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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 DA 98-546 In the Matter of ) Material to be Filed in Support of ) 1998 Annual Access Tariff Filings ) TARIFF REVIEW PLANS Adopted: March 25, 1998; Released: March 25, 1998 By the Chief, Competitive Pricing Division: I. INTRODUCTION 1. We set forth herein the summary material that incumbent local exchange carriers (LECs) should file to support the annual revisions to the rates in their interstate access service tariffs scheduled to become effective on July 1, 1998. Pursuant to the LEC Streamlined Tariff Filing Report and Order, price cap LECs are required to file a tariff review plan (TRP) to revise their price cap indices, absent any information regarding their proposed rates, by April 2, ninety days prior to July 1, 1998. This shortened TRP will be followed by a longer TRP on annual access tariffs, to be filed June 16, 1998, which will include proposed rates. The completion of the TRPs appended to this document will partially fulfill the requirements established in Sections 61.38, 61.39, 61.41 through 61.49, and 61.50 of the Commissions's Rules. The TRPs display basic data on rate development in a consistent manner, thereby facilitating review of the LEC rate revisions by the Commission and interested parties. The annual TRPs have served this purpose effectively in past years. 2. Based on the Bureau's experience in reviewing TRPs in prior years, and as a result of certain changes in the Commission's rules, we are modifying this year's TRPs in certain respects. These modifications were developed through public comment and through discussions with telecommunications industry representatives. The TRP effective July 1, 1998 reflects revisions to the TRP associated with the Access Charge Reform Order and the access tariff revisions that were effective January 1, 1998 . In Section II, we discuss the modifications affecting the price cap TRP contained in Appendix A and other matters affecting the 1998 annual filings. In Section III, we discuss the modifications affecting the rate-of-return TRP contained in Appendix B. Guidelines for LECs filing under Sections 61.39 and 61.50 are also discussed in Section III. Attachment 1 describes filing procedures applicable to price cap LECs and their April 2 TRP. II. PRICE CAP TARIFF REVIEW PLAN 3. In the LEC Price Cap Order, the Commission adopted price cap regulation for LECs, effective January 1, 1991. Companies that currently file interstate access tariffs pursuant to the price cap rules include the regional Bell Operating Companies, Aliant Communications Corporation, Cincinnati Bell Telephone Company, Citizens Telecommunications Companies, GTE Telephone Companies, Frontier Corporation, Southern New England Telephone Company, and Sprint Local Telephone Companies. Any other company may elect price cap regulation as part of its 1998 annual filing. All companies that intend to file pursuant to price cap regulation in the 1998 annual filing should file the price cap TRPs outlined below and contained in Appendix A. A. Modifications to the TRP 4. In the 1998 TRP for tariffs effective July 1, 1998 we have adopted certain needed adjustments in presentation. One set of changes centers around the provision of more information regarding the presubscribed interexchange carrier charge (PICC) rates, demand and revenues. As noted by MCI in its comments, the LECs are required to provide 1997 base year data for both PICC and End User Common Line (EUCL) demand in this filing. The Commission believes that early filing of this demand data will permit identification of further line count information while maintaining rate confidentiality. 5. Three new rows have been added to the first page of the CAP-1 chart as inputs for determining PICC targets and rates. The first line shows the maximum PICC rate for primary residential, lifeline and single line business lines. The second line shows the maximum PICC target for non-primary residential and Basic Rate Interface (BRI) ISDN lines. The third line shows the maximum PICC rate for multiline business and Primary Rate Interface (PRI) ISDN residential lines. With the inclusion of these lines on the CAP-1 chart and an examination of information detailed on the RTE-1 form, we do not think it necessary at this time to modify the TRP to include an additional chart summarizing PICC information as suggested by MCI. 6. Also in the CAP-1 chart, some rows have been added to show the capped revenues associated with originating and terminating minutes of use (MOU) as well as actual common line revenues for categories other than the EUCL. These data are helpful in determining the proposed end user revenues by the LECs. 7. In the CAP-1 chart, the items dealing with the target base factor portion (BFP) per line no longer apply. These rows were needed only for the January 1, 1998 Access Reform TRP which provided information on the restructuring of common line revenues to include such items as line ports and Central Office Equipment maintenance. With the July 1, 1998 annual access filing, these data are no longer needed. Though MCI makes a case for price cap LECs to provide a number of additional cost support materials used in the development of their 1998-1999 BFP forecasts made in this TRP, it also recognizes that LEC BFP forecasting methodologies are currently under investigation. We believe that requesting detailed information on BFP calculations for this TRP filing would be redundant given the information that price cap LECs were required to provide in their direct cases in the current investigation. 8. The PCI-1 chart now provides rows for the LECs to perform two sets of calculations assuming g is or is not included in the common line basket. The results of these calculations will determine whether g may be removed from PCI reductions to the Common Line basket. 9. The Access Charge Reform Order established July 1, 1998 as the effective date for a new, optional, rate element -- call set-up charges assessed on all call attempts by interexchange carriers. Also effective July 1, 1998, LECs must replace the unitary rate structure for tandem switched transport with a three part structure. Ordinarily, these restructurings would require LECs to file separate tariffs, because the annual access filing and its accompanying TRP are meant only for rate changes in access tariffs. Because these restructured rates are scheduled to be effective on the same day as the annual access filings, however, we will waive the restrictions placed on annual access filings in Part 69 and allow the LECs to attach information regarding call set-up charges and the three-part rate restructure to tandem switched transport to the July 1, 1998 TRP. The relevant workpapers and textual material (details provided in the paragraphs below) should be clearly distinguished from the charts and workpapers of the annual access TRP. These workpapers are not part of the 1998 TRP and will not be required in the next annual access filing. 10. The Commission directs those price cap LECs that will establish call set- up charges as permitted in the Access Charge Reform Order to submit detailed cost support explaining the derivation of the call set-up charge. LECs should provide a complete explanation and justification of the elements used to determine the call set-up charge costs separately for both terminating and originating calls. Furthermore, as suggested by MCI in their comments, information on the methodology used to estimate the number of attempted calls for both 1996 and base year 1997 should be provided separately for both terminating and originating call attempt data so that the Commission can determine the reasonableness of the LEC's tariffs. 11. According to the Access Charge Reform Order, the LECs must include an estimate of the revenue change associated with the implementation of the three-part structure for tandem switched transport. We direct LECs to provide detailed cost support and workpapers showing the development of the actual impact of the implementation of the three-part structure. B. TRP Charts and Workpapers 1. Chart IND-1 12. IND-1 displays PCIs, actual price indices (APIs), service band indices (SBIs), and upper SBI limits. It is unchanged from the version in the January 1, 1998 Access Reform TRP. The April 2 TRP contains only the historical index portion of IND-1, and not the proposed indices. To assist in verifying the historical indices reported in IND-1, LECs should continue to file a workpaper that identifies transmittals in which the current index levels became effective. 2. Chart CAP-1 13. The CAP-1 chart was formerly the CCL-1 chart. It displays the calculation of the maximum carrier-common-line (CCL) rate (which corresponds to the PCI in other baskets) according to the formula in the Rules. LECs should note the modifications made to the CAP-1 chart above. The CAP-1 chart is not included in the April 2 TRP. 3. Chart PCI-1 14. PCI-1 displays the calculation of the PCIs for the price cap baskets, and includes the following data: (1) the Gross Domestic Product Price Index (GDP-PI) measuring inflation; (2) the productivity offset (X-Factor); (3) the change in access charge expense (Y) imputed for LEC toll services, which affects the Interexchange Basket PCI; (4) the exogenous cost change (Z); (5) the base-year (calendar-year 1997) revenue (R) for each basket; (6) the weighting factor (w) used in computing the PCIs; and (7) the growth in minutes per line (g). PCI-1 also provides data on the (GDP-PI) - X reductions in baskets that are targeted to reducing the Transport Interconnection Charge (TIC). 4. Chart SUM-1 15. This is a summary chart displaying the revenues in baskets and categories. It displays the base-year (calendar year 1997) service demand multiplied by (1) current rates and (2) proposed rates. SUM-1 is used to calculate the difference in revenues using base-year demand, under current and proposed rates. The SUM-1 chart is not included in the April 2 TRP. 5. Chart EXG-1 16. This chart displays the exogenous cost changes to the PCIs attributable to any changes in (1) Universal Service Fund payments; (2) Commission regulatory fees; (3) excess deferred taxes; (4) amortization of investment tax credits; (5) any revision to the prior sharing or low-end adjustment; (7) any new sharing or low-end adjustment; (8) fees associated with Telecommunications Relay Service; and (9) other exogenous cost changes the LECs may file. 17. As noted above, EXG-1 reports any low-end adjustment that was reported in the 1997 annual filing and is now being removed, and any revision to that low-end adjustment. EXG-1 also reports any new low-end adjustment, and this amount must reflect earnings in calendar-year 1997. A LEC is required to base its low-end adjustment for the first-half of 1997 on the X-Factor in the 1996 annual filing and the rate of return in calendar-year 1997. The levels for the second-half of 1997 are based on the X-Factor in the 1997 annual filing and the rate of return for calendar-year 1997. Price cap LECs are required to provide workpapers showing the full calculation of the low-end adjustment, including its addback component, and cite the transmittals that reported sharing or low-end adjustments in previous annual filings. 18. Price cap LECs are required to submit their Form 492A for calendar years 1996 and 1997 as part of their April 2 TRP support material, and use the footnote page provided on Form 492A to explain the development of composite tax rates. As in the 1997 annual filing, the earnings of services excluded from price cap treatment should be removed based on the assumption the excluded services earned the same interstate rate of return as price cap services. 19. Price cap LECs are required to include additional information in the April 2 TRP on each exogenous cost change, including the calculation of the cost change, tax rates used in calculations, identification of total and interstate amounts, and the method of basket allocation. 6. Chart EXG-2 20. Chart EXG-2 builds on Chart EXG-1 by summarizing the direct designation of exogenous cost changes to specific categories within each basket. LECs with specific exogenous costs that are not listed on EXG-1 should note these changes in the appropriate columns here. 7. Chart RTE-1 21. This chart displays information used to compute the APIs, SBIs, and upper SBI limits. It displays calendar year 1997 demand, current rates, proposed rates, and revenues computed by multiplying the 1997 demand by current and proposed rates. Chart RTE-1 enables us to verify the accuracy of "R," the revenue variable in the PCI formula that equals base period (1997) demand multiplied by rates. Demand and price data are reported in the aggregate under the primary rate elements of each category. The level of aggregation in RTE-1 allows rapid, consistent verification of index calculations across all companies. The RTE-1 chart is not included in the April 2 TRP. 22. We leave unspecified the exact format of the rate detail charts because each price cap LEC has a different number of rate elements. For each rate element, however, LECs should display the rate element name, base period demand, current rates, and proposed rates. LECs may also include a rate identifying code. The revenue amounts for baskets and categories should be totaled to assist in verifying the agreement between this chart and the revenue amounts in RTE-1. The variation among LECs in the number of rate elements prevents us from specifying the row numbers, but each row of this chart should correspond to only one rate element. The rows should reflect the basket and service category sequence used in RTE-1. Price cap LECs should also include with their support materials a separate list of new services that are being incorporated into the APIs in this annual filing for the first time. This list should contain all services introduced as new services under the price cap rules during calendar year 1997, and the basket and service category to which the new service is assigned. C. Miscellaneous 23. In addition to the above specifications, price cap LECs should include with their support materials in the April 2 TRP filing a list of all currently applicable Part 69 waivers. The list should include the following information with respect to each waiver: (1) a citation to the Commission or Bureau Order granting the waiver; (2) a brief description of the waiver, including whether any new rate elements were authorized; and (3) the basket and, if applicable, service category of each rate element authorized by the waiver. 24. If a LEC files to revise its TRP after April 2, the TRP should be refiled in its entirety, rather than just the parts of the TRP that are changed. The latest TRP filed becomes the TRP of record. Other parts of the original filing, e.g., portions of the explanations, description and justification, and workpapers, may be omitted if unchanged by the revision. III. TARIFF REVIEW PLAN FOR NON-PRICE CAP COMPANIES 25. LECs not electing price caps must file pursuant to either (1) Section 61.38 (rate-of-return); 2) Section 61.39 (small telephone rules); or 3) Section 61.50 (optional incentive regulation). LECs that file under Section 61.38 should complete the TRP contained in Appendix B. As in the past, there is no TRP for companies filing pursuant to either Section 61.39, the small company rules, or Section 61.50, optional incentive regulation. Requirements for carriers electing to file under the small company rules are described below in Subsection B, as are the requirements for optional incentive regulation LECs. A. Rate-of-Return Regulation 26. Companies filing under rate-of-return regulation are subject in part to the filing requirements adopted in the Regulatory Reform Order, which established a biennial filing cycle. The rules require that rates be targeted to earn the authorized rate of return. 27. We have modified the 1997 TRP in certain respects to account for the impact of access reform on the presentation of data by companies subject to rate-of-return regulation. These additions are needed for the present filing but will not be required in future filings. 28. Three new columns have been added to the RORCOS-1(H) and ROR- 1(P) charts to allow presentation of data on SS7, tandem switching and host remote facilities. In addition, several rows have been added to these charts to account for Plant Specific Expenses and Customer Operations Expenses. Also, additional rows have been included under the Telephone Plant in Service category for detailed reporting of subaccount information for the Central Office Switching, Central Office Transmission, and Cable and Wire Facilities (C&WF) accounts. These subaccounts, which were not present in previous TRPs, will aid the Commission and other interested parties in ensuring that the filing carriers have correctly implemented the recent changes in Commission rules necessitated by access reform. 29. In addition, two new charts, RORBSF-1 and RORDEM-1, have been added to the TRP for carriers subject to rate-of-return regulation. Chart RORBSF-1 has been added to verify how each rate-of-return LEC has developed the interstate base study factor used to allocate Tandem Switching, Host Remote and C&WF investment to the interstate jurisdiction. Each rate-of-return LEC must submit five years of historical data (1993-1997) and one year of prospective data (1998). An additional table defining the apportionment of Part 36 categories has been included in the chart RORBSF-1. 30. Chart RORDEM-1 has been added to aid the Commission in assessing the reasonableness of Dial Equipment Minutes (DEM) demand forecasts, the development of interstate DEM allocators and DEM weightings. Because the carriers subject to rate-of-return regulation were not required to file a TRP for access reform changes effective January 1, 1998, this is the first opportunity for the Commission and other interested parties to verify that the necessary changes have been made. 31. We require rate-of-return LECs to file their computer file containing the TRP in a LOTUS Version-3 file. A 3.5-inch disk containing the TRP file will be sent directly to all LECs. This TRP file is similar to the format of the price cap TRP file, which has proven successful. 32. Rate-of-return LECs are required to file one year of historical data and one year of forecast data. All proposed rates must be based upon the forecast data. The time frame of the historical data, termed the past year cost-of-service (PYCOS) period, and of the forecast data, termed the test year, are determined pursuant to Section 61.38 of the Rules. The PYCOS period is calendar year 1997 and the test year runs from July 1, 1998 through June 30, 1999 for the 1998 annual filings. 33. The TRP for rate-of return LECs includes a macro named ALL that will print all the pages of the TRP as a paper copy. B. Small Telephone Companies 34. LECs that qualify as small telephone companies may elect to file pursuant to the small telephone company rules under Section 61.39, for either their traffic sensitive rates, common line rates, or both. Companies filing under the small company rules must file access tariffs for their traffic sensitive and common line rates in odd-numbered years, and are thus not required to make a 1998 annual filing. 35. LECs filing under the small company rules need not submit supporting material at the time of the access tariff filing. Companies, however, should be prepared to submit the data promptly upon reasonable request by the Commission or interested parties. 36. In contrast to rate-of-return regulation, the small company rules rely on historical costs. For its first annual filing, a LEC is required to propose rates based on the cost of service and demand for the most recent twelve months. For subsequent annual filings, a LEC bases rates on the cost and demand for the two years since the last annual filing. C. Optional Incentive Regulation 37. Any non-price cap company may elect optional incentive regulation for either its traffic sensitive rates only, or for both its traffic sensitive and common line rates. In contrast to rate-of-return regulation, optional incentive regulation relies more heavily on historical costs, establishes broader earnings bands, and affords the LECs greater pricing flexibility. 38. We have not adopted a TRP for companies filing under optional incentive regulation. For any carrier planning to file in 1998 under optional incentive regulation, the Competitive Pricing Division will provide guidance regarding specific support material. 39. For its first annual filing, a LEC must base its rates on the cost of service and related demand for the most recent twelve months. For subsequent annual filings, a LEC is required to base its rates on the cost of service and demand for the two year period since the last annual filing. IV. GUIDELINES APPLICABLE TO NATIONAL EXCHANGE CARRIERS ASSOCIATION (NECA) 40. We have not adopted a TRP for NECA, although NECA should refer to the rate-of-return TRP for guidance on the level of Section 61.38 support material to provide in its annual filing. As in the past, NECA should provide: (1) earnings data using the Chart ERN-1 format; (2) average schedule company settlements using the Chart COS-1 format; and (3) a workpaper showing the calculation of Long Term Support. V. GENERAL INSTRUCTIONS 41. The following general instructions apply to all LECs except as noted. Except for Section V.B., infra, the following general instructions also apply to NECA. These instructions pertain to the TRPs and other documentation filed in support of access charges. A. Certification 42. The filing of inaccurate or incomplete data may seriously detract from the ability of the Commission and interested parties to evaluate the revised rates. The LECs and NECA must certify that their historical and forecast data are accurate by including a signed statement that the support data are true, correct, and complete to the best of the carrier's knowledge. This certification will apply to all data submitted in support of revised rates, including the data that are filed in the TRP. The text of the certification is the same as that adopted in the 1987 Waiver Order. The certification should be displayed as the last page in the binder containing each company's TRP. LECs are also under a legal obligation to correct any inaccurate or incomplete data discovered in the TRP or other support data. Due to the short notice periods applicable to all LEC tariff filings and the statutory expedited pleading cycles that are necessary to meet the five month statutory deadline for completion of tariff investigations, it is imperative that the LECs and NECA submit precise, comprehensive, and meticulously-prepared tariff filings. Carriers that continue to provide erroneous or incomplete information requiring numerous rate revisions may warrant future Commission inquiry. B. Geographic Aggregation 43. Except for the RTE and ERN charts, all TRP information should be displayed at the same level of geographic aggregation as the LEC's proposed rates. RTE and ERN charts should be consistent with the current level of carrier geographic aggregation. In addition, if the tariff rates are based on data from a number of study areas or operating companies, levels of aggregation associated with each study area (state) and operating company should be provided by carriers (except for Charts RTE, ERN, and REV). C. Assistance from United States Telephone Association (USTA) 44. As in past years, to assist the Commission and interested parties in evaluating the national impact of revised rates, we request that USTA provide us with aggregated TRP data for all price cap LECs, except for those charts or portions of charts for which aggregation is inappropriate. D. Waivers 45. If carriers find that they are unable to provide data as specified in the TRP, they may file applications for waiver. These waiver applications should demonstrate good cause for reporting a different or lower level of detail than specified and should indicate how the carrier intends to report complete TRP data in the future. Each carrier requesting any waiver of Commission Rules should include all such requests in a single application. Carriers should not delay undertaking development of data for the 1998 TRP in anticipation that waiver requests will be granted. E. Technical Instructions 46. Consistent with TRP filings in previous years, all companies that file a TRP should provide the data in a computer disk file, as detailed in the Attachments. F. Compliance with the Paperwork Reduction Act 47. The TRPs are subject to approval by the Office of Management and Budget (OMB) in accordance with the provisions of the Paperwork Reduction Act, 44 U.S.C.,  3506 et seq. On September 23, 1996, OMB approved the TRPs through September 30, 1999 (OMB Control No. 3060-0400). In compliance with the Paperwork Reduction Act, we estimate burden-hours and place the Office of Management and Budget form number and date on the formats included in the Appendices. We note that these TRPs were developed after informal discussions with LECs and other industry representatives and after evaluation of comments filed in response to our 1998 TRP Public Notice. We minimize the regulatory burden on the LECs by deleting obsolete sections of the TRP that have not proved useful, and by providing that carriers need not file historical data that have been filed in previous years. Overall, the burden this year is unchanged from that imposed by the 1997 annual access tariff charge filings, and smaller LECs continue to report significantly fewer data than larger companies. G. Procedural Matters 48. This document will be sent directly to all carriers that will file their own annual access tariffs. A copy of the document and all attachments will be available for inspection at the Public Reference Room, Common Carrier Bureau, Room 574, 2000 M St., N.W., Washington, DC, 20037. The Commission will publish the text of this document in the FCC Record. Copies of Appendices can be obtained through International Transcription Service, Inc. (ITS), the Commission's contractor for public records duplication. Further details regarding the procedures applicable to the 1998 annual access tariff filings are provided in the Attachments. FEDERAL COMMUNICATIONS COMMISSION Jane E. Jackson Chief, Competitive Pricing Division Common Carrier Bureau