§  54.605   Determining the rural rate.

   (a) Rural rate. An applicant shall use the lower of the applicable
   "rural rate" currently available in the Administrator's database or the
   rural rate included in the service agreement that the health care
   provider enters into with the service provider when requesting funding.

   (1) For purposes of paragraph (a) of this section, The rural rate will
   be determined using the following tiers in which a health care provider
   is located:

   (i) Extremely Rural. Areas entirely outside of a Core Based Statistical
   Area.

   (ii) Rural. Areas within a Core Based Statistical Area that does not
   have an Urban Area with a population of 25,000 or greater.

   (iii) Less rural. Areas in a Core Based Statistical Area that contains
   an Urban Area with a population of 25,000 or greater, but are within a
   specific census tract that itself does not contain any part of a Place
   or Urban Area with a population of greater than 25,000.

   (iv) Frontier. For health care providers located in Alaska only, areas
   outside of a Core Based Statistical Area that are inaccessible by road
   as determined by the Alaska Department of Commerce, Community, and
   Economic Development, Division of Community and Regional Affairs. The
   "rural rate" shall be the median of all available rates for the same or
   functionally similar service offered within the rural tier, applicable
   to the health care provider's location within the state. The
   Administrator shall not include any rates reduced by universal service
   support mechanisms. The "rural rate" shall be used as described in this
   subpart to determine the credit or reimbursement due to a
   telecommunications carrier that provides eligible telecommunications
   services to eligible health care providers.

   (b) Database. The Administrator shall create and maintain on its
   website a database that lists, by state, the eligible
   Telecommunications Program services and the related rural rate for each
   such service and for each rural tier.

   (c) Request for waiver. A petition for a waiver of the "rural rate," as
   described in paragraph (a) in this section, may be granted if the
   service provider demonstrates that application of the rural rate
   published by the Administrator would result in a projected rate of
   return on the net investment in the assets used to provide the rural
   health care service that is less than the Commission-prescribed rate of
   return for incumbent rate of return local exchange carriers (LECs). All
   waiver requests must articulate specific facts that demonstrate that
   "good cause" exists to grant the requested waiver and that granting the
   requested waiver would be in the public interest. To satisfy this
   standard, the waiver request must be substantiated through documentary
   evidence as stated in the following. A waiver request will not be
   entertained if it does not also set forth a rural rate that the service
   provider demonstrates will permit it to obtain no more than the current
   Commission prescribed rate of return authorized for incumbent rate of
   return local exchange carriers.

   (1) For purposes of paragraph (c), petitions seeking a waiver must
   include all financial data and other information to verify the service
   provider's assertions, including, at a minimum, the following
   information:

   (i) Company-wide and rural health care service gross investment,
   accumulated depreciation, deferred state and federal income taxes, and
   net investment; capital costs by category expressed as annual figures
   (e.g., depreciation expense, state and federal income tax expense,
   return on net investment); operating expenses by category (e.g.,
   maintenance expense, administrative and other overhead expenses, and
   tax expense other than income tax expense); the applicable state and
   federal income tax rates; fixed charges (e.g., interest expense); and
   any income tax adjustments;

   (ii) An explanation and a set of detailed spreadsheets showing the
   direct assignment of costs to the rural health care service and how
   company-wide common costs are allocated among the company's services,
   including the rural health care service, and the result of these direct
   assignments and allocations as necessary to develop a rate for the
   rural health care service;

   (iii) The company-wide and rural health care service costs for the most
   recent calendar year for which full-time actual, historical cost data
   are available;

   (iv) Projections of the company-wide and rural health care service
   costs for the funding year in question and an explanation of those
   projections;

   (v) Actual monthly demand data for the rural health care service for
   the most recent three calendar years (if applicable);

   (vi) Projections of the monthly demand for the rural health care
   service for the funding year in question, and the data and details on
   the methodology used to make those projections;

   (vii) The annual revenue requirement (capital costs and operating
   expenses expressed as an annual number plus a return on net investment)
   and the rate for the funded service (annual revenue requirement divided
   by annual demand divided by twelve equals the monthly rate for the
   service), assuming one rate element for the service), based on the
   projected rural health care service costs and demands;

   (viii) Audited financial statements and notes to the financial
   statements, if available, and otherwise unaudited financial statements
   for the most recent three fiscal years, specifically, the cash flow
   statement, income statement, and balance sheets. Such statements shall
   include information regarding costs and revenues associated with, or
   used as a starting point to develop, the rural health care service
   rate; and

   (ix) Density characteristics of the rural area or other relevant
   geographical areas including square miles, road miles, mountains,
   bodies of water, lack of roads, remoteness, challenges and costs
   associated with transporting fuel, satellite and backhaul availability,
   extreme weather conditions, challenging topography, short construction
   season or any other characteristics that contribute to the high cost of
   servicing the health care providers.