[Federal Register Volume 65, Number 89 (Monday, May 8, 2000)]
[Rules and Regulations]
[Pages 26513-26517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11100]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45; FCC 00-126]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule; petition for reconsideration.

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SUMMARY: This document concerning the Federal-State Joint Board on 
Universal Service clarifies the method by which quarterly line count 
data will be incorporated in the new high-cost mechanism for purposes 
of calculating and targeting support amounts. It also clarifies that, 
until the Commission adopts new line count input values, forward-
looking costs for universal service support purposes shall be estimated 
using the line count input values adopted in the Tenth Report and 
Order. Finally, it clarifies that high-cost support shall be available 
on a regular quarterly basis for competitive eligible 
telecommunications carriers serving lines in areas served by non-rural 
incumbent local exchange carriers.

DATES: Effective May 8, 2000.

FOR FURTHER INFORMATION CONTACT: Katie King, Attorney, Common Carrier 
Bureau, Accounting Policy Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Twentieth Order Reconsideration, CC Docket No. 96-45; FCC 00-126, 
released on April 7, 2000. The full text of this document is available 
for public inspection during regular business hours in the FCC 
Reference Center, Room CY-A257, 445 Twelfth Street, S.W., Washington, 
D.C., 20554.

I. Introduction

    1. In this Order, we clarify certain aspects of the new high-cost 
universal service support mechanism for non-rural carriers adopted in 
the Ninth Report and Order, 64 FR 67416 (December 1, 1999), on October 
21, 1999. Specifically, we clarify the method by which quarterly line 
count data will be incorporated in the new high-cost mechanism for 
purposes of calculating and targeting support amounts.
    We also clarify that, until the Commission adopts new line count 
input values, forward-looking costs for universal service support 
purposes shall be estimated using the line count input values adopted 
in the Tenth Report and Order, 64 FR 67372 (December 1, 1999). This 
clarification does not alter the methodology adopted in the Ninth 
Report and Order except to account for line growth when the wire center 
line count data reported quarterly by the carriers differs from the 
input values used to estimate forward-looking cost.
    Finally, we clarify that high-cost support shall be available on a 
regular quarterly basis for competitive eligible telecommunications 
carriers serving lines in areas served by non-rural incumbent local 
exchange carriers.

II. Discussion

    2. In general, there are four stages in the forward-looking high-
cost mechanism for non-rural carriers where line count information is 
required: (1) To estimate forward-looking costs of providing supported 
services; (2) to determine statewide support amounts; (3) to target 
those statewide support amounts to individual wire centers; and (4) to 
determine the per-line support amounts in individual wire centers.
    In addition, the interim hold-harmless provision uses line counts 
to target carrier-by-carrier hold-harmless support amounts to 
individual wire centers. The interim hold-harmless provision also uses 
line counts to determine the per-line support amounts in individual 
wire centers. As discussed, we provide specific guidance on how these 
line counts are used in the four stages of the forward-looking 
mechanism and the interim hold-harmless provision.
    3. Estimating Forward-Looking Costs. We clarify that the line 
counts used in the model to estimate forward-looking economic costs 
shall be used to calculate average forward-looking costs in all the 
cost calculations in the methodology adopted in the Ninth Report and 
Order for determining support. This approach is consistent with the 
Commission's and the Federal-State Joint Board's decision to use a cost 
model. The model estimates the forward-looking costs of providing the 
supported services in each wire center served by non-rural carriers. We 
clarify that model lines shall be used in

[[Page 26514]]

determining the wire center average cost per line, the statewide 
average cost per line, the nationwide average cost per line, and the 
national cost benchmark.
    The statewide average cost per line is determined by adding the 
costs in the wire centers in the state and dividing by the number of 
non-rural model lines in the state. Similarly, the nationwide average 
cost per line is determined by adding the costs in all states and 
dividing by the total number of non-rural model lines. The national 
benchmark equals 135 percent of the nationwide average cost.
    4. Calculating Statewide Support Amounts. We clarify that, to the 
extent that the reported line counts differ from the line counts used 
in the model to estimate forward-looking costs, statewide support 
amounts shall be adjusted to reflect any changes between the number of 
model lines and the number of reported lines. This ensures that the new 
mechanism provides sufficient support and that support is portable. We 
shall incorporate the number of lines reported by non-rural carriers on 
a quarterly basis in calculating statewide support amounts. Statewide 
support amounts shall be determined by calculating the average per-line 
support amount in the state and multiplying this support amount by the 
number of lines reported by non-rural carriers in the state.
    5. This clarification of the methodology can be illustrated by 
using the example in the Ninth Report and Order illustrating the 
targeting of forward-looking support. We assume, in that example, that 
there are 30 lines in the state, the average cost per line is $30 and 
thus the total statewide cost as estimated by the model is $900. We 
assume further that the national benchmark equates to $25 per line. 
Using the statewide methodology adopted in the Ninth Report and Order, 
the total amount of support provided to carriers in the state would be 
($30-$25) x 30 lines x 76%=$114 or $3.80 per line of untargeted 
support. In order to adjust the total statewide support amount to 
reflect quarterly line counts, we clarify that the average per-line 
amount of untargeted support shall be multiplied by the number of lines 
reported by non-rural carriers in the state. For example, assume that 
non-rural carriers in the state report that they have 35 lines, rather 
than the 30 lines used in the model to estimate forward-looking costs. 
Basing support on reported lines, the statewide support amount would be 
$3.80 x 35=$133, rather than $3.80 x 30=$114.
    6. Targeting Forward-Looking Support. After statewide forward-
looking support is calculated as described, that statewide support 
amount must be targeted to individual wire centers. Under this 
targeting approach, we clarify that the line counts used in the model 
to estimate forward-looking economic costs shall be used to target 
support to high-cost wire centers. This approach is consistent with the 
Commission's and the Federal-State Joint Board's decision to use a cost 
model. The model estimates the forward-looking costs of providing the 
supported services in each wire center served by non-rural carriers. 
From this information, we identify the high-cost wire centers. Although 
we do not alter the targeting methodology adopted in the Ninth Report 
and Order, we now clarify that the model is used to estimate relative 
costs among wire centers, rather than relative support amounts. We also 
clarify how the per-line targeted support amount should be calculated.
    7. As discussed, we have concluded that support amounts should be 
adjusted to reflect the number of lines reported by non-rural carriers, 
in those situations when the number of lines used in the model to 
estimate forward-looking costs differs from the number of reported 
lines. The example used to illustrate targeting in the Ninth Report and 
Order was based on the assumption that the number of model lines and 
the number of reported lines did not differ, so we clarify how the 
targeting calculations will be made, even if the line counts differ. In 
identifying high-cost wire centers for purposes of targeting support, 
instead of using pro rata factors based on wire center scale support, 
we will calculate ratios based on the wire center's cost above the 
national cost benchmark. As explained, this approach does not change 
support amounts.
    8. This clarification of the methodology is best provided by using 
the example in the Ninth Report and Order to illustrate the targeting 
of forward-looking support and the example for determining statewide 
support discussed. Assume that the estimated total cost of $900 in the 
state is derived from the costs in three wire centers as follows:

Wire Center 1 has 10 lines, with an average cost of $20 per line, and a 
total cost in the wire center of $200;
Wire Center 2 has 10 lines, with an average cost of $30 per line, and a 
total cost of $300; and
Wire Center 3 has 10 lines, with an average cost of $40 per line, and a 
total cost of $400.

     As in the example, the statewide average cost per line is $30, the 
national benchmark is $25, and the statewide support amount is based on 
an average untargeted support amount of $3.80 per line. Because the 
number of lines reported by non-rural carriers in the State is assumed 
to be 35, the statewide support amount is $133. The proportion of the 
statewide support amount targeted to each wire center is determined by 
first calculating the ratio of the wire center's estimated cost above 
the benchmark to the total cost above the benchmark in the State. 
Therefore, the estimated costs above the benchmark would be as follows:

Wire Center 1 has an average cost below the benchmark, so the cost 
above the benchmark is $0;
Wire Center 2 has an estimated cost above the benchmark of 
($30-$25) x 10 model lines=$50;
Wire Center 3 has an estimated cost above the benchmark of 
($40-$25) x 10 model lines=$150; and the total estimated cost above the 
benchmark in the State is $0+$50+$150=$200.

    Then the ratios used to determine the percentage of statewide 
support each wire center will receive are calculated as follows:

Wire Center 1 receives $0/$200=0%; Wire Center 2 receives $50/$200=25%; 
and Wire Center 3 receives $150/$200=75%.

    Thus, of the $133 of support the State receives, Wire Center 1 
receives $0 support; Wire Center 2 receives 25% x $133=$33.25; and Wire 
Center 3 receives 75% x $133=$99.75.
    9. We clarify that we shall use the number of reported lines, 
rather than model lines, to calculate the targeted per-line support 
amount available in the wire center. Otherwise, support amounts could 
differ depending upon whether the line is provided by an incumbent 
local exchange carrier or by a competitive eligible telecommunications 
carrier.
    Using the example, we know that, of the $133 statewide support 
amount, $33.25 is targeted to Wire Center 2, and $99.75 targeted to 
Wire Center 3. Assume that the 35 reported lines are distributed as 
follows:

Wire Center 1 has 15 reported lines;
Wire Center 2 has 6 reported lines; and
Wire Center 3 has 14 reported lines.

    Dividing the support amounts available in each wire center, by the 
number of reported lines results in the following per-line support 
amounts:

Wire Center 1 receives $0 per line;
Wire Center 2 receives $33.25/6=$5.54 per line; and
Wire Center 3 receives $99.75/14=$7.125 per line.


[[Page 26515]]


    This methodology produces a competitively neutral result, whereas, 
using model lines to calculate the per-line support would not. This can 
be illustrated with one of the wire centers in the example. If model 
lines were used to calculate the per-line support amount in Wire Center 
3, the per-line amount would be $99.75/10=$9.975. If the incumbent 
local exchange carrier were serving all lines, the incumbent, in 
effect, would be receiving $99.75/14=$7.125 per line. If a competitor 
were serving one line and receiving $9.975 in support, the incumbent 
local exchange carrier would receive $6.905 per line for serving the 
remaining 13 lines (($99.75-$9.975=$89.775)/13). To ensure that all 
non-rural carriers in a wire center receive the same per-line support 
amount for the lines they serve, we clarify that the total wire center 
support amount shall be divided by the number of reported lines in that 
wire center.
    10. Targeting Hold-Harmless Support. We similarly clarify how hold-
harmless support is targeted to high-cost wire centers. Although hold-
harmless support is not based upon costs estimated by the model, it is 
consistent with our decision to target hold-harmless support to high-
cost wire centers to use model lines in identifying high-cost wire 
centers, as we do for targeting forward-looking support. In addition, 
we clarify that the portable per-line amount of targeted hold-harmless 
support shall be determined by dividing the total hold-harmless support 
amount targeted to the wire center by the number of lines reported in 
that wire center.
    11. We use the example presented in the Ninth Report and Order to 
illustrate the targeting of hold-harmless support. We use model lines 
to determine relative costs among wire centers and reported lines to 
determine the per-line support amount available in each wire center. We 
assume that a State has a single carrier with three wire centers in the 
State. Assume that the model estimates the average forward-looking cost 
per line in each wire center as follows:

Wire Center 1--$15,
Wire Center 2--$20,
Wire Center 3--$25.

    Assume that these cost estimates were based on input values of 10 
lines in each wire center. Thus, the statewide average cost per line is 
($150+$200+$250)/30 lines=$20. Assume further that the national 
benchmark equates to $22 per line, and therefore the carrier receives 
no support under the forward-looking methodology in part 54 of our 
rules, which averages costs at the statewide level. Also assume that 
the carrier receives a total of $90 of interim hold-harmless support as 
determined pursuant to part 36 of our rules.
    Under the targeting approach, the hold-harmless support is 
distributed first to the wire center that the model estimates to have 
the highest costs in the State until that wire center's average costs, 
net of support, equal the average costs in the next most expensive wire 
center. This process continues in a cascading fashion until all support 
has been distributed. In this example, the first $50 of hold-harmless 
support would be distributed to Wire Center 3, so that the average 
forward-looking cost in Wire Center 3, net of hold-harmless support, is 
reduced to $250-$50=$200, an average cost of $200/10 lines=$20 per 
line. This places Wire Center 3 on equal footing with Wire Center 2, 
which also has an average cost of $200/10 lines=$20 per line. The 
remaining hold-harmless support, $90--$50 = $40, would be divided 
between the wire centers, so that the average cost as estimated by the 
model, net of hold-harmless support, would be the same in Wire Center 2 
and Wire Center 3, that is, $18 per line.
    Thus, Wire Center 2 would receive a total of $20 in support and 
Wire Center 3 would receive a total of $50+$20=$70 in support. The 
average forward-looking cost in Wire Center 2, net of hold-harmless 
support, is reduced to $200-$20=$180, an average cost of $180/10 
lines=$18 per line. The average forward-looking cost in Wire Center 3, 
net of hold-harmless support, is reduced to $250-$70=$180, an average 
cost of $180/10 lines=$18 per line.
    Now assume that the carrier reports that Wire Center 2 has 6 lines 
and that Wire Center 3 has 14 lines. The portable per-line support 
amount in Wire Center 2 would be $20/6 lines=$3.33 per line. The 
portable per-line support amount in Wire Center 3 would be $70/14 
lines=$5.00 per line.
    12. Reporting Quarterly Line Counts. As discussed, the line counts 
used in the model to estimate forward-looking costs are trued-up to 
1998 ARMIS line counts. As of December 30, 1999, non-rural incumbent 
local exchange carriers and competitive eligible telecommunications 
carriers seeking to receive support are now required to file updated 
line counts every quarter. USAC shall determine statewide support 
amounts by calculating the average per-line support amount in the state 
and multiplying the average support amount by the number of lines 
reported by non-rural carriers in the State. For the year 2000, 
forward-looking support will be distributed for the first and second 
quarters of the year 2000 based on the line counts non-rural carriers 
filed on December 30, 1999. Similarly, forward-looking support for the 
third and fourth quarters of the year 2000, will be based on the line 
counts non-rural carriers file on March 30, 2000, and July 31, 2000, 
respectively.
    13. Although section 54.307(b) of the Commission's rules refers to 
an annual July 31st deadline for the submission of competitive eligible 
telecommunications carriers' line count data, we clarify that high-cost 
support shall be available on a regular quarterly basis for competitive 
eligible telecommunications carriers serving lines in areas served by 
non-rural incumbent local exchange carriers. In the Ninth Report and 
Order, the Commission adopted uniform, mandatory quarterly reporting 
requirements for all carriers seeking support for serving lines in non-
rural areas. To ensure ``equitable, non-discriminatory, and 
competitively neutral treatment[,]'' support must be available to all 
eligible telecommunications carriers on a quarterly basis, rather than 
on an annual basis. Therefore, competitive eligible telecommunications 
carriers serving lines in non-rural areas may submit line count data 
under the filing schedule described in Sec. 54.307(c) and receive 
support on a regular quarterly basis. This approach is consistent with 
our decision to require uniform quarterly reporting and is essential to 
ensure portability of support among carriers. We amend Sec. 54.307 
accordingly.

III. Procedural Matters

A. Regulatory Flexibility Act Certification

    14. The Regulatory Flexibility Act (RFA) requires an Initial 
Regulatory Flexibility Analysis (IRFA) whenever an agency publishes a 
notice of proposed rulemaking, and a Final Regulatory Flexibility 
Analysis (FRFA) whenever an agency subsequently promulgates a final 
rule, unless the agency certifies that the proposed or final rule will 
not have ``a significant economic impact on a substantial number of 
small entities,'' and includes the factual basis for such 
certification. The RFA generally defines ``small entity'' as having the 
same meaning as the terms ``small business,'' ``small organization,'' 
and ``small governmental jurisdiction.''
    In addition, the term ``small business'' has the same meaning as 
the term ``small business concern'' under the Small Business Act. A 
small business

[[Page 26516]]

concern is one which: (1) Is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) satisfies any 
additional criteria established by the Small Business Administration 
(SBA). The SBA defines a small telecommunications entity in SIC code 
4813 (Telephone Communications, Except Radiotelephone) as an entity 
with 1,500 or fewer employees.
    15. In the Ninth Report and Order, the Commission certified 
pursuant to the RFA that the final rules adopted in that order would 
not have a significant economic impact on a substantial number of small 
entities. We concluded that the Ninth Report and Order adopted a final 
rule affecting only the amount of high-cost support provided to non-
rural LECs. Non-rural LECs generally do not fall within the SBA's 
definition of a small business concern because they are usually large 
corporations or affiliates of such corporations. In a companion Further 
Notice of Proposed Rulemaking adopted in this docket, the Commission 
prepared an IRFA seeking comment on the economic impacts on small 
entities. No comments were received in response to that IRFA.
    16. The rule changes adopted by this order implement our 
clarifications to the Ninth Report and Order, as described in the text 
of this Twentieth Order on Reconsideration. The changes adopted in this 
order will affect only non-rural LECs. As mentioned, non-rural LECs 
generally do not fall within the definition of a small business 
concern. Therefore, we certify pursuant to Section 605(b) of the RFA, 
that the final rules adopted in this order will not have a significant 
economic impact on a substantial number of small entities. The Consumer 
Information Bureau, Reference Information Center, will send a copy of 
the Twentieth Order on Reconsideration, including a copy of this final 
certification, to the Chief Counsel for Advocacy of the SBA in 
accordance with the RFA. In addition, this certification and order will 
be published in the Federal Register. Finally, the Commission's 
Consumer Information Bureau, Reference Information Center, will send a 
copy of the Twentieth Order on Reconsideration, including a copy of 
this final certification, in a report to Congress pursuant to the Small 
Business Regulatory Enforcement Fairness Act of 1996.

B. Effective Date of Final Rules

    17. We conclude that the amendments to our rules adopted herein 
shall be effective May 8, 2000. In this order, we make minor amendments 
to the rules adopted in the Ninth Report and Order, which implement a 
new forward-looking high-cost support mechanism, effective January 1, 
2000. Making the amendments effective 30 days after publication in the 
Federal Register would jeopardize the implementation of the new 
mechanism. Accordingly, pursuant to the Administrative Procedure Act, 
we find good cause to depart from the general requirement that final 
rules take effect not less than 30 days after their publication in the 
Federal Register.

IV. Ordering Clauses

    18. The authority contained in sections 1-4, 201-205, 214, 218-220, 
254, 303(r), 403, and 410 of the Communications Act of 1934, as 
amended, and section 1.108 of the Commission's rules, the Twentieth 
Order on Reconsideration is adopted.
    19. Part 54 of the Commission's rules, 47 CFR Part 54, is amended 
as set forth, effective May 8, 2000.
    20. The Commission's Consumer Information Bureau, Reference 
Information Center, shall send a copy of this Twentieth Order on 
Reconsideration, including the Final Regulatory Flexibility 
Certification, to the Chief Counsel for Advocacy of the Small Business 
Administration.

List of Subjects in 47 CFR Part 54

    Universal service.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Final Rules

    Part 54 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 54--UNIVERSAL SERVICE

    1. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless 
otheriwse noted.

    2. Amend Sec. 54.307 by revising paragraphs (b) and (c) to read as 
follows:


Sec. 54.307  Support to a competitive eligible telecommunications 
carrier.

* * * * *
    (b) In order to receive support pursuant to this subpart, a 
competitive eligible telecommunications carrier must report to the 
Administrator the number of working loops it serves in a service area 
pursuant to the schedule set forth in paragraph (c) of this section. 
For a competitive eligible telecommunications carrier serving loops in 
the service area of a rural telephone company, as that term is defined 
in Sec. 51.5 of this chapter, the carrier must report the number of 
working loops it serves in the service area. For a competitive eligible 
telecommunications carrier serving loops in the service area of a non-
rural telephone company, the carrier must report the number of working 
loops it serves in the service area and the number of working loops it 
serves in each wire center in the service area. For universal service 
support purposes, working loops are defined as the number of working 
Exchange Line C&WF loops used jointly for exchange and message 
telecommunications service, including C&WF subscriber lines associated 
with pay telephones in C&WF Category 1, but excluding WATS closed end 
access and TWX service.
    (c) For a competitive eligible telecommunications carrier serving 
loops in the service area of a rural telephone company, as that term is 
defined in Sec. 51.5 of this chapter, the carrier must submit no later 
than July 31st of each year the data required pursuant to paragraph (b) 
of this section as of December 30th of the previous calendar year, and 
the carrier may update on a quarterly basis the data required pursuant 
to paragraph (b) of this section according to the schedule. For a 
competitive eligible telecommunications carrier serving loops in the 
service area of a non-rural telephone company, the carrier must submit 
the data required pursuant to paragraph (b) of this section according 
to the schedule.
    (1) No later than July 31 of each year, submit data as of December 
30th of the previous calendar year;
    (2) No later than September 30th of each year, submit data as of 
March 30th of the existing calendar year;
    (3) No later than December 30th of each year, submit data as of 
July 31st of the existing calendar year;
    (4) No later than March 30th of each year, submit data as of 
September 30th of the previous year.

    3. Amend Sec. 54.309 by revising paragraphs (a)(1), (a)(2), (a)(4), 
(b)(1), (b)(2), (b)(3) and (b)(4) to read as follows:


Sec. 54.309  Calculation and distribution of forward-looking support 
for non-rural carriers.

    (a) * * *
    (1) For each State, the Commission's cost model shall determine the 
statewide average forward-looking economic cost (FLEC) per line of 
providing the supported services. The statewide average FLEC per line 
shall equal the total FLEC for non-rural

[[Page 26517]]

carriers to provide the supported services in the State, divided by the 
number of switched lines used in the Commission's cost model. The total 
FLEC shall equal average FLEC multiplied by the number of switched 
lines used in the Commission's cost model.
    (2) The Commission's cost model shall determine the national 
average FLEC per line of providing the supported services. The national 
average FLEC per line shall equal the total FLEC for non-rural carriers 
to provide the supported services in all States, divided by the total 
number of switched lines in all States used in the Commission's cost 
model.
* * * * *
    (4) Support calculated pursuant to this section shall be provided 
to non-rural carriers in each State where the statewide average FLEC 
per line exceeds the national cost benchmark. The total amount of 
support provided to non-rural carriers in each State where the 
statewide average FLEC per line exceeds the national cost benchmark 
shall equal 76 percent of the amount of the statewide average FLEC per 
line that exceeds the national cost benchmark, multiplied by the number 
of lines reported pursuant to Sec. 36.611, Sec. 36.612, and Sec. 54.307 
of this chapter.
* * * * *
    (b) * * *
    (1) The Commission's cost model shall determine the percentage of 
the total amount of support available in the State for each wire center 
by calculating the ratio of the wire center's FLEC above the national 
cost benchmark to the total FLEC above the national cost benchmark of 
all wire centers within the State. A wire center's FLEC above the 
national cost benchmark shall be equal to the wire center's average 
FLEC per line above the national cost benchmark, multiplied by the 
number of switched lines in the wire center used in the Commission's 
cost model;
    (2) The total amount of support distributed to each wire center 
shall be equal to the percentage calculated for the wire center 
pursuant to paragraph (b)(1) of this section multiplied by the total 
amount of support available in the state;
    (3) The total amount of support for each wire center pursuant to 
paragraph (b)(2) of this section shall be divided by the number of 
lines in the wire center reported pursuant to Sec. 36.611, Sec. 36.612, 
and Sec. 54.307 of this chapter to determine the per-line amount of 
forward-looking support for that wire center;
    (4) The per-line amount of support for each wire center pursuant to 
paragraph (b)(3) of this section shall be multiplied by the number of 
lines served by a non-rural incumbent local exchange carrier in that 
wire center, or by an eligible telecommunications carrier in that wire 
center, as reported pursuant to Sec. 36.611, Sec. 36.612, and 
Sec. 54.307 of this chapter, to determine the amount of forward-looking 
support to be provided to that carrier.
* * * * *
[FR Doc. 00-11100 Filed 5-5-00; 8:45 am]
BILLING CODE 6712-01-P