Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+-------------------------------+
| In the Matter of                 | ) | WC Docket No. 04-372          |
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| July 1, 2004                     | ) |                               |
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| Annual Access Charge Tariff      | ) |                               |
| Filings                          |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
+----------------------------------+---+-------------------------------+

**ORDER DESIGNATING ISSUES FOR INVESTIGATION**

**Adopted: September 20, 2004 Released: September 20, 2004**

[Filing Schedule]{.underline}

**Direct Case Due: October 12, 2004**

**Oppositions to Direct Case Due: October 22, 2004**

**Rebuttal Due: October 29, 2004**

By the Chief, Pricing Policy Division:

# INTRODUCTION

1.  On July 1, 2004, the Pricing Policy Division of the Wireline
    Competition Bureau released an order that suspended for one day and
    set for investigation several of the incumbent local exchange
    carriers' (LECs') 2004 annual access tariff filings.[^1] On July 30,
    2004, we reconsidered, on our own motion, our decision to suspend
    and investigate those tariffs except for the tariff of the National
    Exchange Carrier Association, Inc. (NECA).[^2] As discussed below,
    we now designate for investigation three issues related to NECA's
    tariff \-- the first two pursuant to the Commission's authority
    under section 204 of the Communications Act of 1934, as amended
    (Act), and the third issue pursuant to the Commission's authority
    under section 205 of the Act.[^3] First, we designate for
    investigation whether the revised rates in NECA's annual access
    tariff are unjust or unreasonable in violation of section 201 of the
    Act,[^4] particularly whether NECA's rate development methodology
    has resulted in consistent overearnings, such that this methodology
    produces access rates that are unjust or unreasonable. Second, we
    designate for investigation whether NECA's entrance facilities rates
    are calculated using demand projections for entrance facilities that
    are neither ordered nor used, and whether the resulting rates are
    unjust or unreasonable under section 201 of the Act.[^5] Finally, we
    designate for investigation whether the language in NECA's tariff
    relating to entrance facility charges is unjust or unreasonable.[^6]

# BaCKGROUND

2.  NECA files an annual access tariff as an agent for rate-of-return
    carriers that do not file separate tariffs or concur in a joint
    access tariff of another company.[^7] Pursuant to section 61.38 of
    the Commission's rules, NECA files an annual access tariff that
    reflects averaged rates based on participating carriers' historical
    and projected costs of providing interstate access services and
    forecasted demand for these services.[^8] LECs charge interexchange
    carriers for access services at NECA's tariff rates, and NECA
    settles with participating LECs based on their reported revenues and
    costs.[^9] More specifically, NECA reimburses the LECs for their
    costs and provides each participating LEC an equal return on its
    investment.[^10]

3.  Under section 201(b) of the Act, a local exchange carrier may not
    charge unjust or unreasonable rates for its provision of access
    services.[^11] To enforce this requirement, the Commission has
    prescribed an authorized rate of return of 11.25 percent for
    rate-of-return carriers.[^12] To comply with this prescription, NECA
    must set its tariff rates at levels that are designed to produce no
    more than an 11.25 percent return on interstate net investment for
    NECA's tariff participants during the tariff period.[^13] The
    Commission's rules provide that a carrier's interstate access
    earnings are measured over a two-year period (the monitoring period)
    to determine compliance with the maximum allowable rate of
    return.[^14] A rate-of-return carrier may make access rate
    adjustments during the course of its two-year monitoring period to
    ensure that it does not exceed or fall short of its maximum
    allowable rate of return.[^15] In addition, during the course of the
    monitoring period, the Commission may require a carrier to change
    its rates prospectively.[^16]

4.  The Commission requires rate-of-return LECs to file earnings reports
    on Form 492 annually and for two-year monitoring periods.[^17] The
    monitoring period begins on January 1 in odd-numbered years and ends
    on December 31 in even-numbered years.[^18] After the first year, a
    carrier files an "interim" monitoring report that reflects the rate
    of return realized during the first year.[^19] When the monitoring
    period ends, a carrier must file a "final" monitoring report by
    September 30 of the following year, showing total access
    earnings.[^20] NECA reports the aggregated, or overall, rate of
    return for the carriers that participate in its tariff and revenue
    pool.[^21]

# ISSUEs DESIGNATED FOR INVESTIGATION

## Issue 1: Whether the revised rates in NECA's annual access tariff are unjust or unreasonable 

5.  The first issue that we designate for investigation is whether the
    revised rates in NECA's annual access tariff are unjust or
    unreasonable in violation of section 201 of the Act.[^22]
    Significant questions were raised concerning whether NECA's rate
    development methodology has resulted in consistent overearnings over
    the past nine years, indicating that this methodology may produce
    access rates that are unjust or unreasonable.

6.  *Position of the parties.* In its annual access filing, NECA
    proposed a 7.1 percent reduction in switched access rates and a 3.8
    percent increase in special access rates for the July 1, 2004 to
    June 30, 2005 tariff period.[^23] NECA contends that its proposed
    rates were targeted to earn the Commission's authorized
    rate-of-return of 11.25 percent.[^24]

7.  AT&T and GCI filed petitions against the NECA tariff, alleging
    persistent past and current overearnings violations.[^25] They
    contend that NECA's 2004 access filing exceeds the authorized
    earnings level because it is based on the same kind of faulty
    forecasting and rate development methodology that has produced
    consistent overearnings for the past nine years.[^26] They assert
    that NECA's own Form FCC 492 rate-of-return reports filed with the
    Commission show overearnings for these past years.[^27] As a result,
    they contend, NECA overstates its member companies' revenue
    requirements and/or understates demand, resulting in inflated access
    charges.[^28] AT&T and GCI also complain that the unavailability of
    underlying data on which NECA bases its tariff filing prevents a
    meaningful evaluation of NECA's calculations.[^29]

8.  In its reply, NECA asserts that data on its Form 492 Reports, on
    which AT&T and GCI rely, "are not representative of final
    earnings."[^30] NECA states in notes filed with the reports that
    data initially reflect estimated costs of companies participating in
    the NECA pool and that, as companies report actual costs, "it is
    expected that the rates of return reported on NECA's Form 492 report
    will decline."[^31] NECA asserts that its pooling procedures "permit
    companies to report 'trued-up' actual interstate costs to the Common
    Line (CL) and Traffic Sensitive (TS) Pools for a period of up to
    twenty-four months after the data month."[^32] NECA also gives its
    member companies a 24-month period for submitting revised data
    related to special access.[^33]

9.  As a result, NECA explains that it makes rate-of-return adjustments
    based on updated cost data received from companies after NECA files
    the final FCC Form 492 report. For example, the final rate-of-return
    report for the 2001-02 monitoring period was filed September 30,
    2003; however, NECA continues to true-up, or adjust, data for the
    2001-02 monitoring period until December 2004.[^34] NECA asserts
    that its 24-month true-up process accounts for the difference
    between the higher rates of return reported on September 30 Form
    492s and the lower rates of return that result when cost revisions
    are submitted by NECA's companies, after the September 30 Form 492s
    were filed.[^35] On this basis, NECA contends that its special
    access rates achieved returns below authorized levels in several
    past years and that its 3.8 percent increase for the 2004 annual
    filing is reasonable.[^36] NECA also argues that "tremendous
    unknowns" due to new technologies such as Voice over Internet
    Protocol, competition from wireless and Internet usage, and economic
    uncertainty "make forecasting more difficult and render prior
    earnings reports \-- the principal data presented by AT&T and GCI
    \-- of little use as a predictor of future earnings."[^37]

10. *Discussion.* The Communications Act generally relies on a system of
    carrier-initiated tariff filings to establish applicable rates for
    services.[^38] These rates are subject to review pursuant to section
    204 and historically were subject to refund for overearnings upon a
    complaint. The Telecommunications Act of 1996, however, revised
    section 204 to provide that, under specified circumstances, rates
    filed by local exchange carriers would be "deemed lawful."[^39]
    Rates that are "deemed lawful" are not subject to refund.[^40] When
    tariffs, such as NECA's tariff, are filed pursuant to the "deemed
    lawful" provisions of the statute, therefore, it is incumbent upon
    us to suspend and investigate the tariff filing if it may reflect
    unjust and unreasonable rates. The Commission's rate-of-return
    prescription and the ability to evaluate a carrier's earnings
    results in a timely manner are essential to ensuring that carriers
    do not charge unjust or unreasonable rates.[^41] For this reason,
    the Commission requires LECs to file annual rate-of-return reports
    containing information that allows the Commission to review their
    earnings.[^42]

11. NECA's 2004 annual access filing raises questions about whether
    NECA's rates are targeted to realize an 11.25 percent return and the
    ability of NECA's rate-of-return reports and data to serve as
    reliable indicators that rates are not unjust or unreasonable. For
    example, based on NECA's March 31, 2004 interim FCC Form 492 for
    calendar year 2003, NECA would have had to establish special access
    rates at a level approximately 10 percent lower than the 2003 level
    to have earned an 11.25 percent rate of return on rate base.[^43]
    Absent compelling reasons for forecasting significant changes in
    costs or demand going forward, we would have expected NECA to reduce
    its rates by approximately 10 percent, rather than to increase them
    by approximately 3.8 percent, in the July 1, 2004 annual access
    tariff filing in order to target an 11.25 percent rate of return.

12. NECA asserts in its reply that it trues-up data for a 24-month
    period following the data month and that the September 30 report is
    filed with a notation that it is not final.[^44] NECA has not,
    however, subsequently filed a revised Form 492 to disclose its
    "final" data. As a result, neither the Commission nor any interested
    party is privy to NECA's final rate of return. Now, several years
    later, we have only NECA's claims that its actual returns are lower
    than its final September-filed reports, which going back to 1995,
    indicate that NECA repeatedly exceeded the Commission's prescribed
    earnings level, particularly in the switched traffic sensitive
    category.[^45] Without further NECA data, we are unable to ascertain
    how post-September 2004 adjustments affect the assignment of costs
    between the federal and state jurisdictions and whether only one
    category or several categories of access rates are affected. As a
    result, our investigation encompasses all of the access rates in
    NECA's filing.

13. To examine whether NECA has repeatedly overearned, as AT&T and GCI
    allege, we must, therefore, seek additional input from NECA
    regarding its procedures to collect, compute, and report data
    regarding the aggregate rate of return for its member companies.
    Reliable data are essential to the Commission's ability to conduct
    tariff reviews and investigations to enforce its rate-of-return
    prescription and to ensure just and reasonable rates. To that end,
    NECA shall provide the data and information requested below.

14. For monitoring periods 1993-1994, 1995-1996, 1997-1998, 1999-2000,
    and 2001-2002 (collectively referred to as the "monitoring
    periods"), NECA shall submit copies of the FCC Form 492 that NECA
    filed in September following the two-year monitoring periods
    (referred to as "September 492s"). NECA shall also identify the
    following total amounts that NECA companies assigned to the state
    jurisdiction (as part of the separations process) for each of the
    monitoring periods: total revenues, total expenses and taxes,
    operating income,[^46] rate base,[^47] and rate of return.[^48]
    These amounts should be calculated based on data revised as of the
    same date as data used for the September 492s. In addition to
    providing these amounts for two-year monitoring periods, NECA shall
    provide the requested information for each year of a monitoring
    period, using data of comparable vintages. For example, for the
    1993-94 monitoring period, if the 1994 data in the 1995 September
    Form 492 reflects activity reported to NECA through August 31, 1995,
    then the initial 1993 amounts should reflect data reported to NECA
    through August 31, 1994, and the initial 1994 amounts should reflect
    data reported to NECA through August 31, 1995. This information
    shall be provided using the format in Table 1 of Appendix A.

15. For each of the monitoring periods, NECA shall identify NECA
    companies' final[^49] interstate results (based on NECA's 24-month
    true-up process) for the common line, traffic-sensitive, and special
    access categories separately as follows: total revenues, total
    expenses and taxes, operating income, rate base, and rate of return.
    NECA shall also identify the following final[^50] amounts (based on
    NECA's 24-month true-up process) that NECA companies assigned to the
    state jurisdiction for each of the monitoring periods: total
    revenues, total expenses and taxes, operating income, rate base, and
    rate of return. NECA shall report the data for each year in the
    monitoring period, as well as the totals for the two years. This
    information shall be provided using the format in Table 1 of
    Appendix A.

16. NECA shall explain any differences in the total interstate amounts
    that NECA reported on its September 492s (in response to paragraph
    14 above) and the final amounts identified by NECA in response to
    paragraph 15 for the common line, traffic-sensitive, and special
    access categories separately. NECA shall also explain any
    differences between the paragraph 14 and paragraph 15 responses for
    these categories: total revenues, total expenses and taxes,
    operating income, rate base, and rate of return for each of the
    monitoring periods. NECA shall also explain any differences between
    the total amounts assigned by NECA companies to the state
    jurisdictions identified in response to paragraphs 14 and 15 and any
    differences in these categories: total revenues, total expenses and
    taxes, operating income, rate base, and rate of return for each of
    the monitoring periods. The explanations shall address whether there
    is any pattern evident in the true-ups, the reasons for any such
    pattern, and whether any such pattern may be expected to recur in
    subsequent years.

17. NECA shall provide the same data requested in paragraph 14 for year
    2003 that reflects the most recent adjustments in its 24-month
    true-up process. NECA shall also project what it believes the final
    earnings amount will be for 2003 once the true-ups are finished,
    including a detailed explanation of how NECA made its estimate. This
    information shall be provided using the format in Table 1 of
    Appendix A.

18. NECA indicates in its reply that most of the data are reported
    within 7-12 months of the end of the calendar year.[^51] NECA
    asserts, however, that rate-of-return figures decline significantly
    as its companies continue to make adjustments to their initial
    estimated revenues, expenses, and investments during the 24-month
    true-up period. To provide the Commission with a better
    understanding of what NECA says is a predictable decline, we ask
    NECA to describe the pattern it perceives in the flow of revenues,
    expenses, and investments during the 24-month true-up period. NECA
    shall show the extent to which each year's return changed during the
    24-month true-up period for years 1993 through 2003. NECA shall
    correlate this pattern with its projection for the 2003 data made
    pursuant to the previous paragraph. If NECA is correct that
    rate-of-return figures do decline significantly over the 24-month
    period, it should be able to provide evidence to this effect by
    making this showing. If it is unable to do so, or refuses to do so
    in response to this request, we would be unable to say that there
    was any evidence of the trend NECA asserts, and this might result in
    a reduction in NECA's rates.

19. NECA shall explain the differences between the means used by
    carriers to report their initial data to NECA and the means used to
    calculate the trued-up data. For example, how does a carrier
    estimate its initial data submission prior to performing a cost
    study? Are there any growth or inflation factors built into the
    process?

20. To evaluate the revised earnings data, we must understand the nature
    of the adjustments that occur subsequent to each year's data
    included in the response to paragraph 14. For each year 1993 through
    2002, we direct NECA to provide as part of its direct case the 120
    largest adjustments made to each pool subsequent to each year's data
    included in response to paragraph 14.[^52] This list of adjustments
    should not include data reflecting the submission of the initial
    cost study performed for the year in question, but should reflect
    adjustments made subsequent to the submission of such cost study
    data. For each adjustment identified, NECA shall provide the date
    the adjustment was reported to NECA, the month(s) to which it is
    applied, and the cause of the adjustment.

21. Of the 120 largest adjustments per year for years 1993 through 2002,
    NECA shall identify the two companies that submitted the greatest
    number of adjustments and the two companies with the largest
    aggregate amount of adjustments. (To avoid possible duplication, the
    second set of carriers shall be selected from the subset of
    companies that excludes the first set.) Information for the four
    carriers shall be provided for the 1999-2000 and 2001-2002
    monitoring periods in accordance with the instructions to Table 2 of
    Appendix A. A separate chart shall be used for each carrier for each
    monitoring period, i.e., one chart for the 1999-2000 monitoring
    period and one chart for the 2001-02 monitoring period. In
    identifying these carriers, if a carrier is affiliated with another
    carrier or participates in a common tariff, only the carrier with
    the largest aggregate amount of adjustments or the one with the
    largest number of adjustments shall be used.

22. NECA shall explain what options carriers had in reporting
    adjustments to NECA and to what period (months) carriers applied
    their data, including whether carriers used the month underlying the
    transaction, the month the error or true-up was identified, or some
    other date. NECA shall provide a justification for why such carrier
    discretion is appropriate, and what steps it takes to monitor
    compliance with any guidelines it issues.

23. Finally, we note that the true-up process for Interstate Common Line
    Support must be completed within 12 months of the close of a
    calendar year.[^53] NECA shall explain how a 12-month time frame
    following the close of a calendar year for true-ups of ICLS is
    consistent with a 24-month true-up process for the NECA pools, given
    that both are presumably based on the same separations and cost
    studies.

## Issue 2: Whether NECA's entrance facility charges include inappropriate demand projections and are unjust or unreasonable

24. The second issue that we designate for investigation is whether
    NECA's entrance facilities rates are calculated using demand
    projections for entrance facilities that are neither ordered nor
    used, and whether the resulting rates are unjust or unreasonable
    under section 201 of the Act.[^54] This issue arises in situations
    where the access customer is collocated in the end office of the
    NECA member local exchange carrier and the customer uses
    cross-connects for interconnection.

25. *Position of the parties*. GCI states that it has collocated
    pursuant to section 251 of the Act in three end offices operated by
    NECA tariff participants ACS of Fairbanks, Inc., and ACS of Alaska,
    Inc. (ACS).[^55] GCI contends that it pays ACS for
    collocation-related facilities and services and for necessary
    cross-connect cables from the main distribution frame to GCI's
    collocation cage and from the trunk ports on ACS' switch to GCI's
    collocation cage.[^56] GCI asserts that it provides switched access
    services using its collocation space to interconnect its own
    multiplexing and transport facilities to a cross-connect running to
    a trunk port on ACS' end office switch.[^57] According to GCI, it
    delivers interstate traffic to ACS for termination through this
    arrangement.[^58]

26. GCI contends that, even though it neither orders nor uses any ACS
    entrance facilities, GCI incurs entrance facilities charges because
    NECA's tariff provides that "\[t\]his charge will apply even if the
    customer designated premises and the serving wire center are
    collocated in \[ACS'\] Telephone Company building."[^59] GCI argues
    that NECA's entrance facilities rates are unjust and unreasonable
    because NECA includes in its calculation of entrance facilities
    rates the demand for entrance facilities when only interconnection
    "cross-connect" facilities are provided, for which GCI pays
    separately.[^60] In its own case, GCI argues that no entrance
    facility charge is warranted.[^61] NECA responds that its tariff
    provisions imposing entrance facility charges on collocated
    competitors have been in effect since 1993 and that NECA is not
    required to tariff a cross-connect charge in lieu of an entrance
    facility charge because its member companies have not proposed
    geographic deaveraging of transport.[^62]

27. *Discussion.* Section 51.515 of the Commission's rules provides that
    access charges shall not "be assessed by an incumbent LEC on
    purchasers of elements that offer telephone exchange or exchange
    access services."[^63] Elements include "network elements,
    interconnection, and methods of obtaining interconnection and access
    to unbundled elements."[^64] If NECA believes that imposing entrance
    facilities charges on customers who have interconnected pursuant to
    section 251(c)(6) of the Act does not violate the Commission's
    rules, it shall present a thorough explanation in support of its
    position.

28. As part of its direct case, NECA shall explain in detail the manner
    in which the two ACS companies provide collocation and entrance
    facility arrangements to GCI, as well as other interexchange
    carriers, in the identified offices in Fairbanks and Juneau. NECA
    shall indicate any divergent treatment in provisioning or charging
    that occurs, depending on whether GCI or other carriers take UNEs,
    resell ACS services, or provide their own transmission facilities.
    NECA shall provide a diagram showing the facility provisioning of
    collocation and entrance facilities in the central offices. NECA
    shall specify the charges assessed for collocation arrangements and
    entrance facilities and shall associate the appropriate charges with
    the facilities on the diagram. To assist the Commission in
    evaluating any claims that may be made, we direct NECA to file, or
    arrange to have filed, the interconnection agreement between ACS and
    GCI governing the provision of collocation pursuant to section
    251(c)(6) of the Act, including the appropriate charges, whether set
    forth in the agreement or referenced elsewhere.[^65]

29. NECA shall identify any facility or function for which charges for
    both collocation and entrance facilities are assessed upon GCI. In
    such instances, NECA shall explain why requiring GCI to pay both
    collocation and entrance facility rates is lawful and does not
    over-recover costs for these assets or activities. NECA shall
    explain its legal basis for recovering both collocation and entrance
    facility rates for any facility or function.

## Issue 3: Whether the language in section 6.1.3 of NECA Tariff FCC No. 5 relating to entrance facility charges is unjust or unreasonable

30. The third issue we designate for investigation pursuant to section
    205 of the Act is whether the language relating to entrance facility
    charges in section 6.1.3(A)(1) of NECA F.C.C. Tariff No. 5 is unjust
    or unreasonable.[^66] The tariff states:

    The Entrance Facility recovers a portion of the costs associated
    with a communications path between a customer designated premises
    and the serving wire center of that premises. . . . \[The entrance
    facility charge\] will apply even if the customer designated
    premises and the serving wire center are collocated in a Telephone
    Company building.[^67]

31. In the event that the Commission concludes with respect to Issue 2
    that it is unreasonable to assess an entrance facility charge on a
    collocated carrier, it must also determine whether the tariff
    language concerning entrance facility charges is either inconsistent
    with the requirements of Commission rules or so ambiguous that it is
    unreasonable. For this purpose, we incorporate the record developed
    pursuant to Issue 2 as part of the record for this issue. NECA may
    defend the present language as it deems appropriate. As part of its
    direct case, however, we direct NECA to file draft language that
    could be used to revise section 6.1.3 of NECA's tariff to reflect
    the assessment of entrance facility charges if the Commission
    reaches a decision that is adverse to NECA on Issue 2. The language
    should address cases in which carriers that are members of the NECA
    traffic-sensitive pool provide collocation pursuant to section
    251(c)(6) of the Act.[^68]

# PROCEDURAL MATTERS

32. Filing Schedules. This investigation will be conducted as a notice
    and comment proceeding to which the procedures set forth below shall
    apply. NECA is named as a party to this investigation. NECA shall
    file its direct case no later than October 12, 2004. The direct case
    must present NECA's position with respect to the issues described in
    this designation order. When NECA provides information responsive to
    a particular paragraph, including supporting documents, NECA shall
    segregate and identify the information as "Responsive to Paragraph
    \_\_\_ ," corresponding to the paragraph numbers in this order.
    Pleadings responding to the direct case may be filed no later than
    October 22, 2004, and must be captioned "Oppositions to Direct Case"
    or "Comments on Direct Case." NECA may file a rebuttal to
    oppositions or comments no later than October 29, 2004.

33. All pleadings may be filed using the Commission's Electronic Comment
    Filing System (ECFS) or by filing paper copies.[^69] Pleadings filed
    through the ECFS can be sent as an electronic file via the Internet
    to [http://www.fcc.gov/cgb/ecfs/]{.underline}. Generally, only one
    copy of an electronic submission must be filed.[^70] In completing
    the transmittal screen, commenters should include their full name,
    U.S. Postal Service mailing address, and the applicable docket or
    rulemaking number, which in this investigation is WC Docket No.
    04-372. Parties may also submit an electronic pleading by Internet
    e-mail. To get filing instructions for e-mail pleadings, parties
    should send an e-mail to [ecfs@fcc.gov]{.underline}, and should
    include the following words in the body of the message, "get form."
    A sample form and directions will be sent in reply. Parties who
    choose to file by paper must file an original and four copies of
    each filing.[^71]

34. Filings can be sent by hand or messenger delivery, by commercial
    overnight courier, or by first-class or overnight U.S. Postal
    Service mail (although we continue to experience delays in receiving
    U.S. Postal Service mail).

35. The Commission\'s contractor, Natek, Inc., will receive
    hand-delivered or messenger-delivered paper filings for the
    Commission\'s Secretary at 236 Massachusetts Avenue, N.E., Suite
    110, Washington, DC 20002.

    -The filing hours at this location are 8 a.m. to 7 p.m.

> -All hand deliveries must be held together with rubber bands or
> fasteners.
>
> -Any envelopes must be disposed of before entering the building.
>
> -Commercial overnight mail (other than U.S. Postal Service Express
> Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
> Capitol Heights, MD 20743.
>
> -U.S. Postal Service first-class mail, Express Mail, and Priority Mail
> should be addressed to 445 12th Street, SW, Washington, DC 20554.
>
> -All filings must be addressed to the Commission\'s Secretary, Office
> of the Secretary, Federal Communications Commission.

36. Regardless of whether parties choose to file electronically or by
    paper, parties should also file one copy of any documents filed in
    this docket with the Commission's copy contractor, Best Copy and
    Printing, Inc., Portals II, 445 12^th^ Street S.W., CY-B402,
    Washington, DC 20554 (telephone 202-863-2893, facsimile
    202-863-2898, email [www.bcpiweb.com]{.underline}).

37. Parties are strongly encouraged to file pleadings electronically
    using the Commission's ECFS. Parties are also requested to send a
    courtesy copy of their pleadings via e-mail to
    <marvin.sacks@fcc.gov> and douglas.slotten@fcc.gov. If parties file
    paper copies, parties are requested to send two (2) copies of the
    pleading to Chief, Pricing Policy Division, Wireline Competition
    Bureau, Federal Communications Commission, 445 12th Street, SW, Room
    5-A221, Washington, DC 20554.

38. Documents in WC Docket No. 04-372 are available for public
    inspection and copying during business hours at the Federal
    Communications Commission Reference Information Center, Portals II,
    445 12^th^ St. SW, Room CY-A257, Washington, DC 20554, and will be
    placed on the Commission's Internet site. The documents may also be
    purchased from Best Copy and Printing, Inc., telephone 202-863-2893,
    facsimile 202-863-2898, email [www.bcpiweb.com.]{.underline}

39. *Ex Parte* Requirements*.* This proceeding will be governed by
    "permit-but-disclose" *ex parte* procedures that are applicable to
    non-restricted proceedings under section 1.1206 of the Commission's
    rules.[^72] Parties making oral *ex parte* presentations are
    reminded that memoranda summarizing the presentation must contain a
    summary of the substance of the presentation and not merely a
    listing of the subjects discussed. More than a one- or two-sentence
    description of the views and arguments presented generally is
    required.[^73] Other rules pertaining to oral and written
    presentations are set forth in section 1.1206(b). Interested parties
    are to file any written *ex parte* presentations in this proceeding
    with the Commission's Secretary, Marlene H. Dortch, 445 12^th^
    Street, S.W., Room TW-B204, Washington, DC 20554, and serve with
    three copies: Pricing Policy Division, Wireline Competition Bureau,
    445 12^th^ Street, S.W., Room 5-A452, Washington, DC 20554, Attn:
    Marvin Sacks and Douglas Slotten. Parties shall also serve with one
    copy: Best Copy and Printing, Portals II, 445 12^th^ Street, S.W.,
    Room CY-B402, Washington, DC  20554, email
    [www.bcipweb.com](http://www.bcipweb.com/).

40. Paperwork Reduction Act. This document does not contain new or
    modified information collection requirements subject to the
    Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In
    addition, therefore, it does not contain any new or modified
    "information collection burden for small business concerns with
    fewer than 25 employees," pursuant to the Small Business Paperwork
    Relief Act of 2002, Public Law 107-198, *[see]{.underline}* 44
    U.S.C. 3506(c)(4).

41. For further information, please contact Marvin Sacks, Pricing Policy
    Division, Wireline Competition Bureau, at 202-418-1530 or
    <marvin.sacks@fcc.gov>.

# ORDERING CLAUSES

42. ACCORDINGLY, IT IS ORDERED that, pursuant to sections 4(i), 4(j),
    201-205, and 403 of the Communications Act, 47 U.S.C. §§ 154(i),
    154(j), 201-205, and 403, and pursuant to the authority delegated by
    sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R. §§
    0.91, 0.291, the issues set forth in this Order ARE DESIGNATED FOR
    INVESTIGATION.

43. IT IS FURTHER ORDERED that NECA SHALL BE a party to this proceeding.

44. IT IS FURTHER ORDERED that NECA SHALL INCLUDE, in its direct case, a
    response to each request for information that it is required to
    answer by this designation order.

    FEDERAL COMMUNICATIONS COMMISSION

    Tamara L. Preiss

    Chief, Pricing Policy Division

    Wireline Competition Bureau

[^1]: *July 1, 2004, Annual Access Charge Tariff Filings*, WCB/Pricing
    File No. 04-18, Order, DA No. 04-1997 (WCB/Pricing, July 1, 2004)
    (*Suspension Order*).

[^2]: *July 1, 2004, Annual Access Charge Tariff Filings*, WCB/Pricing
    File No. 04-18, Order on Reconsideration, DA No. 04-2395
    (WCB/Pricing, July 30, 2004) (*Suspension Reconsideration Order*).

[^3]: 47 U.S.C. §§ 204(a), 205.

[^4]: 47 U.S.C. § 201(b).

[^5]: 47 U.S.C. § 201(b). Entrance facilities generally refer to the
    incumbent local exchange carrier (LEC) transmission facilities that
    carry switched interstate traffic between an interexchange carrier's
    point of presence (POP) and the incumbent LEC end-office that serves
    the POP. *See* 47 C.F.R. § 69.110.

[^6]: *See* NECA Tariff F.C.C. No. 5, § 6.1.3(A)(1), 3^rd^ Revised Page
    6-8.1.

[^7]: 47 C.F.R. §§ 69.3, 69.601.

[^8]: 47 C.F.R. § 61.38; 47 C.F.R. §§ 69.601-610. NECA members
    participate in revenue pooling as either "cost companies" or
    "average schedule" companies. 47 C.F.R. §§ 69.605-606. Cost
    companies receive pool revenues for interstate access services based
    on their actual interstate investment and expenses, calculated each
    year from cost studies. 47 C.F.R. § 69.605. The pool revenues of
    average schedule companies are determined on the basis of a series
    of formulas. 47 C.F.R. § 69.606. For qualifying small companies, the
    average schedule option avoids the expense of preparing cost
    studies.

[^9]: 47 C.F.R. §§ 69.603-69.610. About 1,150 LECs participate in NECA's
    access charge revenue pools. *See* NECA website.

[^10]: 47 C.F.R. §§ 69.603-69.610.

[^11]: 47 U.S.C. § 201(b).

[^12]: *Represcribing the Authorized Rate of Return for Interstate
    Services of Local Exchange Carriers,* CC Docket No. 89-624, Order, 5
    FCC Rcd 7507, 7532, paras. 1, 216 (1990) (*Rate-of-Return
    Represcription Order*) (subsequent history omitted). The
    Commission's rules specify that "maximum allowable rates of return"
    equal the prescribed rate of return plus .25% on overall interstate
    access earnings and plus .4% on earnings within any access service
    category, such as common line, traffic sensitive, or special access.
    47 C.F.R. § 65.700(a), (b). The Commission explained that these
    "buffer zones" above the prescribed 11.25% rate of return recognize
    the effects that fluctuations in demand and operating costs have on
    the earnings of rate-of-return LECs, while protecting customers
    against unreasonably high rates and helping define overearnings.
    *Amendment of Parts 65 and 69 of the Commission's Rules to Reform
    the Interstate Rate of Return Represcription and Enforcement
    Process*, CC Docket No. 92-133, Report and Order, 10 FCC Rcd 6788,
    6851, para. 143 (1995).

[^13]: *See, e.g.*, 47 C.F.R. §§ 61.38-39.

[^14]: 47 C.F.R. § 65.701. Monitoring periods reflect calendar years,
    while tariffs are filed for one- or two-year periods beginning
    July 1. *Compare* 47 C.F.R. § 69.3(a) *with* § 65.701.

[^15]: 47 C.F.R. § 69.3(b). *See, e.g.*, *MCI v. FCC*, 59 F.3d 1407,
    1415 (D.C. Cir. 1995) (*MCI v. FCC*); *Virgin Islands v. FCC*, 989
    F.2d 1231, 1238-39 (D.C. Cir. 1993); *Amendment of Part 65,
    Interstate Rate of Return Prescription: Procedures and Methodologies
    to Establish Reporting Requirements*, CC Docket No. 86-127, Report
    and Order, 1 FCC Rcd 952, 954, para. 10 (1986) (*Rate-of-Return
    Methodologies Order*) (subsequent history omitted).

[^16]: 47 U.S.C. §§ 205, 208. *See In the Matter of Implementation of
    Section 402(b)(1)(A) of the Telecommunications Act of 1996*, CC
    Docket No. 96-187, Report and Order, 12 FCC Rcd 2170, 2170, 2175-78,
    2181-84, 2197, at paras. 8, 11, 12, 19-21, 23, 24, 51 (1997)
    (*Streamlined Tariff Order*).

[^17]: 47 C.F.R. §§ 1.795, 65.600, 65.701.

[^18]: 47 C.F.R. § 65.701.

[^19]: 47 C.F.R. § 65.600(b) (requiring carriers to file rate-of-return
    reports by March 31).

[^20]: 47 C.F.R. § 65.600(b) (requiring that "final adjustments . . . be
    made by September 30 of the year following the \[monitoring\]
    period").

[^21]: 47 C.F.R. § 65.600.

[^22]: 47 U.S.C. § 201(b).

[^23]: National Exchange Carrier Association, Inc., Tariff F.C.C. No. 5,
    Transmittal No. 1030, Vol. 1-5 (filed June 16, 2004) (NECA tariff).
    *See also* July 1, 2004, Annual Access Charge Tariff Filings,
    National Exchange Carrier Association, Inc. Tariff F.C.C. No. 5,
    Transmittal No. 1030, WCB/Pricing File No. 04-18, Reply at 2, 4
    (filed June 29, 2004) (NECA Reply).

[^24]: NECA tariff, Vol. 1 Sec.1 at 1.

[^25]: July 1, 2004, Annual Access Charge Tariff Filings, WCB/Pricing
    File No. 04-18, Petition of AT&T Corp. (filed June 23, 2004) (AT&T
    Petition); July 1, 2004, Annual Access Charge Tariff Filings,
    National Exchange Carrier Association, Inc. Tariff F.C.C. No. 5,
    Transmittal No. 1030, WCB/Pricing File No. 04-18, Petition of GCI to
    Suspend and Investigate (filed June 23, 2004) (GCI Petition).

[^26]: AT&T Petition at 1-6; GCI Petition at 1-8. GCI contends that
    NECA's tariff filing fails to show that NECA has adjusted its rate
    development in light of repeated overearnings. GCI Petition at 1,
    5-7, Exh. 1-5. AT&T contends that NECA should be required to make
    mid-course, downward rate adjustments to bring the overall return
    for the 2003-04 monitoring period into the 11.25% range. AT&T
    Petition at 4.

[^27]: AT&T Petition at 4, Ex. B-1; GCI Petition at 5-6, Ex. 1-5.

[^28]: AT&T Petition at 1; GCI Petition at 1, 3.

[^29]: AT&T Petition at 3; GCI Petition at 4-5.

[^30]: NECA Reply at 2.

[^31]: NECA Reply at 3. *See also, e.g.,* Form FCC 492, Rate of Return
    Report, Additional Statements at para. 4 (filed Sept. 30, 1997)
    (covering Jan. 1995 to Dec. 1996 cumulative period).

[^32]: NECA Reply at 3 n.5.

[^33]: NECA Reply at 4 (NECA projects "that calendar year 2003 special
    access ROR will true-up to around 9.2% once the pool reporting
    window closes at the end of 2005").

[^34]: December 2004 is 24 months from December 2002, the close of the
    2001-02 monitoring period.

[^35]: NECA Reply at 2-4.

[^36]: NECA Reply at 4 (contending that returns for special access rates
    were below authorized levels, on average, over the last ten years
    and in six of the last seven years). AT&T and GCI both point to
    NECA's interim March 31, 2004 monitoring report that indicates
    special earnings in the 17% range. AT&T Petition at 5, Exh. B-1; GCI
    Petition, Exh. 5. NECA contends that earnings for the year so far
    have decreased to 15.62% as the result of May 2004 true-ups, and
    NECA expects the 2003 rate-of-return to be about 9.2% once its
    reporting period for member companies closes at the end of 2005.
    NECA Reply at 3-4.

[^37]: NECA Reply at 5.

[^38]: 47 U.S.C. § 203.

[^39]: 47 U.S.C. § 204(a)(3).

[^40]: *ACS of Anchorage v. FCC*, 290 F.3d 403 (D.C. Cir. 2002) (*ACS v.
    FCC*).

[^41]: *ACS v. FCC*, 290 F.3d at 412; *MCI v. FCC*, 59 F.3d at 1414
    (citing and quoting 47 U.S.C. § 201(b)).

[^42]: *Amendment to Part 65, Interstate Rate of Return Prescription:
    Procedures and Methodologies to Establish Reporting Requirements,*
    CC Docket No. 86-127, Report and Order, 1 FCC Rcd 952, 957, para. 51
    (1986) ("We conclude that the filing of FCC Form 492 will be
    minimally burdensome, and that it is necessary to implement our
    decision . . . to enforce maximum rate of return prescriptions. . .
    . \[R\]eporting for an enforcement period will enable us to monitor
    carriers' actual performance at the level necessary to assist us in
    the tariff review process. This reporting system will provide an
    early warning system if rate adjustments become necessary."). *See
    also Revision of Filing Requirements*, CC Docket No. 96-23, Report
    and Order, 11 FCC Rcd 16326, 16343, para. 38 (1996) (reducing the
    frequency of filing the FCC Form 492 Report from quarterly to
    annually "without diminishing our ability to monitor rates of
    return").

[^43]: NECA Rate of Return Report, Form FCC 492 (March 31, 2004).

[^44]: NECA Reply at 2-4.

[^45]: *See* September FCC Form 492 Rate of Return Reports filed by NECA
    for monitoring periods 1995-96, 1997-98, 1999-2000, and 2001-02.

[^46]: Operating income refers to total revenues minus total expenses
    and taxes.

[^47]: Rate base refers to average net investment.

[^48]: Rate of return refers to operating income divided by rate base.

[^49]: For the 2001-02 monitoring period, NECA shall identify the most
    recent results.

[^50]: For the 2001-02 monitoring period, NECA shall identify the most
    recent results.

[^51]: NECA Reply at 3.

[^52]: We are uncertain as to the number of data points that will make
    the necessary showing because NECA has the data in its possession.
    If the 120 largest adjustments represent more than 80% of the total
    true-ups, NECA need only provide the data representing 80% of the
    true-up totals. On the other hand, if the number of data points is
    insufficient to reflect the nature of the true-ups, NECA should
    submit additional true-ups.

[^53]: 47 C.F.R. § 54.903(a)(4).

[^54]: 47 U.S.C. § 201(b). GCI also contends that "because entrance
    facility rates are calculated by dividing the revenue requirement by
    projected demand, these added entrance facilities unjustly increase
    the projected demand and decrease rates. This means that, with all
    other factors held constant, rates for entrance facilities actually
    ordered and used are too low, distorting and harming competition in
    interstate transport." GCI Petition at 10.

[^55]: GCI Petition at 8; 47 U.S.C. § 251(c)(6).

[^56]: GCI Petition at 8.

[^57]: GCI Petition at 8.

[^58]: GCI Petition at 8-9.

[^59]: GCI Petition at 9.

[^60]: GCI Petition at 9-10.

[^61]: GCI Petition at 10.

[^62]: NECA Reply at 9-10 (citing *Multi-Association Group (MAG) Plan
    for Regulation of Interstate Services of Non-Price Cap Incumbent
    Local Exchange Carriers and Interexchange Carriers, Federal-State
    Joint Board on Universal Service*, CC Docket Nos. 00-256, 96-45,
    Report and Order and Second Further Notice of Proposed Rulemaking,
    19 FCC Rcd 4122, 4137-38, para. 31 (2004)).

[^63]: 47 C.F.R. § 51.515(a).

[^64]: 47 C.F.R. § 51.501(b).

[^65]: 47 U.S.C § 251(c)(6).

[^66]: 47 U.S.C. § 205 (authorizing the Commission to establish just and
    reasonable charges and practices); NECA Tariff F.C.C. No. 5, §
    6.1.3(A)(1), 3^rd^ Revised Page 6-8.1.

[^67]: NECA Tariff F.C.C. No. 5, § 6.1.3(A)(1), 10^th^ Revised Page 6-8,
    3^rd^ Revised Page 6-8.1.

[^68]: 47 U.S.C. § 251(c)(6).

[^69]: *See Electronic Filing of Documents in Rulemaking Proceedings*,
    GC Docket No. 97-113, Report and Order, 13 FCC Rcd 11322, 11326,
    para. 8 (1998).

[^70]: If multiple docket or rulemaking numbers appear in the caption of
    a proceeding, however, parties must transmit one electronic copy of
    the comments to each docket or rulemaking number.

[^71]: If multiple docket or rulemaking numbers appear in the caption of
    a proceeding, however, parties must submit two additional copies for
    each additional docket or rulemaking number.

[^72]: 47 C.F.R. § 1.1206.

[^73]: *See* 47 C.F.R. § 1.1206(b)(2).