******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 98-173 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Southwestern Bell Telephone Company ) Transmittal No. 2683 ) Tariff F.C.C. No. 73 ) MEMORANDUM OPINION AND ORDER Adopted: January 30, 1998 Released: January 30, 1998 By the Chief, Common Carrier Bureau: 1. On January 16, 1998, SBC Communications Inc. filed on behalf of Southwestern Bell Telephone Company (SWBT) revisions to SWBT Tariff F.C.C. No. 73 that would increase temporarily the multi-line business end user common line (MLB EUCL) charge from $7.18 to $7.86. This increase would remain in effect from January 31, 1998 through June 30, 1998. AT&T, MCI, and the Ad Hoc Telecommunications Users Committee filed petitions requesting that the Commission reject or suspend for investigation Transmittal No. 2683. For the reasons stated below, we reject Transmittal No. 2683 as patently unlawful. I. Background 2. The Commission's rules apportion incumbent local exchange carrier (LEC) common line costs between end user and carrier charges using the base factor portion (BFP) revenue requirement calculation. These rules assign certain common line costs exclusively to carrier common line (CCL) rate elements. The remainder, comprising the vast majority of common line costs, is recovered, to the extent possible, from end user common line charges and, otherwise, from carrier charges. In preparing its annual access tariff filing, each incumbent LEC forecasts its base factor portion revenue requirement and end user demand levels for the upcoming tariff year, in order to determine its monthly per-line BFP revenue requirement. This monthly figure is used to set the incumbent LEC's EUCL charge, subject to certain EUCL caps provided in the Commission's rules. 3. In the 1997 Annual Access Tariff Investigation, the Commission concluded that SWBT had underestimated its BFP revenue requirement in a statistically significant manner since tariff year 1991/92. SWBT's action permitted it to set EUCL charges at levels below those required by the Commission's rules, and to increase its carrier common line charges correspondingly. The Commission, therefore, ordered SWBT to increase its MLB EUCL charge from $5.98 to $6.53 per month beginning January 1, 1998. The Commission also ordered SWBT to recalculate its carrier common line charges using this revised EUCL charge, and to issue to interexchange carriers refunds of any amounts they had overpaid between July 1 and December 31, 1997. 4. SWBT's December, 1997 Access Reform Tariff Filing increased its MLB EUCL to $7.18. This increase included SWBT's adjustments to comply with the Commission's December 1, 1997 order, as well as adjustments to reflect additional costs that the Commission reassigned to the common line basket, effective January 1, 1998, in the Access Charge Reform proceeding. 5. According to SWBT, Transmittal No. 2683 would permit SWBT to increase its MLB EUCL from $7.18 to $7.86 for the next five months to recover from current MLB ratepayers the additional revenues SWBT states it would have collected between July 1, 1997 and December 31, 1997, if its MLB EUCL had been at the Commission-ordered $6.53 level, instead of $5.98, during that period. In support of its filing, SWBT argues that the Commission's 1997 Annual Access Tariff Investigation Order should be construed to permit recovery of the additional EUCL revenues SWBT would have collected had the $6.53 EUCL charge been in effect from July to December, 1997. SWBT proposes that this temporary increase through June 30, 1998, be treated as a "common line basket exogenous cost targeted to the EUCL." 6. SWBT also argues that it would constitute an unlawful taking for the Commission to deny it the opportunity to recover these past EUCL undercharges, especially because SWBT supported a historical trend-based forecasting technique for the BFP revenue requirement in its 1997 Annual Access Tariff Investigation Direct Case. SWBT also states that rejection of this transmittal would violate section 61.45(c) of the Commission's rules by denying SWBT the opportunity to recover the total common line revenues permitted by the price cap formula. II. Discussion 7. The Commission may reject a tariff filed by a carrier if the filing is "so patently a nullity as a matter of substantive law, that administrative efficiency and justice are furthered by obviating any docket at the threshold rather than opening a futile docket." The United States Court of Appeals for the District of Columbia Circuit has explained that the Commission has "the power and in some cases the duty" to reject a tariff that is demonstrably unlawful on its face, or that conflicts with a statute, agency regulation, or order. Under this standard, we reject Transmittal No. 2683 because it violates several provisions of the Commission's Part 69 access charge and Part 61 price cap rules. A. Violation of the Part 69 cap on end user common line charges. 8. Under the Commission's rules, a price cap LEC's MLB EUCL charge may not exceed its monthly per-line BFP revenue requirement forecast, except to the extent necessary to recover certain marketing expenses. Specifically, section 69.152(b)(1) of the Commission's rules requires price cap LECs to calculate the maximum MLB EUCL by "dividing one-twelfth of the projected annual revenue requirement for the End User Common Line element by the projected average number of local exchange service subscriber lines in use during such annual period . . . ," subject to a cap of $9.00 per month per line. Under sections 69.501(e) and 69.502, which apportion the BFP revenue requirement between the end user common line and carrier common line rate elements, the annual revenue requirement for the end user common line element may not exceed the BFP revenue requirement. 9. The Commission's rules, therefore, cap the MLB EUCL charge at the monthly per-line BFP revenue requirement, plus marketing expenses, or $9.00, whichever is less. Transmittal No. 2683, in violation of the Commission's rules, would permit SWBT to assess a MLB EUCL that exceeds these limits by $0.68 per month per line. Accordingly, we reject Transmittal No. 2683 because it patently violates the rules governing calculation of the MLB EUCL charge. B. Violation of the Part 61 price cap rules. 1. Violation of Section 61.45(d) Governing Exogenous Treatment of Certain Costs. 10. Transmittal No. 2683 requests an exogenous increase to SWBT's common line basket revenues of $33,895,358, which would raise SWBT's common line price cap index (PCI) from 83.8294 to 86.7423. SWBT states that "the purpose of this increase is to recover the additional revenue that would have been received during 1997 had the Commission-mandated EUCL rate of $6.53 been in effect rather than the $5.98 rate that was in effect." 11. Section 61.45(d) of the Commission's rules sets forth in detail those costs that qualify for exogenous treatment under price cap regulation. Revenues foregone through voluntary EUCL undercharges are not among those costs listed in this rule, nor are the costs of refunds ordered by the Commission upon a finding of unjust and unreasonable ratemaking practices. In Transmittal No. 2683, SWBT makes no argument that exogenous treatment is warranted under any particular provision of section 61.45(d), but asserts merely that such treatment would be "most expedient." By limiting exogenous treatment to those categories of costs specifically enumerated in the rule, however, the Commission has foreclosed SWBT's proposed action. 12. Section 61.45(d) limits exogenous treatment to those cost changes specified in that rule. None of the specific cost changes listed in section 61.45(d) is applicable to SWBT's transmittal. Section 61.45(d) contains a general provision for exogenous treatment of "such . . . other extraordinary costs changes as the Commission shall permit or require be treated as exogenous by rule, rule waiver, or declaratory ruling." SWBT, however, does not and cannot show that the Commission has issued a rule, rule waiver, or declaratory ruling allowing SWBT's proposed exogenous increase to its common line basket revenues. 13. The 1997 Annual Access Tariff Investigation did not permit or require exogenous treatment of the price cap LECs' past EUCL undercharges. Indeed, the Commission does not ordinarily allow carriers, at the end of a tariff investigation conducted under Section 204 of the Communications Act of 1934, as amended, to recoup past undercharges, or to offset revenues foregone from one rate element against refunds owed for overcharges, absent unusual circumstances and prior notice to customers. It has long been the Commission's requirement that parties needing a waiver or other action in order to make a tariff filing comply with Commission rules must obtain such waivers or other action prior to making the tariff filing. This is particularly critical in a case like this one, where the tariff is filed on only 15 days' notice. Accordingly, we reject SWBT's proposal as patently in violation of section 61.45(d). 2. Violation of the Price Cap Formulae. 14. Becasue SWBT is not entitled to exogenous treatment of its EUCL undercharges, as discussed above, its filing proposes common line rates that are above the maximum rates permitted by the common line price cap formulae contained in Sections 61.45(c) and 61.46(d) of the Commission's rules. 15. When it increased the MLB EUCL to $7.18 in the Access Reform Tariff Filing, SWBT recalculated its carrier common line rates, lowering them to the maximum level permitted by the section 61.46(d) formula. Even if, arguendo, the EUCL increase proposed in Transmittal No. 2683 were permissible under our Part 69 rules, SWBT's failure to recalculate its CCL rates to account for the anticipated increase in end user revenues would place it in violation of our price cap rules. 16. By failing to recalculate SWBT's CCL rates, Transmittal No. 2683 proposes common line rates above those permitted by the common line revenue caps established in Part 61. Such a filing, that fails to comply with the common line revenue caps established by sections 61.45(c) and 61.46(d), constitutes an above-cap filing under section 61.49(e). In Transmittal No. 2683, SWBT does not seek above-cap treatment of its proposed rates, and makes no attempt to comply with the detailed cost showings required by section 61.49(e) for above-cap filings. Therefore, Transmittal No. 2683 constitutes either a price cap filing not in compliance with sections 61.45(c) and 61.46(d), or an above-cap filing not in compliance with section 61.49(e). In either case, we reject Transmittal No. 2683 as patently in violation of the Commission's price cap rules. III. Ordering Clauses 17. Accordingly, IT IS ORDERED, pursuant to sections 1, 2, 4(i), 4(j), 201, and 202 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i), 154(j), 201, and 202, and authority delegated by sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R.  0.91, 0.291, that the revisions to Southwestern Bell Telephone Company Tariff F.C.C. No. 73 contained in Transmittal No. 2683 ARE HEREBY REJECTED; and 18. IT IS FURTHER ORDERED that the Petition of the Ad Hoc Telecommunications Users Committee, to reject the revisions to Southwestern Bell Telephone Company Tariff F.C.C. No. 73 contained in Transmittal No. 2683 IS HEREBY GRANTED; and 19. IT IS FURTHER ORDERED that the Petitions of AT&T Corp. and MCI Telecommunications Corp., to reject or suspend the revisions to Southwestern Bell Telephone Company Tariff F.C.C. No. 73 contained in Transmittal No. 2683 ARE HEREBY GRANTED IN PART AND DENIED IN PART, as indicated herein; and 20. IT IS FURTHER ORDERED that Southwestern Bell Telephone Company SHALL FILE tariff revisions to become effective on one day's notice, no later than five business days from the release date of this Order, removing the rejected materials and reinstating the currently effective material; and 21. IT IS FURTHER ORDERED that sections 61.58 and 61.59 of the Commission's rules, 47 C.F.R.  61.58 and 61.59, ARE HEREBY WAIVED to permit Southwestern Bell Telephone Company to file the tariff revisions ordered in the previous paragraph. Southwestern Bell Telephone Company shall cite the "DA" number of this Order as the authority for this filing. FEDERAL COMMUNICATIONS COMMISSION A. Richard Metzger, Jr. Chief, Common Carrier Bureau