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TITLE 16ECONOMIC REGULATION
PART 2PUBLIC UTILITY COMMISSION OF TEXAS
CHAPTER 26SUBSTANTIVE RULES APPLICABLE TO TELECOMMUNICATIONS SERVICE PROVIDERS
SUBCHAPTER PTEXAS UNIVERSAL SERVICE FUND
RULE §26.407Small and Rural Incumbent Local Exchange Company Universal Service Plan Support Adjustments

(a) Purpose. This section establishes criteria for a small incumbent local exchange company (small ILEC) to request adjustments to the monthly support the company receives in accordance with §26.404 of this title (relating to the Small and Rural Incumbent Local Exchange Company Universal Service Plan).

(b) Application.

  (1) Small ILECs. This section applies to a small ILEC that has been designated as an eligible telecommunications provider (ETP) by the commission in accordance with §26.417 of this title (relating to Designation as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF)).

  (2) Other ETPs providing service in small or rural ILEC study areas. This section applies to a telecommunications provider other than a small ILEC that provides service in small ILEC study areas that have been designated as an ETP by the commission in accordance with §26.417 of this title.

(c) Definitions. The following words and terms, when used in this section, will have the following meaning, unless the context clearly indicates otherwise:

  (1) Eligible telecommunications provider (ETP)--A telecommunications provider designated by the commission in accordance with §26.417 of this title.

  (2) Federal Communications Commission (FCC) Rate of Return--The FCC's most recently prescribed rate of return as of the date of any determination, review, or adjustment under this section, to be no greater than 9.75 percent prior to July 1, 2021. If the FCC no longer prescribes such a rate of return, commission staff will initiate proceedings as necessary for the commission to determine or modify the FCC rate of return to be used for purposes of this section.

  (3) Reasonable Rate of Return--An intrastate rate of return within two percentage points above or three percentage points below the FCC rate of return.

  (4) Small incumbent local exchange company (small ILEC)--For purposes of this section, a small ILEC is a small provider as defined by PURA §56.032(a)(2).

(d) Notification to the commission that a small ILEC seeks to participate in this section. A small ILEC that is not an electing company under Chapters 58 or 59 may file a written notice to the commission to participate in this section to have the commission determine the amount of Small and Rural Incumbent Local Exchange Company Universal Service Plan support it receives, so that such support, combined with regulated revenues, provides the small ILEC an opportunity to earn a reasonable rate of return if the reported rate of return of such small ILEC is based on expenses that it believes are reasonable and necessary. When adjusting monthly support, the commission will consider, among other things described in this section, the adequacy of basic rates to support universal service. A small ILEC that submits a written notice to participate in this section will continue to receive the same level of Small and Rural Incumbent Local Exchange Company Universal Service Plan support it was receiving on the date of the written notice until the commission makes a determination or adjustment under this section.

(e) Annual report of a requesting small ILEC.

  (1) A small ILEC that submits a written notice under subsection (d) of this section must file an annual report each year with the commission, using commission-prescribed forms that are available on the commission's website. The initial annual report for a small ILEC that files a written notice under subsection (d) of this section must be filed within two months after a small ILEC elects to participate in this section. Subsequent annual reports must be filed no later than September 15th of each year. All annual reports must be related to the most recent calendar year prior to the filing of the annual report.

  (2) The annual report filed by a small ILEC under this subsection must include information on the following:

    (A) summary of revenues and expenses;

    (B) all revenue, expense, and capital accounts;

    (C) invested capital;

    (D) intrastate federal income taxes calculated at the applicable tax rate;

    (E) network access service revenue;

    (F) weighted average cost of capital (for investor-owned utilities);

    (G) historical financial statistics;

    (H) proposed company adjustments;

    (I) the name, job title, and total annual compensation of each officer, director, and, for investor-owned companies, owners and former owners (including each general manager and any other highly compensated employee that may not be designated as an officer of the company), and the name and compensation of each family member of officers, directors, owners, and former owners employed by the small ILEC;

    (J) the amount and nature of each affiliate transaction, including transactions with family members of officers, directors, and, for an investor-owned company, owners and former owners;

    (K) all detail and supporting documentation necessary to support each of the items in subsection (e)(2); and

    (L) an authorized official's signature.

  (3) The small ILEC must also provide its full and complete cost allocation manual.

(f) Commission staff's review of annual reports. Annual reports submitted under this section will be reviewed by commission staff to determine whether a small ILEC's support, when combined with regulated revenues, provide the small ILEC an opportunity to earn a reasonable rate of return and whether the reported rate of return of the small ILEC is based on expenses that the commission staff determines are reasonable and necessary.

  (1) Timeline for review of the annual reports.

    (A) During the review of an annual report, commission staff may submit requests for information to the small ILEC. Responses to such requests for information will be provided to the commission staff within ten days after receipt of the request by the small ILEC. If a small ILEC fails to timely provide information to commission staff, the small ILEC will be considered to be a Category 3 provider.

    (B) Within 90 days after an annual report has been filed, commission staff will complete its review of the annual report and file a memorandum for the commission's consideration regarding a final recommendation on the reported or commission-staff adjusted rate of return.

  (2) Commission staff's review of an annual report.

    (A) Commission staff will review and may make adjustments to information contained in the small ILEC's annual report, such as:

      (i) expenses that are not reasonable or necessary;

      (ii) expenses listed under §26.201(c)(2) of this title (relating to Cost of Service);

      (iii) expenses that are not in compliance with FCC rules;

      (iv) inappropriate affiliate transactions;

      (v) inappropriate cost allocations;

      (vi) inappropriate allocation of federal universal service support; and

      (vii) any other adjustments that commission staff may find appropriate.

    (B) Commission staff will recalculate the small ILEC's reported rate of return and provide an adjusted rate of return if any adjustments were made in paragraph (2)(A) of this subsection.

  (3) Separation of small ILECs into rate of return categories. Upon completion of commission staff's review of a small ILEC's annual report, commission staff will determine the appropriate category for the small ILEC within the following three categories based on the small ILEC's reported or commission-staff adjusted rate of return:

    (A) Category 1. A rate of return of more than three percentage points below the FCC rate of return;

    (B) Category 2. A rate of return within two percentage points above or three percentage points below the FCC rate of return; and

    (C) Category 3. A rate of return of more than two percentage points above the FCC rate of return.

  (4) Commission staff will file a memorandum for the commission's consideration of the categorization of each small ILEC in accordance with paragraph (1)(B) of this subsection.

(g) Treatment of small ILECs based on rate of return categories. Each category will be processed as set forth below.

  (1) Category 1 - A small ILEC that has a reported or commission-staff adjusted rate of return in Category 1 may file an application for an adjustment to have its annual Small and Rural Incumbent Local Exchange Company Universal Service Plan support or basic rates increased to a level that would allow the small ILEC to earn an amount that would be considered a reasonable rate of return, except that the adjustment may not set a small ILEC's support level at more than 140 percent of the annualized support the provider received in the 12-month period before the date of the adjustment. Any rate adjustments may not adversely affect universal service.

  (2) Category 2 - A small ILEC that has a reported or commission-staff adjusted rate of return in Category 2 will be considered to be earning a reasonable rate of return and will not be eligible to file for an adjustment to its Small and Rural Incumbent Local Exchange Company Universal Service Plan support, except as described in subsection (h)(2)(B) of this section. The commission may not initiate a proceeding against a small ILEC that has a reported or commission-staff adjusted rate of return within Category 2.

  (3) Category 3 - For a small ILEC that has a reported or commission-staff adjusted rate of return in Category 3, the commission staff may initiate a proceeding to review and adjust the small ILEC's Small and Rural Incumbent Local Exchange Company Universal Service Plan support or basic rates to adjust the small ILEC's rate of return into the reasonable rate of return range. A small ILEC that has a commission-staff adjusted rate of return in Category 3 is not eligible to file for an adjustment to its Small and Rural Incumbent Local Exchange Company Universal Service Plan support, except as described in subsection (h)(2)(B) of this section.

(h) Contested case procedures.

  (1) Documents to be submitted. At a minimum, the following information must be provided by a small ILEC in a contested case proceeding, irrespective of whether such case is initiated by a small ILEC or commission staff. Any proceeding filed under this section in which a party has intervened and requested a hearing is a case initiated by a small ILEC or commission staff and the filing requirements listed below apply to such cases.

    (A) all the data required by subsections (e) and (f) of this section;

    (B) responses to commission staff's requests for information in connection with the review of each small ILEC's annual report;

    (C) the requested Small and Rural Incumbent Local Exchange Company Universal Service Plan support or rate adjustments; and

    (D) testimony and workpapers necessary to support the requested adjustments.

  (2) Qualification for contested case proceeding.

    (A) Category 1 small ILECs. A small ILEC in Category 1, as identified in subsection (f)(3) of this section, may file an application that is eligible for administrative review or informal disposition to request an adjustment to its Small and Rural Incumbent Local Exchange Company Universal Service Plan or basic rates to allow the company to earn a reasonable rate of return.

    (B) Category 2 or Category 3 small ILECs subsequent to rate of return adjustment by commission staff. A small ILEC that has a reported rate of return in Category 1 or Category 2, as identified in subsection (f)(3) of this section, but that has a commission-staff adjusted rate of return in Category 2 or Category 3, may file a petition to contest the commission-staff adjusted rate of return and may also request an adjustment to its Small and Rural Incumbent Local Exchange Company Universal Service Plan support or basic rates in the same proceeding. A small ILEC that has a reported rate of return in Category 2 but because of commission-staff adjustments the small ILEC is in Category 3, may file a petition to contest the commission-staff adjustments. However, the small ILEC may not request an adjustment to its Small and Rural Incumbent Local Exchange Company Universal Service Plan support or basic rates. Any proceeding that is initiated by a small ILEC to protest a reclassification and in which a party has intervened and requested a hearing is a case initiated by a small ILEC and the filing requirements listed below apply to these cases.

    (C) Category 3 small ILECs. A small ILEC in Category 3, as identified in subsection (f)(3) of this section, is subject to a commission staff-initiated proceeding to review the company's annual report and reported rate of return, must submit the information listed in paragraph (1) of this subsection.

  (3) Notice. Each small ILEC that files a contested case proceeding will provide notice as required by §22.55 of this title (relating to Notice in Other Proceedings). At a minimum, notice will be published in the Texas Register and will be provided to the Office of Public Utility Counsel. Each Category 1 small ILEC that files an application under this section must provide notice to its customers that the company may be required to increase its rates as part of the adjustment to have its annual Small and Rural Incumbent Local Exchange Company Universal Service Plan support increased.

Cont'd...

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