Price Cap Performance Review for Local Exchange Carriers; Access Charge Reform

On May 7, 1997, the Federal Communications Commission adopted the Fourth Report and Order in CC Docket No. 94-1, Second Report and Order in CC Docket No. 96-262, revising its price cap regulations applicable to incumbent local exchange carriers (incumbent LECs). Specifically, the Commission replaced the choice of three X-Factors in the current price cap plan with a single X-Factor of 6.5 percent. The Commission also eliminated sharing obligations, but retained the low- end adjustment mechanism. The Commission adopts a fixed X-Factor to remain in effect until the next performance review, rather than updating the X-Factor annually on the basis of a five-year industry- wide moving average. In the Fourth Further Notice in CC Docket No. 94- 1, the Commission sought comment on revising the common line PCI formula and the price cap exogenous cost rules. The Commission adopted revisions to the common line PCI formula in its Access Reform First Report and Order adopted concurrently with this Order, and so does not need to adopt any further revisions here. Also, as a result of its decision to adopt a fixed X-Factor, the Commission does not need to address issues regarding the price cap exogenous cost rules. The Commission requires price cap LECs to reset their price cap indices as of July 1, 1997, to be at the levels that would have been in effect had the 6.5 percent X-Factor taken effect concurrently with the 1996 annual access tariffs.