The Public Utility Commission of Texas (commission) adopts an amendment to §26.5 and new §26.401, §26.403, §26.404, §26.406, §26.408, §26.412, §26.413, §26.414, §26.415, §26.417, §26.418 and §26.420 relating to the Texas Universal Service Fund (TUSF) with changes to the proposed text as published in the April 2, 1999, issue of the Texas Register (24 TexReg 2561). The amendment and new rules are necessary as a result of the reorganization of the rules. These new sections and amendment were adopted under Project Number 20428.

The Appropriations Act of 1997, House Bill 1 (HB), Article IX, §167 (Section 167) requires that each state agency review and consider for readoption each rule adopted by that agency pursuant to the Government Code, Chapter 2001 (Administrative Procedure Act). Such reviews shall include, at a minimum, an assessment by the agency as to whether the reason for adopting or readopting the rule continues to exist. The commission held three workshops to conduct a preliminary review of its rules. As a result of these workshops, the commission is reorganizing its current substantive rules located in 16 Texas Administrative Code (TAC) Chapter 23 to: (1) satisfy the requirements of §167; (2) repeal rules no longer needed; (3) update existing rules to reflect changes in the industries regulated by the commission; (4) do clean-up amendments made necessary by changes in law and commission organizational structure and practices; (5) reorganize rules into new chapters to facilitate future amendments and provide room for expansion; and (6) reorganize the rules according to the industry to which they apply. Chapter 26 has been established for all commission substantive rules applicable to telecommunications service providers.

The commission requested specific comments on the §167 requirement as to whether the reason for adopting or readopting the rules continues to exist. The commission received no comments on the §167 requirement. The commission finds that the reason for adopting the rules continues to exist.

The commission received comments on the proposed new sections and amendment from MCI WorldCom ("MCIW"), the Office of Public Utility Counsel ("OPUC"), Southwestern Bell Telephone ("SWBT"), Texas Payphone Association, Inc. ("TPA"), Texas Statewide Telephone Cooperative, Inc. ("TSTCI"), and United Telephone Company of Texas and Central Telephone Company of Texas ("Sprint").

SWBT suggested that the definition of "Eligible telecommunications provider (ETP) service area" in §26.5(71) be modified to change the outdated references to §23.133 and §23.134 to §26.403 to §26.404, respectively. The commission concurs with SWBT's proposed change. However, the revision cannot be made in this rulemaking as the rule was published with no change to §26.5(71). SWBT also suggested changing the reference to "the equipment distribution program" in §26.5(197) to "the STDAP." However, due to Senate Bill 1441 (SB), 76th Legislature (1999) (SB 1441), the commission finds that the reference should be changed to "the Specialized Telecommunications Assistance Program." Noting the modification due to SB 1441, the commission concurs with SWBT's proposed modification to §26.5(197).

Sprint suggested that the definition of "Toll Limitation" in §26.5(223) should be revised to mirror the federal definition. Unlike the definition in §26.5(223), the federal definition "denotes both toll blocking or toll control." Sprint proposed the word "and" be replaced by the word "or." The commission concurs with the proposed modification. However, the revision cannot be made in this rulemaking as the rule was published with no change to §26.5(223).

The commission notes that a previously published amendment to §26.5 relating to Definitions became effective April 19, 1999, after the publication of the amendment to §26.5 published in this proceeding. The result is that paragraph numbers have changed for almost all the definitions in §26.5 on adoption of this amendment but no other changes than those already discussed have been made to the defined terms. Section 26.5 is included in its entirety.

SWBT noted an apparent inadvertent omission of the word "basic" in §26.403(d)(1), as the first word in the first sentence after the catchline. The commission agrees and has added the word "basic" as the first word in this sentence.

Section 26.403(e)(3)(C) establishes an adjustment for service provided solely through the purchase of unbundled network elements (UNEs). SWBT proposed modifications to §26.403(e)(3)(C). SWBT proposed to update the subsection to reflect the Interim Order issued in Docket Number 18515, Compliance Proceeding for Implementation of the Texas High Cost Universal Service Plan. The Interim Order determined the manner in which Texas High Cost Universal Service Plan (THCUSP) support is to be allocated when service is provided solely through the purchase of UNEs. SWBT proposed a specific procedure for allocating THCUSP support when service is provided partially, rather than solely, through the purchase of UNEs. In its reply comments, AT&T asserted that SWBT's recommended changes would completely reverse the commission's decision that if an eligible telecommunications provider (ETP) invests in any of its own UNEs then that ETP is entitled to all of the TUSF support for the line the ETP is serving. AT&T suggested that SWBT is trying to inappropriately relitigate the issue through the rulemaking. The commission does not adopt SWBT's proposals because the allocation of support using UNEs has been addressed by Senate Bill 560, 76th Legislature (1999) (SB 560) and will be decided in the final order in Docket Number 18515.

Section 26.420(g)(5)(A)(i) describes how the surcharge is to be listed on customers' bills. SWBT proposed that §26.420(g)(5)(A)(i) should be revised to reflect the approved line item label "TX USF Charge x.xx%." Currently, the rule requires telecommunications providers to list the surcharge on customer bills as "the universal service fund surcharge." The commission concurs with SWBT's proposal and adopts the modification. However, the commission notes that the line item label may change pursuant to an order in Project Number 19655, Implementation of P.U.C. Substantive Rule §23.150(f) and (g).

Section 26.420(g)(5)(A)(ii) directs the surcharge to be assessed on every retail customer's bill, with the exception of Lifeline, Link Up, and Tel-Assistance customers. The commission proposed to replace Lifeline, Link Up, and Tel-Assistance "customers" with "services." MCIW supported the proposed change to §26.420(g)(5)(A)(ii). MCIW urged the commission to retain the consistency between the sales tax base and the TUSF base for purposes of recovering TUSF assessments from both telecommunications providers and end users alike. MCIW asserted that if a service is subject to sales tax today, it should also be subject to the TUSF assessment. OPUC also supported the commission's decision to codify the interpretation of "retail customers" as retail customers subject to tax under Chapter 151 of the Tax Code. The commission revised §26.420(g)(5) to include "subject to tax under Chapter 151 of the Tax Code."

TSTCI also agreed with the commission's proposed clarification to §26.420(g)(5)(A)(ii). TSTCI additionally proposed that the phrase "services of retail" be added before the word "customers" in the first sentence of §26.420(g)(5). TSTCI believed the change would unify the entire subsection. The commission acknowledges TSTCI's concern and replaces Lifeline, Link Up, and Tel-Assistance "customers" with "services" in the first sentence of §26.420(g)(5).

TPA reminded the commission of the April 7, 1999, Declaratory Order in Docket Number 20616, in which the commission held that payphone providers who directly contribute to and who provide other telecommunications providers with resale certificates are not subject to assessment under Substantive Rule §23.150(g)(5). TPA believed that the terms and provisions of the Declaratory Order must be maintained and incorporated in the regulations adopted in this rulemaking. The commission has made changes to §26.420(g)(5) that address TPA's concerns.

SWBT argued that the recommendation to replace the word "customers" with "services" in §26.420(g)(5)(A)(ii) constituted a substantive change; Sprint concurred. SWBT was concerned about the timing and the customer impact of the change. According to SWBT, Lifeline, Link-Up, and Tel-Assistance customers would begin seeing the TUSF surcharge on their bills for long distance and services other than basic local service and would have to pay a higher overall telephone bill. SWBT asserted that the change would also result in carving out a meaningless (and costly to implement) exemption. SWBT suggested leaving the rule unchanged or eliminating the Lifeline, Link-Up, and Tel-Assistance exemption.

SWBT added that if the change to §26.420(g)(5)(A)(ii) was adopted, SWBT would have to modify its billing system to implement the change. SWBT requested that the commission stay the effectiveness of the change until April 1, 2000, to provide SWBT and any other carriers time to make all necessary billing system modifications to effectuate the change. Sprint claimed that it would take at least six months to make the necessary changes to its billing system. The commission finds that all changes necessary to implement the modification to §26.420(g)(5) should be made by March 1, 2000.

Sprint asserted that adopting the substantive change to §26.420(g)(5)(A)(ii) without a comment period and a lengthy compliance period was inappropriate. Sprint argued that the rule should remain unchanged. The commission disagrees with Sprint's statement that a comment period was not provided and notes that Sprint filed the above comments during the comment period.

In its reply comments, AT&T contended that any rule modification would apply to a carrier's ability to apply the surcharge to non-Lifeline services. Further, AT&T explained that if SWBT has to exempt Lifeline customers from all of the TUSF surcharge, that is not a basis for denying other carriers, whose billing systems are capable, the authority to exempt only the Lifeline service itself. In addition, AT&T pointed out that not all carriers are aware of who is or is not a Lifeline customer. AT&T stated that interexchange carriers have no idea who is a Lifeline customer and have no way of exempting those customers from the surcharge applied to toll services. AT&T recommended that the commission reject SWBT's opposition to the proposed modification.

In the preamble to the adoption of the original §23.150, February 6, 1998, issue of the Texas Register (23 TexReg 955), the commission found that the surcharge should apply to all retail services except Lifeline, Link Up, and Tel-Assistance services and made a revision to proposed §23.150(g)(5) accordingly. However, §23.150(g)(5) used the phrase "Lifeline, Link Up, and Tel-Assistance customers" and the commission clarifies that §26.420(g)(5)(A)(ii) applies to services rather than customers and adopts the proposed revision.

OPUC advocated a requirement that parties "true-up" TUSF fees to remedy any over- recovery of charges to customers. The commission will not address a true-up provision in this project.