2. Exogenous Costs and Part 64 122. Under our price cap rules for incumbent local exchange carriers, most changes in a carrier's costs of providing regulated services are treated as "endogenous," which means they do not result in adjustments to the carrier's price cap indices. Certain cost changes, however, triggered by administrative, legislative, or judicial action that are beyond the control of the carriers may result in adjustments to those indices. The Commission concluded that failing to recognize these cost changes by adjusting price cap indices would either unjustly punish or reward the carrier.247 Price cap carriers may claim adjustments to their indices based on costs that are beyond the carriers' control if they are not otherwise accounted for in the price cap formula. Such costs are defined as "exogenous. "248 Accordingly, the Commission has found that those types of cost changes should be treated "exogenously" to ensure that price cap regulation does not lead to unreasonably high or unreasonably low rates.249 123. Our price cap rules for incumbent local exchange carriers specify that "[s]ubject to further order of the Commission, those exogenous cost changes shall include cost changes caused by... [t]he reallocation of investment from regulated to nonregulated activities pursuant to [Section 64.901 of the Commission's rules]."250 Under a strict reading of this rule, cost reallocations due to changes in the Part 64 cost allocation process would result in exogenous treatment only to the extent amounts are reallocated "from regulated to nonregulated activities." We seek comment on this interpretation and whether all such reallocations to nonregulated activities that may result from the provision of telemessaging service should trigger an adjustment to lower price cap indices. We also seek comment on the potential exogenous treatment of new investment in network plant, some of which will be used for telemessaging service. As noted above, this investment may later require reallocation under Part 64 if the 247 LEC Price Cap Order, 5 FCC Rcd at 6807. 248 See 47 C.F.R. § 61.45(d). 249 The Commission has determined, however, that not all changes beyond the carrier's control should be treated exogenously. For example, a general change in tax rates is outside the carrier's control, but will be reflected in the inflation factor used to adjust price caps annually. Exogenous treatment of a tax change would thus unfairly "double count" its impact. The Commission concluded that only changes that "uniquely or disproportionately affect LECS" would be considered for exogenous treatment. LEC Price Cap Order, 5 FCC Rcd at 6808. GNP-PI, the gross national product price index, was replaced by the gross domestic product price index (GDP-PI) as the inflation factor in the price cap formula. 250 47 C.F.R. § 61.45(d)(1)(v). We only treat accounting cost changes caused from changes in USOA requirements exogenously to the extent they represent economic cost changes caused by administrative, legislative, or judicial requirements beyond the control of the carriers that are not reflected in the GDP-PI. Price Cap Performance Review for Local Exchange Carriers, First Report and Order, 10 FCC Rcd 8961, 9090, para. 293 (1995). 251 proportion of regulated usage to nonregulated usage changes over time. 3. Part 64 and Sharing 124. 252 If Under our price cap rules, incumbent local exchange carriers can select the productivity factor they will use to determine annual adjustments to their price cap indices.2 they choose not to select the highest productivity factor permitted under our rules, they are required to "share." Under sharing, incumbent local exchange carriers earning in excess of prescribed earnings levels must refund a portion of the excess earnings in subsequent rate periods by reducing their price cap indices.253 Those earnings are equal to the incumbent local exchange carrier's interstate revenues less the regulated interstate costs. Improper cost allocation can increase the incumbent local exchange carrier's regulated interstate costs and, therefore, can reduce the carrier's sharing obligations. We note, however, that in their most recent annual tariff filings all but four price cap local exchange carriers 254 elected the highest interim productivity factor we had prescribed, which exempts them from sharing obligations for the 1995-96 access year. 255 We seek comment on whether our eliminating sharing obligations permanently for price cap carriers would eliminate the need for Part 64 processes in our regulation of these companies. We also seek comment on how the relationship of our cost allocation rules to price cap local exchange carriers should influence the outcome of this proceeding. B. Section 254(k) 125. Section 254(k) prohibits a telecommunications carrier from "us[ing] 251 See Section II.B.1.a., infra. 252 See 47 C.F.R. § 61.45(b). 253 See Price Cap Performance Review for Local Exchange Carriers, First Report and Order, 10 FCC Rcd 8961, 9049, para. 197 (1995) (tentatively concluding that we should "eventually" eliminate sharing and move to a system of pure price caps). See also Price Cap Performance Review, Fourth Further Notice of Proposed Rulemaking, 10 FCC Rcd 13659, 13679, para. 127 (1995). 254 The exceptions are Citizens Utilities, Southern New England Telephone Company, US West Communications and some GTE operating companies. 255 In the LEC Price Cap Performance Review, the Commission adopted interim price cap rules establishing three productivity factors from which local exchange carriers could select -- 4.0 percent, 4.7 percent and 5.3 percent. No sharing obligation for the interim period is required of local exchange carriers that choose the highest factor. Price Cap Performance Review for Local Exchange Carriers, First Report and Order, 10 FCC Rcd 8961 (1995) ("LEC Price Cap Performance Review") aff'd sub nom. Bell Atlantic Telephone Companies v. FCC, No. 95-1217 (D.C. Cir. 1996). "256 Section services that are not competitive to subsidize services that are subject to competition. A. Ex Parte Presentations V. PROCEDURAL ISSUES 126. This is a non-restricted notice-and-comment rulemaking proceeding. Ex B. Initial Regulatory Flexibility Analysis 127. Section 603 of the Regulatory Flexibility Act, as amended,260 requires an which is not dominant in its field of operation...."263 This proceeding pertains to the Bell Operating Companies and other incumbent local exchange carriers which, because they are dominant in their field of operations, are by definition not small entities under the Regulatory Flexibility Act. We therefore certify, pursuant to Section 605(b) of the Regulatory Flexibility Act, that the rules will not, if promulgated, have a significant economic impact on a substantial number of small entities. The Secretary shall send a copy of this Notice, including this certification and statement, to the Chief Counsel for Advocacy of the Small Business Administration. А сору of this certification will also be published in the Federal Register notice. 264 C. Paperwork Reduction Act 128. This Notice contains either a proposed or modified information collection. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collections contained in this Notice, as required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments are due at the same time as other comments on this Notice; OMB comments are due 60 days from date of publication of this Notice in the Federal Register. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. 129. Written comments by the public on the proposed or modified information collection are due on or before August 26, 1996 and reply comments on or before September 10, 1996. Written comments must be submitted by the Office of Management and Budget (OMB) on the proposed or modified information collections on or before 60 days after date of publication in the Federal Register. In addition to filing comments with the Secretary, a copy of any comments on the information collection contained herein should be submitted to Dorothy Conway, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to dconway@fcc.gov and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 17th Street, N.W., Washington, DC 20503 or via the Internet to fain_t@al.eop.gov. 263 15 U.S.C. § 632(a)(1). 264 5 U.S.C. § 605(b). D. Comment Filing Procedures 130. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R. §§1.415 and 1.419, interested parties may file comments on or before August 26, 1996, and reply comments on or before September 10, 1996. To file formally in this proceeding, you must file an original and six copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of your comments, you must file an original and eleven copies. Comments and reply comments should be sent to Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554, with a copy to Ernestine Creech of the Common Carrier Bureau's Accounting and Audits Division, 2000 L Street, N.W., Suite 257, Washington, D.C. 20554. Parties should also file one copy of any documents filed in this docket with the Commission's copy contractor, International Transcription Services, Inc. ("ITS"), 2100 M Street, N.W., Suite 140, Washington, D.C. 20037. Interested parties can reach ITS by telephone at (202) 857-3800. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C. 20554. 131. In order to facilitate review of comments and reply comments, both by parties and by Commission staff, we require that comments and reply comments include a short and concise summary of the substantive arguments raised in the pleading.265 Comments, exclusive of appendices and summaries of substantive arguments, shall be no longer than sixty (60) pages and reply comments no longer than thirty (30) pages. 132. Parties are also asked to submit comments and reply comments on diskette. Such diskette submissions would be in addition to and not a substitute for the formal filing requirements addressed above. Parties submitting diskettes should submit them to Ernestine Creech of the Common Carrier Bureau's Accounting and Audits Division, 2000 L Street, N.W., Suite 257, Washington, D.C. 20554. Such a submission should be on a 3.5 inch diskette formatted in an IBM compatible form using WordPerfect 5.1 for Windows software. The diskette should be submitted in "read only" mode. The diskette should be clearly labelled with the party's name, proceeding, type of pleading (comment or reply comments) and date of submission. The diskette should be accompanied by a cover letter. 265 Comments and reply comments must also comply with Section 1.49 and all other applicable sections of the Commissions Rules. See 47 C.F.R. §1.49. However, we require here that a summary be included with all comments and reply comments, regardless of length. The summary may be paginated separately from the rest of the pleading (e.g., as "i, ii"). See 47 C.F.R. §1.49. Neither this summary nor any appendices of expert analysis or relevant State orders shall count toward the page limits. |