§  61.45   Adjustments to the PCI for Local Exchange Carriers.

   (a) Local exchange carriers subject to price cap regulation shall file
   adjustments to the PCI for each basket as part of the annual price cap
   tariff filing, and shall maintain updated PCIs to reflect the effect of
   mid-year exogenous cost changes.

   (b)(1)(i) Adjustments to local exchange carrier PCIs, in those
   carriers' annual access tariff filings, the traffic sensitive basket
   described in § 61.42(d)(2), the trunking basket described in
   § 61.42(d)(3), the special access basket described in § 61.42(d)(5) and
   the Interexchange Basket described in § 61.42(d)(4)(i), shall be made
   pursuant to the following formula:

   "PCI[t]=PCIt-1[1+w[GDP--PI--X] + Z/R]."

   PCI[t -1]= PCI[t -1][1+w[GDP -PI -X] + Z/R]

   Where the terms in the equation are described:

   GDP-PI = For annual filings only, the percentage change in the GDP-PI
   between the quarter ending six months prior to the effective date of
   the new annual tariff and the corresponding quarter of the previous
   year. For all other filings, the value is zero.

   X = For the CMT, traffic sensitive, and trunking baskets, for annual
   filings only, the factor is set at the level prescribed in paragraphs
   (b)(1)(ii) and (iii) of this section. For the interexchange basket, for
   annual filings only, the factor is set at the level prescribed in
   paragraph (b)(1)(v) of this section. For the special access basket, for
   annual filings only, the factor is set at the level prescribed in
   paragraph (b)(1)(iv) of this section. For all other filings, the value
   is zero.

   g = For annual filings for the CMT basket only, the ratio of minutes of
   use per access line during the base period, to minutes of use per
   access line during the previous base period, all minus 1.

   Z = The dollar effect of current regulatory changes when compared to
   the regulations in effect at the time the PCI was updated to PCI[t -1],
   measured at base period level of operations.

   Targeted Reduction = the actual possible dollar value of the
   (GDP-PI--X) reductions that will be targeted to the ATS Charge pursuant
   to § 61.45(i)(3). The reductions calculated by applying the (GDP-PI--X)
   portion of the formula to the CCL element within the CMT basket will
   contain the "g" component, as defined above.

   R = Base period quantities for each rate element "I", multiplied by the
   price for each rate element "I" at the time the PCI was updated to
   PCI[t -1].

   w = R + Z, all divided by R (used for the traffic sensitive, trunking,
   and special access baskets).

   w[ix]= R--(access rate in effect at the time the PCI was updated to
   PCI[t -1]* base period demand) + Z, all divided by R.

   PCI[t]= The new PCI value.

   PCI[t -1]= the immediately preceding PCI value.

   (ii) The X value applicable to the baskets specified in
   § § 61.42(d)(1), (d)(2), and (d)(3), shall be 6.5%, to the extent
   necessary to reduce a tariff entity's ATS charge to its Target Rate as
   set forth in § 61.3(qq). Once any price cap local exchange carrier
   tariff entity's ATS Charge is equal to the Target Rate as set forth in
   § 61.3(qq) for the first time (the former NYNEX telephone companies may
   be treated as a separate tariff entity), then, except as provided in
   paragraph (b)(1)(iii) of this section, X is equal to GDP-PI and no
   further reductions will be mandated ( i.e., if applying the full
   X-factor reduction for a given year would reduce the ATS charge below
   the Target Rate as set forth in § 61.3 (qq), the amount of X-factor
   reduction applied that year will be the amount necessary to reach the
   Target Rate as set forth in § 61.3 (qq)). A filing entity does not
   reach the Target Rate as set forth in § 61.3(qq) in any year in which
   it exercises an exogenous adjustment pursuant to § 61.45(d)(vii). For
   companies with separate tariff entities under a single price cap, the
   following rules shall apply:

   (A) Targeting amounts as defined in § 61.45(i)(1)(i) shall be
   identified separately, using the revenue for each of the tariff
   entities under the cap.

   (B) Each tariff entity shall only be required to use the amount of
   targeting necessary to get to the Target Rate as set forth in § 61.3
   (qq).

   (iii)(A) Except as provided in paragraph (b)(1)(iii)(B) of this
   section, once the Tariff Entity's Target Rate as set forth in § 61.3
   (qq) is achieved, the X-factor for the CMT basket will equal GDP-PI as
   long as GDP-PI is less than or equal to 6.5% and greater than 0%. If
   GDP-PI is greater than 6.5%, and an entity has eliminated its CCL and
   multi-line business PICCs charges, the X-factor for the CMT basket will
   equal 6.5%, and all End User Common Line charges, rates and nominal
   caps, will be increased by the difference between GDP-PI and the 6.5%
   X-factor. If GDP-PI is less than 0, the X-factor for the CMT basket
   will be 0.

   (B) For tariff filing entities with a Target Rate of $0.0095, or for
   the portion of a filing entity consolidated pursuant to § 61.48(o)
   that, prior to such consolidation, had a Target Rate of $0.0095, in
   which the ATS charge has achieved the Target Rate but in which the
   carrier common line (CCL) charge has not been eliminated, the X-factor
   for the CMT basket will be 6.5% until the earlier of June 30, 2004, or
   until CCL charges are eliminated pursuant to paragraph (i)(4) of this
   section. Thereafter, in any filing entity in which a CCL charge remains
   after July 1, 2004, the X-factor for the CMT basket will be determined
   pursuant to paragraph (b)(1)(iii)(A) of this section as if CCL charges
   were eliminated.

   (iv) For the special access basket specified in § 61.42(d)(5), the
   value of X shall be 3.0% for the 2000 annual filing. The value of X
   shall be 6.5% for the 2001, 2002 and 2003 annual filings. Starting in
   the 2004 annual filing, X shall be equal to GDP-PI for the special
   access basket.

   (v) For the interexchange basket specified in § 61.42(d)(4), the value
   of X shall be 3.0% for all annual filings.

   (b)(2) Adjustments to price cap local exchange carrier PCIs and average
   price cap CMT revenue per line, in tariff filings other than the annual
   access tariff filing, for the CMT basket described in § 61.42(d)(1),
   the traffic sensitive basket described in § 61.42(d)(2), the trunking
   basket described in § 61.42(d)(3), the interexchange basket described
   in § 61.42(d)(4), and the special access basket described in
   § 61.42(d)(5), shall be made pursuant to the formulas set forth in
   paragraph (b)(1)(i) of this section, except that the "w(GDP-PI--X)"
   component of those PCI formulas shall not be employed.

   (c) Effective July 1, 2000, the prices of the CMT basket rate elements,
   excluding special access surcharges under § 69.115 of this chapter and
   line ports in excess of basic under § 69.157 of this chapter, shall be
   set based upon Average Price Cap CMT Revenue per Line month.

   (d) The exogenous cost changes represented by the term "Z" in the
   formula detailed in paragraph (b)(1)(i) of this section shall be
   limited to those cost changes that the Commission shall permit or
   require by rule, rule waiver, or declaratory ruling.

   (1) Subject to further order of the Commission, those exogenous changes
   shall include cost changes caused by:

   (i) The completion of the amortization of depreciation reserve
   deficiencies;

   (ii) Such changes in the Uniform System of Accounts, including changes
   in the Uniform System of Accounts requirements made pursuant to § 32.16
   of this chapter, as the Commission shall permit or require be treated
   as exogenous by rule, rule waiver, or declaratory ruling;

   (iii) Changes in the Separations Manual;

   (iv) [Reserved]

   (v) The reallocation of investment from regulated to nonregulated
   activities pursuant to § 64.901 of this chapter;

   (vi) Such tax law changes and other extraordinary cost changes as the
   Commission shall permit or require be treated as exogenous by rule,
   rule waiver, or declaratory ruling;

   (vii) Retargeting the PCI to the level specified by the Commission for
   carriers whose base year earnings are below the level of the lower
   adjustment mark, subject to the limitation in § 69.731 of this chapter.
   The allocation of LFAM amounts will be allocated pursuant to
   § 61.45(d)(3). This section shall not be applicable to tariff filings
   during the tariff year beginning July 1, 2000, but is applicable in
   subsequent years;

   (viii) Inside wire amortizations;

   (ix) The completion of amortization of equal access expenses.

   (2) Local exchange carriers specified in § § 61.41(a)(2) or (a)(3)
   shall, in their annual access tariff filing, recognize all exogenous
   cost changes attributable to modifications during the coming tariff
   year in their Subscriber Plant Factor and the Dial Equipment Minutes
   factor, and completions of inside wire amortizations and reserve
   deficiency amortizations.

   (3) Exogenous cost changes shall be apportioned on a cost-causative
   basis between price cap services as a group, and excluded services as a
   group. Total exogenous cost changes thus attributed to price cap
   services shall be recovered from services other than those used to
   calculate the ATS charge.

   (e) [Reserved]

   (f) The exogenous costs caused by new services subject to price cap
   regulation must be included in the appropriate PCI calculations under
   paragraphs (b) and (c) of this section beginning at the first annual
   price cap tariff filing following completion of the base period in
   which such services are introduced.

   (g) In the event that a price cap tariff becomes effective, which
   tariff results in an API value (calculated pursuant to § 61.46) that
   exceeds the currently applicable PCI value, the PCI value shall be
   adjusted upward to equal the API value.

   (h) [Reserved]

   (i)(1)(i) Price cap local exchange carriers that are recovering
   revenues through rates pursuant to § § 69.106, 69.108, 69.109, 69.110,
   69.111, 69.112, 69.113, 69.118, 69.123, 69.124, 69.125, 69.129, or
   § 69.155 of this chapter shall target, to the extent necessary to
   reduce the ATS Charge to the Target Rate as set forth in § 61.3 (qq)
   for the first time, any PCI reductions associated with the dollar
   impact of application of the (GDP-PI--X) portion of the formula in
   § 61.45(b)(1)(i) to the traffic sensitive and trunking baskets. In
   order to calculate the actual dollars to transfer to the trunking and
   traffic sensitive baskets, carriers will first determine the "Targeted
   Revenue Differential" that will be transferred to the trunking and
   traffic sensitive baskets to reduce the ATS Charge to the Target Rate
   as set forth in § 61.3(qq). The Targeted Revenue Differential shall be
   applied only to the trunking and traffic sensitive baskets to the
   extent necessary to reduce the ATS charge to the Target Rate as set
   forth in § 61.3 (qq), and shall not be applied to reduce the PCIs in
   any other basket or to reduce Average Price Cap CMT Revenue per Line
   month, except as provided in § 61.45(i)(4).

   (ii) For the purposes of § 61.45(i)(1)(i), Targeted Revenue
   Differential will be determined by adding together the following
   amounts:

   (A) R* (GDP-PI -X) for the traffic sensitive basket, trunking basket,
   and the CMT basket excluding CCL revenues; and

   (B) CCL Revenues * [(GDP-PI-X -(g/2)]/[1 + (g/2)]

   Where "g" is defined in § 61.45(b)(1)(i).

   (2) Until a tariff entity's ATS Charge equals the Target Rate as set
   forth in § 61.3 (qq) for the first time, the Targeted Revenue
   Differential will be targeted to reduce the following rates for that
   tariff filing entity, in order of priority:

   (i) To the residual per minute Transport Interconnection Charge, until
   that rate is $0.00; then

   (ii) To the Information Surcharge, until that rate is $0.00; then

   (iii) To the other Local Switching charges and Switched Transport
   charges until the tariff entity's ATS Rate equals the Target Rate as
   set forth in § 61.3(qq) for the first time. In making these reductions,
   the reductions to Local Switching rates as a percentage of total
   X-factor reductions must be greater than or equal to the percentage
   proportion of Local Switching revenues to the total sum of revenues for
   Local Switching, Local Switching Trunk Ports, Signalling Transfer Point
   Port Termination, Switched Direct Trunked Transport, Signalling for
   Switched Direct Trunked Transport, Entrance Facilities for switched
   access traffic, Tandem Switched Transport, and Signalling for Tandem
   Switching ( i.e., Local Switching gets at least its proportionate share
   of reductions).

   (3) After a price cap local exchange carrier reaches the Target Rate as
   set forth in § 61.3(qq), the ATS Rate will be recalculated each
   subsequent Annual Filing. This process will identify the new ATS Charge
   for the new base period level. Due to change in base period demand and
   inclusion of new services for that annual filing, the absolute level of
   a tariff entity's ATS Charge may change. The resulting new ATS Charge
   level will be what that tariff entity will be measured against during
   that base period. For example, if a company whose target is $0.0055
   reached the Target Rate during the 2000 annual filing, that level may
   change to $0.0058 in the 2001 annual filing due to change in demand and
   inclusion of new services. Therefore, it will be the $0.0058 average
   rate that the tariff entity will be measured against for all non-annual
   filings. Likewise, if that same company was at the Target Rate during
   the 2000 filing, that level may change to $0.0053 average rate in the
   2001 annual filing due to change in demand and inclusion of new
   services. In that case, it will be at the $0.0053 average rate that the
   tariff entity will be measured.

   (4) A company electing a $0.0095 Target Rate will, in the tariff year
   it reaches the Target Rate, apply any Targeted Revenue Differential
   remaining after reaching the Target Rate to reduce Average Price Cap
   CMT Revenue per Line month until the CCL charge is eliminated. In
   subsequent years, until the earlier of June 30, 2004 or when the CCL
   charge is eliminated, tariff filing entities with a Target Rate of
   $0.0095, or the portion of a filing entity consolidated pursuant to
   § 61.48(o) that, prior to such consolidation, had a Target Rate of
   $0.0095, will reduce Average Price Cap CMT Revenue per Line month
   according to the following method:

   (i) Filing entity calculates the maximum allowable carrier common line
   revenue, as defined in § 61.46(d)(1), that would be permitted in the
   absence of further adjustment pursuant to this paragraph;

   (ii) Filing entity identifies maximum amount of dollars available to
   reduce Average Price Cap CMT Revenue per Line month by the following:

   (CMT revenue in a $0.0095 Area--CCL revenue in a $0.0095 Area) *
   (GDP-PI--X) + (CCL Revenue in a $0.0095 Area) * [(GDP-PI--X)
   -(g/2)]/[1+(g/2)]

   (iii) The Average Price Cap CMT Revenue per Line month shall then be
   reduced by the lesser of the amount described in paragraph (i)(4)(i) of
   this section and the amount described in paragraph (i)(4)(ii) of this
   section, divided by base period Switched Access End User Common Line
   Charge lines.

   [ 65 FR 38696 , June 21, 2000;  65 FR 57741 , Sept. 26, 2000]