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                          |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
+----------------------------------+---+-------------------------------+

**MEMORANDUM OPINION AND ORDER**

**Adopted: November 30, 2004 Released: November 30, 2004**

By the Commission:

# INTRODUCTION

1.  In this order, we conclude the investigation of three issues
    pertaining to the National Exchange Carrier Association, Inc.
    (NECA), 2004 annual access tariff filing. First, we conclude that
    NECA has not sufficiently justified the rates filed in its annual
    access tariff to permit us to determine that the rates are just and
    reasonable and should be accorded lawful status. Rather, we conclude
    that, given the support NECA provided, the rates are not unjust or
    unreasonable so long as the rates remain legal rates that are
    subject to potential refund if NECA should overearn during the
    relevant monitoring period. This achieves the fairest result based
    on the record before us, ensuring that NECA does not overearn and
    that its access customers do not overpay. As merely legal rates,
    refunds may be due to NECA's customers if it is determined that NECA
    has overearned in a complaint proceeding brought pursuant to section
    208.[^1] We also clarify that NECA has a continuing obligation to
    revise its September Form 492 Report, to the extent it contains
    earnings estimates, by filing a report that reflects the adjustments
    made through the end of NECA's 24-month true-up process.
    Furthermore, we direct NECA to file a report with the Commission
    within 60 days of the release of this order that offers proposals
    for addressing the concerns raised in this record related to the
    timing conflicts between NECA's true-up process and the final
    September Form 492 Report. Second, we also conclude that the
    language in NECA's tariff that applies entrance facility charges in
    the collocation context is unreasonable. We direct NECA to file
    revised language to section 6.1.3 of its F.C.C. Tariff No. 5 within
    ten days. Finally, we terminate the section 204(a) investigation
    into whether NECA had correctly determined the demand supporting its
    entrance facility charge, finding that the record shows that GCI is
    not presently purchasing any cross-connects on which it is being
    assessed an entrance facility charge.[^2]

# 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.[^3] 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.[^4] Local exchange carriers
    (LECs) charge interexchange carriers (IXCs) for access services at
    NECA's tariff rates, and NECA settles with participating LECs based
    on their reported revenues and costs.[^5] NECA reimburses the LECs
    for their costs and provides each participating LEC an equal return
    on its investment.[^6]

3.  On July 1, 2004, the Pricing Policy Division (Division) of the
    Wireline Competition Bureau released an order that suspended for one
    day and set for investigation several of the incumbent LECs' 2004
    annual access tariff filings.[^7] On July 30, 2004, the Division
    reconsidered, on its own motion, its decision to suspend and
    investigate those tariffs except for the tariff of NECA.[^8]

4.  On September 20, 2004, the Division released an order that
    designated for investigation three issues related to the 2004 annual
    access tariff filing of NECA[^9] \-- 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.[^10] First, the
    Division designated for investigation whether the revised rates in
    NECA's annual access tariff are unjust or unreasonable in violation
    of section 201 of the Act,[^11] 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, the Division designated for investigation
    whether NECA's entrance facility 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.[^12] Finally, the Division designated
    for investigation whether the language in NECA's tariff relating to
    entrance facility charges is unjust or unreasonable.[^13]

5.  NECA filed its direct case on October 12, 2004.[^14] AT&T Corp.
    (AT&T) and General Communication, Inc. (GCI) filed oppositions to
    NECA's direct case on October 22, 2004.[^15] NECA filed a rebuttal
    to the oppositions on October 29, 2004.[^16]

# DISCUSSION 

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

6.  The first issue designated for investigation is whether the revised
    rates in NECA's 2004 access tariff are unjust or unreasonable in
    violation of section 201 of the Act.[^17] Significant questions were
    raised by AT&T and GCI concerning whether NECA's rate development
    methodology has resulted in consistent overearnings over past years,
    indicating that the methodology NECA used in setting its 2004 rates
    may be flawed and produce access rates that are unjust or
    unreasonable.[^18]

7.  The Communications Act generally relies on a system of
    carrier-initiated tariff filings to establish applicable rates for
    services.[^19] 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."[^20]
    Rates that are "deemed lawful" are not subject to refund.[^21] 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.

8.  Under section 201(b) of the Act, a LEC may not charge unjust or
    unreasonable rates for its provision of access services.[^22] To
    enforce this requirement, the Commission has prescribed an
    authorized rate of return of 11.25 percent for rate-of-return
    carriers.[^23] 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.[^24] 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.[^25] 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.[^26]
    In addition, during the course of the monitoring period, the
    Commission may require a carrier to change its rates
    prospectively.[^27]

9.  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.[^28] For this reason, the Commission requires
    LECs to file annual rate-of-return reports containing information
    that allows the Commission to review their earnings.[^29]
    Rate-of-return LECs file earnings reports on Form 492 annually and
    for two-year monitoring periods.[^30] The monitoring period begins
    on January 1 in odd-numbered years and ends on December 31 in
    even-numbered years.[^31] After the first year, a carrier files an
    "interim" monitoring report that reflects the rate of return
    realized during the first year.[^32] When the monitoring period
    ends, a carrier must file a "final" monitoring report by September
    30 of the following year, showing total access earnings.[^33] NECA
    reports the aggregated, or overall, rate of return for the carriers
    that participate in its tariff and revenue pool.[^34]

10. We instituted this investigation due to concerns over NECA's
    September Form 492 Reports filed with the Commission showing several
    instances where rates of return for monitoring periods going back to
    1993 were higher than the authorized earnings level, particularly in
    the switched traffic sensitive category.[^35] NECA claims that its
    actual returns for the past 10 years were, in fact, generally lower
    than those reflected in its September Form 492 Reports, which
    indicate that NECA repeatedly exceeded the Commission's prescribed
    earnings level.[^36] NECA explains that the data in the September
    Form 492 Reports do not represent final earnings "because not all
    NECA companies complete cost studies by the time final \[September\]
    Form 492 reports are due."[^37] NECA further explains that it gives
    member companies up to 24 months from any given month to perform
    cost studies and submit revisions of earnings data, known as
    adjustments or "true-ups."[^38]

11. In notes filed with each September Form 492 Report, NECA states that
    results "include estimates and are subject to further adjustments,
    as Exchange Carriers revise data," and as companies report actual
    data, "it is expected that the rates of return reported on NECA's
    Form 492 report will decline."[^39] NECA does not, however,
    subsequently file a revised Form 492 to disclose the final data. As
    a result, interested parties are not privy to NECA's earnings, and
    the Commission does not have all of the data upon which it normally
    relies to determine whether a carrier exceeds its authorized
    earnings level.

12. Consequently, an investigation was initiated to determine whether
    NECA's revised rates in its 2004 access filing are targeted to
    realize an 11.25 percent return and whether NECA's rate-of-return
    reports provide sufficient information to determine the
    reasonableness of NECA's rates. It was also necessary to examine how
    post-September adjustments affect the assignment of costs between
    the federal and state jurisdictions and the extent to which various
    categories of access rates are affected.

13. NECA was directed to provide information regarding its final rates
    of return and underlying data that would enable the Commission to
    validate the reliability of NECA's rate development methodology and
    earnings results.[^40] Because NECA's internal practice allows its
    members to adjust cost data 15 months after the Commission's rules
    require that final adjustments be reported,[^41] NECA was also
    directed to provide a better understanding of this process and the
    reliability of resulting data.[^42] In particular, the *Designation
    Order* required NECA to submit certain information to validate the
    post-September Form 492 Report rates of return that NECA claims
    represent final earnings.[^43] NECA was required to submit, for a
    sample of companies, disaggregated accounting information on
    post-September Form 492 adjustments to revenues, expenses, and
    average investment, thus enabling us to understand the reasons for
    overall revenue, expense, and investment increases, decreases, or
    reallocations and to evaluate NECA's earnings.[^44]

14. Though not as rigorous as an audit, the opportunity for a careful
    review of this information is essential to determining the
    reliability of NECA's claimed rates of return.[^45] It is necessary
    to examine company-specific, disaggregated earnings data because we
    must determine the validity of previous years' "final" returns that
    NECA has not previously provided to the Commission but upon which it
    now relies to counter concerns that the rates contained in its 2004
    annual access filing would result in overearnings. In some cases,
    these claimed returns are substantially lower than what was reported
    on the September Form 492s.

15. As a threshold matter, NECA asserts that the information that it was
    directed to provide on earnings levels for prior periods relate to
    prior tariff rates, not the rates proposed in NECA's annual access
    filing, and are, therefore, not relevant here.[^46] We disagree.
    Prior period earnings are relevant in determining whether there is a
    pattern of overearnings, and, if so, whether the rate development
    methodology that NECA uses is flawed and may produce rates in the
    2004 annual access filing that are unjust or unreasonable.[^47] We
    agree with AT&T and GCI that if there is sufficient evidence that a
    particular methodology for projecting revenue requirements and
    demand designed to achieve a targeted rate of return is consistently
    producing overearnings, that methodology may also produce
    overearnings in the future.[^48] Accordingly, we examine NECA's past
    period earnings data and its true-up process, which are at issue,
    for the purpose of determining the accuracy and reliability of the
    methodology NECA employs to set rates for the current tariff period
    and whether NECA's rates are just and reasonable.

16. NECA did not provide, in either its direct case or its rebuttal,
    substantial data that we require to make these determinations. NECA
    failed to submit the company-specific Part 32 accounting information
    specified in the *Designation Order*, or other similar information
    that would enable us to evaluate NECA's claimed final rates of
    return, resulting from its 24-month true-up process. The
    *Designation Order* required NECA to submit for the 1999-2000 and
    2001-2002 monitoring periods disaggregated accounting information
    for the two companies that submitted the greatest number of
    adjustments and the two companies with the largest aggregate amount
    of adjustments.[^49] For each of these monitoring periods, NECA was
    required for this sample of four companies to itemize, using Part 32
    accounts, the amounts of any adjustments to state and interstate
    common line, traffic sensitive, and special access revenues,
    expenses and taxes, operating income, and rate base, and to explain
    these adjustments.[^50] The *Designation Order* also required NECA
    to provide the dates and causes of these Part 32 adjustments.[^51]
    NECA, however, did not provide this Part 32 accounting information.

17. NECA asserts that it did not provide data as directed when the data
    were "not available to NECA,"[^52] contending that it does not
    maintain certain data itself, that it only stores certain
    information in its computer systems for a limited period of time,
    and that it "has used its best efforts to comply with the
    *Designation Order* requirements considering the short time allowed
    for response."[^53] We find this explanation to be unsatisfactory
    and inadequate, especially in view of the substantial data that NECA
    did not provide. The Commission's rules provide that NECA serves as
    an agent in filing tariffs for telephone companies and require
    "\[p\]articipation in Commission or court proceedings relating to
    access charge tariffs."[^54] NECA has not provided any evidence that
    the information we seek is not available from the carriers that
    participate in its tariffs. In fact, most, if not all, of the
    company-specific data that were requested are already compiled by
    NECA companies for other purposes, such as meeting financial
    reporting or accounting rules requirements.[^55] We cannot conclude
    that NECA has fulfilled its duty to work with the carriers to
    produce the information specified in the *Designation Order*, and
    otherwise to comply with that order.

18. Furthermore, much of the data that NECA does provide are inadequate
    to provide the level of detailed information necessary to complete
    this investigation. In order to ensure that the Commission has a
    reliable data sample for reviewing the differences between NECA's
    September Form 492 and its "final" rates of return at the end of the
    24-month true-up period, the *Designation Order* required NECA to
    submit for each year 1993 through 2002 the 120 largest
    post-September Form 492 adjustments made to the common line, traffic
    sensitive switched access, and special access pools after the
    companies submitted annual cost studies, and the date and reason for
    each adjustment.[^56]

19. Although NECA provided some information in response to this
    requirement, NECA did not fully comply with the order for several
    reasons.[^57] First, NECA in many cases reports revenue, expense,
    and income differences that reflect numerous adjustments made at
    different points in time for different reasons, but it did not
    separately provide the amounts of the individual adjustments. For
    example, NECA submitted data related to a telephone company[^58]
    that show the differences in results between its September Form 492
    Report and the end of the 24-month period for settlement revenues,
    expenses, rate base, and settlement income in calendar year
    2002.[^59] These data show the differences for common line, traffic
    sensitive switched access, and special access services. NECA also
    provided brief explanations for 55 data adjustments that account for
    the related revenue, expense, rate base, and income differences, and
    the month and year to which these adjustments applied, and the day,
    month, and year that they were reported. [^60] NECA did not,
    however, report the dollar amounts of any of these 55 adjustments,
    nor did it identify whether the adjustments affected the common
    line, traffic sensitive switched access, or special access
    categories. NECA also did not adequately identify whether the
    adjustments affected settlement revenues, expenses, rate base, or
    settlement income. We are thus unable to map the explanations for
    these adjustments to the dollar differences between the company's
    September Form 492 Report and the end of the 24-month period for
    settlement revenues, expenses, rate base, and income. Without the
    ability to determine the amounts of any of these company-specific
    adjustments, or the extent to which they account for the overall
    differences in NECA earnings reports, we cannot determine the
    accuracy of what NECA alleges to be its final rates of return.

20. Second, NECA's explanations are inadequate. NECA provided no reasons
    for adjustments made from 1993 to September 2002 and supplied
    explanations relating to only certain adjustments made from October
    2002 forward. Moreover, NECA's explanations are too general to
    provide an understanding of why these adjustments were made. For
    example, NECA offers such explanations as "completed 2001 cost
    study," "cost study adjustment," and "cost study true-up."[^61]
    Significantly, the lack of detail leaves unanswered the question of
    why the net effect of these adjustments in virtually every case is a
    *downward* revision to the September Form 492 rates of return.
    Pursuant to the true-up process, cost and revenue estimates are
    later finalized based on actual costs and revenues, thus, we would
    have expected both downward and upward revisions of roughly the same
    magnitude and frequency, unless there is a consistent bias in the
    estimates.

21. Third, NECA submitted settlement revenues for its sample of carriers
    that reflects the amounts added or subtracted to revenues derived
    from customer bills, so that each carrier would earn the pool
    average rate of return. The revenues were not derived solely from
    customer bills.[^62] As a result, it is impossible to distinguish
    the difference in revenues between the September Form 492 and the
    end of the 24-month period that relate to carrier-initiated revenue
    adjustments from adjustments relating to monies remitted to or from
    NECA. It is particularly important to ascertain the magnitude of the
    revenue differences that are attributable only to carrier-initiated
    accounting adjustments because these adjustments determine the
    outcome of the settlement process and the final amount of the
    carrier's earnings. Carrier-initiated revenue adjustments, for
    example, occur when a new cost study is completed, a cost study is
    revised, or erroneous billing of customers is corrected.

22. Fourth, the financial data that NECA submitted do not include
    amounts assigned by NECA companies to the state jurisdictions. The
    separations process produces separate state and interstate revenue,
    expense, and investment amounts. The interstate amounts are then
    used to calculate the interstate rate of return that NECA reports on
    its September Form 492 Reports and a final rate of return after the
    24-month true-up period. Absent state financial data, it is not
    possible to ascertain the extent to which the differences in NECA's
    reported interstate returns reflect overall company revenue,
    expense, or investment increases or decreases, on the one hand, or
    revenue, expense, or investment reallocations between state and
    interstate jurisdictions, on the other. In sum, this incomplete
    accounting that NECA provides of company-wide revenues, expenses,
    income, and rate base renders us unable to determine the validity of
    NECA's final interstate returns resulting from its 24-month true-up
    process.

23. The *Designation Order* also directed NECA to identify and explain,
    for various years and monitoring periods, any differences in the
    total interstate amounts that NECA reported on its September Form
    492s and the 24-month amounts for the common line,
    traffic-sensitive, and special access categories respectively.[^63]
    The *Designation Order* also directed NECA to identify and explain
    any differences between the total amounts assigned by NECA companies
    to the state jurisdictions in order to develop its September Form
    492s and its 24-month amounts in these categories: total revenues,
    total expenses and taxes, operating income, rate base, and rate of
    return.[^64] In response, NECA provided differences in the total
    interstate amounts that it reported on its September Form 492
    Reports and the 24-month amounts for the common line,
    traffic-sensitive, and special access categories. It did not,
    however, provide information regarding differences between the total
    amounts assigned by NECA companies to the state jurisdictions in
    order to develop its September Form 492 Reports and its 24-month
    amounts in the required categories. Absent the required state
    earnings information, as mentioned above, it is not possible to
    ascertain whether the adjustments reflect overall company revenue,
    expense, or investment increases or decreases, or revenue, expense,
    or investment re-allocations between state and interstate
    jurisdictions. Again, this incomplete accounting does not allow us
    to determine the validity of NECA's 24-month rate of returns.

24. Reliable data are essential to the Commission's ability to conduct
    tariff reviews and investigations, ensure just and reasonable rates,
    and, if necessary, to prescribe rates. NECA's failure to comply
    fully with the *Designation Order* leaves us with insufficient and
    unreliable data, such that we are unable to develop the necessary
    certainty to permit us to conclude that the rates should be deemed
    lawful, or to prescribe alternative rates that would be deemed
    lawful. We find that NECA has failed to meet its burden of proof in
    this proceeding under section 204 of the Act to warrant a finding
    that its proposed rates are just and reasonable and should be deemed
    lawful rates not subject to potential refund for overearnings.
    Rather, we conclude that, given the state of the present record, the
    rates filed by NECA are not unjust or unreasonable so long as they
    remain legal rates that are subject to potential refund if NECA
    should overearn during the relevant monitoring period. In concluding
    that NECA has met its burden of establishing legal, but not lawful,
    rates, we recognize and rely upon the well-established distinctions
    between legal and lawful tariff rates.[^65] This result is also
    consistent with section 204(a)(3) of the Act, which accords deemed
    lawful status to rates filed pursuant to that section that are not
    suspended, but does not limit the substantive remedies available to
    the Commission once it undertakes a tariff investigation.[^66] This
    result also addresses NECA\'s concerns that its member companies
    have the opportunity to earn at least an 11.25 percent rate of
    return, while the potential for refund liability in the event of
    excess earnings also ensures that customers will pay no more than
    just and reasonable rates.[^67] Furthermore, in a complaint
    proceeding alleging actual overearnings, issues of prior patterns of
    earnings and projected costs and demand will not be present; the
    question will simply be whether NECA overearned during the relevant
    monitoring period.[^68]

25. AT&T and GCI request that we find NECA's rates unlawful and
    prescribe just and reasonable rates based on the overearnings data
    on the record.[^69] Both carriers propose that we require NECA to
    make adjustments to its switched access rates, in particular.[^70]
    As discussed above, the data that NECA provides, however, are
    insufficient for us to determine what adjustments we should
    prescribe. Without sufficient and reliable data to measure precisely
    any demonstrated bias in NECA's rate-making methodology, we are
    unable to ensure that our prescription would result in just and
    reasonable rates.

26. GCI argues that we should base any rate adjustments on data in
    NECA's previously filed September Form 492 Reports.[^71] Meanwhile,
    AT&T anticipates that NECA companies will overearn going forward
    based on the financial results in both the September Form 492
    Reports and NECA's unfiled final reports.[^72] They both ask the
    Commission to eliminate the anticipated overearnings by reducing
    rates. At this point, however, absent sufficient and reliable
    underlying data from NECA, we do not know whether the data in NECA's
    unfiled final reports are reliable, and NECA itself casts doubt on
    the reliability of the September Form 492 Reports as a basis for
    setting rates because NECA makes clear this report is based only on
    estimates subject to subsequent true-ups. Furthermore, should we
    order adjustments, the resulting rates would then be "deemed
    lawful," and NECA would not be liable to its customers in the event
    of continued overearnings. It would not be reasonable to give the
    "deemed lawful" imprimatur to NECA's rates, especially in view of
    the fact that we have no assurance that the prescriptions AT&T and
    GCI suggest would solve problems with NECA's rate-making methodology
    going forward.

27. In addition, we seek to eliminate future controversies resulting
    from the failure of NECA or any carrier to disclose its final
    rate-of-return data to the Commission. Our rules require that "final
    adjustments" be made to rate-of-return reports by September 30 of
    the year following the close of a monitoring period.[^73] As
    explained above, NECA notes on its September Form 492 Reports that
    its results "include estimates and are subject to further
    adjustments, as Exchange Carriers revise data."[^74] NECA also notes
    that it expects the rate of returns that it has reported to
    decline.[^75] Nothing in the record suggests that NECA's
    responsibility to report final earnings ends when it files an
    estimated report. To the contrary, NECA's notations suggest that
    NECA will file a revised "final" report at some future date. In any
    event, we find that NECA has a continuing obligation to revise its
    September Form 492 Report by filing a report that reflects NECA's
    "final adjustments."[^76]

28. We also direct NECA to file a report with the Commission within 60
    days of the release of this order that offers proposals for
    addressing the concerns raised in this record related to the timing
    conflicts between NECA's true-up process and the final September
    Form 492 Report. In addition to any suggestions NECA may offer, we
    direct NECA to address the issues and questions posed below. Based
    on NECA's response and recommendations, we will be in a better
    position to determine whether it is necessary or appropriate to
    initiate a rulemaking proceeding to resolve these issues.

29. As noted above, NECA permits its member carriers to submit cost
    adjustments or "true-ups" over a 24-month period that, in effect,
    gives the carriers 15 months after the date set forth by the
    Commission's rules to report final earnings adjustments.[^77] NECA
    has never clarified the legal authority or other basis for
    establishing such an internal practice. We direct NECA to do so in
    this report. We direct NECA to explain how and why it selected a
    24-month true-up period, and whether the use of current technology
    could reduce the 24-month time period.

30. Rate-of-return reports must be filed in a timely manner and provide
    the most current data possible if they are to assist the Commission
    and other interested parties that rely on them. NECA explains that
    most carriers complete their cost studies within 7-12 months from
    the end of the year.[^78] NECA files its September Form 492 Report,
    however, just before most of these studies are done, and therefore,
    significant earnings data are not captured until one year later in
    the next report. Thus, NECA's September Form 492 Report may largely
    reflect imprecise and outdated cost estimates, thereby calling into
    question the value of this report.

31. We direct NECA to address the possibility of establishing a
    time-frame for true-ups that is consistent with the filing of the
    September Form 492 Report. If most carriers complete their cost
    studies within 7 to 12 months from the end of the year, and
    subsequent adjustments typically represent only about 10 percent of
    total adjustments,[^79] NECA might be able to complete its true-up
    process in less than this 24 months. Furthermore, if some carriers
    are able to submit cost studies by the August cut-off date for the
    September Form 492 Report, it may be possible for all carriers to do
    so. If not, we direct NECA to explain why some carriers are unable
    to complete their cost studies by August, or why they cannot be
    directed to do so. We direct that NECA provide options in its report
    for shortening its true-up settlement process. In particular, we
    direct NECA to explore how true-ups could be conducted in a manner
    that enables NECA to file its final rate of return by September 30
    after the close of a monitoring period.

32. NECA's response to the *Designation Order* leaves open the question
    of why NECA may not be able to file final adjustments to its
    rate-of-return report following the close of the 12-month Interstate
    Common Line Support (ICLS) true-up period.[^80] We agree with AT&T
    that NECA did not fully address concerns about the inconsistency
    between the 12-month true-up period for ICLS and the 24-month
    true-up period for NECA's pools, since "both are presumably based on
    the same separations and cost studies."[^81] NECA concludes that the
    "\[c\]ost studies are completed within 7 to 12 months from the end
    of the year, consistent with timeframes for ICLS true-ups."[^82]
    This being the case, we direct NECA to explain why the 12-month ICLS
    true-up period could not also apply to the NECA pool true-ups, and,
    if it did, why NECA would not be able to file its final
    rate-of-return report following the close of the calendar year.

## Entrance facilities

33. In the *Designation Order*, the Division designated two issues
    relating to entrance facility charges. The first, designated Issue 2
    in the *Designation Order*,[^83] relates to the appropriateness of
    NECA's determination of demand in calculating its entrance facility
    charge and was designated pursuant to section 204(a) of the Act. The
    second, designated Issue 3 in the *Designation Order*, concerns
    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.[^84] This issue was designated pursuant to section 205
    of the Act. After reviewing the record, we believe that addressing
    Issue 3 first provides a more cogent discussion of the issues.

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

34. The third issue designated for investigation 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. This issue was
    designated pursuant to section 205 of the Act.[^85] 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.[^86]

35. The *Designation Order* permitted NECA to defend the existing tariff
    language as it deems appropriate. In addition, NECA was directed to
    file as part of its direct case 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
    adverse to NECA on Issue 2.[^87] NECA was directed to submit
    language to address cases in which carriers that participate in the
    NECA traffic-sensitive pool provide collocation pursuant to section
    251(c)(6) of the Act.[^88]

36. As an initial matter, NECA asserts that, because it did not propose
    any changes to these terms and conditions in its annual access
    filing, questions regarding them are outside the scope of this
    tariff investigation.[^89] NECA is incorrect. As AT&T notes,[^90]
    this portion of the tariff investigation is being conducted pursuant
    to section 205 of the Act.[^91] That section permits the Commission
    to initiate an investigation at any time on its own motion.
    Furthermore, NECA is incorrect when it asserts that the Commission
    should conduct a rulemaking proceeding rather than grant relief to
    GCI in a tariff investigation.[^92] We are interpreting the existing
    rules, not amending them, and thus no rulemaking proceeding is
    necessary.

37. Our substantive consideration begins with some background on the
    tariff language. As NECA indicates, the language in section 6.1.3
    was introduced in 1993 in response to the transport restructure
    proceeding.[^93] That proceeding was conducted pursuant to section
    201 of the Act. The tariff provision ensured that AT&T would not
    receive an unfair advantage over other IXCs when the AT&T point of
    presence (POP) was located at the LEC serving wire center.[^94] In
    the same general timeframe, the Commission adopted its expanded
    interconnection policies for interstate special access and switched
    transport services. The expanded interconnection rules required
    every LEC that is classified as a Class A company and that is not a
    NECA interstate tariff participant to provide special access and
    switched transport expanded interconnection.[^95] NECA members today
    continue to be exempt from the Commission's expanded interconnection
    requirements contained in Part 64.[^96]

38. In 1996, the Communications Act of 1934 was amended by the
    Telecommunications Act of 1996 (1996 Act).[^97] Several provisions
    of that Act bear on this investigation. Section 251(c)(6) requires
    incumbent LECs to provide physical collocation to requesting
    carriers on rates, terms, and conditions that are just, reasonable
    and nondiscriminatory.[^98] Section 251(c)(2) requires incumbent
    LECs to provide interconnection to requesting carriers on rates,
    terms, and conditions that are just, reasonable and
    nondiscriminatory.[^99] Finally, the 1996 Act provides that the
    requirements of section 251 apply to all incumbent LECs, except
    those qualifying for a rural exemption pursuant to section
    251(f).[^100] As a result, some of NECA's members are subject to the
    provisions of section 251 \-- notably ACS of Fairbanks and ACS of
    Alaska for present purposes.

39. The Commission initially implemented these provisions in the *Local
    Competition Order* and accompanying rules.[^101] The Commission
    recognized that the rates requesting carriers would pay for
    collocation pursuant to section 251(c)(6) would be governed by the
    standards set forth in the 1996 Act rather than the expanded
    interconnection tariffing requirements.[^102] It concluded that such
    collocators were entitled to interconnect with the incumbent LEC at
    any technically feasible point within the incumbent LEC's
    network.[^103] The Commission further found that an incumbent LEC
    must provide requesting carriers collocating pursuant to section
    251(c)(6) with cross-connects between, for example, unbundled loops
    the and the carrier's collocated equipment.[^104] In addition, the
    Commission adopted section 51.515(a), which provides that access
    charges shall not "be assessed by an incumbent LEC on purchasers of
    elements that offer telephone exchange or exchange access
    services."[^105] The Commission defined elements to include "network
    elements, interconnection, and methods of obtaining interconnection
    and access to unbundled elements."[^106]

40. The question is whether entrance facility charges set forth in a
    federal access tariff may be assessed when a carrier collocates in a
    LEC central office pursuant to section 251(c)(6) and purchases a
    cross-connect under that statutory provision. NECA argues that, to
    the extent that a customer uses collocated arrangements "for the
    origination and termination of interstate interexchange traffic,"
    the access charges specified in NECA's tariff, including entrance
    facility charges, apply.[^107] It asserts that this result is
    required by section 69.110(a) of the rules, which provides that
    "\[a\] flat-rated entrance facilities charge expressed in dollars
    and cents per unit of capacity shall be assessed upon all
    interexchange carriers and other persons that use telephone company
    facilities between the interexchange carrier or other person's point
    of demarcation and the serving wire center."[^108] NECA therefore
    asserts that when origination and termination of interexchange
    traffic is involved, application of access charges does not violate
    section 51.515.[^109] We disagree.

41. The critical language in section 69.110(a) refers to "use \[of\]
    telephone company facilities between the interexchange carrier or
    other person's point of demarcation and the serving wire
    center."[^110] Thus, for a LEC to assess an entrance facility
    charge, it must provide the appropriate facilities between the POP
    and the serving wire center. A competitive LEC collocating in a LEC
    central office, however, purchases cross-connect arrangements from
    the incumbent LEC to interconnect its facilities with those of the
    incumbent LEC or to access other unbundled network elements. These
    cross-connects are mandatory elements of collocation provided
    pursuant to section 251(c)(6) of the Act.[^111] Thus, as GCI argues,
    the collocated competitive LEC is not using the incumbent LEC's
    access facility.[^112] Section 51.515 of the Commission's rules is
    consistent with, and actually compels, this interpretation: the
    assessment of an entrance facility charge when a competitive LEC
    purchases a cross-connect cannot be reconciled with the section
    51.515 prohibition on the assessment of access charges on purchasers
    of interconnection. Furthermore, assessment of an entrance facility
    charge would result in GCI (or other collocated competitors) paying
    twice for the same functionality -- once when it provided its own
    facilities and again when it paid the entrance facility charge
    assessed by the LEC.[^113] As GCI notes, in this scenario, there is
    no way that a competitor could compete with the incumbent LEC for
    the provision of these services,[^114] thereby defeating the intent
    of the 1996 Act to facilitate the development of competition.

42. NECA concedes that section 51.515 prohibits the assessment of access
    charges on purchasers of elements that offer telephone exchange or
    exchange access services.[^115] NECA, however, asserts that the
    Commission has explained that "the provision of interexchange
    service to the incumbent LEC's customers is not telephone exchange
    or exchange access."[^116] While NECA does not cite to a specific
    page or paragraph for this proposition, the language appears to be
    related to the finding that an IXC cannot interconnect pursuant to
    section 251(c) unless it provides exchange service, exchange access
    service, or both.[^117] GCI, while admittedly offering interstate
    interexchange service, clearly is not interconnecting solely for the
    purpose of originating or terminating interexchange traffic; it is
    also engaged in the provision of telephone exchange service, at a
    minimum.[^118] As GCI observes, the Commission made clear in the
    *Local Competition Order* that:

> \[T\]raditional IXCs that offer access services in competition with an
> incumbent LEC (*i.e.*, IXCs that offer access services to other
> carriers as well as to themselves) are also eligible to obtain
> interconnection pursuant to section 251(c)(2). For example, when an
> IXC interconnects at a local switch, bypassing the incumbent LEC's
> transport network, that IXC may offer access to the local switch in
> competition with the incumbent. In such a situation, the
> interconnection point may be considered a section 251(c)(2)
> interconnection point.[^119]

43. NECA argues that, under GCI's rationale, GCI presumably would be
    allowed to use other UNEs (*e.g.*, unbundled local switching) in
    lieu of access services to bypass NECA's switched access tariff and
    provide exchange access to IXCs for end users that do not receive
    local exchange service from GCI. It states that the Commission
    rejected this assertion when it held that a carrier that purchases
    an unbundled switching element for an end user may not use that
    switching element to provide interexchange service to end users for
    whom that requesting carrier does not also provide local exchange
    service.[^120] We reject NECA's argument, which improperly conflates
    precedent about the availability of a facility for the purpose of
    unbundling with the availability of a facility for the purpose of
    interconnection. Statements by the Commission and Bureau regarding
    limitations on UNE switching made available to competitors under
    section 251(c)(3) simply have no relevance to competitors\' rights
    to a facility for interconnection pursuant to section 251(c)(2).

44. NECA further asserts that its tariff permits customers providing
    both interexchange and local exchange services to commingle traffic
    on the same facility as required by the Commission's rules.[^121]
    NECA argues that the Commission's commingling ruling clearly
    envisions that requesting carriers will continue to purchase
    tariffed services as well as unbundled network elements to the
    extent the requesting carrier's operations require exchange access
    to end users not served by its competitive LEC operation. NECA
    further argues that LECs are not required to ratchet or prorate
    facility charges.[^122] GCI responds by stating that it is not
    requesting ratcheting and that this investigation is not about mixed
    use facilities.[^123] We conclude that NECA's arguments regarding
    commingling and ratcheting are misplaced. The question is whether
    entrance facility charges from NECA's interstate access tariff may
    be assessed when a carrier collocates in a LEC central office and
    purchases a cross-connect element. Our decision in this order does
    not affect the rules regarding the commingling of services or the
    ratcheting of rates.

45. NECA also argues that pursuant to the *Second MAG Order*
    rate-of-return LECs are not required to tariff an access
    cross-connect element in the absence of geographically deaveraged
    rates for transport services.[^124] The Commission's decision to
    require rate-of-return LECs to offer a cross-connect rate element
    before they can deaverage their special access and switched
    transport rates is inapplicable to the present issues. That decision
    was made pursuant to section 201 of the Act. The present inquiry
    relates to the provision of interconnection cross-connects pursuant
    to section 251 of the Act and the ability of an incumbent LEC to
    assess an entrance facility charge when a competitive LEC obtains a
    cross-connect under section 251(c). The *Second MAG Order* has no
    bearing on the requirements of providing interconnection pursuant to
    section 251.

46. In light of the foregoing, we conclude that the language in section
    6.1.3 of NECA's tariff No. 5 is inconsistent with the Commission's
    rules and is therefore unreasonable. Accordingly, we direct NECA to
    file revised tariff language implementing the conclusions of this
    order. Such revisions shall be filed within ten days of the release
    of this order and shall be filed on fifteen days' notice.

47. We now consider alternative tariff language proposed by NECA and
    GCI. NECA indicates that it has considered an alternative approach
    to the provision of entrance facilities for those carriers that have
    obtained section 251(c)(6) collocation pursuant to Part 51 of the
    Commission's rules. Specifically, NECA would propose to establish a
    new category of entrance facility that would apply in lieu of the
    traditional entrance facility charge. The new rate element would be
    priced below the existing charge and designed to recover the costs
    associated with the new element.[^125] NECA indicates that this
    could be accomplished by inserting the following language after the
    fourth paragraph of section 6.1.3(A)(1):

> If the customer designated premises and the serving wire center are
> collocated in the same Telephone Company building pursuant to an
> interconnection agreement with the Telephone Company that provides for
> collocation as specified in section 251(c)(6) of the Communications
> Act of 1934 As Amended By The Telecommunications Act Of 1996, then the
> rate specified in Section 17.2.2 for an Interconnected Entrance
> Facility will apply.

48. We find that NECA's proposed language is inconsistent with the
    Commission's rules. The proposed language would impose a new
    interstate access tariffed charge when a carrier is collocated
    pursuant to section 251(c)(6). As discussed above, an incumbent LEC
    is not permitted to force such a carrier to purchase cross-connects
    pursuant to the incumbent LEC's access tariff. Moreover, charges for
    the collocation and the associated cross-connect arrangements, which
    are the particular subject of the present investigation, are not
    tariffed in the interstate access tariff, but are established
    pursuant to the applicable interconnection agreement between the
    parties.[^126] Thus, it is inappropriate for NECA to propose any new
    access tariff rates. If the proper application of the Commission's
    rules changes the cost of, or demand for, interstate access service,
    NECA, of course, may make appropriate tariff filings proposing
    revised access rates.

49. GCI submits that section 6.1.3(A)(1) must be amended to strike the
    following text: "This charge specified in 17.2.2 following will
    apply even if the customer designated premises and the serving wire
    center are collocated in a Telephone Company building."[^127] GCI
    further contends that the following text should be inserted in lieu
    thereof: "When a customer has virtually or physically collocated in
    a Telephone Company premise no entrance facility charge shall
    apply."[^128] We also conclude that this language does not
    adequately address the requirements of the Commission's rules. GCI's
    language is overbroad and fails to recognize the effects of the
    limitation in section 51.305(b). Section 51.305(b) provides that
    "\[a\] carrier that requests interconnection solely for the purpose
    of originating or terminating its interexchange traffic on an
    incumbent LEC\'s network and not for the purpose of providing to
    others telephone exchange service, exchange access service, or both,
    is not entitled to receive interconnection pursuant to section
    251(c)(2) of the Act."[^129] Collocation is a means of
    interconnecting. Thus, an incumbent LEC is not required to provide
    collocation under section 251(c)(6) to an IXC for the sole purpose
    of originating or terminating that IXC's own interexchange traffic.
    If an incumbent LEC does provide collocation pursuant to section
    251(c)(6), an incumbent LEC may assess an entrance facility charge
    on an IXC that wishes only to originate or terminate its own
    interexchange traffic. The required revisions will thus need to
    address the breadth of possibilities provided for under the rules
    adopted to implement section 251.

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

50. The second issue designated 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(b) of the Act. 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.

51. The *Designation Order* directed NECA to justify imposing entrance
    facility charges on customers who have interconnected pursuant to
    section 251(c)(6) of the Act.[^130] NECA was also directed to
    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.[^131] To supplement the description, NECA was further
    directed to provide a diagram showing the provisioning of
    collocation and entrance facilities in the central offices. NECA was
    to specify the charges assessed for collocation arrangements and
    entrance facilities and to associate the appropriate charges with
    the facilities on the diagram. NECA also was directed to indicate
    any divergent treatment in provisioning or charging that occurs,
    depending on whether GCI or other carriers purchase UNEs or
    interconnection pursuant to section 251, resell ACS services, or
    provide their own transmission facilities. NECA was directed to file
    the interconnection agreement between ACS and GCI.[^132] Finally,
    NECA was directed to identify any facility or function for which
    charges for both collocation and entrance facilities are assessed
    upon GCI and to 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.[^133]

52. As a preliminary matter, NECA argues that the real issue is not
    whether its entrance facility rates were calculated correctly, but
    whether the terms and conditions governing the application of those
    rates are reasonable.[^134] In support, NECA states that section
    6.1.3 has been unchanged since its introduction in 1993 as part of
    the implementation of the *Transport Order*.[^135] Furthermore, NECA
    states that it is precluded from making changes to the terms and
    conditions of its access tariff in the annual access tariff
    filing.[^136] Despite these considerations, the suspension of the
    NECA tariff was supported by assertions that NECA did not calculate
    the demand for entrance facilities pursuant to the applicable
    requirements of the Commission's rules.[^137] NECA contends that,
    even if the Commission were to find that it had incorrectly
    calculated the demand, the Commission could not in a section 204
    investigation order NECA to submit a carrier-initiated tariff filing
    to correct the ambiguity or unreasonable tariff term or condition
    uncovered by the erroneous demand calculation. We do not, however,
    have to resolve the issue because the Division designated the
    reasonableness of section 6.1.3 for investigation as Issue 3
    pursuant to section 205 of the Act.

53. A review of the record reveals two distinct points. First, as
    discussed in the preceding section, NECA does not understand the
    correct application of entrance facility charges in the collocation
    environment. We have clarified this point in our discussion of Issue
    3, *supra*., and it will be corrected in NECA's upcoming tariff
    filing.

54. The second point is that it has become apparent that GCI is not
    currently purchasing any cross-connects on which entrance facility
    charges are being assessed.[^138] There is therefore no basis on
    which to require any rate adjustments or refunds at this time. Once
    a revised section 6.1.3 is effective, it is likely that the demand
    figure for entrance facilities will decline. As NECA notes, that
    would, other things being equal, result in NECA needing to increase
    some switched access rates.[^139] Accordingly, we need take no
    further action with respect to Issue 2.

# ORDERING CLAUSES

55. Accordingly, IT IS ORDERED that, pursuant to sections 4(i), 4(j),
    201-205, and 403 of the Communications Act of 1934, as amended, 47
    U.S.C. §§ 154(i), 154(j), 201-205, and 403, the National Exchange
    Carrier Association, Inc., SHALL FILE REVISED terms and conditions
    for Section 6.1.3 of its F.C.C. Tariff No. 5, as described in
    paragraph 46 above, no later than ten (10) calendar days from the
    release date of this order. These rates SHALL BE filed on
    fifteen (15) days' notice. For this purpose, we waive section 61.58
    of the Commission's rules, 47 C.F.R. § 61.58.

56. IT IS FURTHER ORDERED that the investigation initiated in WC Docket
    No. 04-372 IS TERMINATED and that the rates under investigation in
    this proceeding are not unjust and unreasonable, but shall remain
    legal and subject to potential refunds for overearnings.

57. IT IS FURTHER ORDERED that the accounting order applicable to the
    National Exchange Carrier Association, Inc., IS TERMINATED.

58. IT IS FURTHER ORDERED that the National Exchange Carrier
    Association, Inc., SHALL FILE within sixty (60) days of the release
    of this Order the report described in paragraphs 28-32.

59. IT IS FURTHER ORDERED that the National Exchange Carrier
    Association, Inc., SHALL FILE revised September Form 492 Reports in
    accordance with the requirements of paragraph 27.

FEDERAL COMMUNICATIONS COMMISSION

> Marlene H. Dortch

Secretary

[^1]: 47 U.S.C. § 208.

[^2]: 47 U.S.C. § 204(a).

[^3]: 47 C.F.R. §§ 69.3, 69.601.

[^4]: 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.

[^5]: 47 C.F.R. §§ 69.603-69.610. About 1,150 LECs participate in NECA's
    access charge revenue pools. *See* NECA website, www.neca.org.

[^6]: 47 C.F.R. §§ 69.603-69.610.

[^7]: *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*).

[^8]: *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*).

[^9]: *July 1, 2004, Annual Access Charge Tariff Filings*, WC Docket No.
    04-372, Order Designating Issues for Investigation, DA No. 04-3020
    (WCB/Pricing, Sept. 20, 2004) (*Designation Order*).

[^10]: 47 U.S.C. §§ 204(a), 205.

[^11]: 47 U.S.C. § 201(b).

[^12]: Entrance facilities generally refer to the incumbent 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.

[^13]: *See* NECA Tariff F.C.C. No. 5, § 6.1.3(A)(1), 3^rd^ Revised Page
    6-8.1.

[^14]: Direct Case of the National Exchange Carrier Association, Inc.,
    CC Docket No. 04-372 (filed Oct. 12, 2004) (NECA Direct Case).

[^15]: Opposition of AT&T Corp. to the Direct Case of the National
    Exchange Carrier Association, Inc., CC Docket No. 04-372, (filed
    Oct. 22, 2004) (AT&T Opposition); Opposition of General
    Communication, Inc., to the Direct Case of the National Exchange
    Carrier Association, Inc., WC Docket No. 04-372 (filed Oct. 22,
    2004) (GCI Opposition).

[^16]: Rebuttal of National Exchange Carrier Association, Inc., WC
    Docket No. 04-372 (filed Oct. 29, 2004)( NECA Rebuttal).

[^17]: 47 U.S.C. § 201(b).

[^18]: *Designation Order* at 1, para. 1. 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).

[^19]: 47 U.S.C. § 203.

[^20]: 47 U.S.C. § 204(a)(3).

[^21]: *ACS of Anchorage v. FCC*, 290 F.3d 403 (D.C. Cir. 2002) (*ACS of
    Anchorage v. FCC*).

[^22]: 47 U.S.C. § 201(b).

[^23]: *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).

[^24]: *See, e.g.*, 47 C.F.R. §§ 61.38-39.

[^25]: 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.

[^26]: 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).

[^27]: 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*).

[^28]: *ACS of Anchorage v. FCC*, 290 F.3d at 412; *MCI v. FCC*, 59 F.3d
    at 1414 (citing 47 U.S.C. § 201(b)).

[^29]: *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").

[^30]: 47 C.F.R. §§ 1.795, 65.600, 65.701.

[^31]: 47 C.F.R. § 65.701.

[^32]: 47 C.F.R. § 65.600(b) (requiring carriers to file rate-of-return
    reports by March 31).

[^33]: 47 C.F.R. § 65.600(b) (requiring that "final adjustments . . . be
    made by September 30 of the year following the \[monitoring\]
    period").

[^34]: 47 C.F.R. § 65.600.

[^35]: *Designation Order* at 4, para. 7; NECA Rate of Return Reports,
    Form FCC 492s (Sept. 29, 1995; Sept. 30, 1997; Sept. 29, 1999; Sept.
    28, 2001; Sept. 30, 2003).

[^36]: NECA Direct Case at 12 ("Generally speaking, for each calendar
    year (1993 through 2002) and monitoring period, the NECA pools have
    experienced earnings erosion (i.e., final pool earnings falling
    below initial reported pool levels). This general pattern in
    reductions in earnings occurs when actual costs are reported to NECA
    for pool settlement true-ups after the end of a calendar year or
    monitoring period that exceed the initial estimated pool settlement
    costs reported by LECs."). *See also* NECA Direct Case at Exh. 2.

[^37]: NECA Direct Case at 4.

[^38]: NECA Direct Case at 4.

[^39]: *See, e.g.,* NECA Form FCC 492, Rate of Return Report, Additional
    Statements (filed Sept. 30, 1997) (covering January 1995 to December
    1996 cumulative period).

[^40]: *Designation Order* at 5-9, paras. 10-23.

[^41]: 47 C.F.R. § 65.600(b).

[^42]: *Designation Order* at 7-9, paras. 14-23.

[^43]: *Designation Order* at 7-9, paras. 14-23.

[^44]: *Designation Order* at 8, paras. 20-21, App. A.

[^45]: The information would enable us to determine, for example, the
    extent to which the post-September 492 adjustments are attributable
    to overall increases or decreases in particular revenues, expenses,
    and investments, or to reallocations of these revenues, expenses,
    and investments between state and interstate jurisdictions, among
    interstate common line, traffic sensitive, and special access
    categories, or among particular accounts within interstate
    categories and the state jurisdiction.

[^46]: NECA Direct Case at 1. *See also* NECA Direct Case at 2, 5-7
    (arguing that "NECA's proposed rates are always targeted to earn at
    the authorized 11.25% level during the tariff test period" and "NECA
    does not base its rate projections on data 'true-ups' for prior
    periods, but rather bases those projections on final data that fully
    incorporate the effects of pool true-ups").

[^47]: *Designation Order* at 3-4, para. 5. To the extent that NECA
    argues that prior period data would not be relevant for the purpose
    of ordering refunds for prior tariff rates that were "deemed
    lawful," we agree. That is not the case, however, in this
    proceeding.

[^48]: AT&T Opposition at 3-4; GCI Opposition at 6. *See* *also* *1997
    Annual Access Tariff Filings*, CC Docket No. 97-149, Memorandum
    Opinion and Order, 13 FCC Rcd 3815 (1997) (employing past period
    data in the Commission's analysis of whether there was bias in the
    methodology used to set current rates). NECA complains that the
    *Designation Order* "requests no information on the processes and
    procedures actually used by NECA to forecast costs and demand and to
    calculate proposed rates for the test period." NECA Direct Case at
    8. We note that some of this information was reviewed as part of
    NECA's 2004 annual access filing. To the extent that NECA desired
    that we consider any additional information, it was not precluded
    from submitting it. In theory, NECA is correct that a review of its
    forecasting methodology might also be probative, but such a review
    would require NECA to submit and explain in detail all of the data,
    assumptions, calculations, formulas, methodologies, work papers, a
    representative sample of any company budget forecasts, etc. that it
    uses to forecast cost and demand for every element for which it
    tariffs a rate. This information would be in addition to, not in
    lieu of, the information requested in the *Designation Order*,
    because the starting point for NECA\'s forecasts is its "final"
    results for prior years, which we still would have to validate.
    *See* NECA Direct Case at 6-7. Even if NECA could provide the
    information required for such a review in a timely fashion (which
    seems unlikely, given NECA\'s stated inability to respond to far
    less burdensome requests reflected in the *Designation Order*), that
    volume of material is not amenable to review in a 5-month tariff
    investigation.

[^49]: *Designation Order* at 8, para. 21, App. A.

[^50]: *Designation Order* at 8, para. 21, App. A.

[^51]: *Designation Order* at 8, para. 21, App. A.

[^52]: NECA Direct Case at 2. *See also* NECA Direct Case at 3, 8, 17.

[^53]: NECA Direct Case at 2 ("While NECA maintains within its pool
    settlements system the information necessary to calculate interstate
    earnings levels for all requested periods, NECA does not maintain
    account-level detail corresponding to monthly settlement data nor
    does NECA maintain intrastate earnings monitoring data, and
    therefore cannot respond to portions of the *Designation Order*
    requesting such information."). NECA also explains that "information
    is only available on-line for adjustments submitted within the last
    24 months." NECA Direct Case at 3.

[^54]: 47 C.F.R. §§ 69.3, 69.601.

[^55]: *See, e.g.,* 47 C.F.R. § 32.2. The foundation for the cost of
    service filings developed by rate-of-return carriers to establish
    rates is the Part 32-Uniform System of Accounts. It provides, in
    part, that"\[t\]he financial data contained in the accounts,
    together with the detailed information contained in the underlying
    financial and other subsidiary records required by \[the\]
    Commission, will provide the information necessary to support
    separations, cost of service and management reporting requirements."
    47 C.F.R. § 32.2(f).

[^56]: Alternatively, NECA was required to submit data representing 80%
    of the true-up totals, if the 120 largest adjustments represented
    more than 80% of the total true-ups.

[^57]: NECA submitted data for each year 1993 through 2002 for cost
    companies that accounted for at least 80 percent of the difference
    between September 492 and 24-month settlement revenues.
    Specifically, it submitted September 492 and 24-month settlement
    revenues, expenses, settlement income, and rate base; the
    differences between the settlement revenues, expenses, and
    settlement income; and a brief explanation.

[^58]: Carrier specific information is treated confidentially pursuant
    to a protective order. *See* July 1, 2004 Annual Access Charge
    Tariff Filings, WC Docket No. 04-372, Protective Order, DA 04-3261
    (WCB/Pricing, Oct. 14, 2004).

[^59]: *See* NECA Direct Case, Exhibit 3A, "Companies Accounting for 80%
    of True-Up," for Calendar Year 2002, part 10, row 4; part 20, row,
    6; and part 30, row 13.

[^60]: NECA lists a date for carrier adjustments that we believe
    reflects the date on which the carrier reports adjustments to NECA.
    *See* NECA Direct Case, Exhibit 3B, "Explanations for Calendar Year
    2001 Adjustments" and "Explanations for Calendar Year 2002
    Adjustments," in the column labeled "Date." A sample of some
    adjustments for this carrier reads as follows: "True-up of end user
    revenue 02/2002," applied to February 2002 and reported on September
    12, 2003; "True-up for MCI bankruptcy for 07/2002," applied to July
    2002 and reported on September 24, 2003; "True-up of DSL Revenue for
    10/2002," applied to October 2002 and reported on December 8, 2003;
    "4Q2002 Cost Study True-up," applied to November 2002 and reported
    on November 21, 2003; and "4Q02 Adjustment for FIT review," applied
    to December 2002 and reported on March 26, 2004. *See* NECA Direct
    Case, Exhibit 3B, "Explanations for Calendar Year 2002 Adjustments,"
    at 11 (rows 22, 49, 60, 63), 12 (row 7).

[^61]: *See* NECA Direct Case, Exh. 3B, "Explanations for Calendar Year
    2001 Adjustments," at 1 (rows 1, 14, 57).

[^62]: NECA calculates on a monthly basis a settlement result for each
    carrier based on data submitted by all of the carriers. The total
    pool settlement result is determined by applying the pool average
    rate of return to each carrier's reported average net investment, or
    rate base. If a carrier\'s reported revenues are greater than its
    calculated settlement amount, the carrier remits monies to NECA in
    the amount of this difference. If a carrier\'s reported revenues are
    less than its calculated settlement amount, NECA remits monies to
    the carrier in the amount of this difference. *See* NECA Direct Case
    at 19-20.

[^63]: *Designation Order* at 7, paras. 14-17.

[^64]: *Designation Order* at 7, paras. 14-17.

[^65]: *See* *generally ACS of Anchorage v. FCC*, 290 F.3d 403. If rates
    are declared "lawful," also known as "deemed lawful," refunds are
    thereafter impermissible as a form of retroactive ratemaking. *ACS
    of Anchorage v. FCC*, 290 F.3d at 411.

[^66]: *Cf. Streamlined Tariff Order*, 12 FCC Rcd at 2181-82, para. 19
    (explaining that suspended tariffs under section 204(a)(3) do not
    receive deemed lawful status until the Commission issues an order
    finding them to be just and reasonable at the conclusion of the
    proceeding).

[^67]: *ACS of Anchorage v. FCC*, 290 F.3d at 411.

[^68]: *See Annual 1988 Access Tariff Filings*, 4 FCC Rcd 3965, 3966,
    para. 10 (1989) (\"NECA\'s access customers can, of course, file
    Section 208 complaints against NECA to recover reparations for
    excessive rates.\"). Any complaint against NECA alleging
    overearnings can only be filed at the conclusion of the monitoring
    period.

[^69]: AT&T Opposition at 6; GCI Opposition at 10-11.

[^70]: AT&T Opposition at Attach. A; GCI Opposition at 6-11, Declaration
    of Alan Mitchell, Exh. 2. Because NECA has never filed revised
    September 492 Reports, NECA informs us for the first time in this
    proceeding of its "final" rates of return for traffic sensitive
    switched access services. NECA Direct Case at Exh. 2. According to
    NECA, these returns were 12.93% for the 1993-94 monitoring period,
    12.11% for 1995-96, 13.46% for 1997-98, 12.17% for 1999-2000, and
    13.14% for 2001-02 (as of Aug. 2004). NECA projects final traffic
    sensitive switched access rates of return for 2003 of 13.86%. *Id.*
    Because of NECA\'s 24-month true-up process, its final
    rate-of-return report for the 2003-04 monitoring period would not be
    available until January 2007.

[^71]: GCI Opposition at 6-11, Declaration of Alan Mitchell, Exh. 2.

[^72]: AT&T Opposition at Attach. A.

[^73]: 47 C.F.R. § 65.600(b).

[^74]: *See, e.g.,* NECA Form FCC 492, Rate of Return Report, Additional
    Statements (filed Sept. 30, 1997) (covering January 1995 to December
    1996 cumulative period).

[^75]: *See, e.g.,* NECA Form FCC 492, Rate of Return Report, Additional
    Statements (filed Sept. 30, 1997) (covering January 1995 to December
    1996 cumulative period).

[^76]: 47 C.F.R. § 65.600(b). When NECA realized that it could not
    submit final data in September in accordance with our rules, the
    better course would have been to seek a waiver of these rules. Given
    its failure to seek a waiver, however, it clearly had an ongoing
    obligation to supplement its filing.

[^77]: 47 C.F.R. § 65.600(b).

[^78]: NECA Direct Case at 18, 22.

[^79]: NECA Direct Case at 18, 22.

[^80]: NECA Direct Case at 22 (responding to *Designation Order* at 9,
    para. 23); 47 C.F.R. § 54.903(a)(4) (requiring rate-of-return
    carriers to submit to the Universal Service Administrative Company
    on December 31 of each year the data necessary to calculate a
    carrier's Interstate Common Line Support for the prior calendar
    year).

[^81]: AT&T Opposition at 8 (quoting the *Designation Order* at 9, para.
    23).

[^82]: NECA Direct Case at 22.

[^83]: For purposes of tracking the issues, we retain the designation
    from the *Designation Order*.

[^84]: NECA Tariff F.C.C. No. 5, § 6.1.3(A)(1), 3^rd^ Revised Page
    6-8.1.

[^85]: 47 U.S.C. § 205 (authorizing the Commission to establish just and
    reasonable charges and practices).

[^86]: 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.

[^87]: *Designation Order* at 11, para. 31.

[^88]: *Id*.

[^89]: NECA Direct Case at 23, 28.

[^90]: *See* AT&T Opposition at 1.

[^91]: *See* *Designation Order* at 1, 11, 13, paras. 1, 30, 42; 47
    U.S.C. § 205.

[^92]: NECA Rebuttal at 12 n.17.

[^93]: NECA Direct Case at 23.

[^94]: *See* *id*. and n.34; *Transport Rate Structure and Pricing*, CC
    Docket No. 91-213, Report and Order and Further Notice of Proposed
    Rulemaking, 7 FCC Rcd 7006 (1992) (*Transport Order*).

[^95]: 47 C.F.R. § 64.1401(a) and (b).

[^96]: *Id.*

[^97]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (codified at 47 U.S.C. §§ 151 *et seq*.) (1996 Act).

[^98]: 47 U.S.C. § 251(c)(6).

[^99]: 47 U.S.C. §§ 251(c)(2); *see also* 47 U.S.C. § 252(d)(2)
    (establishing pricing standards for the provision of interconnection
    pursuant to section 251(c)(2)).

[^100]: 47 U.S.C. § 251(c); 47 C.F.R. § 251(f).

[^101]: *Implementation of the Local Competition Provisions in the
    Telecommunications Act of 1996, Interconnection between Local
    Exchange Carriers and Commercial Mobile Radio Service Providers*, CC
    Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499
    (1996) (*Local Competition Order*) (subsequent history omitted).

[^102]: *Local Competition Order*, 11 FCC Rcd at 15788, para. 567.

[^103]: *See* 47 C.F.R. § 51.305(a).

[^104]: *See Local Competition Order*, 11 FCC Rcd at 15693, para. 386.

[^105]: 47 C.F.R. § 51.515(a).

[^106]: 47 C.F.R. § 51.501(b). Section 51.509(g) lists collocation as
    one of the specific elements for which rate structure rules are
    established. 47 C.F.R. § 509(g).

[^107]: NECA Direct Case at 24.

[^108]: 47 C.F.R. § 69.110(a); NECA Direct Case at 24-25.

[^109]: NECA Direct Case at 25.

[^110]: 47 C.F.R. § 69.110(a).

[^111]: *See* 47 C.F.R. § 51.509(g).

[^112]: GCI Opposition at 18.

[^113]: See GCI Opposition at 14. GCI also notes that cross-connects
    (and any associated multiplexing) "would be required to be priced,
    in any state arbitration conducted pursuant to Section 252, based on
    forward looking economic costs and according to the Commission's
    specific rate structure rules for Section 251(c)(2) interconnection
    facilities and Section 251(c)(3) UNEs." *Id.* GCI further asserts
    that the "application of an embedded cost, rate-of-return
    regulation-derived entrance facility charge to this cross-connect
    cannot meet these requirements." *Id*.

[^114]: *See* GCI Opposition at 14.

[^115]: NECA Direct Case at 24. NECA's argument that section 51.515(d)
    clarifies that the prohibition on interstate access charges applies
    to situations in which a carrier provides both telephone exchange
    service and exchange access is without merit. *Id*. At n.39 This
    section is an additional prohibition against assessing access
    charges when a carrier provides both telephone exchange service and
    exchange access to an end user customer, but in no way limits
    51.515(a).

[^116]: NECA Direct Case at 24 n.37 (citing *Local Competition Order,*
    11 FCC Rcd 15,499)*.*

[^117]: 47 C.F.R. § 51.305(b), which provides that "a carrier that
    requests interconnection solely for the purpose of originating or
    terminating its interexchange traffic on an incumbent LEC's network
    and not for the purpose of providing to others telephone exchange
    service, exchange access service, or both is not entitled to receive
    interconnection pursuant to section 251(c)(2) of the Act."

[^118]: *See* GCI Opposition at 17.

[^119]: *Local Competition Order,* 11 FCC Rcd at 15599, para. 191.

[^120]: NECA Rebuttal at 13-14 (citing *Petition of WorldCom, Inc.
    Pursuant to Section 252(e)(5) of the Communications Act for
    Preemption of the Jurisdiction of the Virginia State Corporation
    Commission regarding Interconnection Disputes with Verizon Virginia
    Inc. and for Expedited Arbitration*, CC Docket No. 00-218, *Petition
    of Cox Virginia Telecom, Inc. Pursuant to Section 252(e)(5) of the
    Communications Act for Preemption of the Jurisdiction of the
    Virginia State Corporation Commission regarding Interconnection
    Disputes with Verizon Virginia Inc. and for Expedited Arbitration*,
    CC Docket No. 00-249, *Petition of AT&T Communications of Virginia
    Inc. Pursuant to Section 252(e)(5) of the Communications Act for
    Preemption of the Jurisdiction of the Virginia State Corporation
    Commission regarding Interconnection Disputes with Verizon Virginia
    Inc. and for Expedited Arbitration*, CC Docket No. 00-251,
    Memorandum Opinion and Order*,* 17 FCC Rcd 27039, 27141-42, para.
    208 (2002), *recon. denied*, 18 FCC Rcd 8467 (WCB, 2004)).

[^121]: NECA Direct Case at 25; NECA Rebuttal at 14-15 (noting section
    51.309(e)-(g), 47 C.F.R. § 51.309(e)-(g)).

[^122]: NECA Direct Case at 25 (citing *Multi-Association Group (MAG)
    Plan for Regulation of Interstate Service of Non-Price Cap Incumbent
    Local Exchange Carriers and Interexchange Carriers; Federal-State
    Joint Board on Universal Service*, *Report and Order and Second
    Further Notice of Proposed Rulemaking*, CC Docket Nos. 00-256,
    96-45, 19 FCC Rcd 4122, 4137, para. 31 (2004) (*Second MAG Order*).

[^123]: GCI Opposition at 18-19.

[^124]: NECA Direct Case at 25.

[^125]: *Id*. at 28.

[^126]: While some interconnection agreements reference tariffed rates
    for some elements, such as cross-connects, the tariffed rates offer
    access services. In the case of cross-connect arrangements, the
    tariffed rates, terms, and conditions would commit the LEC to
    provide expanded interconnection pursuant to Part 64 of the
    Commission's rules. This would be a voluntary election on the part
    of the incumbent LEC.

[^127]: GCI Opposition at 21.

[^128]: GCI Opposition at 20-21.

[^129]: 47 C.F.R. § 51.305(b); *see also Local Competition Order*, 11
    FCC Rcd at 15,598 paras. 190-91.

[^130]: *Designation Order* at 10, para. 27.

[^131]: *Id*. at 10, para. 28.

[^132]: *Id*.

[^133]: *Id*. at 10, para. 29.

[^134]: NECA Direct Case at 23-24.

[^135]: NECA Direct Case at 24; NECA Rebuttal at 11; *see* *Transport
    Order*, 7 FCC Rcd 7006.

[^136]: NECA Direct Case at 24 n.35; NECA Rebuttal at 11; *see* 47
    C.F.R. § 69.3(a).

[^137]: *See Suspension Order* at 2, para. 5.

[^138]: *See* GCI Opposition at 13-14.

[^139]: *See* NECA Direct Case at 23 n.33.