as for high cost assistance and long term support be frozen based on historical per line amounts. Beginning in the year 2001 and through the year 2003, the Joint Board recommended that high cost support for rural carriers be gradually shifted to one set using a proxy cost based methodology to calculate the forward looking costs of providing universal service. Nonrural carriers would be required to use a proxy cost methodology that the Commission would develop in conjunction with state commissions for implementation, beginning on January 1, 1998. The Joint Board's recommendations were made pursuant to Section 254 of the 1996 Telecommunications Act, which requires the Commission to adopt universal support mechanisms that are explicit and sufficient to  yO-advance universal service principles. See Telecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56 (1996); FederalState Joint Board on Universal Service, CC Docket No. 9645, Recommended Decision, FCC 96J3 (rel. Nov. 8, 1996).  X -  x 14. Before 1988, local switching equipment costs were allocated between the state and  xjfederal jurisdictions through a twostep process. First, switch costs were categorized as traffic  x<sensitive or nontraffic sensitive. How costs were categorized depended upon the type of switch  x(digital or analog). Nontraffic sensitive costs were allocated to the interstate jurisdiction based  X - xjon the interstate subscriber plant factor (SPF);- ܵ yOQ$-ԍxThe subscriber plant factor was formerly used to allocate to interstate operations certain investment in subscriber lines, station equipment, and a portion of central office switching used for message telephone service. Each company's SPF was frozen at its 1981 average level and then phased into a nationwide basic allocation factor of 25 percent over eight years beginning January 1, 1986. The SPF became know as the  yOq'-"transitional subscriber plant factor" during the phasein period. See Section 36.154(c)(f) of the Commission's rules, 47 C.F.R.  36.154(c)(f). traffic sensitive portions were allocated based" X-,)))) "  xon the DEM factor. The Commission then changed this rule to require that the DEM factor alone  X- x/be used to divide all local switching equipment costs between the two jurisdictions..Xܵ yOb-ԍxSee MTS and WATS Market Structure, Amendments of Part 67 (New Part 36) of the Commission's Rules  yO*-and Establishment of a FederalState Joint Board, 2 FCC Rcd 2639 (1987), recon. 3 FCC Rcd 5518 (1988); see  yO-also Section 36.125(b) of the Commission's rules, 47 C.F.R.  36.125(b). The  xCommission decided that the change to exclusive use of the DEM allocation factor should be  xyphased in over a fiveyear period from 1988 to 1992. Each year during the transition period, the  xallocation factor for assigning costs to the interstate jurisdiction was calculated by assigning  X- xxdecreasing weight to the 1987 allocator (called the "composite" allocatorB/Xܵ yO& -ԍxSee Section 36.125(c) of the Commission's rules, 47 C.F.R.  36.125(c); see also id. (the composite allocator is a ratio of interstate central office switching equipment on December 31, 1987, to total central office switching equipment on December 31, 1987).B) and increasing weight  Xv- xto the DEM allocator, and then summing the two weighted amounts.0vܵ yO/-ԍxSee Section 36.125(c) of the Commission's rules, 47 C.F.R.  36.125(c). The transition was  xcomplete at the end of 1992, and the DEM allocator alone is now used to allocate local switching  XH-equipment costs between jurisdictions.1Hܵ yO-ԍxSee Section 36.125(b) of the Commission's rules, 47 C.F.R.  36.125(b).  X -  ^x15. The Commission's price cap rules required LECs to include as an exogenous cost  X - x-change the dollar effect attributable to the change in the interstate allocation formula each year.2  ( ܵ yO-ԍxSee Section 61.45(d)(1)(iii) of the Commission's rules, 47 C.F.R.  61.45(d)(1)(iii) (requiring an exogenous cost adjustment for changes in interstate costs for LECs caused by changes in the Separations  yOl-Manual (i.e., the interstate separations rules and procedures set forth in Part 36 of the Commission's rules));  yO4-LEC Price Cap Order, 5 FCC Rcd at 6807; see also Section 61.45(d)(3) of the Commission's rules, 47 C.F.R.  61.45(d)(3) (requiring the price cap LECs to recognize in their annual access tariff filings exogenous cost changes "attributable to modifications during the coming tariff year . . . in their Subscriber Plant Factor and  yO-the Dial Equipment Minutes factor."); see also LEC Price Cap Order, 5 FCC Rcd at 6946, Appendix F (as an exception to the rule that exogenous cost changes be reflected at the time they occur, requires exogenous cost changes attributable to changes in the DEM factor and the SPF "to be reflected only yearly at the time of the annual filing"; "this treatment will avoid excessive filings by carriers"); Section 61.45(c) of the Commission's rules, 47 C.F.R.  61.45(c) (defining the exogenous cost change as "[t]he dollar effect of current regulatory changes when compared to the regulations in effect [during the previous annual access period] . . . ., measured at base period level of operations."); Section 61.3(e) of the Commission's rules, 47 C.F.R.  61.3(e) (defining "base period" for the price cap LECs as "the 12month period ending six months prior to the effective date of annual price cap tariffs . . . .").  xIn this case, this means that LECs were required to treat as an exogenous cost change the dollar  X - x>effect of using the allocation formulas in effect for the current tariff period (e.g., 199394) as  X - xcompared to the prior period (e.g., 199293), "measured at the base period level of operations." 3 ܵ yO%-ԍxSee Section 61.45(c) of the Commission's rules, 47 C.F.R.  61.45(c); see also Sections 61.3(e) and  yO%-61.45(d)(1)(iii) of the Commission's rules, 47 C.F.R.  61.3(e) and 61.45(d)(1)(iii).   xBecause the LECs are to use "base period level of operations" when measuring the cost change  xattributable to the change in the interstate allocation formula, the LECs are required to calculate" 3,))))"  xthe DEM factor for purposes of the 199293 and 199394 interstate allocation formulas based  X-upon 1992 minutes of use.4ܵ yOb-ԍxBecause the LECs are required to use "base period level of operations" for purposes of calculating the cost change attributable to the change in the interstate allocation formula, the LECs are also required to apply  yO-the interstate allocation formula for the 199293 and 199394 annual access years to the LEC's 1992 (i.e., base period) cost of local switching investment. The difference in the allocation of 1992 local switching investment costs due to the application of these two interstate allocation formulas is the exogenous cost change for the 199394 annual access tariff year.  X-  Nx16. To determine the exogenous cost change attributable to the change in the interstate  xallocation formulas for purposes of the 199394 annual access tariff year, US West calculated its  X- x=interstate allocation formula for the current tariff year (i.e., 199394) using projected minutes of  xuse, while using 1992 minutes of use to calculate its interstate allocation formula for the prior  Xa- xtariff year (i.e., 199293). 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.  X -  Nx17. In the 1993 Annual Access Order, the Bureau determined that US West's method of  xcalculating its exogenous adjustment due to the DEM transition differed from the practice of  X - xjother LECs.5  @ܵ yO-ԍxSee 1993 Annual Access Order, 8 FCC Rcd at 4967 (noting that US West "report[ed] a reduction of $753,099 in exogenous costs, as the last step in the transition to DEM as the separations factor for local  yOs-switching equipment."); see also id. at 496, n.90 (AT&T and MCI "stat[e] that the other BOCs have shown decreases of from $3.5 million (Pacific) to $6.0 million (BellSouth) with an average reduction of $3.57 million"). The Bureau also found that this difference had a significant effect on US West's  xproposed access rates and apparently violated the Commission's rules. The Bureau therefore  xsuspended US West's rates for one day and designated the issue of its DEM calculations as part of this investigation.  X-x2.` ` Positions of the Parties  XQ-  0x18. US West asserts that, even if its DEM methodology differs from that of other LECs,  X:- xit has fully complied with all Commission rules governing the exogenous treatment of DEM.O6:( ܵ yO-ԍxUS West Rebuttal at 67.O  X#- xkUS West maintains that its DEM methodology has produced a rate reduction of $5.6 million  xmore than would have been expected if exogenous treatment had not been ordered for the  X-transitional change amounts.j7 ܵ yO^"-ԍxId. at 1011; see also US West Rebuttal at 5.j  X-  x19. US West further asserts that the Commission's rules do not define the allocator for  xthe transition years, beyond requiring that carriers should complete the transition to DEM by  xjJanuary 1, 1993. US West argues that DEM is not a constant number, but changes continually  xLas the relative number of interstate and intrastate minutes changes. Thus, US West contends, every LEC is moving toward a different allocation factor. "k H 7,))))"Ԍ X-  ԙx20. In response, AT&T and MCI assert that nothing in US West's direct case refutes the  X- xBureau's determination in the 1993 Annual Access Order that US West's method of calculating  xits exogenous amount was different from that used by other LECs and that its method did not  X- xappear to comply with the Commission's rules.`8ܵ yO6-ԍxAT&T Opposition at 32; MCI Opposition at 3334.` AT&T asserts that "US West used 1992/93  x.measured DEM to calculate the 1992/93 DEM allocator and then shifted position and relied on  X- xk1993/94 data to calculate the 1993/94 DEM allocator."9Xܵ yO-ԍxAT&T Opposition at 33; see also id. at n. 69 (noting that US West, in its 1992 annual access tariff filing correctly "used the same 1992/93 measured DEM to calculate 1991/92 and 1992/93 DEM allocators."). This miscalculation, AT&T asserts,  xresulted in the understatement of the exogenous decrease to be reported by US West for the DEM  Xa- x.transition.S:aܵ yO -ԍxAT&T Opposition at 34.S AT&T and MCI assert that US West has understated its reduction in exogenous  XJ-costs associated with the DEM transition by approximately $5.5 million.^;J@ܵ yO;-ԍxAT&T Opposition at iii; MCI Opposition at 36.^  X -x3.` ` Discussion  X -  x21. The Commission's rules require a LEC to recognize exogenous cost changes  xattributable to the transition to using the DEM factor alone as the method of allocating local  X - xxswitching equipment costs between interstate and intrastate jurisdictions.< ܵ yOA-ԍxSee Sections 61.45 (d)(1)(iii) and 61.45 (d)(3) of the Commission's rules, 47 C.F.R.  61.45 (d)(1)(iii) and 61.45 (d)(3). As discussed above,  xxduring each transition year, the interstate allocation factor was computed as the weighted average  xof two elements. The first element was the percentage of switching costs allocated to the  xinterstate jurisdiction as of December 31, 1987, weighted by a factor that decreased each year  xKof the transition. The second element was the interstate DEM allocator, weighted by a factor that  x.increased each year of the transition. Beginning with tariff year 199394, the transition to total reliance on DEM to allocate costs was complete.  X-  x22. As discussed above, the DEM allocator is the ratio of interstate minutes of holding  xtime of the originating and terminating local switching equipment to total minutes of such  X- xholding time.{=( ܵ yO!-ԍxSee Section 36.125 of the Commission's rules, 47 C.F.R.  36.125.{ The exogenous separations event is the change in the interstate allocation  X- xformula.> ܵ yO,$-ԍxSee Section 61.45(d)(1)(iii) of the Commission's rules, 47 C.F.R.  61.45(d)(1)(iii); LEC Price Cap Order, 5 FCC Rcd at 6807. The exogenous event is not, as US West suggests, the change in the DEM factor  xZattributable to a change in the relative number of interstate and intrastate minutes of holding time.  xIf there were no transition, there would be no exogenous event simply because US West's DEM  xfactor changed. To capture the dollar effect of the change in the allocations method, it is"~>,))))n"  xnecessary to isolate the change in costs allocated to the interstate jurisdiction attributable to our  xmodification 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.  X-  x23. Our rules required US West to hold the DEM factor constant at the base year level.?ܵ yO-ԍxSee Section 61.45(d) of the Commission's rules, 47 C.F.R.  61.45(d).  xThus, the LEC should have used the 1992 minutes of use as reported in its ARMIS 4304, March  Xv- x.1993 report@ vXܵ yO -ԍxThe Commission created the Automated Reporting Management and Information System (ARMIS) in 1987 as an automated system for collecting financial and operating data from LECs with revenues over $100 million. ARMIS is composed of ten reports, including the Access Report (4304) which shows the annual results of the jurisdictional separations and access charge rules as prescribed in Parts 36 and 69. to compute its interstate allocation factors for both the 199293 base tariff period  xand the tariff period under investigation. US West's methodology incorrectly treated the change  xin the DEM allocator itself as exogenous by using forecasted minutes of use to derive a 1993  x@allocation factor for purposes of its 199394 annual access tariff filing. This led to an  xunderstatement of the cost changes attributable to the change in the different separations formulas  xapplied in the 199293 and 199394 tariff years. We therefore direct US West to recalculate its  xexogenous cost change by substituting 1992 minutes of use for the forecasted minutes of use, and  xyto revise its price cap indices, upper limits on the service band indices in the service categories  x0and subcategories, and maximum carrier common line rates, and to implement refunds in accordance with the directions in Section V of this Order.  Xy-C. XxCalculation of the "g" Factor by Bell Atlantic and SNET(#  XK-x1.` ` Background  X-  x24. The LECs' common lines are loops linking the end user's premises to the LEC's  xcentral office. The actual costs of these loops are nontraffic sensitive; that is, the cost of a loop  xdoes not depend on how much it is used. Although common line costs are nontraffic sensitive,  x-these costs are nonetheless recovered in part through per minute charges. Specifically, the LECs  xrecover a portion of common line costs through carrier common line charges assessed on  xinterexchange carriers and other access customers using switched, interstate access services based  xkon minutes of use. The LECs recover the remainder of common line costs through flat rates  X|- x-charged to end users.A|@ܵ yOm!-ԍxLEC Price Cap Order, 5 FCC Rcd at 6793; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2653. The rules governing how a LEC must compute interstate rates to recover  Xe-common line costs appear in Part 69 of our rules.WB eܵ yO#-ԍxSee Sections 69.103, 69.104. 69.105, 69.115 of the Commission's rules, 47 C.F.R.  69.103, 69.104. 69.105, 69.115. The Commission has received several requests seeking waiver of its Part 69 rules governing how LECs must compute interstate rates to recover common line costs. These waivers request permission for  yO>&-certain LECs to recover all common line costs through flat rates rather than usage sensitive charges. See Rochester Telephone Corporation, Petition for Waivers to Implement its Open Market Plan, Order, 10 FCC Rcd  yO'-6776 (1995); see also Pleading Cycle Established For Comments On Ameritech's Waiver of Part 69 Rules to"'A,))))'" Establish a Pay Telephone Use Fee Rate Element, DA 95-1028, 10 FCC Rcd 8178 (1995); Pleading Cycle Established For Comments On Pacific Bell's Petition For An Interim Waiver of the Commission's Rules to Offer ISDN Equipped Access Lines Without Imposition of the End User Common Line Charge, DA 94-1302, 9 FCC Rcd 7220 (1994).W Price cap regulation treats these elements "eB,))))"Ԍ X-collectively in the common line basket.Cܵ yOa-ԍxSee Section 61.42(d)(1) of the Commission's rules, 47 C.F.R.  61.42(d)(1).  X-  Px25. The price cap formula for the common line basket is slightly different from the  xformula used to cap the other baskets. This difference stems from the fact that, although actual  X- x-common line costs are nontraffic sensitive, a portion of those costs is recovered through the per  X- xLminute carrier common line charge.]DX@ܵ yO~ -ԍxSee LEC Price Cap Order, 5 FCC Rcd at 6793 ("common line rates . . . present a unique problem,  yOF -because of the important social goals and programs that have been embedded in those rates.");  LEC Price Cap  yO-Reconsideration Order, 6 FCC Rcd at 265354.] In fashioning the price cap plan, the Commission sought  xto devise a formula for the carrier common line rates that would pass a portion of the benefits  xof the growth in minutes per line for the common line element to the interstate ratepayers, while  xallowing a LEC to continue to recover a reasonable level of common line costs and providing  X1- xincentives for increased LEC productivity.qE1` ܵ yOB-ԍxLEC Price Cap Reconsideration Order, 6 FCC Rcd at 265354.q The carrier common line formula therefore includes  X - x<a surrogate growth factor based on the LECs' historical common line demand growth (i.e., growth  x<in minutes per line) to protect ratepayers from paying common line charges that are unreasonably  X - xhigh in light of demand growth.pF ܵ yO-ԍxSee generally LEC Performance Review, 10 FCC Rcd at 9080.p Changes in common line demand growth are measured by a  xfactor known as the "g" factor. The price cap rules define the "g" factor as "the ratio of minutes  xof use per access line during the base period, to minutes of use per access line during the  X - xprevious base period, minus 1."G ܵ yO-ԍxSee Section 61.45(c) of the Commission's rules, 47 C.F.R.  61.45(c). The Commission's rules define the "base period" for price cap  xLLECs as "the 12month period ending six months prior to the effective date of annual price cap  X{-tariffs . . . ."}H{ܵ yO<-ԍxSee Section 61.3(e) of the Commission's rules, 47 C.F.R.  61.3(e).} The higher the "g" factor, the lower the common line PCI will be.  XM-  _x26. In their "g" factor calculations for the 1993 annual access filings, Bell Atlantic  xannualized its fourth quarter 1992 line count and SNET annualized its December 1992 line count  X- xinstead 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.  X-  x27. In its "g" factor calculations for the 1994, 1995, and 1996 annual access filings, Bell  xAtlantic again annualized its prior year fourth quarter (1993, 1994, and 1995, respectively) line  xcount. The Bureau suspended Bell Atlantic's calculation of the "g" factor for purposes of its"H,))))"  X- xz1994, 1995, and 1996 filings for one day and incorporated them into the 1993 investigation.Iܵ yOy-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 3742ĩ43; 1995 Price Cap Carriers' Annual Access Order,  yOA-11 FCC Rcd at 549495; 1996 Annual Access Order, 11 FCC Rcd at 7588.  x=The Bureau also ordered that Bell Atlantic's 1994, 1995, and 1996 transmittals be subject to the  X-1993 accounting order.J ܵ yO-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 374243; Price Cap Carriers' 1995 Annual Access Order,  yOk-11 FCC Rcd at 549495; 1996 Annual Access Order, 11 FCC Rcd at 7588.  X-x2.` ` Positions of the Parties  Xv-  0x28. Bell Atlantic asserts that it correctly calculated the "g" factor in its annual price cap  xtariff filings. Bell Atlantic states that it has consistently used the endofyear number of access  xlines. Bell Atlantic and SNET argue that the basis for determining minutes and lines must be  xconsistent from year to year to avoid distortions in the PCI. Bell Atlantic contends that since all  xof the individual factors underlying the "g" calculations represent annualized amounts, there is  xno distortion in the calculation. Applied consistently over time, Bell Atlantic argues, its method  X - xleads to reasonable rates.K xܵ yO-ԍxBell Atlantic Direct Case at 1113; see also SNET Direct Case at 9; SNET Rebuttal at 8. SNET asserts that there is no material difference in its "g" factor  xwhether using a December comparison, or a comparison based on annual figures. This  xLconclusion notwithstanding, SNET expresses a willingness to use the full year methodology if  X -the Commission so requires.~L ܵ yO`-ԍxId. at 10; see also SNET Direct Case at 810; SNET Rebuttal at 7.~  Xy-   x29. AT&T responds that the Commission should not permit SNET and Bell Atlantic to  xperpetuate an erroneous practice merely for the sake of preserving historical consistency for those  xcarriers. AT&T argues that the carriers' reliance on a partial year's line count data to develop  xtheir "g" factors has resulted in substantial overstatements of their common line basket PCIs.  xzAccording to AT&T, Bell Atlantic's PCI was overstated by $5.45 million, while SNET's price  X- xcap for that basket was overstated by $104,000.JMܵ yOO-ԍxAT&T Opposition at 2627.J AT&T argues that relying on partial year data  xcould impede administration and enforcement of the LEC price cap plan because it is impossible  x>to validate the accuracy of Bell Atlantic's and SNET's "g" factor computations from the full  X-annual line count data reported in tariff review plans (TRPs) for these tariff filings.fN( ܵ yO"-ԍxId. at 27; accord Allnet Comments at 89.f  X-x3.` ` Discussion  Xe-  Ox30. We find that SNET (in its 1993 annual access filing) and Bell Atlantic (in its 1993,  x]1994, 1995, and 1996 annual access filings) incorrectly calculated the "g" factor. Section  x61.45(c) of the rules, as previously stated, defines "g" as "the ratio of minutes of use per access"7 N,))))"  X- xline during the base period,OXܵ yOy-ԍxSee Section 61.3(e) of the Commission's rules, 47 C.F.R.  61.3(e) (defining "base period" for the price cap LECs as "the 12month period ending six months prior to the effective date of annual price cap tariffs . . ."). to minutes of use per access line during the previous base period,  X- xminus 1."Pܵ yO-ԍxSee Section 61.45(c) of the Commission's rules, 47 C.F.R.  61.45(c). Revenues included in the PCI calculation are based on an entire year period. The  xvarious factors in the PCI formula should therefore be defined using similar periods to avoid  xydistortions based on seasonal variations. Thus, a count of access lines in the appropriate year  xshould reflect the average line count "during the base period" year instead of the line count  xduring some portion of the year. Use of partial year data creates the risk that seasonal  x[fluctuations in demand occurring during the year will skew the PCI calculations. Full year data  x<are required to avoid this risk. We note that a full year's average should be used in both the base  x year and the prior base year to avoid the inaccuracy that would occur if data from different  xperiods were used to calculate average line counts in the two years. We therefore direct Bell  x[Atlantic and SNET to correct their "g" calculations, and to revise their price cap indices, upper  xlimits on the service band indices in the service categories and subcategories, and maximum  xcarrier common line rates, and to implement refunds in accordance with the directions in Section V of this Order.  X -  0D. XxBell Atlantic's and Pacific Bell's Omission of End User Revenues from the Common Line Basket for Sharing Purposes(#  Xb-x1.` ` Background  X4-  0x31. Under the rules in effect at the time of the 1993 and 1994 annual access filings, price  xcap LECs electing the 3.3 percent productivity factor were permitted to retain all of their earnings  xup to 12.25 percent, but were required to share 50 percent of their earnings between 12.25  xpercent and 16.25 percent, and 100 percent of their earnings in excess of 16.25 percent. LECs  xselecting the 4.3 percent productivity factor were permitted to retain all of their earnings up to  x13.25 percent, but were required to share with their customers 50 percent of their earnings  xbetween 13.25 percent and 17.25 percent, and 100 percent of their earnings in excess of 17.25  x>percent. Under the LEC price cap sharing mechanism, the customer's share plus interest is  xeffectuated through a onetime reduction in the PCI for the next rate period, calculated in the  Xe- xMsame manner as other exogenous changes in the formula.Qexܵ yO!-ԍxLEC Price Cap Order, 5 FCC Rcd at 6788, 680102, 6805; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2686. On the other hand, the lowend  xadjustment mechanism entitled carriers whose earnings dropped below 10.25 percent to retarget  xMrates to that level in the following tariff year. Together, these adjustments were safeguards  X - xMagainst possible errors the Commission may have made in setting the productivity factor.RX@ ܵ yO&-ԍxLEC Price Cap Order, 5 FCC Rcd at 680102; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2686. In March 1995, the Commission revised its price cap plan to continue the sharing requirement and the lowend  yO1(-adjustment for LECs that select the two lower productivity factors (i.e., the 4.0 and 4.7 percent productivity"1(Q,))))6(" factors which replaced the 3.3 and 4.3 percent productivity factors), but established significantly more strict sharing obligations for those lower options. LECs selecting the 4.0 percent productivity factor must share 50 percent of their earnings from 12.25 percent up to and including 13.25 percent and to share 100 percent of their earnings above 13.25 percent. LECs selecting the 4.7 percent option must share 50 percent of their earnings from 12.25 percent up to and including 16.25 percent and to share 100 percent of their earnings  yOx-above 16.25 percent. LECs selecting the highest option (i.e., the 5.3 percent productivity factor) incur no  yO@-sharing obligations and are not entitled to a lowend adjustment).  LEC Performance Review, 10 FCC Rcd at 897071. " R,))))z"  X- x/Section 61.45(d)(4) of the Commission's rulesSܵ yO -ԍxSee Section 61.45(d)(4) of the Commission's rules, 47 C.F.R.  61.45(d)(4). requires carriers to allocate exogenous cost  X-changes, such as sharing adjustments, among price cap baskets on a "costcausative" basis.T` ܵ yO -ԍxLEC Price Cap Order, 5 FCC Rcd at 6801 (Under the sharing adjustment mechanism, "[t]he customer share plus interest will be returned in the form of a onetime reduction in the PCI for the next rate period,  yO -calculated in the same manner as other exogenous changes in the formula."); see also LEC Price Cap  yOR-Reconsideration Order, 6 FCC Rcd at 2675; see also id. at 2691 n.166 (lowend adjustments will be oneyear  yO-adjustments "in keeping with the oneyear adjustments made to effect sharing"); see also Sections 61.45(d)(1)(vii) and 61.45(d)(2) of the Commission's rules, 47 C.F.R.  61.45(d)(1)(vii) and 61.45(d)(2).  X-  x32. In its 1993 annual access tariff filing, Bell Atlantic subtracted end user revenues (also  xknown as subscriber line revenues) from total common line basket revenues for purposes of  X- xallocating sharing amounts among the four price cap baskets. In the 1993 Annual Access Order,  xthe Bureau designated the issue of whether this action by Bell Atlantic was correct. In its direct  Xa- xcase filed in response to the 1993 Annual Access Order, Pacific stated that Pacific Bell (but not  xNevada Bell) also omitted end user revenues from the common line basket for purposes of  X5-allocating sharing amounts among price cap baskets.OU5ܵ yO-ԍxPacific Direct Case at 9 n.20.O  X -  x 33. In their 1994, 1995, and 1996 annual access tariff filings, Bell Atlantic and Pacific  xBell again subtracted end user revenues from total common line basket revenues for purposes of  X - xzallocating sharing amounts among the four price cap baskets.:VX hܵ yO-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 3715; Second 1994 Annual Access Order, 9 FCC Rcd at  yO-3526; Price Cap Carriers' 1995 Annual Access Order, 11 FCC Rcd at 548890; and 1996 Annual Access Order, 11 FCC Rcd at 7581.: In the 1994 Annual Access  X - xZOrders , the Price Cap Carriers' 1995 Annual Access Order, and the 1996 Annual Access Order,  xthe Bureau found that the exclusion of subscriber line revenues from the computation that  xallocates the sharing obligation among different baskets was one of the issues designated for  xinvestigation in CC Docket No. 93193, suspended Bell Atlantic's and Pacific Bell's 1994, 1995,  xand 1996 tariffs for one day, and incorporated them into the tariff investigation in CC Docket  x=No. 93193. The Bureau also ordered that Bell Atlantic's and Pacific Bell's 1994, 1995, and 1996"SV,))))+"  X-transmittals be subject to the accounting order in CC Docket 93193.5WXܵ yOy-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 3715; Second 1994 Annual Access Order, 9 FCC Rcd at  yOA-3526; 1995 Price Cap Carriers' Annual Access Order at para. 68; and 1996 Annual Access Order, 11 FCC Rcd at 758182. 5  X-x2.` ` Positions of the Parties  X-  ?x!34. In its direct case, Bell Atlantic argues that sharing was incorporated in the price cap  xjrules for two purposes: (1) to function as a safety mechanism, if the Commission's productivity  xfactor was set incorrectly; and (2) to share with customers the benefits of interstate earnings  xabove designated levels. Bell Atlantic asserts that end user rates are based on forecasted costs  xand demand and, unlike other rates, "are not affected by the Price Cap indices, including the  X1- x>productivity factor."WX1ܵ yO -ԍxBell Atlantic Direct Case at 11.W Bell Atlantic maintains that, because sharing amounts are based on  xiproductivity gains, "allocating sharing amounts on revenues that are not affected by productivity  X -is not a costcausative approach."Y xܵ yO,-ԍxBell Atlantic Direct Case at 11; accord Ameritech Direct Case at 7; Pacific Direct Case at 10; US West Direct Case at 1112; Pacific Rebuttal at 45.  X -  0x"35. Pacific states that the Commission's price cap rules and its decisions do not specify  xZin detail how sharing is to be allocated because the sole criterion is that sharing must be allocated  X - xon a costcausative basis.sZ ܵ yO(-ԍxPacific Direct Case at 9, citing 47 C.F.R.  61.45(d)(4).s Pacific maintains that to allocate sharing based on all interstate  xMrevenues, including end user subscriber line revenues, would assign 63 percent of the total  xMsharing amount to common line, which, excluding the end user revenues, generates only 16  xmpercent of the total interstate revenues. This result, according to Pacific, violates the  XK-Commission's rules that amounts be allocated on a costcausative basis.N[K` ܵ yO\-ԍxPacific Rebuttal at 4. N  X-  x#36. AT&T and Allnet argue that the Bureau's 1992 Annual Access Order rejected a  xsimilar attempt by Bell Atlantic and others to target their sharing allocations to particular access  X- xservices that the LECs claimed had contributed most to productivity gains. \ ܵ yO!-ԍxAT&T Opposition at 2930 and Allnet Comments at 68, citing 1992 Annual Access Tariff Filings, CC  yOZ"-Docket No. 92141, 7 FCC Rcd 4731, 4733 (Com. Car. Bur. 1992) (1992 Annual Access Order).  AT&T asserts that  xthe Commission should conclude that Bell Atlantic's and Pacific's PCIs based upon the exclusion  x of end user revenues from their sharing allocation are unreasonable, and require carriers to  X-recompute those indices following correct assessment of cost causation.f]H ܵ yO&-ԍxId. at 30; accord Allnet Comments at 78.f "],))))"Ԍ X-x3.` ` Discussion  X-  ^x$37. Bell Atlantic and Pacific Bell maintain that enduser revenues should be removed  x/from the common line basket before a carrier calculates the basket revenue allocators (each  xybasket's revenue as a percent of the total revenue) used to allocate sharing among the baskets.  x=Bell Atlantic and Pacific argue that enduser charges are designed to earn the LEC a net return  xof 11.25 percent, the prescribed rate, and thus a sharing obligation is irrelevant because sharing  xis based on earnings in excess of 12.25 percent. Their basketbybasket approach to sharing has  XH- xbeen rejected by the Commission in the LEC Price Cap Order and LEC Price Cap  X3- xReconsideration Order.^3ܵ yO -ԍxSee LEC Price Cap Order, 5 FCC Rcd at 6805 and LEC Price Cap Reconsideration Order, 6 FCC Rcd at 26772680. The sharing mechanism was created as a backstop to the price cap plan  x>as a whole and is based on overall interstate earnings rather than individual rates or basket  xearnings. This unitary approach to sharing is consistent with the unitary productivity Xfactor,  X -that is based on the overall performance of the interstate access market.^_ ܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 6805.^  X -  x%38. Section 61.45(d)(4) of the Commission's rules provides that exogenous cost changes,  xsuch as sharing adjustments, shall be allocated among the price cap baskets on a costcausative  X- x.basis.`ܵ yO-ԍxSee Section 61.45(d)(4) of the Commission's rules, 47 C.F.R.  61.45(d)(4). Basket revenues in appropriate circumstances can be used as a proxy for costs.ax@ܵ yO-ԍxThe 1992 annual access filing was the first time the LECs proposed sharing and lowend adjustments to the price cap indexes. The Bureau determined that basket revenue can be used as a proxy for costs, "because rates are set based on costs, revenues should equal costs." The Bureau found further that allocating sharing adjustments among the price cap baskets on the basis of basket revenues not only "most closely comports with the goals of the Commission's price cap plan[,] but "is most consistent" with the requirement that the carriers  yOm-calculate their sharing obligation on the basis of total interstate revenues). See 1992 Annual Access Order, 7 FCC Rcd at 473233, n.4. To  xexclude EUCL revenues from the common line basket distorts the use of revenues as a proxy for  xcosts 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.  X!-  mx&39. For these reasons, we conclude that Bell Atlantic in its 1993, 1994, 1995, and 1996  xannual access tariff filings, and Pacific, in its 1994, 1995, and 1996 annual access tariff filings,  xyby excluding end user revenues from their calculations, have incorrectly allocated their sharing  xobligations among the various service baskets. We therefore direct Bell Atlantic and Pacific Bell  xLto correct how they allocate their sharing adjustments among baskets, and to revise their price  xcap indices, upper limits on the service band indices in the service categories and subcategories,  xand maximum carrier common line rates, and to implement refunds in accordance with the" a,))))"  X-directions in Section V of this Order.CbXܵ yOy-ԍxIn order to correct fully its method of allocating sharing amounts among the four price cap baskets when including EUCL revenues in the common line basket, Bell Atlantic must also correct its calculations for the reversal of sharing for its 1996 annual access tariff filing.C  X-  x'40. Although the issue was not designated for investigation, we also find unlawful  xPacific's method of allocating its sharing obligations in its 1993 annual access filing, in the facts  x.of this particular case, because it is the same method used by Pacific Bell in its 1994, 1995, and  x1996 annual access filings, and by Bell Atlantic in its 1993, 1994, 1995, and 1996 annual access  Xv- x!filings..cXvܵ yO -ԍxSee Pacific Bell Direct Case at 9, n.20 (stating that, in its 1993 annual access tariff filing, Pacific Bell, like Bell Atlantic in its 1993 annual access tariff filing, omitted end user revenues from the common line basket for sharing purposes).. We do not direct Pacific to make a refund for incorrectly allocating its sharing  xobligations in its 1993 annual access tariff filing because under Section 204(a)(1), the rates must  xbe suspended before refunds can be ordered and the Commission did not suspend Pacific's rates  X1-with respect to this issue in its 1993 annual filing for its sharing adjustments.d1ܵ yO-ԍxSee Section 204(a)(1) of the Communications Act of 1934, 47 U.S.C.  204(a)(1). See Illinois Bell  yO-Telephone Co. v. FCC, 966 F.2d 1478 (D.C. Cir. 1992); The Ohio Bell Telephone Co. v. FCC, 949 F.2d 864 (D.C. Cir.  yOz-1991); New England Telephone and Telegraph Co. et al. v. FCC, 826 F.2d 1101 (D.C. Cir. 1987). We also note that the twoyear statute of limitations for filing complaints has expired pursuant to Sections 208 and 415 of the  yO -Communications Act of 1934, as amended. See 47 U.S.C.   208, 415.  X -   x(41. In the Second 1994 Annual Access Order, the Bureau stated that, after the termination  xof the 1993 investigation and prior to the termination of the 1994 investigation, we would permit  x<Pacific to present any legal argument or factual circumstances that might lead us to conclude that  xjthe decisions reached in CC Docket No. 93193 on sharing allocation issues should not control  X - xour treatment of Pacific Bell's 1994 access transmittals.je ܵ yO-ԍxSecond 1994 Annual Access Order, 9 FCC Rcd at 3526.j As noted above, the issue raised by  X- xPacific's 1994 annual access tariff filing (i.e., whether our price cap rules permit the exclusion  xof subscriber line revenues from the computation of revenues used to allocate the sharing  xLobligation among baskets) is the same issue raised by Bell Atlantic's 1993 (and 1994, 1995, and  x/1996) annual access tariff filings and designated for investigation in CC Docket No. 93193.  xPacific filed comments and replies in CC Docket No. 93193 addressing this issue in response  X!-to the 1993 Annual Access Order.f!H ܵ yO"-ԍxSee Pacific Comments at 910; see Pacific Reply at 45; see also supra Section II.D.2.  X-  x)42. We find that Pacific has had sufficient opportunity to present evidence and argument  xxon this issue and, in fact, has done so. As discussed above, Pacific has failed to persuade us that  xthe LECs should be permitted to exclude end user revenues from the common line basket for the  xallocation of sharing adjustments. For these reasons, and because the issue presented is precisely  xthe same for each year, we believe it is unnecessary to provide Pacific further opportunity to"f,))))Q"  xcomment, and we resolve our investigation of this issue for purposes of Pacific Bell's 1994, 1995, and 1996 annual access filings.  X-E. xGeneral Support Facility Costs  X-x1.` ` Background  X_-  |x*43. On May 19, 1993, the Commission released an order adopting rules correcting the  xmisallocation of GSF investment and related expenses among the access categories in Part 69.  xGSF investment includes items such as land, buildings, computers, motor vehicles, and furniture  X - xthat support the operations of the carrier.g ܵ yO -ԍxAmendment of the Part 69 Allocation of General Support Facility Costs, 8 FCC Rcd 3697 (1993) (GSF  yO[ -Order). Prior to the GSF Order, the Commission required  xLECs to exclude GSF investment from the common line category, which increased the GSF  X - xallocation to the other Part 69 categories. The GSF Order modified the Commission's rules to  xrequire that GSF investment also be allocated to the common line category. The Commission  xheld that the exclusion of the common line category from the formula for allocating GSF  xjinvestment resulted in an underallocation of GSF investment to the common line category and  X- xan overallocation of such investment to other access categories.Th ܵ yOe-ԍxGSF Order, 8 FCC Rcd at 3697.T The Commission also  xyconcluded that price cap LECs should be allowed to treat as exogenous the reallocation of GSF  Xf- xcosts and that these LECs should adjust their PCIs to reflect the reallocation.Iifܵ yO-ԍxId. at 3700.I The GSF Order  xdirected the LECs to file tariff revisions reflecting the effect of the changed allocation process  xon fourteen days' notice, to become effective July 1, 1993, the same date their 1993 annual access  xtariff filings were to go into effect. The LECs filed their transmittals reflecting the tariff  xrevisions on June 17, 1993. During its review of the LECs' annual access tariff filings, the  xBureau considered the GSF tariff filings. The Bureau noted that petitions to suspend or reject  X- xthe GSF filings were due at virtually the same time that the Bureau was to release the 1993  X- xAnnual Access Order. Because it had only limited time to review the GSF filings, the Bureau  xconcluded that it should initiate an investigation to permit a more thorough review to determine  X- xwhether these filings comply with the Commission's GSF Order. The Bureau therefore  X- x suspended tariffs filed pursuant to the GSF Order for one day and imposed an accounting  Xs-order.cjs@ܵ yOd"-ԍx1993 Annual Access Order, 8 FCC Rcd at 4973.c  X-x2.` ` Positions of the Parties "j,))));"Ԍ X-  0x+44. The LECs that refiled their 1993 access rateskܵ yOy-ԍxThe Commission allowed the price cap LECs to treat as exogenous the reallocation of costs ordered in  yOA-the GSF Order. GSF Order, 8 FCC Rcd at 370001. The Commission ordered the changes to be reflected in the  yO -LECs' 1993 annual access tariffs that were filed on April 2, 1993. Id. at 3701. Because the GSF Order was  yO-adopted and released on May 7, 1993 and May 19, 1993, respectively (i.e., after the LECs filed their 1993 annual access tariffs), the LECs were required to refile their 1993 annual access tariffs to reflect the cost change. based on the GSF reallocation assert  x|that they reallocated their GSF costs properly and that the resulting rates are just and  X- xreasonable.lxܵ yO-ԍxAlltel Direct Case at 34; Ameritech Response at 8; Ameritech Rebuttal at 8 and 10; ATU Direct Case at  yO -12; Bell Atlantic Direct Case at 13; BellSouth Rebuttal at 910; Century Direct Case at 12; accord Chillicothe Direct Case at 2; Cincinnati Direct Case at 36; Cincinnati Supplemental Comments at 12; Concord Direct Case at 2; Dunkirk & Fredonia Direct Case at 2; GTE Direct Case at 3031; Granite State Direct Case at 12; GVNW Direct Case at 12; ITC Direct Case at 12; Lincoln Direct Case at 3; LufkinConroe Direct Case at 2; Merrimack Direct Case at 2; NECA Direct Case at 45; Ogden Direct Case at 2; NYNEX Direct Case, Exhibit 3, at 811; Rhinelander Direct Case at 13; Rochester Direct Case at 1314; Roseville Direct Case at 1416; SNET Direct Case at 1011; Southeast Direct Case at 13; Southwestern Direct Case at 5051; United Direct Case at 3; Utelco Direct Case at 12; US West Direct Case at 13; Vitelco Direct Case at 12; Warwick Valley Direct Case at 23; Wilkes Direct Case at 23; Wood County Direct Case at 23; see also Pacific Direct Case at 11. Sugar Land Telephone Company (Sugar Land), a LEC that participates in NECA's  xcommon line pool but files its own traffic sensitive tariff pursuant to Section 61.39, states that  x-its GSF costs were properly reallocated and that the revised rates were developed for the biennial  X- xjperiod from July 1, 1993 to June 30, 1995 as required by the GSF Order. Moreover, Sugar Land  x.states that the impact of the reallocated GSF costs resulted in a decrease in its traffic sensitive  Xa- xswitched and special access rates consistent with the GSF Order.maܵ yO"-ԍxAlltel Service Corp. filing on behalf of Sugar Land Telephone Company Direct Case at 14. Bay Springs et al., also  xassert that their rates were properly adjusted by applying the GSF costs reallocations to their  X5-actual historical costs pursuant to the GSF Order.]n5ܵ yO-ԍxBay Springs et al. Direct Case at 24.]  X -    x,45. AT&T asserts that the 26 companies that participate in the NECA common line pool,  x/but file their own traffic sensitive rates based on historical costs pursuant to Section 61.39,  xLreceived the benefits of the increase in the NECA common line charge due to the requirements  X - xof the GSF Order, but did not simultaneously reduce their traffic sensitive rates as also required  X - xby the GSF Order.o 0ܵ yO -ԍxAT&T Opposition at 36. AT&T lists the twentysix companies: Ayershire IA, Bloomingdale IN, Cass County IL, Chickamauga GA, CitizensMO, City of Brookings SD, Coastal Utilities GA, Dubois WY, East Ascension LA, El Paso IL, Farmers Tel. SC, Gridley IL, Hargray SC, Horry SC, Leaf River IL, Merchants and Farmers IN, Millington TN, Mt. Horeb WI, Northwest IA, Northwest IN, Odin IL, Pineland GA, Sierra CA, Southeast WI, Union WY and WebbDickens IA. AT&T maintains that these 26 companies are receiving an unwarranted  X- xdouble recovery of approximately $3.4 million because of this failure.Dpܵ yO+&-ԍxId. at 3536.D AT&T argues that  xalthough NECA may have no authority to compel these 26 companies to file tariffs that reflect  x=the appropriate traffic sensitive reductions, NECA must still make reasonable efforts to ensure"lpp,))))"  xthat all LECs in the NECA pool comply with the Commission's rules. Finally, AT&T argues that  xif LEC data submitted to NECA do not comply with the Commission's rules, NECA must correct  x\the data in its revenue requirement computations. AT&T claims that NECA is obligated by  xCommission order to adjust the common line revenue requirement to eliminate the $3.4 million  X-double recovery.qܵ yO-ԍxId. (citing Safeguards to Improve the Administration of the Interstate Access Tariff and Revenue Distribution Process, 8 FCC Rcd 1503 (1993)).  Xv-  |x-46. NECA contends that AT&T would have the Commission contradict its own rules  X_- xyregarding the allocation of GSF related costs to the common line category.Dr_ ܵ yO0 -ԍxNECA Rebuttal at 2.D Further, although  xjNECA states that it does not dispute AT&T's claim that it has the responsibility to ensure that  xthe Commission's rules are followed as they relate to the revenue requirement and revenue  xdistribution processes of its tariff participants, NECA claims that its filing does reflect the  xaccurate common line revenue requirement data. NECA argues, however, that it does not have  xythe authority to withhold common line payments to LECs that have provided accurate common  X -line revenue requirements in accordance with Commission rules.Ds ܵ yO6-ԍxNECA Rebuttal at 3.D  X -  |x.47. Among the LECs identified by AT&T that allegedly double recovered GSF costs,  X- xCoastal et al. (Coastal),Lt@ܵ yO-ԍxSee infra Appendix A.L the LECs represented by GVNW, Inc./Management (GVNW),u ܵ yO-ԍxGVNW Direct Case at 13. GVNW files tariffs pursuant to Section 61.39 on behalf of the issuing carriers: Ayershire IA, Cass County IL, CitizensMO, Dubois WY, East Ascension LA, El Paso IL, Gridley IL, Leaf River IL,  yO-Sierra CA, Union WY and WebbDickens IA. See Letter from GVNW to William F. Caton, Acting Secretary, FCC, Sept. 10, 1993, filed in CC Docket No. 93193. and  xthe City of Brookings Municipal Telephone filed rebuttals. Coastal and GVNW argue that the  xsmall LECs that participate in NECA's common line pool but file their own traffic sensitive  XM- x\tariffs,yvM ܵ yO-ԍxSee Section 61.39 of the Commission's rules, 47 C.F.R.  61.39.y were not required to retroactively apply the changes in the GSF reallocation which  xbecame effective on July 1, 1993, subsequent to the historic period ending December 31, 1992,  X- xupon which their 1993 traffic sensitive rates were based.wwH ܵ yO"-ԍxCoastal, et al. Rebuttal at 15 and GVNW Direct Case at 3.w GVNW asserts that the GSF changes  X- x{would be reflected in the 1995 tariff filing based upon 1993 historical data.Sxܵ yO$-ԍxGVNW Direct Case at 3.S The City of  xyBrookings Municipal Telephone which participates in NECA's common line pool but elected to  xfile its own traffic sensitive tariff for the first time in 1993, asserts that it correctly based its  xtraffic sensitive rates on NECA's average schedule pool settlement method pursuant to Section"hx,))))"  X-61.39 (b)(2).yܵ yOy-ԍxCity of Brookings Municipal Telephone Rebuttal at 12. See also Section 61.39(b)(2) of the Commission's rules, 47 C.F.R.  61.39(b)(2).  X-x3.` ` Discussion  X-  x/48. We have reviewed each carrier's GSF tariff transmittal and all associated pleadings  xand conclude that most carriers' costs and rates properly reflect the GSF allocation in the 1993  xannual filings. We conclude that there may have been a double recovery of a portion of GSF  xcosts by carriers that participated in NECA's common line tariff but filed individual tariffs for  XH- xNthe traffic sensitive rates, pursuant to Section 61.39 of the Commission's rules.nzH ܵ yO -ԍxSee Section 61.39 of the Commission's rules, 47 C.F.R.  61.39. In Regulation of Small Telephone  yO -Companies, the Commission reduced the regulatory burdens on small telephone companies. Regulation of Small  yO -Telephone Companies, CC Docket No. 92222, Report and Order, 2 FCC Rcd 3811 (1987) (Regulation of Small  yOq-Telephone Companies). The Commission held that small companies who chose to file their own interstate access rates rather than use NECA tariffs, may use historical costs and demand to calculate those rates. In their 1993 annual filings, the companies filing under the small company rules used historical data to develop access rates, and thus did not reflect the GSF reallocation, which took place in 1993. In contrast, NECA used forecast data to develop its rates and thus was able to reflect the GSF reallocation. The companies filing under the small company rules were required to file again in 1995 using updated historical costs, so their access rates now reflect the GSF reallocation.n These  xovercharges would have occurred from July 1, 1993 through June 30, 1995; for these carriers the  xyGSF reallocation may have been first reflected in traffic sensitive rates effective on July 1, 1995.  xThese carriers fully recovered their GSF expense through their traffic sensitive rates, because  xtheir traffic sensitive rates were based on 1992 costs before the GSF reallocation on June 17,  x1993. At the same time, NECA's rates which became effective on July 1, 1993 reflected the  xreallocation of GSF cost to the common line category, pursuant to Section 61.38 of the  xCommission's Rules. Therefore, there was a double recovery for these Section 61.39 companies  xythat recovered their full GSF expense through their traffic sensitive rates and again through the  Xy-NECA common line pool, unless they adjusted their individual traffic sensitive rates.  XK-  x049. Coastal and GVNW are correct that the GSF reallocation occurred after the 1992  xcalendar year upon which the traffic sensitive rates were based. The rates in question, however,  xwere unreasonable to the extent carriers were recovering the same cost through both the carrier  xcommon line (CCL) rates and traffic sensitive rates and should have eliminated this double  X- xrecovery in light of the Commission's determination in the GSF Order that it was necessary to  xcorrect for the misallocation of GSF costs because the exclusion of the common line category  xNfrom 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.  X~-  {x150. The record is not clear that each of these LECs did not correct their individually filed  xjtraffic sensitive rates. We direct the carriers that participated in NECA's common line pool and  x[filed individual tariffs for traffic sensitive rates pursuant to Section 61.39 to provide a complete  xexplanation of any rate adjustments they made to prevent the double recovery described above. "9 z,)))){"  x>This shall include explanations detailing the allocation of GSF costs and revisions to traffic  xsensitive rates and tariffs previously filed to eliminate any double recovery. We further direct  xthese LECs to submit a plan for any corrective action that may be necessary to eliminate the  xdouble recovery of GSF costs. Carriers may be required to make refunds, depending on the facts  xsubmitted. We require this information to be submitted by May 1, 1997. We will delegate to  x"the Chief, Common Carrier Bureau authority to review the LECs' explanations of GSF  xiallocations, rate adjustments, and any plans for corrective action that may be necessary to correct  x.for double recovery of GSF costs, as well as to take any further actions that may be necessary to ensure compliance with our requirements.  X -F. xCategory Assignment for Line Information Data Base Query Charge  X -x1.` ` Background  X -  Ax251. When setting up calls, interexchange carriers pay LECs for access to the Line  xInformation Data Base (LIDB) to validate LECissued calling cards through the LEC data bases.  xLIn the 1993 annual access filings, the LECs incorporated LIDB service for the first time into the  x.price cap baskets and placed that service in the traffic sensitive basket. With the exception of  xMone LEC, they included the per query charges (LIDB query and LIDB transport) in the local  xjtransport service category within that basket. The LIDB query charge is the charge for making  xa data base inquiry to validate a customer's calling card number. The LIDB transport charge, for  xyconnection between the switching transfer point port and a LIDB data base, is also charged on  X- xa per query basis.{ ܵ yO-ԍxSee Section 69.120 of the Commission's rules, 47 C.F.R.  69.120. The remaining two LIDB service rate elements are the signalling transfer point port termination charge, which recovers the costs of the port on the signalling network side of the signalling transfer point, and the signalling link charge, which is a charge per line that recovers the costs of the transport facility linking the signalling transfer point to the LIDB.  United is the only carrier that placed the per query elements in the local switching category of the traffic sensitive basket.  X-  x352. On January 29, 1993, the Commission created a new, separate service category within  X- xthe traffic sensitive basket for data base access services,(| Xܵ yO -ԍxProvision of Access for 800 Service, CC Docket No. 8610, Second Report and Order, 8 FCC Rcd 907  yO-(1993) (800 Data Base Order), Memorandum Opinion and Order on Reconsideration, 11 FCC Rcd 2014 (1995); see  yO-also 8 FCC Rcd at 913, Appendix A (in adopting rate structure and pricing rules for 800 data base access services, the Commission adopted Section 61.42(e)(1)(vi), 47 C.F.R.  61.42(e)(1)(vi), to create a new category within the traffic sensitive switched access basket for "[d]ata base access, including basic 800 data base access, call validation, POTS translation, alternate POTS translation, multiple carrier routing, and traffic routing  yO"-services as described in [the 800 Data Base Order] . . . and other such services as the Commission shall permit  yO#-or require"); see also id. at 912 (creating a new data base service category to include the new 800 data base elements and subelements would "help protect customers against excessive prices for 800 services while  yO%-granting LECs sufficient pricing flexibility"); see also Transport Rate Structure and Pricing, Second Report and  yO%-Order, 9 FCC Rcd 615 (1994) (Second Transport Order) (as part of a more comprehensive revision to the LEC price cap plan, modified Section 61.42(e)(1)(vi) to read "Data base access services" (thereby eliminating the clause "including basic 800 data base, call validation, . . . and other such services as the Commission shall  yO3(-permit or require") and redesignated that provision as Section 61.42(e)(1)(iii)); see also id. (shifting transport"3({,))))(" services, including all the transmissionrelated elements, the tandem switching charges, and the interconnection charge, from the price cap basket for traffic sensitive services, into a new "trunking" basket  yO -containing both transport and special access services).( effective March 1, 1993.Z}ܵ yO-ԍx800 Data Base Order, 8 FCC Rcd 913.Z As noted"x},))))"  X- xypreviously, the LECs filed their 1993 annual access tariffs on April 2, 1993. In the 1993 Annual  X- xAccess Order, we concluded that we should investigate the proposed tariff changes of those price  X-cap companies that incorporated LIDB charges into the price cap baskets.c~xܵ yO-ԍx1993 Annual Access Order, 8 FCC Rcd at 4969.c  X- x2.` ` Positions of the Partiesܵ yOa -ԍxWe note that the pleadings addressing the appropriate category assignment for the LIDB charge were  yO) -filed prior to the Second Transport Order which, as noted above, revised the price cap service basket and category structure, shifting transport services into the new trunking basket. The parties' arguments thus discuss the preexisting basket and category structure, and the following paragraphs summarize their positions as written.   Xz-  x453. United and Allnet assert that transporting a LIDB query from the interexchange  xcarrier (IXC) to the LEC switching transfer point requires the use of transport facilities, while  xtransporting the query among the facilities of the LEC and determining where to route the  X5- xunderlying call requires only the use of switching facilities.b5 ܵ yO-ԍxUnited Direct Case at 4; Allnet Comments at 910.b United and Allnet maintain that  xiswitching facilities are used to route calls to their destination or to determine whether calls should  xbe completed at all. According to these parties, the LIDB similarly makes logical decisions  x\concerning call routing. Thus, they reason, LIDB should be included in the local switching  X -category of the traffic sensitive basket.  H ܵ yO-ԍxUnited Direct Case at 5; Allnet Opposition at 910; see also Ad Hoc Comments at 25 (asserting that the LIDB per query charge belongs in the local switching category because "the nature and function of the LIDB per query charge is closer to the nature and function of traditional local switching elements than traditional local transport elements").  X -  x554. Many of the LECs, however, argue that the LIDB per query charges should be  X- xkassigned to the transport category in the traffic sensitive basket.EX0ܵ yOu!-ԍxSee Ameritech Direct Case at 4; Bell Atlantic Direct Case at 14; BellSouth Direct Case at 1011; GTE Direct Case at 32; NYNEX Direct Case, Exhibit 4, at 12; Pacific Direct Case at 12; SNET Direct Case at 12; Southwestern Direct Case at 5354; US West Direct Case at 14.E Ameritech asserts that,  x=because LIDB includes a charge for call transport, both the LIDB per query charges should be  Xf- xplaced in the local transport service category within the traffic sensitive basket.LfPܵ yOg&-ԍxAmeritech Direct Case at 4.L Southwestern  x>argues that LIDB validates billing information; it does not provide call routing and delivery  xinformation. The fact that the query is associated with a call is not enough to justify placing"8,))))H"  X- xLIDB in the local switching category, according to Southwestern.Mܵ yOy-ԍxSouthwestern Rebuttal at 28.M Several LECs assert that  xbecause LIDB validation service is dependent on network interconnection, and because network  xinterconnection costs and revenues are included in the transport category, LIDB validation service  X-costs and revenues should also be placed in the transport category.Xܵ yO-ԍxSee NYNEX Direct Case, Exhibit 4, at 12; SNET Direct Case at 12; Southwestern Direct Case at 53; US West Direct Case at 14.  X-  1x655. A number of LECs also argue that the LIDB rates are properly placed in the local  xtransport category because this placement corresponds to how LIDB investment is assigned.  xMThey maintain that under Part 32 of the Commission's rules, LIDB investment is recorded in  xAccount 2212 Digital Electronic Switching. These LECs state that the investment is then  x.categorized as central office equipment (COE) Category 2 Tandem Switching in Part 36 of the  xrules. Under Part 69, Tandem Switching Investment is assigned to the local transport category.  x-Therefore, in order to maintain consistency between the assignment of investment and revenues,  X -these carriers argue, LIDB rates are properly placed in the local transport category. ܵ yOM-ԍxSee Pacific Direct Case at 12; Bell Atlantic Direct Case at 14; Ameritech Rebuttal at 10; Southwestern Rebuttal at 2829.  X -   x756. AT&T argues that a new service category, with five percent upper and lower band  x.limits, should be established within the traffic sensitive basket for the LIDB per query charges  xbecause there is no competition for LIDB and, therefore, there is the danger that the LECs will  x!raise the LIDB per query charges in order to lower the prices for other more competitive  Xb-services.Gbܵ yO-ԍxAT&T Opposition at 38.G  X4-  0x857. The LECs generally oppose establishing a new service category for the LIDB query  xyelement, arguing that a new category is unnecessary and would conflict with the Commission's  X- x=price cap goal of simplifying regulation.Dܵ yOO-ԍxGTE Rebuttal at 11.D They assert that the practical effect of establishing  xa new service category for the LIDB query charge would be to create rate element level banding,  X-which the Commission rejected during the price cap proceeding.( ܵ yO!-ԍxBellSouth Direct Case at 11; Ameritech Rebuttal at 10; GTE Rebuttal at 11; NYNEX Rebuttal at 27; Pacific Rebuttal at 5; Southwestern Rebuttal at 29.  X-  x958. GTE asserts that, while it believes that the most appropriate category for the LIDB  xquery charge is the local transport category in the traffic sensitive basket, as an alternative, the  X|- xxcharge could be included in the 800 data base category, the category established by the 800 Data"| ,))))P"  X- xBase Access Order.sܵ yOy-ԍxGTE Rebuttal at 12 (citing 800 Data Base Order).s This alternative, GTE argues, should resolve AT&T's concern that the  x.LECs might increase the rate for this element in order to reduce other rate elements in the local  X-transport basket.;Xܵ yO-ԍxId. ;  X-x3.` ` Discussion  Xx-  x:59. As discussed above, the Commission in the 800 Data Base Order created a separate  Xc- xiservice category within the traffic sensitive basket for data base service.cܵ yO -ԍx800 Data Base Order, 8 FCC Rcd 907; see also thenexisting Section 61.42(e)(1)(vi) of the Commission's rules,  61.42(e)(1)(vi). Interexchange carriers  xpay LECs' LIDB rates to verify LECissued calling cards through the LECs' data bases. Thus,  xLIDB service is actually a data base service and, therefore, is most appropriately placed in the data base service category within the traffic sensitive basket.  X -   x;60. Including the LIDB charges in the data base service category, along with services  xsuch as 800 data base services, is consistent with the price cap principle that calls for grouping  x.similar services together to limit the LECs' ability to shift costs among services in a potentially  X - xanticompetitive manner.  @ܵ yO-ԍxSee LEC Price Cap Order, 5 FCC Rcd at 6788, 681112; see also Second Transport Order, 9 FCC Rcd at 617 ("price cap constraints applicable to the baskets and service categories permit the LECs to change their rates to reflect more economically efficient cost allocations and underlying cost changes, but avoid precipitous price changes and prevent LECs from disadvantaging one class of ratepayers to the benefit of another class"). Specifically, grouping services with common characteristics, such  xas similar functionalities and levels of competition, within the same category is intended to give  xthe LECs pricing flexibility with respect to comparable services and to restrict the ability of  Xf- x.LECs to offset increases for some services with rate decreases for dissimilar services.af( ܵ yO?-ԍxLEC Price Cap Order, 5 FCC Rcd at 681011.a LIDB  xservice and 800 data base services are not only functionally similar (in that they both provide  X8- xyaccess to data base information), but they share similar competitive circumstances (i.e., neither service is subject to competitive pressures).  X-  mx<61. The fact that the LIDB service involves switching functions (i.e., call routing and  xcompletion functions) does not persuade us that the LIDB charge should be included in the  xkformer local switching category of the traffic sensitive basket, as United proposes. Further,  xbecause transport services face increasing competition as a result of the Commission's expanded  xinterconnection policies, while the LECs have a virtual monopoly over the information contained  x<in the line information data base, placing the LIDB query charges in the transport category would  x be inconsistent with the Commission's price cap principle of grouping services with similar demand elasticities. "? ,))))"Ԍ X-  x=62. We conclude that the data base service category within the traffic sensitive basket  x.is the appropriate category in which to place the LIDB query charges. We therefore direct the  x{LECs referenced in Appendix B to place the LIDB query charges in the data base service  xjcategory within the traffic sensitive basket and to revise their price cap indices, upper limits on  xthe service band indices in the service categories and subcategories, and maximum carrier  xcommon line rates, and to implement refunds for the 1993 annual access tariff in accordance with the directions in Section V of this Order.  XH-  x>63. Although the issue of the proper service category placement for LIDB query charges  x.was not designated for investigation in the 1994, 1995, and 1996 annual access filings, we also  x=find the LECs' placement of the LIDB query charges in service categories other than data base  X - xxservice category in these years to be unlawful for the reasons discussed, supra. We do not direct  xzthe LECs, referenced in Appendix B, to make a refund for placing the LIDB query charges in  x[the incorrect service category for the 1994, 1995, and 1996 annual access filings because under  xSection 204(a)(1), the rates must be suspended before refunds can be ordered and the  xkCommission did not suspend the 1994 through 1996 annual access rates of these LECs with  xrespect to their placement of LIDB query charges in service categories other than the data base  X{-service category.O{ܵ yO-ԍxSee n. 100, supra.O  XM-G. xRoseville Cash Working Capital  X-x1.` ` Background  X-  x?64. Cash working capital is an estimate of the average amount of investorsupplied  X- xcapital needed to fund a carrier's daytoday operations.XXܵ yO-ԍxAmendment of Part 65 of the Commission's Rules to Prescribe Components of the Rate Bases and Net  yO-Income of Dominant Carriers, Order on Reconsideration, 4 FCC Rcd 1697 (1989)(Rate Base Component  yOs-Reconsideration Order). See Section 65.820(d) of the Commission's rules, 47 C.F.R.  65.820(d). This amount is one element of the  X- xinvestment component of a rateofreturn carrier's revenue requirement used to compute rates.xܵ yO-ԍxThe four elements of the rate base are: telecommunications plant; material and supplies; noncurrent assets; and cash working capital.  xKIn order to determine the working capital requirements for daytoday operations, leadlag studies  xjmeasure the patterns of cash inflows and outflows relative to the time when service associated  xwith those costs and revenues is rendered. "Lead" describes those revenues and expense items  xxthat are received or paid before a service is rendered. "Lag" describes those revenue and expense  xjitems that are received or paid after service is rendered. The Commission's rules permit carriers  xto compute their cash working capital by using either a full leadlag study, the "Simplified  X"- xFormula Method," or the "Standard Allowance Method.""ܵ yO&-ԍxSee Section 65.820(d) of the Commission's rules, 47 C.F.R.  65.820(d). Because the computation by  xRoseville, a rateofreturn carrier, of its cash working capital was inconsistent with those of other" ` ,))))y"  xyLECs, the Common Carrier Bureau suspended its filing for one day, issued an accounting order and included it in this investigation.  X-x2.` ` Positions of the Parties  X-  x@65. Roseville admits that, in amending Part 65, the Commission concluded that "properly  xMdeveloped leadlag studies are the most appropriate method for determining interstate cash  X_- xLworking capital."UX_ܵ yO-ԍxRoseville Direct Case at 14 (citing Amendment of Part 65 of the Commission's Rules to Prescribe  yO -Components of the Rate Bases and Net Income of Dominant Carriers, Report and Order, 3 FCC Rcd 269, 279  yOh -(1987)(Rate Base Component Order)).U Nonetheless, Roseville contends that nothing in those orders precluded a  XH-carrier from using a leadlag study based on individual company circumstances.;Hܵ yO -ԍxId. ;  X -  0xA66. Roseville contends that its cash working capital allowance was based on a properly  xperformed leadlag study. According to Roseville, evaluating the reasonableness of its cash  xjworking capital allowance by comparing it with those of carriers using the Standard Allowance  xMethod is improper because Roseville's result is more accurate. Therefore, Roseville maintains,  X - x.its calculation of its cash working capital allowance results in just and reasonable rates.; xܵ yO-ԍxId. ; No oppositions or rebuttal were filed addressing this issue.  Xy-x3.` ` Discussion  XK-  xB67. We have reviewed Roseville's leadlag study and have determined that this study  xcontains several flaws. First, the leadlag study is outdated because it used 1989 data and there  x/is no way for us to determine if these data are representative of Roseville's 1993 operations covered by the tariff under review.  X-  xC68. Second, the months studied for individual revenue categories were not consistent.  xFor example, Roseville used SeptemberDecember 1989 to calculate the Carrier Access Billing revenue lag, but used AprilJune 1989 to calculate the Other Common Carrier Revenue lag.  X|-  xD69. Third, Roseville included in its leadlag study adjustments to prior period data that,  xalthough permitted under NECA's internal procedures, lead to unreasonable results when  xcomputing cash working capital requirements. NECA's procedures allow for adjustments to prior  x0period data for up to 24 months after rates based on the data became effective. NECA's  xretroactive adjustment mechanism allows carriers to adjust their previously submitted data to  xkaccount for such events as erroneous separations studies, clerical errors, rule changes, and  xextraordinary accounting adjustments. For its leadlag study, Roseville chose a 12month period  X- xthat included a substantial retroactive adjustment (i.e., an adjustment that resulted in Roseville's  xreceiving a large late payment from the NECA settlement process) that significantly increased" ,))))"  xmRoseville's revenue lag. Because there is little, if any, correlation between retroactive  xadjustments and current expenses, we conclude that the former are not a reasonable indicator of  xthe cash working capital needed by Roseville to finance its daytoday operations. We note also  xthat LECs have not previously included these types of retroactive adjustments from NECA in  xxtheir leadlag studies and we believe that the inclusion of such adjustments by Roseville distorted its leadlag results.  X_-  xE70. Finally, Roseville's computation of its income tax lag is flawed because it includes  x"delays in the receipt of tax refunds for overpayment of estimated taxes. We find it is  xjinappropriate to permit Roseville to include tax overpayments as part of its lead lag study used  xMto support its 1993 cash working capital allowance. Ratepayers should not bear the cost of  xmanagement's decision to overpay the company's estimated taxes. The overpayment of taxes is  xnot a daytoday cost of doing business and thus, it does not warrant inclusion in a carrier's  xworking capital allowance. Collectively, these observations lead us to conclude that Roseville's  xleadlag study cannot be used to compute its cash working capital allowance because the study  x.produces an inaccurate estimate of its revenue requirement. We therefore require Roseville to  X- xMutilize the standard 15day allowance method to calculate its cash working capital,' ܵ yO -ԍxAmendment of Part 65 of the Commission's rules to Prescribe Components of the Rate Base and Net  yO-Income of Dominant Carriers, CC Docket No. 86497, Report and Order, 3 FCC Rcd 269 (1987), on recon., 4 FCC  yO-Rcd 1697, 1698 (1989) (establishing a 15day lag period as an appropriate standard) (Part 65 Reconsideration  yOa-Order), remanded, Illinois Bell v. FCC, 911 F.2d 776 (D.C. Cir. 1990), on remand, 7 FCC Rcd 296 (1991). ' and to  ximplement refunds in accordance with the directions in Section V.D. of this Order. To determine  xthe carrier's working capital allowance under the standard 15day allowance method, the carrier's  xKtotal annual cash operating expenses are divided by 365 days to determine the average daily cash  xoperating expenses. A carrier's average daily cash operating expenses are then multiplied by the  xmstandard cash working capital allowance of 15 days to derive its cash working capital  X-determination.ܵ yOg-ԍxPart 65 Reconsideration Order, 4 FCC Rcd at 1698, n.17. See Section 65.820(d) of the Commission's rules, 47 C.F.R.  65.820(d).  w III. AT&T'S APPLICATION FOR REVIEWTP  X-1.xBackground  X|-  _xF71. In a companion order to the Modification of Final Judgment (MFJ),|ܵ yO5"-ԍxUnited States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom., Maryland v. United States, 460 U.S. 1001 (1983). the U.S.  x=District Court required AT&T to guarantee the Bell Operating Companies' (BOCs') recovery of  xthe costs of providing equal access to IXCs. The District Court also directed AT&T and the  xBOCs to develop a procedure to account for equal access and network reconfiguration (EANR)  X - xZcosts. ` ܵ yO1(-ԍxUnited States v. Western Electric Co., Inc., 569 F. Supp. 1057, 1123 (D.D.C. 1983). In 1985, AT&T and the BOCs petitioned the Commission to approve an accounting plan" ! ,))))z"  xfor EANR costs. AT&T and the BOCs estimated that total equal access expenditures would  X-exceed $2.6 billion and would be incurred over a short time.)ܵ yOb-ԍxPetitions for Recovery of Equal Access Costs, Memorandum Opinion and Order, FCC 85628, 50 Fed. Reg.  yO*-50,910, 5091314 n.16 (1985 (EANR Order), aff'd on recon., 1 FCC Rcd 434 (1986) (EANR Reconsideration Order).)  X-  xG72. In response, the Commission in the EANR Order identified only certain costs that  xwould be treated as equal access costs, including: (1) initial additional costs for hardware and  xysoftware related directly to the provision of equal access, and not otherwise required; (2) costs  xof connecting offices that serve competitive IXCs; and (3) costs that have been incurred as a  Xa- xresult of bona fide requests for conversion to equal access.ZXa ܵ yO2 -ԍxEANR Order, 50 Fed. Reg. at 50,91213; see also EANR Reconsideration Order, 1 FCC Rcd at 437 (rejecting proposals to include equal access costs in the amortization "regardless of whether competition exists  yO -or a bona fide request for conversion was received").Z The Commission required the  x=BOCs to amortize equal access costs over an eightyear period that would expire on December  X5- x31, 1993.n5@ܵ yO&-ԍxEANR Reconsideration Order, 1 FCC Rcd at 437, para. 33.n The Commission concluded that the establishment of a fixed amortization period  x?with a definite termination point of December 31, 1993, would avoid substantial irregular  X -fluctuations in rates and reduce the administrative burdens of tracking equal access costs.: ܵ yO-ԍxId.:  X -  ]xH73. In the LEC Price Cap Order, the Commission decided to treat all equal access costs  xendogenously because the mandatory price cap LECs had converted most of their end offices to  xequal access and most of these equal access costs were embedded in their initial price cap rates.  xThe Commission thus found that it was unnecessary to further promote equal access conversion  X- xKamong price cap carriers by treating those costs as exogenous.` ܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 6808; see also LEC Price Cap Reconsideration Order,  6 FCC Rcd at  yOX-2665. The Commission also noted the  xpotential difficulties associated with assessing future equal access exogenous cost claims by  xLECs, and the corresponding risk that carriers "could willfully or inadvertently shift switched  X:-access costs into the equal access category. . . ."lX: ܵ yO-ԍxLEC Price Cap Order, 5 FCC Rcd at 6808; see also LEC Price Cap Reconsideration Order, 6 FCC Rcd at  yOk -2665; see also id. at 266667 (according exogenous treatment to equal access costs might create incentives for the price cap LECs to "inflate the amounts spent on equal access").l  X - ` CxI74.` ` In the LEC Price Cap Reconsideration Order, the Commission affirmed its  X- xdecision to treat equal access costs endogenously.2Xܵ yO%-ԍxLEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667; see also id. ("we distinguish equal access costs from other costs that we treat as exogenous, such as rule changes, in which the cost change is derived solely from a change in regulation").2 In addition, the Commission rejected a  x.proposal that would have required a downward exogenous cost adjustment to the BOCs' PCIs"",))))"  X- xupon the termination of the equal access cost amortization.-ܵ yOy-ԍxLEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667 n.77; see also id.  ("We . . . decline to adopt MCI's suggestion to treat BOC equal access costs in the same way we do amortizations, and require a downward  yO -adjustment in PCI levels in 1994 to eliminate all equal access costs"); see also id. (noting that "the issue to be addressed is whether the BOCs will experience any cost change in 1994 that stems from factors beyond their  yO-control").- In reaching its decision, the  x[Commission found that endogenous cost treatment for the elimination of equal access costs is  X- xconsistent with its treatment for changes in depreciation levels.Xxܵ yO-ԍxId.; see also id.  (under price cap regulation, the Commission does not treat changes in depreciation  yO -levels as exogenous, so that when a piece of equipment is fully depreciated, there is no PCI change); see also id. ("Nor is there a PCI change if carrier speeds up or slows down the rate at which it recovers investment"). The Commission determined  X- xthat nothing in the "meager factual record"@ܵ yO -ԍxId.@ persuaded the Commission "to depart from our  X- xpractice of not adjusting PCI levels to reflect levels of cost recovery"@( ܵ yO}-ԍxId.@ so as to require a  X-downward exogenous cost adjustment in 1994 to eliminate all equal access costs. ܵ yO-ԍxId.; see also Commission Requirements for Cost Support Material to be Filed with 1994 Annual Access  yO-Tariffs and for Other Cost Support Material, 9 FCC Rcd 1060, 1063 (Com. Car. Bur. 1994) (1994 TRP Order)  yO-(rejecting AT&T's suggestion to treat as exogenous the completion of amortization of equal access costs, citing  yON-LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667 n.77, where MCI's proposal was rejected "because the Commission considered equal access costs to be within the control of LECs").  X_-  xJ75. In the 1994 Annual Access Orders, the Bureau denied AT&T's and MCI's petition  xKto suspend and investigate the 1994 annual LEC access tariff filings on the grounds that the price  xmcap carriers had failed to make adjustments to their price cap indices to reflect the full  X - x1amortization of equal access costs. hܵ yO5-ԍxFirst 1994 Annual Access Tariff Order, 9 FCC Rcd at 3727; Second 1994 Annual Access Tariff Order, 9 FCC Rcd at 353536. The Bureau stated that, in the LEC Price Cap  X - xKReconsideration Order, the Commission had rejected a proposal that would "require a downward  X - x[adjustment in PCI levels in 1994 to eliminate all equal access costs." ܵ yOc-ԍxFirst 1994 Annual Access Tariff Order, 9 FCC Rcd at 372728 and Second 1994 Annual Access Tariff  yO+ -Order, 9 FCC Rcd at 3535 (citing LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667 n.77).  The Bureau found that,  xieven if the equal access cost amortization did warrant exogenous treatment, such treatment would  xkrequire a substantive rule change because Section 61.45(d) does not provide for exogenous  xtreatment of the equal access cost amortization and no LEC has otherwise petitioned for, and  X- x[been granted, a waiver of that rule.ܵ yO_%-ԍxFirst 1994 Annual Access Tariff Order, 9 FCC Rcd at 3731; Second 1994 Annual Access Tariff Order, 9 FCC Rcd at 3536. AT&T filed an application for review of that decision.pܵ yO'-ԍxAT&T Application for Review (filed July 25, 1994) (AT&T Application for Review). "#,))))"  X- xMCI filed comments in support of AT&T's application for review.bܵ yOy-ԍxMCI Comments (filed Aug. 8, 1994) (MCI Comments).b Bell Atlantic, BellSouth,  X-NYNEX, Pacific, Southwestern, and US West filed oppositions. Xܵ yO-ԍxOpposition of Bell Atlantic (filed Aug. 9, 1994) (Bell Atlantic Opposition); Opposition of BellSouth (filed Aug. 9, 1994) (BellSouth Opposition); Opposition to AT&T's Application for Review (filed Aug. 9, 1994) (NYNEX Opposition); Opposition of Pacific (filed Aug. 9, 1994) (Pacific Opposition); Opposition of Southwestern (filed on Aug. 9, 1994) (Southwestern Opposition); US West Opposition (filed on Aug. 9, 1994) (US West Opposition).  X-2.xPositions of the Parties  X-  xK76. AT&T alleges that the Bureau erred in "deny[ing] exogenous treatment of [the  Xv- xexpiration of] equal access cost amortizations for . . . LECs subject to price cap regulation."1Xv@ܵ yOg -ԍxAT&T Application for Review at 1; see also id. at i (alleging that the carriers in their 1994 annual access filings "failed to reduce their . . . [PCIs] to reflect the conclusion of their equal access cost amortization as an exogenous cost change.").1  X_- xAT&T contends that, because equal access costs were fully amortized on December 31, 1993,  xthe LECs should be required to treat the expiration of the equal access cost amortization as an  X1- xexogenous adjustment.F1` ܵ yOB-ԍxId. at 4.F AT&T asserts that, contrary to the Bureau's finding in the 1994 Annual  X - x=Access Orders, the Commission's decision in the LEC Price Cap Order to accord endogenous  xtreatment to the ongoing costs of equal access conversion "did not preclude exogenous treatment  X - xLof the LECs' equal access cost amortization."@ ܵ yO-ԍxId. at 7.@ AT&T claims that the Commission in the LEC  X - xPrice Cap Order "addressed the appropriate treatment of the LECs' ongoing costs of converting  xto equal access, rather than the amortization of noncapitalized equal access costs previously  X - xincurred by those carriers under rate of return regulation."@ ܵ yO-ԍxId. at 8.@ AT&T contends that the  X- xCommission's decision in the LEC Price Cap Order "to treat ongoing equal access costs  x\endogenously" was based on the difficulty of assessing equal access costs and to prevent  Xl- xKdeliberate or inadvertent cost shifting.;lܵ yO- -ԍxId. ; AT&T claims that these considerations are inapplicable  xto the "amortization of previously incurred equal access conversion expenses because those  xamounts had already been reflected in the carriers' books well prior to the adoption of incentive  xregulation, thereby obviating the likelihood of deliberate or unintentional misallocation of  X-switched access costs.":ܵ yOa%-ԍxId.:  X-  0xL77. AT&T contends that the LEC Price Cap Reconsideration Order similarly does not"$0,))))"  X- xpreclude exogenous treatment of the termination of equal access cost amortization.@ܵ yOy-ԍxId. at i.@ AT&T  X- xasserts that the LEC Price Cap Reconsideration Order declined to treat the expiration of the  X- x>amortization as exogenous based on the "meager factual record" that was then available.Xܵ yO-ԍxAT&T Application for Review at 9 (citing LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667 n.77).  xKAT&T argues that "[n]o such concerns are present . . . because all of the BOCs have made filings  xwith the Decree Court affirming that they have fully recovered their equal access and network  X- x<reconfiguration expenses."_ܵ yO( -ԍxAT&T Application for Review at 9. _ AT&T also states that none of the other LECs subject to the equal  xZaccess cost amortization submitted any showing in their 1994 annual access tariff filings that they  Xa- xhave not also fully recovered those costs.Aaxܵ yO -ԍxId. A AT&T argues that the Bureau incorrectly determined  XJ- xin the 1994 Annual Access Orders that allowing exogenous cost treatment of the LECs' equal  xjaccess expense amortization requires a rulemaking or a successful LEC waiver request because  x>Section 61.45(d)(1)(vi) provides exogenous cost treatment for "such . . . other extraordinary  X -exogenous costs changes as the Commission shall permit or require . . . ."b ܵ yO-ԍxId. at 10; see also id. at 1, 2, 10. b  X -  !xM78. MCI urges the Commission to grant AT&T's application for review. MCI maintains  xLthat the BOCs "will experience [a] . . . cost change in 1994 that stems from factors beyond their  X - xcontrol" ܵ yO-ԍxMCI Comments at 6 (quoting LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667 n.77). because "there is a reduction in the LECs' costs which results from the completion of  xja Commissionmandated amortization, and not from productivityenhancing efforts undertaken  X}-by the LECs."C}( ܵ yOV-ԍxMCI Comments at 6.C  XO-  xN79. Bell Atlantic, BellSouth, Pacific, Southwestern, NYNEX, and US West contend that  x-the Commission has repeatedly rejected arguments that the ongoing costs of converting to equal  x!access, as well as the completion of the amortization of such costs, should be accorded  X - xZexogenous cost treatment.  ܵ yOs!-ԍxBell Atlantic Opposition at 2; BellSouth Opposition at 26; US West Opposition at 1 2; Pacific  yO;"-Opposition at 2; Southwestern Opposition at 1; NYNEX Opposition at 2 (citing LEC Price Cap Order, 5 FCC Rcd at  yO#-6808; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667 n.77; Commission Requirements for Cost Support Material to be Filed with 1994 Annual Access Tariffs and for Other Cost Support Material, 9 FCC Rcd 1060, 1063  yO$-(Com. Car. Bur. 1994); 1994 Annual Access Tariff Order,  9 FCC Rcd at 372731.ă They assert that the Commission has consistently held that all equal  X- x=access costs are to be treated endogenously.:hܵ yO '-ԍxId.: Bell Atlantic and NYNEX claim that there has  xbeen no relevant change in the law or the facts since the Commission first decided this issue that"%,))))&"  X- xwould warrant a change in the treatment of these costs.fܵ yOy-ԍxBell Atlantic Opposition at 2; NYNEX Opposition at 5.f Bell Atlantic, BellSouth, NYNEX, and  xPacific argue that the Bureau would violate the Commission's rules if it were to provide for  X- x[exogenous treatment for the expiration of equal access costs.Xܵ yO-ԍxBell Atlantic Opposition at 34, Pacific Opposition at 2; BellSouth Opposition at 2, NYNEX Opposition at  yO-3 (citing 47 C.F.R.  61.45(d)); see also Southwestern Opposition at 2 . NYNEX asserts that a change  xin the classification of equal access costs would require a rulemaking proceeding or a grant of  X- xa LEC petition to waive the rule.rܵ yO -ԍxNYNEX Opposition at 3; accord Pacific Opposition at 1, 34.r NYNEX argues that the "meager factual record" noted by  X- xthe Commission in the LEC Price Cap Reconsideration Order concerned the issue of control over  xequal access costs. NYNEX asserts that AT&T has failed to present any new facts that were not  xbefore the Commission in the original price cap orders to warrant a change in the treatment of  XJ-equal access costs.GJ@ܵ yO;-ԍxNYNEX Opposition at 4.G  X -  xO80. Southwestern asserts that AT&T's claim that the BOCs have made filings with the  x?Decree Court affirming that they have all fully recovered their equal access and network  x reconfiguration expenses is incorrect. For example, Southwestern states that it is currently  ximaking equal access conversion by means of alternate technology to 73 Oklahoma central offices,  X -and is upgrading 11 other Oklahoma central offices to equal access by full switch replacement.P ܵ yOA-ԍxSouthwestern Opposition at 12.P  X-3.xDiscussion  Xd-  xP81. In the LEC Price Cap Order and in the LEC Price Cap Reconsideration Order, we  xdetermined that the amortization of equal access costs, as well as the expiration of the  X8- xamortization of such costs, should be treated endogenously under the LEC price cap plan.8` ܵ yOI-ԍxLEC Price Cap Order, 5 FCC Rcd at 6808; LEC Price Cap Reconsideration Order, 6 FCC Rcd at 26662667, and n.77.  xSection 61.45(d) restricts the categories of cost changes that price cap LECs are allowed to treat  x!exogenously to those specifically listed in that rule and those that the Commission may  xsubsequently designate as exogenous. That section does not include equal access costs among  xthose eligible for exogenous cost treatment. Therefore, a plain reading of Section 61.45(d)  xprecludes exogenous treatment of equal access costs. In addition, even if the completion of the  xequal access cost amortization does warrant exogenous treatment, such treatment would require  X-a substantive rule change or a waiver of Section 61.45(d) of the Commission's rules.  ܵ yO&-ԍxSee Section 61.45(d) of the Commission's rules, 47 C.F.R.  61.45(d). In the LEC Price Cap  yO&-Reconsideration Order, the Commission noted that petitions for waivers of Section 61.45(d) may be filed. See  yO'-LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2667, n. 76. Subsequent to the filing of AT&T's application  yOX(-for review, the Commission stated further in the LEC Performance Review that exogenous cost treatment may"X(,))))X(" be considered through a rulemaking proceeding, a waiver of the Commission's rules, or through a petition for  yOX-declaratory ruling.  LEC Performance Review, 10 FCC Rcd at 9099. "& ,))))o"Ԍ X-  ԙxQ82. Because exogenous treatment of amortized equal access expenses would require a  xrulemaking, a waiver application, or an application for declaratory ruling, we deny AT&T's  X- xMapplication for review of the 1994 Annual Access Orders. We have invited comment in the  xaccess charge reform rulemaking proceeding on whether to amend our rules to require incumbent  xLECs to make an exogenous decrease to one or more of their PCIs to account for the completion  X- xof the equal access expense amortization on December 31, 1993. ܵ yO` -ԍx See Access Charge Reform, CC Docket No. 96262, Price Cap Performance Review for Local Exchange Carriers, CC Docket No. 941, Transport Rate Structure and Pricing, CC Docket No. 91213, Usage of the Public  yO -Switched Network by Information Service and Internet Access Providers, CC Docket No. 96263, Notice of  yO -Proposed Rulemaking, Third Report and Order, and Notice of Inquiry, FCC 96488 at paras. 29193. (rel. Dec. 24, 1996).  We will address this issue in that rulemaking proceeding. o<IV. SOUTHWESTERN'S PETITION FOR CLARIFICATION OR RECONSIDERATIONTP  X -1.xBackground  X -  xR83. Southwestern's petition addresses two issues raised by the 1994 investigations. First,  X - xin the 1994 Annual Access Orders, the Bureau concluded that certain carriers' proposals to treat  xCommission regulatory fees as exogenous costs in their tariff filings violated the price cap  X - xjrules. ܵ yO,-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 373435; Second 1994 Annual Access Order, 9 FCC Rcd at 3539. The Bureau reasoned that Section 61.45(d) ( ܵ yO-ԍxSee Section 61.45(d) of the Commission's rules, 47 C.F.R.  61.45(d). limits the categories of exogenous costs  xto those listed in the rule and those designated as such by Commission order and that  xCommission regulatory fees are neither listed as exogenous in the rule nor have they been  Xf- xdesignated as such by Commission order.f ܵ yO-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 373435; Second 1994 Annual Access Order, 9 FCC Rcd at 3539. The Bureau stated that, absent a rulemaking, the  xonly means available to obtain exogenous treatment for the regulatory fees is to secure a waiver  X8- xof Section 61.45(d).8ܵ yO!-ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 373435; Second 1994 Annual Access Order, 9 FCC Rcd at 3539. Southwestern, although it was not one of the carriers that included  xxCommission regulatory fees as exogenous costs in its tariff filings, requested that the Commission  X - xk"clarify or reconsider that part of . . . [the First 1994 Annual Access Order] that implies that  xlocal exchange carriers (LECs) subject to price cap regulation that wish to treat the new  X-regulatory fees as exogenous costs should petition for a waiver of the Commission's rules."Lhܵ yO'-ԍxSouthwestern Petition at 1.L "',))))"Ԍ X-  ԙxS84. The second issue raised in Southwestern's petition concerns its $6.04 fixed mileage  xcharge for DS1 services with zero miles of interoffice transport, applicable to the link between  X- xythe distribution (DSX) bay and the switch. In the First 1994 Annual Access Order, the Bureau  xfound that Southwestern's DS1 zero mileage rate element was below the applicable PCIs and  xwithin the governing service bands. The Bureau also found that Southwestern had sufficiently  xresponded to a petition filed by MFS Communications Company concerning this charge.  xNonetheless the Bureau, concerned about the potential for double recovery through the DS1  xdirecttrunked transport charge (DTT) for transmission between the DSX bay and the switch and  x.again through the residual interconnection charges (RICs), suspended the tariff revisions that  x.increased the fixed mileage charge for DS1 services with zero miles of interoffice transport and  xmade them subject to the Commission's ongoing expanded interconnection investigation in CC  X - xDocket No. 93162 and the accounting order in that proceeding. ܵ yO~ -ԍxFirst 1994 Annual Access Order, 9 FCC Rcd at 372425, regarding Southwestern's Transmittal Nos. 2344 and 2364. In its current petition,  xSouthwestern has requested that the Commission "clarify that. . . [Southwestern's] proposed $6.04  xfixed mileage charge for DS1 services with zero miles of interoffice transport is not subject to  X -the expanded interconnection investigation."N ܵ yO-ԍxSouthwestern Petition at 12.N  X -  X-  xT85. As previously stated, in its 1994 annual access filing, Southwestern had proposed the  x$6.04 DS1 zeromileage charge in the switched transport portion of its tariff under Transmittal  xNo. 2344. Then in response to an informal request from Commission staff, Southwestern also  x!provided for the $6.04 charge in the expanded interconnection portion of its tariff under  x[Transmittal No. 2364. Prior to these two transmittals, Southwestern filed Transmittal No. 2330,  x=which clarified that the $6.04 DS1 charge for a given link would be paid by either the expanded  xKinterconnection customer using the link or the switched transport customer using the link but not  X- xby both.ܵ yOR-ԍxSee Southwestern Tariff F.C.C. No. 73, Transmittal No. 2330, (filed February 14, 1994). The Bureau's Order made both Transmittal Nos. 2344 and 2364 subject to the  x expanded interconnection investigation. The Bureau did not designate the matter of these  xtransmittals for investigation in any subsequent supplemental designation orders that would have  X-established a notice and comment filing cycle.  X~-2.xPosition of the Parties  XP-  xU86. With respect to the treatment for ratemaking purposes of Commission regulatory fees  xpaid by price cap LECs, Southwestern claims that LECs have not always been required to file  xzpetitions for waiver to obtain exogenous cost treatment of items not included under Section  X - xy61.45(d)(1)(vi) of the Commission's rules, @ܵ yO%-ԍxSee Section 61.45(d)(1)(vi) of the Commission's rules, 47 C.F.R.  61.45(d)(1)(vi). and that absent a rule change, a petition for waiver" (,))))["  X- xshould not be required.Nܵ yOy-ԍxSouthwestern Petition at 13.N With respect to the carrier's fixed mileage charge  xfor DS1 services with zero miles of interoffice transport, Southwestern notes that the Bureau  X- xfound in the First 1994 Annual Access Order that the charge was below the applicable price cap  xindices and within the applicable service bands. Southwestern maintains that in light of that  xdetermination, the $6.04 charge for the DS1 zeromileage rate element should have been allowed  X-to take effect without further investigation.:Xܵ yO-ԍxId.:  Xx-  Xa-  xV87. BellSouth, filing comments in support of Southwestern's petition concerning  xyexogenous costs, stated that the Bureau misinterpreted the Commission's rules when it claimed  xthat Section 61.45(d) limited the categories of costs eligible for exogenous treatment to those  xlisted in the rule and that carriers must file waiver requests to obtain exogenous treatment for  X - xunlisted costs. ܵ yO-ԍxBellSouth Telecommunications, Inc. Comments at 12 (filed Aug. 9, 1994) (BellSouth Comments). BellSouth argues that Section 61.45(d) does not present an exhaustive list of  xexogenous cost changes, but also includes any other cost changes that the Commission shall  X - xpermit.K xܵ yO-ԍxBellSouth Comments at 34.K BellSouth also argues that the Commission has in the past permitted, without a waiver  xrequest, exogenous treatment of cost changes that were neither specifically listed in Section  X -61.45(d) nor designated as permitted exogenous cost changes by Commission order.} ܵ yOb-ԍxBellSouth claims that exogenous cost treatment of costs associated with the Telecommunications Relay Fund and public utility tax increases have been permitted by the Commission without the filing of waiver  yO-requests by LECs. BellSouth Comments at 45 (citing BellSouth Telecommunications, Inc. Transmittal No. 135, filed Aug. 17, 1993, effective Oct. 16, 1993; Bell Atlantic Telephone Companies, Tariff F.C.C. No. 1, Transmittal Nos. 492 and 501, 7 FCC Rcd 2165 (1992); Bell Atlantic Telephone Companies, Tariff F.C.C. No. 1, Tr. No. 473, 7 FCC Rcd 1486 (1992)).}  X{-  #xW88. MCI filed comments urging the Commission to reject Southwestern's petition  Xd- xconcerning exogenous costs.d ܵ yO-ԍxMCI Telecommunications Corporation Comments (filed Aug. 9, 1994) (MCI Comments). MCI points to the Commission's United Depreciation Order in  xwhich the Commission ruled that, "since general depreciation rate changes are treated  xendogenously under price caps, United used the correct procedural device by seeking waiver of  X!- xthe Commission's rules when it sought exogenous treatment for plantrelated expenses."!ܵ yO"-ԍxMCI Comments at 23 (citing Petition for Waiver of the Commission's Rules to Recover Network  yO#-Depreciation Costs, 9 FCC Rcd 377 (1993) (United Depreciation Order)). MCI  xkclaims that there is no basis for distinguishing between costs previously denied exogenous  X- x-treatment and costs not specifically granted exogenous treatment.@hܵ yO '-ԍxId. at 3.@ MCI argues that the Bureau  xwas correct to reject exogenous claims until a cost is declared to be exogenous in some forum"),))))"  xother than the tariff review process. MCI claims that this requirement would confer the fullest  X-due process on all affected parties.:ܵ yOb-ԍxId.:  X-  xX89. In its reply, Southwestern argues that the tariff process does allow parties to comment  xon exogenous cost issues to the extent that they affect rates. Southwestern claims that the tariff  xZprocess thus adequately protects the due process rights of all parties and that the waiver process  Xv- xis thus unnecessary for evaluating exogenous cost issues.vXܵ yO -ԍxSouthwestern Bell Telephone Company Reply Comments at 12 (filed Aug. 24, 1994) (Southwestern Reply). Southwestern also challenges MCI's  xclaim that there is no difference between costs previously denied exogenous treatment and costs  x[not specifically granted exogenous treatment until the Commission deems otherwise through a  X1- xrulemaking or a waiver.@1ܵ yO-ԍxId. at 2.@ Southwestern argues that a waiver is only necessary when there is  xa request to deviate from an established rule. Southwestern claims that under Section  x61.45(d)(1)(vi), there is no need to request a waiver to allow a price cap carrier to file for  xMexogenous cost treatment for a cost for which the propriety of such treatment has not been  X -specifically addressed in the past.@ @ܵ yO-ԍxId. at 3.@  X -3.xDiscussion  Xy-  ^xY90. In the Regulatory Fees Order,yܵ yO-ԍxPrice Cap Treatment of Regulatory Fees Imposed by Section 9 of the Communications Act, 9 FCC Rcd  yO-6060 (Com. Car. Bur., 1994) (Regulatory Fees Order), Erratum, 9 FCC Rcd 6487 (Com. Car. Bur., 1994). the Bureau on its own motion, granted common  xcarriers subject to price cap regulation a waiver of the rules to permit them to treat as exogenous  xcosts regulatory fees and changes to those fees imposed by Section 9 of the Communications Act  X6- xof 1934, as amended.X6( ܵ yO-ԍxId. at 6061. On November 7, 1994, MCI filed a petition for reconsideration of the Bureau's Regulatory  yO-Fees Order which was subsequently denied. See Assessment and Collection of Regulatory Fees for Fiscal Year 1995, MD Docket No. 953, Report and Order, 10 FCC Rcd 13512, 13560 (Com. Car. Bur., 1995). In light of the Bureau's decision, the issue raised by Southwestern is  xnow moot. We thus dismiss as moot Southwestern's petition for clarification or reconsideration of this issue.  X-  xZ91. As for the second issue raised in Southwestern's petition, we find upon  x0reconsideration that Southwestern's $6.04 DS1 zeromileage charge does not warrant an  xMinvestigation at this time. We note that the Bureau found that the $6.04 switched transport  xcharge was below the applicable PCIs and within the governing service bands. The price cap  xrules grant pricing flexibility for rate elements within an individual basket as long as the average  xprice of all the rate elements within that basket falls below the applicable PCI and the rate"g*H ,))))1"  x.elements are within the governing service bands. Therefore, Southwestern Bell's $6.04 charge  xKis a presumptively reasonable rate under price caps because it falls below the applicable PCIs and  xwithin the governing service bands. We note further that no party has filed an opposition to  xSouthwestern's petition on this issue. We therefore grant Southwestern's petition for reconsideration of this issue.  Xv-  lx [92. We conclude further that Southwestern Bell's $6.04 DS1 charge is a switched access  xrate element which under price cap regulation is in the trunking basket because it is not a rate  x/element that an interconnector would have to obtain in order to achieve interconnection to  xSouthwestern's facilities. It is, however, a rate element that a switched access customer, either  xdirectly or through an interconnector, would have to obtain in order to connect a high capacity  xcircuit to the switch. To avoid any customer confusion, and more importantly, to ensure that an  xiinterconnector is not assessed this charge to obtain interconnection, we instruct Southwestern to  xeliminate the $6.04 charge for the DS1 zeromileage rate element from the expanded  xinterconnection portion of its tariff as filed under Transmittal No. 2364 and to eliminate the  xlanguage 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.  QV. REMEDIAL ACTIONS TP  X4-A.xOverview  X-  {x\93. We direct the LECs found by this Order to have violated the Commission's rules and  X- xdecisions, to apply the remedial actions in this Section V.ܵ yOh-ԍxAs discussed in Section II.D.3., supra, no refund liability will be imposed on Pacific Bell for the omission of EUCL revenues in the common line basket for sharing purposes in its 1993 annual access filing. In Subsection B, we describe the  xmethod for price cap LECs to lower on a goingforward basis the price cap indices and other  xpricing limits to the pricing limits that would have been in place had they been set consistent  xwith 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.  Xe-  x]94. In Subsection C, we direct each LEC to lower the PCIs for one year from July 1,  x1997 through an exogenous cost change, as a refund of overcharges that may have occurred  xzduring the course of this investigation. The LECs' 1997 tariff review plans (TRPs) were filed  X - x=on April 2, 1997.  ܵ yO!-ԍxPursuant to the Commission's adoption of the Implementation of Section 402(b)(1)(A) of the Telecommunications Act of 1996, CC Docket No. 96187, FCC 9723, Report and Order, at paras. 96102 (rel.  yO#-Jan. 31, 1997) (LEC Tariff Streamlining Report and Order), price cap LECs electing to file annual access tariffs on a streamlined basis must continue filing their TRPs 90 days prior to July 1 of each year but without the proposed rate changes. The annual access tariffs would become effective on July 1st of each year on 7days notice for tariffs that solely decrease rates or 15days notice for tariffs involving other rate changes. For nonprice cap LECs electing to file annual access tariffs on a streamlined basis, the TRPs and the tariffs would be filed at the same time on 7days notice for rate decreases only or 15 daysnotice for other rate changes. For both price cap and nonprice cap LECs that do not elect to file tariffs on a streamlined basis, TRPs and"1(,))))(" annual access tariffs would continue to be filed together 90 days prior to July 1. We direct these LECs to document the development of the PCI changes in" +X,))))>"  xSubsections B and C in amended TRPs to be filed on May 1, 1997, in support of their annual  xPCI 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.  X-  x^95. In Subsection D, we direct Roseville, a rateofreturn carrier, to implement a refund  xKfor its overstated cash working capital allowance by using the standard 15day allowance method  Xv- x-discussed in Section II.G.3., supra. Roseville is directed to submit its refund plan and supporting  xydocumentation on May 1, 1997, and is required to implement refunds by lowering its tariff rates over a oneyear period from July 1, 1997 through June 30, 1998.  X -  x_96. These remedial actions are applicable to: 1) U.S. West's incorrect method of  x<calculating exogenous costs associated with a change in the method of allocating local switching  x-equipment costs between state and interstate jurisdictions in its 1993 annual access tariff; 2) Bell  x-Atlantic and SNET's incorrect calculation of growth in minutes of use per line and, consequently,  xthe maximum carrier common line rates in their 1993, 1994, 1995, 1996 annual access tariffs and  x1993 annual access tariff, respectively; 3) Bell Atlantic's and Pacific Bell's improper exclusion  xof enduser revenues from the common line basket, which led to an incorrect allocation of  xsharing obligations among the price cap baskets in their 1993, 1994, 1995, and 1996 annual  xaccess tariffs and 1994, 1995, and 1996 annual access tariffs, respectively; 4) price cap LECs'  xincorrect placement of LIDB charges in service categories other than the data base service  xcategory within the traffic sensitive basket in their 1993 annual access tariffs; and 5) Roseville's  xuse of an overstated allowance for cash working capital, which resulted in an unjustifiably high  x>increase in the revenue requirement in its 1993 annual access tariff. We will delegate to the  xChief, 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.  X-B.xPCI and Pricing Band Recalculations to Correct for Violations of the Rules  X~-  x`97. In this Subsection B, we provide instructions for the price cap LECs needing to  xjcorrect their PCIs and other pricing limits on a goingforward basis so that those PCIs are what  xjwould have been in place had they been calculated consistent with the Commissions rules and  xdecisions. Recalculations are to be made for the price cap index in each basket, the SBI upper  xjlimit in each service category and subcategory, and the maximum CCL rates in the common line  xxbasket, from the date the tariffs subject to this investigation took effect through the date the PCIs,  xLSBI upper limits, and maximum CCL rate changes pursuant to this Order take effect on June 30,  X- x1997. Our method accounts for the intertemporal nature of the LEC price cap system i.e., each  x?tariff year's PCIs, SBI upper limits, and maximum CCL rates depend upon the prior year's  X!- xvalues.7 !Xܵ yO%-ԍxThe basket PCI in any year equals the PCI in the prior year adjusted by the annual change in the PCI. Thus, an uncorrected error in one year's PCI causes an error in the next year's PCI. In addition, the SBI pricing limit equal the SBI in the prior period adjusted by the annual change in the PCI and applicable scaling factor  yO(-(typically, plus 5 percent for the upper limit). See Sections 61.4547 of the Commission's rules, 47 C.F.R. "(,))))(" 61.4547.7 Accordingly, LECs must recalculate their PCIs, SBI upper limits, and maximum CCL"!,X,)))) "  xkrates as required by the decisions in this Order, starting with the PCIs, SBI upper limits, and  xmaximum CCL rates in effect during the 1993 tariff year. The LECs must then recalculate their  x]PCIs, SBI upper limits, and the maximum CCL rates in effect during the 1994 tariff year as  x.required by the decisions in this Order, using the recalculated 1993 PCIs, SBI upper limits, and  xmaximum 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.  X_-  Oxa98. The tariff year begins on July 1st and ends on June 30th; e.g., the 1993 tariff year  xis the period from July 1, 1993 through June 30, 1994. Even though the LECs revise the PCIs,  xkSBI upper limits, and maximum CCL rates at the start of each tariff year, the LECs sometimes  xadjust those PCIs, SBI upper limits, and maximum CCL rates as the tariff year progresses.  x=Because it would be burdensome to recalculate each and every change to PCI, SBI upper limit,  x=and maximum CCL rate as it occurred throughout each year, we will only require recalculations  xat the beginning and middle of each tariff year. This procedure will reasonably approximate the  xchanges that occurred throughout the tariff year, because the preponderance of those changes  xbecame effective at the beginning and middle of the tariff year and, thus, the benefit from  xrecalculating at more frequent intervals is insignificant. Therefore, in addition to recalculating  xthe PCIs, SBI upper limits, and maximum CCL rates in effect on July 1st of each year, the LECs  xMmust recalculate the PCIs, SBI upper limits, and maximum CCL rates in effect on January 1st  xof each year. In the 1995 tariff year, the LECs must substitute the PCIs, SBI upper limits, and  xmaximum CCL rates in effect on August 1, 1995 for those in effect on July 1, 1995 because of  X- xthe onemonth deferral in the 1995 annual filings.uXܵ yO(-ԍxThe Common Carrier Bureau granted United States Telephone Association's request for a waiver of Part 69 of the Commission's rules to allow price cap LECs to file their 1995 annual access tariffs 30 days after the  yO-release of the LEC Price Cap Performance Review and the Bureau on its own motion established August 1, 1995,  yO-as the effective date for the 1995 price cap LECs' annual access tariffs. See 1995 Annual Access Tariffs, United States Telephone Association Application for Waiver, 10 FCC Rcd 4332 (Com. Car. Bur. 1995). u Thus, the price cap LECs are to apply the  xfollowing four steps to recalculate their PCIs, SBI upper limits, and maximum CCL rates to become effective on June 30, 1997.  X-  xb99. Step 1: Recalculate the PCI for each basket as required by the decisions in this  X- xOrder, for the PCIs in effect on July 1, 1993.ܵ yOe -ԍxFor Pacific Bell the PCI recalculations would begin with the PCIs that were in effect on July 1, 1994. The LECs must then recalculate the PCIs in  xeffect on January 1, 1994, as required by the decisions in this Order, using the recalculated July  x1, 1993 PCIs. This recalculation process must be repeated with respect to the PCIs for the  xremaining halfyear periods in the 1994, 1995 and 1996 tariff years except that for tariff year  x1995, the halfyear periods would fall on August 1, 1995 and January 1, 1996, as explained above.  X - x Step 2: Recalculate the SBI upper limits in each service category and subcategory in effect on  X- xJuly 1, 1993, using the recalculated July 1, 1993 PCIs  e.g., if a basket is composed of four"-,))))"  x.service categories, each containing two subcategories, the LECs must reduce a total of twelve  xSBI upper limits: the limits in the four service categories and the limits in the eight service subcategories.  X-  " xc100. If any service subcategory SBI in effect on July 1, 1993 exceeds its recalculated  x.upper limit then lower that subcategory SBI to its recalculated upper limit. This procedure will  x=produce the subcategory SBI that should have been in effect. There is no change to a service  x/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.  X -   xd101. For any service subcategory SBI exceeding its recalculated upper limit, adjust the  xservice category SBI to which the subcategory belongs, since a service category SBI is a  xweighted average of its subcategory SBIs. If any service category SBI in effect on July 1, 1993,  xas adjusted, exceeds its recalculated upper limit then lower that service category SBI to its  xrecalculated upper limit. This procedure will produce the category SBI that should have been  xin effect. Adjust the basket API in effect on July 1, 1993, since an API is a weighted average  x of its service category SBIs. In addition, the LECs are directed to recalculate the maximum  Xy-CCL rate in effect on July 1, 1993, using the recalculated PCI in Step 1. yܵ yO-ԍxAs discussed in Section II.C.1. supra, the maximum CCL rate is the upper limit on CCL rates and is calculated through the common line formula as a function of the PCI change, revenues from subscriber line charges, number of subscriber lines and minutes of use, growth in minutes of use per line, and maximum CCL  yOJ-rate for the preceding period. See Section 61.46 of the Commission's rules, 47 C.F.R.  61.46.   XK-  2 xe102. Step 3: Lower the subcategory SBIs on January 1, 1994 to flow through any  X4- xadjustments to the previous period's SBI as calculated in Step 2. Lower the service category SBI  xto reflect these adjusted subcategory SBIs on January 1, 1994. If any service category SBI in  xeffect on January 1, 1994, as adjusted, exceeds its recalculated upper limit then lower that service  x=category SBI to its recalculated upper limit. Adjust the API to reflect these adjustments to the  xservice category SBIs on January 1, 1994. In addition, the LECs are directed to recalculate the  xLmaximum CCL rate in effect on January 1, 1994 to flow through any adjustment to the maximum CCL rate as calculated in Step 2.  X|-   xf103. Step 4: Return to Step 2 to recalculate upper SBI limits for the service categories  xkand subcategories, and the maximum CCL rate on January 1, 1994. The LECs are directed to  xapply the PCIs adjusted in Step 1, the maximum CCL rate and the service category and  x[subcategory SBIs adjusted in Step 3 for January 1, 1994. The LECs must repeat this procedure  X - xfor the remaining halfyear intervals in the 1994, 1995, and 1996 tariff years. The PCIs, SBI  xupper limits, and maximum CCL rate recalculated for June 30, 1997 are the ones to be adjusted  xin the tariff filings making the annual adjustments to the PCIs on July 1, 1997, as adjusted for  xother index revisions that may occur beforehand. The amended TRPs to be filed May 1, 1997,  xshowing the PCIs to become effective on July 1, 1997, must include documentation  xdemonstrating that those indexes will comply with the decisions in this Order. Any rate effects  xfrom lowering the PCIs, SBI upper limits, and maximum CCL rates pursuant to this Subsection  xB must be reflected in each LEC's 1997 annual access tariff filing. The LECs not subject to"#.,))))e"" remedial action are not required to file such documentation.  X- C.xPCI and Pricing Band Recalculations to Effectuate Refund Liability  X-  @xg104. In this Subsection C, we set forth the refund mechanism for price cap LECs that  xbased on the findings of this investigation must compensate customers for overcharges incurred  Xv- xduring the course of this investigation. vܵ yO-ԍxWe find the LECs' supporting information insufficient to establish either substantial cause for an SBI that exceeds its revised upper pricing band pursuant to Section 61.49(c) or the reasonableness of an API that  yO -exceeds its revised PCI pursuant to Section 61.49(e). See Section 61.49(c), (e) of the Commission's rules, 47 C.F.R.  61.49(c), (e). The LECs, specified in paragraph 96, supra, tariff  x.filings of which were suspended, set for investigation, and made subject to accounting orders  xmust refund to their customers all amounts, plus interest, collected as a result of overcharges.  xThe refunds will be implemented through a oneyear exogenous cost adjustment to the PCIs  xincorporated in the annual access tariff filings to become effective on July 1, 1997. We conclude the LECs overcharged customers to the extent that:  ` p%XxX` ` 1) any API, adjusted in Step 2 or 3 of Subsection B to incorporate changes  ` pto its service category SBIs, exceeds its PCI as recalculated in Step 1 of Subsection B; `  ` pXxX` ` 2) any service category SBI, adjusted in Step 2 or 3 of Subsection B to  ` pbincorporate changes to its subcategory SBIs, exceeds its SBI upper limit as recalculated in Step 2 of Subsection B; `  ` XxX` ` 3) any subcategory SBI in effect exceeds its upper limit as recalculated in Step 2 of Subsection B; and x`  ` Qx` ` 4) any CCL rate in effect exceeds the maximum CCL rate as recalculated in Step XxX` ` 2 in Subsection B. `  X-  xh105. We direct the price cap LECs to apply the following six steps in order to calculate the exogenous cost change to implement refunds:  ` XxX` ` 1) calculate the percent by which any API exceeds its PCI, or any  ` uSBI exceeds its SBI upper limit, or any CCL rate exceeds the  ` Fmaximum CCL rate in the four instances set forth in the preceding  ` eparagraph, at the beginning and middle of each tariff year from  ` W1993 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;x`  ` XxX` ` 2) multiply the relevant basket, or service category or subcategory  ` revenue by the above percentages, using the base year revenue in"#/,))))e"" effect for the tariff year;x`  ` XxX` ` 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;x`  ` 7XxX` ` 4) convert the amounts calculated in Step 3 from an annual basis  ` Gto a half year basis by multiplying each amount by the ratio of  `  number of days in the halfyear interval to number of days in the tariff year;x`  ` XxX` ` 5) add interest to each amount calculated in Step 4, using the  ` 9lowest 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 halfyear refund interval until June 30, 1997; andx`  ` XxX` ` 6) sum the amounts calculated in Step 5 by service basket. These are the exogenous cost changes to the corresponding basket's PCI.x`  X-  0xi106. These exogenous cost changes will become effective on July 1, 1997, and the LECs  xmay remove these PCI adjustments on July 1, 1998. The amended TRPs to be filed on May 1,  xL1997, showing the PCIs that will become effective on July 1, 1997, must include documentation  xLdemonstrating compliance with the decisions in this Order. Any rate effects from lowering the  xyPCIs, SBI upper limits, and maximum CCL rates pursuant to this Subsection C must be reflected  xin 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.  Xe- D.xRoseville  X7-  xj107. With respect to Roseville, we conclude that the refund plus interest should reflect  xthe amount by which Roseville's calculations for cash working capital allowance exceeded the  xpermissible allowance in the 1993 tariff year, to be recalculated using the standard 15day  X- xallowance method as discussed in Section II.G.3., supra. Interest shall be added to the refund  xjamount, using the lowest of the overpayment interest rates of the US Internal Revenue Service  x{in effect at the midpoint of this investigation, July 1, 1995, and compounded at six month  x=intervals from January 1, 1995 through June 30, 1997. Roseville is directed to submit its refund  xplan and supporting documentation on May 1, 1997, and is required to implement refunds by lowering its tariff rates over a oneyear period from July 1, 1997 through June 30, 1998. T FVI. ORDERING CLAUSESTP  X%'-  xk108. Accordingly, IT IS ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a),  x203(a), 204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C. "(0,))))&"  xz154(i), 154(j), 201(b), 202(a), 203(a), 204(a), 205, 403, that the price cap local exchange carriers  xfound to be liable for refunds SHALL FILE: recalculations of their PCIs, SBI upper limits, and  xmaximum CCL rates; information showing the relationship of these limits to their APIs, SBIs and  xCCL rates; refund plans, and supporting documentation, as discussed in Section V of this Order,  X- xsupra, to the Common Carrier Bureau pursuant to our delegation of authority, in an amended  x1997 Tariff Review Plan to be filed May 1, 1997, and it is ORDERED that any refunds plus  Xx- xinterest 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.  X5-  ^xl109. IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),  xl204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i),  x154(j), 201(b), 202(a), 203(a), 204(a), 205, 403, that Ameritech Operating Companies, Bell  xLAtlantic Telephone Companies, BellSouth Telecommunications, Inc., GTE Service Corporation  x.(GTE), Lincoln Telephone Company, Nevada Bell, NYNEX Telephone Companies, Pacific Bell,  xRochester Telephone Corporation, Southern New England Telephone Company, Southwestern  xBell Telephone Company, United Telephone Companies (Centel Telephone Companies), and US  xWest Communications, Inc., SHALL PLACE the Line Information Data Base query charges in  xthe data base service category within the traffic sensitive basket to become effective on June 30, 1997.  X8-  ^xm110. IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),  xl204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i),  x154(j), 201(b), 202(a), 203(a), 204(a), 205, 403, that the Roseville Telephone Company  x(Roseville) SHALL FILE its refund plan and supporting documentation displaying its calculation  xof the refund amount to the Common Carrier Bureau pursuant to our delegation of authority May  x1, 1997, and it is ORDERED that Roseville SHALL FILE its revised tariffed rates to correct for  xits incorrect calculation of cash working capital and to effectuate any refunds, plus interest as  X-specified in Section V.D., supra, to become effective on July 1, 1997.  Xk-  ^xn111. IT IS FURTHER ORDERED, pursuant to Sections 4(i), 4(j), 201(b), 202(a), 203(a),  xl204(a), 205, and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i),  x154(j), 201(b), 202(a), 203(a), 204(a), 205, 403, that the carriers that participate in NECA's  xcommon line tariff but file individual tariffs for the traffic sensitive rates, pursuant to Section  x61.39 of the Commission's rules, 47 C.F.R.  61.39, SHALL FILE the information regarding the  X- xallocation of General Support Facility costs as discussed in Section II.E.3., supra, on May 1, 1997.  X!-  xo112. IT IS FURTHER ORDERED that the investigation and accounting order imposed  xby the Common Carrier Bureau in CC Docket No. 93193 with respect to the tariff filings of  x=local exchange carriers in compliance with the Amendment of the Part 69 Allocation of General  xSupport Facility Costs, 8 FCC Rcd 3697 (1993), as discussed in Section II.E.3 of this Order,  XY%-supra, IS TERMINATED.  X-'-  xp113. IT IS FURTHER ORDERED that the investigation and accounting order imposed  xby the Common Carrier Bureau in CC Docket No. 93193 with respect to the local exchange"(1,))))&"  x.carriers specified in Appendix B for the designated issues in the corresponding annual access tariff filings as discussed herein IS TERMINATED.  X-  "xq114. IT IS FURTHER ORDERED, pursuant to Section 5(c)(5) of the Communications  xkAct of 1934, as amended, 47 U.S.C.  155(c)(5) and Section 1.115 of the Commission's Rules,  x47 C.F.R.  1.115, that the application for review filed by AT&T of the Common Carrier  xBureau's decision in the 1994 Annual Access Tariff Filings, CC Docket No. 9465, National  xExchange Carrier Association Universal Service Fund and Lifeline Assistance Rates, Transmittal  xNo. 612, Memorandum Opinion and Order Suspending Rates, 9 FCC Rcd 3705 (Com. Car. Bur.  X1- x1994) (First 1994 Annual Access Order); 1994 Annual Access Tariff Filings, CC Docket No. 94 x65, Nevada Bell, Transmittal No. 196, Pacific Bell, Transmittal No. 1701, Rochester Telephone  xCorporation, Transmittal No. 222, Vista Telephone Companies, Transmittal No. 30, Memorandum  X - x Opinion and Order Suspending Rates, 9 FCC Rcd 3519 (Com. Car. Bur. 1994) (Second 1994  X - xAnnual Access Order) (collectively, 1994 Annual Access Orders), with respect to exogenous treatment for the completion of the equal access expense amortization IS DENIED.  X-  "xr115. IT IS FURTHER ORDERED, pursuant to Section 5(c)(5) of the Communications  xkAct of 1934, as amended, 47 U.S.C.  155(c)(5) and Section 1.115 of the Commission's Rules,  x47 C.F.R.  1.115, that the petition for clarification or reconsideration filed by Southwestern Bell  XQ- xTelephone Company of the Common Carrier Bureau's decisions in the First 1994 Annual Access  X<- xOrder 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.  X-  xs116. IT IS FURTHER ORDERED that the investigation and accounting order imposed  xby the Common Carrier Bureau in CC Docket No. 93162 with respect to Southwestern Bell  xyTelephone Company's $6.04 DS1 zero mileage charge IS TERMINATED and Southwestern Bell  X- xTelephone Company SHALL FILE tariff revisions as discussed in Section IV.3, supra, to become effective on July 1, 1997.  Xq-  2xt117. IT IS FURTHER ORDERED that Section 61.59 of the Commission's Rules, 47  xMC.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.   x118. IT IS FURTHER ORDERED, pursuant to Sections 4(i) of the Communications Act  xof 1934, as amended, 47 U.S.C.  154(i), that authority is delegated to the Chief, Common  X#-Carrier Bureau, as set forth, supra, in paragraphs 50 and 96.  X FEDERAL COMMUNICATIONS COMMISSION "(2,))))&"ԌWilliam F. Caton Acting Secretary  X "3,))))"  X-) APPENDIX A ĐTP ),DIRECT CASESTP  X- xThe following parties filed direct cases in response to the 1993 Annual Access Order.Fܵ yO-ԍxSee supra n.1. F The names in parentheses are used for these parties throughout the instant order.  XJ-ALLTEL Service Corporation (ALLTEL), filing for: Sugar Land Telephone Company (#(#X(Sugarland) Ameritech Operating Companies (Ameritech) Anchorage Telephone Utility (Anchorage) Bay Springs Telephone Company, Inc., Elkhart Telephone Company, Inc., United Telephone  X -xAssociation, 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)  xCoastal Utilities, Inc., Farmers Telephone Cooperative, Inc., Hargray Telephone  XxCompany, Inc., Horry Telephone Cooperative, Inc., Millington Telephone  }Company, Inc., Mt. Horeb Telephone Company, Pineland Telephone Cooperative,  X-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: CR Telephone Company, Home Telephone   /xCompany, Kerman Telephone Company, Madison Telephone Company, Montrose Mutual xTelephone Company, Moultrie Independent Telephone Company, and West River xTelecommunications Inc., Illinois Consolidated Telephone Company (ICT) The Lincoln Telephone and Telegraph Company (Lincoln) LufkinConroe Telephone Exchange, Inc. (LufkinConroe) 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) "W%4X,))))'$"ԌRoseville 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 CASESTP 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) <bREPLIESTP 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"Q%5,)))) $"  X-) APPENDIX B ă  X-DEM US West  Xv- "g" Factor Bell Atlantic SNET  X -End User Sharing Bell Atlantic Pacific  X -  X-GSF Cost Reallocation  xAll 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.  X4-  X-LIDB per Query Charge Ameritech Bell Atlantic BellSouth GTE Lincoln Pacific Rochester Nevada Bell NYNEX SNET Southwestern United US West  X!- Cash Working Capital Roseville