FCC Regulation Document

Part: 
Topic: C

47 CFR Part 65 (up to date as of 2/20/2024)
                                                                              47 CFR Part 65 (Feb. 20, 2024)
Interstate Rate of Return Prescription, Procedures, and Methodologies

This content is from the eCFR and is authoritative but unofficial.

Title 47 —Telecommunication
Chapter I —Federal Communications Commission
Subchapter B —Common Carrier Services

Part 65 Interstate Rate of Return Prescription, Procedures, and Methodologies
  Subpart A General
      § 65.1 Application of part 65.
  Subpart B Procedures
      § 65.100 Participation and acceptance of service designation.
      § 65.101 Initiation of unitary rate of return prescription proceedings.
      § 65.102 Petitions for exclusion from unitary treatment and for individual treatment in
               determining authorized return for interstate exchange access service.
      § 65.103 Procedures for filing rate of return submissions.
      § 65.104 Page limitations for rate of return submissions.
      § 65.105 Discovery.
  Subpart C Exchange Carriers
      § 65.300 Calculations of the components and weights of the cost of capital.
      § 65.301 Cost of equity.
      § 65.302 Cost of debt.
      § 65.303 Cost of preferred stock.
      § 65.304 Capital structure.
      § 65.305 Calculation of the weighted average cost of capital.
      § 65.306 Calculation accuracy.
      § 65.450 Net income.
  Subpart D Interexchange Carriers
      § 65.500 Net income.
  Subpart E Rate of Return Reports
      § 65.600 Rate of return reports.
  Subpart F Maximum Allowable Rates of Return
      § 65.700 Determining the maximum allowable rate of return.
      § 65.701 Period of review.
      § 65.702 Measurement of interstate service earnings.
  Subpart G Rate Base
      § 65.800 Rate base.
      § 65.810 Definitions.
      § 65.820 Included items.
      § 65.830 Deducted items.

47 CFR Part 65 (Feb. 20, 2024) (enhanced display)                                               page 1 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                              47 CFR 65
Interstate Rate of Return Prescription, Procedures, and Methodologies

PART 65—INTERSTATE RATE OF RETURN PRESCRIPTION,
PROCEDURES, AND METHODOLOGIES
Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403, and 1302 unless otherwise noted.

Subpart A—General
§ 65.1 Application of part 65.
     (a) This part establishes procedures and methodologies for Commission prescription of an authorized
         unitary interstate exchange access rate of return and individual rates of return for the interstate exchange
         access rates of certain carriers pursuant to § 65.102. This part shall apply to those interstate services of
         local exchange carriers as the Commission shall designate by rule or order, except that all local exchange
         carriers shall provide to the Commission that information which the Commission requests for purposes of
         conducting prescription proceedings pursuant to this part.

     (b) Local exchange carriers subject to §§ 61.41 through 61.49 of this chapter are exempt from the
         requirements of this part with the following exceptions:

           (1) Except as otherwise required by Commission order, carriers subject to §§ 61.41 through 61.49 of this
               chapter shall employ the rate of return value calculated for interstate access services in complying
               with any applicable rules under parts 36 and 69 that require a return component;

           (2) Carriers subject to §§ 61.41 through 61.49 of this chapter shall be subject to § 65.600(d);

           (3) Carriers subject to §§ 61.41 through 61.49 of this chapter shall continue to comply with the
               prescribed rate of return when offering any services specified in § 61.42(f) of this chapter unless the
               Commission otherwise directs; and

           (4) Carriers subject to §§ 61.41 through 61.49 of this chapter shall comply with Commission
               information requests made pursuant to § 65.1(a).

[60 FR 28543, June 1, 1995]

Subpart B—Procedures
§ 65.100 Participation and acceptance of service designation.
     (a) All interstate exchange access carriers, their customers, and any member of the public may participate in
         rate of return proceedings to determine the authorized unitary interstate exchange access or individual
         interstate exchange access rates of return authorized pursuant to § 65.102.

     (b) Participants shall state in their initial pleading in a prescription proceeding whether they wish to receive
         service of documents and other material filed in the proceeding. Participants that wish to receive service
         by hand on the filing dates when so required by this part 65 shall specify in their initial pleading in a
         prescription proceeding, as specified in § 65.103 (b) and (c), an agent for acceptance of service by hand
         in the District of Columbia. The participant may elect in its pleading to receive service by mail or upon an
         agent at another location. When such an election is made, other participants need not complete service
         on the filing date, and requests for extension of time due to delays in completion of service will not be
         entertained.

47 CFR 65.100(b) (enhanced display)                                                                          page 2 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                         47 CFR 65.101
Interstate Rate of Return Prescription, Procedures, and Methodologies

[60 FR 28544, June 1, 1995]

§ 65.101 Initiation of unitary rate of return prescription proceedings.
     (a) Whenever the Commission determines that the monthly average yields on ten (10) year United States
         Treasury securities remain, for a consecutive six (6) month period, at least 150 basis points above or
         below the average of the monthly average yields in effect for the consecutive six (6) month period
         immediately prior to the effective date of the current prescription, the Commission shall issue a notice
         inquiring whether a rate of return prescription according to this part should commence. This notice shall
         state:

           (1) The deadlines for filing initial and reply comments regarding the notice;

           (2) The cost of debt, cost of preferred stock, and capital structure computed in accordance with §§
               65.302, 65.303, and 65.304; and

           (3) Such other information as the Commission may deem proper.

     (b) Based on the information submitted in response to the notice described in § 65.101(a), and on any other
         information specifically identified, the Commission may issue a notice initiating a prescription proceeding
         pursuant to this part.

     (c) The Chief, Wireline Competition Bureau, may issue the notice described in § 65.101(a).

[60 FR 28544, June 1, 1995, as amended at 67 FR 13229, Mar. 21, 2002]

§ 65.102 Petitions for exclusion from unitary treatment and for individual treatment in
determining authorized return for interstate exchange access service.
     (a) Exclusion from unitary treatment will be granted for a period of two years if the cost of capital for
         interstate exchange service is so low as to be confiscatory because it is outside the zone of
         reasonableness for the individual carrier's required rate of return for interstate exchange access services.

     (b) A petition for exclusion from unitary treatment and for individual treatment must plead with particularity
         the exceptional facts and circumstances that justify individual treatment. The showing shall include a
         demonstration that the exceptional facts and circumstances are not of transitory effect, such that
         exclusion for a period of a least two years is justified.

     (c) A petition for exclusion from unitary treatment and for individual treatment may be filed at any time. When
         a petition is filed at a time other than that specified in § 65.103(b)(2), the petitioner must provide
         compelling evidence that its need for individual treatment is not simply the result of short-term
         fluctuations in the cost of capital or similar events.

[60 FR 28544, June 1, 1995]

§ 65.103 Procedures for filing rate of return submissions.
     (a) Rate of return submissions listed in § 65.103 (b)(1) and (c) may include any relevant information, subject
         to the page limitations of § 65.104. The Chief, Wireline Competition Bureau, may require from carriers
         providing interstate services, and from other participants submitting rate of return submissions, data,
         studies or other information that are reasonably calculated to lead to a full and fair record.

47 CFR 65.103(a) (enhanced display)                                                                        page 3 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                         47 CFR 65.103(b)
Interstate Rate of Return Prescription, Procedures, and Methodologies

     (b) In proceedings to prescribe an authorized unitary rate of return on interstate access services, interested
         parties may file direct case submissions, responses, and rebuttals. Direct case submissions shall be filed
         within sixty (60) calendar days following the effective date of a Commission notice initiating a rate of
         return proceeding pursuant to § 65.101(b). Rate of return submissions responsive to the direct case
         submissions shall be filed within sixty (60) calendar days after the deadline for filing direct case
         submissions. Rebuttal submissions shall be field within twenty-one (21) calendar days after the deadline
         for filing responsive submissions.

     (c) Petitions for exclusion from unitary treatment and for individual treatment may be filed on the same date
         as the deadline for filing responsive rate of return submissions. Oppositions shall be filed within 35
         calendar days thereafter. Rebuttal submissions shall be filed within 21 calendar days after the deadline
         for filing responsive submissions.

     (d) An original and 4 copies of all rate of return submissions shall be filed with the Secretary.

     (e) The filing party shall serve a copy of each rate of return submission, other than an initial submission, on all
         participants who have filed a designation of service notice pursuant to § 65.100(b).

[60 FR 28544, June 1, 1995, as amended at 67 FR 13229, Mar. 21, 2002]

§ 65.104 Page limitations for rate of return submissions.
Rate of return submissions, including all argument, attachments, appendices, supplements, and supporting
materials, such as testimony, data and documents, but excluding tables of contents and summaries of argument,
shall be subject to the following double spaced typewritten page limits:

     (a) The direct case submission of any participant shall not exceed 70 pages in length.

     (b) The responsive submission of any participant shall not exceed 70 pages in length.

     (c) The rebuttal submission of any participant shall not exceed 50 pages in length.

     (d) Petitions for exclusion from unitary treatment shall not exceed 70 pages in length. Oppositions to
         petitions for exclusion shall not exceed 50 pages in length. Rebuttals shall not exceed 35 pages in length.

[60 FR 28544, June 1, 1995]

§ 65.105 Discovery.
     (a) Participants shall file with each rate of return submission copies of all information, including studies,
         financial analysts' reports, and any other documents relied upon by participants or their experts in the
         preparation of their submission. Information filed pursuant to this paragraph for which protection from
         disclosure is sought shall be filed subject to protective orders which shall be duly granted by the Chief,
         Wireline Competition Bureau, for good cause shown.

     (b) Participants may file written interrogatories and requests for documents directed to any rate of return
         submission and not otherwise filed pursuant to § 65.105(a). The permissible scope of examination is that
         participants may be examined upon any matter, not privileged, that will demonstrably lead to the
         production of material, relevant, decisionally significant evidence.

47 CFR 65.105(b) (enhanced display)                                                                          page 4 of 12
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                                                                                                       47 CFR 65.105(c)
Interstate Rate of Return Prescription, Procedures, and Methodologies

     (c) Discovery requests pursuant to § 65.105(b), including written interrogatories, shall be filed within 14
         calendar days after the filing of the rate of return submission to which the request is directed. Discovery
         requests that are not opposed shall be complied with within 14 calendar days of the request date.

     (d) Oppositions to discovery requests made pursuant to § 65.105(b), including written interrogatories, shall
         be filed within 7 calendar days after requests are filed. The Chief, Wireline Competition Bureau, shall rule
         upon any such opposition. Except as stayed by the Commission or a Court, any required response to a
         discovery request that is opposed shall be provided within 14 calendar days after release of the ruling of
         the Chief, Wireline Competition Bureau.

     (e) An original and 4 copies of all information described in § 65.105(a) and all requests, oppositions, and
         responses made pursuant to § 65.105 (a), (b) and (d) shall be filed with the Secretary.

     (f) Service of requests, oppositions, and responses made pursuant to § 65.105 (b) and (d) shall be made
         upon all participants who have filed a designation of service notice pursuant to § 65.100(b). Service of
         requests upon participants who have filed designation of service notices pursuant to § 65.100(b) shall be
         made by hand on the filing dates thereof.

[60 FR 28544, June 1, 1995, as amended at 67 FR 13229, Mar. 21, 2002]

Subpart C—Exchange Carriers
§ 65.300 Calculations of the components and weights of the cost of capital.
     (a) Sections 65.301 through 65.303 specify the calculations that are to be performed in computing cost of
         debt, cost of preferred stock, and financial structure weights for prescription proceedings. The
         calculations shall determine, where applicable, a composite cost of debt, a composite cost of preferred
         stock, and a composite financial structure for all local exchange carriers with annual revenues equal to or
         above the indexed revenue threshold as defined in § 32.9000. The calculations shall be based on data
         reported to the Commission in FCC Report 43–02. (See 47 CFR 43.21). The results of the calculations
         shall be used in the represcription proceeding to which they relate unless the record in that proceeding
         shows that their use would be unreasonable.

     (b) Excluded from cost of capital calculations made pursuant to § 65.300 shall be those sources of financing
         that are not investor supplied, or that are otherwise subtracted from a carrier's rate base pursuant to
         Commission orders governing the calculation of net rate base amounts in tariff filings that are made
         pursuant to section 203 of the Communications Act of 1934, 47 U.S.C. 203, or that were treated as “zero
         cost” sources of financing in section 450 and subpart G of this part 65. Specifically excluded are:
         accounts payable, accrued taxes, accrued interest, dividends payable, deferred credits and operating
         reserves, deferred taxes and deferred tax credits.

[60 FR 28545, June 1, 1995, as amended at 67 FR 5702, Feb. 6, 2002]

§ 65.301 Cost of equity.
The cost of equity shall be determined in represcription proceedings after giving full consideration to the evidence
in the record, including such evidence as the Commission may officially notice.

[60 FR 28545, June 1, 1995]

47 CFR 65.301 (enhanced display)                                                                            page 5 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                          47 CFR 65.302
Interstate Rate of Return Prescription, Procedures, and Methodologies

§ 65.302 Cost of debt.
The formula for determining the cost of debt is equal to:

     Where:

     “Total Annual Interest Expense” is the total interest expense for the most recent year for all local exchange
     carriers with annual revenues equal to or above the indexed revenue threshold as defined in § 32.9000 of this
     chapter.

     “Average Outstanding Debt” is the average of the total debt outstanding at the beginning and at the end of the
     most recent year for all local exchange carriers with annual revenues equal to or above the indexed revenue
     threshold as defined in § 32.9000 of this chapter.

[81 FR 24344, Apr. 25, 2016]

§ 65.303 Cost of preferred stock.
The formula for determining the cost of preferred stock is:

     Where:

     “Total Annual Preferred Dividends” is the total dividends on preferred stock for the most recent two years for all
     local exchange carriers with annual revenues equal to or above the indexed revenue threshold as defined in §
     32.9000. “Proceeds from the Issuance of Preferred Stock” is the average of the total net proceeds from the
     issuance of preferred stock for the most recent two years for all local exchange carriers with annual revenues
     equal to or above the indexed revenue threshold as defined in § 32.9000.

[60 FR 28545, June 1, 1995, as amended at 67 FR 5702, Feb. 6, 2002]

§ 65.304 Capital structure.
The proportion of each cost of capital component in the capital structure is equal to:

Proportion in the capital structure =

     Where:

47 CFR 65.304 (enhanced display)                                                                            page 6 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                           47 CFR 65.305
Interstate Rate of Return Prescription, Procedures, and Methodologies

     “Book Value of particular component” is the total of the book values of that component for all local exchange
     carriers with annual revenues equal to or above the indexed revenue threshold as defined in § 32.9000.

     “Book Value of Debt + Book Value of Preferred Stock + Book Value of Equity” is the total of the book values of
     all the components for all local exchange carriers with annual revenues equal to or above the indexed revenue
     threshold as defined in § 32.9000.

     The total of all proportions shall equal 1.00.

[60 FR 28545, June 1, 1995, as amended at 67 FR 5702, Feb. 6, 2002]

§ 65.305 Calculation of the weighted average cost of capital.
     (a) The composite weighted average cost of capital is the sum of the cost of debt, the cost of preferred stock,
         and the cost of equity, each weighted by its proportion in the capital structure of the telephone
         companies.

     (b) Unless the Commission determines to the contrary in a prescription proceeding, the composite weighted
         average cost of debt and cost of preferred stock is the composite weight computed in accordance with §
         65.304 multiplied by the composite cost of the component computed in accordance with § 65.301 or §
         65.302, as applicable. The composite weighted average cost of equity will be determined in each
         prescription proceeding.

[60 FR 28546, June 1, 1995]

§ 65.306 Calculation accuracy.
In a prescription proceeding, the final determinations of the cost of equity, cost of debt, cost of preferred stock and
their capital structure weights shall be accurate to two decimal places.

[60 FR 28546, June 1, 1995]

§ 65.450 Net income.
     (a) Net income shall consist of all revenues derived from the provision of interstate telecommunications
         services regulated by this Commission less expenses recognized by the Commission as necessary to the
         provision of these services. The calculation of expenses entering into the determination of net income
         shall include the interstate portion of plant specific operations (Accounts 6110–6441), plant nonspecific
         operations (Accounts 6510–6565), customer operations (Accounts 6610–6623), corporate operations
         (Accounts 6720–6790), other operating income and expense (Account 7100), and operating taxes
         (Accounts 7200–7250), except to the extent this Commission specifically provides to the contrary.

     (b) Gains and losses related to the disposition of plant in service items, shall be handled as follows:

           (1) Gains related to property sold to others and leased back under finance leases for use in
               telecommunications services shall be recorded in Account 4300, Other long-term liabilities and
               deferred credits, and credited to Account 6563, Amortization expense—tangible, over the
               amortization period established for the finance lease;

47 CFR 65.450(b)(1) (enhanced display)                                                                       page 7 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                            47 CFR 65.450(b)(2)
Interstate Rate of Return Prescription, Procedures, and Methodologies

           (2) Gains or losses related to the disposition of land and other nondepreciable items recorded in
               Account 7100 (Other operating income and expense) shall be included in net income for ratemaking
               purposes, but adjusted to reflect the relative amount of time such property was used in regulated
               operations and included in the rate base; and

           (3) Proceeds related to the disposition of property depreciated on a group basis and used jointly in
               regulated and nonregulated activities, including sale-leaseback arrangements for property
               depreciated on a group basis, shall be credited to the related reserves and attributed to regulated
               and nonregulated in proportion to the accumulated regulated and nonregulated depreciation for that
               group.

     (c) Gains or losses related to the disposition of property that was never included in the rate base shall not be
         considered for ratemaking purposes.

     (d) Except for the allowance for funds used during construction, reasonable charitable deductions and
         interest related to customer deposits, the amounts recorded as nonoperating income and expenses and
         taxes (Accounts 7300 and 7400) and interest and related items (Account 7500) and extraordinary items
         (Account 7600) shall not be included unless this Commission specifically determines that particular items
         recorded in those accounts shall be included.

[53 FR 1029, Jan. 15, 1988, as amended at 60 FR 12139, Mar. 6, 1995; 67 FR 5702, Feb. 6, 2002; 69 FR 53652, Sept. 2, 2004; 84 FR
4733, Feb. 19, 2019]

Subpart D—Interexchange Carriers
§ 65.500 Net income.
The net income methodology specified in § 65.450 shall be utilized by all interexchange carriers that are so
designated by Commission order.

[60 FR 28546, June 1, 1995]

Subpart E—Rate of Return Reports
§ 65.600 Rate of return reports.
     (a) Subpart E shall apply to those interstate communications common carriers and exchange carriers that are
         so designated by Commission order.

     (b) Each local exchange carrier or group of affiliated carriers which is not subject to §§ 61.41 through 61.49
         of this chapter and which has filed individual access tariffs during the preceding enforcement period shall
         file with the Commission within three (3) months after the end of each calendar year, an annual rate of
         return monitoring report which shall be the enforcement period report. Reports shall be filed on the
         appropriate report form prescribed by the Commission (see § 1.795 of this chapter) and shall provide full
         and specific answers to all questions propounded and information requested in the currently effective
         report form. The number of copies to be filed shall be specified in the applicable report form. At least one
         copy of the report shall be signed on the signature page by the responsible officer. A copy of each report
         shall be retained in the principal office of the respondent and shall be filed in such a manner as to be
         readily available for reference and inspection. Final adjustments to the enforcement period report shall be
         made by September 30 of the year following the enforcement period to ensure that any refunds can be
         properly reflected in an annual access filing.

47 CFR 65.600(b) (enhanced display)                                                                                 page 8 of 12
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                                                                                                             47 CFR 65.600(c)
Interstate Rate of Return Prescription, Procedures, and Methodologies

     (c) Each interexchange carrier subject to §§ 61.41 through 61.49 shall file with the Commission, within three
         (3) months after the end of each calendar year, the total interstate rate of return for that year for all
         interstate services subject to regulation by the Commission. Each such filing shall include a report of the
         total revenues, total expenses and taxes, operating income, and the rate base. A copy of the filing shall be
         retained in the principal office of the respondent and shall be filed in such manner as to be readily
         available for reference and inspection.

     (d)

           (1) Each local exchange carrier or group of affiliated carriers subject to §§ 61.41 through 61.49 of this
               chapter shall file with the Commission within three (3) months after the end of each calendar year a
               report of its total interstate rate of return for that year. Such filings shall include a report of the total
               revenues, total expenses and taxes, operating income, and the rate base. Reports shall be filed on
               the appropriate form prescribed by the Commission (see § 1.795 of this chapter) and shall provide
               full and specific answers to all questions propounded and information requested in the currently
               effective form. The number of copies to be filed shall be specified in the applicable report form. At
               least one copy of the report shall be retained in the principal office of the respondent and shall be
               filed in such manner as to be readily available for reference and inspection.

           (2) Each local exchange carrier or group of affiliated carriers subject to §§ 61.41 through 61.49 of this
               chapter shall file with the Commission within fifteen (15) months after the end of each calendar year
               a report reflecting any corrections or modifications to the report filed pursuant to paragraph (d)(1) of
               this section. Reports shall be filed on the appropriate form prescribed by the Commission (see §
               1.795 of this chapter) and shall provide full and specific answers to all questions propounded and
               information requested in the currently effective form. The number of copies to be filed shall be
               specified in the applicable report form. At least one copy of the report shall be retained in the
               principal office of the respondent and shall be filed in such manner as to be readily available for
               reference and inspection.

[52 FR 274, Jan. 5, 1987, as amended at 54 FR 19844, May 8, 1989; 55 FR 42385, Oct. 19, 1990; 56 FR 21617, May 10, 1991; 62 FR
5166, Feb. 4, 1997]

Subpart F—Maximum Allowable Rates of Return
§ 65.700 Determining the maximum allowable rate of return.
     (a) The maximum allowable rate of return for any exchange carrier's earnings on any access service category
         shall be determined by adding a fixed increment of four-tenths of one percent of the exchange carrier
         prescribed rate of return.

     (b) The maximum allowable rate of return for any exchange carrier's overall interstate earnings for all access
         service categories shall be determined by adding a fixed increment of one-quarter of one percent to the
         exchange carrier prescribed rate of return.

     (c) The maximum allowable rate of return for rates filed by local exchange carrier subject to § 61.50 of this
         chapter, shall be determined by adding a fixed increment of one and one-half percent to the carriers
         prescribed rate of return.

[51 FR 11034, Apr. 1, 1986, as amended at 58 FR 36149, July 6, 1993; 60 FR 28546, June 1, 1995]

47 CFR 65.700(c) (enhanced display)                                                                               page 9 of 12
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                                                                                                                 47 CFR 65.701
Interstate Rate of Return Prescription, Procedures, and Methodologies

§ 65.701 Period of review.
For both exchange and interexchange carriers subject to this part, interstate earnings shall be measured over a two
year period to determine compliance with the maximum allowable rate of return. The review periods shall
commence on January 1 in odd-numbered years and shall end on December 31 in even-numbered years.

[60 FR 28546, June 1, 1995]

§ 65.702 Measurement of interstate service earnings.
     (a) For exchange carriers, earnings shall be measured separately for each access service category for
         purposes of determining compliance with the maximum allowable rate of return. The access service
         categories shall be: an aggregated category consisting of Special Access, § 69.113, and Contribution
         Charges for Special Access Expanded Interconnection, § 69.122; Connection Charges for Expanded
         Interconnection, § 69.121; Common Line, §§ 69.104–69.105; and an aggregated category consisting of
         Line Termination, § 69.106, Intercept, § 69.108, Local Switching, § 69.107, Transport, §§ 69.110–69.112,
         69.124, 69.125, and Information, § 69.109. The Billing and Collection access element shall not be
         included in any access service category for purposes of this part. The Commission will also separately
         review exchange carrier overall interstate earnings subject to this part for determining compliance with
         the maximum allowable rate of return determined by § 65.700(b).

     (b) For exchange carriers, earnings shall be measured for purposes of determining compliance with the
         maximum allowable rates of return separately for each study area; provided, however, that if the carrier
         has filed or concurred in access tariffs aggregating costs and rates for two or more study areas, the
         earnings will be determined for the aggregated study areas rather than for each study area separately. If
         an exchange carrier has not utilized the same level of study area aggregation during the entire two-year
         earnings review period, then the carrier's earnings will be measured for the entire two-year period on the
         basis of the tariffs in effect at the end of the second year of the two-year review period; provided, however,
         that if tariffs representing a higher level of study area aggregation were not in effect for at least eight
         months in the second year, then the carrier's earnings will be measured on the basis of the study area
         level of aggregation in effect for the majority of the two-year period; provided further, that any carrier that
         was not a member of the National Exchange Carrier Association or other voluntary pools for both years of
         the two-year review period will have its earnings reviewed individually for the full two-year period.

[51 FR 11034, Apr. 1, 1986, as amended at 57 FR 54719, Nov. 20, 1992; 58 FR 48763, Sept. 17, 1993; 60 FR 28546, June 1, 1995]

Subpart G—Rate Base

Source: 53 FR 1029, Jan. 15, 1988, unless otherwise noted.

§ 65.800 Rate base.
The rate base shall consist of the interstate portion of the accounts listed in § 65.820 that has been invested in
plant used and useful in the efficient provision of interstate telecommunications services regulated by this
Commission, minus any deducted items computed in accordance with § 65.830.

47 CFR 65.800 (enhanced display)                                                                                  page 10 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                           47 CFR 65.810
Interstate Rate of Return Prescription, Procedures, and Methodologies

§ 65.810 Definitions.
As used in this subpart “account xxxx” means the account of that number kept in accordance with the Uniform
System of Accounts for Telecommunications Companies in 47 CFR part 32.

[82 FR 20843, May 4, 2017]

§ 65.820 Included items.
     (a) Telecommunications plant. The interstate portion of all assets summarized in Account 2001
         (Telecommunications Plant in Service) and Account 2002 (Property Held for Future Use), net of
         accumulated depreciation and amortization, and Account 2003 (Telecommunications Plant Under
         Construction), and, to the extent such inclusions are allowed by this Commission, Account 2005
         (Telecommunications Plant Adjustment). Any interest cost for funds used during construction capitalized
         on assets recorded in these accounts shall be computed in accordance with the procedures in Sec.
         32.2000(c)(2)(x) of this chapter.

     (b) Material and supplies. The interstate portion of assets summarized in Account 1220.1 (Material and
         Supplies).

     (c) Noncurrent assets. The interstate portion of Class B Rural Telephone Bank stock contained in Account
         1410 and the interstate portion of assets summarized in Account 1410 (Other Noncurrent Assets) and
         Account 1438 (Deferred Maintenance, Retirements and Deferred Charges), only to the extent that they
         have been specifically approved by this Commission for inclusion (Note: The interstate portion of assets
         summarized in Account 1410 should not include any amounts related to investments, sinking funds or
         unamortized debt issuance expense). Except as noted above, no amounts from accounts 1406 through
         1500 shall be included.

     (d) Cash working capital. The average amount of investor-supplied capital needed to provide funds for a
         carrier's day-to-day interstate operations. Carriers may calculate a cash working capital allowance either
         by performing a lead-lag study of interstate revenue and expense items or by using the formula set forth
         in paragraph (e) of this section. Carriers, in lieu of performing a lead-lag study or using the formula in
         paragraph (e) of this section, may calculate the cash working capital allowance using a standard
         allowance which will be established annually by the Chief, Wireline Competition Bureau. When either the
         lead-lag study or formula method is used to calculate cash working capital, the amount calculated under
         the study or formula may be increased by minimum bank balances and working cash advances to
         determine the cash working capital allowance. Once a carrier has selected a method of determining its
         cash working capital allowance, it shall not change to an optional method from one year to the next
         without Commission approval.

     (e) In lieu of a full lead-lag study, carriers may calculate the cash working capital allowance using the
         following formula.

           (1) Compute the weighted average revenue lag days as follows:

                 (i)   Multiply the average revenue lag days for interstate revenues billed in arrears by the percentage
                       of interstate revenues billed in arrears.

                (ii) Multiply the average revenue lag days for interstate revenues billed in advance by the
                     percentage of interstate revenues billed in advance. (Note: a revenue lead should be shown as
                     a negative lag.)

47 CFR 65.820(e)(1)(ii) (enhanced display)                                                                   page 11 of 12
47 CFR Part 65 (up to date as of 2/20/2024)
                                                                                                         47 CFR 65.820(e)(1)(iii)
Interstate Rate of Return Prescription, Procedures, and Methodologies

                (iii) Add the results of paragraphs (e)(1) (i) and (ii) of this section to determine the weighted
                      average revenue lag days.

           (2) Compute the weighted average expense lag days as follows:

                 (i)   Multiply the average lag days for interstate expenses (i.e., cash operating expenses plus
                       interest) paid in arrears by the percentage of interstate expenses paid in arrears.

                (ii) Multiply the average lag days for interstate expenses paid in advance by the percentage of
                     interstate expenses paid in advance. (Note: an expense lead should be shown as a negative
                     lag.)

                (iii) Add the results of paragraphs (e)(2) (i) and (ii) of this section to determine the weighted
                      average expense lag days.

           (3) Compute the weighted net lag days by deducting the weighted average expense lag days from the
               weighted average revenue lag days.

           (4) Compute the percentage of a year represented by the weighted net lag days by dividing the days
               computed in paragraph (e)(3) of this section by 365 days.

           (5) Compute the cash working capital allowance by multiplying the interstate cash operating expenses
               (i.e., operating expenses minus depreciation and amortization) plus interest by the percentage
               computed in paragraph (e)(4) of this section.

[54 FR 9048, Mar. 3, 1989, as amended at 60 FR 12139, Mar. 6, 1995; 67 FR 5703, Feb. 6, 2002; 67 FR 13229, Mar. 21, 2002; 82 FR
20843, May 4, 2017]

§ 65.830 Deducted items.
     (a) The following items shall be deducted from the interstate rate base.

           (1) The interstate portion of deferred taxes (Accounts 4100 and 4340).

           (2) The interstate portion of customer deposits (Account 4040).

           (3) The interstate portion of other long-term liabilities in (Account 4300 Other long-term liabilities and
               deferred credits) that were derived from the expenses specified in Sec. 65.450(a).

           (4) The interstate portion of other deferred credits in (Account 4300 Other long-term liabilities and
               deferred credits) to the extent they arise from the provision of regulated telecommunications
               services. This shall include deferred gains related to sale-leaseback arrangements.

     (b) The interstate portion of deferred taxes, customer deposits and other deferred credits shall be determined
         as prescribed by 47 CFR part 36.

     (c) The interstate portion of other long-term liabilities included in (Account 4300 Other long-term liabilities
         and deferred credits) shall bear the same proportionate relationships as the interstate/intrastate
         expenses which gave rise to the liability.

[54 FR 9049, Mar. 3, 1989, as amended at 62 FR 15118, Mar. 31, 1997; 67 FR 5703, Feb. 6, 2002]

47 CFR 65.830(c) (enhanced display)                                                                                page 12 of 12