**Before the**

**FEDERAL COMMUNICATIONS COMMISSION**

**Washington, D.C. 20554**

In the Matter of )

)

National Exchange Carrier Association, Inc. ) File No. ASD 00-19

Certification of Average Schedule Formulas for )

The Period July 1, 2000 Through June 30, 2001 )

**ORDER**

Adopted: June 26, 2000 Released: June 27, 2000

By the Chief, Accounting Safeguards Division, Common Carrier Bureau:

**I. Introduction**

1.  On December 30, 1999, the National Exchange Carrier Association
    ("NECA") filed a letter signed by Patricia A. Chirico, Executive
    Director, Tariff, Rates, Costs & Average Schedules, certifying that
    the directors of NECA believe that no revisions to the average
    schedule formulas are warranted for the upcoming annual period, July
    1, 2000 through June 30, 2001 ("*Certification Letter*").[^1] NECA's
    submission was filed pursuant to section 69.606(b) of the Commission
    rules that requires NECA to submit proposed modifications to the
    average schedule formulas annually or to certify that no
    modifications are warranted.[^2] Since 1985, NECA has filed proposed
    modifications to the average schedule formulas. This is the first
    time that NECA is certifying that no modifications are warranted. We
    find that continuation of the current average schedule formulas for
    the upcoming rate period July 1, 2000 through June 30, 2001 is
    reasonable, and therefore no Commission action is necessary. We also
    provide guidance on the process that the Bureau intends to use in
    any future section 69.606(b) certification filings by NECA.

## II. Background

2.  NECA is responsible for developing interstate access tariffs for
    incumbent local exchange carriers ("ILECs") that wish to participate
    in NECA's access charge tariff process.[^3] ILECs that participate
    in the access tariff pooling arrangements administered by NECA
    recover interstate costs from the pools either as cost companies or
    average schedule companies.[^4] Cost companies receive compensation
    for the use of their facilities in originating and terminating
    interstate common carrier communications services on the basis of
    their actual interstate costs of performing those functions.[^5]
    Average schedule companies receive compensation for their interstate
    common carrier services on the basis of formulas developed by NECA
    and approved by the Commission.[^6] Each year, on or before December
    31, NECA is required under section 69.606(b) to file with the
    Commission revised average schedule formulas or certify that no such
    revisions are necessary.[^7] Payments are then made to average
    schedule companies for the upcoming annual rate period (July 1
    through June 30) based on the average schedule formulas approved or
    modified by the Commission pursuant to section 69.606(a).[^8]

3.  On December 30, 1999, NECA filed a *Certification Letter* with the
    Commission signed by its Executive Director, Tariff, Rates, Costs &
    Average Schedules, certifying that the directors of NECA believe
    that no revisions to the average schedule formulas are warranted for
    the upcoming annual period.[^9] Currently, average schedule
    companies receive interstate compensation pursuant to formulas that
    are effective from July 1, 1999 through June 30, 2000.[^10] There
    are average schedule formulas for each of the following categories:
    Traffic Sensitive Central Office; Line Haul Non-Distance Sensitive;
    Line Haul Distance Sensitive; Intertoll Dial Switching; Signal
    System 7; Special Access; Equal Access; Database Query and Interim
    Translation; Universal Service; and Common Line. In support of its
    December 30, 1999, *Certification Letter* that no changes are
    warranted to the current average schedule formulas, NECA states that
    "in its 1999 Study to update current cost and demand trends for the
    average schedule formulas, the data showed both positive and
    negative changes among individual formulas, with the overall effects
    of revising the formulas having a less than a 1% change." No
    supporting documentation or data was submitted with NECA's
    *Certification Letter*.

4.  On February 23, 2000, the Common Carrier Bureau issued a Public
    Notice establishing a pleading cycle for comment on NECA's
    *Certification Letter*.[^11] Three parties filed comments[^12] and
    NECA filed reply comments.[^13] On March 22, 2000, a meeting was
    held between NECA and the Accounting Safeguards Division staff in
    response to staff's February 8, 2000 letter to NECA[^14] requesting
    additional information.[^15]

# III. Discussion

5.  We have reviewed NECA's *Certification Letter* and subsequent data
    filings and conclude that it is reasonable to retain the current
    average schedule formulas for the upcoming annual rate period. [^16]
    Based on our review, we conclude that had the formulas been revised
    in accordance with NECA's standard procedures,[^17] the overall
    effects on total payments to average schedule companies would have
    been reduced by 1.07% from current levels.[^18] NECA had initially
    stated that there would be less than a 1% reduction in payments.
    While we continue to encourage NECA to develop formulas that do not
    compromise accuracy, we find that, on balance, the overall
    percentage change in payments that would occur if the formulas were
    revised with updated data is not material given the circumstances
    presented here.[^19] We note however, that for some service
    categories, the continued use of the existing formulas provide
    substantially different revenue amounts than what NECA's overall
    analysis indicates. We would be concerned if, in future filings,
    these differences were to persist.[^20]

6.  NECA's certification has also raised the issue of procedural and
    informational requirements associated with a certification filing
    under section 69.606(b). The three parties filing comments took
    issue with the lack of supporting data available to review the
    reasonableness of NECA's proposed certification,[^21] while NECA
    strongly advocated that no data or Commission review was required
    unless a reasoned basis existed for doing so.[^22] We find it would
    be beneficial to NECA and others to provide guidance on the Bureau's
    internal processing plans for future certification filings under
    section 69.606(b). We find that it is appropriate to have a more
    expeditious and efficient process where NECA makes a certification
    filing.

7.  Initially, however, we wish to make clear the respective obligations
    of the Commission and NECA that exist under section 69.606 of our
    rules. Under section 69.606(b), NECA has an affirmative obligation
    each year to file revisions or to certify that no revisions to
    average schedule formulas are warranted for the upcoming rate
    period.[^23] Under section 69.606(a), payments shall be made based
    on average schedule formulas approved or modified by the
    Commission.[^24] The rule does not specify, however, whether such
    approval or modification must occur on a yearly basis, or whether,
    when NECA chooses the certification option under section 69.606(b),
    a previously approved formula may be used in the new rate period,
    unless the Commission takes action. Nonetheless, we note that the
    Commission has the ultimate responsibility to assure that the
    average schedule formulas result in reasonable rates, and thus,
    provide reasonable payments to the average schedule companies.[^25]

8.  Given that the rule provides for either the filing of revised
    formulas or a certification that no revisions are warranted, the
    rule contemplates a distinction between the two options. We conclude
    that the certification option should entail a more streamlined
    approach; otherwise there would be little reason to have it as a
    separate option. We note that NECA's December 30, 1999,
    *Certification Letter* was signed by one of NECA's executive
    directors certifying that the directors of NECA believe that no
    revisions to the average schedule formula were warranted, and
    including a statement that a study had been performed using updated
    cost and demand data for the average schedule formulas, and stating
    the overall results of that study.[^26] We conclude that in future
    certification filings, NECA should continue to use this approach. We
    find that NECA need not provide supporting documentation when it
    makes a certification filing, although the Commission may request
    additional information if it so chooses. [^27] Upon receiving any
    NECA certification filing, the Bureau will issue a public notice
    that NECA has submitted a certification filing for average schedule
    formulas for the upcoming annual rate period. If the Bureau
    concludes further action relating to the certification is warranted,
    it will take any such action expeditiously. We find that on balance
    the process described above provides appropriate procedures for a
    certification filing under section 69.606(b).

    **IV. Ordering Clause**

9.  Accordingly, IT IS ORDERED, that this proceeding IS HEREBY
    TERMINATED.

10. IT IS FURTHER ORDERED, pursuant to section 4(i) of the
    Communications Act of 1934, as Amended, 47 U.S.C. § 154(i), and
    sections 0.91 and 0.291 of the Commission\'s rules, 47 C.F.R. §§
    0.91, 0.291, that THIS ORDER IS EFFECTIVE UPON ITS RELEASE.

    FEDERAL COMMUNICATIONS COMMISSION

    Kenneth P. Moran

Chief, Accounting Safeguard Division

[^1]: ^?^ *See* Letter from Particia A. Chirico, Executive Director,
    Tariff, Rates, Costs & Average Schedules, National Exchange Carrier
    Association, Inc., to Ms. Magalie Roman Salas, Secretary, Federal
    Communications Commission, dated December 30, 1999 (\"*Certification
    Letter*\").

[^2]: ^?^ 47 C.F.R. § 69.606(b).

[^3]: ^?^ Over 1,100 ILECs voluntarily participate in NECA's interstate
    access charge and setttlement process.

[^4]: ^?^ *See* 47 C.F.R. sections 69.605(c) and 69.606.

[^5]: ^?^ Cost companies perform studies of their costs in accordance
    with Parts 32, 36, and 64 of the Commission\'s rules to determine
    their actual interstate costs. *See* 47 C.F.R. Parts 32, 36, and 64.

[^6]: ^?^ In developing average schedule formulas, NECA uses data
    collected from a sample of average schedule companies representing
    investment and expenses and data from cost companies concerning
    allocations to the interstate jurisdiction and to access charge
    categories pursuant to the Commission\'s jurisdictional separations
    and access charge rules.

[^7]: ^?^ *See* 47 C.F.R. § 69.606(b).

[^8]: ^?^ *See* 47 C.F.R § 69.606(a).

[^9]: ^?^ *See supra*. n. 1.

[^10]: ^?^ *See* National Exchange Carrier Association, Inc. Proposed
    Modifications to the 1999-2000 Interstate Average Schedule Formulas,
    *Order*, 14 FCC Rcd 9803.

[^11]: ^?^ Pleading Cycle Established for Comments on National Exchange
    Carrier Association, Inc. Certification of Average Schedule Formulas
    For The Period July 1, 2000 Through June 30, 2001, File No. ASD
    00-19, DA 00-0346 (rel. February 23, 2000).

[^12]: ^?^ *See* ICORE, Inc. Comments, filed March 16, 2000; AT&T Corp.
    Comments, filed March 17, 2000; and MCI WorldCom, Inc. Comments,
    filed March 17, 2000.

[^13]: ^?^ *See* NECA Reply, filed March 31, 2000.

[^14]: ^?^ *See* Letter from Kenneth P. Moran, Chief, Accounting
    Safeguards Division, Common Carrier Bureau, to Patricia A. Chirico,
    Executive Director, Tariff, Rates, Costs & Average Scheduled, NECA,
    dated February 8, 2000.

[^15]: ^?^ *See* Letter from Richard Askoff, Deputy General Counsel,
    NECA, to Ms. Magalie Roman Salas, Secretary, Federal Communications
    Commission, dated March 23, 2000, submitting data provided to staff
    at the March 22, 2000 meeting ("*March 23^rd^ Filing*").

[^16]: ^?^ Discussions between staff and NECA revealed errors in NECA's
    original analysis of the common line formula and its *Certification
    Letter* statement that "the overall effects of revising the formulas
    hav\[e\] a less than a 1% change" on payments to average schedule
    companies. In response, NECA filed corrected information. *See*
    Letter from Richard Askoff, Deputy General Counsel, NECA, to Ms.
    Magalie Roman Salas, Secretary, Federal Communications Commission,
    dated May 5, 2000 ("*May 5^th^ Filing*).

[^17]: ^?^ Each year NECA conducts an extensive study of cost and demand
    data to determine if revisions to the average schedule formulas are
    warranted. NECA's annual study involves selecting a statistical
    sample of both cost and average schedule companies and collecting
    accounting and demand data from the selected companies. NECA then
    develops mathematical models that describe how small cost companies
    allocate their total costs to the interstate jurisdiction and to
    individual access charge categories. *See e.g.,* National Exchange
    Carrier Association, Inc., 1999 Proposed Modifications to the
    Interstate Average Schedule Formulas, filed December 31, 1998 at p.
    I-2.

[^18]: ^?^ *May 5^th^ Filing* at p. 2.

[^19]: ^?^ NECA conducted a 1999 Study and developed a set of average
    schedule formulas reflecting current cost and demand trends for the
    upcoming 2000 rate period (July 1 -- June 30). While the formulas
    derived from the updated data showed both positive and negative
    changes among the individual formulas, the overall net effect of all
    the formula revisions resulted in a 1.07% reduction in payments.
    *See Certification Letter; March 23^rd^ Filing*; and *May 5^th^
    Filing*.

[^20]: ^?^ For example, NECA's data shows that an updated common line
    formula would result in a 3.79% increase in payments; an updated
    Central Office formula would result in a --7.34% decline in
    payments; and an updated Distance Sensitive formula would result in
    a --9.34% decline in payments. *See May 5^th^ Filing*.

[^21]: ^?^ *See* AT&T Comments at pp. 2 -- 4; MCI WorldCom Comments at
    pp. 3 -- 6; ICORE Comments at p. 2. ICORE stated that the Commission
    should obtain relevant data from NECA and requested that the comment
    period in this proceeding be extended to accommodate parties' review
    of NECA's data. We find that the parties were provided notice of
    NECA's *March 23^rd^ Filing* and had sufficient time to review the
    data and provide meaningful comment during the course of this
    proceeding -- either in reply comments or in other filings. Thus, we
    find no need to extend the comment period.

[^22]: ^?^ *See* NECA Reply at pp. 4 -- 9.

[^23]: ^?^ 47 C.F.R. § 69.606(b).

[^24]: ^?^ 47 C.F.R. § 69.606(a).

[^25]: ^?^ We do not find NECA's analogy of the instant case to payphone
    compensation cases persuasive. *See* NECA Reply at pp. 4 -- 6,
    citing *Bell Atlantic-Delaware v. Frontier Communications Services,
    Inc*. File Nos. E-98-48, E-98-49, 14 FCC Rcd 16050 (1999) *appealled
    sub nom. Global Crossing Telecommunications, Inc. v. FCC*, Case No.
    001204 (filed May 10, 2000, D.C. Cir.); *Ameritech Illinois v. MCI
    Telecommunications Corp.*, File No. E-98-50, 14 FCC Rcd 18643
    (1999). Unlike the payphone cases that NECA cites, the Commission
    has the responsibility to determine whether the average schedule
    formulas prepared by NECA will produce rates that will ensure
    reasonable payments to the average schedule companies. The
    interexchange carriers ("IXCs") in the payphone cases do not have
    any such obligations, (*i.e*., to ensure that the LEC has complied
    with Commission's rules and orders, or to ensure fair compensation
    to payphone providers) and, indeed the Commission has clearly stated
    that it has not, and cannot, delegate such responsibility to the
    IXCs. (*See e.g.* 14 FCC Rcd 18652-3). In fact, the IXC's recourse,
    should they challenge the reasonableness of a LEC's payphone
    certification, is to initiate a proceeding and request the
    Commission to undertake to examine the data and determine the
    reasonableness of the LEC's certification. Thus, even in payphone
    compensation cases, if the Commission were requested to determine
    the reasonableness of the LEC's certification, it would have the
    responsibility and right to "look behind" the certification. *See
    e.g.,* 14 FCC 16068.

[^26]: ^?^ NECA subsequently provided two summary charts with its *May
    5^th^ Filing* that we found useful. *See infra*. n. 16.

[^27]: ^?^ *See* sections 1, 2, 4(i), 201-205 of the Communications Act,
    47 U.S.C. §§ 151, 152, 154(i), 201-205.