Current through all regulations passed and filed through September 16, 2024
(A) The forward-looking, economic, cost-based
price of an element shall be set at a level that allows the providing carrier
to recover the sum of the total element long-run incremental cost (TELRIC) of
the element and a reasonable allocation of the forward-looking, joint and
common costs.
(B) TELRIC
(1) Principal
The TELRIC of an element is the forward-looking economic cost
over the long-run of the total quantity of the facilities and functions that
are directly attributable to, or reasonably identifiable as incremental to,
such element, calculated while holding all other products' volumes
constant.
(2) Study period
The commission will consider a cost study period of five years
to be reasonable. An incumbent local exchange carrier (ILEC)
will
have the burden of proof, to the commission's satisfaction, that such study
period would not be reasonable for a specific element.
(3) Federal, state, and
local income taxes
Federal, state, and local income tax expenses
will be
determined based on the TELRIC recognizing the
"tax-on-tax" situation that results from the deductibility of state and local
tax when federal taxes are paid.
(4) Inflation
TELRIC studies shall reflect costs that are expected to be
incurred during the study period. Such costs
are to be
projected to their anticipated level over the study period by using prices in
supplier contracts or an appropriate index of future cost, such as supplier
estimates of price changes, indices developed from labor contracts, or other
relevant indices.
(5) Investment
development
(a) Material investment
(i) The development of the material component
of investment shall begin with the current vendor price(s) for the hardware and
software resources required to provide the element, projected over the study
period as described above.
(ii)
Other components of material investment
may include
inventory, supply expenses, and sales taxes.
(iii) The sales tax component of investment
is to
be calculated by applying a sales tax factor if applicable. The factor shall
reflect taxes imposed by state and local taxing bodies on material
purchases
and be applied to the material and inventory
components.
(iv) The supply
component
may include the expense incurred by the ILEC for
storage, inventory, and delivery of material.
(b) Labor investment
There are two major components of labor investment,
vendor-related and ILEC-related.
(i)
Vendor-related labor investment
includes vendor-provided installation and
engineering.
(ii) ILEC-related
labor investment may be developed based on account averages or from estimates
of product-specific plant engineering and installation hours.
(iii) Total labor costs
are to
be computed by multiplying the account average or product specific work times
by the appropriate labor rate.
(iv)
Hourly labor rates include the operational wages, benefits, paid absence, and,
if applicable, tools and miscellaneous expenses.
(6) Fill factors
The investment developed above shall be adjusted to reflect
reasonably accurate "fill factors." Fill factors are the proportion of a
facility that will be filled with network usage during the study period. The
ILEC
has the burden to justify the reasonableness of the
fill factors used in its TELRIC studies.
(7) Maintenance
Maintenance costs are incurred in order to keep equipment
resources in usable condition.
(a)
Included in this classification are: direct supervision; engineering associated
with maintenance work; labor and material costs incurred in the upkeep of
plant; rearrangements and changes of plant; training of maintenance forces;
testing of equipment and facilities; tool expenses; and miscellaneous
expenses.
(b) The specific
maintenance cost estimates associated with the element in question or
investment-related annual maintenance factors may be applied to arrive at an
annual maintenance cost.
(c) The
factor
is
to be specific to the investment and expense accounts associated with the
element and developed from the most current data reasonably available to the
ILEC.
(8) The
forward-looking, economic, cost per unit of an element
equals
the forward-looking, economic cost of the element, divided by a reasonable
projection of the sum of the total number of units of that element that the
ILEC is likely to provide to requesting telephone companies and the total
number of units of that element that the ILEC itself is likely to use in
offering its own services, during the study period.
(9) In the
determination of the total number of units:
(a) If the ILEC offers an element on a
flat-rate basis, the number of units
are defined by the ILEC as the
discrete number of elements that the ILEC uses or provides (e.g., number of
loops or number of ports).
(b) If
the ILEC offers an element on a usage-sensitive basis, the number of units
are
defined by the ILEC as the unit of measurement of the usage (e.g., number of
minutes-of-use or database queries).
(10) The TELRIC of an
element
is
to reflect any cost-based volume discount, term discount, and/or
geographic-deaveraging the ILEC plans to offer.
(C) Forward-looking, joint and common costs
(1) Forward-looking common costs are economic
costs incurred by the ILEC in providing all elements and services provided by
the ILEC that cannot be attributed directly to an individual element or
service.
(2) Forward-looking joint
costs are those forward-looking costs that are common to only a subset of the
elements or services provided by the ILEC.
(3) Reasonable allocation of forward-looking,
joint and common costs:
(a) Forward-looking
joint costs which are common to only a subset of the elements or services
provided by the ILEC,
are to be allocated to that subset, and should
then be allocated among the individual elements or services in that subset,
based upon measures of utilization, including such measures as: number of
circuits, minutes-of-use, and bandwidth. The commission
may
evaluate the reasonableness of the joint cost allocation methodology on a
case-by-case basis.
(b)
Forward-looking common costs
are to be allocated among elements and services
in a reasonable manner. The ILEC may allocate forward-looking common costs
using a fixed allocator as a markup over the sum of the TELRIC and the
allocated forward-looking joint cost allocated to such element. The ILEC
has the burden of proving that the fixed allocator
permits only reasonable recovery of any forward-looking common costs.
