Sec. 61.50  Scope: Optional incentive regulation for rate of return 
          local exchange carriers.

    (a) This section shall apply on an elective basis, to local exchange 
carriers for either traffic sensitive rates only or for both traffic 
sensitive and common line rates. Carriers electing the plan for traffic 
sensitive rates only must participate in the Association common line 
pool. Affiliation with average schedule companies shall not bar a 
carrier from electing optional incentive regulation provided the carrier 
is otherwise eligible.
    (b) If a telephone company, or any one of a group of affiliated 
telephone companies, files an optional incentive regulation tariff in 
one study area, that telephone company and its affiliates, except its 
average schedule affiliates, must file incentive plan tariffs in all 
their study areas.
    (c) The following rules apply to telephone companies subject to this 
section, that become involved in mergers, acquisitions, or similar 
transactions, except that mergers with, acquisitions by, or other 
similar transactions with companies subject to price cap regulation, as 
that term is defined in Sec. 61.3(w), shall be governed by 
Sec. 61.41(c).
    (1) Any telephone company subject to this section that is a party to 
a merger, acquisition, or similar transaction, shall continue to be 
subject to incentive regulation notwithstanding such transaction.
    (2) Where a telephone company subject to this section acquires, is 
acquired by, merged with, or otherwise becomes affiliated with a 
telephone company that is not subject to this section, the latter 
telephone company shall become subject to optional incentive plan 
regulation no later than one year following the effective date of such 
merger, acquisition, or similar transaction and shall accordingly file 
optional incentive plan tariffs to be effective no later than that date 
in accordance with the applicable provisions of this part 61.
    (3) Notwithstanding the provisions of paragraph (c)(2) of this 
section, when a telephone company subject to optional incentive plan 
regulation acquires, is acquired by, mergers with, or otherwise becomes 
affiliated with a telephone company that qualifies as an ``average 
schedule'' company, the latter company may retain its ``average 
schedule'' status or become subject to optional incentive plan 
regulations in accordance with Sec. 69.3(i)(3) of this chapter and the 
requirements referenced in that section.
    (d) Local exchange carriers that are subject to this section shall 
not withdraw from optional incentive regulation until the end of two, 
two-year tariff periods. If a local exchange carrier withdraws from 
optional incentive plan regulation, it must file company-specific 
tariffs under the provisions of Sec. 61.38 for four years before it may 
again elect to enter incentive plan regulation; such carrier may not 
participate in the applicable Association tariff during that four years. 
After the four year period, the carrier may either return to the 
incentive plan, or remain under Sec. 61.38.
    (e) Each local exchange carrier subject to this section shall 
establish the baskets of services, including service categories, as 
identified in Sec. 61.42 (d) and (e).
    (f) Each local exchange carrier subject to optional incentive 
regulation shall exclude from its baskets such services or portions of 
such services as the Commission has designated or may hereafter 
designate by order.
    (g) New services, other than those within the scope of paragraph (f) 
of this section, must be included in the affected basket at the first 
two-year tariff filing following completion of the two-year tariff 
period in which they are introduced. To the extent that such new 
services are permitted or required to be included in new or existing 
service categories within the assigned basket, they shall be so included 
at the first two-year tariff filing following

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completion of the two-year tariff period in which they are introduced.
    (h)(1) In connection with any optional incentive plan tariff filing 
proposin rate changes, the carrier must calculate an index for each 
affected basket as determined by the Common Carrier Bureau.
    (2) In connection with any tariff filed under this section proposing 
changes to rates for services in the basket designated in paragraph (e) 
of this section, the maximum allowable increase or decrease in a basket 
shall be limited to ten percent over the two-year tariff period.
    (3) Local exchange carriers subject to this section shall file 
tariff revisions that reflect rae changes due to exogenous costs, as 
defined in Sec. 61.45(d)(1), either in the biennial tariff filing or at 
the time the event causing the exogenous costs occurs during the two-
year period.
    (i) Rates for a new service that is the same as that offered by a 
price cap regulated local exchange carrier providing service in an 
adjacent serving area are deemed presumptively lawful, if the proposed 
rates, in the aggregate, are no greater than the rate established by the 
price cap local exchange carrier. Tariff filings made pursuant to this 
paragraph must include the following:
    (1) A brief explanation of why the service is like an existing 
service offered by a geographically adjacent price cap regulated local 
exchange carrier; and
    (2) Data to establish compliance with this subsection that, in 
aggregate, the proposed rates for the new service are no greater than 
those in effect for the same or comparable service offered by that same 
geographically adjacent price cap regulated local exchange carrier.
    (3) All filings for new services other than those described in 
paragraph (i) shall be supported using prospective data, as required by 
Sec. 61.38 of these rules.
    (j) The maximum allowable rate of return on earnings based on rates 
filed by a local exchange carrier subject to this section, shall be 
determined by adding a fixed increment of one and one-half percent to 
the carrier's prescribed rate of return. Rates of local exchange 
carriers subject to this section that result in earnings less than 
three-quarters percent below the carrier's prescribed rate of return may 
be retargeted to three-quarters percent below the carrier's prescribed 
rate of return, in a mid-course tariff filing.
    (k) For a tariff change, a local exchange carrier that is a cost 
schedule carrier must propose Common Line rates based on the following:
    (1) For the first biennial filing, the common line revenue 
requirement shall be determined by a cost of service study for the most 
recent 12-month period. Subscriber line charges shall be based on cost 
and demand data for the same period. Carrier common line rates shall be 
determined by the following formula:
[GRAPHIC] [TIFF OMITTED] TR06JN97.016

Where:
[GRAPHIC] [TIFF OMITTED] TR06JN97.017

And where:

CCL Rev Req = carrier common line settlement for the most recent 12-
          month period;
CCL MOUb = carrier common line minutes of use for the most 
          recent 12-month period;
CCL MOU1 = CCL MOUb; and
CCL MOU0 = carrier common line minutes of use for the 12-
          month period preceding the most recent 12-month period.

    (2) For the subsequent biennial filings, the common line revenue 
requirement shall be determined by a cost of service study for the most 
recent 24-month period. Subscriber line charges shall be based on cost 
and demand data for the same period. Carrier common line rates shall be 
determined by the following formula:
[GRAPHIC] [TIFF OMITTED] TR06JN97.018

where:
[GRAPHIC] [TIFF OMITTED] TR06JN97.019

and where:


[[Page 126]]


CCL Rev Req = carrier common line revenue requirement for the most 
          recent 24-month period;
CCL MOUb = carrier common line minutes of use for the most 
          recent 24-month period;
CCL MOU1 = carrier common line minutes of use for the most 
          recent 12-month period; and
CCL MOU0 = carrier common line minutes of use for the 12-
          month period preceding the most recent 12-month period.

    (3) For End User Common Line charges included in a tariff pursuant 
to this section, the local exchange carrier must provide supporting 
information for the two-year historical period with its letter of 
transmittal in accordance with Sec. 61.38.

[58 1997 FR 36148 , July 6, 1993, as amended at  62 FR 31005 , June 6, 1997]

                 Specific Rules for Tariff Publications