Before the

**Federal Communications Commission**

**Washington, DC 20554**

In the Matter of )

> )

Moultrie Independent Telephone Company )

)

Motion for Stay of Part 69.605(a) of the )

Commission's Rules and )

Petition for Declaratory Ruling )

)

Request for Waiver of Part 36 of the )

Commission's Rules )

)

Federal-State Joint Board on ) CC Docket No. 96-45

Universal Service )

**ORDER**

Adopted: **October 2, 2001** Released: **October 5, 2001**

By the Commission:

# INTRODUCTION

1.  In this Order, we deny Moultrie Independent Telephone Company's
    (Moultrie) petition for declaratory ruling, request for waiver of
    Part 36, and motion for stay. [^1] Moultrie seeks a ruling regarding
    the regulatory accounting and separations treatment of "sale and
    lease-back" arrangements between itself and an affiliate. We
    disagree with Moultrie's contention that there is a "patent
    ambiguity" between sections 32.27(a) - (c) and 36.2(c)(2) of the
    Commission's rules and, thus, decline to approve Moultrie's proposed
    accounting treatment of its sale and lease-back arrangement with its
    affiliate for jurisdictional separations and high-cost loop support
    purposes.[^2] Accordingly, with respect to the sale and lease-back
    transaction, we direct Moultrie to include the property and related
    expenses with, and exclude the related rent expenses from, the
    carrier's regulated telephone operations as required by section
    36.2(c)(2) of the Commission's rules. Having ruled on the petition
    for declaratory ruling and waiver request in this Order, we also
    dismiss Moultrie's motion for stay as moot.

# BACKGROUND

2.  Under the Commission's rules, incumbent local exchange carriers
    (LECs) develop their interstate rates in accordance with a four-step
    regulatory process.[^3] First, carriers record their costs,
    including investments and expenses, into various accounts in
    accordance with the Uniform System of Accounts (USOA) prescribed by
    Part 32 of the Commission's rules.[^4] Second, carriers assign the
    costs in these accounts to regulated and nonregulated activities in
    accordance with Part 64 of the Commission's rules to ensure that the
    costs of non-regulated activities will not be recovered in regulated
    interstate service rates.[^5] Third, carriers separate the regulated
    costs between the intrastate and interstate jurisdictions in
    accordance with the Commission's Part 36 separations rules.[^6]
    Finally, carriers apportion the interstate regulated costs among the
    interexchange services and rate elements that form the cost basis
    for their interstate access tariffs.[^7] Many smaller rate-of-return
    carriers, rather than file their own individual tariffs or develop
    their own individual rates, however, elect to participate in tariff
    pools administered by the National Exchange Carrier Association
    (NECA). These carriers charge the tariff rates developed by NECA,
    and receive an amount from the pool equal to their costs and their
    *pro rata* share of the pool's earnings.[^8]

3.  Certain incumbent LECs with embedded subscriber loop costs that
    exceed 115 percent of the national average loop costs are eligible
    for federal high-cost loop support pursuant to Subpart F of Part 36
    of the Commission's rules.[^9] Under the Subpart F methodology,
    among other things, incumbent LECs with study areas of fewer than
    200,000 subscriber loops receive a greater percentage of federal
    high-cost loop support for these "above-average" loop costs, and
    LECs with greater than 200,000 loops receive lower support
    percentages.[^10] NECA assists with the compilation of data for the
    administration of the Subpart F high-cost loop support fund. The
    unseparated costs assigned to the various Part 36 categories are the
    basis for determining the Subpart F high-cost loop support. In other
    words, the cost categorizations used to formulate high-cost loop
    support amounts are those developed through the Part 36 stage, and
    not the Part 32 USOA accounts.[^11]

4.  Moultrie is a rural incumbent local exchange carrier (LEC) serving
    853 access lines in central Illinois. Moultrie is a rate-of-return
    carrier that participates in the NECA tariff pools, and also a
    high-cost rural carrier that receives high-cost loop support
    pursuant to Subpart F of Part 36. In 1997, Moultrie transferred to
    an affiliate ownership of certain non-loop related assets, such as
    motor vehicles, land and buildings, and equipment. The affiliate
    concurrently leased back those assets at cost to Moultrie.[^12]
    Consistent with sections 32.27(a) - (c) of the Commission's rules,
    Moultrie reported this transaction to NECA by including the lease
    costs as an operational expense, and eliminating the costs of the
    assets from the investment side of its books of account.[^13]
    Sections 32.27(a) - (c) require incumbent LECs, in transactions with
    their affiliates, to account for those transactions in "direct"
    fashion, *i.e.,* by recording the revenue or expenses associated
    with the transaction at the prevailing price or fair market value in
    the appropriate investment or expense accounts.[^14] Moultrie also
    booked this transaction in its Part 36 cost study, which is used to
    calculate its high-cost loop expense adjustment, using this same
    method. As a result, according to Moultrie's cost study, its annual
    high-cost loop payments would have increased by 2,887 percent, or
    from \$15 per loop per year to \$433 per loop per year.[^15]

5.  NECA subsequently returned the 1997 cost study to Moultrie, stating
    that it was not prepared in accordance with section 36.2 of the
    Commission's rules, and informed Moultrie that it must prepare a
    revised cost study.[^16] Section 36.2(c)(2) requires an incumbent
    LEC, in the case of a substantial sale and lease-back of assets to
    and from its affiliate, to continue to categorize the assets as an
    investment, and exclude the lease expenses from its expense
    categories, in its cost study submitted for separations and
    high-cost support purposes.[^17] NECA simultaneously sought guidance
    from the Commission's Common Carrier Bureau as to the proper
    calculation of universal service fund (high-cost loop) expense
    adjustments when affiliate sale/lease-back arrangements are
    involved.[^18] NECA noted that Moultrie had accounted for the
    transaction in conformance with Part 32 of the Commission's rules,
    but questioned whether Moultrie should have gone on to apply section
    36.2(c)(2) of the Commission's rules when performing its cost study
    for separations and high-cost loop support purposes.

6.  On March 29, 1999, Moultrie filed a motion for stay of the
    Commission's rules and a petition for declaratory ruling on the
    regulatory accounting treatment of sale and lease-back
    arrangements.[^19] In its petition, Moultrie asks that the
    Commission issue a declaratory ruling clarifying a "patent
    ambiguity" between sections 32.27(a) - (c) and sections 36.2(a)
    and (c) of its rules.[^20] Moultrie asks the Commission to find that
    it need only reflect the lease amount of the property it transferred
    to its affiliate in its 1997 cost study. Moultrie simultaneously
    filed a motion for stay of section 69.605(a) of the Commission's
    rules, to stay NECA's threat of reverting to Moultrie's 1996 cost
    study until the Commission has the opportunity to review and rule on
    its petition.[^21]

7.  On August 4, 1999, the Bureau responded by letter to NECA's inquiry
    and provided guidance on the treatment of sale and lease-back
    arrangements for purposes of calculating high-cost loop
    support.[^22] The Bureau stated that the sale and lease-back
    arrangement described by NECA should be treated in conformance with
    section 36.2(c)(2) of the Commission's rules by including the
    property and related expenses with, and excluding the related rental
    expenses from, the carrier's regulated telephone operations for
    purposes of calculating the high-cost loop expense adjustments.[^23]
    The Bureau noted that the provisions of Part 36 are not limited to
    jurisdictional separations, as Subpart F of Part 36 also governs the
    operation of the high-cost loop support mechanism.[^24]
    Consequently, the Bureau concluded that the underlying principle in
    section 36.2(c)(2) that governs property rented from affiliates
    clearly applies to computations concerning a carrier's high-cost
    loop expense adjustments under Part 36. Thus, the Bureau instructed
    NECA that the transaction should be accounted for as required by
    section 36.2(c)(2) of the Commission's rules, specifically by
    including the property and related expenses with, and excluding the
    related rent expenses from, the carrier's regulated telephone
    operations, for purposes of calculating the high-cost loop expense
    adjustment in its cost study.[^25] Based on the Bureau's guidance,
    NECA asked Moultrie to file amended cost studies reflecting the sale
    and lease-back transaction in accordance with section 36.2(c)(2).
    Moultrie refused to comply with NECA's requests.[^26] As a result,
    since Moultrie's filing of the disputed 1997 cost study, NECA has
    not provided Moultrie with the additional high-cost loop support to
    which Moultrie believes it is entitled.[^27]

8.  On December 29, 2000, Moultrie filed a letter with the Bureau
    providing additional information on its petition. While this letter
    was not styled as a specific request for waiver of Part 36, Moultrie
    does request that the Commission direct NECA not to apply section
    36.2(c)(2) of the Commission's rules to Moultrie's sale and
    lease-back transaction as reflected in its 1997, 1998, and 1999 cost
    studies filed with NECA, and thus appears to be requesting a waiver.
    On February 1, 2001, the Bureau sought comment on Moultrie's
    petition and waiver request and whether a waiver of the Commission's
    rules would be appropriate in this instance.[^28]

# DISCUSSION

## Petition for Declaratory Ruling

9.  We disagree with Moultrie that there is any ambiguity or conflict
    regarding sections 32.27(a) - (c) and 36.2(a) and (c) of the
    Commission's rules and, as such, deny Moultrie's request to require
    NECA to accept Moultrie's cost study as submitted. Section 36.2 and
    section 32.27 of the Commission's rules were established for two
    distinct purposes. A main purpose of the affiliate transactions
    rules in section 32.27 is to protect the local ratepayer by
    preventing "... the ability of carriers to shift the investment risk
    of nonregulated activities to the regulated entity and its
    ratepayers."[^29] As such, section 32.27 directs carriers on how to
    value the assets or services involved in transactions with
    affiliates, and account for such transactions on the carrier's
    books. Section 32.27 neither makes a judgment nor provides any
    direction as to how sale and lease-back transactions should be
    treated under the Commission's other rules and regulations,
    including Part 36 of the Commission's rules.

10. By contrast, the rules in section 36.2(c) governing the treatment of
    rented property, related expenses, and lease payments between
    carriers and their affiliates for separations and high-cost loop
    expense adjustments have been included as fundamental principles in
    separations procedures since the publication of the first NARUC-FCC
    Separations Manual in 1947, and have been consistently enforced by
    the Commission.[^30] This rule directs incumbent carriers on the
    proper treatment of property rented to or from affiliates and
    related costs (*i.e.,* reserves, revenues, expenses, lease payments)
    in the performance of a Part 36 cost study. In the case of property
    rented by a carrier from an affiliate, if the transaction is *not*
    substantial in amount, the carrier should ignore the property costs
    and simply include the lease payments as an expense in its Part 36
    cost study.[^31] If the property involved in the transaction *is*
    substantial, the carrier performing the cost study must include the
    investment, accumulated depreciation, and associated expenses
    (*i.e.,* maintenance, depreciation and tax expenses) in, and exclude
    the lease payments from, the carrier's telephone operations for
    purposes of the Part 36 cost study.

11. The reason for this specific Part 36 treatment is that, when a
    substantial amount of investment is involved, the jurisdictional
    allocation of the lease payment and the combined separations results
    would be skewed (*i.e.,* the overall interstate allocations may be
    artificially higher or lower), if the assets were not included in
    the appropriate separations categories and jurisdictionally
    allocated based on the rules for the investment-type involved. This
    occurs because the Part 36 system is premised upon incumbent local
    exchange carriers owning the majority of their operational assets.
    Like other utilities, the local exchange telephone industry is, for
    the most part, characterized as an industry with large, fixed,
    capital investments that represent a high percentage of total costs.
    As such, the Part 36 process of jurisdictional cost allocation is
    predicated on the recognition that incumbent telephone companies
    will experience large amounts of capital investment cost.

12. Under the Commission's Part 36 rules, each of a carrier's basic
    components of plant, such as Central Office Equipment (COE) or Cable
    and Wire Facilities (C&WF), is allocated (*i.e.,* separated) between
    the intrastate and interstate jurisdictions based either on a fixed
    allocation or results of studies made on the usage of the plant.
    Once separated, these basic plant costs provide a foundation upon
    which most other plant, reserve, and expense accounts are allocated
    between the jurisdictions. If a company were to sell and lease back
    one of these \"foundation blocks\" of plant, and were allowed to
    exclude the sold investment from its cost study, but include the
    lease payments as an expense, distortions to the separations results
    would occur. This is because the annual lease payment (which acts as
    a substitute for the "sold" investment) would be jurisdictionally
    allocated based on some or all of the remaining basic components of
    plant, whose usage would not be representative of the plant leased.
    This would, in turn, alter the separations results between
    jurisdictions in a manner not anticipated by the Part 36 rules. As
    an example of this distortion, a carrier might sell large amounts of
    plant with a low interstate allocation (*e.g*., 25%) and lease it
    back. The lease payments and other costs that are allocated based on
    the Total Plant in Service, total COE, or total C&WF will receive an
    artificially higher allocation to the interstate jurisdiction, due
    to the higher interstate allocation of the remaining COE and C&WF
    interexchange plant costs.

13. The distortions caused to the company's separations results by
    excluding non-loop related investment from its cost study would, as
    a consequence, also extend to its high-cost loop support. The
    Subpart F high-cost loop support algorithm uses factors derived from
    the ratio of loop-related investment to total investment.[^32] If an
    incumbent carrier were to sell large portions of its non-loop
    related plant to an affiliate, and then lease back those assets and
    include the lease payment as an expense, the carrier's cost study
    would be skewed to decrease its assets, and increase its operational
    expenses, thus resulting in a higher per-loop cost. The higher
    per-loop costs result because of the relationship between
    loop-related investment and total investment. When virtually all of
    the non-loop related investment is removed from the calculation, the
    cost allocation factors are significantly altered.[^33] Because the
    categories used to determine high-cost loop support pursuant to
    Subpart F of part 36 are based upon the categorization rules set
    forth in other sections of Part 36, it is important for incumbent
    LECs to ensure that their high-cost loop support submissions to NECA
    conform with all other sections of Part 36, including section
    36.2(c)(2).[^34]

14. Moultrie admittedly seeks to maximize its federal high-cost support
    subsidy through the transfer of substantial non-loop related assets
    to an affiliate.[^35] Indeed, Moultrie clearly states in its
    pleadings that it structured this transaction "to optimize its
    recovery under the USF \[universal service fund\] and to maximize
    tax benefits."[^36] If allowed to eliminate these non-loop related
    assets from its cost study and instead include the lease payments as
    operational expenses, Moultrie's annual high-cost loop support would
    increase from \$15 per loop per year to \$433 per loop per year, an
    increase of 2,887 percent. This annual high-cost loop support
    increase is even more extraordinary considering that, from an
    operating perspective, Moultrie's network and operations have not
    substantially changed. Rather, Moultrie appears to have traded with
    its affiliate the legal ownership of certain assets that it will
    still use in its operations, for the sole purpose of generating more
    favorable universal service subsidies. It is well-established that a
    regulator may choose to ignore transactions between a company and
    its affiliates that are designed solely to maximize benefits for the
    company.[^37] This case presents us with the exact type of
    separations or high-cost support manipulation, through the use of
    sales and lease-backs to and from affiliates, which section
    36.2(c)(2) of the Commission's rules seeks to prevent.

15. We also disagree that the Commission is forcing carriers to own
    their own assets rather than lease them.[^38] Carriers are free to
    sell plant to, or lease plant and equipment from, affiliates or
    non-affiliates. They are not free, however, to ignore the
    Commission's rules and safeguards designed to prevent abuse of
    affiliate transactions by incumbent LECs. Section 36.2(c)(2) simply
    instructs carriers on how to treat sale and lease-back arrangements
    in the performance of a Part 36 cost study to prevent intentional
    gaming of their separations or high-cost loop support results.[^39]
    Moreover, we dismiss Moultrie's argument that section 36.2(c)(2)
    requires Moultrie to file cost studies that are fraudulent because
    the study does not reflect the Part 32 booking of the accounts. As
    we have clearly explained above, section 32.27 and section 36.2(c)
    of the Commission's rules are distinct steps in a process, and in
    some instances such as sale and lease-back transactions between
    affiliates, the Part 36 rules dictate a different treatment than the
    Part 32 booking. Furthermore, the Part 36 treatment does not require
    Moultrie to go back and change its Part 32 books of account as a
    general matter. Rather, the Part 36 rules apply only to the specific
    cost studies that Moultrie must file for separations and high-cost
    loop support purposes.

16. We note that Moultrie appears to confuse the revenue received from
    the sale of the assets with the assets themselves. Section 32.27(b)
    concerns the recording in a revenue account of the carrier the
    amount received in the sale or transfer of assets, while section
    36.2(c)(2) concerns the treatment (for separations and high-cost
    loop support calculation purposes) of the investment, accrued
    depreciation and related expenses of the transferred assets.
    Assuming the carrier records all of the revenue from the sale as
    income in the year of the transaction, no revenue will be realized
    by the carrier beyond the first year. Section 36.2(c)(2), however,
    requires Moultrie to make the same adjustments annually to the
    telephone operations reflected in its cost study. In other words,
    while the Part 32 rule provides instructions to Moultrie as to how
    to record the one-time revenue from the initial sale of the assets,
    the Part 36 rule provides specific instructions to Moultrie to
    include the investment, reserve, and related expenses for the sold
    facilities and exclude the lease payments, on an annual basis for
    separations and high-cost loop support calculation purposes. [^40]

17. We therefore find that there is no patent ambiguity or contradiction
    between sections 32.27 (a) -- (c) and 36.2(a) and (c) of the
    Commission's rules, as claimed by Moultrie. Based on section
    36.2(c)(2) of our rules, we deny Moultrie's request to approve its
    proposed treatment of its sale and lease-back arrangement with its
    affiliate in its cost studies. Due to the substantial nature of the
    assets involved in this sale and lease-back arrangement, and in
    keeping with the language and intent of our rules, we direct
    Moultrie to reflect the application of section 36.2(c)(2) by
    including the property and related expenses with, and excluding the
    related rent expenses from, the carrier's regulated telephone
    operations in a revised 1997 study as well as all other studies in
    which this or similar sale/lease-back arrangements exist.

18. Finally, we dismiss Moultrie's argument that section 36.2(c)(2),
    because it is premised upon incumbent LECs owning the majority of
    their plant and assets, discriminates against Moultrie vis-à-vis its
    potential competitors. This argument fails to recognize that
    Moultrie, as an incumbent local exchange carrier that receives
    federal high-cost loop support and participates in federal
    common-line pools, is required to comply with the Part 36
    jurisdictional separations rules, and the attendant regulatory
    safeguards established to prevent abuse of transactions between an
    incumbent LEC and its affiliates. Furthermore, we note that Moultrie
    is free to sell and lease-back its assets at arm's length to a
    non-affiliated entity, and thus remove the assets from its
    investment base and include the lease expenses as an operational
    expense, providing that it can find a non-affiliated buyer willing
    to engage in this transaction. When the transaction is between
    affiliates and thus not a "competitive" transaction, however, the
    Commission's rules set up certain safeguards to avoid these
    transactions being conducted solely for regulatory manipulation.

## Request for Waiver 

19. In its waiver request, Moultrie requests that the Commission direct
    NECA to ignore the requirements of section 36.2(c)(2) and instead
    apply section 32.27 of the Commission's rules to the sale/lease-back
    transaction found in its 1997, 1998, and 1999 cost studies filed
    with NECA.[^41] Moultrie argues that section 36.2(c)(2) \-- which
    requires that Moultrie's cost studies continue to include assets
    that had lawfully been transferred to an affiliate as if the
    transaction had not occurred \-- would force Moultrie to make an
    unlawful and fraudulent representation of its accounts.[^42]
    Furthermore, Moultrie asserts without support in its waiver request
    that it is in the public interest to grant Moultrie's request
    because Moultrie's sale of assets will increase its universal
    service support and permit it to maintain affordable local service
    rates for Moultrie's rural customer base and the viability of
    Moultrie itself.[^43]

20. Generally, the Commission's rules may be waived for good cause
    shown.[^44] As noted by the Court of Appeals for the D.C. Circuit,
    however, agency rules are presumed valid.[^45] The Commission may
    exercise its discretion to waive a rule where the particular facts
    make strict compliance inconsistent with the public interest.[^46]
    In addition, the Commission may take into account considerations of
    hardship, equity, or more effective implementation of overall policy
    on an individual basis.[^47] Waiver of the Commission\'s rules is
    therefore appropriate only if special circumstances warrant a
    deviation from the general rule, and such a deviation will serve the
    public interest.[^48]

21. Moultrie has not provided any persuasive arguments that special
    circumstances exist to justify a waiver of the Commission's rules.
    All incumbent LECs are subject to the same standards and receive
    high-cost loop support on the same terms. Moultrie's dissatisfaction
    with the amounts currently available to it under the existing
    high-cost loop support mechanism does not constitute a "special
    circumstance" that would justify a waiver of section 36.2(c)(2) of
    the Commission's rules, a regulatory safeguard that exists to
    prevent incumbent LECs from using affiliate transactions to distort
    their separations and high-cost loop support results. Furthermore,
    Moultrie's claims of economic hardship caused by NECA's refusal to
    accept its cost study as submitted do not constitute "special
    circumstances," because NECA has consistently stated that it would
    accept Moultrie's cost study if it were filed in accordance with the
    Commission's rules, and would provide high-cost loop support to
    Moultrie on the same terms as any other incumbent LEC would receive
    such support. Moultrie's mere claim that its current rates are
    unaffordable is unsupported and thus cannot form the basis for a
    waiver.

22. Moultrie has not shown that granting its request would be in the
    public interest either. Moultrie has provided no documentation to
    demonstrate that its rates were suddenly less "affordable" than its
    rates prior to the 1997 sale and lease-back transaction, nor that
    its universal service support prior to the 1997 transaction was
    inadequate. We furthermore conclude that a waiver of section
    36.2(c)(2) is not in the public interest because there is a
    likelihood that many small rural carriers may, if they were allowed
    to do so, take advantage of affiliate transactions to artificially
    inflate their universal service support. Thus, allowing the
    separations treatment as requested by Moultrie for all such carriers
    clearly has the potential to dramatically increase the size of the
    common line fund and overall federal high-cost support funding in a
    way not intended by the Commission's rules.

## Motion for Stay 

23. Moultrie also requested that the Commission stay NECA from
    collecting and recording cost information from Moultrie under
    section 69.605(a) of the Commission's rules, until the Commission
    has ruled on the accompanying petition for declaratory Ruling.[^49]
    As we have ruled on the petition for declaratory ruling and the
    waiver request in this Order, however, the motion for stay is now
    moot.

**IV. ORDERING CLAUSES**

24. Accordingly, IT IS ORDERED that, pursuant to authority contained in
    sections 1, 4, and 254 of the Communications Act of 1934, as
    amended, 47 U.S.C. §§ 151, 154, 254, and and section 1.2 of the
    Commission\'s rules, 47 C.F.R. § 1.2, the Petition for Declaratory
    Statement filed by Moultrie Independent Telephone Company, Inc. on
    March 29, 1999, and amended April 6, 1999, IS DENIED.

25. IT IS FURTHER ORDERED that the Request for Waiver of Section
    36.2(c)(2) of the Commission's Rules filed by Moultrie Independent
    Telephone Company, Inc. on December 29, 2000, IS DENIED.

26. IT IS FURTHER ORDERED that the Motion for Stay filed by Moultrie
    Independent Telephone Company, Inc. on March 29, 1999, and amended
    on April 6, 1999, IS DENIED.

27. IT IS FURTHER ORDERED that this Order is effective upon its release.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

[^1]: *Moultrie Independent Telephone Company, Federal-State Joint Board
    on Universal Service*, CC Docket No. 96-45, Motion for Stay, filed
    March 29, 1999 (Motion for Stay); Petition for Declaratory Ruling,
    filed March 29, 1999 (Petition); Letter from David A. Irwin, Irwin,
    Campbell and Tannenwald, to Dorothy S. Attwood, Chief, Common
    Carrier Bureau, Federal Communications Commission, dated December
    29, 1999 (Waiver Request).

[^2]: 47 C.F.R. §§ 32.27(a) - (c) and §36.2(c)(2); Petition at 10.

[^3]: For purposes of section 251 of the Communications Act, a local
    exchange carrier (LEC) is regarded as an "incumbent local exchange
    carrier" (ILEC) for a specific area if, on the date of enactment of
    the Act, the carrier provided telephone exchange service in that
    area and was deemed to be a member of the National Exchange Carrier
    Association, Inc. (NECA), or if the carrier "became a successor or
    assign" of such a member on or after that date. 47 U.S.C. §
    251(h)(1). Pursuant to section 69.601(b) of the Commission's rules,
    "\[a\]ll telephone companies that participate in the distribution of
    Carrier Common Line revenue requirement, pay long term support to
    association Common Line tariff participants, or receive payments
    from the transitional support fund administered by \[NECA\] shall be
    deemed to be members." 47 C.F.R. § 69.601(b). Competitive local
    exchange carriers (CLECs) are not subject to the requirements of
    Parts 36, 64, and 69 of the Commission's rules. *See* 47 C.F.R.
    Parts 36, 64, and 69.

[^4]: 47 C.F.R. Part 32.

[^5]: The Part 64 cost allocation rules are codified at 47 C.F.R. §§
    64.901-904.

[^6]: 47 C.F.R. Part 36. *See also MCI Telecommunications Corp. v. FCC*,
    750 F.2d 135, 137 (D.C. Cir. 1984) (stating that
    \"\'\[j\]urisdictional separations is a procedure that determines
    what proportion of jointly used plant should be allocated to the
    interstate and intrastate jurisdictions for ratemaking purposes\").

[^7]: 47 C.F.R. Part 69. *See also* 47 C.F.R. Part 61 (Commission rules
    prescribing the procedures for filing and updating interstate
    tariffs).

[^8]: *See* 47 C.F.R. § 69.605.

[^9]: *See* 47 C.F.R. § 36.601 *et seq.*

[^10]: 47 C.F.R. §§ 36.631(c), (d).

[^11]: *See* 47 C.F.R. § 36.611 *et seq.*

[^12]: *See* Petition at 5.

[^13]: 47 C.F.R. §§ 32.27(a) - (c).

[^14]: 47 C.F.R. §§ 32.27(a) - (c).

[^15]: *See* Letter from Gina Harrison, NECA, to Magalie Roman Salas,
    Secretary, FCC, dated March 10, 1999 (NECA Mar. 10, 1999 *ex
    parte*). As NECA explained in its *ex parte*, the higher per-loop
    costs result because high-cost loop support calculations are based
    upon the relationship between loop-related investment and total
    investment. When virtually all of the non-loop related investment is
    removed from the calculation, the cost allocation factors are
    significantly altered. *Id.*

[^16]: ^?^ *See* Letter from Roberta L. Alvir, NECA, to Larry Van Ruler
    and Steve Bowers, Moultrie, dated March 12, 1999.

[^17]: 47 C.F.R. § 36.2(c)(2).

[^18]: NECA Mar. 10, 1999 *ex parte*.

[^19]: On March 30, 1999, Moultrie filed an erratum to the petition. On
    April 6, 1999, Moultrie amended the motion for stay to request
    expedited treatment. On the same day, Moultrie also amended the
    petition (Amendment to Petition) to request that the Commission
    direct NECA to reopen the 24 month filing window that NECA
    established for its members to make adjustments to cost studies.
    Moultrie also requested that NECA reimburse Moultrie for any amounts
    that the Commission finds were improperly deducted from Moultrie's
    payments by NECA from the moment NECA overrode Moultrie's 1997
    Study. *See* Amendment to Petition at 1.

[^20]: 47 C.F.R. §§ 32.27(a) - (c), 36.2(a), (c).

[^21]: Petition at 2. *See* 47 C.F.R. § 69.605.

[^22]: *See* Letter from Lisa Zaina, Deputy Bureau Chief, Common Carrier
    Bureau, FCC, to John Ricker, NECA, dated August 4, 1999 (Aug. 4
    Bureau Letter).

[^23]: *Id.*

[^24]: *See* 47 C.F.R. §§ 36.601 - 36.641.

[^25]: *See* Aug. 4 Bureau Letter.

[^26]: *See* letter of David Irwin, Counsel for Moultrie, to Jane Mago,
    General Counsel, FCC, dated July 17, 2001.

[^27]: *See* letter from Steve Bowers. President, Moultrie Independent
    Telephone Company, to Magalie Roman Salas, Secretary, FCC,
    Description and Justification (June 18, 2001) (Moultrie Transmittal
    No. 4). When Moultrie filed its 2001 annual access tariff, it
    proposed to increase its local switching rate by more than 335
    percent, from \$0.05713 per minute to \$0.191586 per minute, to
    reflect the loss of high-cost loop support from NECA. *See* Moultrie
    Transmittal No. 4. The Common Carrier Bureau's Competitive Pricing
    Division suspended this rate for five months and set it for
    investigation on July 2, 2001. *See 2001 Annual Access Tariff
    Filings,* CCB/CPD File No. 01-08, Memorandum Opinion and Order, DA
    01-1563 (Comp. Pric. Div., rel. July 2, 2001).

[^28]: *See* Waiver Request. *See also Common Carrier Bureau Seeks
    Comment on Moultrie Independent Telephone Company's Request for
    Clarification of the Affiliate Sale/Lease-Back Rules under Part 36
    of the Commission's Rules, Pleading Cycle Established*, Public
    Notice, CC Docket No. 96-45, DA 01-267 (rel. Feb. 1, 2001)
    (*Moultrie Public Notice*).

[^29]: *See Separation of Costs of Regulated Telephone Service from
    Costs of Nonregulated Activities, Amendment of Part 31, the Uniform
    System of Accounts for Class A and Class B Telephone Companies to
    Provide for Nonregulated Activities and to Provide for Transactions
    Between Telephone Companies and Their Affiliates*, Joint Cost Order
    on Reconsideration, CC Docket No. 86-111, 2 FCC Rcd 6283, 6295,
    para. 109 (1987)*.*

[^30]: *See 1947 Separations Manual*, prepared by NARUC-FCC Special
    Cooperative Committee on Telephone Regulatory Problems (1947) at
    Sec. 1, Part 2, Par. 2.13(B); *see, e.g.,* *In the Matter of U.S.
    West Communications, Inc.*, AAD Docket No. 93-152, Order to Show
    Cause, 10 FCC Rcd 5523, 5525, para. 11 (1995).

[^31]: *See* 47 C.F.R. §36.2(c).

[^32]: NECA March 10, 1999 *ex parte* at 1.

[^33]: NECA March 10, 1999 *ex parte* at 1. The Subpart F calculation
    begins with determining the total (unseparated) cost related to the
    subscriber loops within the exchange classification. Once this cost
    is determined for the major plant accounts, the ratios of the cost
    of the loop investment to total investment are applied to the
    appropriate investment, reserve, and expense account balances to
    derive the total loop-related cost for the company. The company's
    total loop cost is then divided by its working loops to arrive at a
    cost-per-loop for the company, which is then compared to the
    national average cost per loop. The company will receive high-cost
    loop support based on the extent to which its cost-per-loop exceeds
    115% of the national average cost per loop. If an incumbent carrier
    were to sell large portions of its interexchange and non-loop
    related plant to an affiliate and were allowed to leave these
    investments out of its cost-per-loop calculation, the ratio of loop
    investment to total investment would increase dramatically, and the
    resulting inflated cost-per-loop would not be representative of the
    company's actual loop costs.

[^34]: For example, sections 36.611(a) -- (g) set forth certain cost
    categories, defined and outlined in other portions of Part 36, that
    a carrier must submit to NECA when it applies for high-cost loop
    support. *See* 47 C.F.R. § 36.611 (a) -- (g).

[^35]: Moultrie has not disputed NECA's contention that the transferred
    assets are substantial. *See, e.g.,* NECA Comments to the February
    1, 2001 *Public Notice* at 2. Rather, Moultrie has challenged the
    application of section 36.2(c)(2) altogether.

[^36]: *See* Petition at 5. Moultrie also states that "\[b\]y
    transferring the property assets to its affiliate, Moultrie was able
    to decrease the denominator in the USF ratio by eliminating the
    value of the property assets ...." *Id.*

[^37]: *See, e.g., Higgins v. Smith*, 308 U.S. 473, 477-78 (1940);
    *Gregory v. Helvering*, 293 U.S. 465, 469-70 (1935).

[^38]: *See* ITC *Public Notice* Comments at 1-3; PSI *Public Notice*
    Comments at 2-3.

[^39]: 47 C.F.R. § 36.2(c)(2).

[^40]: *See* 47 C.F.R. §§ 32.27(b), 36.2(c)(2).

[^41]: *See* Waiver Request at 4.

[^42]: *See id.*

[^43]: *See* Waiver Request at 6; ITC *Public Notice* Comments at 4-6;
    PSI *Public Notice* Comments at 3-6.

[^44]: 47 C.F.R. § 1.3.

[^45]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1157 (D.C. Cir. 1969), *cert.
    denied*, 409 U.S. 1027 (1972).

[^46]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990).

[^47]: *WAIT Radio*, 418 F.2d at 1157.

[^48]: *Id.*; *Northeast Cellular*, 897 F.2d at 1166.

[^49]: *See* Motion for Stay at 1.