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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 ) ) National Exchange Carrier Association, Inc. ) ASD 98-96 Proposed Modifications to the 1998-99 ) Interstate Average Schedule Formulas ) ORDER Adopted: December 16, 1999 Released: December 20, 1999 By the Commission: I. INTRODUCTION 1. The Commission has before it an Application for Review filed April 16, 1999, by the National Exchange Carrier Association, Inc. (NECA). NECA requests review of a March 17, 1999 Order (March 1999 Order) by the Accounting Safeguards Division of the Common Carrier Bureau (Bureau) rejecting NECA's proposed universal service fund (USF) expense adjustment formula for average schedule companies. For the reasons discussed below, we deny NECA's Application for Review. II. BACKGROUND 2. The Commission's rules provide that payments are to be made by NECA to average schedule companies in accordance with a formula approved or modified by the Commission. The rules also require that NECA submit a proposed revision of average schedule formulas for each annual period. On October 1, 1998, NECA filed proposed revisions to two universal service formulas for average schedule companies. On October 23, 1998, a public notice was issued establishing a pleading cycle to solicit comment on NECA's proposed formulas. Comments were filed by the National Telephone Cooperative Association and the Organization for the Promotion and Advancement of Small Telecommunications Companies. On December 22, 1998, an Order was adopted by the Bureau approving NECA's revised local switching support formula, but noting that further review of the proposed revisions to the USF expense adjustment formula was necessary and directing NECA to retain the USF expense adjustment formula that was approved June 29, 1998 (June 1998 Order). On March 17, 1999, an Order was adopted by the Bureau rejecting NECA's proposed revised USF expense adjustment formula. This March 1999 Order directed NECA to retain the current USF expense adjustment formula and to increase the total payments resulting under that formula by 6.5% to reflect the growth rate in working loops for the average schedule companies. On April 16, 1999, NECA filed an Application for Review of the Bureau's March 1999 Order asking that the decision be set aside on substantive and procedural grounds. 3. We have examined the record and conclude that the Bureau properly decided the matters below. We find that none of the substantive arguments made by NECA in its Application for Review of the March 1999 Order provide sufficient grounds for us to disturb it. Nor are we persuaded by NECA's arguments that the March 1999 Order should be set aside on procedural grounds. Thus, for the reasons discussed herein, we uphold the March 1999 Order. III. DISCUSSION 4. In support of its substantive claims that the Bureau acted without considering the evidence, NECA supplies the same evidence that it submitted to the Bureau for consideration below. None of this material convinces us that the Bureau erred or that the Bureau acted impermissibly. We find that in considering the evidence in the case below, the Bureau could properly decide that NECA failed in its efforts to provide a more reasonable formula than the one that had been approved less than a year ago. It is not an unfair summation of the record that the Bureau reviewed the proposed revision to the USF expense adjustment formula submitted by NECA, sought and considered additional evidence on the proposed revised formula, and concluded that NECA's proposed USF expense adjustment formula was unreasonable. Thus, we will sustain the March 1999 Order for the reasons stated therein. 5. We next consider NECA's procedural arguments which center on the general proposition that the Bureau did not provide proper notice and opportunity for comment in this case. NECA claims the March 1999 Order was issued in violation of the Administrative Procedure Act (APA), the Communications Act, and the Bureau's June 1998 Order. We discuss each of these claims below, and find that none of the procedural arguments propounded by NECA provide an adequate basis for us to set aside the March 1999 Order. 6. NECA cites Sections 553(b)(3) and (c) of the APA, and contends that because the Bureau prescribed a "new" average schedule USF formula without giving adequate notice to interested parties and without providing an opportunity to comment, the formula was unlawfully promulgated in violation of the APA. We find no APA violations in this case. Under the APA, a substantive rule is invalid if not promulgated in accordance with proper notice and comment requirements. It is clear that the March 1999 Order did not affect or change any existing "substantive" rule. The Commission's rules for computing average schedule company payments require that NECA submit proposed revisions to the current formula for each annual period or certify that no revisions are warranted (Section 69.606(b)); and that NECA make payments in accordance with a formula approved or modified by the Commission (Section 69.606(a)). These rules remain in effect and unchanged. Further, we note that these rules for computing average schedule company payments are procedural in nature. The rules establish the process by which NECA is to propose changes or certify that no changes are needed to current average schedule formulas and the conditions upon which NECA is to make payments to average schedule companies. The APA explicitly excepts agency rules of procedure from notice and comment requirements. As there were no changes to Sections 69.606(a) and (b), and given the procedural nature of these rules in any event, we find no violation of the APA. 7. Nor do we find that the Bureau implemented Sections 69.606(a) and (b) in a manner that created a new rule in violation of the APA. The March 1999 Order merely determined that the proposed new formula submitted by NECA pursuant to the process provided for in the Commission's rules was unpersuasive on the need to revise the current formula and, thus, retained the current formula. In doing so, the March 1999 Order retained the basic structure and components of an already-existing formula; there was no change in coefficients, assumptions, or critical components of the existing formula. The only additional requirements were that NECA adjust payments resulting from application of the current formula upward to reflect a 6.5% growth rate in average schedule companies' loops and that it identify additional amounts necessary to ensure that no carrier would receive unreasonable reductions in per loop support compared to 1998 levels. These upward adjustments in payments did not result in the creation of a new formula, let alone the promulgation of a new substantive rule that would require notice and opportunity for comment under the APA. The Bureau simply implemented the rules pursuant to the process established by the Commission. 8. Notwithstanding that it was not required by the APA, we find that the March 1999 Order was adopted after adequate notice and opportunity for comment. Public notice of NECA's proposed revisions to the average schedule formulas was given and a comment period was established. Comments on NECA's proposed revisions were received from interested parties, as well as additional submissions by NECA. NECA provided comment in support of its revised formula and provided extensive written and informal comments on alternative approaches suggested by the Bureau in ongoing discussions about the USF expense adjustment formula. Our review of the proceeding below finds that the March 1999 Order was issued upon adequate notice and comment, and was based on consideration of a full and complete record. Thus, contrary to NECA's assertions, we find that NECA and other parties were not disadvantaged due to any claimed lack of notice and opportunity to provide comment. 9. Finally, NECA's argument that the Bureau acted in direct contravention to a promise made in the June 1998 Order that the Bureau would "provide adequate notice and opportunity for comment with respect to future average schedule formulas proposed by NECA or the Commission" is not convincing. As stated above, we do not find that the Bureau adopted a new formula in this case. The Bureau, however, clearly provided proper notice and comment on NECA's proposed new formula, and further, provided NECA with additional opportunity to comment on concerns raised by the Bureau during the course of the Bureau's review. We find the Bureau's actions in this case were consistent with the notice and comment provisions stated in the June 1998 Order. IV. ORDERING CLAUSE 10. Accordingly, IT IS ORDERED that the Application for Review filed April 16, 1999, by the National Exchange Carrier Association, Inc. IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary