Sec.  54.301   Local switching support.

   (a) Calculation of local switching support. (1) Beginning January 1, 1998,
   an incumbent local exchange carrier that has been designated an eligible
   telecommunications carrier and that serves a study area with 50,000 or fewer
   access lines shall receive support for local switching costs using the
   following  formula:  the  carrier's projected annual unseparated local
   switching revenue requirement, calculated pursuant to paragraph (d) of this
   section, shall be multiplied by the local switching support factor. For
   purposes of this section, local switching costs shall be defined as Category
   3 local switching costs under part 36 of this chapter.

   (2) Local switching support factor. (i) The local switching support factor
   shall be defined as the difference between the 1996 weighted interstate DEM
   factor, calculated pursuant to  Sec. 36.125(f) of this chapter, and the 1996
   unweighted interstate DEM factor.

   (ii) If the number of a study area's access lines increases such that, under
    Sec. 36.125(f) of this chapter, the weighted interstate DEM factor for 1997 or
   any successive year would be reduced, that lower weighted interstate DEM
   factor shall be applied to the carrier's 1996 unweighted interstate DEM
   factor to derive a new local switching support factor.

   (3) Beginning January 1, 1998, the sum of the unweighted interstate DEM
   factor, as defined in  Sec. 36.125(a)(5) of this chapter, and the local switching
   support factor shall not exceed 0.85. If the sum of those two factors would
   exceed 0.85, the local switching support factor shall be reduced to a level
   that would reduce the sum of the factors to 0.85.

   (b) Submission of data to the Administrator. Each incumbent local exchange
   carrier that has been designated an eligible telecommunications carrier and
   that serves a study area with 50,000 or fewer access lines shall, for each
   study area, provide the Administrator with the projected total unseparated
   dollar amount assigned to each account listed below for the calendar year
   following  each  filing.  This  information  must  be  provided to the
   Administrator no later than October 1 of each year. The Administrator shall
   use this information to calculate the projected annual unseparated local
   switching revenue requirement pursuant to paragraph (d) of this section.
   I
   Telecommunications Plant in Service (TPIS) Account 2001
   Telecommunications Plant—Other Accounts 2002, 2003, 2005
   General Support Assets Account 2110
   Central Office Assets Accounts 2210, 2220, 2230
   Central  Office-switching,  Category 3 (local switching) Account 2210,
   Category 3
   Information Origination/termination Assets Account 2310
   Cable and Wire Facilities Assets Account 2410
   Amortizable Tangible Assets Account 2680
   Intangibles Account 2690
   II
   Rural Telephone Bank (RTB) Stock Included in Account 1410
   Materials and Supplies Account 1220.1
   Cash Working Capital Defined in 47 CFR 65.820(d)
   III
   Accumulated Depreciation Account 3100
   Accumulated Amortization Included in Accounts 2005, 2680, 2690, 3410
   Net Deferred Operating Income Taxes Accounts 4100, 4340
   Network Support Expenses Account 6110
   General Support Expenses Account 6120
   Central Office Switching, Operator Systems, and Central Office Transmission
   Expenses Accounts 6210, 6220, 6230
   Information Origination/Termination Expenses Account 6310
   Cable and Wire Facilities Expenses Account 6410
   Other Property, Plant and Equipment Expenses Account 6510
   Network Operations Expenses Account 6530
   Access Expense Account 6540
   Depreciation and Amortization Expense Account 6560
   Marketing Expense Account 6610
   Services Expense Account 6620
   Corporate Operations Expense Account 6720
   Operating Taxes Accounts 7230, 7240
   Federal Investment Tax Credits Account 7210
   Provision for Deferred Operating Income Taxes-Net Account 7250
   Allowance for Funds Used During Construction Included in Account 7300
   Charitable Contributions Included in Account 7300
   Interest and Related Items Account 7500
   IV
   Other Non-Current Assets Included in Account 1410
   Deferred Maintenance and Retirements Included in Account 1438
   Deferred Charges Included in Account 1438
   Other Jurisdictional Assets and Liabilities Accounts 1500, 4370
   Customers' Deposits Account 4040
   Other Long-Term Liabilities Included in Account 4300

   (c) Allocation of accounts to switching. The Administrator shall allocate to
   local switching, the accounts reported pursuant to paragraph (b) of this
   section as prescribed in this paragraph.

   (1) General Support Assets (Account 2110); Amortizable Tangible Assets
   (Account 2680); Intangibles (Account 2690); and General Support Expenses
   (Account 6120) shall be allocated according to the following factor:

   Account  2210 Category÷3 (Account 2210 + Account 2220 + Account 2230 +
   Account 2310 + Account 2410).

   (2)  Telecommunications Plant—Other (Accounts 2002, 2003, 2005); Rural
   Telephone  Bank  (RTB) Stock (included in Account 1410); Materials and
   Supplies (Account 1220.1); Cash Working Capital (Sec. 65.820(d) of this
   chapter); Accumulated Amortization (Included in Accounts 2005, 2680, 2690,
   3410); Net Deferred Operating Income Taxes (Accounts 4100, 4340); Network
   Support  Expenses  (Account 6110); Other Property, Plant and Equipment
   Expenses  (Account  6510); Network Operations Expenses (Account 6530);
   Marketing Expense (Account 6610); Services Expense (Account 6620); Operating
   Taxes (Accounts 7230, 7240); Federal Investment Tax Credits (Accounts 7210);
   Provision for Deferred Operating Income Taxes—Net (Account 7250); Interest
   and  Related  Items  (Account  7500);  Allowance for Funds Used During
   Construction (Included in Account 7300); Charitable Contributions (included
   in Account 7300); Other Non-current Assets (Included in Account 1410); Other
   Jurisdictional  Assets and Liabilities (Accounts 1500, 4370); Customer
   Deposits (Account 4040); Other Long-term Liabilities (Included in Account
   4300); and Deferred Maintenance and Retirements (Included in Account 1438)
   shall be allocated according to the following factor:

   Account 2210 Category 3 Account 2001.

   (3) Accumulated Depreciation for Central Office—switching (Account 3100
   associated with Account 2210) and Depreciation and Amortization Expense for
   Central Office—switching (Account 6560 associated with Account 2210) shall
   be allocated according to the following factor:

   Account 2210 Category 3÷Account 2210.

   (4)  Accumulated Depreciation for General Support Assets (Account 3100
   associated with Account 2110) and Depreciation and Amortization Expense for
   General Support Assets (Account 6560 associated with Account 2110) shall be
   allocated according to the following factor:

   Account 2210 Category 3 ÷ Account 2001.

   (5)  Corporate  Operations  Expenses (Account 6720) shall be allocated
   according to the following factor:

   [[Account 2210 Category 3 (Account 2210 + Account 2220 + Account 2230)]] ×
   (Account 6210 + Account 6220 + Account 6230)] + [(Account 6530 + Account
   6610 + Account 6620) × (Account 2210 Category 3 Account 2001)] (Account 6210
   + Account 6220 + Account 6230 + Account 6310 + Account 6410 + Account 6530 +
   Account 6610 + Account 6620).

   (6)  Central  Office  Switching,  Operator Systems, and Central Office
   Transmission Expenses (Account 6210, Account 6220, Account 6230) shall be
   allocated according to the following factor:

   Account 2210 Category 3 ÷ (Accounts 2210 + 2220 + 2230).

   (d) Calculation of the projected annual unseparated local switching revenue
   requirement.  The  Administrator  shall calculate the projected annual
   unseparated local switching revenue requirement by summing the components
   listed in this paragraph.

   (1) Return on Investment attributable to COE Category 3 shall be obtained by
   multiplying the average projected unseparated local switching net investment
   by the authorized interstate rate of return. Projected unseparated local
   switching net investment shall be calculated as of each December 31 by
   deducting  the  accumulated  reserves, deferrals and customer deposits
   attributable to the COE Category 3 investment from the gross investment
   attributable to COE Category 3. The average projected unseparated local
   switching  net investment shall be calculated by summing the projected
   unseparated local switching net investment as of December 31 of the calendar
   year following the filing year and such investment as of December 31 of the
   filing year and dividing by 2.

   (2)  Depreciation  expense  attributable to COE Category 3 investment,
   allocated pursuant to paragraph (c) of this section.

   (3) All expenses, excluding depreciation expense, collected in paragraph (b)
   of this section, allocated pursuant to paragraph (c) of this section.

   (4) Federal income tax attributable to COE Category 3 shall be calculated
   using the following formula; the accounts listed shall be allocated pursuant
   to paragraph (c) of this section:

   [Return on Investment attributable to COE Category 3—Included in Account
   7300—Account 7500–Account 7210)] × [Federal Income Tax Rate (1—Federal
   Income Tax Rate)].

   (e) True-up adjustment —(1) Submission of true-up data. Each incumbent local
   exchange carrier that has been designated an eligible telecommunications
   carrier and that serves a study area with 50,000 or fewer access lines
   shall, for each study area, provide the Administrator with the historical
   total unseparated dollar amount assigned to each account listed in paragraph
   (b) of this section for each calendar year no later than 12 months after the
   end of such calendar year.

   (2) Calculation of true-up adjustment. (i) The Administrator shall calculate
   the historical annual unseparated local switching revenue requirement for
   each carrier when historical data for each calendar year are submitted.

   (ii)  The Administrator shall calculate each carrier's local switching
   support payment, calculated pursuant to 54.301(a), using its historical
   annual unseparated local switching revenue requirement.

   (iii) For each carrier receiving local switching support, the Administrator
   shall  calculate the difference between the support payment calculated
   pursuant to paragraph (e)(2)(ii) of this section and its support payment
   calculated using its projected annual unseparated local switching revenue
   requirement.

   (iv) The Administrator shall adjust each carrier's local switching support
   payment  by the difference calculated in paragraph (e)(2)(iii) of this
   section no later than 15 months after the end of the calendar year for which
   historical data are submitted.

   (f) Calculation of the local switching revenue requirement for average
   schedule companies. (1) The local switching revenue requirement for average
   schedule companies, as defined in  Sec. 69.605(c) of this chapter, shall be
   calculated  in  accordance  with a formula approved or modified by the
   Commission. The Administrator shall submit to the Commission and the Common
   Carrier  Bureau  for  review and approval a formula that simulates the
   disbursements that would be received pursuant to this section by a company
   that  is representative of average schedule companies. For each annual
   period, the Administrator shall submit the formula, any proposed revisions
   of such formula, or a certification that no revisions to the formula are
   warranted on or before December 31 of each year.

   (2) The Commission delegates its authority to review, modify, and approve
   the formula submitted by the Administrator pursuant to this paragraph to the
   Chief, Wireline Competition Bureau.

   [ 63 FR 2126 , Jan. 13, 1998;  63 FR 33585 , June 19, 1998, as amended at  67 FR 13226 , Mar. 21, 2002;  67 FR 5701 , Feb. 6, 2002]