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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Beaver Creek Cooperative Telephone Company, ) Farmers Telephone Company, Inc., TCT ) West, Inc., Tri County Telephone ) Association, Inc., Summit Telephone ) AAD 95-77 Company, and Wilton Telephone Company ) ) Petition for Declaratory Ruling ) on the Retroactive Application of ) Section 36.154(f) of the Commission's Rules ) MEMORANDUM OPINION AND ORDER Adopted: July 17, 1998 Released: July 17, 1998 By the Chief, Common Carrier Bureau I. INTRODUCTION 1. This Order responds to a Petition for Declaratory Ruling filed by six telephone companies (Petitioners). The Petitioners request that the Commission clarify that its interpretation of Section 36.154(f) of the Commission's rules in the Order on Review was "not to apply... retroactively." These carriers have sought review of the Order on Review in the U.S. Court of Appeals for the Tenth Circuit. Petitioners state that, if the Commission confirms that the Order on Review "was not meant to ... retroactively" apply Section 36.154(f) of the Commission's Rules, then the issue will not need to be briefed in the pending appeal. In this Order, we clarify that neither the Division Order nor the Order on Review required NECA to make intrapool adjustments that would redistribute funds that had been allocated to carriers prior to the release of the Division Order on March 22, 1996. II. BACKGROUND 2. Sections 36.154(a) through (f) of the Commission's rules set forth procedures for allocating loop costs between the state and interstate jurisdictions. Prior to 1982, loop costs were allocated using a traffic sensitive interstate allocation factor known as the subscriber plant factor. By the early 1980's, increases in relative interstate usage caused carriers' interstate subscriber plant factors to escalate rapidly, reaching the maximum interstate cost allocation of 85 percent for some carriers. 3. As a result, the Commission, in consultation with the Federal-State Joint Board, instituted a flat-rate 25 percent interstate allocation factor that would be phased in during an eight-year transition period, 1986 to 1993. Concurrent with the institution of the new subscriber plant factor transition period, the Commission established the universal service fund allowing incumbent local exchange carriers (LECs) with high local loop costs to allocate an additional portion of those costs to the interstate jurisdiction. The universal service fund was phased in during the same eight-year transition period as the new subscriber plant factor. In order to ensure that a carrier's interstate cost allocation would not drop precipitously during the transition, the rules specified that the combined interstate factor, determined by considering the interstate subscriber plant factor and the universal service amount, would decrease by no more than five percent in any one year. Carriers with a very high subscriber plant factor were directed to extend their transition periods, subject to the five-percent limitation, until the 25 percent interstate allocation was reached. 4. In 1991, NECA interpreted Section 36.154(f) to provide that the five percent per- year limit applied even after a carrier's subscriber plant factor reached the 25 percent allocation requirement established under our rules. According to Petitioners, incumbent LECs that were members of the NECA common line pool were contractually bound to follow NECA's interpretation of the rules and continue to limit changes in their interstate allocations to no more than five percent even after they had reached the interstate subscriber plant factor of 25 percent. 5. In response to a Request for Interpretation filed by the Florida Public Service Commission in 1996 and contrary to the interpretation that NECA provided to its members, the Accounting and Audits Division interpreted Section 36.154(f) as requiring that a carrier's interstate allocation for the subscriber plant factor remain fixed after it reached 25 percent. The Division Order was silent, however, about whether carriers that had previously adjusted their interstate allocations in a manner inconsistent with the Division's interpretation would have to redistribute funds that were allocated prior to the release of the Division Order on March 22, 1996. Because NECA distributes funds based on each carrier's interstate allocation, such a restatement could result in a finding that some carriers had received excessive support from NECA. 6. In response to the Division Order, NECA issued two letters, dated March 27 and April 23, 1996, to its members stating that, to comply with the Division Order, some carriers would have to submit revised settlement data from April 1994 to May 1996, for the purpose of determining revised settlement amounts from its common line pool. 7. GVNW Inc./Management (GVNW) subsequently filed both a Motion for Partial Stay of the (Division) Order and an Application for Review. GVNW and other commentors contended that the Commission should adopt NECA's interpretation of the rule and argued that the Division Order contradicted the plain language of the rule as well as previous NECA interpretations of the rule. GVNW also argued that "retroactive application" of the rule would cause many incumbent LECs severe financial hardships. The Division granted GVNW's petition to stay its Division Order partially and further stated that NECA and the carriers need not, at that time, apply it to determine pool settlements for any month prior to the Division Order's release. 8. In its Order on Review, the Commission held that declaratory rulings that interpret, but do not change, obligations under existing Commission rules have the effective date of the rule. The Commission stated that the Division Order corrected a misinterpretation put forth by NECA but did not change the purpose or operation of the underlying rules. The Commission found that NECA had misinterpreted Section 36.154(f) of the rules, and that NECA must file corrected rate-of-return data (i.e., Form 492) for each of the years in which it required pooling companies to be in conformance with its misinterpretation of Section 36.154(f). Because the Commission did not order the carriers to reallocate funds within the pool based on the corrected interpretation of the rules, any reallocation would likely be based on contracts between NECA and the members of the carrier common line pool. The Commission further noted that the over- assignment of costs to the interstate jurisdiction that resulted from NECA's erroneous interpretation of the Commission's rules might have given rise to violations of the Commission's rate-of-return prescription and that the over-assignment may have meant that some members of the NECA pool received greater interstate returns than the rules would allow at the expense of many members that suffered somewhat lower interstate rates of return. The Commission declined to address whether intrapool adjustments should be required because no NECA pool members had sought redress for the damage. The Commission stated that it was taking no action that would result in significant adverse economic consequences for small carriers and that its actions were consistent with Section 257 of the Communications Act of 1934, as amended. 9. The Petitioners now contend that the Division Order and the Order on Review reflect an "ambivalent approach to the retroactivity issue." The Petitioners argue that, while paragraph 25 of the Order on Review states that rule interpretation orders have the effective date of the rule, paragraph 28 "defers or avoids retroactive effects" and states that the Commission is taking no action that will result in significant adverse economic consequences for small carriers. Petitioners contend because NECA required them to follow its interpretation and now is requiring them to adjust their costs retroactively to implement the Division Order, that the Commission's rule has an adverse economic affect on them. Petitioners seek clarification of whether the Commission meant to require carriers to apply retroactively the interpretation of Section 36.154(f) stated in both the Division Order and the Order on Review. III. DISCUSSION 10. NECA misinterpreted Section 36.154(f). This rule has remained unchanged since it first became effective in 1990. Subsequently, NECA's interpretation of the rule was rejected by both the Division and the Commission. Neither the Division Order nor the Order on Review retroactively applied the rule; both orders merely clarified the rule that had been in effect since 1990. The Commission required NECA's rate-of-return reports to be corrected, thereby ensuring that the carrier common line pool did not exceed its maximum allowable rate of return. The Commission, however, did not require NECA or its pool members to make retroactive adjustments to the pool. By declining to require carriers to make intrapool adjustments, the Commission in effect held that the issue of whether some carriers had to make intrapool adjustments was a matter that NECA and the carriers should resolve in accordance with the terms of their contracts; it was not a matter that required a Commission edict. 11. In their petition, Petitioners contend in effect that the Commission should declare that the rule should not be interpreted in a way that is inconsistent with NECA's interpretation of Section 36.154(f) because NECA had made the Commission aware of its interpretation of the rule by presenting it to members of the Commission staff in 1990. Petitioners support their argument by presenting "evidence" of a 1990 presentation in a declaration attached to its petition. We reject Petitioners' contention on both procedural and substantive grounds. 12. We find Petitioners' suggestion that the agency review its decision in light of new "evidence" to be in effect a petition for reconsideration of the Order on Review, which is procedurally defective for two reasons. First, Section 1.106(b)(2) of the Commission's rules allows Petitions for Reconsideration of an order denying an Application for Review only when the petition "relies on facts which relate to events which have occurred or circumstances which have changed since the last opportunity to present such matters" or "the petition relies on facts unknown to petitioner until after his last opportunity to present such matters which could not, through the exercise of due diligence, have been learned prior to such opportunity." In the present case, the Petitioners meet neither of these tests. No new developments have occurred and no new facts have been discovered since the Order on Review was released in 1997. Indeed, the Petitioners do not explain why they had not presented the "evidence" set forth in the petition for declaratory ruling in an application for review of the Division Order. Second, the Petition for Declaratory Ruling cannot serve as a Petition for Reconsideration because it was not filed within 30 days of public notice of the order being appealed as required by Section 405(a) of the Communications Act and 1.106(f) of the Commission's Rules. 13. In any event, we have considered the Petitioners' arguments in light of the new "evidence" and find them unpersuasive. Although Petitioners' declaration states that the primary purpose of the meeting with Commission staff was to obtain staff reaction to that rule, "if possible," they do not contend that Commission staff issued such an interpretation and acknowledge in their declaration that the Commission staff members did not express approval or disapproval of the interpretation conveyed in the meetings. "It is well-established that the positions of an agency's staff do not preclude the agency from reaching its own conclusion." Thus, even assuming that the staff's silence could be construed as a tacit acquiescence of NECA's construction of Section 36.154(f), it would not preclude the Commission from construing its own rule in a manner different from NECA's interpretation. In the present case, the staff's silence shows only that the staff at that meeting did not address the merits of NECA's construction of the rule. The staff's silence was neither a repudiation nor an endorsement of NECA's interpretation of Section 36.154(f) of the Commission's rules. IV. ORDERING CLAUSE 14. Accordingly, IT IS ORDERED that, pursuant to Sections 4(i), 201-205 and 405(a) of the Communications Act of 1934, as amended, 47 U.S.C.  154(j), 201-205 405(a) and Sections 0.91, 0.291, 1.2 and 1.106 of the Commission's rules, 47 C.F.R.  0.91, 0.291, 1.2, and 1.106, that it IS HEREBY CLARIFIED that the Commission has not required NECA to require intrapool adjustments for periods prior to March 22, 1996. FEDERAL COMMUNICATIONS COMMISSION James D. Schlichting Deputy Chief, Common Carrier Bureau