Sec.  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
    Sec. 61.42(d)(2), the trunking basket described in  Sec. 61.42(d)(3), the special
   access  basket  described in  Sec. 61.42(d)(5) and the Interexchange Basket
   described  in  Sec. 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  Sec. 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  Sec.  Sec. 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  Sec. 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  Sec. 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  Sec. 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  Sec. 61.3 (qq)). A filing entity does not reach
   the Target Rate as set forth in  Sec. 61.3(qq) in any year in which it exercises
   an exogenous adjustment pursuant to  Sec. 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  Sec. 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  Sec. 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  Sec. 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  Sec. 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  Sec. 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  Sec. 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  Sec. 61.42(d)(1), the
   traffic sensitive basket described in  Sec. 61.42(d)(2), the trunking basket
   described  in   Sec. 61.42(d)(3),  the  interexchange  basket  described in
    Sec. 61.42(d)(4), and the special access basket described in  Sec. 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  Sec. 69.115 of this chapter and line
   ports in excess of basic under  Sec. 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  Sec. 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  Sec. 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  Sec. 69.731 of this chapter. The
   allocation of LFAM amounts will be allocated pursuant to  Sec. 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  Sec.  Sec. 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  Sec. 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  Sec.  Sec. 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  Sec. 69.155 of this chapter
   shall target, to the extent necessary to reduce the ATS Charge to the Target
   Rate as set forth in  Sec. 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  Sec. 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  Sec. 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  Sec. 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
    Sec. 61.45(i)(4).

   (ii) For the purposes of  Sec. 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  Sec. 61.45(b)(1)(i).

   (2) Until a tariff entity's ATS Charge equals the Target Rate as set forth
   in  Sec. 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
    Sec. 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  Sec. 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  Sec. 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  Sec. 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]