ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 16. ECONOMIC REGULATION Part II. Public Utility Commission of Texas Chapter 23. Substantive Rules Records and Reports 16 TAC sec.23.12 The Public Utility Commission of Texas adopts an amendment to sec.23.12, with changes to the proposed text as published in the August 26, 1994, issue of the Texas Register (19 TexReg 6693). This amendment adds a new subsection sec.23.12(e) to the Substantive Rules concerning submission of cost allocation manuals by local exchange companies (LECs). The cost allocation manual requires that the utilities who are also engaged in non-regulated activities should separately allocate costs of such non-regulated activities and those of regulated activities. The purpose of the cost allocation manual is to prevent cross-subsidization of non-regulated activities by the revenues generated from regulated activities. Comments were filed by the Texas Telephone Association (TTA), Curtis Blakely and Company and Bolinger, Segars, Gilbert, and Moss, (jointly CB & Company and BSGM), Texas Statewide Telephone Cooperative, Inc. (TSTCI), Office of Public Utility Counsel (OPC), and Southwestern Bell Telephone Company (SWB). All of the parties filing comments recommended changes to the published rule. The proposed rule was revised to accommodate a majority of suggestions offered by the commenters. OPC proposed two new paragraphs. The first, would include language indicating that nothing in sec.23.12(e) or in the cost allocation matrix would relieve LECs from their burden of meeting the requirements of the Texas Civil Statutes, Article 1446c (Public Utility Regulatory Act or PURA) sec.41(c)(1). OPC was concerned that LECs may argue that compliance with the CAM deems any expense to be recoverable in a rate case. The commission shares OPC's concern. The purpose of this rule is to obtain LEC cost allocation information, and not to approve a LEC's affiliate transactions. Therefore, the commission agrees to add a new paragraph sec.23.12(e)(8) to include OPC's suggestion. The added new paragraph sec.23.12(e)(8) clarifies that complying with reporting requirements of this subsection does not imply that the affiliate transactions meet the requirements of the PURA. The second addition proposed by OPC would add language requiring that a copy of CAM-related information filed with the Federal Communications Commission (FCC) also be filed with the commission. OPC suggested that this additional information will aid in analyzing issues if conflicts between FCC filings and filings with the commission arise in the future. The commission agrees with OPC that the information would be useful in analyzing conflicts. Therefore, the commission adds sec.23.12(e)(4)(E) to incorporate OPC's suggested language. TTA commented that proposed sec.23.12(e)(1) conflicted with proposed sec.23. 12(e)(4)(A) in requiring all LECs to annually file a cost allocation manual with the commission. Subparagraph sec.23.12(e)(4)(A) required annual updates after the initial CAM is filed with the commission. TTA preferred allowing updates to be filed after the initial CAM filing. The commission believes that it would promote more efficient use of the commission's resources to require filing of a complete CAM on a yearly basis, thereby avoiding the burden on the commission staff of maintaining the correct sections of a Company's CAM and avoiding confusion due to possible misfilings of the updates. Therefore, the commission has deleted the reference in sec.23.12(e)(4)(A) regarding allowing the filing of updates to the CAM after the initial CAM has been filed. With this change, no conflicts exist between sec.23.12(e)(1) and sec.23.12(e)(4)(A). For proposed paragraphs sec.23.12(e)(1) and (2), SWB and TTA presented clarifying language regarding the reference to the CAM allocating costs. The commission agrees that the suggested wording would help clarify the purpose of allocating costs between a LEC's regulated activities and its other activities in the cost allocation manual. Therefore, the commission makes the suggested changes to sec.23.12(e)(1) and (2). SWB proposed that sec.23.12(e)(2) be changed to include additional language clarifying filing procedures for a Class A LEC such as Southwestern Bell. SWB sought explicit language for the procedures it must follow in filing its CAM, and proposed language so that a Class A LEC shall follow the procedures set forth by the FCC for interstate cost allocations. In sec.23.12(e) the commission has not proposed to impose additional allocation procedures on Class A LECs such as SWB. Therefore, the commission agrees with SWB on its proposed language and incorporates the suggested change to sec.23.12(e)(2), clarifying the allocation procedures required for Class A LECs. SWB recommended a change to sec.23.12(e)(3)(C). SWB proposed that the term incidental activities have the same meaning and application as that given by the FCC. The commission agrees with SWB's proposal and incorporates the suggested language to this subparagraph. TTA proposed that the reporting requirements of the Earnings Monitoring Report, Schedule VI and Substantive Rule sec.23.11(f) be eliminated since that information will now be provided in subsections sec.23.12(e)(3)(D) and (E) and sec.23.12(e)(4)(D). The commission does not agree with TTA's proposal to eliminate reporting requirements contained in either the Earnings Monitoring Report or sec.23.11(f). The commission does, however, believe that duplication can be avoided by deleting the reporting requirement in this subsection and relying on affiliate information filed under the requirements of sec.23.11(f) and the Earnings Monitoring Report. Therefore, the commission has deleted subparagraphs sec.23.12(e)(3)(D) and (E). The commission will, however, continue to require filings pursuant to sec.23.12(e)(4)(D). This report will provide regulated/nonregulated information on a Part 32 account basis; information that has not been required by the commission in other reporting requirements. SWB proposed amending sec.23.12(e)(3)(F) to indicate that the commission- approved cost allocation matrix would be inapplicable for Class A LECs, such as SWB. The commission agrees with SWB's proposal because Class A LECs already prepare a FCC approved CAM that is sufficient for the commission's purposes, and accordingly has amended renumbered sec.23.12(e)(3)(D) (published as sec.23.12(e)(3)(F)) to incorporate SWB's suggestion. TTA proposed a change to sec.23.12(e)(3)(E) (published as sec.23.12(e)(3)(G)) to clarify that the time reporting procedures contained in the rule pertain only to the LEC's regulated telephone operating units. The commission agrees with TTA's proposal and has amended this subsection accordingly. Addressing sec.23.12(e)(4), TTA proposed that LECs be allowed more time for the initial filing, due on June 1, 1995. TTA is concerned that if the rule becomes effective on March 1, 1995, and the initial filing is due June 1, 1995, LECs would have only 90 days to complete the initial filing. TTA proposed that the rule should allow for the companies to file the initial CAM 180 days after the effective date of this rule. The commission agrees with TTA on the need for additional time for the initial filing. Therefore, the commission has amended sec.23.12(e)(4) to provide additional time for the initial CAM filings. TSTCI stated that the filing requirements in sec.23.12(e)(4) go beyond the filing requirements adopted by the FCC in CC Docket 86-111, and impose an additional filing requirement on the small LECs. TSTCI urged that all LECs with 31,000 or less access lines be exempted from the annual CAM filing requirement. TSTCI proposed that the rule be amended to allow companies to prepare and maintain CAMs, and to allow the commission staff to request a copy of the CAM if necessary to review a company. The commission does not agree with TSTCI's arguments. The FCC in CC Docket 86-111 stated that the FCC was not convinced that small companies were unable to cross-subsidize their nonregulated activities. Furthermore, the FCC stated that they had no reason to believe that small LECs lack the natural incentive to shift costs and that their ability to cross-subsidize had so diminished as to remove all cause for regulatory concern. The commission is aware that both large and small LECs are involved in nonregulated activities that, from a cost allocation standpoint, can materially impact the LEC's reported regulated financials. With the concern of potential cross-subsidization in mind the commission believes that it is in the public interest for LECs to file cost allocation manuals with the commission on an annual basis. The filing of information proposed in sec.23. 12(e) will provide to the public information on a LEC's allocations of costs using the commission's uniform cost allocation matrix. Additionally, other information required in subparagraphs sec.23.12(e)(4)(B)-(E) provides assurance to the public that the LECs are in compliance with the commission's rule. Therefore, The commission rejects TSTCI's suggestion to amend sec.23.12(e) to eliminate small LECs from the CAM filing requirement. TTA suggested amending sec.23.12(e)(4) to change the basis of reporting. This subsection in the published version would require each LEC to file information for the preceding calendar year. TTA proposed to require information on methodologies to be applied on a prospective basis. The commission does not agree with this proposal. Conceptually, the rule is structured to require the LECs to file the CAM on June 1 of each calendar year such that the CAM contains information for the preceding year. Thus, the commission will be able to review the CAM, including the methodologies used during the preceding year. Should there be an area of concern identified by the commission, the LEC could be contacted and the issue could be discussed with that company. If a change in the methodologies becomes necessary, the LEC would, in turn, make a change in allocation methodologies on a going forward basis. Based on this approach, the commission declines to change sec.23.12(e)(4) . Addressing subparagraphs sec.23.12(e)(4)(B)-(D), TTA discussed the requirements of these subsections in relation to the audit requirement in sec.23.12(e)(5). TTA's position was that the audit requirement is unnecessary and costly. TTA also stated that the requirements of sec.23.12(e)(4)(B)-(D) in addition to the audit requirement make both unnecessary and duplicative. If the audit is required, TTA proposed that sec.23.12(e)(4)(B)-(D) should be eliminated. If, however, the audit requirement is eliminated, TTA recommended that the requirements of sec.23.12(e)(4)(B)-(D) should be used as forms of assurance that the procedures are properly implemented by the companies. Additionally, TTA stated that the commission can obtain further assurance that CAM procedures are accurately implemented through its own compliance audit program if questions about specific companies arise in the future. TSTCI also opposed the audit requirement. Instead, TSTCI proposed that in sec.23.12(e)(4)(C) an attestation statement signed by an officer of an LEC be deemed sufficient. In support of its proposal, TSTCI stated that only an attestation statement is required for the Earnings Monitoring Report. TSTCI stated that if the officer's attestation is sufficient for the Earnings Monitoring Report, then it should be sufficient for cost allocation reporting purposes. Regarding the audit requirement, the commission is persuaded by TTA's arguments that sec.23.12(e)(4)(B)-(D) will provide a sufficient level of assurance that CAM procedures are being properly implemented and that it would avoid the cost of an audit of the CAM and the accompanying regulated/nonregulated comparative percentage report. Therefore, the commission deletes published sec.23.12(e)(5) to eliminate the audit requirements. Responding to TSTCI's proposal, the commission believes that a greater level of information is required beyond an attestation statement. The Earnings Monitoring Report does require an attestation statement, but that report also requires that the financials be tied back to audited financial statements, a condition the commission is not requiring in this rule. Therefore, the commission declines to amend subparagraphs sec.23.12(e)(4)(B)-(D). Regarding the requirements on Class A utilities, the commission clarifies that renumbered sec.23.12(e)(5)(A) (published as sec.23.12(e)(6)(A)) would continue to require that a complete copy of the FCC-CAM, including the audit report on FCC's Report 43-03, be filed with the commission. The commission clarifies that deletion of published sec.23.12(e)(5) of this rule would not waive the requirement for Class A companies to file a copy of the audit report. TTA proposed additional clarifying language in sec.23.12(e)(4)(C). TTA asserted that the intent of the attestation statement is to indicate that the company's CAM was followed throughout the year. TTA proposed to clarify sec.23. 12(e)(4)(C). The commission agrees with TTA's proposal and has amended sec.23. 12(e)(4)(C) to include TTA's suggestion. Regarding sec.23.12(e)(4)(D), TTA proposed clarifying the term capital. The commission agrees with the proposed change by TTA and has amended sec.23.12(e) (4)(D) accordingly. TTA expressed concerns over disclosing nonregulated information that it considers proprietary. TTA urged the commission to address the question of proprietary treatment of nonregulated information. The information required by this rule is not only of interest to the commission but also of interest to the public. Typically, whenever companies are required to submit information that is a trade secret, the companies are required to make a showing under the law to that effect to the commission to justify the withholding of information from the public. The commission has in the past protected companies' proprietary information on a case by case basis. The commission believes that amending the rule to protect proprietary information is unwarranted and doing so will likely encourage companies to be overcautious in protecting the information from public disclosure and consequently overburden the commission resources. Since a mechanism for protecting proprietary information is already in place at the commission, which has worked well, the TTA's concern is unwarranted. Addressing the audit requirement contained in published sec.23.12(e)(5), TTA and CB & Company and BSGM expressed concerns about the audit standards. Since the commission has agreed to delete the audit requirements for all LECs, except Class A companies, it is not necessary to address these issues. TTA proposed changes to published subparagraphs sec.23.12(e)(6)(A) and (B) relating to alternative filings. TTA stated that any intrastate requirements that are put into place should not conflict with the FCC requirements and impose duplicative or contradictory requirements. TTA proposed wording in these subsections which would clarify the requirement that a LEC follow an FCC- approved CAM. SWB also proposed amending published sec.23.12(e)(6)(A) to clearly state that a Class A LEC's filing with the commission of copies of pertinent FCC-filed materials should be deemed sufficient, without more, to satisfy the requirements of sec.23.12(e). SWB argued that to impose additional requirements would be unnecessary, burdensome and duplicative. The commission has amended subparagraphs sec.23.12(e)(5)(A) and (B) (published as sec.23.12(e) (6)(A) and (B)) to include TTA's suggested language. TTA and SWB also recommended that class A LECs be exempted from the filing requirements of sec.23.11(e)(4)(B)-(D). The commission does not agree with this recommendation of TTA and SWB. The contention that any intrastate requirements that vary from the FCC's requirements are necessarily duplicative or contradictory is neither supported nor founded on any mandated FCC filing requirements. The FCC, in Docket 86-111, addressing the Cost Allocation Manual, stated that it was not requiring states to use its procedures for intrastate ratemaking purposes. The FCC further stated that the procedures and rules relating to allocating regulated and nonregulated costs may be used as a guide for states electing to follow a regulatory approach similar to the FCC's. Finally, the FCC said that states will be free to employ different cost allocation methods and affiliate transaction rules in intrastate ratemaking, and to mandate that carriers keep any side records required for the states' regulatory purposes. The commission declines to accept the recommendation of TTA and SWB. TTA proposed a change to sec.23.12(e)(6)(A) (published as sec.23.12(e)(7)(A)) to include activities relating to repair of customer premises equipment and/or inside wire, in addition to the current exceptions relating to a sale or installation. The commission agrees with the amendment and has added language to include repair under this subsection. TTA also proposed to include nonregulated activity relating to ownership of non-operating investments, such as a limited partnership interest. TTA stated that these nonregulated activities require insignificant allocations. Since an exception is allowed under sec.23.12(e)(6)(B) (published as sec.23.12(e)(7)(B)) for affiliate ownership of nonregulated activities, the commission does not agree with TTA that specific language needs to be included for activities such as limited partnership interests. TTA also proposed language for an additional exemption for LECs who have operations in more than one state and who serve only a limited number of customers in Texas. While TTA did not submit any rationale for proposing this additional exception, the commission presumes the reason is related to instances where utilities serve a small number of Texas customers and the commission has relied on the regulatory oversight of other states. The commission does not object to this additional exception and has added sec.23. 12(e)(6)(D) to include TTA's suggestions. TSTCI proposed that two additional exceptions be included in sec.23.12(e)(6) (published as sec.23.12(e)(7)). TSTCI proposed that: (1) average schedule companies should not be required to file a CAM with the commission, and (2) the commission should exempt from the filing requirements the small LECs who have less than 31,000 access lines and less than 20% ownership of a nonregulated affiliate or have less than 20% of total operations related to nonregulated or affiliated transactions. Regarding the first proposal, TSTCI argued that since average schedule companies are not required to develop a CAM for interstate purposes they should be exempt for state purposes. The commission agrees with TSTCI's comments and has added sec.23.12(e)(6)(E) to exempt average schedule companies from the filing requirements of sec.23.12(e). Regarding the second proposed exception, The commission does not agree with TSTCI's proposal. Section 23.12(e)(6)(B) (published as sec.23.12(e)(7)(B)) is written with PURA, sec.3(i) in mind regarding the percent level that is defined as an affiliate interest (5.0% or more). Because sec.23.12(e)(6)(B) (published as sec.23.12(e)(7)(B)) conforms with the definition of an affiliate interest as described in PURA, sec.3(i), The commission declines to include the suggested change to the rule. TTA stated that published subsection sec.23.12(e)(8) requires prior Commission approval for a LEC to omit inapplicable Part 32 accounts and/or cost pools described in the CAM. TTA further stated that the commission staff indicated the intent of this subsection was to require commission approval for use of alternate Part 32 accounts and/or cost pools. TTA proposed alternative language to sec.23.12(e)(7) (published as sec.23.12(e)(8)) that accomplished the commission's intent. The commission disagrees with TTA's position that the current language in the rule does not accomplish the stated intent. The commission notes that TTA's proposed language achieves the same result as the current language of the rule. The commission declines to amend sec.23.12(e)(7) (published as sec.23.12(e)(8)). An initial recommendation for adoption of the rule was filed with the commission on December 23, 1994. SWB and TTA filed comments in response to the initial recommendation. SWB and TTA stated that they are gratified that the commission incorporated several suggestions made by commenters and that adopting the rule as proposed in the initial recommendation would wisely strike a balance between the commission's stated objective in this proceeding and minimizing the administrative burden that would be placed on Class A LECs. Cross Index to Statute, Article or Code: Texas Civil Statutes, Article 1446c. sec.23.12. Financial Records and Reports. (a)-(d) (No change.) (e) Cost Allocation Manual. (1) Cost allocation manual requirement. Each local exchange company (LEC) that provides regulated intrastate utility service and also provides nonregulated utility service or sells other services or products shall maintain and file with the commission annually a cost allocation manual (CAM) describing the methodology used for allocating its costs between its regulated activities and its other activities in accordance with this subsection. (2) Allocation of costs. Notwithstanding any provision of this subsection to the contrary, each LEC shall maintain its accounts and subaccounts consistently with the content and titles prescribed in the Uniform System of Accounts for Telecommunications Companies as adopted and amended by the Federal Communications Commission (FCC) for Class A utilities. Each LEC subject to the FCC Class A cost allocation manual (CAM) filing requirements shall apportion its total costs in each of the Part 32 accounts into regulated, nonregulated and other cost pools, as required by the FCC rules governing this allocation (FCC Rule 64. 901 -Allocation of Costs) and as filed in that LEC's CAM on file with the FCC. For such LECs, the Part 32 accounts, appropriate cost pools, and approved apportionment methods are set forth in the FCC-approved CAM filed by the Class A LECs. Each LEC not subject to the FCC Class A CAM filing requirements shall describe the methodology used to apportion its total costs in each of the Part 32 accounts into regulated, nonregulated and other cost pools. After initial assignment, costs included in the common cost pool shall be apportioned to the regulated and nonregulated cost pools utilizing the apportionment methods approved by the commission. The Part 32 accounts, appropriate cost pools, and approved apportionment methods are set forth in the commission-approved cost allocation matrix, which is available from the commission's central records office. (3) Contents of CAM. The CAM filed with the commission by a LEC shall contain at least the following sections and information: (A) Introduction-including a discussion of the cost accounting concepts, language, and applications utilized throughout the CAM; (B) Nonregulated Activities-identifying each nonregulated product or service provided by the LEC and the accounts associated with each such nonregulated product or service; (C) Incidental Activities-identifying all incidental activities of the LEC. Incidental activities shall be defined using the following four criteria: (i) the activity must be an outgrowth of regulated operations; (ii) the activity cannot constitute a separate line of business; (iii) the activity must have been traditionally treated as regulated for accounting purposes; and (iv) the total of all incidental activities' revenues must not exceed 1.0% of a carrier's total revenues; (D) Costs Apportionment Table-identifying the LEC's specific methodologies, taken from the commission-approved cost allocation matrix, applied to each Part 32 account to apportion costs between regulated activities and nonregulated activities. For Class A LECs, the appropriate cost pools and apportionment methods approved by the FCC shall be used; and (E) Time Reporting Procedures-describing the time reporting system used by the LEC's regulated telephone operating units, how frequently the reporting system is updated, the methods used to train employees to report time accurately, and the methods used to implement, monitor, and reinforce accurate time reporting by employees. (4) Filing requirements. The initial filing of information required in subparagraphs (A)-(E) of this paragraph shall be filed no later than August 15, 1995. For periods after the initial filing, each LEC shall file annually, by June 1st, with the commission the following information for the preceding calendar year: (A) its CAM; (B) estimates of the monetary costs or savings associated with any annual revisions by the LEC to its CAM, broken down with reference to particular affected Part 32 accounts; (C) a statement signed by an officer of the LEC attesting to the fact that the CAM was followed throughout the year for regulatory reporting purposes; (D) a regulated/nonregulated comparative percentage report. The report shall be broken down by Part 32 account, and shall be further broken down within each such account to indicate separately: (i) the dollar amount of regulated and nonregulated revenues/expenses/invested capital(ratebase); and (ii) the percentages (based on the total amount of revenues/expenses/invested capital(ratebase) within that account) of those revenues/expenses/invested capital(ratebase) that are generated by regulated activities and by nonregulated activities. The report shall present the information in a comparative form with the immediate prior year regulated/nonregulated comparative percentage report. The first report shall contain only first year information; and (E) a copy of any audits, interpretive letters, reviews, or orders pertaining to the LEC's CAM or its application to transactions with affiliates or nonregulated lines of business which have been issued by the FCC. (5) Alternative filings. Notwithstanding any provision of this subsection to the contrary: (A) If the FCC requires a LEC to file a CAM regarding its interstate activities, and that LEC uses the same allocation basis for its intrastate costs as it does for its interstate costs, then the LEC shall meet the requirements of subsection (e)(3) of this section by filing with the commission annually by June 1st a complete copy of the CAM it filed most recently with the FCC, and, for purposes of developing and maintaining a CAM for its intrastate costs, shall follow the procedures set forth by the FCC for interstate cost allocation. (B) If a LEC allocates its intrastate costs on the same basis on which an affiliate of the LEC allocates its interstate costs, and the affiliate files a CAM with the FCC, then the LEC shall meet the requirements of subsection (e)(3) of this section by filing with the commission annually by June 1st a complete copy of the CAM its affiliate filed most recently with the FCC, and, for purposes of developing and maintaining a CAM for its intrastate costs, shall follow the procedures set forth by the FCC for interstate cost allocation. (6) Exceptions to CAM filing requirements: (A) A LEC is not required to file the information specified in paragraph (4)(B) of this subsection if the only nonregulated activities in which the LEC engages are the sale or installation, and/or repair of customer premises equipment and/or inside wire. (B) A LEC shall not be required to file the information specified in paragraph (4)(B) of this subsection solely on the basis of its ownership of less than 5. 0% of the voting securities of a nonregulated entity (which entity would be an affiliate of the LEC if the LEC owned 5.0% or more of its voting securities). (C) A LEC exclusively engaged in regulated activities is not required to file a CAM with the commission. Annually by June 1st, each such LEC shall file with the commission a statement signed by an officer of the LEC attesting to the fact that the LEC was engaged in only regulated activities throughout the preceding calendar year. (D) A LEC is not required to file a CAM with the commission if the LEC's rates have been approved on a reciprocal basis, as provided for in sec.22.263 of the commission Procedural Rules. (E) A LEC is not required to file the information specified in subsection (e) of this section if the LEC is considered an average schedule company for determining interstate revenue requirements. (7) LEC flexibility. If a LEC subject to this subsection believes that certain Part 32 accounts, cost pools, or apportionment methods are not applicable to its activities, and further believes that its use of alternative accounts, cost pools, or apportionment methods would be in the public interest, then that LEC may apply to the commission for permission to use specifically identified alternative accounts, cost pools, or apportionment methods described in its application. If the commission finds that such alternative accounts, cost pools, or apportionment methods are in the public interest, then the commission may grant the application. Such an application by a LEC may be reviewed administratively. (8) Costs of affiliate transactions. Nothing in this subsection, nor the commission-approved cost allocation matrix, shall relieve the LEC of its burden of proving in a proceeding pursuant to the Public Utility Regulatory Act, sec.42 or sec.43 that affiliate transactions meet the requirements of sec.41(c)(1) of the Act. The ability of an LEC to recover its affiliate transactions through the intrastate cost of service remains subject to sec.41(c)(1) of the Act. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 6, 1995. TRD-9501507 John M. Renfrow Secretary of the Commission Public Utility Commission of Texas Effective date: February 27, 1995 Proposal publication date: August 26, 1994 For further information, please call: (512) 458-0100 Quality of Service 16 TAC sec.23.69 The Public Utility Commission of Texas adopts Substantive Rule sec.23.69, Integrated Services Digital Network (ISDN), with changes to the proposed text as published in the August 26, 1994, issue of the Texas Register (19 TexReg 6695). The public benefit anticipated as a result of enforcing this section will be the availability of ISDN that complies with national standards, at a reasonable price, to local exchange carriers' (LECs') customers. The Commission finds that at this time ISDN is not a replacement for "plain old telephone service" (POTS), but rather provides the public switched telephone network with end-to-end digital connectivity. Examples of uses for ISDN are telecommuting, teleconferencing, distance learning, and telemedicine. The Commission finds that ISDN is an alternative to POTS, and as such, that ISDN should be made available to customers at a reasonable price, that it should be as accessible as possible to customers who want ISDN, that it should meet minimum standards of quality and consistency, and that it should be provided in such a manner that permits the LECs a reasonable opportunity to earn a reasonable return on invested capital. Because sufficient competition to encourage necessary network upgrades is not present, the Commission finds that adoption of this section is necessary to insure that the level of telecommunications service available to Texas citizens is adequate and efficient. To fulfill the Commission's objectives that ISDN be made available to customers at a reasonable price, that it be as accessible as possible to customers who want ISDN, that it meet minimum standards of quality and consistency, and that it be provided in such a manner that permits the LECs a reasonable opportunity to earn a reasonable return on invested capital and to insure that the policies and procedures of the Commission provide that the level of telecommunications service available to Texas citizens is adequate and efficient, the Commission adopts this new section to establish the minimum criteria for the LECs' provision of ISDN to their customers. The section sets forth requirements for certain LECs to make ISDN available to customers and requirements for LECs to prepare plans for making ISDN available. The section requires that, at a minimum, all ISDN shall comply with National ISDN-1 and National ISDN-2 Standards. The new section establishes costing and pricing policies with respect to ISDN services. The section also sets forth the procedure for the LECs to comply with the policies set forth in the section. All LECs are required to comply with this section. The following parties filed initial comments in response to the August 26, 1994, Texas Register publication of the proposed rule: AT&T Communications of the Southwest (AT&T); Department of Information Resources (DIR); Fort Bend Telephone Company (Fort Bend); General Services Commission (GSC); GTE Southwest Incorporated and Contel of Texas, Inc. (GTE), Joint Comments; MCI Telecommunications Corporation (MCI); Office of Public Utility Counsel (OPUC); Southwestern Bell Telephone Company (SWBT); Sugar Land Telephone Company (Sugar Land); Texas Statewide Telephone Cooperative (TSTCI); Texas Tech University Health Sciences Center (TTUHSC); and United Telephone Company of Texas, Inc. and Central Telephone Company of Texas (United), Joint Comments. The following parties filed reply comments: AT&T, GSC, GTE, OPUC, SWBT, Sugar Land, and Texas Southmost College (TSC). The Commission Staff filed an initial recommendation on November 2, 1994. Comments in response to the initial recommendation were filed by AT&T, GTE, SWBT, Sugar Land, TSC, and TSTCI. Late-filed comments were submitted by the Texas ISDN Users Group. AT&T, GSC, MCI, OPUC, SWBT, TTUHSC, and TSTCI generally support the rule, with modifications. AT&T believes that the rule generally balances economic limitations and anticipated customer requirements in the context of the introduction of widespread digital capabilities to the telecommunications infrastructure of the state. MCI believes the rule strikes a fair balance between a purely market-driven deployment policy and one in which the Commission dictates to the LECs a specific deployment schedule for ISDN capabilities. OPUC is pleased with the Commission's proposed approach, which seeks to establish widespread availability of ISDN in the near-term, at affordable prices, with concrete plans for extending availability further by the end of the decade. SWBT is in general agreement with the Commission's proposed rule in that it offers an opportunity to determine whether the deployment of the ISDN-based services will create demand and a reasonable opportunity for the recovery of the investment. Generally, TSTCI is pleased with the proposed rule and believes that it is acceptable to the small telephone companies and cooperatives in Texas. GTE and United do not support the rule. GTE recommends that the Commission allow the market forces to work. United firmly believes that public policy should encourage infrastructure modernization, but without requiring the deployment of a specific network platform. Fort Bend, DIR, Sugar Land, and TSC do not comment as to general support. DIR respectfully suggests the PUC consider providing access to proposed rules and filing comments electronically. The comments filed by Sugar Land respond to particular issues related solely to that company. GTE contends that the Commission does not have the authority under the Administrative Procedure Act (APA) to force a rate change upon GTE through a rulemaking proceeding. Therefore, GTE urges the Commission to limit the scope of this section to new ISDN applications only. GTE contends that the Commission is doing more than implementing or interpreting Commission policy in proposing this section and is, therefore, inappropriately mixing the functions of a contested case proceeding and a rulemaking proceeding. By forcing this change through a rulemaking, GTE believes that the Commission is effectively determining GTE's legal rights without affording it the due process safeguards of a contested hearing guaranteed by APA. GTE further comments that the fact that a hearing is available on GTE's forced application to changes its rates is not sufficient to protect its due process rights. GTE opines that if the section is adopted as proposed, the Commission is creating a rebuttable presumption of unlawfulness regarding GTE's approved rates without affording GTE a hearing on this issue and that the Commission is also violating sec.42 and sec.43 of the Public Utility Regulatory Act (PURA). GTE contends the fact that the section creates a rebuttable presumption regarding the pricing of certain ISDN rate elements does not cure the legal deficiencies. In proposing rates before the Commission, GTE believes that a utility has the right to make its case before a fair tribunal and that with this section the Commission has predisposed itself against any scenario other than the one adopted in the section. AT&T believes that the section does not change rates, rather it merely generically states the Commission's policy with respect to the level of rates which it believes would be appropriate for ISDN services. Under the section, any actual change in or setting of rates will occur in a separate proceeding, thus complying with the requirements of PURA and the APA. AT&T points out that the Commission has previously considered and rejected similar "ratemaking in a rulemaking" arguments with respect to sec.23.23(d) (relating to Rate Design). GSC submits that the fact is even if the section established a mandatory rate ceiling for basic rate interface (BRI) ISDN of 105% of long run incremental cost (LRIC), which it does not, such would not be setting a rate in a rule because the rule on its face requires the LEC to file tariffs in a subsequent contested case to establish the rates. According to GSC, the Austin Court of Appeals has indicated an agency has the discretion to determine whether setting policy should be done in a rule or in a contested case. See State Board of Insurance v. Deffebach, 631 S.W.2d 794,798,799-800 (Tex. App.-Austin 1982) writ ref'd n.r.e. The Commission disagrees with the comments of GTE that the adoption of the section constitutes unlawful ratemaking by rulemaking. The Commission agrees with the comments of AT&T and GSC. The courts have held that the determination of whether to establish agency policy by notice and comment rulemaking or by ad hoc adjudication is a matter that is generally reserved to the informed discretion of the agency. The section does not purport to set the rates for any service. The section establishes the Commission's policy for ISDN services and directs the LECs to file tariffs to implement that policy. These tariffs are to be submitted under this section, which provides the opportunity for a contested case-type proceeding to set rates. It is in these subsequent tariff filings that new rates will be proposed and rates will be set in conformance with the new policy. Since the Commission is not setting rates, but is announcing a statement of general applicability that implements, interprets or prescribes policy and describes the procedure for implementing that policy, it is appropriate to utilize the rulemaking procedures of the APA. The Commission determines that the notice and comment rulemaking procedure established by the APA is a more efficient and effective procedure for obtaining broad public participation and input in setting its policies for ISDN. The Commission's rulemaking authority under PURA is broad and includes the authority to establish rules and procedures for establishing new services and rates as the Commission is doing in this proceeding. Further, the Commission disagrees with GTE that by adopting a policy that there is a rebuttable presumption with respect to pricing at 105% of LRIC, the Commission has predisposed itself against a scenario other than the one adopted in the section and that this is ratemaking in a rulemaking. The Commission notes that the rebuttable presumption policy is not a rate ceiling nor does it require that a LEC price at 105% of LRIC. The Commission believes that pricing of 100% to 105% of LRIC for BRI and foreign exchange (FX) arrangements supports the Commission's goal set forth in subsection (a). Therefore, if a LEC chooses to price BRI and/or FX at 105% of LRIC, the policy set forth in this section creates a rebuttable presumption that this pricing is appropriate. Sugar Land notes that the section is unlawful if subsection (f)(2)(E), as proposed, specifies the effective date of the section to be the effective date of rate changes to existing ISDN services required to be revised under the section. In response to the comments of Sugar Land, subsection (f)(2)(E) is clarified to establish that the new rates would be set in the subsequent compliance filing required by this section. SWBT disagrees with the determination by General Counsel that the Commission is authorized by PURA to promulgate the section. SWBT believes that because sec.61 of PURA expressly provides the conditions under which service improvements may be ordered, SWBT believes that the Legislature intended PURA sec.61 to be the only avenue by which the Commission could require a utility to make network improvements or interfere with the utility's management and control incident to ownership. Thus, according to SWBT, any rule or order requiring specific technology, under the pretense of ensuring efficient and adequate telephone service, is contrary to the express provisions in PURA sec.61. OPUC comments that the Commission has the authority under PURA to require that LECs comply with their obligations to provide efficient and adequate telecommunications service. In responding to arguments regarding the Commission's authority raised in the service quality rulemaking, OPUC notes the Commission citation of PURA sec.18 as an express grant of jurisdiction and the Commission's belief that the legislature has already provided explicit guidance to this Commission concerning the development of telecommunications service in Texas. AT&T and GSC support the position taken by the OPUC that the Commission does possess such authority. AT&T opines that the Commission has the authority under PURA sec.sec.18(b), 35(a) and (b), and 61 to ensure that the services of the LECs are adequate, efficient, reasonable and not substantially inferior to that which is provided in comparable areas and that this authority may be and has been implemented through quality of service standards. GSC comments that it would be a highly inappropriate narrowing of the Commission's powers under PURA sec.16 to say that PURA sec.61 does not empower the Commission to find that analog basic local service is "inadequate or is substantially inferior to" ISDN being provided in other states in the country. As for Commission authority to require deployment of ISDN, OPUC notes that it is disingenuous for the LECs, especially those that already offer ISDN services, to imply that the Commission has no authority to mandate widespread deployment. These companies (e.g., GTE and SWBT) filed their applications under existing Commission rules, specifically sec.23.26 relating to new service offerings. The Commission's new services rule, sec.23.26(c)(7),(d), and (f)(2), clearly requires the systemwide deployment of new services when they are introduced, unless a waiver of that requirement is granted. OPUC notes that those LECs may have been granted waivers of the systemwide requirement as part of their initial applications, but they did not attempt to claim that the requirement itself for systemwide deployment was beyond the Commission's authority. Systemwide deployment is the default policy for new services, and waiver exceptions must be justified on reasonable grounds. OPUC believes that to suggest that a new rule that would expand existing deployment (in effect reducing or eliminating the scope of deployment waivers) is beyond the Commission's authority simply ignores this standard element of the Commission's role in regulating the provision of new services and technologies. The Commission rejects SWBT's argument that it is not authorized by PURA to promulgate this section. The Commission agrees with the comments of OPUC, AT&T, and GSC that the Commission does have the authority to promulgate this section. The Commission believes that the Legislature has already provided explicit guidance to this Commission concerning the development of telecommunications service in Texas. PURA sec.18(a) announces the broad public policy of the state to have adequate and efficient telecommunications service available to all citizens of the state. The Legislature expressly found that the telecommunications industry was changing through technological advancements and federal judicial and administrative actions. The Legislature granted the Commission the authority and power to formulate new rules, policies, and principles in order to protect the public interest in response to these changes. The Commission interprets this grant of authority as directing the Commission to insure that the level of "adequate and efficient telecommunications service" available to Texas citizens evolves over time in order to keep pace with the changes in technology. To insure that adequate and efficient telecommunications service is available to Texas citizens, the Commission believes that it is necessary to adopt this section establishing the minimum criteria for the LECs' provision of ISDN. AT&T, GTE, TTUHSC, and OPUC believe that ISDN will benefit small businesses. AT&T states that the voice, data and video applications of ISDN will have substantial, positive impacts on small businesses. GTE comments that businesses can benefit from ISDN to whatever degree they utilize the digital loop. TTUHSC and OPUC believe that the advantage for small businesses is the potential to conduct business anywhere using the digital network. The Commission agrees with the commenters that ISDN will benefit small businesses. United notes that in recent regulatory reform hearings, the Tennessee Public Service Commission mandated the ubiquitous deployment of ISDN technology throughout the state. An editorial in the December 6, 1993, Communications Week, stated that since "ISDN has been available for purchase in Tennessee, users have bought 150 lines. Tennessee has about 2 million telephone lines in use." United believes that national trends are similar, with proportionately very few ISDN lines in service. SWBT believes that the comments of United concerning the Tennessee experience are particularly enlightening. GTE notes that ISDN technology is being deployed in several metropolitan areas across the nation, and to a somewhat lesser extent in large residential areas, and that Commissions in Oregon, Washington, and Arizona have expressed formal interest in expanding the service for telecommuting purposes. However, according to GTE, no commission in any other state in which GTE operates has adopted rules mandating a specific service like ISDN. According to TTUHSC, other states are concentrating on providing bandwidth and access, and ISDN is only one vehicle for providing this type of capacity. OPUC believes that SWBT's deployment plans for ISDN are the most meager of any of the RBOCs, by a wide margin. OPUC points out that according to the March 1993 Bellcore ISDN deployment report, SWBT projected that only 23% of its access lines would have direct access to ISDN by 1995, by far the lowest deployment percentage of any RBOC. OPUC notes that SWBT's current ISDN offerings are available only in four cities within Texas and that SWBT has announced plans to make the service available in an additional 16 exchanges by the end of 1996, but doing so would still require the majority of customers to obtain service through a foreign serving office (FSO) or FX arrangement. SWBT believes that the information provided by OPUC is misleading and does not represent the actual number of customers who have access to ISDN-based services without having to pay additional charges for FX access. SWBT notes that the 23% is for five states and not just Texas and that the number does not include the lines that have access to ISDN-based services via FSO access. SWBT points out that it is not charging customers any additional charges for FSO access within an exchange, and that OPUC gives no reasons why FSO access within an exchange is inadequate or why the LECs should bear the considerable additional expense to provide direct access to every customer in a metropolitan exchange. Using FSO access within exchanges, approximately 60% of SWBT's access lines in Texas will have BRI service by the end of this year (1994), which is the same percentage that Bell South projects for the end of 1995. SWBT further notes that with the 16 additional exchanges, approximately 80% of SWBT's access lines will have BRI service by the middle of 1996. The Commission makes no changes to the section in response to the comments regarding the availability in other states. This section sets forth requirements for the availability of ISDN. In order to insure compatibility and interconnection ability with customers in other states, the section requires that, at a minimum, all ISDN shall comply with National ISDN-1 and National ISDN-2 Standards. The section also provides policies for costing and pricing ISDN and sets forth a procedure for LEC compliance with the section. The Commission believes that this section is necessary to insure that the policies and procedures of the Commission provide that the level of telecommunications service available to Texas citizens is adequate and efficient. GSC believes that ISDN is the next logical step in the evolution of the State's telecommunications infrastructure because it is digital technology; it is more reliable, of higher quality, and faster than analog-based data transmission; it is a mature standard and is available (and being deployed) now; it allows more functionality over a single access line; it conserves resources; it augments rather than replaces the public switched network; and it is the basis for future deployment of broadband ISDN. AT&T believes that the wholesale replacement of analog copper lines with digital fiber optic lines in the immediate future is not technologically and financially feasible and that the technology for Asynchronous Transfer Mode (ATM) service, touted by some as the wave of the future, has not developed to the point that a switch supporting voice communications is even currently available. According to AT&T, ISDN is expected to be available to 50% of households nationwide by the end of this year. AT&T believes that ISDN, with its capabilities to provide a wide range of digital services in a cost-effective manner over existing copper lines, is a key interim step in the long-range move toward total digitalization of the network. OPUC comments that ISDN is rapidly becoming the basic technological platform for telecommunications networks around the world, and that although that platform will undoubtedly evolve over time, there is no serious scenario that suggests ISDN deployment today, or even within five years, will become obsolete; rather, the ISDN platform will be built upon further and will remain useful indefinitely. TTUHSC notes that the near term availability of such services neither interferes with nor obviates the need to continue planning and development of a comprehensive, state-of-the-art telecommunications infrastructure which addresses the current and future telecommunications needs of the State of Texas. The Commission agrees with the comments of GSC, AT&T, OPUC, and TTUHSC that ISDN is the next step in the long range plan to move toward a digital network. GTE believes that the section as presently proposed is inconsistent with the long range plan for development of telecommunications services as defined in Project Number 12141, Universal Service Infrastructure Development Policies for Telecommunications Utilities, and, in fact, proposed subsection (d)(4) essentially usurps the long-range plan by forcing deployment of a single technology. GTE recommends that this section be revised to be made consistent with the stated objectives of that project. As proposed in Project Number 12141, an advanced telecommunications infrastructure should, in the short term, provide each Texan an opportunity to have end-to-end digital connectivity. In the longer term, an advanced telecommunications infrastructure would provide two-way, full- motion switched video and mobile communications capabilities to each Texan. The Commission disagrees with GTE and believes that the subsection (d)(4) and (5) requirement that each LEC prepare a plan describing its good faith effort toward making ISDN available or toward making available end-to-end digital connectivity that is equal to or superior to ISDN is wholly consistent with the Project Number 12141 proposal that, in the short term, a telecommunications infrastructure should provide each Texan an opportunity to have end-to-end digital connectivity. AT&T urges the Commission to include in the section a requirement directing the complying LECs to include separate residential BRI schedules in the compliance tariff. AT&T notes that as long as a separate residential tariff exists for plain old telephone service, a separate tariff should be put in place for ISDN. GSC does not support AT&T's suggestion that there should be a separate residential tariff requirement because such a matter is more appropriately addressed in the subsequent compliance cases where specific tariff matters will be addressed. The Commission declines to make the change recommended by AT&T and agrees with GSC that the matter should be addressed in the subsequent compliance filings. United believes that ISDN is a premium discretionary service, and as with other premium services, the cost of those services should be borne by the customers who order them and not the general body of ratepayers. TSTCI strongly believes that rates for any discretionary service should not be set at levels lower than what the market will pay and that it is inappropriate for the Commission to do so. GSC disagrees that ISDN is a premium discretionary service and asserts that ISDN should not be priced as high as possible as a premium discretionary service, because it is more than a mere new service and, in fact, is intended to be used by some as the sole way to maintain contact with the outside world via the telephone network. Because the Commission finds that ISDN is an alternative to POTS, the Commission agrees with GSC that ISDN should not be priced as high as possible as a premium discretionary service. However, the Commission also believes that the cost of ISDN services should be borne by the customers who order them and not the general body of ratepayers. SWBT and GTE believe that there is an anticipated economic cost to persons who are required to comply with the section, because there is a cost to the LECs who offer the services and to the customers who must buy special equipment to utilize ISDN-based services. SWBT notes that the LECs will be required to purchase the necessary equipment and software to provide ISDN-based services. GTE and United comment that the LECs will experience considerable loop treatment expense. AT&T notes that the section would not require a LEC to recondition any loops automatically. Reconditioning is necessary only if the customer requests ISDN service. In addition, AT&T points out that the section allows the LECs to charge customers an additional charge where the provisioning of ISDN must be accomplished via an FX arrangement. Sugar Land states that the provision of every service addressed by the National ISDN-1 standards would require Sugar Land to invest an additional $188,116 in hardware and software while National ISDN-2 would require an investment of approximately $549,188. If the section requires that Sugar Land provide all services and features addressed by the National ISDN-1 and National ISDN-2 standards, it believes that the economic cost of this compliance should be noted in the cost statement accompanying the section. Sugar Land states that in addition to the costs of implementation of the service, there are also regulatory costs associated with the filing of tariffs for newly implemented ISDN services and/or the revision of existing tariffs for ISDN services already in effect. The Commission disagrees with the comments of SWBT, GTE, and Sugar Land. It is clear that under PURA sec.sec.37-48 the Commission has the authority to establish just and reasonable rates for public utility services and that the rates include a reasonable return on public utility property that has been dedicated to a public use. The new section clearly provides a return to the LECs, as described in subsection (a), by allowing them to set a price for the ISDN service under procedures set forth in this section. Therefore, because the section provides a return to the LECs, there is no unrecovered economic cost to the LECs required to comply with this section. The Commission also agrees with AT&T that reconditioning of loops is required only when a customer requests ISDN services. Furthermore, reconditioning of loops is not required to provide ISDN service to every customer; therefore, reconditioning may not even be needed when a customer requests ISDN services. Also, the LECs may have already reconditioned loops in order to comply with other Commission rules, such as sec.23.61 (relating to Telephone Utilities). SWBT and GTE state that existing CPE cannot be used in connection with the digital ISDN-based services and that customers will be required to purchase new CPE that is ISDN-capable costing $400 to $600 or more. AT&T disagrees, noting that individuals who purchase new CPE are obviously not doing so to "comply" with this section. They are engaging in the natural process of voluntarily upgrading equipment to take advantage of the modernized capabilities of the new telecommunications infrastructure. The Commission agrees with AT&T that individuals who purchase new CPE are not doing so to comply with this section. Therefore, there is no economic cost to customers to comply with this section. Subsection (a) sets forth the purpose of the section. SWBT believes that subsection (a) treats ISDN as a service rather than a technology and that this is incorrect. SWBT further believes that because ISDN is a new local loop and switch technology and not a service, it is inappropriate to consider pricing policies for ISDN-based services using POTS as a standard. AT&T disagrees and believes that SWBT suggests that ISDN is little more than a line-side offering, while ISDN deployment, based on national standards, actually provides the means for digital interoperability across Texas and to the rest of the world. AT&T believes that the language in the proposed section more accurately captures the spirit of ISDN and should be retained. The Commission agrees with AT&T that, while ISDN is a new local loop and switch technology, the more important aspect of ISDN is that it provides the capabilities and advantages of end-to-end digital connectivity. Therefore, the Commission declines to revise the section as suggested by SWBT. SWBT asserts that ISDN does not offer any service that cannot be obtained through some other service offering. AT&T disagrees noting that while other digital offerings may exist, the expense of those services, including the associated additional CPE necessary to use the service, cause the service to be an ineffective option for many prospective BRI users. The Commission concurs with AT&T. TSTCI proposes that the language in subsection (a) be changed to state that ISDN services must recover their costs. AT&T believes the intent of the section that ISDN rates recover costs is clear. However, to the extent there is any question on this issue, AT&T would support TSTCI's suggestion. AT&T believes that the additional language should require compliance with the TSLRIC standard under sec.23.91, relating to long run incremental cost methodology for LECs. The Commission believes that the intent of the section that ISDN rates recover costs is clearly stated in subsection (f)(2)(A), and therefore no change is made to in response to these comments. AT&T proposes to delete the portion of the sentence in subsection (a) which reads "At this time, ISDN is not a replacement for 'plain old telephone service,' but rather" because individual customers who purchase ISDN will in many cases actually replace their POTS service with ISDN service. The Commission agrees with AT&T that individual customers who purchase ISDN may actually replace their POTS service with ISDN service. However, the Commission believes that from an overall policy perspective, the statement contained in subsection (a) is appropriate. The Commission, therefore, does not make the revision requested by AT&T. From the position of a customer TTUHSC concurs with both the purpose and direction of sec.23.69 as stated in subsection (a). Subsection (b) sets forth the application of the section. AT&T believes that subsection (b)(1) yields a less than clear understanding of the intended application of the section, in that the section does not clearly describe the anticipated treatment of LEC ISDN services that have been approved prior to the adoption of the section. AT&T requests that the Commission clarify the section to reflect its intent. In response to AT&T's comments, the Commission revises subsections (b), (g), and (h) to clarify the Commission's intent with respect to the treatment of LEC ISDN services that have been approved prior to the adoption of this section. Subsection (h)(1)(A) sets forth the treatment of LECs required to comply with subsections (d)(1) and (2). Subsection (h)(1)(B) sets forth the treatment of LECs having tariffs in effect as of the effective date of this section but that are not subject to subsection (h)(1)(A). Subsection (h)(1)(D) sets forth the treatment of LECs not required to comply under subsections (h)(1)(A) and (h)(1)(B) and LECs required to comply under subsections (h)(1)(A) and (h)(1)(B) if such LECs offer additional ISDN services after initial compliance with the section. The Commission revises subsection (b)(1) to require that any LEC providing ISDN must do so in accordance with this section. Also, subsection (g) is revised to clarify the contents of the LEC's application. Based on proposed subsections (e)(3) and (f)(2)(E), AT&T believes that LECs with existing ISDN services must, within 90 days after the effective date of the section, at least have in place a minimum service that complies with the section. The section as proposed required a compliance filing within 90 days. However, the date of compliance as proposed was January 1, 1996. Due to the revision of the subsection (d) availability date from January 1, 1996 to July 1, 1996, the Commission has revised subsection (h) to clarify that LECs with existing ISDN tariffs must file a compliance application within 270 days of the effective date of this section. The effective date for the tariffs and compliance under this section shall be no later than July 1, 1996. AT&T believes that under the section the LECs are not obligated to pull existing, non-complying ISDN services down and their existing customers are entitled to receive those services until they cease taking the service for at least 30 days. However, after the effective date of the section, the rates for those pre-existing ISDN customers and all customers of the newly complying services must be established in accordance with the section. AT&T believes that under the section, LECs can also offer other "custom" ISDN services upon customer request, in addition to the ISDN services which comply with subsection (e) of the section, but that the section also appears to require that these additional services still be costed and priced in accordance with the section. The Commission agrees with AT&T's comments. MCI notes that in view of the recent uncertainty occasioned by the Austin Court of Appeals decision in Southwestern Bell Telephone Company, et al v. Public Utility Commission of Texas, et al, Cause Number 3-93-552-CV (Unpublished) (September 21, 1994), in subsection (b)(1), the reference to sec.23.61 should be deleted and replaced with "the Public Utility Regulatory Act, Section 3(v) and as that term may be further defined by the Commission." The Commission disagrees with the comments of MCI. During the appeal process, sec.23.61 remains valid. If Commission rules are ultimately found to be invalid, the Commission will make appropriate revisions at that time. As long as the Commission continues to support its rule through the court process, it is not appropriate to treat an interim judicial ruling as the final ruling on the matter. Therefore, subsection (b)(1) is not revised. Subsection (c) sets forth the definitions. AT&T believes that subsection (c)(1) should define B-Channel as an "ISDN bearer service channel," because ISDN B-Channels can operate at 56 Kbps or 64 Kbps, depending on the availability of SS7 capabilities. AT&T notes that the definition of BRI in subsection (c)(2) should be revised to read "one of the standardized access methods to ISDN, comprising two 64 Kbps B-Channels and one 16 Kbps D-Channel (2B + D)." AT&T believes that consistent with the foregoing discussion, the definition of Primary Rate Interface (PRI) in subsection (c) (12) should be revised to read "one of the standardized access methods to ISDN, the 1.544 Kbps PRI comprises either twenty-three 64 Kbps B Channels and one 64 Kbps D-Channel (23B + D) or twenty-four 64 Kbps B-Channels (24B) when the associated call signaling is provided by another PRI in the same group." The Commission agrees with the changes recommended by AT&T and subsection (c) is revised accordingly. MCI believes that the reference in subsection (c)(5) to sec.23.61 should be deleted and replaced with "the Public Utility Regulatory Act, Section 3(v) and as that term may be further defined by the Commission." The Commission disagrees with the comments of MCI because sec.3(v) of PURA defines "local exchange company," while subsection (c)(5) defines "exchange area." Therefore, no revision is made to the subsection. MCI believes that in order to underscore that ISDN constitutes a different telecommunications architecture, the word "architecture" should be inserted between the words "network" and "that" in subsection (c)(8). The Commission agrees with MCI and revises the section accordingly. Subsection (d) sets forth the requirements for LECs to make ISDN available to their customers. DIR, United, and GTE believe that Texas should not mandate one specific technical standard (e.g., ISDN) for implementation by the telephone companies or other communication service providers. DIR suggests that the language "making available end-to-end digital connectivity that is equal to or superior to ISDN" is the preferred terminology for all requirements under subsection (d) . AT&T disagrees and observes that the section is necessary because the Commission must determine the level of service which is necessary and in the public interest for consumers because competition, which would otherwise spur the network upgrades, does not exist. The Commission rejects DIR's recommended change, disagrees with the comments of United and GTE, and agrees with the comments of AT&T that it is appropriate to mandate ISDN. Because sufficient competition to encourage necessary network upgrades is not present, the Commission finds that adoption of this section is necessary to insure that the level of telecommunications service available to Texas citizens is adequate and efficient. The Commission believes that ISDN is the appropriate standard because its capability to provide a wide range of digital services in a cost-effective manner over existing copper lines makes ISDN a key and necessary interim step in the long-range move toward total digitalization of the network. AT&T suggests that subsection (d) should be revised to add a requirement that ISDN also be made available by January 1, 1998 in all exchanges in which the LEC's digital switch is capable, as described by the switch maker's specifications, of being upgraded to provide ISDN. To ensure that uneconomic investment is not required, AT&T recommends that the section also specifically provide a waiver provision under which the LECs can avoid the obligation to upgrade the switch where the applicable costs and prospective demand figures show that the upgrade would not be economically justified. OPUC urges the Commission to require the LECs to make ISDN available in all exchanges served by digital central offices that are currently ISDN-compatible, regardless of the number of access lines served in any such exchange. Moreover, OPUC contends that the section should further mandate that all other exchanges served by digital central offices be upgraded to provide direct access to ISDN services as soon as the upgrade capability becomes available to the LEC. SWBT notes that AT&T does not offer any analysis as to why requiring the deployment of ISDN-based services in every exchange with a digital switch would be more in the public interest than the proposal contained in the section requiring ISDN-based services in exchanges of more than 50,000 lines and FX availability elsewhere. SWBT questions AT&T's motivations in recommending a broader deployment of ISDN-based services based upon the presence of digital switches as AT&T is a switch vendor and charges the LECs significant right-to-use fees to install and provide ISDN- based services on AT&T digital central office switches. AT&T believes that where the necessary digital technology is already in place, the significant expense of replacing the switch can be avoided, and in those instances it is more likely that ISDN capabilities can be cost-effectively provided by upgrading the existing digital switch. OPUC believes that ubiquitous deployment of ISDN-based services is a cost-effective investment from a public interest point-of-view. SWBT notes that while it is true that a digital switch is required to provide ISDN-based services, it is not true that the mere presence of a digital switch allows the provision of ISDN-based services with minimal incremental costs. SWBT indicates that in order to provide BRI services in the 16 additional SWBT exchanges serving 50, 000 or more lines, the capital cost to upgrade the existing switches will average over $1,700 per BRI capable line to be served in the first two years. After all of the offices are equipped, SWBT estimates that each additional BRI equipped line will require approximately $920 in capital investment. In addition, the estimated expense of adding the DigiLine (SWBT's trade name for its BRI service offering) services to these existing digital switches is $700 per line. SWBT and GTE note that OPUC believes customers should not be required to pay anything for ISDN-based services other than the additional costs to enable the digital switches to handle ISDN-based services because customers have already funded through monopoly charges the major investment of the digital switches required to support ISDN. SWBT disagrees stating that the customers do not obtain an ownership interest in LEC assets by purchasing services from the LEC. GTE disagrees and comments that if the LECs are forced to replace noncapable digital offices with capable digital offices, the LECs' ratepayers will have to pay for the new switch as well as pay off the prior obligations owed on the former switch. OPUC points out that the FX or the FSO options allowed by subsection (d) require customers to obtain new telephone numbers to conform to the NXX code of the central office that ultimately serves them and that the section allows imposition of additional charges in the case of FX service. According to OPUC these policies, in cases where ISDN could be provided directly, are discrimination imposed upon the least advantaged regions of the state. The Commission disagrees with the comments of AT&T and OPUC that the section should require that ISDN be made available in all exchanges served by digital central offices. The Commission believes that the section appropriately balances the availability of ISDN, using FX and FSO arrangements in some cases, with the cost of providing ISDN. Thus, the provisions of the section require certain LECs to make ISDN available to customers at a reasonable price. In its decision to allow FX and FSO arrangements, the Commission has considered OPUC's comment that the FX and FSO arrangements will require customers to obtain new telephone numbers. The Commission believes that at this time, this policy is necessary to balance the availability with the cost of providing ISDN. While it may be inconvenient for a customer to change his or her telephone number due to obtaining ISDN service through an FX or FSO arrangement, this policy will allow a customer to obtain ISDN service at a reasonable price. GTE believes that it is critically important for the Commission to recognize that the impact of this section upon GTE and SWBT will not be the same. In contrast to SWBT, GTE states that most of its digital offices are equipped with GTD-5 switches. According to GTE, these switches cannot be upgraded to offer ISDN-BRI, and it will be at least two years before they can be upgraded. As such, GTE can presently provide ISDN only by replacing these digital switches or developing an overlay network. GTE points out that the Commission has already addressed GTE's unique situation regarding deployment of ISDN and in Docket Numbers 10635 and 11042 crafted a unique solution to meet that situation. The Commission adopts this section as its current policy regarding ISDN; therefore, the Commission declines to revise the section based upon GTE's comments that over two years ago the Commission addressed GTE's situation in Docket Numbers 10635 and 11042. The Commission notes, however, that a LEC may request a waiver of the requirements of this section, upon the showing of good cause, under sec.23.2. GTE and SWBT submit that there is no evidence that a sufficient demand for ISDN exists to support the costs incurred in a deployment of ISDN in exchanges having 50,000 or more access lines. SWBT believes that the January 1, 1996 date for availability of ISDN as required by subsection (d)(1) is completely arbitrary. While SWBT and GTE would prefer an additional year to deploy ISDN-based services, SWBT believes that a compromise of July 1, 1996 would be sufficient to help reduce the costs SWBT must pay to deploy ISDN based services in the required exchanges. SWBT claims that an arbitrary date for compliance with the section deprives SWBT of leverage in negotiations with equipment vendors. AT&T believes that any advantage accruing to vendors, if it exists all, would be minimal because in the competitive equipment industry the leverage of the LEC in negotiations arises from the existence of competitive alternatives from other vendors, not from the ability of the LEC to indefinitely postpone equipment decisions. TSC requests that the projected date for installation of ISDN in Brownsville, Texas be moved from "no later than January 1, 1996," to right now or at the earliest possible date. TSC believes that SWBT has the equipment required for installation of ISDN in Brownsville and questions why the Brownsville area would have to wait 15 months or longer to obtain ISDN. The Commission disagrees that the January 1, 1996 date is arbitrary. The Commission must balance the interests of the parties who want ISDN service as soon as possible with the interests of the LECs that believe that it is more appropriate to delay the availability of ISDN. The Commission believes that because ISDN is an alternative to POTS that provides the public switched network with end-to-end digital connectivity, ISDN should be made available to customers as soon as possible. However, the Commission recognizes SWBT's proposed compromise date of July 1, 1996, and revises the section accordingly. Because the Commission accepts SWBT's compromise date of July 1, 1996, the Commission need not determine whether the required availability date deprives LECs of leverage with suppliers. TSTCI is concerned with the definition of the word "available" in the second sentence of subsection (d)(1), since this definition may also apply to providers under subsection (d)(3). TSTCI members believe that it is more appropriate to provide a service within a reasonable time upon receipt of an order from a customer and that an arbitrary 30 day period is not realistic in all situations. AT&T believes that unless an effective justification for extending the period can be demonstrated, the 30-day period requirement should stand and TSTCI's recommendation should not be adopted. The Commission agrees with the comments of AT&T, believes that no justification for extending the period has been demonstrated, and therefore, makes no changes as a result of TSTCI's comment. The Commission agrees with MCI's suggestion that reference to "the" LEC in subsection (d)(1) and (4) be changed to "each" LEC and the subsection is revised accordingly. Although GTE offers no specific language changes for subsections (d)(2) or (3), the Company notes that these provisions could be subject to GTE's consent decree, which prohibits GTE from carrying traffic across LATA boundaries. In view of GTE's arguments, AT&T agrees that the section should provide for an automatic waiver of any obligations that would require relief from existing federal consent decrees. The Commission declines to revise the section to provide for a specific waiver process as suggested by AT&T. The Commission believes, however, that a LEC may request a waiver of the requirements of this section, upon the showing of good cause, under sec.23.2. TSTCI commends the Commission on language in subsection (d)(3) that encourages LECs to work together so that facilities may be shared to make ISDN available to all consumers. AT&T believes that subsection (d)(3) should urge all telecommunications providers to work together to provide ISDN in areas it would otherwise not be available, at a minimum via FX-type arrangements. The Commission agrees with the comments of AT&T, and the section is revised accordingly. TSTCI submits that subsection (d)(4) requiring a plan does not provide a standard for approval of the plan; nor does it provide an approval process of the plan; nor does it specify the details that the Commission wants addressed in such a plan. If the plan demonstrates that the ISDN is not a physically or economically sound investment, TSTCI believes that a LEC should be allowed to propose an ISDN availability date other than January 1, 2000, or prove that there is no need to deploy ISDN in its service area. AT&T believes that the plan required by subsection (d)(4) should also include information as to the number and percentage of access lines in the LEC's service area for which ISDN would be available and the total number and percentage of customers that would be served via FX and FSO arrangements, respectively. OPUC believes that the plans that are submitted should include specific timetables for the upgrading of each exchange, along with the proposed steps and methods to be undertaken, with interim progress reports to be provided to the Commission demonstrating compliance with the plans and explaining any deviations. AT&T urges the Commission to require annual status reports updating the progress of the LEC toward completing the plan and describing such things as the number and percentage of access lines for which ISDN is then available and the number and percentage of customers then served via FX and FSO arrangements, respectively. The Commission revises the section based upon the comments of AT&T and OPUC and TSTCI's comments that the section does not specify the details the Commission wants addressed in the plan. The Commission believes that the requirement of the plans is necessary to provide information about each LEC's proposal for its good faith effort toward making ISDN available or toward making available end-to-end digital connectivity that is equal to or superior to ISDN. In subsection (d)(6) the Commission sets forth specific details to be included in the plans. However, the Commission does not believe that it is necessary to provide for an approval process of the plans as suggested by TSTCI, because the plans are informational filings. TSTCI recommends that this section be amended to incorporate small company provisions anticipated through sec.23.94 and that it would be mid-year 1995 before this could be accomplished. The plans required under subsection (d)(4) and (5) as proposed are due January 1, 1996. TSTCI believes that six months is not enough time to develop a quality plan and that a due date of January 1, 1997 would better allow the small companies to respond properly. The Commission adopted sec.23.94 on December, 1, 1994. The Commission adds subsections (f)(3) and (g)(3) to this section to incorporate pricing provisions for small LECs similar to those adopted by the Commission in sec.23. 94. Due to the addition of the pricing provisions for small LECs and the revision of the availability date required by subsection (d)(1) and (2) from January 1, 1996 to July 1, 1996, the Commission revises the due date of the plans required by subsection (d)(5) to January 1, 1997. Due to the revision of the availability date required by subsection (d)(1) and (2) from January 1, 1996 to July 1, 1996, the Commission revises the due date of the plans required by subsection (d)(4) to July 1, 1996. It is OPUC's understanding that "the LEC" in proposed subsection (d)(4) refers only to the smaller LECs not covered by subsections (d)(1) and (2). OPUC urges that this subsection be revised and strengthened to refer explicitly to all LECs in Texas. In addition, where subsection proposed (d)(4) requires a plan for a "good faith effort toward making ISDN available to all of the LEC's customers," OPUC interprets this to mean making ISDN available on a direct basis, as opposed to continuing to employ FX arrangements. The Commission has revised subsection (d)(4) and added subsections (d)(5) and (6) to clarify the Commission's intent with respect to the plans and to require more specificity in the plans. Subsection (d)(4) requires LECs subject to subsections (d)(1) and (2) to prepare a plan to make ISDN available on a direct basis. Subsection (d)(5) requires all other LECs to prepare a plan to make ISDN available and the plan may contain FSO and FX arrangements. Subsections (e)(1) and (e)(2) require the LECs to offer ISDN according to National ISDN-1 and ISDN-2 standards. SWBT believes that there is no similar requirement currently existing as to what services LECs are required to offer from their switches. SWBT and Sugar Land comment that these standards include a number of services for which they believe there is no demand. SWBT believes that ISDN should be defined in terms of BRI access only, and any additional ISDN based services should be made available based upon demand. SWBT further suggests that subsection (e)(2)(A) be amended to require that LECs provide only the useful portions of BRI. Sugar Land believes that to the extent that these standards address additional services beyond BRI and PRI, the requirement to deploy such service should be only upon demand. AT&T believes that SWBT's request should not be accepted because such a limitation could defeat the section's goal of mandated, statewide availability of ISDN capabilities by making the LEC the sole arbitrator of what is "useful." AT&T states that this section was made necessary because the LECs as monopoly providers of ISDN BRI and PRI services, have not deployed ISDN to the full extent necessary to meet customer needs. The Commission agrees with AT&T's comments that SWBT's request should be rejected because allowing the LEC to determine which ISDN services are "useful" defeats the goal of mandated, statewide availability of ISDN capabilities. The Commission disagrees with SWBT that there is no similar requirement existing as to what standards and services LECs are required to offer from their switches. The Commission's current quality of service section, sec.23.61, requires certain services to be provided by the LECs. The Commission rejects the comments of SWBT and Sugar Land, and, therefore, the section is not revised in response to their comments. SWBT notes in its comments to the initial recommendation that subsection (e) (2)(A) states that the LECs shall make available the ISDN services required by the National ISDN-1 and ISDN-2 Standards. According to SWBT, the standards do not require the provision of services, rather they have a list of services that could be offered. SWBT opines that this subsection contradicts the stated purpose of the section that it establishes the minimum criteria for the provision of ISDN. In order to meet customer needs, the Commission believes that the subsection appropriately requires, as the minimum standard for the provision of ISDN, the LECs to make available ISDN services in compliance with National ISDN-1 and ISDN-2 Standards. If the LECs want to offer fewer services, then they may request a waiver under subsection (e)(4). However, in response to SWBT's comment, the Commission revises the subsection to require the LEC to make available the ISDN services "listed in" the National ISDN-1 and National ISDN-2 Standards rather than "required by" the National ISDN-1 and National ISDN-2 Standards. SWBT comments that there is no demand for the deployment of PRI services in the non-major metropolitan exchanges and that there would be substantial additional expenditures required to deploy PRI services in addition to BRI services in an exchange. In its response to the initial recommendation, SWBT estimates that the cost to SWBT to provide both BRI and PRI services in exchanges of 50,000 lines or more will be $40 million to $50 million while revenues from BRI and PRI services would only be $30 million over a five year period. AT&T believes that the arguments regarding the need to ensure availability of BRI also apply to PRI. SWBT's comments do not demonstrate why PRI should be afforded different treatment. Also, AT&T believes that a failure to ensure statewide availability of PRI will create the opportunity for a competitive advantage for the LECs' central office-based PBX-type services relative to competing services provided by PBXs because PBXs must use ISDN PRI services, while customers subscribing to the LECs' central office-based PBX-type services can purchase BRI services. The Commission rejects SWBT's suggestions for the reasons stated in AT&T's comments. The Commission believes that it is in the public interest for both BRI and PRI to be made available to customers. Further, because the section requires that rates for ISDN must be sufficient to recover LRIC and a contribution for joint and/or common costs, SWBT could not set rates below cost. The Commission believes that the costs and revenues are more appropriately addressed in the compliance filing to be made by SWBT. Therefore, the Commission does not revise the section in response to the comments of SWBT. Sugar Land believes that subsection (e)(l) is unclear as to whether it requires Sugar Land to expand its existing ISDN tariff to provide every service addressed by the National ISDN-1 and ISDN-2 standards or to provide its ISDN services in a manner which is compatible with these standards. If the proposed section requires Sugar Land to provide all services addressed by the National ISDN-1 and ISDN-2 standards, it requires compliance as of the effective date of the section, even though, as proposed, a company not offering ISDN today would have until January 1, 1996 to offer these services. Subsection (e) requires LECs to provide ISDN in compliance with National ISDN-1 and ISDN-2 Standards and to provide the services listed in the National ISDN-1 and ISDN-2 Standards. The Commission revises subsection (h) to clarify that LECs with existing ISDN tariffs must file a compliance application within 270 days of the effective date of this section. The effective date for the tariffs and compliance under this section shall be no later than July 1, 1996. AT&T believes the incremental benefits justify mandatory compliance with National ISDN-2 as required by subsection (e)(1). For BRI, National ISDN-2 provides additional service uniformity criteria, allowing LEC features to operate in the same manner regardless of vendor switching equipment and BRI installation is greatly simplified through a terminal downloading feature. For PRI, National ISDN-2 provides standards for non-facility associated signaling and D-Channel back-up. Bandwidth on demand is addressed by these standards, which allows the customer access to specific bandwidth requirements in 64 Kbps increments. AT&T notes that the goal of these standards is to improve interoperability and as such, compliance with the most recently adopted standard is desirable. The Commission agrees with AT&T's comments regarding mandatory compliance with National ISDN-2 standards. SWBT and TSTCI state that regardless of what the Bellcore standards may be for the standardized ISDN-based services, the LECs are limited by what features the switch manufacturers choose to incorporate into their switches. Therefore, SWBT believes that subsection (e) should recognize that the LECs can offer only what is available for the switches that are used to provide the services. If the switch manufacturer does not provide the capabilities in question, AT&T submits that the LEC should be temporarily excused from the obligation to make those capabilities available, but that the LEC should be required to install the necessary upgrades within a prescribed period, possibly six months, after the switch vendor makes such capabilities available. The Commission agrees with AT&T and points out that subsection (e)(4) sets forth a procedure for a LEC to seek a waiver to the provisions of subsection (e)(1) and (2). No change to the section is needed to accommodate the comments. TSTCI states that the standards of any other entity or agency, such as Bellcore, should not be automatically adopted without a review to determine whether such standards are appropriate for Texas. TTUHSC asserts that the phrase "as soon as practicable" used in subsections (e)(1)(C) and (e)(2)(B) is too general. TTUHSC believes that the Commission should clearly define the terms and time frames within which such ISDN systems are to be in compliance with National ISDN standards promulgated by Bellcore. In this case, the Commission agrees with TSTCI that the Bellcore standards should not be automatically adopted without a review. The National ISDN Standards 1 and 2 as promulgated by Bellcore have been reviewed by the Commission through this rulemaking process. The Commission determines that these standards are appropriate for Texas because the adoption of these standards will allow Texas customers to interconnect to customers of other states. The Commission does not believe that the section as proposed would have resulted in the automatic adoption of future standards without a review because the waiver and tariff processes would provide the review. However, the Commission revises the section by deleting subsections (e)(1)(C) and (e)(2)(B) because the phrase "as soon as practicable" is too general and in this case, the Commission declines to adopt Bellcore standards that may be promulgated in the future because these future standards could not be reviewed in this rulemaking process. With respect to subsection (e)(1)(B), SWBT believes that ISDN services do not provide end-to-end digital connectivity but that ISDN services provide digital connectivity to the serving wire center. SWBT states that the service is carried on digital circuits between wire centers; however, the manner in which the call is terminated depends upon the type of connection the called party has to the terminating wire center. AT&T believes that this suggestion, if adopted, could be read to eliminate the requirement that the LEC provide the capability of service beyond the serving office. SWBT indicates that the language should be changed because the LEC may not have control over the terminating wire center, which may result in termination over analog facilities. AT&T does not read the section to require the LEC to be responsible for areas beyond its service area. The section merely requires the LEC to equip its network so as to ensure that the capability for end-to-end digital connectivity, where it exists outside the LEC's service area, is not impeded by the network of the LEC. For the reasons stated in AT&T's comments, the Commission believes that SWBT's proposed language should not be accepted. OPUC notes that SWBT initially offered a non-standard ISDN service and upon its decision to upgrade to the national standard, SWBT filed a proposal with the Commission to allow the "option" of receiving the national standard service, but proposed an additional installation charge for this "option" of some $173. OPUC submits that such a premium charge is wholly inappropriate where the telephone company unilaterally choose to pursue a non-standard technology and that there should be no separate rate element or additional charge simply for having access to the national standard ISDN service. The Commission declines to revise the section and believes that this issue is more appropriately addressed in the subsequent compliance filing required by this section. GTE suggests modifications to subsection (e)(1)(C) to allow pre-National ISDN offerings as well as ISDN offerings that comply with National ISDN-1 and National ISDN-2. AT&T agrees that LECs should be allowed the ability to offer pre-National ISDN in order to meet customer needs, in addition to offering National ISDN. The Commission agrees with AT&T that the section as written does not impair these rights. OPUC recommends that the wording in subsection (e)(3) be clarified to remove any uncertainty that this section grants to existing customers the full option of choosing which standard they prefer and to ensure that the LEC may not "impose" the newer standard unless a customer has discontinued his service for at least 30 days. (In other words, after a 30 day cessation of service, a prior ISDN customer seeking to revise his or her service may be considered the same as a new customer). The Commission agrees with OPUC's interpretation of subsection (e)(3) and believes that it is not necessary to modify the section to clarify the Commission's intent. SWBT comments in its response to the initial recommendation that the waiver process of subsection (e)(4) places a tremendous burden on both the LECs and the Commission who will spend all their time in waiver proceedings. The Commission disagrees with SWBT because any waivers that the LECs request should be included in the compliance application filed by the LECs and these waivers would be considered in the compliance proceeding. According to DIR, subsection (e) should include a provision for private line ISDN services through non-ISDN for LECs that choose to provide ISDN through FX arrangements. DIR believes that this will provide private network customers with ISDN capable networks the ability to service their users without the added FX charges for ISDN services. According to DIR, this will enable public and private customer networks to work out bypass arrangements with the LECs for alternative delivery of private line ISDN network services. The Commission is uncertain what revisions that DIR requests; therefore, no changes are made to the section. Subsection (f) provides the Commission's policy for the costing and pricing of ISDN. SWBT, GTE, and TSTCI comment that sec.23.91 and Project Number 12711, the pricing rule project, will establish general pricing policies. SWBT suggests that the Commission postpone pricing decisions until completion of the pricing rule. AT&T notes that it is important to ensure that BRI services are priced so as to facilitate migration from POTS, while at the same time recovering associated costs. Therefore, AT&T supports the section as proposed. The Commission agrees with the comments of AT&T and notes that the completion date of the pricing rule project is uncertain; therefore, no revisions are made to the section. GTE believes that a new LRIC study will justify significant increases to the rates for this service, which result would be contrary to the Commission's objective of stimulating ISDN. The Commission does not believe that it is clear that a new LRIC study will justify significant increases to the rates for this service. The new LRIC study will be reviewed in the subsequent compliance proceeding where the assumptions made in the study, such as demand, will be investigated. The assumptions made in the study will affect the costs and subsequently determine whether rate increases would be necessary. The Commission makes no changes to the section as a result of GTE's comment. SWBT notes that in the event the cost studies revealed that any rates are under cost and should be increased, there will have to be rate case notice, including state-wide published notice for four weeks. SWBT estimates that the cost of rate case published notice will be between $150,000 and $200,000, which amount must also be recovered from SWBT's customers. AT&T believes that cost-based rates are appropriate and that SWBT's concerns about the costs of a case that might increase the rates of the existing ISDN services do not merit rejection of the portion of the section requiring cost-based rates. The Commission agrees with AT&T that the comments of the LECs that the section may result in increased rates for ISDN services or the cost of the proceeding itself do not justify revising the sections of the section requiring potential rate changes. TSTCI suggests that the Commission incorporate pricing mechanisms for small telephone companies and cooperatives identical to those proposed under Project Number 11620 which may be adopted as Substantive Rule sec.23.94. The Commission adopted 23.94 on December, 1, 1994. The Commission adds subsections (f)(3) and (g) (3) to this section to incorporate pricing provisions for small LECs similar to those adopted by the Commission in sec.23.94. Subsection (f)(3) sets forth the pricing provisions available to small LECs as defined by sec.23.94. Subsection (g)(3) sets forth the requirements for the contents of the application of a small LEC electing to price ISDN according to the provisions of subsection (f)(3) of this section. GSC, MCI, and AT&T believe that subsection (f)(1) should be modified to ensure that the appropriate cost standards for costing ISDN services are the standards specified in sec.23.91. GSC recommends that the section require the sec.23.91 standards immediately. According to MCI and AT&T, the section should require studies prepared in accordance with sec.23.91 when those studies are available and allow for the use of LRIC studies prepared under existing methodologies when sec.23.91 studies are not available. OPUC believes that the studies must not await, for example, the outcome of Consolidated Docket Number 12481 and the pricing rule project, whose timelines are unpredictable at this point and are almost certainly longer than the time frames contemplated in this section. The section is not revised. Because the LRIC studies under sec.23. 91 will not be completed for approximately two years, the Commission does not require the use of LRIC studies prepared in accordance with sec.23.91. AT&T and TTUHSC note that subsection (f)(2) does not speak directly to the pricing levels for PRI. AT&T believes that the Commission's policy on PRI pricing is appropriately considered in the pricing rule and that this section should reference the pricing rule for pricing policy relating to PRI services. TTUHSC believes that PRI would be most practical for users if it were available based on a reasonable access charge plus "bandwidth on demand" or a reasonable usage charge per use and for fractions of bandwidth used. The Commission disagrees with AT&T and believes that it is inappropriate to reference the ongoing pricing rule project in this section, because that project is not completed. The Commission believes that issues raised in the comments of TTUHSC are appropriately addressed in the compliance filings. The Commission agrees with the comments of GSC that the language in subsection (f)(2)(A)(ii) should be clarified to ensure that LECs who are already providing ISDN are given two full years after the adoption of the section for the service to recover costs. Therefore, the section has been revised accordingly. In subsection (f)(2)(A)(ii), MCI suggests that the words "an appropriate" should be inserted between the words "and" and "contribution," and that the word "a" between those two words should be deleted. The Commission believes it is implicit that an appropriate contribution be recovered; therefore, no change is made in response to MCI's comment. TSTCI submits that subsection (f)(2)(B) should be revised to allow each LEC the option to set rates for FSO service and that the only requirement for ISDN should be that it be offered at rates which recover the costs of providing the service. The Commission disagrees with the comments of TSTCI that the LECs should have the option to set rates for FSO service. Ratepayers cannot control whether ISDN availability is provided from his/her local serving office or is provided on an FSO basis. SWBT notes that, using FSO, approximately 60% of its access lines in Texas will have BRI by the end of 1994 and 80% will have BRI service by the middle of 1996. Because the majority of a LEC's customers will have ISDN available to them either from their serving central office or from an FSO arrangement, the Commission believes that it is appropriate that the FSO costs should be incorporated in the pricing of the service for all customers. TSTCI believes that there is essentially no difference in provisioning FX for ISDN and FX for other services; therefore, TSTCI believes the same rate structure and the same rates currently charged for FX should be charged for each ISDN voice equivalent FX service channel and that subsection (f)(2)(C) should be revised. The Commission agrees with the comments of AT&T that the customer cannot control whether ISDN availability is provided from his/her local serving office and that it is important that customers be assured that the rates charged for FX service are based on its costs. The Commission declines to revise the section. As discussed below, the Commission believes it is appropriate to allow a LEC to charge an FX rate. AT&T suggests that subsection (f)(2)(C) be clarified to ensure that FX services are costed in accordance with the long run incremental cost obligations imposed on other ISDN services. AT&T notes that because FX provisioning will have the effect of dampening demand for ISDN, the Commission should encourage deployment without the use of FX wherever it is economically feasible to do so. AT&T believes the Commission should consider whether it would be appropriate for the same conditions which are applied to BRI pricing to be applied to FX pricing associated with the provision of ISDN. After reconsideration, in response to the comments of AT&T, the Commission revises the section to apply to FX rates the policy that there is a rebuttable presumption with respect to pricing at 105% of LRIC. The Commission declines to revise subsection (f)(2)(C) to clarify that FX services are to be costed in accordance with LRIC, because the Commission believes that subsection (f)(2)(A) requires costing in accordance with LRIC. In SWBT's comments to the initial recommendation, SWBT objects to the provisions that require FX rates to be priced at not more than 105% of LRIC. The Commission notes that the 105% of LRIC rebuttable presumption policy is not a rate ceiling nor does it require that a LEC price at 105% of LRIC. The Commission believes that pricing of 100% to 105% of LRIC for BRI and FX arrangements supports the Commission's goal set forth in subsection (a). Therefore, if a LEC chooses to price BRI and/or FX at 105% of LRIC, the policy set forth in this section creates a rebuttable presumption that this pricing is appropriate. TTUHSC states that in subsection (f)(2)(C)(i) the phrase "shall not be usage based" is used when referencing the FX rate. TTUHSC asks if the pricing of BRI is to be usage-based or flat-rate. The Commission notes that the section does not specify whether the pricing of BRI or PRI is to be usage-based or flat-rate. The Commission believes that this matter is more appropriately addressed in the subsequent compliance filings required by the section. However, the Commission expresses its preference for flat-rate pricing for BRI and PRI. GSC, TTUHSC, and OPUC submit that permitting implementation of a separate FX charge in those instances where FX arrangements are necessary to provide ISDN service is inappropriate and discriminatory. GSC submits that the Commission should not assume that the LEC must assess FX charges and instead should only allow the LEC to overcome a presumption that no FX charge is allowed with a showing that such a charge is necessary to prevent the ISDN service as a whole from going below its LRIC, as that term is used in the sec.23.91. According to TTUHSC, allowing FX rates would de facto create a higher cost "rural rate" for rural citizens of the State of Texas. TTUHSC observes that establishment of a higher rate for ISDN attendant to being a rural citizen of the State of Texas would conflict with the provisions of subsection (f)(2)(A)(i). To the extent there are additional costs associated with providing ISDN to certain areas or customer groups, whether related to FX connections or other incidental cost requirements, OPUC believes that these costs should properly be included in the statewide studies of the incremental costs of ISDN provision, and incorporated in the pricing of the service for all customers. The Commission agrees with SWBT and AT&T that elimination of FX charges merely means that the general body of ISDN customers will have to bear those costs through higher prices. SWBT states that rural Texans should be treated fairly, but believes that this does not mean rural areas should receive preferential treatment by getting ISDN-based services below cost. AT&T believes that the dampening effect on demand for ISDN in general could be substantial and could delay customer acceptance of ISDN if all customers are required to subsidize the FX costs caused by a small subset of the total ISDN customer base. For the reasons stated by SWBT and AT&T, the Commission declines to revise the section to eliminate the provision allowing LECs to charge an FX rate. The Commission notes that the section allows a LEC to charge an FX rate, but it does not require that the LEC charge an FX rate. The Commission believes that whether a LEC should charge an FX rate is an issue to be considered in the compliance filings. Further, the Commission disagrees with TTUHSC that allowing an FX rate conflicts with the provisions of subsection (f)(2)(A)(i). An FX charge would be reasonable where additional costs are necessary to provide the service using an FX arrangement. GSC states that the language in subsection (f)(2)(C), setting forth a requirement that a new FX rate shall be established for ISDN, does not make it clear that such new rate will be treated as a new ISDN rate, and that the FX rate for BRI shall be considered a part of the BRI service. The Commission disagrees with GSC that subsection (f)(2)(C) is not clear that the new FX rate will be treated as a new ISDN rate. Therefore, no change is made to the section. Fort Bend, TSTCI, and Sugar Land disagree with the provisions of subsection (f)(2)(D) setting forth the 105% of LRIC rebuttable presumption for pricing BRI. Fort Bend notes that the basic inaccuracies of forecasts make it difficult to predict costs accurately and that a 5.0% margin over LRIC does not cover this inaccuracy for studies in small central offices. TSTCI believes that there is no rationale, and certainly no demonstrated evidence, to justify a specific mark-up of five percent above incremental costs as a price ceiling. Sugar Land comments that this standard restricts the range of reasonableness for ISDN rates to a very narrow band and that this may produce a non-compensatory rate and may produce a rate which is inappropriate in comparison to other existing local exchange rates. GSC disagrees with the position that 105% of LRIC for BRI is too narrow an amount for a rate for BRI. GSC submits that this section is not intending to establish 5% as an appropriate amount for joint and common costs for the entire company but rather is establishing, consistent with the purpose section of the rule, a maximum amount which ISDN BRI should be contributing to joint and common costs. The Commission notes that the rebuttable presumption policy is not a rate ceiling nor does it require that a LEC price at 105% of LRIC. The Commission believes that pricing of 100% to 105% of LRIC for BRI and FX arrangements supports the Commission's goal set forth in subsection (a). Therefore, if a LEC chooses to price BRI and/or FX at 105% of LRIC, the policy set forth in this section creates a rebuttable presumption that this pricing is appropriate. A LEC may choose not to utilize the benefits of that policy. The Commission declines to revise the section. GSC and OPUC believe that the language of subsection (f)(2)(D), establishing a rebuttable presumption that the amount of joint and/or common costs recovered is appropriate, is both unnecessarily weak and in need of clarification. GSC and OPUC propose to substantively change the presumption to a mandatory requirement. OPUC further recommends that the Commission ensure that prices for ISDN-based services, as well as for optional features associated with those services, are set at no more than 105% of the properly identified incremental cost. SWBT believes that GSC's proposal to limit BRI rates to 105% of LRIC would effectively not allow the LECs or the Commission any flexibility in addressing extenuating circumstances that might arise. According to SWBT, the proposed section provides that there is a rebuttable presumption that rates priced not more than 105% of LRIC are appropriate, and it places the burden on the LEC to demonstrate that a proposed rate in excess of 105% would be reasonable. SWBT believes that it also allows the Commission the flexibility to address special situations with varying rate levels. The Commission disagrees with the comments of GSC and OPUC. The Commission believes that pricing of 100% to 105% of LRIC for BRI and FX arrangements supports the Commission's goal set forth in subsection (a). Therefore, if a LEC chooses to price BRI and/or FX at 105% of LRIC, the policy set forth in this section creates a rebuttable presumption that this pricing is appropriate. No change is made to the section. Alternatively, GSC recommends clarifying the rebuttable presumption language to make it more meaningful by ensuring the rebuttable presumption does not "disappear" if a LEC proposes a rate in excess of 105% of LRIC. Under the current language, if a LEC proposes a rate of exactly 105% of LRIC, a presumption of validity applies. However, if the LEC proposes a rate in excess of 105% of LRIC, no presumption would apply, and the language would be of no force and effect. Also, under the current language, if the LEC happened to propose a rate of exactly 105% of LRIC, any party opposing that rate would have to overcome "a rebuttable presumption that the amount of joint and/or common costs is appropriate." It would not seem to be consistent with a rule which focuses generally on a LEC's duties regarding the provision of ISDN for this language to have been intended to protect the LEC and impose a burden of proof on parties other than the LEC. The Commission disagrees with the comments of GSC. The Commission believes that pricing of 100% to 105% of LRIC for BRI and FX arrangements supports the Commission's goal set forth in subsection (a). Therefore, if a LEC chooses to price BRI and/or FX at 105% of LRIC, the policy set forth in this section creates a rebuttable presumption that this pricing is appropriate. AT&T has no objection to the reference to residential and small business customers in subsection (f)(2)(D), as long as that reference is not interpreted to allow the LECs to impose arbitrary distinctions between large and small business customers in making BRI available or in imposing terms and conditions of service on the provision of BRI. GSC recommends that the phrase "to residential and small business customers" be deleted as being discriminatory against significant classes of customers who would also seek to use BRI ISDN. The Commission agrees and revises the section. TSTCI suggests that subsection (f)(2)(D) may allow a LEC to price ISDN below 100% of LRIC. In its comments to the initial recommendation, AT&T recommends that subsection (f)(2)(D) be clarified to state that pricing below LRIC is not permitted. The Commission declines to make the requested change, because the Commission believes that subsection (f)(2)(A) clearly prohibits pricing below LRIC. GTE believes that residential ratepayers will be harmed because the section will shift a greater share of the burden of paying for joint and common costs to those ratepayers. Currently, business service is priced higher than residential service and, therefore, provides a greater contribution to joint and common costs. If a business customer replaces its POTS service (with a high contribution) with ISDN service (with a low contribution), the total contribution is reduced. Because the ISDN contribution is capped, GTE believes that the loss of contribution must be recovered from POTS, which is not capped. GTE submits that having residential subscribers subsidize business subscribers is contrary to the policy followed by this Commission since its inception. Although the section will harm residential ratepayers even if a significant business demand materializes for ISDN, GTE submits that the consequences of a low demand are even greater. In this instance, the LECs will invest millions of dollars upgrading their offices to support a service only a small percentage of people desire. GTE believes that the mandated but unnecessary investment will have to be recovered through higher POTS rates. The Commission disagrees with GTE. The section specifically requires that the LECs price ISDN to recover LRIC and a contribution to joint and/or common costs. The 105% of LRIC rebuttable presumption applies only to BRI and FX rates. Therefore, the Commission believes that any contribution lost because BRI and FX rates are set at 105% of LRIC could be offset by the contribution earned on other ISDN rates. Also, the 105% of LRIC is not a rate ceiling or a requirement that a LEC price at 105% of LRIC. If a LEC chooses to price BRI and/or FX at 105% of LRIC, the policy set forth in this section creates a rebuttable presumption that this pricing is appropriate. Therefore, a LEC may choose not to utilize the benefits of that policy if it believes that it would require recovering lost contribution through higher POTS rates. Subsection (g) establishes the procedure for compliance with this section. Because SWBT has already had two proceedings setting rates for ISDN-based services within the last eighteen months and SWBT is involved with the Commission pricing rulemaking project, SWBT comments that there is no demonstrated reason to require another rate proceeding at this time. SWBT comments that LECs that have approved tariffs for ISDN-based services should not be required to go through another proceeding absent some showing that the current rates or rate structures for ISDN-based services are inadequate. In the comments to the initial recommendation, SWBT states that rates will be reviewed again as a result of the pricing rule and that the customers should be entitled to some type of rate stability rather than having the rates reviewed on an annual basis. With the adoption of this section, the Commission establishes new policies with respect to ISDN. Therefore, the Commission believes that it is in the public interest to have a proceeding in which the LECs comply with the new policies. Also, due to the uncertain nature of the completion date of the pricing rule project, the Commission believes that it is inappropriate to delay its ISDN policies to that project. Subsection (h) sets forth the timing of LEC's compliance with this section. Regarding subsection (h)(2)(A), TSTCI respectfully requests that if the Commission requires a plan to be filed, that the due date be extended to January 1, 1997 to allow the local exchange carriers to better respond. The Commission adopted sec.23.94 on December, 1, 1994. The Commission adds subsections (f)(3) and (g)(3) to this section to incorporate pricing provisions for small LECs similar to those adopted by the Commission in sec.23. 94. Due to the addition of the pricing provisions for small LECs and the revision of the availability date required by subsection (d)(1) and (2) from January 1, 1996 to July 1, 1996, the Commission revises the due date of the plans required by subsection (d)(5) to January 1, 1997. Due to the revision of the of the availability date required by subsection (d)(1) and (2) from January 1, 1996 to July 1, 1996, the Commission revises the due date of the plans required by subsection (d)(4) to July 1, 1996. In its comments to the initial recommendation, SWBT states that the section is not clear as to whether SWBT falls under subsection (h)(1)(A) relating to LECs that must make ISDN available to exchanges having 50,000 or more access lines or subsection (h)(1)(B) relating to LECs having ISDN tariffs in effect as of the date of this section. SWBT believes that the distinction is substantial as it affects the content of the application that it will be required to file. The Commission believes that the section clearly requires SWBT to comply with subsection (h)(1)(A). Because SWBT is subject to subsection (h)(1)(A), it cannot be subject to (h)(1)(B). Subsection (h)(1)(B) applies to LECs having ISDN tariffs in effect as of the effective date of the section and that are not subject to subsection (h)(1)(A). Due to the revision of the of the availability date required by subsection (d)(1) and (2) from January 1, 1996 to July 1, 1996, the Commission revises (h) (1)(A) and (B) to require the compliance application within 270 days of the effective date of the rule rather than within 90 days of the effective date of the rule. SWBT comments in response to the initial recommendation that the section is contradictory as to when cost studies are required. SWBT notes that subsection (f)(1) requires a LEC to provide a LRIC cost study when it proposes new or amended ISDN rates while subsection (h)(1)(A) and (B) require the filing of LRIC cost studies as part of the compliance filing even if there is no intent by the LEC to reprice existing ISDN services. The Commission believes, that because the LEC is required by subsection (h) to file a LRIC, there is no inconsistency. However, the Commission revises subsection (f)(1) to eliminate the reference to a LRIC study. In its comments to the initial recommendation, Sugar Land states that subsection (h) establishing the timing provisions of the rule and subsection (d) establishing the availability provisions of the rule are in conflict. Sugar Land points out that the availability section does not require Sugar Land to make ISDN available, but that subsection (h) requires Sugar Land to file a compliance application. The Commission disagrees with the comment of Sugar Land that the rule is inconsistent. Subsection (d) sets forth the provisions for availability, subsection (e) sets forth the provisions for the standards and services, subsection (f) sets forth the provisions for costing and pricing ISDN, and subsection (h) sets forth the provisions for the timing of compliance applications. As a LEC with existing ISDN tariffs, Sugar Land is required by this section to file an application to provide ISDN service in compliance with this section. Although Sugar Land is not required to make ISDN available under subsection (d), it is required to comply with the policies set forth in subsections (e) and (f). Subsection (h) sets forth the timing for Sugar Land's compliance with these subsections. Also, Sugar Land is required by subsection (d) to prepare an ISDN plan. The Commission does not revise the section in response to Sugar Land's comments. Subsection (i) establishes the Commission's procedures for processing the applications. The Commission agrees with AT&T's suggestion to change subsection (i)(1)(D) so that the comment period for interested persons would run from the date of the filing of the sufficient application, not from the date of the original application. The section is revised accordingly. Sugar Land opines that the separate procedure set forth in the section is both inappropriate and unnecessary. The Commission disagrees. With the adoption of this section, the Commission establishes new policies with respect to ISDN. Therefore, the Commission believes that it is in the public interest to have a definite procedure by which the LECs comply with the new policies. MCI suggests that language be added to subsection (i)(1)(C) requiring any information provided to Staff or OPUC to be provided to any interested party who requests such information. In response to MCI's comment, this subsection has been revised to require that answers to requests for information be filed in Central Records and provided to OPUC. Therefore, any interested party may obtain the information from Central Records. All comments, including any not specifically referenced herein, were fully considered by the Commission. The late-filed comments of the Texas ISDN Users Group, while not summarized herein, were fully considered by the Commission. The new section is adopted under Texas Civil Statutes, Article 1446c, sec.16, which provides the Public Utility Commission of Texas with the authority to make and enforce rule reasonably required in the exercise of its powers and jurisdiction, and sec.18 which authorizes the Commission to adopt rules, policies and procedures to protect the public interest and to provide equal opportunity to all telecommunications utilities in a competitive marketplace. Cross Index to Statutes: Texas Civil Statutes Article 1446c. sec.23.69. Integrated Services Digital Network (ISDN). (a) Purpose. The Commission finds that Integrated Services Digital Network (ISDN) is an alternative to "plain old telephone service." At this time, ISDN is not a replacement for "plain old telephone service," but rather ISDN provides the public switched telephone network with end-to-end digital connectivity. As such, ISDN should be made available to customers at a reasonable price, should be as accessible as possible to customers who want ISDN, should meet minimum standards of quality and consistency, and should be provided in such a manner that permits the LEC a reasonable opportunity to earn a reasonable return on invested capital. The provisions of this section are intended to establish the minimum criteria for the provision of ISDN. (b) Application. (1) This section applies to local exchange companies (LECs) as that term is defined by sec.23.61 of this title (relating to Telephone Utilities). (2) All LECs providing ISDN must do so in accordance with the requirements of this section. (3) An application to make ISDN available under this section shall comply with the requirements of sec.23.57 of this title (relating to Telecommunications Privacy). (c) Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise: (1) B-Channel-ISDN bearer service channel. (2) Basic Rate Interface (BRI) ISDN-one of the access methods to ISDN, comprising two 64 Kbps B-channels and one 16 Kbps D-channel (2B+D). (3) Bellcore-Bell Communications Research, Inc. (4) D-Channel-The ISDN out-of-band signalling channel. (5) Exchange Area-has the same meaning as defined in sec.23.61(a) of this title. (6) Foreign Exchange (FX)-exchange service furnished by means of a circuit connecting a customer's station to a primary serving office of another exchange. (7) Foreign Serving Office (FSO)-Exchange service furnished by means of a circuit connecting a customer's station to a serving office of the same exchange but outside of the serving office area in which the station is located. (8) Integrated Services Digital Network (ISDN)-a digital network architecture that provides a wide variety of communications services, a standard set of user- network messages, and integrated access to the network. Access methods to the ISDN are the Basic Rate Interface (BRI) and the Primary Rate Interface (PRI). (9) Line-has the same meaning as defined in sec.23.61(a) of this title. (10) LRIC-Long run incremental cost. (11) National ISDN-the standards and services promulgated for ISDN by Bellcore. (12) Primary Rate Interface (PRI) ISDN-one of the access methods to ISDN, the 1.544-Mbps PRI comprises either twenty-three 64 Kbps B-channels and one 64 Kbps D-channel (23B+D) or twenty-four 64 Kbps B-channels (24B) when the associated call signalling is provided by another PRI in the group. (d) Availability of ISDN. (1) No later than July 1, 1996, each LEC shall make ISDN available to all customers in exchange areas having 50,000 or more access lines as of the effective date of this section. For purposes of this section, making ISDN available means providing ISDN to a customer within 30 days of that customer's request. Nothing in this section shall be construed as requiring a LEC to provide ISDN to any customer prior to that customer's request for ISDN. The requirements of this paragraph shall not be met by making ISDN available to the customers of these exchange areas using a foreign exchange (FX) arrangement. (2) No later than July 1, 1996, each LEC subject to the requirements of paragraph (1) of this subsection shall make ISDN available to all customers in exchange areas having less than 50,000 access lines as of the effective date of this section. The requirements of this paragraph may be met by making ISDN available to the customers of these exchange areas using a foreign exchange (FX) arrangement, if that is the most economically efficient means for the LEC to make ISDN available. (3) It is the goal of the Commission that ISDN should be made available to customers in all exchange areas not included in paragraphs (1) and (2) of this subsection. To this end, all telecommunications providers are encouraged to work together to make ISDN available to the customers of the LECs that do not have the facilities with which to make ISDN available to their customers. In the exchange areas not included in paragraph (1) of this section, the Commission recognizes that ISDN may be made available using a foreign exchange (FX) arrangement, if that is the most economically efficient means for the LEC to make ISDN available. (4) No later than July 1, 1996, each LEC subject to paragraphs (1) and (2) of this subsection shall prepare a plan describing in detail the LEC's proposal for its good faith effort toward making ISDN available without FSO and FX arrangements to all of the LEC's customers no later than January 1, 2000, and/or the LEC's proposal for its good faith effort toward making available end-to-end digital connectivity that is equal to or superior to ISDN as offered pursuant to this section and that is compatible with such ISDN. (5) No later than January 1, 1997, each LEC not subject to paragraphs (1) and (2) of this subsection shall prepare a plan describing in detail the LEC's proposal for its good faith effort toward making ISDN available to all of the LEC's customers no later than January 1, 2000, and/or the LEC's proposal for its good faith effort toward making available end-to-end digital connectivity that is equal to or superior to ISDN as offered pursuant to this section and that is compatible with such ISDN. (6) The plans required by paragraphs (4) and (5) of this subsection shall include, but not be limited to, information as to the number and percentage of access lines in the LEC's service area for which ISDN would be available; the total number of customers that would be served via FX and FSO arrangements; a specific timetable for the upgrading of each exchange; and the proposed steps and methods of each upgrade. (e) ISDN Standards and Services. (1) ISDN standards. (A) At a minimum, all ISDN shall comply with National ISDN-1 and National ISDN-2 Standards as promulgated by Bellcore as of the effective date of this section. (B) All ISDN shall be capable of providing end-to-end digital connectivity. (2) ISDN services. At a minimum, the LEC shall make available the ISDN services listed in the National ISDN-1 and National ISDN-2 Standards promulgated by Bellcore as of the effective date of this section. (3) Existing customers. Existing customers as of the effective date of this section may continue to receive ISDN irrespective of whether that ISDN complies with this subsection. Those customers may continue to receive such ISDN and shall be required to receive ISDN under the requirements of this subsection only if there is at least a 30 day customer-caused cessation of the ISDN service provided by the LEC. (4) Waiver provision. A LEC may request, and the presiding officer may grant for good cause, modification or waiver of paragraphs (1) and/or (2) of this subsection. Such a request may be reviewed administratively. Any request for modification or waiver of the requirements of paragraphs (1) and/or (2) of this subsection shall include a complete statement of the LEC's arguments and factual support for that request. (f) Costing and Pricing of ISDN. (1) Costing of ISDN. The cost standard for ISDN shall be the long run incremental cost (LRIC) of providing ISDN. (2) Pricing of ISDN. (A) Rates and terms. (i) The rates and terms of ISDN, including BRI, PRI and other ISDN services, shall be just and reasonable and shall not be unreasonably preferential, prejudicial, or discriminatory, subsidized directly or indirectly by regulated monopoly services, or predatory or anticompetitive. (ii) The annual revenues for ISDN, including BRI, PRI, and other ISDN services, shall be sufficient to recover the annual long run incremental cost and a contribution for joint and/or common costs, in the second year after it is first offered under the tariffs approved pursuant to this section. (B) Foreign serving office (FSO) rate. Where the LEC makes ISDN available by designating a foreign serving office (FSO) arrangement, the LEC shall not charge an FSO rate. (C) Foreign exchange (FX) rate. (i) Except as provided in clause (ii) of this subparagraph, where the LEC is allowed to make ISDN available by designating a foreign exchange (FX) arrangement, the LEC may charge an FX rate. A new FX rate shall be developed specifically for ISDN and this rate shall not be usage based. If the FX rate is priced at not less than 100% of LRIC and at not more than 105% of LRIC, there shall be a rebuttable presumption that the amount of joint and/or common costs recovered is appropriate. (ii) Where the LEC can make ISDN available to a customer by designating an FSO arrangement, the LEC shall not charge a foreign exchange (FX) rate. (D) Pricing of BRI. To further the Commission's policy that ISDN be made available at a reasonable price and that ISDN be as accessible as possible to those customers who want ISDN, BRI should be priced to recover its LRIC plus a minimal amount of joint and/or common costs. If BRI is priced at not less than 100% of LRIC and at not more than 105% of LRIC, there shall be a rebuttable presumption that the amount of joint and/or common costs recovered is appropriate. (E) Existing customers. Existing customers as of the effective date of this section shall be subject to the rates set in compliance with this subsection, notwithstanding their choice to continue receiving ISDN under subsection (e) of this section. (3) Pricing of ISDN for Small LECs. After a Class A LEC is in compliance with this section, a Small Local Exchange Carrier (SLEC) as defined in sec.23.94 of this title (relating to Small Local Exchange Carrier Flexibility) may price ISDN services at plus or minus 25% of the rates approved by the Commission for that Class A local exchange carrier providing the service within the State of Texas or at the rates for ISDN services approved by the Commission for a similar SLEC. For the purpose of this section a similar SLEC is defined as a SLEC having a total number of access lines within 5,000 access lines of the applying SLEC. (g) Requirements for notice and contents of application in compliance with this section. (1) Notice of application. The presiding officer may require notice to the public as required by Subchapter D of the Commission's Procedural Rules and shall require direct notice to all existing ISDN customers. Unless otherwise required by the presiding officer or by law, the notice shall include at a minimum a description of the service, the proposed rates and other terms of the service, the types of customers likely to be affected if the application is approved, the probable effect on the LEC's revenues if the application is approved, the proposed effective date for the application, and the following language: "Persons who wish to comment on this application should notify the Commission by (specified date, ten days before the proposed effective date). Requests for further information should be mailed to the Public Utility Commission of Texas, 7800 Shoal Creek Boulevard, Austin, Texas 78757, or you may call the Public Utility Commission Public Information Office at (512) 458-0256 or (512) 458-0221 for text telephone." (2) Contents of application for each LEC not electing the SLEC pricing provisions of subsection (f)(3) of this section. A LEC that makes ISDN available shall file with the Commission an application complying with the requirements of this section. In addition to copies required by other Commission rules, one copy of the application shall be delivered to the Telephone Division and one copy shall be delivered to the Office of Public Utility Counsel. The application shall contain the following: (A) the proposed tariff sheets to implement the requirements of subsection (d), (e), and (f) of this section as required by subsection (h) of this section; (B) a statement by the LEC describing how it intends to comply with this section, including how it intends to comply with subsections (d), (e) and (f) of this section as required by subsection (h) of this section; (C) a description of the proposed service(s) and the rates, terms, and conditions under which the service(s) are proposed to be offered and an explanation of how the proposed rates and terms of the service(s) are just and reasonable and are not unreasonably preferential, prejudicial, or discriminatory, subsidized directly or indirectly by regulated monopoly services, or predatory or anticompetitive; (D) a statement by the LEC of whether the application contains a rate change; (E) the proposed effective date of the service; (F) a statement detailing the method and content of the notice, if any, the utility has provided or intends to provide to the public regarding the application and a brief statement explaining why the LEC's notice proposal is reasonable and that the LEC's notice proposal complies with applicable law; (G) a copy of the text of the notice, if any; (H) a long run incremental cost study (LRIC) supporting the proposed rates; (I) projections of revenues, demand, and costs demonstrating that in the second year after the ISDN service is first offered under the tariffs approved pursuant to this section, the proposed rates will generate sufficient annual revenues to recover the annual long run incremental costs of providing the service, as well as a contribution for joint and/or common costs; (J) the information required by sec.23.57 of this title; (K) a statement specifying the exchanges in which the LEC proposes to offer ISDN, the exchanges in which the LEC proposes to offer ISDN using an FSO arrangement, the exchanges in which the LEC proposes to offer ISDN using an FX arrangement, and the exchanges in which the LEC does not propose to offer ISDN; and (L) any other information which the LEC wants considered in connection with the Commission's review of its application. (3) Contents of application for a SLEC. A SLEC that makes ISDN available and elects to price ISDN services under subsection (f)(3) of this section shall file with the Commission an application complying with the requirements of this section. In addition to copies required by other Commission rules, one copy of the application shall be delivered to the Telephone Division and one copy shall be delivered to the Office of Public Utility Counsel. The application shall contain the following: (A) contents of application required by paragraph (2)(A), (B), (D), (E), (F), (G), (J), (K), and (L) of this subsection; (B) a description of the proposed service(s) and the rates, terms, and conditions under which the service(s) are proposed to be offered and an affidavit from the general manager or an officer of the SLEC approving the proposed ISDN service; (C) a notarized affidavit from a representative of the SLEC: (i) verifying the number of access lines, including the access lines of affiliates of such SLEC providing local exchange service within the state, the SLEC has in service in the State of Texas; (ii) verifying that the rates have been determined by the SLEC independently; (iii) including a statement affirming that the rates are just and reasonable and are not unreasonably preferential, prejudicial, or discriminatory; subsidized directly or indirectly by regulated monopoly services; or predatory, or anticompetitive; and (D) an explanation demonstrating that the rates for the proposed ISDN service are within the guidelines provided by subsection (f)(3) of this section; and (E) projections of the amount of revenues that will be generated by the ISDN service. (h) Timing of and requirements for each LEC's compliance with this section. (1) Timing of and requirements for the compliance application. (A) Each LEC that is required to make ISDN available under subsection (d)(1) and (2) of this section shall file with the Commission within 270 days of the effective date of this section an application (as described in subsection (g) of this section). The effective date for the tariffs and compliance under this paragraph shall be no later than July 1, 1996. Pursuant to subsection (g)(2)(A) and (B) of this section, the LEC shall show its compliance with the requirements of: (i) subsection (d)(1) and (2) of this section; (ii) subsections (e)(1)(A) and (B), (e)(2)(A), and (e)(3) of this section or request a waiver pursuant to subsection (e)(4) of this section and provide sufficient justification for the good cause exception; and (iii) subsection (f)(2)(B), (C), and (D) of this section. (B) Each LEC having ISDN tariffs in effect as of the effective date of this section and that is not subject to subparagraph (A) of this paragraph shall file with the Commission within 270 days of the effective date of this section, an application (as described in subsection (g) of this section). The effective date for the tariffs and compliance under this paragraph shall be no later than July 1, 1996. Pursuant to subsection (g)(2)(A) and (B) of this section, the LEC shall show its compliance with the requirements of: (i) subsections (e)(1)(A) and (B), (e)(2)(A), and (e)(3) of this section or request a waiver pursuant to subsection (e)(4) of this section and provide sufficient justification for the good cause exception; and (ii) subsection(f)(2)(B), (C), and (D) of this section. (C) Rates proposed for services pursuant to paragraphs (1)(A)(ii) and (1)(B)(i) of this subsection that are not tariffed as of the effective date of this section and rates proposed under paragraphs (1)(A)(iii) and (1)(B)(ii) of this subsection shall comply with the requirements of subsections (f)(1) and (2)(A) and (E) of this section. (D) Each LEC offering ISDN after the effective date of this section shall file with the Commission an application (as described in subsection (g) of this section). Pursuant to subsection (g)(2)(A) and (B) of this section the LEC shall show its compliance with the requirements of: (i) subsections (e)(1)(A) and (B) and (e)(2)(A) of this section or request a waiver pursuant to subsection (e)(4) of this section and provide sufficient justification for the good cause exception; and (ii) subsection (f)(1) and (2) of this section for each LEC not electing the SLEC pricing provisions of subsection (f)(3) of this section or subsection (f)(3) of this section for a SLEC. (2) Timing of each LEC's plan. (A) Each LEC's plan required by subsection (d)(4) of this section shall be filed with the Commission no later than July 1, 1996 and each LEC's plan required by subsection (d)(5) of this section shall be filed with the Commission no later than January 1, 1997. (B) After the due date of the plan, each LEC shall file a revised plan with the Commission as updates or modifications are made to the LEC's plan. (i) Commission processing of application. (1) Administrative review. An application considered under this section may be reviewed administratively unless the LEC requests the application be docketed or the presiding officer, for good cause, determines at any point during the review that the application should be docketed. (A) The operation of the proposed rate schedule may be suspended for 35 days after the effective date of the application. The effective date shall be no earlier than 30 days after the filing date of the application or 30 days after public notice is completed, whichever is later. (B) The application shall be examined for sufficiency. If the presiding officer concludes that material deficiencies exist in the application, the applicant shall be notified within 10 working days of the filing date of the specific deficiency in its application, and the earliest possible effective date of the application shall be no less than 30 days after the filing of a sufficient application with substantially complete information as required by the presiding officer. Thereafter, any time deadlines shall be determined from the 30th day after the filing of the sufficient application and information or from the effective date if the presiding officer extends that date. (C) While the application is being administratively reviewed, the Commission staff and the staff of the Office of Public Utility Counsel may submit requests for information to the LEC. Six copies of all answers to such requests for information shall be filed with Central Records and one copy shall be provided the Office of Public Utility Counsel within 10 days after receipt of the request by the LEC. (D) No later than 20 days after the filing date of the sufficient application, interested persons may provide to the Commission staff written comments or recommendations concerning the application. The Commission staff shall and the Office of Public Utility Counsel may file with the presiding officer written comments or recommendations concerning the application. (E) No later than 35 days after the effective date of the application, the presiding officer shall issue an order approving, denying, or docketing the LEC's application. (2) Approval or denial of application. The application shall be approved by the presiding officer if the proposed ISDN offered by the LEC complies with each requirement of this section. If, based on the administrative review, the presiding officer determines that one or more of the requirements not waived have not been met, the presiding officer shall docket the application. (3) Standards for docketing. The application may be docketed pursuant to sec.22.33(b) of the Commission's Procedural Rules. (4) Review of the application after docketing. If the application is docketed, the operation of the proposed rate schedule shall be automatically suspended to a date 120 days after the applicant has filed all of its direct testimony and exhibits, or 155 days after the effective date, whichever is later. Affected persons may move to intervene in the docket, and the presiding officer may schedule a hearing on the merits. The application shall be processed in accordance with the Commission's rules applicable to docketed cases. (5) Interim rates. For good cause, interim rates may be approved after docketing. If the service requires substantial initial investment by customers before they may receive the service, interim rates shall be approved only if the LEC shows, in addition to good cause, that it will notify each customer prior to purchasing the service that the customer's investment may be at risk due to the interim nature of the service. (j) Commission processing of waivers. Any request for modification or waiver of the requirements of this section shall include a complete statement of the LEC's arguments and factual support for that request. The presiding officer shall rule on the request expeditiously. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 1, 1995. TRD-9501333 John M. Renfrow Secretary of the Commission Public Utility Commission of Texas Effective date: February 22, 1995 Proposal publication date: August 26, 1994 For further information, please call: (512) 458-0100 Part IV. Texas Department of Licensing and Regulation Chapter 72. Staff Leasing Services 16 TAC sec.72.80, 72.82 The Texas Department of Licensing and Regulation adopts amendments to sec.72.80 and sec.72.82, regarding staff leasing services, without changes to the proposed text as published in the October 25, 1994, issue of the Texas Register (19 TexReg 8521). The amendments lower fees established by the Texas Commission of Licensing and Regulation for the licensing application and background check. Comments supporting the proposal were received from the National Association for Alternative Staffing, Inc. and the Texas Chapter of the National Staff Leasing Association. The amendments are adopted under Texas Civil Statutes, Article 9104, which provides the Texas Department of Licensing and Regulation with the authority to promulgate and enforce a code of rules and take action necessary to assure compliance with the intent and purposes of the Act. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 2, 1995. TRD-9501377 Jack W. Garrison Executive Director Texas Department of Licensing and Regulation Effective date: February 23, 1995 Proposal publication date: October 25, 1994 For further information, please call: (512) 463-7357 TITLE 22. EXAMINING BOARDS Part XII. Board of Vocational Nurse Examiners Chapter 235. Licensing Application for Licensure 22 TAC sec.235.9 The Board of Vocational Nurse Examiners adopts new sec.235.9, concerning the procedure for submitting applications for the national examination, with changes to the proposed text as published in the December 20, 1994, issue of the Texas Register (19 TexReg 10066). Section 235.9 has been revised in subsection (b) to read: "The Application for Licensure by Examination and fee shall:". The previous terminology would have been confusing by addressing examination, licensure and fee. We feel this is a much clearer definition of the process. The adoption of sec.235.9 is due to the changes in the submission procedure. Adoption of the new rule will allow for a clearer understanding of making application for exam. No comments were received regarding adoption of the new rule. The new rule is adopted under Texas Civil Statutes, Article 4528c, sec.5(g), which provide the Board of Vocational Nurse Examiners with the authority to make such rules and regulations as may be necessary to carry in effect the purposes of the law. sec.235.9. Applications and Fees. (a) The national testing service application and fee shall: (1) be submitted directly to the testing service; (2) be accompanied by the correct fee and made payable to the National Council of State Boards of Nursing; and (3) be nonrefundable. (b) The application for licensure by examination shall: (1) be mailed directly to the Board office; (2) be received in the Board office at least 30 days prior to the date set for the initial examination or the reexamination; (3) be returned to the applicant if application or fee is incorrect; (4) submit fee in the form of cash, cashier's check, money order, individual institutional check, or state warrant made payable to the Board of Vocational Nurse Examiners; and (5) be nonrefundable. (c) Personal checks are not acceptable. The Board assumes no responsibility for loss in transit of cash remittances. Each application for examination and licensure as a vocational nurse under Texas Civil Statutes, Article 4528(c), sec.6 and sec.7 shall be accompanied by the correct fee. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 3, 1995. TRD-9501450 Marjorie A. Bronk, R.N., M.S.H.P. Executive Director Texas Board of Vocational Nurse Examiners Effective date: February 24, 1995 Proposal publication date: December 20, 1994 For further information, please call: (512) 835-2071 TITLE 37. PUBLIC SAFETY AND CORRRECTIONS Part I. Texas Department of Public Safety Chapter 23. Vehicle Inspection Parameter Vehicle Emission Inspection and Maintenance Program 37 TAC sec.23.91, sec.23.92 The Texas Department of Public Safety, adopts the repeal of sec.23.91 and sec.23.92, concerning Parameter Vehicle Emission Inspection and Maintenance Program, without changes to the proposed text as published in the December 6, 1994, issue of the Texas Register (19 TexReg 9593). The justification for the repeal is to make the public aware that the parameter vehicle emission inspection and maintenance program will no longer be administered by the Texas Department of Public Safety. The department adopts the repeal due to the Texas Natural Resource Conservation Commission (TNRCC) having assumed responsibility for administering vehicle emissions inspections. No comments were received regarding adoption of the repeal. The repeal is proposed pursuant to Texas Civil Statutes, Article 6701d, sec.142(c)(1) and (h) and Texas Government Code, sec.411.006(4) which provides the Texas Department of Public Safety with the authority to adopt rules necessary for the administration and enforcement of Article XV of this Act. The Director, subject to commission approval, shall adopt rules considered necessary for the control of the department. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on January 20, 1995. TRD-9501342 James R. Wilson Director Texas Department of Public Safety Effective date: February 22, 1995 Proposal publication date: December 6, 1994 For further information, please call: (512) 465-2890 Part III. Texas Youth Commission Chapter 85. Admission and Placement Placement Planning 37 TAC sec.85.31 The Texas Youth Commission (TYC) adopts an amendment to sec.85.31, concerning home placement, without changes to the proposed text as published in the January 3, 1995, issue of the Texas Register (20 TexReg 15). The justification for amending the section is for TYC to have a better system for completing home evaluations. The amendment will remove from the requirement that parole officers complete home evaluations, the sections that refer to certain percentages of the caseload. All home evaluations are to be completed within 45 days. No comments were received regarding adoption of the amendment. The amendment is adopted under the Human Resources Code, sec.61.034, which provides the Texas Youth Commission with the authority to make rules appropriate to the proper accomplishment of its functions. The proposed rule implements the Human Resource Code, sec.61.034. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 3, 1995. TRD-9501412 Steve Robinson Executive Director Texas Youth Commission Effective date: February 24, 1995 Proposal publication date: January 3, 1995 For further information, please call: (512) 483-5244 TITLE 40. SOCIAL SERVICES AND ASSISTANCE Part XI. Texas Commission on Human Rights Chapter 327. Administrative Review 40 TAC sec.327.11 The Texas Commission on Human Rights adopts an amendment to sec.327.11, concerning Disposal of Files and Related Documents, without changes to the proposed text as published in the November 25, 1994, issue of the Texas Register (19 TexReg 9341). The amendment is justified due to a change in the statute regarding the statute of limitations. The amendment rule will function the same as the original rule, except that records will be kept for two years rather than one year. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 5221k, sec.3. 02(10), which provide the commission with the authority to promulgate rules. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 1, 1995. TRD-9501363 William M. Hale Executive Director Texas Commission on Human Rights Effective date: February 22, 1995 Proposal publication date: November 25, 1994 For further information, please call: (512) 837-8534 TITLE 43. TRANSPORTATION Part I. Texas Department of Transportation Chapter 22. Use of State Property Subchapter B. Use of State Highway Right-of-Way 43 TAC sec.sec.22.10-22.15 The Texas Department of Transportation adopts new sec. sec.22.10-2.15, concerning use of state highway right-of-way. Section 22.13 is adopted with changes to the proposed text as published in the November 15, 1994, issue of the Texas Register (19 TexReg 8958). Section 22.10-22.12, 22.14, and 22. 15 are adopted without changes and will not be republished. Texas Civil Statutes, Article 6665, require the Texas Transportation Commission to formulate plans and policies for the location, construction, and maintenance of a comprehensive system of state highways and public roads. Texas Civil Statutes, Article 6674w-1, empower the commission to lay out, construct, maintain, and operate a modern state highway system. Government Code, Chapter 485, sec.485.004, requires state agencies to cooperate with the Office of the Governor's Music, Film, Television, and Multimedia Office to the greatest extent possible to promote the development of the music film, television, and multimedia industries in this state. Texas Civil Statutes, Article 6673h, require the commission to adopt rules concerning the use of highways for bicycle events. In accordance with these statutes, the commission adopts sec. sec.22.10- 22.15 governing certain temporary non-department uses of state highway right-of way which serve a public purpose and are consistent with the safety and convenience of the traveling public. On November 28, 1994, the department conducted a public hearing on the proposed new sections. The Texas Film Commission submitted comments on the proposed sections, requesting that written requests for approval of a film or video production on the state highway system be submitted by mail or facsimile, and that film companies be authorized to install signs or direct crew members or extras to film locations. Section 22.13, Film and Video Productions, has been revised to provide the submittal of requests under that section by mail or facsimile, and to authorize the installation of temporary signs, with specifications and limitations similar to those provided for in sec.22.15, Signs, for special event signs. The new sections are adopted under Texas Civil Statutes, Articles 6666, which provide the Texas Transportation Commission with the authority to promulgate rules for the conduct of the work of the Texas Department of Transportation, Texas Civil Statutes, Article 6673h, which mandate that the Commission adopt rules for bicycle use on the state highway system; and Texas Civil Statutes, Article 6674w-1, which empower the commission to lay out, construct, maintain, and operate a modern state highway system. sec.22.13. Film and Video Productions. (a) Policy. In accordance with Government Code, Chapter 485, it is the policy of the department to cooperate with the Office of the Governor's Music, Film, Television, and Multimedia Office to the greatest extent possible to fully implement the state's goal of promoting the development of the music, film, television, and multimedia industries in Texas. This section is intended to encourage and facilitate access to department highway facilities and their adjacent right-of-way for the promotion of that goal while protecting the safety of the traveling public and the integrity of state highway facilities and right- of-way. (b) Activities included. A person or entity desiring to produce a film, video, or other production on a segment of the state highway system must first obtain the approval of the department for any activity within state highway right-of- way that: (1) requires a closure of a segment of the state highway system; (2) will otherwise disrupt the normal flow of traffic; (3) could damage state highway right-of-way or other facilities of the department; or (4) in anyway affects the safety of the traveling public. (c) Request. (1) A person or entity desiring approval for an activity subject to this section must first notify the Texas Film Commission. That office will provide general information, including instructions on how to submit a request for approval to the department. (2) After contacting the Texas Film Commission, the person or entity must submit, as early as possible, preferably at least 30 days in advance of the proposed production, a written request by mail or facsimile to the department district or districts in which the production will occur. The request shall include the following information: (A) the location of the production, including county name, highway number, and description of the physical location; (B) the proposed schedule of start and stop times at each location (commonly known as preparation and wrap); (C) a brief description of the proposed activities, including the proposed placement of production company personnel and equipment on state highway right- of-way; and (D) a permit or appropriate documentation as may be required by applicable local ordinance of a municipality if the production is within the limits of an incorporated area. (3) The district engineer may request additional information necessary to make his or her determination under subsection (d) of this section. (d) Approval. The district engineer will approve the request if he or she determines that: (1) the proposed production is consistent with the safety and convenience of the traveling public; (2) the proposed production will not cause substantial negative impacts to the environment, including landscape features; (3) the proposed production does not conflict with scheduled maintenance or construction activities; (4) the convenience of abutting property owners and residents is adequately protected, and adequate access for such persons to their property is assured; and (5) if a closure is proposed: (A) the requestor has designed to the department's satisfaction a traffic control plan to protect both motorists and all participants and spectators, and that will not substantially inconvenience the traveling public; and (B) there will be appropriate passage allowance for emergency vehicle travel. (e) Agreement. If the district engineer approves the proposed production, the requestor must execute a written agreement with the department prior to the production. The agreement will contain terms and conditions the department deems necessary to protect the public safety and the integrity of the facility and adjacent right-of-way including, but not limited to: (1) the location of the production, including county name, highway number, and description of the physical location; (2) the schedule of start and stop times at each location; (3) a description of the activities, including the placement of people and equipment that the requestor will place on state highway right-of-way; (4) the traffic control plan, if applicable; (5) a statement that the requestor assumes all costs associated with the production; (6) a statement that the requestor will avoid or minimize impacts, and will, at its own expense, restore or repair damage occurring outside the right-of-way and restore or repair the right-of-way, including roadway and drainage structures, signs, pavement, etc., to a condition equal to that existing before the production, and, to the extent practicable, restore the natural environment, including landscape features; (7) a statement that the requestor shall indemnify and save harmless the state, its officers, employees, agents, and contractors from claims and liabilities due to the activities of the requestor; (8) suitable documentation that the requestor has obtained adequate insurance naming the department as a coinsured by the requestor or responsible party in an amount and form acceptable to the department for the payment of any damages which may occur during the time period of encroachment and to save the state harmless; (9) a statement that the requestor will abide by all state and federal environmental laws and any conditions required by the department to protect the environment; (10) if the production requires a closure: (A) a traffic enforcement plan, including a letter, by mail or facsimile, from the law enforcement agency that will be providing the traffic control for the event, or a contact name and telephone number for the responsible law enforcement agency; and (B) assurance that there will be appropriate passage allowance for emergency vehicle travel; and (11) such other terms and conditions determined by the district engineer to be essential for the protection of the public safety. (f) Disapproval. If a district engineer disapproves a request for approval of a production, he or she will provide written notice, by mail or facsimile, describing the basis for the determination. The district engineer will also provide notice of disapproval by telephone if requested by the requestor. (g) Appeal. A requestor may appeal a district engineer's disapproval to the department's assistant executive director, field operations, by submitting to that official by mail or facsimile the information provided to the district engineer. (h) Signs. (1) A production company may place two temporary signs, one for each direction of travel, at the point of departure from the state highway system, for the purpose of guiding production personnel to the site of an approved production, provided that each sign: (A) does not contain red on the front or back of the sign, and does not appear to represent any official regulatory, warning, or guide sign; (B) is no larger than 36 inches by 36 inches; (C) is made of heavy cardboard or 1/4 inch thick plastic, or other material as approved by the district engineer; (D) is mounted on wood supports no greater than two inches by two inches in thickness, and has no more than two supports; (E) has a mounting height of no less than one foot and no more than three feet above ground level; (F) is not located on the mainlanes of a controlled access highway (it may be located on the frontage road of a controlled access highway); and (G) is not mounted on a traffic control device and is placed so as to not interfere with other traffic control devices. (2) A sign may not be installed more than one day before filming starts and must be removed within one day after the filming is completed. (3) If a sign becomes a hazard due to inclement weather, inadequate maintenance, accidental damage, or other cause, the department will remove the sign. (4) A sign not removed in compliance with paragraph (2) of this subsection is subject to removal by the department and the applicant is liable for removal and disposal costs as provided by sec.25.10 of this title (relating to Signs on State Highway Right-of-Way). This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on February 2, 1995. TRD-9501373 Diane L. Northam Legal Executive Assistant Texas Department of Transportation Effective date: March 1, 1995 Proposal publication date: November 15, 1994 For further information, please call: (512) 463-8630 Chapter 25. Traffic Operations Bicycle Road Use 43 TAC sec.sec.25.50-25.54 The Texas Department of Transportation adopts new sec. sec.25.50-25.54, concerning Bicycle Road Use, without changes to the proposed text as published in the August 26, 1994, issue of the Texas Register (19 TexReg 6755). It is the policy of the department to enhance the use of the state highway system for bicyclists. In furtherance of this policy and to comply with Texas Civil Statutes, Article 6673h, which mandate that the commission adopt rules regarding bicycle road use on the state highway system, it is necessary to adopt new sec.sec.25.50-25.54. On September 12, 1994, the department conducted a public hearing on the proposed new sec.sec.25.50-25.54 and one individual submitted oral comments on the proposed new sections, stating that she was in favor of the proposed new sections. The new sections are adopted under Texas Civil Statutes, Articles 6666 and 6673h, which provide the Texas Transportation Commission with the authority to promulgate rules for the conduct of the work of the Texas Department of Transportation, and specifically mandate that the commission adopt rules regarding bicycle road use on the state highway system. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 1, 1995. TRD-9501365 Diane L. Northam Legal Executive Assistant Texas Department of Transportation Effective date: February 22, 1995 Proposal publication date: August 26, 1994 For further information, please call: (512) 463-8630 43 TAC sec.25.55 The Texas Department of Transportation adopts new sec.25.55, concerning Comment Solicitation on Bicycle Road Use, without changes to the proposed text as published in the October 21, 1994, issue of the Texas Register (19 TexReg 8439). It is the policy of the department to enhance the use of the state highway system for bicyclists. In furtherance of this policy and to comply with Texas Civil Statutes, Article 6673h, which mandate that the commission adopt rules regarding bicycle road use on the state highway system including obtaining comment from bicyclists on highway projects that might affect bicycle use and other matters, it is necessary to adopt new sec.25.55. On November 1, 1994, the department conducted a public hearing on the proposed new sec.25.55. No written or oral comments were received concerning the adoption of the new section. The new section is adopted under Texas Civil Statutes, Articles 6666 and 6673h, which provide the Texas Transportation Commission with the authority to promulgate rules for the conduct of the work of the Texas Department of Transportation, and specifically mandate that the commission adopt rules for comment solicitation on bicycle use on the state highway system. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 1, 1995. TRD-9501364 Diane L. Northam Legal Executive Assistant Texas Department of Transportation Effective date: February 22, 1995 Proposal publication date: October 21, 1994 For further information, please call: (512) 463-8630