Sec. 61.44  Adjustments to the PCI for Dominant Interexchange Carriers.

    (a) Dominant interexchange 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 access and exogenous cost changes.
    (b) Subject to paragraph (d) of this section, adjustments to each 
PCI of dominant interexchange carriers subject to price cap regulation 
shall be made pursuant to the following formula:

PCIt=PCIt-1[1+w(GNP-PI-X)+ Y/R+ 
          Z/R]

where
GNP-PI=the percentage change in the GNP-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,
X=productivity factor of 3.0%,
 Y=(new access rate--access rate at the time the PCI was 
          updated to PCIt-1)  x  (base period demand),
 Z=the dollar effect of current regulatory changes when 
          compared to the regulations in effect at the time the PCI was 
          updated to PCIt-1, measured at base period level of 
          operations,
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 PCIt-1,
w=R - (access rate in effect at the time the PCI was updated to 
          PCIt-1  x  base period demand) +  Z, all 
          divided by R,
PCIt=the new PCI value, and
PCIt-1=the immediately preceding PCI value.

    (c) The exogenous cost changes represented by the term `` 
Z'' in the formula detailed in paragraph (b) of this section, shall be 
limited to those cost

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changes that the Commission shall permit or require, and include those 
caused by:
    (1) The completion of the amortization of depreciation reserve 
deficiencies;
    (2) Changes in the Uniform System of Accounts;
    (3) Changes in the Separations Manual;
    (4) The reallocation of investment from regulated to nonregulated 
activities pursuant to Sec. 64.901; and
    (5) Such tax law changes and other extraordinary exogenous cost 
changes as the Commission shall permit or require.

These exogenous cost changes shall be apportioned on a cost-causative 
basis between price cap services as a group, and excluded services as a 
group. Exogenous cost changes thus attributed to price cap services 
shall be further apportioned on a cost-causative basis among price cap 
baskets.

    (d) In calculating the `` Y'' variable in the formula 
detailed in paragraph (b) of this section:
    (1) The net change in total non-traffic sensitive access costs for 
all capped services (in all baskets), calculated at base period demand, 
shall be allocated among the baskets in proportion to each basket's 
share of total base period non-traffic sensitive minutes of access (both 
originating and terminating);
    (2) The net change in total traffic sensitive access costs for all 
capped services (in all baskets), calculated at base period demand, 
shall be allocated among the baskets in proportion to each basket's 
share of total base period traffic sensitive minutes of access; and
    (3) Changes in special access costs in each basket, calculated at 
base period demand, shall be assigned directly to the baskets in which 
such costs are incurred.
    (e) In calculating the ``w'' variable in the formula detailed in 
paragraph (b) of this section, the access costs that must be subtracted 
from the ``R'' variable shall be apportioned among the baskets in a 
manner that is consistent with the methodology provided in paragraph (d) 
of this section for calculating the `` Y'' in each basket.
    (f) The ``w(GNP-PI - X)'' component of the PCI formula shall be 
employed only in the adjustment made in connection with the annual price 
cap filing.
    (g) The exogenous cost changes and changes in access costs caused by 
new services subject to price cap regulation must be included in the 
appropriate PCI calculations under paragraph (b) of this section 
beginning at the first annual price cap tariff filing following 
completion of the base period in which they are introduced.
    (h) In the event that a price cap tariff becomes effective, which 
tariff results in an API value (calculated pursuant to Sec. 61.46) that 
exceeds the currently applicable PCI value, the PCI value shall be 
adjusted upward to equal the API value.

[ 54 FR 19842 , May 8, 1989, as amended at  55 FR 42383 , Oct. 19, 1990]