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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. *************************************************** FCC 97-208 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Local Exchange Carriers' ) CC Docket No. 93-162 Rates, Terms, and Conditions ) for Expanded Interconnection ) Through Physical Collocation ) for Special Access and Switched Transport) SECOND REPORT AND ORDER Adopted: June 9, 1997 Released: June 13, 1997 By the Commission: TABLE OF CONTENTS Paragraph No. I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . .1 II. BACKGROUND A. Expanded Interconnection Rulemaking Proceeding . . . .6 B. Expanded Interconnection Tariff Investigation. . . . 10 III. PHYSICAL COLLOCATION TARIFF INVESTIGATION A. Legal Authority to Impose Refund Liability . . . . . 13 B. Rate Structure . . . . . . . . . . . . . . . . . . . 23 1. Nonrecurring Charges for Recurring Costs. . . . 26 2. Nonrecurring Charges for Equipment. . . . . . . 31 3. Charges for Additional, Extraordinary, or Individually Determined Costs. . . . . . . . . . . . . . . . 34 4. Advance Payment of Central Office Construction Charges39 5. Responsibility for Payment of Common Construction Costs43 6. Payment of Interconnector-Specific Charges by Subsequent Interconnector 52 7. Electric Power. . . . . . . . . . . . . . . . . 57 8. Unbundling. . . . . . . . . . . . . . . . . . . 62 Paragraph No. C. Direct Costs . . . . . . . . . . . . . . . . . . . . 63 1. Case-by-Case Direct Cost Analysis a. Annual Cost Factors. . . . . . . . . . . . 69 b. Floor Space Costs . . . . . . . . . . . . 94 c. US West's Common Construction Costs and SWB's Tenant Accommodation Charge . . . . . . . . . . . 98 d. Charges for Repeaters and POT Bay. . . . .103 e. Bell Atlantic's Rates for Cable Racking .121 2. Average Cost Analysis a. The Rationale for Industry Average Cost Analysis 124 b. Legal Authority for Making Rate Prescriptions on the Basis of Industry Average Costs. . . . . . . . .144 c. Methodology for Calculating Industry Average Direct Costs for Physical Collocation Service . . . . .150 d. Floor Space Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .179 e. Power Costs. . . . . . . . . . . . . . . .193 f. Cross-Connection and Termination Equipment Costs212 g. Security Costs . . . . . . . . . . . . . .232 h. Construction Costs . . . . . . . . . . . .253 i. Entrance Facility Costs. . . . . . . . . .264 3. Time and Materials Rates. . . . . . . . . . . .278 4. TRP Data and Subsequent Direct Cost Adjustments299 D. Overhead Loadings. . . . . . . . . . . . . . . . . .304 E. Terms and Conditions . . . . . . . . . . . . . . . .317 1. Floor Space for Physical Collocation. . . . . .320 2. Inspection Provisions . . . . . . . . . . . . .339 3. Insurance Requirements . . . . . . . . . . . .343 4. LECs' Liability Provisions . . . . . . . . . .356 5. Termination of Service. . . . . . . . . . . . .362 6. Catastrophic Loss . . . . . . . . . . . . . . .368 7. Relocation. . . . . . . . . . . . . . . . . . .371 8. Dark Fiber. . . . . . . . . . . . . . . . . . .376 9. Channel Assignment. . . . . . . . . . . . . . .377 10. Letters of Agency . . . . . . . . . . . . . . .380 11. Billing From State/Interstate Tariffs . . . . .382 12. Payment of Taxes. . . . . . . . . . . . . . . .387 F. Compliance Filings . . . . . . . . . . . . . . . . .389 IV. BELLSOUTH'S PETITION FOR RECONSIDERATION OF THE INTERIM OVERHEAD ORDER . . . . . . . . . . . . . . . . . . .397 Paragraph No. V. APPLICATIONS FOR REVIEW OF THE PHYSICAL COLLOCATION TARIFF SUSPENSION ORDER . . . . . . . . . . . . . . . . .411 VI. BELL ATLANTIC'S PETITION FOR CLARIFICATION OF THE SUPPLEMENTAL DESIGNATION ORDER421 VII. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . .431 APPENDIX A: List of Pleadings APPENDIX B: Physical Collocation Direct Costs APPENDIX C: Calculating New Rates to Reflect Statistical Disallowances APPENDIX D: LECs' Comparable DS1 and DS3 Service Lowest Overhead Loading Factors APPENDIX E: Pleading Summaries I. INTRODUCTION 1. During the past four years, this Commission has taken a number of steps to remove significant barriers to the growth of competition in the interstate access market. Given the historic dominance and ubiquity of the incumbent local exchange carriers (LECs), and their control of bottleneck facilities to which new entrants need access in order to compete, we found that it would be in the public interest to impose expanded interconnection obligations on LECs. In a series of orders, we required LECs to offer expanded interconnection -- that is, to allow competitors to collocate network equipment dedicated to their use at the LECs' central offices. These orders have enabled new telecommunications providers to rely in part on the telecommunications facilities of LECs to offer interstate access services on a competitive basis in markets where LECs have traditionally been the only providers. We believe that expanded interconnection at reasonable rates, terms, and conditions will bring numerous public interest benefits, including expanded service choices for telecommunications users, heightened incentives for efficiency, technological innovations, rapid deployment of new technology, and pressure on LECs to offer certain interstate access services at prices closer to economic cost. 2. It is clear that the success of efficient competitive entry through interconnection depends on the interconnectors' ability to obtain access to the LECs' transmission facilities at rates that reflect costs and under terms, and conditions that are just and reasonable. Pursuant to Sections 201 through 205 of the Communications Act of 1934, as amended (Act), we are using the tariff review process to ensure that LECs provide interstate expanded interconnection service at rates, terms and conditions that are just, reasonable, and nondiscriminatory. We are ordering modifications to numerous tariff provisions and rates that we conclude are unjust, unreasonable, or unreasonably discriminatory, and thus impede competitive provision of interstate access. 3. This physical collocation tariff investigation began when the Common Carrier Bureau (Bureau) partially suspended LECs' physical collocation tariffs pursuant to Section 204(a) of the Act, initiated an investigation into the lawfulness of these tariffs, imposed an accounting order, rejected as patently unlawful certain terms and conditions contained in the tariffs, and ordered other tariff revisions in the Physical Collocation Tariff Suspension Order. The following LECs are subject to this investigation: Ameritech Operating Companies (Ameritech); Bell Atlantic Telephone Companies (Bell Atlantic); BellSouth Telecommunications, Inc. (BellSouth); Cincinnati Bell Telephone Companies (CBT); GTE System Telephone Companies (GSTC); GTE Telephone Operating Companies (GTOC) (GTOC and GSTC are also referred to collectively in this Order as "GTE"); Lincoln Telephone and Telegraph Company (Lincoln); Nevada Bell (Nevada); New York Telephone Company (NYT) and New England Telephone and Telegraph Company (NET) (collectively, NYNEX); Pacific Bell (Pacific); Rochester Telephone Corporation (Rochester); Southern New England Telephone Company (SNET); Southwestern Bell Telephone Company (SWB); Central Telephone Companies (Central); United Telephone Companies (United); and U S West Communications, Inc. (US West). In its Special Access Physical Collocation Designation Order (Designation Order), the Bureau designated for investigation: (1) whether the rate levels established in the LECs' physical collocation tariffs are excessive; (2) whether the rate structures established in the LECs' physical collocation tariffs are reasonable; and (3) whether the terms and conditions in the physical collocation tariffs are reasonable. Subsequently, the Bureau released the Supplemental Designation Order and Order to Show Cause, which directed certain LECs to file supplemental direct cases regarding their use of time and materials charges for central office construction for physical collocation. 4. In order to promote the development of efficient competition in the interstate access markets, we must ensure that LECs offer expanded interconnection at rates, terms, and conditions that are just and reasonable. Accordingly, we have carefully reviewed the LECs' physical collocation tariffs, the direct cases and cost support that these LECs filed in response to the Designation Order, the interconnectors' and other parties' oppositions to these LECs' direct cases, and the rebuttals. Following a thorough review of this record, we conclude in this Order that the LECs subject to this investigation have failed to meet their burden of proving the reasonableness of many of their rates, terms, and conditions. We therefore order certain direct cost disallowances for their physical collocation services, prescribe maximum permissible overhead loading factors, and order tariff revisions to correct unreasonable rate structures. We also order refunds for overcharges associated with physical collocation service offered by LECs after December 14, 1994. Finally, we reject certain terms and conditions that we believe to be unjust, unreasonable, and unreasonably discriminatory, and that effectively serve to impede efficient competition. The rate adjustments and tariff revisions that we are requiring by this Order will create, in our view, new opportunities for competitors to provide interstate access services, using, in part, essential telecommunications facilities over which the LECs retain bottleneck control. 5. In this Order, we also deny the petition for reconsideration of the Interim Overhead Order filed by BellSouth, the petition for clarification of the Supplemental Designation Order filed by Bell Atlantic, and applications for review of the Physical Collocation Tariff Suspension Order filed by NYNEX, SWB, and US West. II. BACKGROUND A. Expanded Interconnection Rulemaking Proceeding 6. On October 19, 1992, the Commission released the Special Access Expanded Interconnection Order, which required LECs to file tariffs offering interstate special access expanded interconnection service to all interested parties, including, but not limited to, competitive access providers (CAPs), interexchange carriers (IXCs), and end users. Specifically, LECs were required to permit such parties to terminate their own transmission facilities at LEC central offices and to interconnect with LEC special access services. Expanded interconnection is a LEC offering that enables parties, by interconnecting their circuits with those of the LEC at a central office through either physical or virtual collocation, to compete on a facilities basis with certain LEC access services. Physical collocation is an offering that enables an interconnector to locate its own transmission equipment in a segregated portion of the LEC central office. The interconnector pays the LEC a tariffed charge for the use of that central office space, and may enter the central office to install, maintain, and repair the equipment. 7. On September 2, 1993, we removed another barrier to competition in the interstate access market in the Switched Transport Expanded Interconnection Order, which permitted CAPs, IXCs, and interested users to terminate their switched access transmission facilities at LEC locations, including central offices, serving wire centers, tandem switches and certain remote nodes. This order required LECs to file tariffs for interstate switched transport expanded interconnection service, and directed them to use the same rate structures they established for special access expanded interconnection, unless they could justify additional rate elements for switched transport expanded interconnection. 8. On June 10, 1994, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), in Bell Atlantic v. FCC, vacated in part the Commission's expanded interconnection orders mandating physical collocation on the ground that the Commission did not have authority under the Communications Act of 1934, as amended, to require LECs to provide expanded interconnection through physical collocation. On July 25, 1994, in response to Bell Atlantic v. FCC, the Commission adopted a mandatory virtual collocation policy to preserve the substantial public interest benefits of expanded interconnection in the Virtual Collocation Order. Under the Virtual Collocation Order, LECs that chose to offer physical collocation in lieu of virtual collocation were exempt from the virtual collocation requirement. Therefore, following the Virtual Collocation Order, LECs had a choice in how they met their expanded interconnection obligations; they could offer physical collocation, virtual collocation, or both. Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET chose to provide expanded interconnection through physical collocation. All other LECs provided expanded interconnection through both physical collocation and virtual collocation while they phased out physical collocation during a transition period. 9. On March 22, 1996, the Court remanded for reconsideration the Commission's Virtual Collocation Order,concluding that the Commission's regulations implementing the 1996 Act would render moot questions about the future effect of the order. On August 8, 1996, we adopted the Local Competition Order, in which, among other things, we concluded that the standards we adopted in the Virtual Collocation Ordershould continue to apply with respect to expanded interconnection for interstate special access and switched transport services. B. Expanded Interconnection Tariff Investigation 10. On February 16, 1993, the LECs listed in Appendix A filed physical collocation expanded interconnection tariffs with accompanying cost support data. These tariffs were scheduled to become effective May 16, 1993, but were subsequently deferred to June 16, 1993. On June 9, 1993, the Bureau released the Physical Collocation Tariff Suspension Order, which partially suspended the physical collocation tariffs, initiated an investigation into the lawfulness of these tariffs, and imposed an accounting order. The Bureau partially suspended for five months these LECs' physical collocation rates to the extent they included excessive direct costs and overhead loadings that exceeded, without adequate justification, the overhead loading factors derived from the Automated Reporting Management Information System (ARMIS) fully distributed cost data for special access services. Moreover, the Bureau partially suspended certain rates imposed by Bell Atlantic, BellSouth, GTE, and United after finding that they had miscomputed their direct costs, resulting in excessive recovery of certain costs. The Bureau also rejected certain unlawful terms and conditions, and ordered several LECs to file tariff revisions to delete references to individual case basis (ICB) charges from their physical collocation tariffs and to include specific rates or time and materials charges for those rate elements in those tariffs. In the Designation Order, the Bureau directed the LECs to file additional cost support information to resolve the rate level, rate structure, and terms and conditions issues raised by the physical collocation tariffs. With respect to overheads, the Bureau required the LECs to provide the overhead loading factors used to develop each expanded interconnection rate element, to explain these factors, and to demonstrate how the factors were derived. These LECs were also required to provide overhead loading factors for all comparable DS1 and DS3 services and to explain the reason for any difference in overheads between expanded interconnection services and the DS1 and DS3 services. 11. Prior to the end of the five-month suspension period, the Commission released the Interim Overhead Order, which concluded that the physical collocation tariff rate levels were unreasonable because LECs had failed to justify their proposed overhead loading factors. To ensure that expanded interconnection would be available at just and reasonable rates, we used the Bureau's approach in the Physical Collocation Tariff Suspension Order, to prescribe, on an interim basis, maximum permissible overhead loading factors for physical collocation expanded interconnection rates, pending further investigation. We used ARMIS data to calculate the overhead loading factors for each LEC's special access services and required these LECs to assign overhead loading factors for physical collocation service that do not exceed the overhead loading factors derived from ARMIS for their special access services. We concluded that, because these LECs had failed to justify their overhead loading factors assigned to physical collocation service, the special access overhead loading factors derived from ARMIS represented the best currently available, verifiable, and reasonable surrogate for the maximum permitted overhead loading factors assigned to expanded interconnection for the interim period until the tariff investigation concluded. 12. In the Switched Transport Physical Collocation Tariff Suspension Order, released on February 14, 1994, the Bureau found that the switched transport expanded interconnection tariffs also raised significant questions of lawfulness. These tariffs were subsequently suspended for one day, an investigation was initiated, and an accounting order was imposed. The special access and switched transport expanded interconnection tariff investigations were consolidated in the Switched Transport Consolidation Order. III. PHYSICAL COLLOCATION TARIFF INVESTIGATION A. Legal Authority to Impose Refund Liability 1. Introduction 13. In this section, we examine the scope of our authority to impose refunds and determine the refund liability period applicable to LECs subject to this investigation. In light of the Bell Atlantic decision, which vacated in part the Commission's expanded interconnection orders after finding that the Commission had exceeded its statutory authority in requiring LECs to offer physical collocation, we are confronted with the issue of the scope of our authority to impose refund liability on the LECs that provided physical collocation prior to the Bell Atlantic decision. We decline to order refunds for overcharges imposed by LECs for physical collocation service they provided between June 16, 1993, the date that LECs' physical collocation tariffs took effect, and December 14, 1994, the day before LECs' virtual collocation tariffs took effect. We do, however, order refunds for overcharges associated with physical collocation service offered by LECs after December 14, 1994. 2. Background 14. On June 10, 1994, the D.C. Circuit in Bell Atlantic v. FCC vacated in part the Commission's expanded interconnection orders on the ground that the Communications Act of 1934, as amended, did not expressly authorize the Commission to require LECs to provide expanded interconnection through physical collocation. The Court reasoned that because the orders requiring physical collocation raised constitutional issues, it would apply a "strict test" to the Commission's statutory authority, overriding the customary deference courts generally give to determine the Commission's interpretation of its own authority. The Court held that Section 201(a) of the Act, which authorizes the Commission to order carriers "to establish physical connections with other carriers," does not empower the Commission "to grant third parties a license to exclusive physical occupation of a section of the LECs' central offices." Underlying the Court's statutory construction was its concern that our physical collocation requirement might constitute a "taking" of property. The Court remanded our orders to permit us to consider whether and to what extent we should impose virtual collocation requirements in lieu of a physical collocation requirement and to consider whether to impose a "fresh look" requirement in the absence of mandatory physical collocation. The Court stated that "[t]he orders are vacated insofar as they require physical [collocation]; in all other respects the orders are remanded to the Commission for further proceedings." 15. Following the Court's decision in Bell Atlantic, the Commission released the Virtual Collocation Order on July 25, 1994. This order sought to preserve the substantial public interest benefits of expanded interconnection and to ensure uninterrupted availability of expanded interconnection services by requiring LECs to offer expanded interconnection no later than December 15, 1994 for both special access and switched transport through generally available virtual collocation tariffs. The order exempted from this requirement LECs that voluntarily choose to offer physical collocation in lieu of virtual collocation service, subject to regulation as a communications common carrier service. The order required that LECs electing to provide physical collocation service follow the same tariffing requirements as LECs that provide virtual collocation. In addition, the order required that the charges for both physical collocation and virtual collocation service be based on direct costs plus a reasonable share of overhead loadings. After December 14, 1994, Pacific, Nevada, Lincoln, NYNEX, Rochester, and SNET voluntarily chose to provide physical collocation in lieu of virtual collocation service. Although Ameritech, Bell Atlantic, BellSouth, Central, CBT, GTOC, SWB, and US West elected to provide virtual collocation, these carriers continued to provide physical collocation service voluntarily in some of their central offices even after the effective date of our mandatory virtual collocation rules. 16. In Pacific Bell v. FCC, several LECs challenged the Commission's virtual collocation rules on essentially the same grounds raised in their challenges to the Commission's mandatory physical collocation requirement -- that is, LECs claimed that the virtual collocation rules also constitute an unauthorized taking. The D.C. Circuit in Pacific Bell did not reach the merits of these claims. Instead, the Court addressed the scope of Section 251 of the Telecommunications Act of 1996 immediately after its enactment and before the FCC had adopted rules implementing that provision. The Court stated that regulations enacted to implement the 1996 Act would render moot questions regarding the future effect of the Virtual Collocation Order under review. The Court did not vacate the Virtual Collocation Order, but remanded to the Commission the issues presented in that case. In our recently released Local Competition Order, among other things, we reaffirmed, on remand, our legal authority to require virtual collocation under Section 201 of the Communications Act of 1934, as amended. In the Local Competition Order, we stated: "[F]or the reasons stated in the Virtual Collocation Order, we continue to believe that virtual collocation, as we have defined it, is not a taking, and that our authority to order such collocation (under section 251 or section 201) is not subject to the strict construction canon announced in Bell Atlantic." 3. Discussion a. Refund liability from June 16, 1993 to December 14, 1994 17. We are confronted with the issue of whether, in light of Bell Atlantic, we have the authority to impose refund liability on all 16 LECs that provided physical collocation between June 16, 1993, the date physical collocation tariffs went into effect, and December 14, 1994, the day before each of the LECs was authorized to provide virtual collocation in lieu of physical collocation service. Although the Bureau had designated the rates set forth in the LECs' physical collocation tariffs for investigation pursuant to section 204(a)(1) and had imposed an accounting order for the purpose of requiring refunds if the rates were not justified, the court in Bell Atlantic determined that we had exceeded our authority in requiring LECs to offer physical collocation. Because the LECs were not offering physical collocation voluntarily and our attempt to require them to do so was found to be unlawful, the LECs were not required explicitly by any statute under our supervision to charge just and reasonable rates. Under the acknowledged test, a service may be regarded as "common carriage" either because the carrier voluntarily has undertaken to offer it indifferently or because the Commission has required it to do so. 18. The inapplicability of our rate investigation authority under section 204(a), however, would not necessarily foreclose remedial action. We might well undertake such action pursuant to section 4(i) of the Act under a theory of quantum meruit if considerations of equity demanded a remedy in the nature of refunds to do equity. Under the circumstances here, there are no compelling equities that would warrant such extraordinary relief. We cannot ignore the harm to LECs that arose from our unlawful requirement that they unwillingly permit interconnectors to occupy space in their central offices and provide service in competition to services provided by LECs. To the extent that the rates charged to interconnectors exceeded those permissible under cost-based regulation, we must balance that harm against the fact that the physical collocation customers received a service that, absent our order, may not have been available under any terms. Weighing all the circumstances, therefore, we conclude that there is no basis for finding that the equities require us to fashion an extraordinary remedy for the customers. b. Refund liability after December 14, 1994 19. We require LECs that provided physical collocation service after December 14, 1994 to refund all overcharges after that date. The Virtual Collocation Order required LECs to provide expanded interconnection service through virtual collocation beginning on December 15, 1994. We exempted carriers from this requirement, however, if they elected to provide physical collocation in lieu of virtual collocation. We stated that "[a] LEC will be exempted from our mandatory virtual collocation requirements at any specific central office or offices for which the LEC opts to offer under tariff expanded interconnection through physical collocation, subject to full regulation by the Commission as a communications common carrier service, including the standards we adopt [in the Virtual Collocation Order] for such offerings." The order made clear that LECs that chose to provide physical collocation after December 14, 1994 would have their rates, terms, and conditions subject to full Commission review. We stated that "[b]ecause we envision, under the new collocation policy, that some local telephone companies may voluntarily provide physical collocation as a regulated common carrier service, we are also reaffirming many of our rules relating to the rates, terms, and conditions of physical collocation offerings." 20. We have legal authority to regulate expanded interconnection service provided through a physical collocation arrangement because physical collocation is an interstate "communications service" provided on a common carrier basis. Section 3 of the Communications Act defines "communication" by wire or radio to include "all instrumentalities, facilities, apparatus, and services . . . incidental to" the transmission of signals by wire or radio. We find that the provision of central office space for physical collocation is incidental to communications, thus rendering it a communications service under Section 3 of the Communications Act, and that provision of such space is a common carrier service. Offerings are incidental to communications and therefore are communications themselves, if they are an integral part of, or inseparable from, transmission of communications. Physical collocation service is an integral part of a communications service because the use of central office space is necessary to allow CAPs to interconnect their communications services with the LECs' networks. 21. Physical collocation is a common carrier service because it provides expanded interconnection to all interested parties on a nondiscriminatory basis, regardless of their status. The nondiscriminatory provision of expanded interconnection through physical collocation requires that LECs offer central office space to all interconnectors, rather than making individualized decisions whether and on what terms to make this offering available. We therefore conclude that we have authority to impose regulations under Part I of Title II of the Act, including tariffing requirements, on the provision of such space. Under these regulations, LECs that offer physical collocation service must do so at rates that are just and reasonable. If the Commission determines that LECs' rates are not just and reasonable, Section 204 of the Act provides us with broad discretion to impose refund liability on LECs for overcharging their customers. c. Conclusion 22. Accordingly, the LECs that chose to provide physical collocation in lieu of virtual collocation after December 14, 1994 -- Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET -- are subject to refund liability for any overcharges between December 15, 1994 and the day before these LECs' new physical collocation rates take effect pursuant to this Order. We also find that Ameritech, Bell Atlantic, BellSouth, Central, CBT, GTOC, SWB, and US West, the LECs that elected to provide virtual collocation service but continued to provide physical collocation after December 14, 1994, are subject to refund liability for any overcharges related to the provision of physical collocation service from December 15, 1994 to the date each LEC discontinued providing physical collocation service. LECs that provided physical collocation service between June 16, 1993, and December 14, 1994, are not required to refund any amounts associated with the provision of physical collocation service during that time period. B. Rate Structure 23. We determined in the Special Access Expanded Interconnection Order that we would not require any particular detailed rate structure for expanded interconnection offerings, although we required the LECs to establish a cross-connect element to apply uniformly to both physical and virtual collocation. Instead, we directed the LECs to establish reasonably disaggregated rate elements for connection charges for expanded interconnection. In the Second Reconsideration Order, we clarified that two standards must be met in order for a rate structure to be considered reasonable: (1) rate structures must reflect cost-causation principles, i.e., the manner in which costs are incurred in providing expanded interconnection service; and (2) rate structures must be unbundled to ensure that interconnectors are not forced to pay for services that they do not need. In the Virtual Collocation Order, we affirmed these principles with respect to both virtual collocation and physical collocation and clarified that LECs' rate structures should be clear and easy to understand and that each rate element should logically relate to the service function provided under that rate element. In the Designation Order, the Bureau stated that, although the Special Access Expanded Interconnection Order did not require a specific rate structure, "the Commission has a long-standing precedent that rates and rate structures must be cost-causative" and the interconnectors had raised issues of rate structure for which an investigation is warranted. 24. We apply these principles in our evaluation of the reasonableness of the LECs' rate structures for physical collocation service. As discussed below, we are requiring certain modifications to those LEC rate structures that may unreasonably raise the interconnectors' cost of doing business or have anticompetitive effects. For example, rates that recover costs that are unrelated to the assets and services that an interconnector actually needs for expanded interconnection service would improperly increase interconnectors' costs for the services. This, in turn, would impede efficient competitive entry by making it difficult for an interconnector to price its interstate access service at a level that is both compensatory for the interconnector and competitive with a LEC's price for the same service. Accordingly, we are requiring LECs to modify rate structures that result in rates, terms, and conditions that are unjust, unreasonable, or unreasonably discriminatory. At the same time, we are approving certain LECs' rate structures that reasonably ensure they are able to recover all of their costs of providing physical collocation. 25. In this section of the Order, we consider the following issues: (1) whether it is reasonable for LECs to recover recurring costs through nonrecurring charges; (2) whether it is reasonable for LECs to assess a nonrecurring charge for equipment; (3) whether tariff provisions that allow LECs to recover additional, extraordinary, or individually determined costs are reasonable; (4) whether it is reasonable for LECs to require advance payment of all or a percentage of all construction costs; (5) the reasonableness of the LECs' methods for recovering common construction costs; (6) the reasonableness of the LECs' methods for avoiding the double recovery of interconnector- specific construction costs when a subsequent interconnector reuses the assets that comprise the physical collocation module constructed for the original interconnector; (7) the reasonableness of pricing electric power on a flat rate basis as opposed to an actual usage basis; and (8) whether LECs unreasonably bundle their rates to require interconnectors to purchase services that they do not need in order to purchase services that they do need. 1. Nonrecurring Charges for Recurring Costs a. Background 26. Ameritech, BellSouth, GTE, and US West develop nonrecurring rates based on the present value of certain recurring costs. The other LECs develop nonrecurring rates to recover nonrecurring costs and recurring rates to recover recurring costs, and do not impose nonrecurring rates that recover more than the initial capital outlay for the investment used to provide a particular physical collocation service function. In the Physical Collocation Tariff Suspension Order, the Bureau partially suspended BellSouth's rate for space construction and GTE's rate for building modification to exclude recovery of recurring expenses in those rates and to limit such rates to the recovery of nonrecurring material and labor costs. In the Designation Order, the Bureau asked all the LECs to explain how computing nonrecurring charges based on the present value of future taxes, maintenance, or other recurring costs is reasonable. b. Discussion 27. We find that it is unreasonable for Ameritech, BellSouth, GTE, and US West to recover recurring costs of providing physical collocation service through nonrecurring charges. Recurring costs like income taxes, maintenance expenses, and administrative expenses are costs that are incurred not initially, but over time. These LECs do not demonstrate that recovering these recurring costs of expanded interconnection through nonrecurring charges is just and reasonable. In theory, paying the present value of such recurring costs would be equivalent to paying those costs on a recurring basis, assuming the customer continues taking the service for a predictable and substantial period of time. In practice, however, different customers are likely to take expanded interconnection service for different periods of time. Given the uncertainties of how competitive markets will develop, it is difficult to predict the length of time that an interconnector will take service, and Ameritech, BellSouth, GTE, and US West fail to meet their burden of proving the reasonableness of their projections. Moreover, advance charges to recover costs that will be incurred over time create pressures for expanded interconnection customers to take service for a longer period of time than they might have, absent such a rate structure, and the LECs do not show that such a "lock-in" effect is reasonable or that such a rate structure bears any relation to the manner in which costs are incurred. Finally, if an interconnection customer discontinues taking service before all the recurring costs recovered by the nonrecurring charge are incurred, then these charges will overcompensate the LEC, and these LECs fail to justify this effect or provide a refund mechanism to customers under such circumstances. 28. In contrast, a recurring charge for a recurring cost would ensure both that a LEC recovers its costs of providing expanded interconnection and that an interconnector is charged only for the costs that the LEC incurs to provide service to the interconnector. Moreover, when the recurring costs associated with expanded interconnection service change, the LEC can make appropriate adjustments to the recurring charges at the time such cost changes occur. 29. Accordingly, we will not permit the LECs subject to this investigation to recover recurring expanded interconnection costs through nonrecurring charges. Instead, we require that nonrecurring charges be set to recover no more than the nonrecurring costs that LECs incur initially to provide expanded interconnection service. To the extent that LECs recover such costs through nonrecurring charges, they may not recover depreciation expenses associated with such costs because this would result in double recovery of the costs. In addition, LECs may not earn a return or recover income taxes associated with a return on assets, the costs of which are recovered through nonrecurring charges, because the costs of money and income taxes arise only when the costs of assets are recovered over time. To the extent that the LECs can demonstrate with specificity that there are recurring costs, such as property taxes, maintenance expense, and administrative expenses, associated with the physical capital outlay, separate recurring charges to recover these recurring costs would not necessarily be unreasonable. 30. We therefore affirm the disallowances the Bureau made in the Physical Collocation Tariff Suspension Order for GTOC and BellSouth. GTOC's nonrecurring charge for building modification should not exceed the amount of the material and labor costs incurred to modify the building. In addition, BellSouth's rate for space construction should not exceed an amount equaling the direct cost of BellSouth's construction prior to the present value calculations. We note that this rate is lower than the rate that we tentatively allowed in the Physical Collocation Tariff Suspension Order because BellSouth reduced its estimate of the initial capital outlay in its subsequent transmittal. We order these LECs to calculate the appropriate refunds for the improper nonrecurring charges assessed on the interconnectors. We also require Ameritech and US West to calculate refunds based on the difference between the nonrecurring charges that they collected and the dollar amount of the initial central office investment or other capital outlay. As discussed above, these refund obligations apply to all nonrecurring charges that recover recurring costs imposed on December 15, 1994 and thereafter. 2. Nonrecurring Charges for Equipment a. Background 31. In the Designation Order, the Bureau asked LECs that assess a nonrecurring charge for equipment rather than recovering the cost through recurring charges to explain why this practice is reasonable. The Bureau also asked the LECs to explain whether the equipment is dedicated for its full life to the interconnector that pays the nonrecurring charge. b. Discussion 32. While carriers typically recover investment costs through recurring charges, we find that it is not unreasonable for LECs to assess nonrecurring charges to recover the cost of equipment. Inasmuch as physical collocation is a new service, LECs may have difficulty projecting either the length of time that equipment will be used by an interconnector or the useful life of that equipment for depreciation purposes. When a LEC imposes a recurring charge to recover the depreciation of an asset over time, overestimating the life of the equipment or the length of time that an interconnector would use the equipment could prevent the LEC from recovering the total cost of its investment. We will not, however, permit LECs to recover initially an amount greater than the total installed cost of the equipment, plus a reasonable overhead loading. Therefore, if a LEC chooses to impose a nonrecurring charge equal to the total installed cost of the equipment, the LEC may not impose recurring charges to recover depreciation expense, the cost of capital, or income tax expense for that same equipment, because these are capital costs that do not arise where a LEC has recovered the full cost of equipment through a nonrecurring charge. The LEC may, however, recover recurring operating costs such as maintenance expenses for that equipment through a recurring charge when it elects to recover initially the total installed cost of the equipment. 33. We do not agree with ALTS' position that nonrecurring charges developed in conformance with these requirements constitute a barrier to entry. To the extent that the equipment needed for expanded interconnection service is dedicated to a particular interconnector, we believe that requiring that interconnector to pay the full cost of the equipment up front is reasonable because LECs should not be forced to underwrite the risk of investing in equipment dedicated to the interconnector's use, regardless of whether the equipment is reusable. To the extent that the equipment needed to provide expanded interconnection service is reusable, we believe that the pro rata refund requirement that we set forth in Section II.B.6 below properly compensates interconnectors for the assets for which they have already paid fully, but that the LEC can use to provide service to another company after the interconnector disconnects. At the same time, LECs will not recover twice the cost of reusable equipment. We conclude, therefore, that LECs may impose a nonrecurring charge for equipment, if such charges are developed in accordance with the requirements set forth in this section of the Order. 3. Charges for Additional, Extraordinary, or Individually Determined Costs a. Background 34. Ameritech, Bell Atlantic, CBT, GTE, SWB, SNET, United, and Nevada all have tariff provisions that allow them to recover additional, extraordinary, or individually determined costs, but these provisions do not specify the rates that would apply. In the Designation Order, the Bureau asked LECs with tariff provisions that appear to allow them to recover costs not specifically and individually listed in their tariffs through unspecified charges to explain why such provisions are reasonable. These LECs were also instructed to define the terms they used to permit recovery of such costs. b. Discussion 35. We find that LECs' additional, extraordinary, or individually determined cost provisions violate the Commission's requirement that expanded interconnection rate levels be uniform for all interconnectors and that the LECs' tariffs identify the actual rates for expanded interconnection service. In the 1992 Special Access Expanded Interconnection Order, the Commission stated that cross-connect elements must be provided pursuant to generally available tariffs at study-area-wide averaged rates. The Commission also stated that, with respect to "certain other connection charge rate elements," charges under general tariffs may reasonably differ by central office due to variations in costs -- but should be uniform for all interconnectors in each individual central office. These policies were affirmed in the July 25, 1994 Virtual Collocation Order, when the Commission stated that "virtual collocation offerings . . . must be made generally available to all similarly situated interconnectors, and the actual rate levels (as well as the general methodology) must be reflected in the tariffs." 36. Tariff provisions permitting LECs to recover unspecified charges for additional, extraordinary, or individually determined costs deny interconnectors advance notice of all the costs associated with physical collocation, creating an uncertainty for the interconnector. This uncertainty, in turn, may serve as a barrier to entering the interstate access market by interfering with the interconnector's ability to implement its business plans and to market its services. In addition, this uncertainty may increase the risk of the interconnector's business and the price that the interconnector is required to pay to attract debt and equity capital to finance its business. To the extent, therefore, that any of the LECs incur additional, extraordinary, or individually determined costs in conjunction with physical collocation service, they must file new tariffs identifying the service they are providing, the price of that service, the costs associated with providing the service, and justification for these costs. This will ensure that interconnectors receive advance notice of all costs associated with physical collocation service and will permit the Commission to judge the reasonableness of the services proposed by LECs and the costs of providing these services. We also direct SNET, Nevada, and any other LEC that currently provides physical collocation with generalized additional, extraordinary, or individually determined cost provisions to file tariff revisions that delete these provisions. 37. We find that SWB's nonrecurring charges for asbestos abatement are unreasonable because SWB did not demonstrate that other SWB customers will not benefit from asbestos removal in cases where SWB charges the full costs of asbestos removal solely to interconnectors. We therefore require SWB to refund any amounts it collected from interconnectors on or after December 15, 1994 for asbestos abatement. If any LECs wish to apportion the costs of asbestos removal among interconnectors and file to recover such apportioned costs as extraordinary costs through a one-time nonrecurring charge, they must file appropriate justification and cost support, demonstrating that the allocated portion of the asbestos abatement costs is for work that benefits only interconnectors. 38. With respect to NYNEX's provisions for extraordinary costs for microwave expanded interconnection, we note that we modified our requirements for microwave interconnection in the Virtual Collocation Order. In that order, we stated that microwave interconnection must be tailored to specific interconnectors and to specific central offices and that it does not readily lend itself to uniform tariff arrangements. We found that the LECs must tariff microwave interconnection on a central office-specific, individual case basis, in response to bona fide requests. Therefore, we find that NYNEX's tariff provisions for microwave interconnection are consistent with our orders. 4. Advance Payment of Central Office Construction Charges a. Background 39. All LECs recover the majority of their construction costs through nonrecurring charges. United and Central do not require partial or total construction nonrecurring charges prior to commencement of construction. Bell Atlantic, GTE, SWB, NYNEX, and US West require advance payment of 50 percent of all construction charges. Pacific, Nevada, and BellSouth require advance payment of 100 percent of the construction charges. Moreover, CBT and SNET include charges for design and construction in their application fees and these charges vary depending on the amount of work required to process each interconnector's request. Lincoln requires a $7,500 advance payment for service preparation and cable installation. 40. In the Designation Order, the Bureau asked LECs to justify the reasonableness of requiring interconnectors to pay some or all of the nonrecurring charges before commencement of construction. b. Discussion 41. We find that it is not unreasonable for LECs to require interconnectors to pay up to 50 percent of the cost of construction or other nonrecurring costs before commencement of work. Based on the record, we are convinced that advance payment of up to 50 percent of the construction costs would not only cover the LECs' initial construction costs, but would help ensure that LECs recover all their construction costs from interconnectors. We agree with NYNEX that the advance payment of up to one-half of the construction or other nonrecurring costs is a reasonable requirement that is consistent with standard commercial construction contracts. 42. We find that it is unreasonable for Pacific, Nevada, and BellSouth to require full payment of nonrecurring construction costs prior to construction. We agree with Sprint that full payment before the provision of service deprives interconnectors of leverage if work is not performed to their satisfaction, particularly because there are no specific requirements governing the amount of time that a LEC may take to complete construction. Accordingly, we order Pacific and Nevada to file tariff revisions that delete the requirement for full advance payment of construction costs. Finally, we require all LECs that currently offer physical collocation and are subject to this investigation to state in their tariffs that if a customer withdraws a request for physical collocation, the customer will only be responsible for those amounts already expended on its behalf. 5. Responsibility for Payment of Common Physical Collocation Construction Costs a. Background 43. Common construction costs are the costs associated with central office construction required for provision of physical collocation services that are not attributable to any particular interconnector. Bell Atlantic, CBT, Pacific, and GTE charge the full amount of construction costs that may be incurred to provide service to multiple interconnectors to the first interconnector, and provide a pro rata refund to the first interconnector if a subsequent interconnector takes service in the central office within a specific period. GTE and Pacific impose a one-year limit on the time for receiving refunds, and limit the number of interconnectors eligible for refunds to three and four interconnectors, respectively. CBT does not impose a time limit on refunds. Most of the other LECs estimate demand by interconnectors for central office space and average among interconnectors those costs incurred to serve multiple interconnectors. Nevada does not include such costs in its nonrecurring charge because its offices have substantial vacant space. Lincoln recovers such common physical collocation construction costs through its recurring floor space rate. US West splits the common construction costs among each group of three interconnectors that occupy the same central office location. Rochester does not address this issue in its tariff. 44. In the Designation Order, the Bureau asked LECs that charge interconnectors a portion of common construction costs based on total estimated demand to explain and document their demand estimates. The Bureau also noted that some LECs charged common costs to the first interconnector, with a pro rata refund if other interconnectors take service within a specific time period. The Bureau asked these LECs to justify their time limit on refunds. The Bureau directed LECs that do not provide pro rata refunds to explain why this does not unreasonably disadvantage the first interconnector. b. Discussion 45. LECs recover common construction costs by (1) initially charging the first interconnector for all common construction costs through a nonrecurring charge; (2) initially charging the first interconnector for all common construction costs through recurring charges; or (3) charging the first interconnector a portion of common construction costs based on total estimated demand of central office space by interconnectors. We find that these common construction cost recovery mechanisms are not unreasonable, provided that such costs are equitably shared by all interconnectors benefiting from shared facilities. We find that common construction costs can be equitably shared in three ways. 46. LECs may charge their initial interconnectors the full amount of common costs that may be incurred for the purpose of eventually serving the initial interconnector as well as additional interconnectors. We require, however, that if this approach is taken and subsequent interconnectors take service in the central office and benefit from such costs, these interconnectors must pay the LEC their proportionate share of the remaining undepreciated value of the common physical collocation assets. Moreover, we require the LEC to refund to the initial interconnectors an amount reflecting the full amount of the charges for common costs collected from the subsequent interconnectors. We find that properly calculated prorated refunds are a reasonable, cost-based method of equitably apportioning the common costs among interconnectors. It also prevents LECs from being able to recover such costs again from subsequent interconnectors. 47. In addition, we find that it would not be unreasonable for LECs to recover common physical collocation construction costs through recurring charges that are divided evenly between an initial interconnector and a subsequent interconnector that shares the same common physical collocation assets with the initial interconnector. This approach requires, a LEC to reduce the recurring charge that the initial interconnector pays for common physical collocation assets on the date that a subsequent interconnector takes physical collocation service and to charge the subsequent interconnector the same recurring charge that the initial interconnector pays from that day forward. The initial interconnector would not, however, be entitled to refund of any recurring charges that it had paid prior to the date on which the subsequent interconnector takes service because the common physical collocation assets depreciate from the date that the initial interconnector takes physical collocation service. Under this approach, the initial interconnector and the subsequent interconnector pay for an equal share of remaining unrecovered value of the common physical collocation assets beginning on the date the subsequent interconnector takes physical collocation service. 48. Finally, we find that it would not be unreasonable for LECs to charge initial interconnectors a portion of common construction costs based on total estimated demand by interconnectors for physical collocation service. We find that this is a permissible, cost-based method of apportioning common construction costs among interconnectors, provided that the LECs reasonably estimate the number of interconnectors requesting physical collocation at each central office where such service is offered. If a LEC were to underestimate the expected demand for physical collocation service in a central office, an interconnector could be required to pay unreasonably high rates for the recovery of common construction costs, and the LEC would recover more than the initial costs of the common construction. In this Order, we determine whether LECs reasonably estimated the demand for physical collocation service by determining the reasonableness of their common construction costs. To the extent that certain LECs' demand estimates resulted in unreasonable charges for common construction, we make disallowances in Sections III.C.1.c and III.C.2.h of this Order. 49. We find that those LECs that take the first approach, but that limit the number of interconnectors that may receive refunds, did not adequately justify such a limitation. We are not convinced that it would be burdensome to administer refunds based on the actual number of interconnectors taking service in a central office. Contrary to Pacific's contention, we find that the incremental benefit to interconnectors of receiving refunds for their proportionate share of common costs outweighs the administrative costs of continuing a refund program without limits on the number of interconnectors that may participate in the refund program. Moreover, we will not permit LECs to place a time limit on their refund obligation. We order LECs to provide pro rated refunds to any interconnector that has taken physical collocation service prior to the date on which another interconnector takes physical collocation, to the extent that the initial and the subsequent interconnectors use the same physical assets that comprise the common construction. Accordingly, as explained above, LECs must revise their tariffs to provide for the proration of refunds. If any LEC charged initial interconnectors a nonrecurring charge for common construction to recover the entire common construction costs in a central office, and at least one subsequent interconnector has taken service in that office, we require the LEC to provide the initial interconnectors with pro rated refunds, if it has not already done so, in accordance with the principles outlined above. 50. We also find that LECs that recover common construction costs through recurring charges must revise their tariffs to provide for equal division of common construction costs in a central office among all interconnectors that share the same common physical collocation assets. If a LEC imposed a recurring charge on an initial interconnector to recover common physical collocation construction costs in a central office, and at least one subsequent interconnector has taken service in that central office and uses those same assets, we require the LEC to provide the initial interconnector and the subsequent interconnector with refunds, if it failed to revise its recurring charges to reflect an equal division of common construction direct costs recovery. If a LEC failed to reduce the recurring charge imposed on the initial interconnector and subsequent interconnector for common physical collocation assets on the date a subsequent interconnector takes service, the LEC is required to refund the difference between the charges it imposed on these interconnectors and the charges it should have imposed to reflect an equal division of common construction cost recovery. 51. NYNEX develops a unique method of apportioning construction costs among interconnectors: it averages both common and interconnector-specific costs for 12 multiplexing nodes used for intrastate expanded interconnection. NYNEX does not provide, however, any supporting data or justification for its methodology. NYNEX also fails to demonstrate that its costs for intrastate expanded interconnection are relevant to a calculation of construction costs for interstate expanded interconnection. Nevertheless, we determine the reasonableness of NYNEX's direct common construction costs through our average cost analysis of common construction direct costs in Section III.C.2.h of this Order. 6. Payment of Interconnector-Specific Charges by Subsequent Interconnector a. Background 52. Only one LEC, BellSouth, gives interconnectors a credit when they vacate a central office. The credit is equal to the unamortized amount of the space construction charge at the time another interconnector occupies the space. Any subsequent interconnector becomes responsible for paying the remaining unamortized amount of that charge. Bell Atlantic, CBT, and GTE bill the initial interconnector the full nonrecurring charge for cage construction, but do not assess construction charges on a subsequent interconnector that uses the same cage unless the subsequent interconnector orders modifications to the cage. Ameritech, NYNEX, Nevada, Pacific, and SWB impose a nonrecurring charge on both initial interconnectors and subsequent interconnectors for the same space. Rochester, Lincoln, and SNET do not have tariff provisions addressing this issue. 53. In the Designation Order, the Bureau asked LECs that assess nonrecurring charges to recover interconnector- specific construction costs associated with cage construction to explain how such a rate structure will avoid double recovery of costs when a subsequent interconnector reuses a cage built for the original interconnector. The Bureau explained that payment of the full amount of construction costs by the first interconnector may lead to double recovery if another interconnector pays for and uses the same construction after it has been vacated by the original interconnector. b. Discussion 54. We find that where an interconnector pays a nonrecurring charge for interconnector-specific construction or equipment and the interconnector discontinues taking service before the end of the useful life of these assets, the initial interconnector must receive a pro rata refund for the undepreciated value of the assets, if a subsequent interconnector takes service and uses the assets or the LEC uses the assets. That is, if the LEC uses an asset for which an interconnector has paid after that interconnector discontinues service, the LEC will be responsible for paying the interconnector for the undepreciated value of the asset. If the subsequent interconnector uses an asset for which the initial interconnector has paid after the initial interconnector discontinues service, the subsequent interconnector will be responsible for paying the LEC a nonrecurring charge equal to the remaining undepreciated value of this asset and the initial interconnector will receive a credit from the LEC equal to the undepreciated value of the asset at the time the subsequent interconnector takes service and utilizes the asset. This ensures that if it imposes a full nonrecurring charge for an asset on an initial interconnector, a LEC will not be able to recover its costs twice or receive a free benefit, if the initial interconnector discontinues taking service from the LEC. We also find that this approach provides a cost-based method of equitably distributing the costs of an asset among the users of the asset. 55. We direct those LECs offering tariffed interstate expanded interconnection through physical collocation service to file tariff revisions stating that, if an initial interconnector has paid a nonrecurring charge for an asset and is succeeded by another interconnector who uses that asset, the initial interconnector will be credited the remaining undepreciated amount of the equipment and the cage construction cost upon occupancy by the subsequent interconnector; the subsequent interconnector will be responsible for paying the remaining undepreciated amount of the cost. The tariff revisions also must state that, if the LEC uses an asset for which an interconnector paid a nonrecurring charge, the LEC must make a pro rata refund to the interconnector. For purposes of calculating prorated refunds to interconnectors, LECs should base the life of the equipment and interconnector-specific construction on the economic life of the equipment and the cage. We are stipulating that the economic life of the cage be used as the life of the interconnector-specific construction because it is the cost of the assets in particular that may be recovered twice in the absence of pro rated refunds. If any LEC did not use the procedures outlined above in cases where an initial interconnector abandoned its physical collocation equipment and space after paying a nonrecurring charge for these assets and a subsequent interconnector paid a nonrecurring charge for these same assets or the LEC itself has used these assets, we order the LEC to make prorated refunds as outlined above. 56. We reject NYNEX's suggestion that by not charging a full nonrecurring charge to a subsequent interconnector for use of vacated space, the LEC may discriminate against other interconnectors that must pay a full nonrecurring charge for central office space. This argument does not provide reasonable justification for double recovery of cage construction costs. We find that the mechanism we require in this section prohibits the LEC from recovering its costs twice and prevents unreasonable discrimination against interconnectors. 7. Electric Power a. Background 57. Bell Atlantic and BellSouth charge for 10 and 40 amp increments of direct current (DC) power, respectively, rather than for actual usage. Pacific charges for DC power in 40 amp increments, contending it is more efficient than providing power in smaller increments. US West charges for electric power based on the amperage levels requested by an interconnector, on a recurring basis, although the nonrecurring charge for power cable installation is billed at the 20, 40 or 60 amp capacity break point which is greater than or equal to the actual amperage requested. Ameritech and CBT charge for power on a per fuse amp basis. GTE, United, and Central charge for DC power on a per square foot basis. In computing its charge for electric power, GTE assumes that an interconnector within a 100 square foot cage would require 100 amps of such power to operate equipment. SWB charges for 40 or 100 amps of DC power. NYNEX provides electrical power on an actual usage basis and bills the interconnector for that actual usage on a per amp basis. Lincoln charges for power in 15 amp increments, while SNET and Nevada charge for power in 10 amp increments. Rochester charges for DC power on a per kilowatt hour basis. 58. In the Designation Order, the Bureau asked LECs that charge for electric power in increments and not based on an actual use to explain why they chose the increment level they did, why they cannot or will not supply power in smaller increments, why they cannot or will not supply power on an actual usage basis, and why the choice they made is reasonable. b. Discussion 59. We will not require LECs to provide power on a measured, actual use basis because we are not persuaded that such a rate structure would reflect the way costs are incurred better than power offered in increments. LECs rely primarily on batteries for the DC power in their central offices, and it is not clear that the costs they incur for these batteries vary based on the specific amounts of power drawn, as opposed to the overall capacity that they are designed to support. For the LECs to bill power on a measured, actual use basis would require the installation of metering equipment, and it is not clear that the benefits of such a billing arrangement justify the cost of this equipment (which would have to be paid by interconnectors). Moreover, we agree with Pacific and SWB that providing DC power in increments allows an interconnector to add equipment without incurring additional LEC charges for its power needs. Therefore, we conclude that where the electric power increments are established at appropriate levels, an interconnector is able to purchase power in the quantity that is needed to operate existing equipment properly. At the same time, that quantity may also provide the interconnector with a surplus sufficient to accommodate the requirements of additional equipment without being excessive. 60. We do not find, however, that the charges for DC power on a per square foot basis in GTE's, United's, and Central's tariffs are reasonable. The cost of providing DC power does not vary with the amount of floor space that the interconnector occupies in the central office. 61. Moreover, the method of charging for the cost of DC power in the GTE tariff subject to this investigation requires an interconnector to purchase 100 amps of DC power for a 100 square foot physical collocation space. We conclude that this provision is unreasonable. Most LECs charge for DC power in increments, and no LEC that does so requires interconnectors to purchase DC power in initial increments greater than 40 amps. Moreover, while some interconnectors would prefer the LECs to meter power usage, no interconnector has argued that an initial increment of 40 amps is unreasonable. Thus, GTE's per square foot charge requires an interconnector to make a minimum power purchase of more than twice the number of amps that is the minimum these other LECs require an interconnector to purchase. Accordingly, we find that because it may require an interconnector to purchase an excessive amount of DC power, GTE's per square foot charge for DC power is unreasonable. 8. Unbundling 62. In the Designation Order, the Bureau asked the LECs to discuss whether the rate structures in their tariffs require interconnectors to purchase services that they do not need in order to obtain services that they do need. We find that the LECs have not unreasonably bundled their rates for physical collocation service. While some LECs have bundled certain charges such as site preparation and cage construction, we find that in those cases all the services bundled are reasonably necessary for the provision of physical collocation service. C. Direct Costs 63. The direct costs of providing physical collocation service include capital costs (i.e., depreciation, cost of money, and income taxes) and operating costs (i.e., maintenance costs, administrative and other costs, property, and other taxes) that are attributable to physical collocation service. In the Designation Order, the Bureau directed LECs to provide disaggregated unit investments and expenses for most recurring and nonrecurring expanded interconnection rate elements on TRP charts. The Bureau observed that LECs adopted a variety of rate structures, which created confusion over the costs to be recovered by rates for particular rate elements. The TRP disaggregated expanded interconnection service into 14 "functions" in order to remove this confusion and to facilitate the Bureau's investigation into the reasonableness of the rate levels established in the LECs' physical collocation tariffs. Depending on the rate structure chosen by an individual LEC, a particular function may include several rate elements. These functions are identified and explained below: Costs of the Collocation Facility in the Central Office (1) Floor Space. Floor space direct costs include costs for occupancy of central office floor space by the interconnector, including all ancillary and "housekeeping" services. (2) Construction Provisioning. Construction provisioning direct costs include the costs of ordering the interconnector's space and cage, i.e., interconnector-specific costs associated with service order processing, pre-construction survey, design and engineering, space preparation, and construction management and coordination. (3) Interconnector-Specific Construction. Interconnector-specific construction direct costs include the costs for interconnector-specific space construction, e.g., cage construction, cage lighting, and alternating current (AC) power. (4) Common Construction. Common construction direct costs include costs related to central office construction required for provision of collocation services that cannot be attributed to a specific interconnector, including (a) all design, engineering, and project management for common construction; and (b) all actual common construction, e.g., common environmental conditioning, common lighting, and common floor reconditioning. Costs of the Cross-Connection Between the Interconnector's and the LEC's Networks (5) Cross-Connection Provisioning. Cross-connection provisioning direct costs include costs associated with service order processing, circuit design, installation, and testing for the cross-connection between the interconnector's space and the LEC's main distribution frame (MDF). (6) Cross-Connection Equipment. Cross-connection equipment direct costs include costs for all equipment between the interconnector's space and the LEC's MDF, e.g., repeaters. (7) Cross-Connection Cable and Cable Support. Cross-connection cable and cable support direct costs include the costs for all cabling and cable support structures between the interconnector's space and the LEC's MDF. . (8) Termination Equipment. Termination equipment direct costs include the costs for all LEC-provided equipment in or adjacent to the interconnector's space that is used for cross-connection functions, except the cross-connection itself, e.g., point of termination (POT) frames, DSX boards, as well as equipment bays and other equipment installed by the LEC in the interconnector's space. Electric Power Costs (9) DC Power Installation. DC power installation direct costs include all costs for installation of DC power equipment for use by the interconnector. (10) DC Power Generation. DC power generation direct costs include the costs for providing DC power, excluding DC power installation costs. Security Costs (11) Active Security. Active security direct costs include the costs for providing additional security attributable to collocation, excluding security installation costs. This function includes the costs of providing extra security guards or escort service. (12) Security Installation. Security installation direct costs include all the costs for all construction associated with additional security needs attributable to collocation. Costs of the Facilities Connecting the Interconnector's Node Inside the Central Office to Its Network Outside the Building (13) Entrance Facility Installation. Entrance facility installation direct costs include the costs of installing an interconnection arrangement from the manhole to the interconnector's space. The term "interconnector's space" refers to the central office area where the interconnector's cage would ordinarily be located. (14) Entrance Facility Space. Entrance facility space direct costs include the costs of conduit, vault, riser, and similar space used to support an interconnection arrangement from the manhole to the interconnector's space. 64. Annualized direct costs for each of the functions listed above are derived by multiplying the investment that a LEC makes to provide the function by annual cost factors associated with that investment. Annual cost factors represent the ratio of expense to the investment. LECs develop annual cost factors to compute: (1) the capital costs that are directly attributable to the investment, including depreciation expense, cost of money, and income taxes; and (2) the operating costs that are directly attributable to the investment, which include the maintenance expense, administrative and other expense, and property and other taxes. 65. In order to determine whether the LECs' rates comply with the "just and reasonable" requirements of Section 201 of the Act, we examine the LECs' direct costs by analyzing data derived from (1) the LECs' direct cases filed pursuant to the Bureau's Designation Order, which required Tier 1 LECs to set forth their per unit monthly direct costs of providing physical collocation service on TRP charts developed by the Bureau and (2) data provided by LECs in ex parte filings. 66. In the Designation Order, the Bureau directed the LECs to provide information on how they derived their direct costs of physical collocation. Specifically, the Bureau required the LECs to explain and to justify all cost factors, to explain whether investment amounts are calculated on a prospective basis, to justify depreciable lives used for equipment listed on their TRPs, to describe how they estimated labor costs, and to justify the cost of money used in rate calculations. In addition, the Bureau required the LECs to provide certain cost support data in a uniform format specified in TRP charts designed by the Bureau. 67. We conduct our analysis of the LECs' direct costs in two steps. First, we examine all the LECs' direct cost justifications on a case-by-case basis. Based on this analysis, we are making disallowances where we find that LECs miscalculate their direct costs or use improper methodologies for calculating their direct costs. In particular, we are making disallowances to LECs' direct costs that include excessive amounts for the costs of money, maintenance, administrative activities, income taxes, depreciation, inflation, floor space, and construction. 68. Second, we compare all the LECs' direct costs on a function-by-function basis. We perform our function-by- function analysis by developing industry-wide average direct costs and calculating the standard deviation of those costs relative to the average for each function associated with providing physical collocation. For reasons described in detail below, if a LEC has direct costs for a particular function that are greater than one standard deviation above the industry-wide average direct cost for that function, we tentatively identify that LEC as an outlier with respect to the particular function, and engage in further scrutiny. If the LEC's direct case fails to justify direct costs that exceed the average plus one standard deviation, we disallow the direct costs to the extent that they exceed one standard deviation above the average. Again, we explain the rationale for this approach in detail below. 1. Case-by-Case Direct Cost Analysis a. Annual Cost Factors 69. LECs develop cost factors, called "annual charge factors," "annual percentage factors," or "carrying charge factors," to determine the dollar amount of recurring costs associated with acquiring and using particular pieces of investment required to provide a particular telecommunications service for a period of one year. LECs develop these annual cost factors for each category of plant investment required for a given service and these factors represent a ratio of expense to investment for individual types of plant investment. 70. There are two types of costs associated with investment: capital costs and operating costs. The capital costs are depreciation, cost of money, and income taxes. Operating costs are maintenance costs, administrative costs, and property and other taxes. LECs develop separate annual cost factors for each of these expenses. LECs estimate the annual recurring cost they incur for a particular piece of investment by multiplying the dollar amount of a particular piece of investment by the annual cost factors for depreciation, cost of money, income taxes, maintenance, administrative, and property and other taxes. LECs specifically develop these cost factors either for the piece of investment or the particular category of plant investment to which the piece of investment is assigned. The sum of the resulting depreciation, cost of money, income taxes, maintenance costs, administrative costs, and property and other taxes represents the total annual costs for that particular piece of investment. i. Cost of Money 71. Background. In the Designation Order, the Bureau requested that the LECs justify the percentage cost of money used in their rate calculations, as displayed on each TRP chart. The percentage cost of money represents the annual percentage rate of return that a company's debtholders and equityholders require as compensation for providing the debt and equity capital that the company uses to finance its assets. 72. In developing their rates for physical collocation service, CBT, GSTC, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, United, and Central use a percentage cost of money equal to the Commission's authorized rate of return of 11.25 percent. Ameritech calculates its rates using a percentage cost of money equal to 10.9 percent, Bell Atlantic uses 12.8 to 13 percent, BellSouth uses 13.34 percent, SWB uses 12.32 percent, and US West uses 11.5 percent. SNET uses a percentage cost of money equal to 11.34 percent to develop the rates set forth in its direct case. On November 12, 1993, SNET filed Transmittal No. 584, which revised its rates for physical collocation based on a percentage cost of money equal to 10.33 percent. 73. Discussion. LECs that use a percentage cost of money greater than 11.25 percent argue that their rate is based on forward-looking estimates of their weighted average cost of capital and that this methodology yields the minimum rate required to attract debt and equity capital to finance their investments. We reject this argument, and decline to engage in a detailed consideration of the appropriate rate of return in applying the new service test to price cap carriers. In the Rate of Return Represcription Order, we determined that a rate of return of 11.25 percent would provide LECs with sufficient opportunity to recover their interstate cost of capital. In particular, we determined an embedded cost of debt, a debt/equity ratio, and a range of reasonable estimates of the cost of equity for interstate access service. We combined these components to determine a range of reasonable estimates of the overall weighted average cost of capital for interstate access service. After identifying this "zone of reasonableness," we then prescribed, based on policy considerations, a unitary rate of return that was toward the upper end of the zone of reasonableness. 74. We find that those LECs that use a percentage cost of money in excess of 11.25 percent fail to make an adequate showing to justify a higher rate. These LECs fail to demonstrate how their cost of debt, cost of equity, or capital structure -- the three components used to calculate the weighted average cost of capital -- are higher for physical collocation than for their other interstate access services. They do not provide any detailed financial data or study, for example, on either their embedded or current cost of debt capital. Moreover, no LEC seeking to use a percentage cost of money in excess of 11.25 percent adequately identifies or describes the source, type, and time period of the financial data, or the assumptions, and the methodologies that it uses to develop its cost of equity. In addition, the LECs do not provide any justification for their use of any particular embedded or target capital structure. Finally, in the Represcription Reform Order, we decided to retain a unitary rate of return for LECs in part because developing a separate rate for each LEC would impose an unnecessary cost on this Commission and on LECs and their ratepayers. The approach suggested by the LECs, whereby separate rates of return would be developed for separate services offered by a LEC, such as expanded interconnection, would be even more burdensome than the approach we rejected in the Represcription Reform Order. 75. We find, therefore, that the rates of return of Bell Atlantic, BellSouth, SWB, and US West are unjust and unreasonable under Section 201(b) of the Act. Accordingly, pursuant to Section 205(a) of the Act, we require these companies to recalculate their rates for expanded interconnection service through physical collocation using a percentage cost of money that does not exceed 11.25 percent. These LECs also must recalculate the amount of state and local income taxes that such rates must recover. The tax adjustment is necessary because a lower rate of return results in a lower corporate income tax liability. In addition, we require these LECs to calculate and refund to their interconnector-customers the amount that is the difference between the actual physical collocation revenues they obtained during the applicable time periods with respect to each rate element and the revenues that they would have obtained during such time periods based on rates calculated to recover an 11.25 percent rate of return and the amount of income taxes consistent with this rate of return. We also find that SNET must calculate and refund to its interconnector customers the amount that is the difference between the actual physical collocation revenues it obtained during the period from the date of its initial physical collocation tariff filing through the effective date of Transmittal No. 584, and the revenues that it would have obtained during this same period of time based on rates calculated to recover an 11.25 percent rate of return and the amount of income taxes that is consistent with this rate of return. 76. LECs average the cost of money in dollars per year over the life of the assets used to provide expanded interconnection service. As a result, the LECs' average cost of money in dollars per year expressed as a percentage of the gross investment amount displayed on their TRP charts may differ from their actual estimate of their percentage cost of money even in those cases where they claim a cost of money of 11.25 percent. We note that such averaging is a standard costing practice in the industry and find that such practice is reasonable because rates would otherwise have to be recalculated annually to reflect a lower dollar cost of money in succeeding years as a constant percentage cost of money is applied to a progressively smaller remaining undepreciated investment balance over the life of the investment. Accordingly, we find that differences that arise because of such averaging are not unreasonable, provided that rates for expanded interconnection are based on a percentage cost of money no greater than 11.25 percent. ii. CBT's Annual Cost Factors 77. Background. CBT uses annual charge percentages to develop the depreciation expense, cost of money, federal income tax, property tax, maintenance expense, and administrative and other expense for each function on its TRP charts. In particular, CBT multiplies the annual charge percentages, which are the ratios of the expenses to investment, by an investment amount required for a particular physical collocation function to determine the annual recurring costs incurred in connection with that investment. In addition, CBT uses land and building factors to allocate to physical collocation the land and building investments associated with central office equipment investment. CBT also uses central office common equipment factors to allocate common equipment to central office equipment investment. 78. Discussion. As noted above, direct costs are capital costs (i.e., depreciation, cost of money, and income taxes) and operating costs (i.e., maintenance costs, administrative and other costs, property and other taxes) that are attributable to physical collocation service. Based on our review of CBT's direct case, however, we find that CBT develops its annual charge percentages by using a fully distributed costing methodology. Thus, CBT unreasonably overstates the direct costs of physical collocation service because it includes general overhead costs as part of its direct costs. As a general matter, such an approach might be appropriate for a rate-of-return carrier such as CBT, except that CBT also seeks to recover an additional amount for overhead costs. We conclude that such double recovery of overhead costs is unreasonable. 79. CBT calculates its annual charge factor for maintenance by dividing maintenance expenses for each plant account by the average booked investment. These maintenance expenses consist of the actual labor amounts CBT charges to maintenance, including social security taxes and payroll related benefits. The maintenance expenses also include miscellaneous maintenance expenses for items such as subscriber line testing, trunk testing, building maintenance, and power. We find that these miscellaneous maintenance expenses are not direct costs identifiable with physical collocation. Subscriber line testing and trunk testing are not part of a standard physical collocation offering and the maintenance expenses associated with these activities are, therefore, not properly recovered as a direct cost of providing physical collocation service. Moreover, miscellaneous building maintenance and power expenses are not costs that are directly attributable to physical collocation because these are common to all of CBT's telecommunications services. Accordingly, we find that it is unreasonable to allow CBT to recover maintenance expense for these miscellaneous items as direct costs. We therefore order CBT to recalculate all of its rates to exclude the claimed direct cost allowance for the miscellaneous maintenance expense for all of the miscellaneous items and to calculate the refunds that are the result of this disallowance for charges that were collected on or after December 15, 1994. 80. Further, we disallow a portion of CBT's claimed direct cost allowance for administrative and other expenses and general services expenses because such expenses are not directly attributable to physical collocation service. CBT's administrative and other expense on its TRP charts has two components: (1) administrative and other expenses; and (2) general service expenses. We find that CBT's claimed direct cost allowance for administrative and other expenses and general services expenses on its TRP charts improperly includes fully distributed or assigned expenses. These fully distributed expenses include both the direct administrative and other expenses and the direct general services expenses attributable to providing physical collocation service and an allocated portion of those administrative and other expenses and general services expenses that are joint or common to all of its regulated and nonregulated telecommunications services. This is not a correct accounting of direct costs. CBT's executive expenses, general operations expenses and the management fees it pays to its corporate parent for work done on its behalf by that parent, for example, are expenses that are not traceable to any particular service, such as expanded interconnection, and are not direct costs. Accordingly, we find that CBT's claimed direct cost allowance for administrative and other expenses and general services expenses on its TRP charts are unjust and unreasonable. We therefore order CBT to recalculate its direct costs for every physical collocation function for which it incurred administrative and other expenses and general services expenses and, consistent with this requirement, calculate the appropriate level of refunds. In recalculating its direct costs, CBT must ensure that such costs are directly attributable to physical collocation service. 81. Furthermore, we disallow CBT's claimed direct cost allowance for central office common equipment. The common equipment includes distribution frames, protector frames, central office dedicated tools, power equipment, etc. This equipment is not an allowable direct cost because it is common equipment that is not used for the provision of physical collocation service. Accordingly, we find that CBT's proposed direct cost allowance for central office common equipment is unjust and unreasonable. CBT must, therefore, recalculate its direct costs and its rates to exclude the common equipment expenses and calculate the appropriate amount of the refund that is consistent with these new rates. 82. Finally, we disallow CBT's claimed direct cost allowance for expenses it derives from the land and the building investment associated with the common equipment investment portion of central office equipment investment. We disallow the direct costs that CBT claims, based on its allocation to physical collocation service of the land and the building investment associated with the common equipment investment, because common equipment is not used for the provision of physical collocation service and is, therefore, not a direct cost. Accordingly, we find that CBT's claimed direct cost allowance for the land and building investment associated with common equipment is unjust and unreasonable. CBT must, therefore, recalculate its direct costs and its rates to exclude the costs associated with the land and building investment allocated for common equipment and calculate the appropriate amount of the refund that is consistent with these new rates. iii. GTE's Income Tax Calculations 83. Background. GTE develops each of its recurring rates so as to recover an allowance for federal and state income taxes based on an after-tax 11.25 percent rate of return and the applicable composite federal and state income tax rate. GTE develops its recurring rates to recover the average annual federal taxes and the average annual state income taxes on a monthly basis. 84. Discussion. GTE miscalculates its allowance for state and federal income taxes. By applying the federal and state income tax factors to the entire amount of the dollar return on investment, GTE assumes that the entire return accrues to equityholders. The dollar return, however, is comprised of an amount that covers the interest on outstanding debt to debtholders and an amount that covers the dividends on the outstanding equity or retained earnings to equityholders. The amount that covers the interest on the debt is tax deductible, while the amount that is used to pay dividends or is kept as retained earnings is subject to taxes. GTE is financed with a mixture of debt and equity capital and by applying the federal and the state income tax factors to the entire return, GTE overestimates its tax liability. Accordingly, we find that GTE's allowance for federal and state income taxes is unjust and unreasonable. GTE must subtract its interest payments from its return and then apply the federal and the state income tax factors to the remainder, which is the return to equityholders. We therefore order GTE to recalculate its rates to comply with the requirements for computing federal and state income taxes set forth herein. GTE must also calculate the appropriate amount that is consistent with these new rates. 85. GTE's tax allowance also fails to recognize that state income taxes are generally deductible in calculating federal income taxes. Accordingly, we find that GTE's direct cost allowance for federal income taxes is unjust and unreasonable. In computing its tax liability, GTE must reduce its taxable income to reflect this deduction. We therefore order GTE to recalculate its rates to account for the deductibility of state income taxes in the computation of federal income taxes. GTE must also calculate the appropriate amount of the refund that is consistent with these new rates. iv. US West's Recovery of Depreciation, Cost of Money and Income Taxes 86. Background. US West establishes several nonrecurring rate elements for the purpose of recovering depreciation, the cost of money, and income taxes for certain investments. These rate elements are those US West identifies in its TRP charts as: (1) "DS1 EICT [Expanded Interconnection Channel Termination]" under the DS1 cross-connection provisioning function; (2) "DS3 EICT" under the DS3 cross- connection provisioning function; (3) "Quotation Preparation Fee" under the construction provisioning function; (4) "Inspector (During normal business hours)" under entrance facility installation; and (5) "Inspector (Out of normal business hours)" under entrance facility installation. 87. Discussion. We disallow cost recovery of depreciation, cost of money, and income taxes for the above referenced rate elements because US West fails to identify, quantify, or explain adequately the investment on which these costs are based. Depreciation, the cost of money, and income taxes are expenses that may be recovered from charges for regulated services only if they are directly related to clearly identifiable investments used to provide those services. In this case, where US West does not make an adequate showing of the identity or the amount of the investments or of the direct relationship of these investments to physical collocation, we find that it is unreasonable for US West to recover the depreciation, cost of money, or income taxes associated with these investments. Accordingly, we order US West to recalculate these rates to exclude depreciation, cost of money, and income taxes. US West must also calculate the appropriate amount of the refund that is consistent with these new rates. v. Nevada Bell's Depreciation Expense for Initial Capital Outlay 88. Background. For several functions, Nevada Bell develops recurring rates and nonrecurring rates designed to recover the depreciation of the same initial capital outlay. Nevada states that the depreciation for which it imposes a recurring rate recovers the value of the initial capital outlay in equal monthly amounts over the estimated useful life of the investment. The "depreciation" for which Nevada assesses a nonrecurring rate is for the "cost of removal" and the "non- recoverable cost." According to Nevada, the cost of removal represents the one-time expense to remove the investment immediately after it has been installed and the nonrecoverable cost represents the at-risk costs should the customer disconnect the service before Nevada has a chance to recover the cost through the recurring rate element. 89. Discussion. We disallow the amount of the depreciation Nevada recovers in its nonrecurring rates for removing the assets comprising Nevada's initial capital outlay. We find that Nevada makes no showing that there is any need to remove this investment after an interconnector has vacated one of Nevada's central offices. Moreover, we believe that this investment (e.g., cage, cable rack, and conduit) could be reusable by a subsequent interconnector and Nevada makes no showing to the contrary. Furthermore, assuming that the investment would not be reusable by a subsequent interconnector, Nevada did not demonstrate that it would need to remove the investment because Nevada makes no showing that it currently lacks space within its central offices to satisfy its own need for expansion. In addition, Nevada provides no explanation or data support for the estimated cost of removing the investments. Accordingly, we find that Nevada's nonrecurring rate for removing the initial capital outlay is unjust and unreasonable, and we, therefore, order Nevada to recalculate its rates to exclude the amount of depreciation it seeks to recover for removing the assets associated with that outlay. Nevada also must calculate the refund amount that is consistent with these new rates. 90. We also disallow the amount of depreciation Nevada recovers in its nonrecurring rates for the nonrecoverable cost that could arise if an interconnector disconnects prior to the time Nevada has fully recovered the value of its investment through its recurring rate. We find that this nonrecurring rate is unjust and unreasonable because, as its tariff is structured, Nevada would recover its investment twice if the interconnector uses that investment for a period longer than Nevada predicted in developing this cost. Nevada may recover the amount of its depreciation over the useful life of an investment through a recurring rate, or it may recover the investment up front in an amount that does not exceed the initial capital outlay. Nevada may not, however, recover a single investment through both a recurring and a nonrecurring rate. If Nevada chooses to recover depreciation on a recurring basis, Nevada may impose a one-time charge on the interconnector at the time of disconnection in the event that a second interconnector does not take the place of the first interconnector, but this charge may not exceed the undepreciated value of the investment. Moreover, where such a charge is imposed, Nevada must refund a portion of the undepreciated investment if a second interconnector eventually succeeds the first interconnector and the investment still has a remaining useful life. We find that this will ensure that Nevada is fully compensated for its initial capital outlay, regardless of whether the first interconnector decides to vacate the collocation space in Nevada's central office before the end of the useful life of the equipment. At the same time, it ensures that neither the initial interconnector nor subsequent interconnectors pay more than their fair share of the cost of the initial capital outlay. Accordingly, we order Nevada to recalculate its rates to conform to the requirements set forth herein for the recovery of depreciation. Nevada must also calculate and refund the amount of any actual revenues collected that are in excess of those it would have obtained if its rates were calculated in accordance with the requirements for the recovery of depreciation set forth in this paragraph. vi. Bell Atlantic's Inflation Factor 91. Background. Bell Atlantic states that in developing the investment on which its recurring rates are based, it may have used an inflation factor to adjust vendor prices. According to Bell Atlantic, such a factor may have been used when vendors' price lists are different from the previous year. In addition, Bell Atlantic's calculations reveal that its AC power costs are adjusted by an inflation factor equal to 11.20 percent. 92. Discussion. We disallow any amount in Bell Atlantic's rates that represents an inflation adjustment for vendor prices. We find that an inflation adjustment for vendor prices is unjust and unreasonable because Bell Atlantic does not identify the specific investments or costs that were adjusted for inflation and it does not identify the magnitude of the adjustment. Moreover, we find that it is unreasonable for Bell Atlantic to apply an inflation factor to old vendor prices when it could calculate the amount of the investment by using current vendor prices. We find that Bell Atlantic should use updated vendor prices rather than dated vendor prices, adjusted by a forecast of changes in those prices, because we find actual prices produce more accurate cost estimates. In our view, the benefits of more accurate cost estimates outweigh the minimal burden of obtaining up-to-date prices. Moreover, the cost of telecommunications equipment has been declining, relative to inflation, in recent years. 93. We also disallow the inflation factor Bell Atlantic uses to adjust AC power costs. Although Bell Atlantic quantifies the size of the inflation factor it uses to adjust AC power costs, we find that this inflation adjustment is unjust and unreasonable because Bell Atlantic does not provide supporting data or adequately explain the method it uses to derive that factor. Moreover, the magnitude of the adjustment, 11.2 percent, is so large in comparison to the rate of inflation for the economy as a whole that the adjustment is unreasonable, in absence of supporting information. Accordingly, we direct Bell Atlantic to recalculate its rates to exclude any inflation adjustment for either vendor prices or AC power costs. Bell Atlantic also must calculate and make the refunds that are consistent with this disallowance. b. Floor Space Costs i. Background 94. In the Special Access Expanded Interconnection Order, we concluded that the public interest compels tariffing of central office space usage under physical collocation in order to prevent anticompetitive or discriminatory pricing. In requiring that LECs provide floor space on a nondiscriminatory, common carrier basis, we specified that floor space charges must be tariffed at a uniform charge for all interconnectors in any given central office. We did not, however, prescribe a methodology for developing floor space charges. ii. Discussion 95. Bell Atlantic's Recovery of Administrative Costs. We affirm the Bureau's finding in the Physical Collocation Tariff Suspension Order that Bell Atlantic's methodology leads to double recovery of administrative costs for periodic review of each central office. Bell Atlantic determines floor space costs by calculating a "full service market rental rate," which incorporates operating costs from Building Owners and Managers Association (BOMA) data, and adds administrative costs for the periodic review of central offices. We find that this constitutes double recovery because Bell Atlantic's full service market rental rate already includes the overhead costs for the average landlord, including an average landlord's periodic review of the space. Moreover, Bell Atlantic does not make an adequate showing that it incurs administrative costs related to providing space for expanded interconnection that are greater than those of the average owner of standard commercial office space. Although Bell Atlantic provides a general discussion of how it differs from the average landlord, it makes no attempt to quantify those differences. In the absence of such quantification, we find the adjustment for administrative expenses that Bell Atlantic claims is unreasonable. The administrative costs Bell Atlantic claims for periodic review of central offices are $1.17 per square foot per month. We therefore affirm the direct cost disallowance of the amount of those expenses that the Bureau made to Bell Atlantic's rates for floor space in the Physical Collocation Tariff Suspension Order. Accordingly, Bell Atlantic must calculate and make the appropriate refunds for the improper floor space charges imposed on the interconnectors. 96. Access Area Charges. We also find that the amount of Pacific's floor space rates that recovers the direct cost of the 30 square foot "access area" outside of the cage is unreasonable because this area is common space and the cost for this area is, therefore, not a direct cost of physical collocation service. Pacific does not make an adequate showing that an interconnector requires 30 square feet to obtain access to its enclosed physical collocation space and does not demonstrate that this 30 square foot area is dedicated to the exclusive use of any particular interconnector. In fact, we believe that there may be instances where a Pacific employee would walk through the 30 square foot area in the normal course of tending to Pacific's own business needs or those of another interconnector. Moreover, with the exception of US West, no other LEC proposes to recover as a direct cost floor space outside of the interconnector's cage. We therefore disallow the floor space direct cost that Pacific attributes to the extra 30 square feet of access space. Accordingly, Pacific must recalculate its rates to exclude an amount equal to this disallowance and calculate refunds for the improper floor space charges imposed on the interconnectors. 97. In addition, we disallow the amount of US West's floor space rates that recovers the direct costs of (1) floor space areas equal to 17 percent of US West's calculation of the market value of an enclosed physical collocation space (excluding property taxes and operating costs) used as "ingress/egress" space to access the interconnector's enclosure that US West concedes are common to the building; (2) property taxes on the market value of those floor space areas of ingress/egress that are common to the building; and (3) property taxes on areas equal to 40 percent of US West's calculation of the market value of an enclosed physical collocation space (excluding property taxes and operating costs) that US West asserts are not common to the building and were created to access the enclosure. We find these costs are unreasonable because US West does not make an adequate showing that floor space outside of the area below a standard enclosure is required to enable an interconnector to access its enclosed physical collocation space. Moreover, we find that US West does not demonstrate that this additional space is dedicated to the exclusive use of any particular interconnector. In addition, every LEC, other than US West and Pacific, develops its direct costs of physical collocation floor space on the basis of 100 square feet, which does not include any amount of floor space to access the interconnector's cage. Furthermore, US West concedes in its direct case that the 17 percent adjustment is for space to access the interconnector's enclosure that is common to a central office building. We therefore find that the space outside the interconnector's enclosure is common space and that the cost of such space, including any property taxes on that space, is not a direct cost of physical collocation. We therefore disallow that portion of US West's floor space direct costs, including property taxes, that US West attributes to access space to the standard enclosure space. Accordingly, US West must recalculate its rates to reflect this disallowance and calculate the appropriate refunds for the improper floor space charges imposed on the interconnectors. c. US West's Common Construction Costs and SWB's Tenant Accommodation Charge 98. Background. US West asserts that its nonrecurring common construction cost includes: (1) a 20 percent contingency percentage multiplied by and added to the cost of the electric panel and the feed wiring to account for unknown barriers and obstacles that require additional labor and materials; (2) an Americans With Disabilities Act (ADA) adjustment of 20 percent multiplied by and added to the sum of the cost of the panel, the feeder, and the contingency amount, to reflect the costs of complying with the provisions of ADA; and (3) a professional engineering services percentage of 15 percent multiplied by and added to the sum of the cost of the panel, feeder, contingency amount, and the ADA amount. 99. SWB estimates costs for small, medium, and large central offices based on a sample comprised of 27 of the 127 central offices it tariffs for physical collocation. SWB's nonrecurring charges for construction include contractor labor, SWB's project engineer's labor, outside consultant's labor, and a contracted construction observer's time. SWB increases its construction costs by 10 percent to account for unforeseen conditions. 100. Discussion. We disallow the portion of US West's nonrecurring common construction cost that is attributable to the 20 percent contingency factor and the 20 percent ADA factor. We also disallow the portion of SWB's "Tenant Accommodation Charge" that is attributable to the 10 percent factor added to construction costs for unforeseen conditions. We find that these contingency factors are unjust and unreasonable because US West and SWB provide no evidence of the type of obstacle that might arise in the construction process, the likelihood that such obstacle could occur, or the potential magnitude of an obstacle's effect. We also agree with TDL that unforeseen barriers would seem to be particularly unlikely because central offices are specifically designed for the type of construction and use to which they would be put by interconnectors when they provide expanded interconnection through physical collocation. In fact, it is noteworthy that most LECs develop and defend their rates for floor space by demonstrating the significant differences that exist between a typical central office building that is specifically designed for the provision of telecommunications-specific services and a typical commercial office building. We also note that no other LEC finds it necessary to use such a factor in developing its nonrecurring construction costs. If US West, SWB, or any other LEC encounters any unforeseen obstacles in conjunction with its construction, it should file a new tariff with full cost support to justify recovery of the costs of surmounting the obstacle. Accordingly, we require US West and SWB to recalculate their rates to exclude the portion of their claimed allowances for construction costs that is attributable to the 20 percent and the 10 percent contingency factors, respectively. US West and SWB must also calculate the appropriate amount of the refund that is consistent with these disallowances. 101. We also find that US West's 20 percent ADA factor is unjust and unreasonable because US West makes no attempt to identify with any specificity the construction needed to comply with ADA. US West did not, for example, identify any specific construction activity that it would need to undertake, or any estimate of the dollar amount of the expenditure required to complete construction necessary to meet ADA obligations. In addition, no other LEC appears to apply a similar factor to its construction costs in arriving at a final estimate for common construction. Accordingly, we require US West to recalculate its rates to exclude the portion of its claimed allowance for common construction costs that is attributable to the 20 percent ADA factor. US West must also calculate the appropriate amount of the refund that is consistent with this disallowance. 102. ALTS, MFS, Sprint, and TDL argue that US West does not justify its professional engineering consultant factor. We will not disallow any portion of US West's nonrecurring common construction cost that is attributable to US West's 15 percent professional engineering consultant factor at this time, however, because US West explains that the services of an engineering consultant are needed in order to certify compliance with certain health and safety code regulations that relate to design and construction of leased physical space. The parties opposing this cost present no argument or evidence on which to conclude that US West's use of and charge for such a professional is unreasonable. We accept US West's explanation as reasonable. d. Charges for Repeaters and POT Bays 103. Some LECs recover the costs for repeaters and point of termination (POT) bays in their rates for cross- connection service. The POT bay or frame is a piece of equipment typically placed between the LEC's DSX bay, where cross-connection occurs, and the interconnector's multiplexing node. Cables carrying multiple DS1 or DS3 circuits run from the LEC's equipment to the POT bay; identical cables run from the POT bay to the interconnector's space. A repeater is a type of circuit equipment that amplifies or regenerates electronic digital signals as they travel along cables within the central office. i. POT Bays 104. Background. There are two types of POT bays: a passive POT bay and a POT bay that functions as a zero level signal test point. A POT bay that functions as a zero level signal test point provides both signal equalization and test access capabilities. In contrast, a "passive POT bay" provides test access but no signal equalization capability. In the Designation Order, the Bureau asked each LEC that included a POT frame or bay as part of its investment assigned to any rate element to explain why this piece of equipment is necessary for provision of interconnection service and why interconnection cannot instead be established directly from the interconnector's cage to the main distribution frame. The Bureau also asked SWB to explain the derivation of, and the justification for, the "in place factors" applied to vendor prices to obtain investment amounts for the POT frame rate element, interconnection rate element, and transmission arrangement rate element. 105. Ameritech, BellSouth, NYNEX, Pacific, SNET, SWB and US West include the POT bay as part of the investments on which their cross-connection rates are based. Bell Atlantic, CBT, GTE, Lincoln, Nevada, Rochester, United, and Central do not include the POT bay as part of the investment on which their cross-connection rates are based. 106. Discussion. First, we find that it is not unreasonable for LECs to require that POT bays be located between the LEC's equipment and the interconnector's equipment. Based on our review of the record before us, we recognize that a POT bay may serve as a useful interface between the interconnector's facilities and the LEC's facilities. We find persuasive the LECs' argument that a POT bay is an effective physical demarcation point between the respective networks to which the parties may physically connect their respective cables, and at which trouble may be isolated and responsibility for repair may be determined. 107. We next address whether a LEC may reasonably require a zero level signal test point POT bay, and, if so, under what terms and conditions. When the POT bay serves as a test point, it may be a digital cross-connect (DSX-1 or DSX-3). Under the American National Standard Institute's Standard T1- 102 (ANSI Standard), when a LEC provides a POT bay that functions as a zero level signal test point, a repeater is needed to maintain the proper voltage level of a digital signal when the length of cable between the POT bay and the LEC's digital cross- connection bay exceeds 85 feet for a DS1 and 27 feet for a DS3 signal. In contrast, when a LEC provides a POT bay that does not function as a zero level signal test point (a passive POT bay), a repeater is only necessary to maintain the proper voltage level of an electronic signal when the cabling distance between the POT bay and the LEC's cross-connection bay exceeds 655 feet for a DS1 and 450 for a DS3. 108. We find that use of POT bays that function as zero level signal test points is not necessary for interconnection. Only Pacific and US West require interconnectors to use POT bays that function as zero level signal test points. All other LECs either do not require POT bays or, where they require them, permit the use of passive POT bays. Moreover, the evidence in the record indicates that other LECs use existing equipment, other than POT bays, to adjust the signal to the correct level. 109. Nonetheless, given that this record does not reveal any technical problems with the use of POT bays as zero level signal test points, we will permit LECs to require use of these POT bays so long as the cost to interconnectors does not exceed that from use of passive POT bays. This permits LECs the freedom to place a test point at the POT bay, while not imposing any additional cost on the interconnector. The record indicates that the direct costs for POT bays that function as zero level signal test points are within the range of direct costs for passive POT bays. Assuming the provision of 100 DS1s, the DS1 passive POT bay direct costs for BellSouth, SNET, NYNEX, and SWB are $37, $82, $231 and $571 per month, respectively. Based on the same assumption that 100 DS1s are provided, the DS1 direct costs for a zero level signal test point POT bay for Ameritech, US West, and Pacific are $48, $74, and $65, respectively. Assuming the provision of four DS3s, the DS3 passive POT bay direct costs for BellSouth, SNET, NYNEX, and SWB are $10, $9, $115, and $2,212 per month, respectively. Based on the same assumption that four DS3s are provided, the DS3 direct costs for a zero level signal test point POT bay for Ameritech, US West, and Pacific are $24, $49, and $30, respectively. As detailed below, however, to the extent that the LECs' use of such POT bays requires repeaters to meet the ANSI standard, we disallow the cost of repeaters and require LECs to issue refunds to their interconnector-customers for all charges associated with repeaters. 110. Thus, on a going forward basis, we permit LECs that continue to provide interstate physical collocation service under tariffs subject to this investigation to require either passive POT bays or those that function as zero level signal test points. In the event that any LEC requires POT bays that function as zero level signal test points, we require the LEC to provide the repeaters needed to comply with the ANSI standard without imposing any additional costs on interconnectors. 111. We further require these LECs to allow interconnectors the option of either providing the POT bays themselves in their collocation space or purchasing this equipment from the LECs. We find that this requirement would serve the public interest because the availability of equipment from a third- party vendor at the prevailing market price will help ensure that LECs offer the POT bays at market-based prices. Moreover, we believe that this requirement will not be burdensome for LECs. Ameritech and SWB both require POT bays, but allow the interconnector to provide the POT bay itself as an alternative to purchasing this equipment from the LEC. If a LEC does not require a specific type of POT bay and an interconnector chooses to provide a zero level signal test point POT bay instead of a passive POT bay, we require the LEC to offer repeaters to the interconnector, but the LEC may charge the interconnector for these repeaters. 112. We require LECs to permit interconnectors that provide POT bays to install this equipment within the interconnector's space. Pacific argues that it would interfere with routine testing and cause security problems if POT bays were located in the interconnector's space. Based on the record before us, however, we find no merit to Pacific's argument. None of the other LECs in this proceeding objects to placing the POT bay in the interconnector's space. In fact, US West, SWB, and SNET use POT bays that are located within the physical collocation space as part of their cross-connection arrangements. In addition, Ameritech's cross-connection arrangement includes a POT bay that is located in the physical collocation space when the interconnector provides this equipment for itself. 113. In order to provide interconnectors with the option of either providing their own POT bays or purchasing this equipment from LECs, we are hereby requiring LECs to unbundle POT bays as a rate element separate from the cross-connect rate element. Therefore, we order NYNEX, Pacific, and SNET to recalculate their cross-connection rates to exclude the cost of POT bays. ii. Repeaters 114. Background. In the Designation Order, the Bureau requested LECs to state for the purpose of calculating cross-connection charges what percentage of cross-connected circuits are assumed to require repeaters. The Bureau also asked LECs that use repeaters to provide cross-connection service to explain why such equipment is necessary. In addition, the Bureau asked Bell Atlantic to explain why it uses a repeater on every cross-connected circuit and to estimate the portion of its physical collocation connection service rate that is attributable to repeaters. 115. Bell Atlantic, BellSouth, US West, Pacific, and Ameritech include repeaters in the cost to provide DS1 or DS3 cross-connection service. Bell Atlantic assumes that 100 percent of cross-connected circuits will require repeaters. Bell Atlantic estimates that repeaters comprise 95 percent of the DS1 connection service rate and 77 percent of the DS3 connection service rate. BellSouth provides repeaters when the length of the cable between the customer's equipment and the cross- connect frame exceeds the distance limitations delineated in the ANSI standard. In developing its rates for cross connection, BellSouth assumes that 10 percent of the cross-connection arrangements will require repeaters. US West requires repeaters when the cabling distance between the POT bay and its equipment exceeds 85 feet for a DS1 and 27 feet for a DS3. US West states that its rates include charges for repeaters on a majority of circuits. Pacific requires repeaters when the cabling distance between an interconnection panel and a network element exceeds 450 feet for a DS3 and 655 feet for DS1. Ameritech requires DS1 or DS3 repeaters if a customer provides a passive POT bay and the length of cable between that interconnector's transmission equipment and Ameritech's equipment is more than 655 for a DS1 or 450 feet for a DS3. When Ameritech provides a zero level signal test point POT bay, repeaters are required if the cabling distance between the POT bay and Ameritech's equipment is more than 85 feet for a DS1 and 27 feet for a DS3. 116. CBT, GTE, Lincoln, NYNEX, Nevada, SNET, SWB, Rochester, United, and Central do not include the cost of repeaters in the rates for providing DS1 or DS3 cross-connection service. NYNEX, GTE, and SNET state that customers are responsible for providing repeaters if they are required. Nevada states that repeaters are not needed because of the short distance between the interconnector's equipment and Nevada's special access facilities. 117. Discussion. We find that it is unreasonable for the LECs that are the subject of this investigation to charge interconnectors for the cost of repeaters in a physical collocation arrangement because the record demonstrates that repeaters should not be needed for the provision of physical collocation service. In the previous section, we conclude that a LEC may require either a passive POT bay or a zero level signal test point POT bay. We conclude, however, that the use of POT bays that function as zero level signal test points is not necessary to obtain cross-connection, and that these POT bays frequently require use of repeaters. Because POT bays that function as zero level signal test points are not necessary for interconnection, we prohibit LECs from charging interconnectors for the cost of repeaters. The record demonstrates that, under the ANSI standard, if a LEC provides a passive POT bay, or does not require a POT bay, a repeater is only necessary to maintain the proper voltage level of an electronic signal when the length of cable between the interconnector's cage and the LEC's digital cross-connect bay exceeds 655 feet for a DS1 and 450 feet for a DS3. A cabling distance of 450 feet is a considerable distance, and no LEC demonstrates that it needs more than 450 feet of cable to obtain interconnection, absent the use of zero level signal test point POT bays. Moreover, the tariffs of CBT, Lincoln, Nevada, SWB, Rochester, United, and Central do not require repeaters. We therefore conclude that LECs may not recover from interconnectors the cost of repeaters within their central offices in connection with physical collocation arrangements. 118. In proscribing recovery of repeater costs from interconnectors, we rely on the ANSI standard's requirement that when a passive POT bay is used, a repeater is only necessary when the cabling distance between the POT bay and the LEC's cross-connection bay exceeds 655 feet for a DS1 signal and 450 feet for a DS3 signal. We find that relying on the ANSI standard is reasonable because the purpose of the ANSI standard is to provide requirements for the covered levels of the digital network hierarchy so as to enable the interconnection of North American telecommunications networks. This standard applies directly to interconnection between the telecommunications facilities of a competitive access provider and the facilities of a LEC. Moreover, the ANSI standard represents the consensus of the Accredited Standards Committee on Telecommunications, T1, which is comprised of nearly 100 exchange carriers, interexchange carriers, telecommunications, computer and other high technology equipment manufacturers, and general interest parties such as major U.S. television networks, government agencies, and standards associations. 119. Bell Atlantic is the only LEC that rejects the ANSI standard by requiring repeaters in all of its central offices, regardless of the length of the cable between its transmission equipment and the interconnector's facilities. Although Bell Atlantic asserts that repeaters are needed to maintain quality of service to end users and to prevent potential degradation to other customers' circuits, Bell Atlantic does not explain why it is necessary to add repeaters to circuits without regard to the length of the cable between the interconnector's facilities and the LEC's facilities. The only information Bell Atlantic provides to support its requirement for repeaters is a 1984 Bellcore letter that addresses "same building arrangements" for AT&T. Bell Atlantic does not explain how this information is relevant to expanded interconnection arrangements, however. We find, therefore, that Bell Atlantic fails to justify including a repeater on every interconnection circuit. 120. Accordingly, we order all LECs that continue to provide physical collocation service under tariffs subject to this investigation to establish cross-connection rates that exclude the cost of repeaters, calculate appropriate refunds, and file tariff revisions to reflect this disallowance. Moreover, we order those LECs that discontinued providing physical collocation service during the course of this investigation to recalculate their rates to exclude the cost of repeaters and issue the appropriate refunds to their interconnector-customers. e. Bell Atlantic's Rates for Cable Racking 121. Pursuant to Transmittal No. 557, filed on February 16, 1993, Bell Atlantic's rates for physical collocation connection service covered the cost of network cable rack, repeaters, and coaxial cable. On July 16, 1993, Bell Atlantic submitted Transmittal No. 585 to unbundle network cable rack from its rates for DS1 and DS3 connection service. This unbundled rack rate was developed assuming that an interconnector would use a dedicated path between its cage and Bell Atlantic's frame. MFS complained that this tariff provision unreasonably requires interconnectors to purchase a dedicated rack for each cross- connection order. On April 1, 1994, Bell Atlantic filed Transmittal No. 645 to restructure the network cable rack rate element from a per foot, per service rate to a per service only rate. 122. Bell Atlantic's cable rack rate set forth in Transmittal No. 645 assumes that a cable rack is shared by interconnectors' and Bell Atlantic's services. We believe that this tariff revision addresses the concerns raised by MFS because, following implementation of Transmittal No. 645, interconnectors were no longer required effectively to pay for the purchase of a dedicated cable rack for each cross-connect order. This change also addresses Teleport's concern that Bell Atlantic's racking rate is unreasonably high. The modified monthly rack rate is $2.50 per service, assuming an overhead factor of 1.23, which we prescribe for Bell Atlantic's physical collocation service in this Order. The new rate results in a total monthly charge of $312.50 to carry a standard 250 pair cable (125 DS1s) for any number of feet within a central office. By comparison, the old monthly rack rate, $0.13 per foot, per service yields a total monthly charge of $1,625 for a typical central office carriage of 100 feet. 123. We find that the modified rate is substantially less than the old rate and there is nothing in the record of this proceeding to indicate that a $2.50 monthly rate for racking is unreasonable. Accordingly, we disallow no portion of this rate. Bell Atlantic must, however, calculate and refund to interconnectors the difference between those revenues that Bell Atlantic collected at the rates that existed for network cable rack, repeaters, and coaxial cable prior to April 1, 1994, and the revenues that it would have collected during that same period for network cable rack, repeaters, and coaxial cable under Transmittal No. 645. We are making this disallowance because the rates for physical collocation service must be based on the costs of providing that service and Bell Atlantic provides no argument or evidence that its costs of network cable rack, repeaters, or coaxial cable used to provide physical collocation services have decreased between the date it initially provided physical collocation and the date it discontinued providing physical collocation, or the date it changed the rate structure that recovers the costs of network cable rack, repeaters, and coaxial cable. 2. Average Cost Analysis a. The Rationale for Industry Average Cost Analysis 124. In the preceding section of this Order, we evaluate the reasonableness of the LECs' direct costs on a case-by-case basis by examining LECs' direct cases and other cost data that they provide in this proceeding. By using this approach, we are able to judge, to some extent, the reasonableness of LECs' direct costs. In some cases, we are making disallowances where we find that LECs miscalculate their direct costs or use improper methodologies for calculating their direct costs. 125. In this section of this Order, we evaluate the reasonableness of LECs' physical collocation costs by comparing physical collocation direct costs among LECs. We conduct a review of LECs' cost justifications by comparing the direct costs of all LECs that provide physical collocation service on a function-by-function basis. We perform our function-by-function analysis by developing industry-wide average direct costs and calculating the standard deviation of those costs relative to that average for each function associated with providing physical collocation. If a LEC has direct costs for a particular function that are greater than one standard deviation above the industry- wide average for that function, we determine whether the LEC justifies its high direct costs for that function by scrutinizing the LEC's cost data and any explanations the LEC makes on the record. If the LEC fails to justify high direct costs for the function, we disallow the direct costs to the extent that they exceed one standard deviation above the average. 126. As discussed in more detail below, averaging LECs' costs is a reasonable method of prescribing rates for physical collocation service for three reasons. First, pursuant to our direction, all the LECs in this investigation have allocated their costs among the same 14 functions that together comprise a physical collocation arrangement. Second, the LECs' physical collocation arrangements are substantially similar and the direct costs of providing the service should not, therefore, differ significantly among LECs. Third, LECs' physical collocation costs are not precise figures; they are necessarily estimates of LECs' direct costs. As is almost always the case when many different parties make estimates, the estimates vary depending on the assumptions and methods used. A common practice in dealing with multiple estimates is to use some measure of central tendency (such as an arithmetic average, the median, or the modal value) as the best measure of the true value. Extreme estimates are often discarded when calculating averages on the rationale that these estimates are more likely to be in error than the more clustered estimates and that introducing these large errors into the calculations reduces rather than increases the accuracy of the averages as an estimate of the true value. The use of an average calculated from direct cost data after first discarding extreme estimates reduces the possibility that the assumptions and methods a particular LEC uses to estimate its costs will result in over or under estimates of that LEC's costs. We explain these reasons in detail below. i. Costs Allocated Uniformly into Functions 127. We find, first, that we are able to use industry- wide average costs to evaluate the reasonableness of each LEC's physical collocation service direct costs because, pursuant to the cost reporting requirements set forth in the Bureau's Designation Order, LECs subject to this investigation have allocated their physical collocation costs uniformly among 14 functions that together comprise a physical collocation arrangement. Allocating these costs among the same 14 functions eliminates confusion over the costs that are recovered by rates for particular rate elements and facilitates a comparison of these costs among LECs. 128. Some of the variance in the estimates of each of the 14 functions is attributable simply to differences in how LECs assigned direct costs to particular functions. In order to minimize these differences, we aggregate the direct costs for the 14 physical collocation functions into the direct costs for the following seven functions: floor space direct costs; DC power direct costs; cross-connection and termination equipment direct costs; security installation direct costs; security escort direct costs; construction direct costs; and entrance facility direct costs. We believe that collapsing the 14 functions into seven functions will largely eliminate any differences in LEC allocations of direct costs to functions. Aggregating the direct costs for closely related functions into more broadly defined functions enhances the reliability of the data because it renders harmless any errors some LECs may make by erroneously assigning certain data to the wrong functions. 129. Moreover, we maximize the utility of these data for comparative analysis by adjusting the data when LECs' physical collocation offerings differ or when the LECs assign the same physical collocation costs to different functions. For example, we exclude the floor space direct costs and DC power direct costs of BellSouth, CBT, and Central from the data we use to calculate the average and the standard deviation for those functions because, unlike other LECs, these LECs apparently include the cost of AC power converted to DC power in their floor space direct costs. 130. We also exclude direct costs for a particular function that are either more than two standard deviations above the LEC direct cost average or more than two standard deviations below the LEC direct cost average. We believe that these extreme estimates are likely to be due to errors in the estimation process and, if not excluded from our calculations, would tend to move the averages away from the values submitted by the majority of the LECs. We also believe that including the extreme values would lead to erroneously high estimates of the size of the standard deviation from the average. By excluding direct costs that lie outside of this range, we minimize the likelihood that the distribution of LECs' direct costs is skewed unreasonably upward by one or two extremely high direct cost data points or downward by one or two extremely low direct cost data points. At the same time, there are only three LEC direct cost estimates that are either more than two standard deviations above the LEC direct cost average or more than two standard deviations below the LEC direct cost average, requiring us to exclude them from the data that we use to calculate the industry average. For example, we remove Nevada Bell's DC power and DS1 and DS3 cross-connection and termination equipment direct costs from the data base because the direct costs it develops for these functions exceed the industry average by more than two standard deviations. If we were to include Nevada Bell's estimate in the sample of estimates we use to calculate the average and the standard deviation, the average would not be an accurate measure of the central tendency or location of the direct cost data, which is the purpose for which it is designed. The standard deviation calculated based on that average would also be less meaningful as a statistic for describing the overall distribution of the data. ii. Similarity of Physical Collocation Arrangements Among LECs 131. We also are able to use industry-wide average direct costs to evaluate the reasonableness of each LEC's physical collocation costs because the physical collocation services LECs offer are substantially similar and the direct costs associated with the provision of that service should not differ significantly among LECs. While we did not mandate a uniform rate structure, and would not expect the direct costs of any two LECs to be identical, the record indicates that all LECs generally use the same assets and perform the same tasks to provide physical collocation service. When the record indicates that some LECs' physical collocation assets or service offerings differ, we make adjustments to the cost data to account for these differences before calculating the average and the standard deviation. We also make adjustments to the cost data when the record indicates that some LECs' direct costs are not directly comparable to other LECs' direct costs because the same costs are assigned to different physical collocation functions. 132. The DC power function is similar among LECs that provide physical collocation service because these LECs supply interconnectors with DC power by using a central office power serving arrangement that ordinarily includes a back-up generator, a power plant comprised of batteries, rectifiers, and associated equipment, cable, the battery distribution fuse bay, and cable racking from the power plant to the battery distribution fuse bay. We exclude the DC power costs of BellSouth, CBT, and Central from the data on which we calculate the average and the standard deviation for this function because, unlike other LECs, these three LECs apparently include the cost of AC power converted to DC power in their floor space direct costs. LECs' DC power costs are comparable once we make this adjustment to the data. 133. The floor space function also is substantially similar among LECs because every LEC's floor space costs are for occupancy of central office floor space by the interconnector, including all ancillary and housekeeping services. We exclude the floor space direct costs of BellSouth, CBT, and Central from the data on which we calculate the average and the standard deviation for this function because, as explained above, apparently only these three LECs include the cost of AC power converted to DC power in their floor space direct costs. LECs' floor space costs are comparable after making this adjustment to the data. 134. Cross-connection and termination equipment costs for every LEC that provides physical collocation include costs associated with cross-connection provisioning, the cross- connection cable and cable support, the cross-connection equipment, and the termination equipment. Although the record indicates that there is some variation in the way LECs provide cross-connection and termination equipment services, we adjust the data upon which the average and the standard deviation are based to ensure that the data from all the carriers reflect comparable costs. LECs develop these costs based on the investment for the cable connection between the collocation space and the central office distributing frame or digital service cross- connection frame, cross-connect panels on the DSX frame, interface panels, cable rack, bay framework, and other supporting hardware. Some, but not all, LECs' cross-connection and termination equipment direct costs include costs for repeaters and POT bays. We therefore remove the costs of repeaters and POT bays from the cross-connection and termination equipment cost data that we use to calculate the average and the standard deviation for this function. We also remove GTOC's cross- connection and termination equipment cost from the cost data for this function because GTOC requires its interconnector- customers to provide the cable from the interconnector's equipment to GTOC's DSX bay and no other LEC imposes this requirement. After making these adjustments, the record shows that there is not a wide variation in the cross-connection and termination equipment function LECs provide to their interconnector-customers. 135. Direct costs associated with security include security installation costs and active security costs. We find that active security services are substantially similar among LECs because LECs that provide this service recover costs for providing additional security attributable to collocation, including the costs of providing extra security guards or escort service. Differences in the security installation function among LECs require that we make certain adjustments to the data. Security installation costs include the costs for all construction associated with additional security needs attributable to collocation. Several LECs provide the security installation function through a card access system, while other LECs provide this function without a card access system. Therefore, when we calculate industry-wide average direct costs for security installation, we divide the LECs into two groups: those that provide card access systems and those that provide other security systems. After making this adjustment, we find that there is not a wide variation in the security installation function among LECs within each of these two groups. 136. Direct costs associated with construction include interconnector-specific construction, common construction, and construction provisioning. Interconnector-specific construction is substantially similar among LECs because the major component of interconnector-specific construction for all LECs is the construction of a cage. We find that a cage for physical collocation is a fairly standard product that does not vary substantially among LECs. 137. In addition, common construction activities do not vary substantially among LECs because in all cases they include: (1) all design, engineering and project management for common construction; and (2) all actual common construction, including common environmental conditioning, common lighting, and common floor reconditioning, none of which is attributable to a specific interconnector. Most LECs develop direct common construction costs based on averages of their estimated central office direct common construction costs. The common construction activities required to prepare the central office for physical collocation should be similar at each central office. Moreover, the quantities of labor and materials associated with common construction should on average be similar among LECs. The averaging process by which LECs calculate their costs minimizes the effects of any extremely high or low common construction requirements for any particular central office that may be reflected in the data from which LECs compute these averages. There is no evidence in the record to suggest that there are substantial differences in the pre-existing conditions of a large number of any particular LEC's central offices compared to pre- existing conditions of other LEC's central offices. Accordingly, we do not find that the quantities of labor and materials needed to prepare any particular LEC's central offices for physical collocation are substantially greater than those needed to prepare the central offices of other LECs. 138. We also find that the construction provisioning function does not vary substantially from LEC to LEC. Construction provisioning involves ordering, surveying, designing, engineering, and managing activities related to construction of the interconnector's space and cage, and these services appear to be standard offerings among the LECs. 139. We ensure comparability among the LECs' construction costs by excluding construction estimates for Bell Atlantic, Rochester, Lincoln and Central from the data we are using to determine the industry average construction cost. These LECs charge their interconnector-customers for the actual costs of the labor and materials used for the common construction at a particular central office for a particular interconnector. The other LECs file a rate designed to recover the estimated cost of that construction. 140. Finally, we make adjustments to the entrance facility direct cost data to address differences in the entrance facility space and installation function among LECs. While some LECs install the interconnector's cable from the manhole outside the central office to the interconnector's space inside the central office, other LECs do not provide this service. We address this difference by dividing LECs into two groups: LECs that install the interconnector's cable and LECs that do not install the interconnector's cable. After making this adjustment, we find that there is not a wide variation in the entrance facility function among LECs within each of these two groups. LECs develop entrance facility space direct costs based on investments for similar physical assets used in the interconnection arrangement from the manhole to the interconnector's space, including the manhole, conduit, vault, cable rack and riser duct. The entrance facility installation costs are for installing an interconnector's arrangement from the manhole to the interconnector's space. These costs are primarily for the labor required to install entrance facilities, e.g., splicing, splice testing, cable pulling, and cable placement. These labor activities are not likely to vary substantially among LECs. 141. We remove Lincoln's reported entrance installation and space direct costs from the data on which we calculate the average and the standard deviation for this function because Lincoln recovers the actual costs of the labor and materials used for the construction of the entrance facility at a particular central office for a particular interconnector. The other LECs file a rate designed to recover the estimated cost of entrance installation. iii. LECs' Direct Cost Estimates 142. The physical collocation direct costs LECs develop are necessarily estimates because these costs pertain to a new service for which most LECs have little or no operating experience or relevant historical data. The absence of operating experience or relevant historical data from which to make cost estimates leads to variation in LEC estimates that is attributable to differences in the assumptions and methods that they employ. Furthermore, some of the physical collocation functions for which cost estimates are required are not comparable to any function required for any other telecommunications service. For example, a cage is not part of the standard offering of any other telecommunications service of which we are aware. Thus, LECs are unable to employ one of the major tools commonly used for cost estimation -- comparing the costs of the service under investigation to the costs of another service that is comparable in terms of the assets and the tasks required to provide that service. 143. Given the relative imprecision with which LECs make these estimates under these circumstances, we find that it is reasonable to pool all of the LECs' direct cost estimates and to calculate an industry-wide average. In our view, an industry-wide average cost calculated for physical collocation functions that are essentially the same among all the LECs is more reliable than the cost estimates provided by any one LEC for these functions. We find that this is so because the LECs' direct cost estimates vary depending on the particular assumptions and methods each LEC uses to make these estimates. For the group of LECs in the sample from which we calculate the average, positive and negative deviations from the true cost of providing the same function will tend to cancel out because of the law of large numbers. At the same time, the average of these direct cost estimates incorporates far more of the available information than any individual cost estimate. The average therefore provides a more reliable estimate of the underlying true cost of a function than any one estimate. Accordingly, we find that calculating the industry-wide average direct cost for all LECs that offer the same physical collocation service using similar assets and performing similar tasks, and using that average to evaluate the magnitude of the separate cost estimates of each LEC, reduces the possibility that any particular LEC will recover in its physical collocation rates more than that LEC's direct costs. b. Legal Authority for Making Rate Prescriptions on the Basis of Industry Average Costs 144. We find that prescribing rates on the basis of an industry's average costs, as we do in this Order, is consistent with our authority under Section 205(a) of the Communications Act. Section 205(a) provides in pertinent part that, whenever "after full opportunity for hearing, . . . the Commission shall be of opinion that any charge . . . of any carrier or carriers is or will be in violation of any of the provisions of this Act, the Commission is authorized and empowered to determine and prescribe what will be the just and reasonable charge." Courts have consistently found in the Act a Congressional intent to grant us broad discretion in "selecting methods . . . to make and oversee rates." In doing so, we may make any "reasonable selection from the available alternatives." Rather than insisting upon a single regulatory method for determining whether rates are just and reasonable, courts and other federal agencies with rate authority similar to our own evaluate whether an established regulatory scheme produces rates that fall within a "zone of reasonableness." For rates to fall within the zone of reasonableness, the agency rate order must constitute a "reasonable balancing" of the "investor interest in maintaining financial integrity and access to capital markets and the consumer interest in being charged non-exploitative rates." 145. Our discretionary authority to prescribe rates based on the cost-averaging methodology described below is directly supported by the Supreme Court's decision in the Permian Basin Area Rate Cases. In that decision, the Court upheld the Federal Power Commission's (FPC) decision to depart from its former practice of determining the reasonableness of natural gas producers' rates by examining the costs of each company on a case-by-case basis. The Court found that the FPC's decision to prescribe maximum area rates for interstate natural gas sales based on composite cost data obtained from published sources and from producers through a series of cost questionnaires, fell within the "zone of reasonableness" required by the Natural Gas Act. The Court emphasized that the Natural Gas Act had conferred upon the FPC broad responsibilities to regulate interstate distribution of natural gas and that prescribing rates based on composite industry data was a valid exercise of the FPC's discretionary authority under the Act: [T]he "legislative discretion implied in the rate making power necessarily extends to the entire legislative process, embracing the method used in reaching the legislative determination as well as that determination itself." It follows that rate- making agencies are not bound to the service of any single regulatory formula; they are permitted, unless their statutory authority otherwise plainly indicates, "to make the pragmatic adjustments which may be called for by particular circumstances."[] 146. In light of our broad discretion to select appropriate regulatory tools for ratemaking purposes, we have, on other occasions, made rate prescriptions based on costs determined in part by an industry-wide average or mean. Our decision in this investigation to make rate prescriptions on the basis of an industry average is consistent, for example, with the methodologies we used to (1) establish a unitary rate of return for LECs' interstate access services, (2) create a productivity factor for price cap LECs, and (3) determine the reasonableness of depreciation rates for price cap LECs. 147. We conclude that the methodology we are using for the purpose of prescribing rates in this tariff investigation ensures that the LECs' direct costs of providing physical collocation fall within a zone of reasonableness. We adopt this approach after making a "reasonable selection from the available alternatives." We considered several statistical standards for evaluating the reasonableness of the LECs' physical collocation direct costs. For example, we considered using the overall LEC average or the overall LEC median direct cost for each function as the standard for making disallowances. These are measures of the central tendency of the data. We do not use either of these methodologies because they fail to recognize that some LECs reasonably may provide physical collocation service somewhat less efficiently than other LECs. While we believe that, in general, physical collocation service is a homogeneous service for which the cost should not vary substantially among LECs, we find that there may be some reasonable differences in their direct costs and in their levels of efficiency. In addition, as we explained above, the LECs' direct costs are ex ante estimates, not precise ex post accounting figures. Thus, while a statistical approach is appropriate, the strict use of the average or the median as the standard of reasonableness may not reflect the fact that the direct costs reported by LECs are estimates that may be relatively imprecise because these estimates are for a new service. 148. We also considered using the overall LEC average plus two standard deviations as the standard for making disallowances to the LECs' direct costs of physical collocation. We reject this standard, however, because the probability that any LEC's direct cost for a particular physical collocation function will lie within two standard deviations above and below the overall LEC average direct cost for that function is always 75 percent and often 95 percent or higher. The probability that a LEC's physical collocation direct cost for a given function will lie below the overall LEC average plus two standard deviations for the same function is even greater. By examining the LECs' direct cost data, we find that nearly all the LECs' direct costs fall within two standard deviations above the overall LEC average for every function even though there is a large variance of direct costs among LECs. Accordingly, although the direct costs that lie within two standard deviations above the overall LEC average for each function exhibit large variance, we would not address that variance if we were to use two standard deviations as our standard of reasonableness. In addition, all LECs have ample incentive to inflate the direct cost of physical collocation because these are the rates that they are imposing on the interconnector- customers against which the LECs compete in the interstate access market. In light of that incentive, the use of the average plus two standard deviations would, therefore, provide too much flexibility. 149. We are using the average plus one standard deviation as our standard for making disallowances to the LECs' direct costs of providing physical collocation because it strikes a balance between use of the average or median and use of the average plus two standard deviations. Under this standard, the direct costs of a substantial majority of the LECs are deemed reasonable. It recognizes that some LECs may be more efficient providers of physical collocation than others. At the same time, any possible efficiencies are not likely to explain why a number of the LECs' direct costs for each function are substantially out of line with those of the other LECs for the same function, and the use of the overall LEC average plus one standard deviation leads to disallowances to the direct cost of all of these LECs. In short, we believe that it is reasonable to allow direct costs that are clustered reasonably close to the overall norm for the LEC industry and to disallow the direct costs that fall outside the cluster. Accordingly, we adopt the overall average plus one standard deviation for a particular function as our statistical standard for making disallowances to the LECs' physical collocation direct costs. We describe our methodology, and apply this standard below. c. Methodology for Calculating Industry Average Direct Costs for Physical Collocation Service i. Overview 150. In order to analyze the LECs' direct costs of providing physical collocation, we develop a data base comprised of the direct costs of those LECs that either currently offer physical collocation service and are subject to this investigation, or previously provided physical collocation service and had at least one customer. We use this data base to compute an industry-wide average direct cost and the standard deviation of that cost relative to that average for each function associated with providing physical collocation. Where a LEC's direct cost for a particular function is in excess of the average plus one standard deviation, we examine the LEC's cost data and any explanations that the LEC may provide on the record in order to determine whether the LEC justifies the high direct cost for that function. In the absence of adequate cost justification for the function, we generally make direct cost disallowances to the extent that such costs exceed the average plus one standard deviation. 151. The methodology for developing the direct cost data base, the overall LEC average, the standard deviation, and the direct cost disallowances are explained below. In Appendix B, we list the direct costs that the LECs report for each function, as well as the industry-wide average direct cost and standard deviation for that function. In Appendix C, we explain the method by which we require LECs to recalculate their direct costs for a particular function, where such costs are in excess of the overall LEC average plus one standard deviation for that function. ii. Statistical Sample of LECs' Direct Costs 152. Fourteen of the 16 LECs that were required initially to file physical collocation tariffs either currently offer physical collocation service or previously offered the service and had at least one physical collocation customer. The data base is comprised of the direct costs of these 14 LECs. United and GSTC currently offer virtual collocation in lieu of physical collocation service and, although they offered physical collocation when they were required to do so, they never had a physical collocation customer. Consequently, we exclude the direct costs of these two LECs from the database, because these LECs do not have an active physical collocation tariff on file, and are neither required to file physical collocation tariff revisions because they elected not to retain their physical collocation tariffs after we issued the Virtual Collocation Order, nor subject to refund liability because they never had a physical collocation customer. Accordingly, the issues raised regarding these tariffs are moot, and there is no need to include these tariffs in our analysis. 153. The direct costs of some of the 14 LECs in our data base are averaged direct costs applicable to all of these LECs' central offices. Other LECs develop separate direct costs for different central offices or for different groups of central offices. For those LECs that develop averaged direct costs applicable to all of their central offices, we use those averaged direct costs for our data base sample. For those LECs that develop separate direct costs for different central offices, we use the direct costs for the one central office with the highest total price. In order to determine the overall highest-priced central office for a given LEC, we examine the LEC's sample price-out analysis of providing 100 DS1s. Each LEC submitted such an analysis pursuant to the Bureau's Designation Order and subsequent data request letters. As opposed to the TRP charts on which LECs provide the unit cost for each function separately, the sample price-out chart identifies the overall total costs (i.e.,the direct costs plus overheads for all 14 functions summed) of providing 100 DS1s at a central office in a typical physical collocation arrangement. These overall total costs equal the overall total price that an interconnector must pay for that service. We, therefore, refer to the central office for which a LEC develops the highest costs as the overall highest-priced central office. For each LEC that develops separate direct costs for different central offices, we select the central office with the overall highest total price from the sample price-out charts. The highest priced central offices for those LECs that develop separate direct costs for different central offices are those that had physical collocation rates in effect on or before April 15, 1994. 154. In those cases where LECs derive separate direct costs for different central offices, we focus our statistical analysis on such LECs' highest-priced central offices because the record in this proceeding does not contain any information on the type of central offices that have the largest demand for physical collocation service. In the absence of this information, we find that statistical disallowances should conservatively target only those direct costs that lie clearly outside the norm for the LEC industry. Calculating the LEC average direct cost and standard deviation of this cost relative to that average for each function using the direct costs for the LECs' overall highest-priced central offices in those cases where LECs developed separate direct costs for different central offices, and using this average and standard deviation to judge the reasonableness of the direct costs for every central office, is a conservative approach that satisfies this objective. 155. GTOC and Central develop separate direct costs for different study areas, but have physical collocation customers in only one study area. Therefore, the data base includes only the direct costs of GTOC and Central for the particular study area in which each provides physical collocation. We do not include the direct costs of the central offices in their other study areas in the database, because GTOC and Central do not have a physical collocation tariff for these other study areas currently on file, and consequently are not required to file physical collocation tariff revisions or subject to refund liability for these other central offices. 156. We exclude from the data base the direct costs of particular functions certain LECs offer because these costs are not comparable to those of the other LECs that we include in the database. For example, we exclude the floor space direct costs and DC power direct costs of BellSouth, CBT, and Central from the data base because, unlike other LECs, these LECs apparently include the cost of AC power converted to DC power in their floor space direct costs. 157. We remove the LECs' direct costs for POT bays and repeaters from the DS1 and DS3 cross-connection and termination equipment direct costs because (1) not all LECs develop direct costs for POT bays and repeaters, (2) we disallow costs for repeaters in this Order, and (3) LECs that offer physical collocation on a going forward basis are required to unbundle and develop separate rates for POT bays and to allow the interconnectors to provide this equipment themselves. The cross-connection and termination equipment direct costs for the LECs that develop direct costs for repeaters and POT bays are only comparable to those of the LECs that do not develop direct costs for POT bays and repeaters if we remove the direct costs of the repeaters and POT bays from the cross-connection and termination equipment function because all LECs' cross- connection and termination equipment direct costs for this function, exclusive of repeaters and POT bays, should be similar. 158. Moreover, we exclude direct costs for a particular function that are either greater than two standard deviations above the LEC direct cost average or greater than two standard deviations below the LEC direct cost average. We make these exclusions in order to minimize the likelihood that the data distribution would be skewed unreasonably upward by one or two extremely high direct cost data points or downward by one or two extremely low direct cost data points. For example, we remove Nevada's DC power and DS1 and DS3 cross-connection and termination equipment direct costs from the data base because the direct costs for these functions exceed the industry average by more than two standard deviations. No LEC's direct cost for any function is less than two standard deviations below the overall LEC average and we do not exclude the direct costs of any LEC from the data base for that reason. iii. Direct Cost Data 159. We derive the direct cost information in the data base from data that the following LECs submitted in TRP format in their direct cases and ex parte filings: Ameritech; Bell Atlantic; BellSouth; CBT; GTE; Lincoln; Nevada; NYNEX; Pacific; Rochester; SNET; Sprint; SWB; and US West. On these TRP charts, LECs set forth their per unit recurring direct costs (e.g., dollars per square foot per month for central office floor space) and per unit nonrecurring direct costs (e.g., dollars per cage for a physical collocation enclosure) for 14 different physical collocation functions. 160. We adjust the LECs' TRP data to reflect the direct cost disallowances the Bureau made in the Physical Collocation Tariff Suspension Order. We make this adjustment to the direct cost data because we are affirming those disallowances in this Order. We do not adjust the LECs' direct cost data to reflect the direct cost disallowances that we make in our case-by- case analysis in Section III.C.1, however, because the LECs do not provide enough information for the proper implementation of these adjustments. Accordingly, the function-by-function analysis and the case-by-case analysis are independent, rather than complementary, analyses. 161. We convert the per unit direct costs to the total direct costs of a typical physical collocation arrangement by multiplying per unit direct costs (e.g., dollars per feet of conduit) by number of units (e.g., per feet of conduit). The direct costs that we calculate for the function-by-function analysis are for the provision of 100 DS1s. In general, we use the LECs' assumptions to establish the amount of each unit needed to provide 100 DS1s through a physical collocation arrangement. The LECs set forth these assumptions in their direct cases and in their responses to the Bureau's data requests submitted to LECs on April 15, 1994. We compute the LECs' direct costs based on the assumption that LECs will provide 100 DS1s through a physical collocation arrangement because we believe that 100 DS1s is a reasonable estimate of the sales level an interconnector may realistically reach, given sufficient time to implement its business plans and establish its presence as a going concern capable of providing a competitive alternative to an incumbent LEC's service in the interstate access market. Moreover, we are comparing direct costs among LECs rather than evaluating the direct costs of any particular LEC in isolation. Given that physical collocation service is substantially similar among LECs, and the technology required to provide that service is not likely to vary significantly among LECs, the selection of any particular business volume such as 100 DS1s should not affect relative differences among the LECs' direct costs. 162. We convert per unit direct costs to total direct costs because a comparative analysis of per unit direct costs among LECs is not feasible. An individual physical collocation function is typically comprised of a number of separate rate elements for which the corresponding costs are expressed in different units (e.g., per linear feet, per interconnection arrangement). It is not mathematically possible to add per unit costs within a function and arrive at a total per unit cost unless the units are identical. Consequently, in order to add the separate rate elements together, which is necessary to calculate the direct cost for the entire function, we convert the per unit direct costs for each separate rate element to total direct costs. The conversion to direct costs from per unit direct costs is also necessary in order to compare direct costs for a particular function among LECs, because different LECs express the same direct costs in different units. 163. For the purpose of computing DC power direct costs, we do not use the LECs' assumptions regarding the number of units required to support 100 DS1s . We develop the direct costs of DC power based on the assumption that 40 amps of DC power is required to support 100 DS1s. We rely on this assumption because most LECs charge for DC power in increments, and none of these LECs establishes an initial increment that exceeds 40 amps. Nor do any of these LECs indicate that more than 40 amps of DC power is required to support 100 DS1s. Where it is not possible for an interconnector to purchase precisely 40 amps of DC power, we compute the direct cost of DC power based on an assumed purchase that exceeded 40 amps by the smallest number possible. Thus, we use 45 amps to compute Lincoln's DC power direct costs because Lincoln provides DC power in 15 amp increments. In addition, we use 100 amps to compute GTOC's DC power direct costs because GTOC charges for DC power on a per square foot basis and GTOC provides an interconnector with 100 amps of DC power when the interconnector leases a standard 100 square foot physical collocation space. 164. We compute LECs' DS3 cross-connection and termination equipment functions based on the assumption that the LECs provide four DS3s through a typical physical collocation arrangement. This assumption is consistent with the assumption of 100 DS1s that we use in computing the direct costs for the other physical collocation functions because the capacity of four DS3s is roughly equal to the capacity of 100 DS1s. Where we need assumptions to convert per unit DS3 cross-connection and termination equipment costs to direct costs, we use the LECs' DS1 cross-connection and termination equipment assumptions about the number of units (e.g., feet of cable) required to provide 100 DS1s. These assumptions are not needed to compute the DS3 cross-connection and termination equipment direct costs in most cases, however, because the relevant unit of measure is usually per termination or per cross-connection. As a result, to make statistical comparisons, we determine total DS3 cross- connection and termination direct costs simply by multiplying per unit costs by four cross-connections or terminations in most cases. 165. We amortize nonrecurring direct costs over a 60- month period using a discount rate of 11.25 percent in order to add nonrecurring and recurring charges in arriving at a total direct cost for a particular function. Consequently, we express the total direct cost for each physical collocation function as a "monthly" cost. Amortization of nonrecurring costs is necessary for a comparison of direct costs among LECs because some LECs develop nonrecurring costs, while other LECs develop recurring costs for the same function. Amortized nonrecurring costs are comparable to recurring costs because amortizing nonrecurring costs takes account of the time value of money. 166. The use of an 11.25 percent rate of interest for the purpose of amortizing the nonrecurring costs is consistent with the finding in this Order that this rate represents the LECs' cost of money or capital for the provision of physical collocation service. Moreover, the use of a 60 month amortization period is a reasonable estimate of the uncertain life of a physical collocation arrangement. With regard to that estimate, we note that 60 months is a period longer than any interstate physical collocation arrangement has been in place, since physical collocation tariffs first became effective on June 16, 1993. Although our expanded interconnection policy and the Telecommunications Act of 1996 are designed to open the interstate access market to competitive offerings of new entrants, we have no solid basis at this time for projecting the average life of a physical collocation arrangement beyond five years. Given the uncertainties regarding the manner in which competition will develop in local telecommunications markets and the possibility that entrants could shift from using collocation to deploying their own bypass facilities or using other means to provide service, we conservatively estimate that the life of a physical collocation arrangement will average five years. 167. We aggregate the direct costs for 14 physical collocation functions identified in the Designation Order into the direct costs for seven functions: floor space costs; DC power costs; cross-connection and termination equipment costs;security escort costs; security installation costs; construction costs; and entrance facility costs. We aggregate the direct costs for the physical collocation functions in this manner in order to maximize the statistical reliability of the direct cost data. Aggregating the direct costs for the functions enhances the reliability of the data because it renders harmless any errors some LECs may make on their TRP charts by erroneously assigning certain direct cost data to the wrong functions. iv. Descriptive Statistics 168. Average Direct Cost. We compute an overall LEC average direct cost for each of the seven physical collocation functions. The overall LEC average for any particular function is a simple average, i.e., the sum of each LEC's direct costs for a particular function divided by the number of LECs that comprise the sample for that function. A simple average is more appropriate for this analysis than a weighted average based on some measure of demand, e.g., access lines, number of DS1 equivalent cross-connects, or number of collocation arrangements, because the direct costs of physical collocation do not depend on the demand for the service. The direct cost of a cage an interconnector uses for physical collocation, for example, is not affected by the demand for physical collocation service at the central office within which the cage is located. 169. Standard Deviation. We calculate the standard deviation of the direct costs relative to the average of those costs for every function. We make this calculation by using the sample standard deviation, i.e., the sum of the squared deviations of the individual LEC costs from the sample average divided by the number of LECs in the sample minus one. We use the sample standard deviation in lieu of the population standard deviation because the data base is comprised of a sample of physical collocation direct costs, not the universe of those costs. Moreover, the data base is not comprised of physical collocation direct costs for every central office. The physical collocation direct costs in the data base reflect the direct costs of the highest- priced central offices for some LECs and the average direct costs for other LECs. Furthermore, as explained above, we remove some LECs' direct costs from the data base in certain cases before we calculate the overall LEC average direct cost and the standard deviation for a particular function. v. Methodology for Prescribing Disallowances Based on the Industry-Wide Average Analysis 170. As discussed in Section III.C.2.b above, we adopt the average plus one standard deviation for a particular function as our statistical standard for creating a presumption that we should make disallowances to the LECs' physical collocation direct costs. Whenever a LEC's direct cost for a particular function is in excess of the average plus one standard deviation, we examine the LEC's cost data and any explanations that the LEC may provide on the record in order to determine whether the LEC justifies the high direct cost for that function. In the absence of adequate justification of higher direct costs, we generally disallow those direct costs that are in excess of the average plus one standard deviation for that function. In some cases where LECs develop separate direct costs for different central offices, however, we are not prescribing the average plus one standard deviation as the maximum allowable direct cost. 171. LECs That Develop Averaged Direct Costs Applicable to All Central Offices. Where a LEC develops averaged direct costs applicable to all central offices, we simply compare the average plus one standard deviation for each function with the LEC's direct costs for each function. For example, the average plus one standard deviation for DC power direct costs is $660 per 40 amps per month. SNET's DC power direct costs, for all of its central offices, are $789 per month. Because SNET does not justify the high direct cost for that function, we disallow the difference between $789 and $660, or $129, and this disallowance applies to the DC power direct costs for all of SNET's central offices. 172. LECs That Develop Separate Direct Costs for Different Central Offices. As we explain in Section III.C.2.a.v above, when LECs develop separate direct costs for different central offices, we select for our data base the one central office with the highest total price. We calculate a LEC's direct costs for each function at that central office, and use those direct costs in the data base. Where we compare the average plus one standard deviation for a function with a LEC's direct costs for that function, we distinguish between the direct costs of the LEC's central office with the highest total price, and the direct costs of the LEC's other central offices. 173. For the direct costs of a LEC's central office with the highest overall price, we compare the average plus one standard deviation for each function with the LEC's direct costs for each function at its highest overall price central office. In the absence of adequate justification for direct costs that exceed one standard deviation above the average, we disallow the LEC's direct costs for each function to the extent these costs exceed the average plus one standard deviation. For example, the floor space direct cost average plus one standard deviation is $504 per month. The floor space direct costs for Pacific's overall highest priced central office, SCRMO1, are $581 per month and Pacific does not justify the high level of this direct cost. The floor space direct cost disallowance for Pacific's overall highest-priced central office is, therefore, $77 per month. 174. For the direct costs of a LEC's central offices, other than its overall highest-priced central office, we also compare the average plus one standard deviation for each function with the LEC's direct costs for that function at the other central offices. Some of the other central offices have direct costs for a function that exceed the average plus one standard deviation for that function, but do not exceed the direct costs for that function at the LEC's central office with the highest total price. In these cases, we disallow direct costs to the extent that they exceed the average plus one standard deviation, unless the LEC justifies higher direct costs for that function. For example, some of Pacific's central offices have floor space direct costs that exceed the average floor space direct cost plus one standard deviation ($504 per month), but do not exceed the floor space direct costs for Pacific's overall highest priced central office ($581 per month.). One such central office is Pacific's central office BKFC12. Pacific's floor space direct costs for central office BKFC12 are $571 per month. The floor space direct cost disallowance for this office is, therefore, $67 per month. 175. In a number of cases, we find the following scenario: (1) some of a LEC's central offices other than its highest-priced central office have direct costs for a function that exceed the average plus one standard deviation for that function, (2) these direct costs also exceed the direct costs for that function at the LEC's highest-priced central office, and (3) the direct costs for that function at the LEC's highest-priced central office exceed the average plus one standard deviation. In these cases, we are not reducing the direct costs of the LEC's other central offices to the average plus one standard deviation for that function, if the LEC fails to justify higher direct costs for that function. Instead, we are reducing the direct costs of these other central offices for a given function by the same percentage that we are reducing the direct costs of the central office with the highest total price. For example, some of Pacific's central offices have floor space direct costs that exceed the average floor space direct cost plus one standard deviation ($504) and also exceed the floor space direct costs for Pacific's central office with the highest total price ($581). One such central office is Pacific's central office BRBN11. Pacific's floor space direct costs for this central office are $625 per month. The floor space direct cost disallowance for Pacific's highest priced central office is $77 (the difference between $581 and $504), which is a disallowance of 13 percent. The floor space direct cost disallowance for central office BRBN11 is, therefore, 13 percent of $625, or $81. 176. We adopt this approach because we recognize that, for a given function, the direct costs at a LEC's central office with the highest total price may differ from the direct costs at the LEC's other central offices. As previously discussed, we use the central offices with the highest total prices for our data base in order to calculate the average plus one standard deviation for each function. If we were to set, for other central offices for which a LEC claims higher direct costs for a particular function, the average plus one standard deviation as the maximum permitted direct cost for that function, we would be failing to account for the fact that the direct costs for the highest-priced central offices may differ from those direct costs of other central offices for that function. LECs that develop separate direct costs for different central offices likely use the same methodology to calculate costs. We find, therefore, that any bias in the direct costs for the different central offices is likely to be in the same direction and of the same relative magnitude. Accordingly, if a LEC develops direct costs for a particular central office (Central Office A) that exceed both one standard deviation above the average and the direct costs of that LECs overall highest priced central office (Central Office B) for that function, we believe it is reasonable to reduce the direct costs of the function for the particular central office (Central Office A) by the same percentage that we reduce the direct costs of the overall highest priced central office (Central Office B), assuming the direct costs of the overall highest-priced central office (Central Office B) also exceed the average plus one standard deviation. We find that this approach, ensures that a LEC's direct costs for a given function reasonably reflect the central tendency of the industry's costs, while recognizing that there may exist legitimate direct cost differences for that function among the LEC's central offices. 177. Finally, in a number of other cases, we find the following: (1) some of a LEC's central offices, other than its highest-priced central office, have direct costs for a function that exceed the average plus one standard deviation for that function, (2) these direct costs also exceed the direct costs for that function at the LEC's overall highest-priced central office, and (3) the direct costs for that function at the LEC's overall highest-priced central office do not exceed the average plus one standard deviation. In these cases, we are reducing the direct costs of the LEC's other central offices to the average plus one standard deviation for that function, if the LEC fails to justify higher direct costs. For example, SWB's large central offices are its overall highest-priced central offices and the security installation direct costs for these central offices are $114 per month, which do not exceed the direct cost average for this function plus one standard deviation, or $300 per month. However, the direct costs for SWB's medium-size central offices are $331 per month, and these direct costs exceed the direct costs of SWB's overall highest- priced central office and the average plus one standard deviation for this function. The security installation direct cost disallowance for SWB's medium-size central office is the difference between $331 and $300, or $31 per month, because SWB does not justify the high direct costs for this function. vi. Direct Cost Disallowances in the Average Cost Analysis Section, in Relation to Direct Cost Disallowances in Other Sections 178. In Sections III.C.2.d - III.C.2.i below, we order certain LECs to recalculate their rates to reflect each of our disallowances, and to calculate the appropriate refunds for the improper charges imposed on the interconnectors based on these disallowances. In the event that the direct cost disallowances that we set forth elsewhere in this Order result in the recovery of direct costs that are less than the maximums we prescribe in Sections III.C.2.d - III.C.2.i, the full amount of those other disallowances are applicable, even where the result of those other disallowances is to further decrease the direct costs below the maximum prescribed in Sections III.C.2.d - III.C.2.i below. We believe that the larger disallowance is warranted in these cases because it is based on information in the record that the LEC specifically provides, whereas the average direct cost plus one standard deviation for a particular function is a ceiling that is based on pooled information that all of the LECs provide. We find that in those instances where LECs provide specific information on the development of their direct costs, it is reasonable to consider that information in our analysis of those costs. d. Floor Space Costs i. Background 179. Floor space costs reflect the direct costs of occupancy of central office floor space by the interconnector, including all ancillary and housekeeping services. The Bureau asked the LECs to provide TRP data on the investments, expenses and taxes listed on the TRP charts for this function in their direct cases and to explain the method by which the floor space direct costs were derived. ii. Discussion 180. We find that floor space direct costs of GTOC, US West, and Pacific for certain central offices are unjust and unreasonable because these costs exceed one standard deviation above the average floor space cost and none of these LECs justifies higher direct costs. Accordingly, these LECs are required to recalculate rates to reflect the floor space direct cost disallowances explained below. 181. In calculating the industry average and the standard deviation relative to that average, we remove the floor space direct costs of BellSouth, CBT, and Central from the data base. Unlike all other LECs, these LECs apparently include the cost of AC power converted to DC power in their floor space direct costs. 182. After making these adjustments to the database, the LECs' overall average for floor space direct costs is $356 per 100 square feet per month and the standard deviation relative to that average is $148 per 100 square feet per month. The average plus one standard deviation is equal to $504 per month. 183. Disallowances for Overall Highest-Priced Central Offices. In cases where LECs develop separate direct costs for different central offices, we use the direct costs for these LECs' overall highest-priced central offices to calculate the industry average direct cost and the standard deviation relative to the average for each function. US West's floor space direct cost for its highest-priced central office is $596, Pacific's floor space direct cost for its highest-priced central office is $581, and GTOC's floor space direct cost for its highest-priced central office in Plano, Texas, the only city in which the company had a customer, is $517. The floor space direct costs for the highest- priced central offices of these three LECs are higher than one standard deviation above the average and, because these LECs do not provide adequate cost justification, we find that their floor space costs are unjust and unreasonable. 184. GTOC fails to justify floor space direct costs that exceed one standard deviation above the industry-wide average. GTOC states that it derives its direct floor space costs from the C.A. Turner Telephone Plant Index, but does not submit any particular pages to document the numbers that it derives from this index and it does not cite any particular publication, volume, date, or pages as the source of that data. Furthermore, GTOC does not describe the data, assumptions, or methodology on which the publisher of the C.A. Turner Telephone Plant Index develops its index. When using indices of inflation to develop direct costs, we use indices that are verifiable, developed for broad sectors of the economy (e.g., the consumer price index or the producer price index), used by a variety of users (e.g., government agencies and a large cross section of companies within the private sector) and routinely developed by impartial government agencies (e.g., the U.S. Bureau of Labor Statistics). The C.A. Turner Telephone Plant Index, however, is unverifiable, narrowly focused, and does not appear to be widely accepted because it is used by a small number of users. In light of GTOC's failure to demonstrate that use of the C.A. Turner Telephone Plant Index is reasonable, we find that GTOC fails to support a rate that recovers such a high level of floor space direct costs. 185. US West also fails to justify its high floor space direct costs. US West bases the market value of its central office building on its existing central office space lease rates and on discussions with two real estate brokers. US West provides no data on its existing central office lease rates and attempts to justify its rates for floor space with two page letters from two real estate firms. These letters provide little explanation for and almost no quantification of their estimates. US West does not, for example, provide the type of detailed comparative analysis that is commonly used for real estate valuation. Market value estimates of real estate require a substantial amount of judgment and such estimates may vary considerably depending on the methodology, data, and assumptions used by the appraiser. Moreover, US West fails to provide any information on the method that the real estate firms use to determine the market value of US West's central office buildings. 186. Finally, Pacific does not explain how it uses the R.S. Means data to develop its current direct cost estimate for central office floor space. Pacific does not identify the pages of the R.S. Means publication from which it derives current construction costs. As a result, we are unable to map data on current construction from the R.S. Means publication to the value of current investment Pacific uses to develop its direct floor space costs. In addition to its undocumented use of the R.S. Means data, Pacific states that it relies on actual construction experience at some of its central offices in developing its floor space direct costs, but Pacific does not explain how it uses this experience to develop floor space direct costs. We are, therefore, unable to validate the high level of Pacific's direct costs. 187. Accordingly, we order GTOC, US West, and Pacific to recalculate the floor space rates of their highest-priced central offices to exclude direct costs in excess of $504 per month and calculate the appropriate refunds for unreasonable floor space charges imposed upon interconnectors. In the event that elsewhere in this Order, we make any disallowances to the direct costs of these LECs for other reasons that affect the level of their floor space direct costs, $504 is the maximum permitted monthly floor space direct cost and the full amount of other disallowances should be reflected in the recalculated rates even when the result of those other disallowances would bring the carriers' floor space direct costs below $504 per month. 188. Disallowances for Floor Space Charges in Central Offices that are not Overall Highest-Priced Central Offices. US West and Pacific also develop floor space direct costs for central offices, other than the central office with the highest total price, that exceed $504 per month (the average plus one standard deviation for that function). We find that US West's and Pacific's floor space direct costs for these other central offices that exceed $504 are unjust and unreasonable because, as explained above, US West and Pacific fail to justify higher direct costs for floor space in these offices. 189. As we discussed in Section III.C.2.c.v above, where the direct costs for a LEC's central offices, other than that LEC's overall highest priced central office, exceed the average plus one standard deviation for a particular function, but do not exceed the direct costs of the LEC's highest-priced central office for that function, we are disallowing the direct costs for those other central offices to the extent that they exceed the average plus one standard deviation. US West's floor space direct costs for central offices, other than its central office with the highest total price, exceed $504 (the average plus one standard deviation), but do not exceed $596 (US West's floor space direct costs for its highest-priced central office). Thus, for these central offices, the maximum permitted direct cost is $504, the average plus one standard deviation for the floor space function, and we disallow the floor space direct costs of these central offices to the extent they exceed $504. In addition, some of Pacific's central offices, other than the one with the highest total price, exceed $504, but are less than $581, the floor space direct cost for Pacific's central office with the highest total price. For these central offices, the maximum permitted direct cost is $504, the average plus one standard deviation for the floor space function, and we disallow the floor space direct costs for these central offices to the extent that they exceed $504. 190. In Section III.C.2.c.v above, we state that where the direct costs for a LEC's highest priced central office exceeds the average plus one standard deviation for a function, and some of that LEC's other central offices have direct costs for the same function that exceed the direct costs for the LEC's highest-priced central office, we disallow the direct costs of those other central offices by the percentage that we reduce the direct costs of the highest-priced central office for that function. We adopt this approach because the direct costs of a certain function for some of a LEC's central offices may reasonably differ from the direct costs of that function in the same LEC's highest-price central office. Some of Pacific's central offices have direct floor space costs that exceed both the average plus one standard deviation for floor space direct costs ($504), and Pacific's floor space direct costs for its central office with the highest total price ($581). We reduce Pacific's floor space direct costs for its highest priced central office by 13 percent (from $581 to $504). Accordingly for Pacific's other central offices with floor space direct costs that exceed the direct costs of its highest-priced central office, we require Pacific to reduce its floor space direct costs at these central offices by 13 percent. 191. We require US West and Pacific to recalculate their rates to reflect each of these floor space direct cost disallowances and to calculate the appropriate refunds for the improper floor space charges imposed on the interconnectors based on these disallowances. In the event that elsewhere in this Order, we make any disallowances to the direct costs of US West and Pacific for other reasons that affect the level of their floor space direct costs, the statistical disallowances we make in this section of the Order establish the maximum permitted floor space direct costs for these two LECs, and the full amount of any other disallowances must be reflected in the recalculated rates, even when the result of those other disallowances would bring the floor space direct costs of US West and Pacific below the maximum permitted levels. 192. Direct Costs of LECs Removed from the Data Base. We also examine the reasonableness of the floor space direct costs of those LECs that we remove from our data base because they bundle the cost of AC power converted to DC power with floor space direct costs. We calculate the floor space costs of these LECs without removing the AC power costs to convert DC power. We find that BellSouth's floor space direct costs are $264 per month. Central's floor space direct costs are $337 per month for its Des Plaines, Illinois central office, which is its overall highest-priced central office in Illinois, and $265 per month for its Park Ridge, Illinois central office. CBT's floor space direct costs are $219 per month for its area II central offices, which are its overall highest-priced central offices, $253 per month for its area I central offices, and $262 per month for its area III central offices. We find these costs to be less than the overall LEC average for this function (calculated to exclude BellSouth, CBT, GSTC, United and Central) even though the overall average is calculated to exclude AC power costs. We therefore disallow no amount of BellSouth's, Central's, or CBT's floor space direct costs based on this LEC industry average direct cost analysis. e. Power Costs i. Background 193. Direct Current (DC) power direct costs are for installation of DC power equipment for use by the interconnector and for providing the DC power. The Bureau's TRP charts set forth in the Designation Order were designed to disaggregate DC power direct costs into two functions: DC Power Installation and DC Power Generation. The Bureau adopted this approach because LECs' use of different rate structures makes it difficult to determine precisely how DC power costs should be assigned among rate elements. The Bureau asked the LECs to provide data on the investments, expenses, and taxes on TRP charts for these two functions in their direct cases and to explain the method by which the costs identified under each one were derived. 194. In the Designation Order, the Bureau asked the LECs to provide and explain the equations used to compute AC power costs and power costs included in the cost of DC power. LECs convert AC power to DC power used for the interconnectors' digital circuit equipment. LECs also provide AC power to the interconnectors for lighting, heating, and air conditioning. The Bureau also asked SWB to explain why it is necessary for an interconnector to purchase both POT power service and DC power service and to explain why those charges are not duplicative. In addition, the Bureau asked SWB to provide and to explain the derivation and the reasonableness of the "in place factors" applied to vendor prices to obtain the investment amounts for the POT power arrangement rate element. Finally, the Bureau directed BellSouth to explain why it includes investment in its Interconnection Floor Space rate element for two 40 ampere (amp) feeds for both "electronic digital power" and "electronic analog power." ii. Discussion 195. We find that the DC power direct costs for all of the central offices of Nevada, SNET, CBT, and GTOC and those for some of Pacific's central offices are unjust and unreasonable because these costs exceed one standard deviation above the average direct DC power costs and none of these LECs justifies higher direct costs for this function. Accordingly, these LECs are required to recalculate their rates to reflect the DC power direct cost disallowances explained below. 196. We make two adjustments to the data that we are using to determine this average DC power direct costs for all LECs plus one standard deviation. First, we remove the DC power direct costs of BellSouth, CBT, and Central from the database because these LECs apparently include the cost of AC power converted to DC power in their floor space costs and no other LEC includes this cost in this function. Therefore, the DC power direct costs that these four LECs assign to the DC power function are not comparable to the DC power direct costs that those other LECs assign to the DC power function. 197. Second, we remove Nevada Bell from the data base because its DC power direct cost estimate is more than two standard deviations above the overall LEC average for this function. Nevada Bell's DC power direct cost, $2,143 per month, is more than three times the overall LEC average of $581 per month for this function (calculated to exclude the DC power direct costs of BellSouth, CBT, GSTC, United and Central) and is substantially greater than the overall LEC average for this function plus two standard deviations, $1,709 per month (calculated on the same basis as the average). Moreover, Nevada Bell's DC power direct cost estimate is also nearly three times the size of the next largest DC power direct cost estimate, namely, SNET's estimate of $789 per month. Accordingly, we are removing Nevada Bell from the data base (but not exempting it from any disallowance based on the result of our statistical analysis) because we believe that Nevada Bell's DC power direct cost estimate is such an outlier that it would unreasonably skew the data. If we were to include Nevada Bell's estimate in the sample of estimates on which we are calculating the average and the standard deviation, the average would not be an accurate measure of the central tendency or location of the direct cost data, which is the purpose for which it is designed. The standard deviation which is calculated relative to that average would also be less meaningful as a statistic for describing the overall distribution of the data. 198. After making these adjustments to the data base, we find that the overall LEC average direct cost for the DC power installation and the DC power generation recurring and nonrecurring functions is $424 per 40 amps per month. The standard deviation of these direct costs relative to that average is $236 per 40 amps per month. The average plus one standard deviation is $660. 199. DC Power Direct Costs of SNET, GTOC, and Nevada. SNET's DC power direct costs are $789 per month, GTOC's DC power direct costs for Plano, Texas, which is the only location where it provides physical collocation service to an actual customer, are $786 per month, and Nevada's DC power direct costs are $2,143 per month. The DC power direct costs for these LECs are in excess of the overall average plus one standard deviation for this function. We find these direct costs to be unreasonable because, as explained below, these LECs fail to justify their high direct costs for this function. 200. GTE fails to justify its high DC power direct costs because although it provides the equation it uses to compute the recurring cost of generating DC power, it does not provide any calculations on workpapers or data to support the efficiency and heat loss factor it uses in that equation. GTE briefly explains that the investments for which it develops recurring DC installation costs and nonrecurring DC power installation costs represent modified national averages of the prospective labor costs for installing the assets that comprise those investments. Although GTE indicates that the national average is based on data contained in The Means Construction Cost Data Book, GTE does not cite to any relevant volume, publication date, or pages of that book, or provide copies of the pertinent pages. Nor does GTE set forth on workpapers the calculations that underlie that national average. Although GTE reveals the percentages that it applies to the national labor cost averages to adjust for differences in geographical labor costs, it does not explain how it derives those percentages. 201. SNET also fails to justify its high DC power direct costs. In its direct case, SNET identifies the equations it uses to develop the AC power costs included in its rate for DC power, but provides no explanation of the methodology it uses to establish other costs that it includes in this rate. SNET also shows estimates of its contractor costs, internal engineering costs, and plant costs to support its DC power installation costs in its direct case, but provides no explanation of the methodology by which it develops those costs. 202. Finally, Nevada fails to justify DC power direct costs that exceed one standard deviation above the average. Nevada sets forth the capital costs and the operating expenses for the DC power installation and generation functions, but does not identify the assets that comprise the investment for these functions or explain its valuation of those assets. Nor does Nevada explain the methodology by which it derives the annual cost factors that it applies to the investment in those assets in determining its DC power installation and generation direct costs. 203. Accordingly, we disallow the DC power direct power costs of GTOC, SNET, and Nevada to the extent that they exceed $660 per month. We order GTOC, SNET and Nevada to recalculate their rates to reflect these disallowances and to calculate the appropriate refunds based on the difference between the allowable direct cost of $660 and the higher direct costs that they imposed on their interconnector-customers. In the event that elsewhere in this Order we make any disallowances to the direct costs of these LECs for other reasons that affect the level of the DC power direct costs, $660 is the maximum permissible level for the DC power direct costs and the full amount of any other disallowances must be reflected in the recalculated rates even when the result of those other disallowances would bring their DC power direct costs below $660. 204. Pacific's DC Power Direct Costs. We find that Pacific's DC power direct costs for its overall highest-priced central office, central office SCRM01, are $335 per month, and these DC power direct costs are, therefore, less than the LEC average DC power direct cost plus one standard deviation. Some of Pacific's other central offices, however, have DC power direct costs that exceed the average plus one standard deviation. Pacific's DC power direct costs for central office LAMS01 are, for example, $835 per month. 205. We find that the DC power direct costs of Pacific's other central offices that exceed the average plus one standard deviation are unjust and unreasonable because Pacific fails to justify these high direct costs. Pacific merely provides a general discussion of the investments and the labor required for the DC power installation and DC power generation functions and submits workpapers listing the costs for these functions. Although Pacific states that labor hours are developed by Pacific's subject matter "experts" and that the installed costs per foot of power cable racking and cable ironwork are developed from current vendor information, Pacific does not provide specific information on the data, assumptions, and methodology used to develop these DC power direct costs. Pacific states that it develops DC power generation investment by identifying the current cost per amp to supply DC power and uses a construct that models a typical central office power serving arrangement to derive this cost. Pacific, however, merely lists gross investment for a back-up generator, power plant, battery distribution fuse bay, cable and cable racking without showing the specific data or calculations that underlie the dollar amounts of these investments. Moreover, Pacific refers to a 1992 company study to support its annual maintenance factor for DC power installation and DC power generation, but does not provide copies of this study or the pertinent details contained in it. 206. Accordingly, for Pacific's central offices with DC power direct costs that exceed one standard deviation above the average, Pacific must recalculate its rates to reflect DC power direct costs that do not exceed one standard deviation above the average and then calculate the appropriate refunds payable to the interconnector-customers. If elsewhere in this Order we make any disallowances to Pacific's direct costs for other reasons that affect the level of its DC power direct costs, $660 is the maximum permissible level for Pacific's DC power direct costs and the full amount of those other disallowances must be reflected in Pacific's recalculation of its direct costs, even when the result of those other disallowances would bring Pacific's DC power direct costs below $660. 207. DC Power Direct Costs of LECs That Bundle the Cost of AC Power Converted to DC Power into Their Floor Space Direct Costs. We examine the reasonableness of the DC power direct costs of those LECs we remove from the data base because these LECs bundle the cost of AC power used to provide DC power into floor space direct costs. We find that CBT's DC power direct costs are $718 per month for its area I offices, $741 per month for its area II offices, which are CBT's overall highest- priced central offices, and $811 per month for its area III offices. These direct costs are in excess of the overall average plus one standard deviation for this function, even though the DC power direct costs of CBT's central offices are exclusive of any costs of AC power converted to DC power. Accordingly, we find that CBT's direct costs are unjust and unreasonable because CBT fails to provide adequate justification for these high costs. Although it lists DC power plant and power plant floor space investments and the annual cost factors that it applies to these investments to compute the DC power direct costs, CBT does not explain the methodology, the assumptions, and the data on which it develops the investment and the annual cost factors for this function. 208. We are, therefore, requiring CBT to recalculate its direct costs so as to remove any cost of AC power converted to DC power from floor space direct costs and to include these AC power costs in its DC power direct costs. CBT must recalculate its rates and file new cost support data to reflect this adjustment and must calculate the refund payable to its interconnector- customers. For CBT's area I and area II central offices, $660, the DC power direct cost average plus one standard deviation, is the maximum permitted monthly DC power direct cost and CBT is required to refund all amounts it collected during the relevant time period that reflect DC power direct costs that exceed $660 per month. In the event that elsewhere in this Order we make any disallowances to CBT's direct costs for other reasons that affect the level of its DC power direct costs, $660 is the maximum permissible level for CBT's area I and area II central office DC power direct costs and the full amount of any other disallowances must be reflected in the recalculated rate even when the result of those other disallowances would bring CBT's DC power direct costs for its area I and II central offices below $660. 209. We find CBT's DC power direct costs for its area III central offices are $811 per month and these direct costs, therefore, exceed the average plus one standard deviation ($660) and the direct costs of CBT's central offices with the highest total price, $741 per month. As explained in Section III.C.2.c.v above, we are not prescribing one standard deviation above the average DC power direct cost as the maximum permitted direct cost for these central offices. Instead, we require CBT to calculate the percentage by which it is required to reduce its DC power direct costs for its area II offices, CBT's overall highest priced central offices, and reduce its costs for area III offices by the same percentage. That is, after it recalculates its DC power direct costs to include the direct cost of converting AC power to DC power for its area II offices, and determines the extent to which such costs exceed $660 per month, the average plus one standard deviation, CBT must reduce its direct costs to $660 per month. Then, after determining the percentage by which it is required to reduce its DC power direct costs for area II offices, CBT must apply the same percentage disallowance to the direct costs, inclusive of the direct costs of AC power converted to DC power, for its area III offices. This approach recognizes that when a LEC develops different costs for different central offices, it is likely to use the same methodology to calculate costs and any bias in direct costs for central offices that are not the LEC's highest- priced central office is likely to be in the same direction and of the same relative magnitude as in that LEC's highest-priced central office. Hence, this percentage disallowance ensures that a LEC's direct costs for a given function reasonably reflect the central tendency of the industry's costs, while recognizing that there may exist legitimate direct cost differences for that function among the LEC's central offices. 210. In the event that elsewhere in this Order we make any disallowances to CBT's direct costs for other reasons that affect the level of its DC power direct costs, the full amount of any other disallowances must be reflected in the recalculated rate even when the result of those other disallowances would bring CBT's DC power direct costs for its area III offices below the maximum permissible level. 211. We remove the DC power direct costs of certain other LECs from our data base because they bundle the cost of AC power to provide DC power into their floor space direct costs. We find that the DC power direct costs and floor space costs of these other LECs, BellSouth and Central, are not unreasonable. BellSouth's DC power direct costs are $150 (based on the cost of AC power converted to DC power bundled into floor space direct costs). Central's DC power direct costs for its Des Plaines and Park Ridge central offices in Illinois, the only state in which Central had a physical collocation customer, are $110 and $234 per month, respectively (based on the cost of AC power converted to DC power bundled into floor space direct costs). We find that, after making our adjustments to the data base, these direct costs are less than the LECs' overall average plus one standard deviation for this function. Moreover, as we determined in Section III.C.2.d above, BellSouth's and Central's floor space direct costs (calculated without removing the AC power costs to convert DC power) are less than the overall LEC average for that function (calculated to exclude BellSouth, CBT, GSTC, United and Central) even though that overall average is calculated to exclude such AC power costs. Since BellSouth's and Central's DC power costs and floor space costs are below the adjusted average for the DC power and the floor space direct cost functions, we find that their DC power direct costs and their floor space direct costs are not unreasonable when compared to the same costs for other LECs in the samples. We therefore make no statistical disallowances to their DC power direct costs or to their floor space direct costs. f. Cross-Connection and Termination Equipment Costs i. Background 212. Cross-connection direct costs include cross- connection provisioning, direct costs, cross-connection cable and cable support direct costs, and cross-connection equipment costs. Cross-connection provisioning direct costs are those for service order processing, circuit design, installation, and testing for the cross-connection between the interconnector's space and the LEC's MDF. Cross-connection cable and cable support costs are those for all cabling and cable support structures between the interconnector's space and the LEC's MDF. Cross-connection equipment costs are those for all equipment between the interconnector's space and the LEC's MDF. Termination equipment costs are the costs for all LEC-provided equipment in or adjacent to the interconnector's space that is used for cross- connection functions, except the cross-connection itself. The Bureau's TRP charts set forth in the Designation Order were designed to disaggregate cross-connection and termination equipment direct costs into four functions -- Cross-Connection Provisioning, Cross-Connection Cable and Cable Support, Cross- Connection Equipment and Termination Equipment -- because LECs' use of different rate structures made it difficult to determine precisely what cross-connection and termination equipment costs are associated with particular rate elements. The Bureau asked the LECs to provide TRP data on the investments, expenses and taxes for these four functions in their direct cases and to explain the method by which the costs identified under each one were derived. ii. Discussion 213. Methodology. We combine the LECs' cross- connection and termination equipment functions to develop a comparison of the direct costs of both functions among LECs. We are combining these two functions to make these direct cost comparisons in order to simplify the analysis and to increase the accuracy of our conclusions. Although the LEC-provided equipment used for cross-connection activities is categorized under one of these functions, it is possible that LECs may not uniformly assign the same equipment between these two functions. By combining the two functions, we capture the direct costs of all of the equipment used for all of the cross-connection activities, and eliminate the potential for statistical error. 214. Based on our direct cost statistical analysis and review of the direct cases, we find that the cross-connection and termination equipment direct costs for Central, Nevada, and US West are unjust and unreasonable because their direct costs exceed one standard deviation above the average and they fail to justify such high direct costs for this function. Accordingly, we require these LECs to calculate rates that reflect cross-connection and termination direct costs that do not exceed one standard deviation above the average costs. In addition, we require Nevada to tariff such rates, and Central, Nevada, and US West must provide refunds to their interconnector-customers based on the amount by which their cross-connection and termination direct costs exceed the average plus one standard deviation for this function. 215. We adjust the cross-connection cost data to remove the direct costs associated with the provision of repeaters because in Section III.C.1.d supra, we determine that LECs may not charge interconnectors for repeaters. We also adjust the cross-connection direct cost data to remove the direct costs associated with the provision of POT bays because in Section III.C.1.d supra, we determine that the LECs may require POT bays, but must unbundle POT bays from the cross-connect rate element, establish a separate rate element for this equipment, and allow the interconnector to provide this item itself. 216. We also make two additional adjustments to the data to ensure accurate comparisons of the LECs' cross- connection and termination equipment direct cost data. First, we remove GTOC's cost data from the data base because GTOC requires its interconnector to provide the cable from the interconnector's equipment to GTOC's DSX-1 or DSX-3 bay, and no other LEC has imposes this requirement. Second, we remove Nevada's cross-connection and termination direct costs from our database because these costs are in excess of two standard deviations above this overall average. Nevada's DS1 cross-connection and termination direct cost, $5,722 per month, is more than four times the LECs' overall average, $1,326 per month. Moreover, Nevada's DS3 cross-connection and termination direct cost is $1,932 per month, more than five times the LECs' overall average, $362 per month. In fact, Nevada's cross-connection and termination direct costs for this function are not only greater than two standard deviations above the overall LEC average for this function, but Nevada's DS1 and DS3 cross- connection and termination direct costs exceed the average plus three standard deviations for this function, $5,535 per month and $1,908 per month, respectively. In addition, Nevada's DS1 and DS3 cross-connection and termination equipment costs are approximately three times as large as the next highest direct cost estimate for this function, namely, US West's DS1 and DS3 costs of $1,913 per month and $639 per month. 217. Disallowances. After making these adjustments to the database, we find that the overall LEC averages for the DS1 and DS3 cross-connection and termination equipment cost functions are $960 per month and $220 per month, respectively. The standard deviations of these direct costs relative to these averages are $494 per month and $153 per month, respectively. Thus, the averages plus one standard deviation are $1,454 and $372 per month, respectively. 218. Nevada's DS1 cross-connection and termination equipment direct costs for the four central offices for which it develops direct costs are: $5,722 for central office SPRKNV11, which is Nevada's overall highest-priced central office, $4,924 for central office RENONV02, $4,899 for central office RENONV13, and $4,711 for central office CRCYNV01. Central's DS1 cross-connection and termination equipment direct costs for its central offices in Illinois are $1,913. US West's DS1 cross-connection and termination equipment direct costs for all of its central offices are $1,924. We find that the DS1 cross- connection and termination equipment direct costs for these three LECs are unjust and unreasonable because they are in excess of the overall average plus one standard deviation for this function and these LECs have not adequately justified their high costs. 219. Moreover, Nevada's DS3 cross-connection and termination equipment direct costs for the four central offices for which it develops direct costs are: $1,932 for central office SPRKNV11, $1,134 for central office RENONV02, $1,110 for central office RENONV13, and $921 for central office CRCYNV01. US West's DS3 cross-connection and termination equipment direct costs for all of its central offices are $639. We find that the DS3 direct costs of these two LECs are unjust and unreasonable because they are in excess of the overall average plus one standard deviation for this function and these LECs do not provide adequate justifications for these high costs. 220. Nevada fails to justify its direct costs in excess of one standard deviation above the average because it sets forth the capital costs and the operating expenses for the cross-connection and termination equipment functions in its direct case, but does not identify the assets that comprise the investment for these functions or explain the valuation of those assets. Moreover, Nevada fails to explain the methodology by which it derives the annual cost factors that it applies to the investment in those assets to determine its cross-connection and termination equipment direct costs. 221. Central's justification for the cross-connection and termination equipment function consists of a description of the type of cross-connection arrangement Central provides to each interconnector and the reasons why this type of arrangement is beneficial. Central, however, does not explain how it derives its costs for this function. 222. Finally, US West explains that its cross-connection and termination equipment direct costs are attributable to the capital investment, including cabling, DSX panels, repeaters and fiber optic terminals required to provide service under four different provisioning models. While explaining that the source of the investment information on all of its TRP charts is US West's engineering subject matter "experts," US West nonetheless fails to document properly the particular data, assumptions, and valuation methodology these experts use to determine the amount of the investments specifically required to provide cross- connection service under the four models. Nor does US West explain the data, the assumptions, or the methodology on which it develops the annual cost factors it uses to compute the cross- connection and termination equipment direct costs. 223. We therefore order Nevada, US West and Central to recalculate their rates to exclude the amount of the these disallowed direct costs and to calculate the refunds based on these disallowances. In the event that elsewhere in this Order we make any disallowances to the direct costs of these LECs for other reasons that affect the level of their cross-connection and termination equipment direct costs, $1,454 per month and $372 per month are the maximum permissible levels for their DS1 and DS3 cross-connection and termination equipment direct costs respectively, and the full amount of any other disallowances must be reflected in the recalculated rates even when the result of those other disallowances would bring the carriers' cross-connection and termination equipment direct costs below $1,454 per month or $372 per month. 224. With regard to GTOC's DS1 and DS3 cross- connection and termination equipment direct costs, which we remove from the data base because GTOC requires the interconnector to provide the cable from the interconnector's equipment to GTOC's DSX-1 or DSX-3 bay, we find that these costs are not unreasonable. In order to evaluate the difference between GTOC's DS1 cross-connection and termination equipment direct costs and the overall LEC average plus one standard deviation for that function, we adjust the average plus one standard deviation to account for GTOC's being the only LEC that requires the interconnector to provide the cable between the interconnector's equipment and the DSX-1 bay. We therefore compare GTOC's cross-connection and termination equipment direct costs with the LEC average plus one standard deviation for this function, $1,454, less cross-connection cable/cable support direct costs. This adjustment produces a direct cost that gauges the reasonableness of GTOC's DS1 cross- connection and termination direct costs. We make this adjustment by taking CBT's direct costs for DS1 cable/cable support, which are the highest DS1 cable/cable support direct costs of any LEC, and subtracting those direct costs from the LEC average plus one standard deviation. CBT's direct cost for the DS1 cable/cable support function is $914. After subtracting $914 from the overall average plus one standard deviation, $1,454, the modified overall LEC average DS1 cross-connection and termination direct cost is $540. GTOC's DS1 cross- connection and termination equipment direct cost is $317, substantially less than the overall LEC average cross-connection and termination direct cost less CBT's direct costs for the DS1 cable/cable support function. Accordingly, we make no disallowance to GTOC's direct costs for the DS1 cross- connection and termination function based on this LEC industry average cost analysis. 225. We conduct a similar analysis of GTOC's DS3 cross-connection and termination equipment direct costs. The overall LEC DS3 cross-connection and termination equipment average plus one standard deviation is $372. GTOC's DS3 cross- connection and termination equipment direct costs are $112. Therefore, GTOC's DS3 cross-connection and termination equipment direct costs are $260 less than the average plus one standard deviation. We adjust the average plus one standard deviation by taking US West's direct costs for the DS3 cross- connection cable/cable support function, the highest of any LEC for that function, and subtracting this cost from the LEC average DS3 cross-connection and termination equipment direct cost plus one standard deviation. US West's DS3 cross-connection cable/cable support direct costs are $242. After subtracting $242 from $372, the overall average plus one standard deviation, the modified LEC average DS3 cross-connection and termination direct cost is $130. GTOC's DS3 cross-connection and termination equipment direct cost is $112, still less than overall LEC average cross-connection and termination direct cost less US West's direct costs for the DS3 cable/cable support function. Accordingly, we make no disallowance to GTOC's direct costs for the DS3 cross-connection and termination equipment function based on this LEC industry average cost analysis. 226. POT Bay Direct Cost Disallowances. We find that the POT bay direct costs for SWB and NYNEX are unjust and unreasonable because they are in excess of the overall LEC average for DS1 and DS3 POT bay direct costs plus one standard deviation and these LECs do not justify these high direct costs. Accordingly, these LECs are required to recalculate their rates to reflect the POT bay direct cost disallowances explained below. 227. We calculate separate overall LEC averages for DS1 and DS3 POT bay direct costs and the standard deviations of these costs relative to those averages because LECs develop different POT bay direct costs for DS1 and DS3 cross-connection service. The data base that we use to calculate these statistics is comprised of the POT bay direct costs for LECs, other than SWB, that develop direct costs for this piece of equipment. We exclude SWB from the data base because SWB's direct costs are in excess of two standard deviations above this overall average. 228. After making the adjustment to remove SWB from the data base, we find that the overall LEC averages for the DS1 and DS3 POT bay direct costs for roughly the same capacity are $90 per month and $40 per month, respectively. The standard deviations of these direct costs relative to these averages are $71 per month and $40 per month, respectively. The averages plus one standard deviation are, therefore, $161 and $80 per month. 229. SWB's DS1 and DS3 POT bay direct costs are $571 and $2,212 per month, respectively. NYNEX's DS1 and DS3 POT bay direct costs are $231 and $115 per month, respectively. These direct costs are all in excess of the overall LEC average plus one standard deviation for DS1 and DS3 POT bay direct costs. 230. We are disallowing these direct costs to the extent that they exceed the average plus one standard deviation because both SWB and NYNEX fail to justify these high costs. SWB does not justify its POT bay direct costs because SWB merely asserts that the "initial costs" of this equipment are based on current vendor prices but does not submit those prices. SWB also states that it applies in-place factors to the initial costs to calculate the total investment cost. SWB does not, however, identify the numerical value of these in-place factors or provide data to support those values. Moreover, SWB explains that it applies annual cost factors and inflation factors to the total investment to develop the recurring costs of the POT bay. SWB does not, however, quantify the inflation factors that it uses and does not submit any data or study or describe in adequate detail the assumptions and the methodology it uses to develop the annual cost factors. NYNEX fails to justify its POT bay direct costs because, although NYNEX explains its rationale for requiring such equipment, it provides none of the data, and explains none of the assumptions or the methodology on which it develops the POT bay investment and the direct costs associated with that investment. 231. Accordingly, we require NYNEX to establish a POT bay rate that reflects direct costs that do not exceed the average LEC POT bay direct cost plus one standard deviation, and NYNEX and SWB must provide refunds to the interconnectors to the extent that either LEC has recovered from these customers POT bay direct costs that exceeded the average plus one standard deviation. In the event that direct cost disallowances that we have set forth elsewhere in this Order affect the level of their POT bay direct costs, $160.77 and $79.57 per month are the maximum permissible levels for their DS1 and DS3 POT bay direct costs, respectively and the full amount of any other disallowances must be reflected in the recalculated rates even when the result of those other disallowances would bring their POT bay direct costs below $160.77 and $79.57 per month. g. Security Costs i. Background 232. LECs' security rates are comprised of charges for installation and maintenance of security equipment and for security escort services. In the Designation Order, the Bureau asked the LECs to justify the security requirements that they impose on interconnectors. The Bureau's TRP charts set forth in the Designation Order were designed to disaggregate security direct costs into two functions -- Security Installation and Active Security -- because LECs' use of different rate structures made it difficult to determine precisely how security costs were assigned among rate elements. The Bureau asked the LECs to provide TRP data on the investments, expenses and taxes for these two functions in their direct cases and to explain the method by which the costs identified under each one were derived. ii. Discussion 233. Eight LECs develop direct costs under the security installation function. Based on our review of the direct cases of these eight LECs, we find that five LECs develop direct costs for a card access system and the remaining three LECs use other security systems. We also conclude that the security installation direct costs of the five LECs that provide for security with a card access system are generally higher than the three that develop security installation costs without a card access system. The average of the security installation direct costs for those LECs that use a card access system is $183 per month. The average of the security installation direct costs for those LECs that do not develop direct costs for a card access system is $58 per month. 234. We believe that, because card access systems apparently are correlated with high security installation direct costs, providing security through the use of card access systems is fundamentally different from providing security through other types of security installations. We therefore analyze the security installation direct costs of the LECs that use a card access system separately from the security installation direct costs of those LECs that used other security systems. Although we believe that LECs should have the flexibility to choose their security system, the security system they use must be tariffed based on the properly calculated economic cost of the system. 235. Security Installation Direct Costs for LECs with Card Access Systems. We find that the security installation direct costs for a number of Pacific's central offices, GTOC's Main and West central offices in Plano, Texas, and SWB's medium-size central offices are unjust and unreasonable because the costs of these LECs exceed the industry average plus one standard deviation and these LECs fail to provide adequate cost support for this function. Accordingly, Pacific, GTOC, and SWB are required to recalculate their rates for these central offices to reflect the security direct cost disallowances explained below. 236. By our calculations, the overall LEC average for the security installation direct cost function for the five LECs that provide security with card access systems is $183 per month. The standard deviation of these direct costs relative to that average is $118 per month. The average plus one standard deviation is $300 per month. 237. Pacific's Security Installation Direct Costs. Pacific's security installation direct costs for its highest-priced central office are $380 per month. Moreover, Pacific's security installation direct costs for some central offices are less than those of its highest-priced central office, $380, but still in excess of the LEC average security installation direct cost plus one standard deviation, $300. Furthermore, Pacific's security installation direct costs for a number of other central offices are in excess of Pacific's security installation direct cost for its highest-priced central office. We find that the direct costs for all of these central offices are unreasonable because those costs exceed the average, plus one standard deviation and, Pacific fails to justify these high direct costs. 238. Pacific fails to justify its high direct costs for the security installation function because the company merely lists estimates of the investment value of the security equipment required at various central offices as a result of physical collocation. Moreover, Pacific does not make any attempt to disaggregate the investment into the various pieces or categories of equipment or facilities that comprise the whole security system or to provide any cost support or other justification for those pieces of investment. In addition, Pacific's statement that it develops these estimates on the basis of current vendor information is inadequate because Pacific provides no details on the methodology by which it derives these estimates. Furthermore, Pacific relies upon a 1992 company study to justify the annual maintenance cost factor it uses to develop the recurring security installation direct costs, but files no copy of that study or the pertinent details of that study in the record. 239. Accordingly, we order Pacific to recalculate its rates for its overall highest-priced central office to exclude direct costs in excess of the average plus one standard deviation, $300 per month, and to calculate appropriate refunds for unreasonable security charges imposed upon interconnectors. We also order Pacific to recalculate its rates for other central offices that have direct costs greater than the LEC average plus one standard deviation, but less than or equal to direct costs of its highest priced central offices. For these central offices, Pacific should also exclude direct costs that exceed one standard deviation above the average. In the event that elsewhere in this Order we make any disallowances to Pacific's direct costs for other reasons that affect the level of its security installation direct costs, $300 per month is the maximum permissible security installation direct cost for these central offices, and the full amount of those other disallowances must be reflected in Pacific's recalculation of its direct costs, even when the result of those other disallowances would bring Pacific's security installation direct costs below $300 for these central offices. 240. As explained in Section III.C.2.c.v above, when the security installation direct costs of Pacific's other central offices exceed $380, Pacific's security installation direct costs for its highest priced central office, we are not prescribing $300 per month as the maximum permitted cost. Instead, when the security installation direct costs of Pacific's other central offices exceed $380, we require Pacific to reduce its security installation direct costs by 21 percent. We are disallowing 21 percent of Pacific's security installation direct costs in such cases because 21 percent is the amount by which we are disallowing Pacific's security installation direct costs for its highest priced central office. We adopt this approach because when a LEC develops separate direct costs for different central offices, it is likely to use the same methodology to calculate costs and any bias in direct costs for central offices that are not the LEC's highest priced central office is likely to be in the same direction and of the same relative magnitude as in the direct costs for that LEC's highest- priced central office. Making a percentage disallowance, therefore, ensures that a LEC's direct costs for a given function reasonably reflect the central tendency of the industry's costs, while recognizing that there may exist legitimate direct cost differences for that function among the LEC's central offices. 241. In the event that elsewhere in this Order we make any disallowances to the direct costs of Pacific, for other reasons that affect the level of Pacific's floor space direct costs, the statistical disallowance we make in this section of the Order establishes the maximum permitted floor space direct cost for Pacific, and the full amount of those other disallowances must be reflected in the recalculated rates even when the result of those other disallowances is to further decrease Pacific's security installation direct costs for central offices with security installation direct costs that exceed $380. 242. Security Installation Direct Costs of GTOC and SWB. GTOC's security installation direct costs for its highest- priced central office are $200 per month and these costs do not exceed the average direct cost for this function plus one standard deviation, $300 per month. The direct costs for GTOC's Main and West central offices in Plano, Texas, however, are $375 per month, and these costs exceed that average plus one standard deviation. SWB's large central offices are its highest-priced central offices and the security installation direct costs for these central offices are $114 per month, an amount less than the direct cost average for this function plus one standard deviation. The direct costs for SWB's medium-size central offices are, however, $331 per month, and these costs exceed that average plus one standard deviation. We find that the security installation direct costs for GTOC's Main and West central offices in Plano, Texas and those for SWB's medium-size central offices are unreasonable because these costs exceed the average plus one standard deviation and, as explained below, GTOC and SWB fail to justify their high direct costs for this function. 243. GTOC does not justify its high security installation direct costs because it merely states that its engineers develop these costs based on their experience with the building modifications needed to install a central office security system. GTOC does not explain the methodology by which these engineers develop these costs or provide workpapers showing the calculations that underlie these costs. Moreover, GTOC asserts that it calculates security installation costs for simple, moderate, and complex offices without describing how its central offices differ among these three categories or explaining why these costs differ among these categories. GTOC also asserts that it assumed a 60/40 split between material and labor in developing base security installation direct costs, but does not quantify separately the material costs associated with any of the components that comprise its security system, identify the particular labor activities needed to install this system, or quantify the corresponding number of labor hours needed for these activities. In addition, although GTOC explains that its security installation costs are averages that it calculates using a sample of central offices, GTOC does not provide specific cost data for the particular central offices within that sample. Furthermore, GTOC states that it adjusted its base security installation costs geographically to reflect average differences in material and labor costs; it does not, however, explain the data, assumptions, or methodology on which the adjustment is based or quantify the magnitude of this adjustment for the security installation direct costs of any central office. 244. SWB does not justify its high security installation direct costs because SWB simply lists these costs on its security installation TRP chart for small, medium, and large central offices without providing supporting data or workpapers showing the calculations that underlie these costs. SWB states that its security system is an encoded card access system that records who enters and leaves the central office, but fails to identify any of the components that comprise that system or the separate costs of those components. Although SWB explains its general cost estimating methodology for building construction, it does not explain adequately how it applies that general methodology to estimate security installation costs in particular. SWB does not, for example, identify specifically the quantities of construction work associated with security system installation or the unit costs of construction elements needed in the construction work. In addition, SWB does not explain whether it develops the unit costs of the construction elements for security installation by using published indexes of construction costs, such as R. S. Means' indexes, costs on previous projects, or information from sub- contractors or suppliers. SWB also fails to document its use of these data with supporting workpapers showing the development of these costs. Moreover, SWB does not quantify the extent to which the base cost for security system installation is marked-up for the overhead and profit margin of the general contractor installing that system or identify the amount of the general contractor's miscellaneous costs such as charges for building permits, temporary utilities, and insurance. Finally, SWB fails to identify the amount of the various miscellaneous telephone company costs that it adds to the general contractor's construction costs such as those for the project management time of the telephone company project engineer or architect, and for any non-telephone company architect, engineer, or other consultants or representatives. 245. Accordingly, we disallow the security installation direct costs for GTOC's Main and West central offices in Plano, Texas and those for SWB's medium-size central offices to the extent that they exceed $300 per month. We order GTOC and SWB to recalculate their rates to reflect these disallowances and to calculate the appropriate refunds based on the difference between the allowable direct cost of $300 and the higher direct costs that they imposed on their interconnector-customers. If elsewhere in this Order we make any disallowances to the direct costs of these LECs for other reasons that affect the level of the security installation direct costs, $300 is the maximum permissible level for the security installation direct costs and the full amount of any other disallowances must be reflected in the recalculated rates even when the result of those other disallowances would bring their security installation direct costs below $300. 246. Security Installation Direct Costs for LECs Without Card Access Systems. We find that the LECs that do not provide security with a card access system are those with relatively low security installation direct costs. These LECs are Ameritech, Lincoln, and Nevada, and their security installation direct costs are $144, $21 and $10 per month, respectively. As stated above, the average security direct costs for LECs that use a card access system is $183. Because the security direct costs of LECs that do not have a card access system are low compared to LECs with a card access system, we make no statistical disallowance to the direct costs of LECs that provide security without a card access system. 247. Direct Costs of Security Escorts. We also analyze the direct costs LECs identify under the active security function. These direct costs are primarily the direct costs attributable to security escorts. All LECs require an escort under certain circumstances; only five, however, develop the direct costs for those escorts. We analyze the security escort direct costs of these five LECs. 248. We calculate the average and the standard deviation relative to that average for the sample of five companies that develop security escort direct costs. By our calculations, the overall LEC average for security escort direct costs for this group of LECs is $40 per hour. The standard deviation of these direct costs relative to that average is $41 per hour. The average plus one standard deviation is $80 per month. Nevada's security escort direct costs for all of its central offices are $107 per hour. 249. We find that Nevada's security escort direct costs are unjust and unreasonable because these costs exceed the industry average plus one standard deviation and Nevada fails to justify its high direct costs for this function. Accordingly, Nevada is required to establish rates that reflect security escort direct costs that do not exceed one standard deviation above the average security escort direct costs. 250. In its direct case, Nevada fails to justify direct costs that exceed the average plus one standard deviation for its security escort service function because it only discusses the conditions under which a security escort by an engineer or a technician is required and lists the labor rate for different job titles and labor functions in an attachment. Nevada does not specifically identify any of these job titles or labor functions as a security escort. Although Nevada indicates that the labor rates reflect wages plus benefits plus loadings, Nevada does not describe the loadings in detail or indicate the portion of the labor rates attributable to loadings as all LECs were required to do in the Designation Order. 251. Accordingly, we disallow the amount of its direct costs that is in excess of $80 per hour. We order Nevada to recalculate its security escort rates to reflect these disallowances and to calculate appropriate refunds based on the difference between the allowable direct cost of $80 per hour and the direct costs that it recovered from its interconnector-customers. In the event that elsewhere in this Order we make any disallowances to Nevada's direct costs for other reasons that affect the level of its security escort direct costs, $80 per hour is the maximum permissible level for the security escort direct costs and the full amount of those other disallowances must be reflected in the recalculated rates even when the results of those other disallowances would bring Nevada's security installation direct costs below $80. 252. Only Nevada, SWB, US West, Lincoln, and Central tariff a rate for a security escort, although all LECs require a security escort under some circumstances. We require LECs that do not develop a tariffed rate for a security escort - Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific, GTOC, Rochester, CBT, and SNET - to refund monies to the interconnectors to the extent that these LECs provided a security escort for physical collocation service during the relevant time period at a rate that recovered direct costs in excess of $80. In calculating that refund, LECs' direct costs are to be calculated based on the actual rate that the LEC charged to the interconnector for the escort, less the overhead that we are prescribing for the LEC in this Order. In addition, we are ordering any LEC that is currently providing tariffed interstate physical collocation service and imposing a rate on the interconnector for a security escort to file a tariff for the rate with cost data to justify that rate. h. Construction Costs i. Background 253. Central office construction involves preparation of the central office space for physical collocation and construction of the interconnectors' cages. The Bureau's TRP charts set forth in the Designation Order were designed to disaggregate central office construction into three functions -- Interconnector-Specific Construction, Common Construction and Construction Provisioning -- because LECs' use of different rate structures makes it difficult to determine precisely which construction costs are associated with particular rate elements. The Bureau asked the LECs to provide TRP data on the investments, expenses and taxes for these three functions in their direct cases and to explain the method by which the costs identified under each one were derived. ii. Discussion 254. We find that the construction direct costs for some of Pacific's central offices, all of NYNEX's central offices, and CBT's area III central offices are unjust and unreasonable because these direct costs exceed one standard deviation above the average construction direct costs and these LECs fail to justify their high direct costs for this function. Accordingly, these LECs are required to calculate rates that reflect the construction direct cost disallowances explained below. In addition, Pacific and NYNEX are required to tariff these rates, and Pacific, NYNEX, and CBT must provide refunds to their interconnector- customers based on these construction direct cost disallowances. 255. We adjust the data that we are using to determine the industry average construction cost. We remove Bell Atlantic, Rochester, Lincoln, and Central from the database we use for this calculation. These LECs charge their interconnector-customers for the costs of the labor and the materials that are actually used for the common construction at a particular central office for a particular interconnector. This method of recovering costs is fundamentally different from the conventional tariff method of cost recovery the other LECs use. The other LECs file a rate designed to recover the average cost calculated for a sample of central offices drawn from a broad geographic area. Although LECs that assess charges on a time and materials basis provide estimates of their direct construction costs, we do not use these estimates for our analysis in this Order because they are not tariffed rates. 256. After making these adjustments to the data base, we find that the overall LEC average for the direct costs of construction is $702 per month. The standard deviation relative to that average is $423 per month. The average plus one standard deviation is $1,125 per month. 257. Pacific's construction direct costs are $1,257 per month for its highest-priced central office, NYNEX's construction direct costs for each of its central offices are $1,200 per month, and CBT's construction direct costs for its area III central offices are $1,251. In addition, Pacific's construction direct costs for some of its other central offices are less than those of its highest- priced central office, but higher than the LEC average construction direct cost plus one standard deviation. These construction direct costs for Pacific, NYNEX, and CBT are unjust and unreasonable because they exceed the overall LEC average construction direct cost plus one standard deviation and, as explained below, these LECs fail to justify these high direct costs. 258. Pacific fails to justify construction direct costs that exceed the average plus one standard deviation because the company merely provides a general discussion of the investments and the labor required for the construction provisioning, common construction, and the interconnector-specific construction functions and workpapers listing the costs for these functions. Although Pacific states that labor hours are developed by Pacific's subject matter "experts" and that unit costs are developed from current vendor information, Pacific submits no specific information on the data, assumptions and the methodology it uses to develop these construction costs. Pacific refers to a 1992 company study to support its annual maintenance cost factor and a 1990 study to support its labor rates, but does not file copies of these studies or explain how these studies support its construction direct costs. 259. NYNEX offers a brief explanation of the tasks associated with construction and asserts that the average nonrecurring cost of providing a 100 square foot multiplexing node is $54,878. NYNEX states that its calculations appear in WS-4 of Transmittal 165, but that transmittal merely lists costs with no explanation. 260. CBT briefly explains that its consulting engineer derives common construction costs based on a representative wire center selected from within a major, a large, and a medium group of wire centers and disaggregates these construction costs into different cost subcategories for each representative wire center. CBT does not, however, provide the consulting engineer's study or explain the methodology, assumptions, or the data its engineer uses to derive these construction costs. 261. Accordingly, we disallow the construction direct costs of Pacific's highest-priced central office and its other central offices with direct construction costs that are less than those of its highest-priced central office (central office SCRM01) but that exceed the LEC average construction direct cost plus one standard deviation, to the extent that they exceed $1,125 per month, one standard deviation above the average. We also disallow NYNEX's direct construction costs to the extent they exceed $1,125 per month. Finally, we disallow CBT's construction direct costs for its area III central offices to the extent that these direct costs exceed $1,125 per month. We order Pacific, NYNEX, and CBT to recalculate their rates to reflect these direct cost disallowances and to calculate the appropriate refunds based on the difference between the maximum allowable direct cost of $1,125 and the direct cost that they recovered in the rates that they imposed on their interconnector-customers. In the event that elsewhere in this Order we make disallowances to the direct costs of these LECs for other reasons that affect the level of their construction direct costs, $1,125 per month is the maximum permissible level for their direct construction costs, and the full amount of any other disallowances must be reflected in the recalculated rates even when the result of those other disallowances would bring their direct construction costs below $1,125. 262. Pacific's construction direct costs for central office LAMS01 are $1,273 per month, an amount exceeding both the average plus one standard deviation ($1,125 per month) and the costs for Pacific's overall highest priced central office ($1,257 per month). We therefore find that Pacific's direct construction costs for central office LAMS01 are unjust and unreasonable because, as already explained, Pacific fails to provide adequate cost support for construction in its central offices. We disallow 11 percent ($134 per month) of these direct costs because 11 percent is the size of the disallowance that we make to Pacific's construction direct costs for its highest-priced central office, SCRM01. As explained in Section III.C.2.c.v above, we are not reducing Pacific's direct costs for this central office to the average plus one standard deviation because we believe that when a LEC develops different costs for different central offices, it is likely to use the same methodology to calculate costs and any bias in direct costs for central offices that are not the LEC's highest price central office is likely to be in the same direction and of the same relative magnitude as in the direct costs for that LEC's highest price central office. Making a percentage disallowance, therefore, ensures that a LEC's direct costs for a given function reasonably reflect the central tendency of the industry's costs, while recognizing that there may exist legitimate direct cost differences for that function among the LEC's central offices. 263. We order Pacific to recalculate its rates for central office LAMS01 to reflect this direct cost disallowance and to calculate the refunds based on the difference between the maximum allowable direct cost of $1,139 and the direct cost that it recovered in the rates that it imposed on its interconnector- customers. In the event that elsewhere in this Order we make any disallowances to Pacific's direct costs for other reasons that affect the level of its construction direct costs, $1,139 per month is the maximum permissible level for its direct construction costs for central office LAMS01 and the full amount of any other disallowances must be reflected in how Pacific recalculates its rates, even if the effect of those other disallowances would bring Pacific's direct construction costs below $1,139. i. Entrance Facility Costs i. Background 264. Entrance facility installation involves installation of an interconnection arrangement from the manhole to the interconnector's space. Entrance facilities are the physical assets used to support the interconnection arrangement from the manhole to the interconnector's space, including the manhole, conduit, vault, cable rack, and riser duct. The Bureau's TRP charts set forth in the Designation Order were designed to disaggregate entrance facility costs into two functions -- Entrance Facility Installation, and Entrance Facility Space -- because LECs' use of different rate structures make it difficult to determine precisely which entrance costs are associated with particular rate elements. The Bureau asked the LECs to provide TRP data on the investments, expenses and taxes for these two functions in their direct cases and to explain the method by which they derived the costs identified under each function. 265. All LECs provide facilities that support the interconnection arrangement from the manhole to the interconnector's space. Twelve LECs install the interconnector's cable from the manhole to the interconnector's space within the central office. The interconnector-customers of CBT, BellSouth, and Rochester install the cable from the manhole to the interconnector's space within the central office. The interconnector-customers of NYNEX's NYT install and maintain entrance facilities other than the cable vault. NYNEX's NET installs and maintains entrance facilities for the interconnectors. ii. Discussion 266. We analyze separately the entrance facility installation and space direct costs of the LECs that install the interconnector's cable and of LECs that do not provide this service because these two groups of LECs provide different services under the entrance facility function and their direct costs for this function are not comparable. 267. Entrance Facility Direct Costs of LECs that Provide Cable Installation. We find that SWB's entrance facility installation and space direct costs for its highest-priced central offices, which are its large central offices, are unjust and unreasonable because they exceed one standard deviation above the industry average among LECs that provide cable installation and SWB fails to justify its high entrance facility direct costs. We order SWB to recalculate its rates for its highest-priced central offices to reflect entrance facility direct costs that do not exceed one standard deviation above the average and to provide refunds to its interconnector-customers based on the amount by which its entrance facility installation and space direct costs for these central offices exceeded the average plus one standard deviation for this function. 268. In calculating the overall average direct costs and the standard deviation relative to that average for the entrance installation and space function, we remove Lincoln's direct costs from the data because Lincoln recovers the costs of the labor and the materials that are actually used for the construction and the entrance facility installation at a particular central office for a particular interconnector. Lincoln requires interconnectors to make an advance payment of $7,500 for construction and entrance facility installation costs and bills the interconnector for an additional amount if these costs are greater than $7,500 and it refunds the appropriate amount to the interconnector if these costs are less than $7,500. The entrance facility, installation, and space direct costs of the other LECs in the data base are ex anteestimates of the average costs of providing this function at a particular central office or set of central offices. We do not believe that the average direct costs of the other LECs for this function can be compared to Lincoln's because interconnectors pay other LECs an amount equal to those LECs' average direct costs. 269. After making these adjustments, we find that the overall LEC average for the entrance facility and installation direct costs for this group of LECs is $265 per month. The standard deviation relative to that average is $181 per month. The average plus one standard deviation is, therefore, $446 per month. 270. SWB's entrance facility installation and space direct costs for its highest-priced central office are $590 per month. These entrance facility installation and space direct costs are in excess of one standard deviation above the industry average and we find these costs to be unjust and unreasonable because SWB fails to justify its higher reported costs. 271. SWB generally discusses how it computes its tenant accommodation charge, which recovers entrance facility installation costs, common construction costs and security installation costs. SWB's discussion fails, however, to specifically address entrance facility costs. SWB briefly discusses its methodology for calculating its engineering design rate element, which also recovers costs for entrance facility installation, but fails to (1) identify facilities that require design, (2) identify the hourly labor rate, and (3) indicate the number of hours required for the design task. Furthermore, SWB neither discusses nor offers cost support for the cable pull task. SWB only explains that it derives the conduit space rate element cost from company records of conduit additions and conduit costs, but offers no documentation to support this explanation. 272. Accordingly, we disallow SWB's claimed entrance facility installation and space direct costs to the extent that these costs exceed $446 per month. We order SWB to recalculate its rates to reflect this direct cost disallowance and to calculate the appropriate refunds based on the difference between the maximum allowable direct costs of $446 and the direct costs that it recovered in the rates that it imposed on its interconnector-customers. In the event that elsewhere in this Order we make any disallowances to the SWB's direct costs for other reasons that affect the level of its entrance facility installation and space direct costs, $446 per month is the maximum permissible level for its entrance facility installation and space direct costs and the full amount of those other disallowances must be reflected in the recalculated rates, even when the result of those other disallowances would bring its entrance facility installation and space direct costs below $446. 273. Entrance Facility Direct Costs of LECs That Do Not Provide Cable Installation. For the group of LECs that do not offer cable installation, we are not using the standard of the average plus one standard deviation as a measure of reasonableness because it would justify an unreasonably high level of direct costs for this function. We find this to be the case for this group because the average entrance facility direct cost and the standard deviation do not properly describe the central tendency and the overall distribution of the data. The average entrance facility direct cost and the standard deviation for these LECs are $1,040 per month and $1,825 per month, respectively. The fact that the standard deviation is nearly twice the average demonstrates that these statistics are not useful for identifying the norm and should not be used to measure the reasonableness of these LECs' entrance facility direct costs. If we were to use the average plus one standard deviation to determine when to make disallowances for this group of LECs, we would allow LECs that do not provide cable installation to recover direct costs that are equal to $2,865, more than six times the average plus one standard deviation for LECs that provide for cable installation. Furthermore, the median entrance facility direct cost for these LECs is $150 per month. The large difference between the median and the average, which are both measures of the central tendency of the data, also demonstrates that the use of the median would not assure reasonable results. 274. We find that the entrance facility direct costs of those LECs that do not provide for cable installation should be lower than the entrance facility direct costs of LECs that do provide for cable installation because the latter group incurs additional costs for their installations. For this reason, we adopt a different methodology for comparing the entrance facility direct costs of those LECs offering no cable installation. We nonetheless use the entrance facility direct costs of those LECs that provide installation of the interconnector's cable as a benchmark for evaluating the entrance facility direct costs of those LECs that do not provide cable installation. Rather than making disallowances for unsupported costs that are one standard deviation above the average costs for LECs in the latter category, however, we make disallowances when their entrance facility costs are above the average. This methodology recognizes that the entrance facility direct costs of a LEC that installs the interconnector's cable would be commensurately higher than the entrance facility direct costs of the same LEC if it did not install cable. 275. The average entrance facility installation and space direct cost for those LECs that install the interconnector's cable is $265 per month. CBT's entrance facility direct costs for its area I, area II and area III offices are $1,298, $3,776, and $2,294 per month, respectively. We find, therefore, that CBT's entrance facility direct costs are unjust and unreasonable because they exceed the industry average direct cost of $265, and CBT fails to justify its higher reported direct costs for this function. CBT lists the investment for entrance facility space and the annual cost factors that it applies to that investment to compute the entrance facility space costs. CBT does not, however, explain the methodology, assumptions, and the data on which it develops the investment and the annual cost factors for this function. 276. We disallow the amount of CBT's direct costs that exceed $265 per month. We order CBT to recalculate its rates to reflect this direct cost disallowance and to calculate the refunds based on the difference between the maximum allowable direct cost of $265 per month and the direct cost that CBT recovered in the rates it imposed on its interconnector-customers. In the event that elsewhere in this Order we make any disallowances to CBT's other direct costs for other reasons that affected the level of CBT's entrance facility direct costs, $265 per month is the maximum permissible level for its entrance facility direct costs and refunds in the full amount of those other disallowances must be reflected in the recalculated rate, even when the result of those other disallowances would bring down CBT's entrance facility direct costs below $265. 277. We also order NYNEX to provide cost data on TRP charts for entrance facility installation and entrance facility space functions for New England Telephone (NET) within 45 days of the release of this Order. NET installs and maintains the interconnector's cable. In its direct case, however, NYNEX does not file cost support data in TRP format for this activity for NET. We are, therefore, unable to determine the reasonableness of NET's direct cost for this function. We will review those data and determine whether NET's entrance facility direct costs for expanded interconnection are just and reasonable following our review of these data. NYNEX will be required to provide refunds to its interconnector-customers to the extent that it has recovered from those customers an unreasonable amount for its entrance facility and space direct costs. 3. Time and Materials Rates a. Background 278. In the Special Access Expanded Interconnection Order, the Commission required that general terms and conditions for physical collocation be tariffed, and that the cross-connect element and any future contribution charge be provided pursuant to generally available tariffs at study area-wide averaged rates. The Special Access Expanded Interconnection Order states that because these elements will be fairly standard, there is no need for the greater flexibility that would be possible with the use of individually negotiated tariff provisions. It further states that while charges for certain other connection elements may reasonably differ by central office due to variations in cost, they should be uniform for all interconnectors in each individual office. For physical collocation, these charges include labor and materials charges for initial preparation of office space. The Commission noted that if different interconnectors use different amounts of space, seek arrangements requiring different amounts of time and materials for construction, or have different preferences regarding installation, maintenance, and repair by LEC personnel, total charges will differ accordingly, but the unit charges should be uniform in each central office. 279. On May 31, 1994, the Bureau released the Supplemental Designation Order and Order to Show Cause, which designated issues to be investigated and directed certain LECs to file supplemental direct cases regarding their use of time and materials charges for central office construction for physical collocation. The Bureau determined in the Supplemental Designation Order that Bell Atlantic, Rochester, United, and Central -- i.e., LECs stating that they tariffed central office construction on a time and materials basis -- apparently misunderstood the Commission's discussion of time and materials charges in the Special Access Expanded Interconnection Order. The Bureau found that these LECs had not tariffed time and materials charges on a per unit basis, as directed by the Special Access Expanded Interconnection Order. According to the Bureau, these LECs stated that their rates were based on time and materials charges, but did not include particular charges in their tariffs, thereby implying that they would develop rates for construction in response to individual customer requests. This led the Bureau to designate for investigation in the Supplemental Designation Order the issue of whether the foregoing LECs' approach to time and materials charges for central office construction is reasonable in light of the Commission's Special Access Expanded Interconnection Order. 280. Specifically, the Bureau directed the foregoing LECs to: (1) explain how their approach to time and materials charges differs from the use of individual case basis rates; and (2) explain why they should not be required to provide time and materials charges through a "menu" of specific prices for different service components (for example rates for wire mesh cages; rates for wallboard cages or cages with or without air conditioning.). The Bureau also directed Bell Atlantic, United, and Central to describe their procedures for developing pre-construction estimates and submitting these estimates to interconnectors. Bell Atlantic, United, and Central were also directed to address whether they should be required to limit to the pre-construction estimate, the amount they charge interconnectors; alternatively, they were asked to address whether LECs should be required to cap the amount they may charge interconnectors in excess of the pre-construction estimate, e.g., 10 percent. Finally, the Bureau noted that United and Central's tariff permits a "mutually agreed upon contractor selected by the Interconnector" to construct the cage. The Bureau directed the parties to comment on the usefulness of this option in keeping LECs' cage construction charges just and reasonable, and United and Central were asked to provide details regarding this arrangement, such as the criteria used to approve contractors selected by interconnectors. 281. The Bureau noted in the Supplemental Designation Order that United and Central retained a tariff provision that suggested they would develop rates for construction in response to individual customer requests, despite the Physical Collocation Tariff Suspension Order's directive to delete all references to ICB pricing. Accordingly, the Bureau issued an Order to Show Cause, together with the Supplemental Designation Order, ordering United and Central to show cause why they did not comply with the Bureau's Physical Collocation Tariff Suspension Order and why they should not be required to delete all references to ICB pricing in their expanded interconnection tariff. b. Discussion 282. As noted above, the Special Access Expanded Interconnection Order required that the cross-connect element and any future contribution charge be set in generally available tariffs at study area-wide averaged rates. We permitted, however, different charges for certain connection rate elements that reasonably differ by central office due to variations in costs. To account for these differences, LECs could charge interconnectors for labor and materials, provided that such charges appeared in a generally available tariff and are uniform for all interconnectors in the same central office. 283. In light of these requirements, we find that the construction rates for Rochester and Central are unjust and unreasonable because these companies do not tariff either an average cost-based rate or a uniform per unit rate for the labor and the materials required for the construction (common construction and interconnector-specific construction) at each central office prior to the date on which the interconnector applies for expanded interconnection service. Although Bell Atlantic tariffs a generally available rate for cage construction, it does not tariff either an average cost-based rate or uniform per unit labor and materials rates for the remainder of the central office construction prior to the application date for expanded interconnection. We find, therefore, that Bell Atlantic's construction rates are unjust and unreasonable to the extent that Bell Atlantic fails to tariff either uniform per unit labor and materials rates or an average cost-based rate. 284. We required LECs that used time and materials as a basis for assessing charges for construction to tariff these charges in order to ensure that interconnectors know the rate they will pay for the central office construction prior to the date on which the interconnector applies for expanded interconnection service. By failing to tariff the rates for time and materials on a per unit basis, as we explicitly required in the Special Access Expanded Interconnection Order, these LECs deny interconnectors notice of the full cost of physical collocation service prior to the date interconnectors apply for expanded interconnection service, and this uncertainty may serve as a barrier to entering the interstate access market. The absence of a tariffed per unit rate for time and materials may interfere with the interconnectors' ability to implement their business plans and to market their access services. It may also increase the risk to the interconnectors' business, which would increase the price that the interconnector is required to pay to attract debt and equity capital to finance its business. 285. Elsewhere in this Order we prescribe central office construction rates for all other LECs. Because Bell Atlantic, Rochester, and Central file neither per unit time and materials rates nor cost support for such rates, we cannot find their central office construction rates to be reasonable. By failing to include per unit time and materials rates in their tariffs, or to submit cost support for such rates, as required explicitly in our orders, these LECs are able to impose central office construction charges on interconnectors without providing the information we need to determine the reasonableness of these charges. Accordingly, LECs may delay or prevent interconnectors from taking physical collocation service by consistently presenting interconnectors with estimates for central office construction that are not based on just and reasonable charges for the labor and the materials required for that construction. 286. Bell Atlantic, Rochester, United, and Central all argue that they are unable to develop and tariff uniform per unit charges for labor and materials. Rochester asserts that it lacks the experience or the data upon which to develop a menu of central office construction offerings. We find that because all the other LECs have been able to develop average cost-based rates, it also should be possible for Bell Atlantic, Rochester, United, and Central to develop uniform per unit rates for labor and materials for each central office. Average costs are the product of per unit costs (e.g., dollars per labor hour) and the number of units (e.g., labor hours) required to provide a particular service function such as central office construction. In computing the average cost for central office construction, all the other LECs derive per unit costs. Moreover, these other LECs derive estimates of the number of labor hours and the amount of materials that are needed for central office construction. In fact, we believe that it may be easier to develop per unit labor and material rates than average cost-based rates because LECs must make estimates of the number of labor hours and the amount of materials needed for central office construction in developing the average cost-based rate. 287. Bell Atlantic states that it does not tariff generally available average, cost-based rates or uniform per unit charges for labor and materials for central office construction, because it uses outside contractors that do not publish price lists to prepare the central office for physical collocation. This argument fails to explain, however, why Bell Atlantic is unwilling or unable to use contractors under long term arrangements at standard prices as it does for new service offerings other than physical collocation and for which it develops generally available average, cost-based rates. 288. Bell Atlantic, United, and Central argue that central office construction is not susceptible to average cost based tariffing or per unit labor and material tariffing because the cost of labor and the cost of materials needed for that construction vary over time. We find this argument to be without merit because Bell Atlantic, United, and Central are free to file new tariffs with rate revisions whenever changes in the cost of labor and materials warrant such revisions. 289. Furthermore, Bell Atlantic, Rochester, United, and Central may choose to develop average, cost-based rates for central office construction. Therefore, if any of these LECs find themselves unable to develop and tariff uniform per unit charges on a time and materials basis, we require that they develop average cost-based rates for central office construction. Every LEC, other than Bell Atlantic, Rochester, United and Central, offers central office construction at generally available, tariffed rates developed on the basis of the average cost of construction. There is nothing in the record that indicates that Bell Atlantic, Rochester, United, and Central face unique circumstances that would prevent them from developing rates based on average costs and they should, therefore, be able to calculate such rates. 290. Bell Atlantic, Rochester, and Central fail to tariff their time and materials charges, and the record contains no information on their central office construction rates or any cost support for the amounts they charge interconnectors for such construction. We find, therefore, that they fail to meet their burden of proving that their rates for central office construction are just and reasonable. Because we have no information on their direct costs for central office construction, we prescribe maximum permitted rates for central office construction that are equal to the average cost for LECs in the central office construction sample plus one standard deviation. We find that this methodology will produce just and reasonable rates for LECs that develop central office construction charges on the basis of time and materials costs because whether LECs develop their rates on the basis of averaged costs or on the basis of time and materials, the total costs for central office construction should be substantially the same. 291. We have no construction direct cost data for Bell Atlantic, Rochester, and Central and are unable to compare their direct costs with the overall average plus one standard deviation for this function. Accordingly, we order Bell Atlantic, Rochester, and Central to determine whether they charged interconnectors a rate that recovered construction direct costs in excess of $1,125 per month, the industry average construction direct cost plus one standard deviation, and to calculate refunds payable to their interconnector-customers to the extent that they recovered such costs from these interconnectors in a dollar amount greater than that average plus one standard deviation. Bell Atlantic, Rochester, United, and Central must use the methodology set forth in Appendix C of this Order to determine whether their construction direct costs are in excess of the LEC industry construction direct cost average plus one standard deviation and must file completed tables identical in format to those described Appendix C, showing the calculation of these direct costs. 292. We also order Rochester to file tariff revisions reflecting either per unit labor and material rates that are uniform at each central office at which it offers physical collocation or generally available average-cost based rates for central office construction. This requirement does not apply to Bell Atlantic, United, and Central at the present time because they discontinued providing physical collocation service during the course of this tariff investigation. 293. Although the Supplemental Designation Order did not address Lincoln's approach to recovering the direct costs for construction and entrance facilities, we find that Lincoln's approach to recovering these costs does not fully comply with the tariffing requirements set forth in the Special Access Expanded Interconnection Order. Lincoln requires an advance payment of $7,500 for the central office construction and for the provision of entrance facilities. Lincoln bills the interconnector for additional costs if the total costs for these functions exceed $7,500 and refunds money to the interconnector if the total costs are less than $7,500. The interconnector, therefore, pays for the actual labor time and the actual materials used for entrance facility installation and construction, rather than paying an average charge that all interconnectors pay at a particular central office or set of central offices in a geographical area. 294. We find that Lincoln's approach to recovering the costs of construction and entrance facility functions violates the tariff filing requirements set forth in the Special Access Expanded Interconnection Order, because it does not differ from approaches taken by Bell Atlantic, Rochester, United, and Central to recover construction costs, except that Lincoln requires an advance payment. We therefore object to Lincoln's method of recovering the costs for central office construction and the provision of entrance facilities for the same reason that we object to the time and material construction approaches taken by Bell Atlantic, Rochester, United, and Central. We find that Lincoln's approach increases the uncertainty and the risk of the interconnector's business, provides an opportunity for Lincoln to engage in unreasonable discrimination among similarly situated interconnectors, and is a vehicle for delaying the implementation of physical collocation service. 295. Accordingly, we order Lincoln to revise its tariff to delete provisions that require interconnectors to pay $7,500 for central office construction and entrance facility costs in advance and that require additional payments or refunds when Lincoln's central office construction direct costs are greater or less than that amount. We also direct Lincoln to file either per unit labor and material rates that are uniform at each central office at which it offers physical collocation or generally available average, cost- based rates for the construction and entrance facility functions. These tariffed rates must fully account for the entire amount of the costs for these two functions. Lincoln also must file cost data to support these tariff revisions in TRP format. 296. We cannot evaluate the reasonableness of the actual charges that Lincoln imposes on its interconnector- customers for construction and entrance facilities because Lincoln does not properly tariff per unit rates or average cost-based rates and does not file proper cost support data for these rates. We find, therefore, that Lincoln fails to meet its burden of proving that its rates for central office construction and entrance facilities are just and reasonable. Given that we have no information on Lincoln's direct costs for central office construction, we are prescribing maximum rates for central office construction and entrance facilities. To do so, we use the same methodology that we apply to determine the reasonableness of the other LECs' generally available average, cost-based rates, i.e., the overall LEC direct cost averages for construction and entrance facilities plus one standard deviation. We believe that this will produce just and reasonable rates for Lincoln's central office construction and entrance facility functions because whether Lincoln develops its rates on the basis of averaged costs or on the basis of time and materials, the total costs for central office construction or entrance facility should be substantially the same. 297. We lack complete construction direct cost data for Lincoln and are not able to compare its direct construction costs with the overall construction direct cost average plus one standard deviation. Accordingly, we direct Lincoln to determine whether it charged interconnectors a rate that recovered construction direct costs in excess of $1,125 per month, the industry average construction direct cost plus one standard deviation, and to calculate refunds payable to its interconnector- customers to the extent that it recovered such costs from these interconnectors in a dollar amount greater than that average plus one standard deviation. Lincoln must use the methodology set forth in Appendix C of this Order to determine whether its construction direct costs are in excess of the LEC industry construction direct cost average plus one standard deviation and must file completed tables identical in format to those described in Appendix C that show the calculation of these direct costs. We also order Lincoln to file tariff revisions reflecting either per unit labor and materials rates that are uniform at each central office or rates that are based on the average cost of physical collocation construction for each central office where it offers physical collocation service. 298. Lincoln installs the interconnector's cable as a part of its entrance facility installation and space function. Therefore, we find that Lincoln's entrance facility rate should not exceed the overall LEC average plus one standard deviation for the entrance facility installation and space costs for LECs that install the interconnector's cable. The overall average plus one standard deviation for these LECs for this function is $446 per month. Because we lack complete entrance facility installation and space direct cost data for Lincoln, we are unable to compare its direct entrance facility installation and space costs with the overall entrance facility and space direct cost average plus one standard deviation. Accordingly, we direct Lincoln to determine whether it charged interconnectors a rate that recovered entrance facility installation and space direct costs in excess of $446 per month, the average entrance facility and space direct cost plus one standard deviation for LECs that install the interconnector's cable, and to calculate refunds payable to its interconnector-customers to the extent that it recovered such costs from these interconnectors in a dollar amount greater than that average plus one standard deviation. Lincoln must use the methodology set forth in Appendix C of this Order to determine whether its entrance facility installation and space direct costs exceed the applicable LEC industry entrance facility installation and space direct cost average plus one standard deviation and must file completed tables identical in format to those described in Appendix C that show the calculation of these direct costs. We also order Lincoln to file tariff revisions reflecting either per unit labor and material rates that are uniform at each central office at which it offers physical collocation or generally available average cost-based rates for entrance facility installation and space for each central office at which it offers physical collocation service. 4. TRP Data and Subsequent Direct Cost Adjustments 299. The direct cost prescriptions we are making in this Order are based on the cost data filed with this Commission between February 16, 1993, the date LECs filed their initial physical collocation tariffs and June 3, 1994, the last day we received cost data for physical collocation service in TRP format. We are limiting our review to cost data filed between these two dates because we rely on these TRP data to determine whether LECs' direct costs assigned to physical collocation service are just and reasonable. In the absence of these data, we cannot compare physical collocation direct costs among the LECs because different LECs use different rate structures, which creates difficulty in determining the physical collocation direct costs associated with particular rate elements. 300. We use the TRP data to create a comprehensive data base that permits a reasonable comparison of the direct costs of providing physical collocation service among LECs. The TRP data upon which we base our direct cost prescriptions in this Order are for those 14 LECs that either continue to provide physical collocation service or previously provided that service to at least one customer. We find that the TRP data filed in this proceeding are critical to our evaluation of the reasonableness of LECs' direct costs and will serve as a benchmark for examining the reasonableness of subsequent direct cost adjustments made by LECs that are a part of this investigation. 301. Accordingly, any direct cost disallowances that we are making in this Order apply to all tariff revisions filed after June 3, 1994 and before the effective date of this Order. That is, if a LEC that develops averaged direct costs for all of its central offices increased the amount of its claimed direct costs between June 4, 1994 and the effective date of this Order, we require that LEC to reduce its direct costs to an amount equal to the allowed direct costs that will take effect pursuant to this Order and to calculate refunds to interconnectors accordingly. The allowed direct costs that take effect pursuant to this Order shall include direct costs filed on TRP charts on or before June 3, 1994, for which we are either not making a disallowance or are making a disallowance for any reason. 302. Instead of developing average direct costs for all of their central offices, some LECs develop direct costs for different central offices. If any of these LECs increased their claimed direct costs for any central office for which the LEC had filed direct cost data on the TRP charts on or before June 3, 1994, the LEC must reduce those direct costs to an amount equal to the allowed direct costs that will take effect pursuant to this Order. These LECs must also calculate refunds to interconnectors accordingly. For any of their offices for which direct cost data had not been included on the TRP charts on or before June 3, 1994, these same LECs must also revise any rate designed to recover direct costs of expanded interconnection in these offices to reflect any case-by-case direct cost disallowances that we are making to these LEC's direct costs in Section III.C.1 of this Order. Moreover, these LECs must determine whether the direct costs recovered in rates for expanded interconnection in these offices exceed the industry average plus one standard deviation. In making this determination, these LECs must use the methodology set forth in Appendix C of this Order and, if they recovered direct costs that exceed the average plus one standard deviation, they must revise any rate designed to recover direct costs of expanded interconnection in these offices to reflect direct costs that do not exceed this level and calculate refunds payable to any interconnector that paid the higher rate. 303. Although we find that LECs' physical collocation direct costs are reasonable to the extent that these costs are recalculated to reflect the direct cost disallowances that we make in this Order, LECs that wish to increase rates to reflect direct cost increases prospectively from the effective date this Order may file rate revisions at any time. Such filings must be accompanied by cost support information, including engineering studies, time and wage studies, or other cost studies that identify the direct costs of providing physical collocation service. Cost support must also include studies containing a projection of physical collocation costs for a representative 12 month period and workpapers that document the LEC's cost estimates. This cost support information must include direct cost data on TRP charts identical in format to the TRP charts developed by the Bureau in the Designation Order and for the same 14 physical collocation functions set forth in that Order. D. Overhead Loadings 1. Background 304. Regulated physical collocation rates recover two types of costs: (1) direct costs; and (2) overhead costs. Direct costs are those that are attributable to physical collocation service. Overhead costs are joint and common costs that are not directly attributable to any particular service. An overhead loading is the dollar amount of the common and joint costs reflected in any particular rate. An overhead loading factor is the numerical value which yields the overhead cost or loading reflected in a rate when that factor is multiplied by the direct costs included in the same rate. For example, if a $135 rate recovers $100 of direct costs, the overhead costs included in that rate are $35, and the overhead loading factor is 1.35. The overhead loading factor also indicates the size of the overhead costs relative to the direct costs reflected in a rate. The overhead costs included in the rate in this example are 35 percent as large as the direct costs included in that rate. 305. In the Special Access Expanded Interconnection Order, we required LECs to derive their connection charge rate levels from the direct costs of providing expanded interconnection plus a reasonable level of overhead loadings. We required the LECs to justify any deviations from uniform overhead loadings that they propose for connection charges. We stated that if LECs propose connection charges that reflect fully distributed cost (FDC) overhead loadings, we would compare such loadings to the overhead loadings used for other services and require justification for any differences in overhead loadings. We reaffirmed this standard for physical and virtual collocation in the Virtual Collocation Order. We stated that, absent justification, LECs may not recover a greater share of overheads in charges for either physical or virtual collocation than they recover in charges for comparable services. Moreover, we stated that LECs have the burden of demonstrating that their connection charges meet this overhead loading standard and are otherwise just, reasonable, and not unreasonably discriminatory. 306. In the Physical Collocation Tariff Suspension Order, the Bureau found that although the LECs claimed that their overhead loading factors were derived from special access cost data, virtually none of them provided any information regarding loadings for particular special access services, such as DS1 and DS3 services. According to the Bureau, LECs neither provided sufficient cost data to determine overhead loading factors for particular rates nor provided overhead loading ratios. The Bureau, therefore, concluded that FDC overhead loading factors computed on the basis of 1992 special access ARMIS data would be the best currently available and verifiable surrogate factors for expanded interconnection. The Bureau then calculated a rate adjustment factor to lower the LECs' rates to the extent they reflected an overhead factor greater than the ARMIS factor. In the Interim Overhead Order, we affirmed the Bureau's Physical Collocation Tariff Suspension Order and concluded that the FDC overhead loading factors derived from ARMIS in the Physical Collocation Tariff Suspension Order continued to provide the best available, verifiable, and reasonable surrogate for the maximum overhead loading factors for expanded interconnection for the interim period until the tariff investigation is concluded. 307. In the Virtual Collocation Order, we responded to Bell Atlantic v. FCC by mandating virtual collocation and requiring LECs to file virtual collocation tariffs by September 1, 1994. Following the filing of these tariffs, the Bureau, in the Virtual Collocation Tariff Suspension Order, partially suspended for a five-month period that part of each LEC's proposed overhead loadings that exceeded the lowest overhead loading factor reflected in the rates for each LEC's comparable DS1 and DS3 services. The Bureau determined that LEC's DS1 and DS3 services, with or without channel mileage, are comparable to the services that interconnection customers can offer using expanded interconnection. The Bureau observed that these services use the same basic types of equipment in the LEC's central office that virtual collocation service does. These LEC services, the Bureau found, face actual or potential competition from interconnectors seeking to use expanded interconnection to compete in the interstate access market. Accordingly, the Bureau reasoned that if overhead loadings for these comparable services differed from the overhead loadings assigned to virtual collocation services without adequate justification, LECs could unreasonably discriminate against their interconnector-rivals. The Bureau stated that, by recovering low overheads in the rates for services with which interconnectors compete, and high overheads in the rates for the LEC facilities upon which interconnectors rely to provide competitive services, LECs could place the interconnectors at a disadvantage competitively. In the Virtual Collocation Overhead Prescription Order, released on May 11, 1995, we affirmed the Bureau's analysis in the Virtual Collocation Tariff Suspension Order, and concluded that most LECs had failed to demonstrate that their overhead loading levels, and consequently their virtual collocation rates, were just and reasonable. We prescribed maximum permissible overhead loading factors consistent with the interim overhead adjustments in the Virtual Collocation Tariff Suspension Order. 2. Discussion a. Overhead Loading Standard 308. We have previously determined that, absent justification, LECs may not recover, in charges for physical collocation, a share of overhead costs greater than they recover in charges for comparable services. We adopted this policy because the interconnector is both a customer and competitor of the LEC, and an interconnector's price for the service it provides to its customers depends in part on the price at which the LEC sells bottleneck facilities that are critical productive inputs for the interconnector. Absent our overhead loading policy, LECs could assign a relatively high level of overheads to the physical collocation services upon which interconnectors rely to compete with the LECs while pricing LEC competing services to recover a relatively low level of overheads. Recovering overhead loadings in this manner would constitute a strong entry barrier and would frustrate our policy of promoting competitive entry into the interstate access service market. 309. Accordingly, in order to apply our overhead loading policy, we must identify the LEC interstate access services that are comparable to those access services offered by the interconnectors to their customers using expanded interconnection. Comparable services are those for which the LEC and the interconnector compete or potentially compete for the same customers. After identifying the comparable services, we compare the overhead loadings reflected in the rates for the comparable services with the overhead loadings assigned to the physical collocation services. If the overhead loading factors reflected in the rates for the comparable services are lower than the overhead loading factors reflected in the rates for the physical collocation services, we must determine whether the differences are justified. 310. We find that the interconnectors' services are comparable to the LECs' point-to-point DS1 and DS3 special access and switched transport services, including channel termination services offered with and without interoffice mileage. We are not specifying any one particular point-to- point DS1 and DS3 special access and switched transport service as comparable to physical collocation because interconnectors can use physical collocation service to provide services comparable to any of these LEC DS1 and DS3 special and switched access services. b. Overhead Loading Prescription i. Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, SNET, and US West 311. We have reviewed the overhead data submitted in this investigation by Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, SNET, and US West and have compared the overhead loading factors these LECs assign to their physical collocation services with the overhead loading factors reflected in the rates for their comparable services. The data these LECs submit in support of their proposed rates show, with one exception, that they assign substantially higher overhead loading factors to physical collocation services than those that they currently recover in their charges for comparable services. SNET is the exception to this general rule because the record indicates that the overhead loading factors that SNET assigns to physical collocation service do not exceed the overhead loading factors reflected in its rates for comparable services. 312. Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, and US West do not adequately justify recovering in their physical collocation rates larger overhead loadings than they recover in their comparable service rates. Several LECs attempt to justify assigning higher overhead loadings to physical collocation services by arguing that it would be unreasonable to compare the overhead loadings they recover in their rates for comparable services subject to price cap regulation with the overhead loadings they assign to newly developed expanded interconnection services subject to cost-based regulation. We do not agree. The price caps regime is intended in part to prevent the LECs from charging monopolistically high prices, i.e., higher than a LEC could charge if it faces effective competition. Requiring the assignment of overheads to physical collocation services that are no greater than the overheads the LECs recover from their services subject to price cap regulation helps ensure that LECs do not assign monopolistically high overheads to physical collocation services. Thus, the fact that expanded interconnection services are currently excluded from price cap regulation does not justify assigning unreasonably higher overheads to those services. We find that this argument effectively seeks reconsideration of our connection charge policy adopted in the Special Access Expanded Interconnection Orderand reaffirmed in the Virtual Collocation Order. In those orders, we required that, absent justification, overhead loadings assigned to physical collocation service could be no greater than the overhead loadings recovered in rates for comparable services that are regulated under price caps. We will not reconsider this policy within the context of this investigation because a tariff investigation is not the proper forum for reconsidering policies adopted in a rulemaking proceeding. 313. Based on our review of the LECs' direct cases and accompanying cost support data, we find that Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, and US West do not justify assigning overhead loading factors to DS1 and DS3 physical collocation services that are higher than the lowest overhead loading factors reflected in their rates for comparable DS1 and DS3 services and we, therefore, find that their overhead loading factors are unjust and unreasonable. Accordingly, pursuant to our authority under Sections 201 and 205 of the Act, we adopt a final prescription of the maximum permissible overhead loadings for physical collocation services. Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, and US West must reduce their rates for physical collocation service rate elements. For each physical collocation service DS1 rate element, each of these LECs must reduce its rates to reflect the lower of (1) the overhead loading factor assigned to each particular physical collocation service DS1 rate element; and (2) the lowest overhead loading factor reflected in its rates for any of its comparable DS1 services. For each physical collocation service DS3 rate element, each of these LECs must reduce its rates to reflect the lower of (1) the overhead loading factor assigned to the each particular physical collocation service DS3 rate element; and (2) the lowest overhead loading factor reflected in its rates for any of its comparable DS3 services. For each physical collocation service rate element that is not specifically a DS1 or DS3 rate element and applies to both DS1 and DS3 services, we require each of these LECs to reduce its rates to reflect the lower of (1) the overhead loading factor assigned to each particular physical collocation service rate element; and (2) the lowest overhead loading factor reflected in its rates for any of its comparable DS1 or DS3 services. For all physical collocation rate elements, we also order Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, and US West to recalculate their rates and to pay refunds based on the difference between the maximum permitted overhead loading factor and the higher overhead loading factor reflected in the rates actually charged to their interconnector-customers. 314. When an overhead loading factor that a LEC assigns to a physical collocation service rate element exceeds the lowest overhead loading factor among the LEC's comparable services, we find that it is appropriate to prescribe the lowest overhead loading factor among all its point-to-point DS1 and DS3 special access and switched transport services because these are the services against which interconnectors seek to compete in the interstate access service markets. Our goal of fostering efficient competition in the interstate access market requires that efficient interconnectors have the opportunity to compete effectively with LECs for all access customers, including customers from which LECs recover the lowest amount of overhead. If LECs were permitted to charge rates for physical collocation service for which the overhead loading factors exceeded the overhead loading factors we are prescribing in this Order, efficient interconnectors would have difficulties in providing a competitive alternative to LECs' services to a potentially large segment of customers in the interstate access market. These customers would receive only limited economic benefits (e.g., lower prices, greater choice) from having access to such an alternative to the LECs' monopoly service. The goal of our expanded interconnection policy is to ensure that consumers realize the potential economic benefits of efficient competition in the interstate access market. We believe that this goal would not be met if we were to prescribe overhead loading factors that exceed each LEC's lowest overhead loading factor for DS1 and DS3 services. 315. Ameritech's lowest overhead loading factor for DS3 channel termination service in Indiana is .81. If we were to apply this overhead loading factor to Ameritech's direct costs, Ameritech would recover only 81 percent of its direct costs for physical collocation service in Indiana. We will not, therefore, apply the lowest overhead loading for comparable services for Ameritech DS3 physical collocation service in Indiana. We will, instead, adjust it upward to a factor of 1.0 in order to ensure that Ameritech of Indiana recovers its direct costs for physical collocation service. ii. CBT and SWB 316. We are not prescribing an overhead loading factor in this Order for CBT and SWB because these LECs request confidential treatment of overhead loading and direct cost data they submitted for their comparable DS1 and DS3 services. While these data are essential for prescribing an overhead loading factor, these LECs argue that disclosure of these data could substantially harm their competitive positions. We find no compelling reason to prescribe an overhead loading factor for CBT and SWB before resolving the confidentiality issue because neither of these LECs currently offers physical collocation service under tariffs subject to this investigation. Prescribing an overhead loading before we resolve the confidentiality issue therefore would have no effect on the current level of physical collocation rates or on the potential competitive position of interconnectors in the interstate access markets. Instead, an overhead prescription for these two LECs affects only their potential refund liability for the past period over which they provided physical collocation service. At the same time, a conclusion based on the additional information that may be in the record after we resolve the confidentiality issue could differ from a conclusion made based on the record currently before us, thereby affecting the amount of any refund liability that may have accrued over the period that these LECs offered this service. Accordingly, we will prescribe overhead loading factors for CBT and SWB after we resolve their requests for confidential treatment of the overhead loading and direct cost data they submitted for their comparable DS1 and DS3 services. E. Terms and Conditions 317. In order to ensure that interconnectors are able to compete with LECs in an efficient manner in the special and switched access markets, LECs must offer physical collocation arrangements under terms and conditions that are just, reasonable and nondiscriminatory. Terms and conditions are tariffed provisions that define the rights and obligations of the parties in the physical collocation arrangement. In this section, we review the LECs tariff language governing the terms and conditions of the physical collocation arrangement. While we approve certain terms and conditions designated for investigation that we find are not unreasonable, we order LECs to remove or modify any provisions that impose unreasonable requirements that place the interconnector at a competitive disadvantage. We believe that this action is necessary to remove potential barriers to entry, and create opportunities for efficient competition in the provision of special access and switched access. Moreover, we believe that our adoption of specific standards, for certain terms and conditions will clarify the rights and obligations of the parties, thereby reducing the number of disputes arising from the implementation of physical collocation. 318. In this section of the Order, therefore, we examine the terms and conditions governing the size and use of central office floor space used for physical collocation. In particular, we consider what requirements LECs may reasonably impose on interconnectors regarding use of floor space, whether it is reasonable for LECs to set a minimum and maximum on space limitation for initial and subsequent orders, and whether LECs may include anti-warehousing provisions in their tariffs. In addition, we examine the circumstances under which LECs may conduct inspection of the collocation space and whether it is reasonable for them to charge for those inspections. We also examine the reasonableness of the types and levels of insurance coverage LECs require interconnectors to carry, as well as other tariff language that restricts the interconnectors' ability to self- insure, imposes requirements on the effective date and proof of insurance, and sets minimum ratings for insurance underwriters. Additionally, we review the LECs' liability provisions to determine whether it is reasonable for LECs to hold the interconnectors to higher standards of care than those to which the LECs hold themselves under their tariffs. We examine provisions governing termination and relocation in order to determine the circumstances under which it is reasonable for LECs to terminate service or require interconnectors to relocate. We also examine whether it is reasonable for LECs to prevent interconnectors from controlling their own channel assignment or using letters of agency. Finally, we review the parties' comments as to the reasonableness of the LECs' methodologies for computing interstate usage in the context of a physical collocation arrangement. 319. The remand of the Special Access Expanded Interconnection Order vacated the Commission's requirement that LECs offer the tariffed interstate physical collocation to interconnectors. The subsequent Virtual Collocation Orderrequires LECs to provide virtual collocation, but allows LECs, as an alternative, to provide physical collocation. Only six LECs - - Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET -- still have in effect physical collocation tariffs that were designated for investigation in CC Docket No. 93-162. We address only the terms and conditions for physical collocation offered by these six LECs because retroactive application of modified terms and conditions can have no practical effect upon LECs that no longer provide tariffed interstate physical collocation. 1. Floor Space for Physical Collocation 320. In the Special Access Expanded Interconnection Order, the Commission noted that in certain central offices, space for physical collocation could become filled to capacity, and in these situations, LECs would be required to provide virtual collocation in lieu of rejecting subsequent requests for expanded interconnection. The Commission also concluded that the LECs should be required to offer central office space for physical collocation on a first-come, first-served basis and permitted LECs to include in their tariffs reasonable restrictions on warehousing of unused space by interconnectors. In the Designation Order,the Bureau directed the LECs to provide detailed information regarding their provision of physical collocation arrangements. a. Minimum and Maximum Space i. Background 321. In the Designation Order, the Bureau directed the LECs to specify whether they established minimum or maximum space requirements for initial orders. In addition, the Bureau asked whether LECs should be permitted to impose any minimum or maximum space limitation on any subsequent expansion of an interconnector's collocation space. The Bureau asked LECs that require minimum square footage for initial orders or for subsequent orders to explain why these minimum space requirement were chosen, why they believe these requirements are reasonable, and why alternative requirements are not reasonable. LECs that established a maximum space limitation for collocation space for one collocator were directed to explain why this limit was chosen. The Bureau also directed NYNEX to explain and justify its tariff provision that considers an interconnector to have received 100 square feet, even if NYNEX delivers less, and that imposes a charge on an interconnector for 100 square feet rather than a pro rata amount based on the actual space provided. 322. All six of the LECs that currently offer interstate physical collocation service under tariffs subject to this investigation state that they offer floor space in increments of 100 square feet for initial orders. NYNEX, Rochester, and SNET indicate, however, that they are willing to negotiate arrangements for less than 100 square feet. NYNEX and Lincoln impose a maximum space limitation of 300 square feet; For subsequent orders, Nevada, Pacific, and SNET provide additional floor space in 100 square foot increments; NYNEX and Rochester provide additional space in 20 square foot increments. Lincoln's tariff does not address orders for additional floor space, but Lincoln states that it "would prefer" to provide additional space in increments of 50 square feet. SNET states it is willing to negotiate arrangements for more or less space on a case-by-case basis. Rochester, SNET, and Pacific impose a maximum space limitation of 400 square feet. Nevada does not impose a maximum limitation for floor space orders. ii. Discussion (a) Minimum Floor Space 323. We conclude that it is not unreasonable for LECs to impose a 100 square foot limitation on initial and subsequent orders for floor space. All six LECs that currently provide physical collocation and are subject to this investigation require that, for initial orders, interconnectors lease a minimum of 100 square feet, and none of the interconnectors in this proceeding has opposed this requirement. We note that Teleport states in its opposition that a 100 square foot minimum is not unreasonable, and a marketing study conducted by Pacific reveals that no interconnector requested less than 100 square feet of floor space. 324. Moreover, the record indicates that allocation of space in 100 square foot increments for initial and subsequent orders leads to efficient use of space. Although the minimum amount of space needed by an interconnector for expanded interconnection may vary depending on the amount and type of equipment deployed by an interconnector, we find that allocation of space in 100 square foot increments is not unreasonable because it permits LECs to (1) take into account safety and environmental concerns; (2) minimize the space needed to accommodate access aisles; and (3) standardize floor space dimensions in order to simplify design and planning of physical collocation space. 325. We note that Lincoln, NYNEX, Rochester, and SNET indicate that they are willing to provide less than 100 square feet of space upon request for initial orders. In addition, for subsequent orders, NYNEX, Rochester, and Lincoln will provide additional space in increments of less than 100 square feet. No commenters have presented contrary arguments, and we conclude that this practice is not unreasonable. (b) Maximum Floor Space 326. For those LECs that elect to provide physical collocation in lieu of virtual collocation, we conclude that, if space is available in their central offices, it is unreasonable to impose maximum space limitations. We find that LECs providing physical collocation have failed to justify their limitations on the space available to interconnectors and that these limitations fail to account for interconnectors' potential future floor space needs. We believe that limiting the amount of floor space available to interconnectors may impede competition in the interstate access market by hampering the interconnectors' ability to expand their services, broaden their customer base, and provide efficient competition. 327. We recognize that without a provision establishing maximum floor space limitations exhaustion of the central office floor space available for physical collocation may occur, may interfere with a LEC's plans for expansion, or may prevent late- entry interconnectors from providing expanded interconnection through physical collocation. We do not believe, however, that this is sufficient justification for allowing LECs to impose a fixed limit on the amount of floor space an interconnector may obtain. When the floor space allocated to physical collocation in a central office is exhausted, these LECs must provide virtual collocation to all parties that request expanded interconnection. We believe that virtual collocation is a reasonable alternative for LECs that elect to provide physical collocation once the LEC has exhausted its space for physical collocation. 328. Furthermore, we believe that the anti-warehousing standards discussed in Section III.E.1.b below will substantially limit the problem of floor space exhaustion by permitting LECs to reclaim space or limit orders for additional space when interconnectors are not using their space efficiently. We believe that these anti-warehousing provisions, coupled with our restriction on setting maximum floor space limitations, will allow the LECs to ensure reasonable utilization of their central office space while allowing interconnectors to develop their service and expand their customer base. Accordingly, all LECs that currently provide interstate physical collocation under tariffs subject to this investigation and have tariff provisions that restrict the total amount of floor space that can be ordered for collocation arrangements are directed to file revisions to their tariffs removing such restrictions. 329. Although we prohibit LECs from limiting the total amount of floor space an interconnector can order, we permit LECs to limit initial orders for floor space to 100 square feet, provided that interconnectors are permitted to obtain additional floor space when their existing floor space is being used efficiently. The LECs, as well as all interconnectors, have a valid interest in assuring that the floor space is used efficiently to prevent premature exhaustion of central office space available for expanded interconnection. b. Warehousing and efficient use of floor space i. Background 330. In the Special Access Expanded Interconnection Order, the Commission stated that LECs will be permitted to include in their tariffs reasonable restrictions on warehousing of unused space by interconnectors. The Commission also stated that once a LEC provides physical collocation in a particular central office, it may not withdraw this offering for existing customers because of space limitations, absent extraordinary circumstances. Through their tariffs, Lincoln, NYNEX, Nevada, and Pacific reserve the right to either reclaim space or refuse to provide additional space if the interconnector is not using existing space in an efficient manner. In the Designation Order, the Bureau directed LECs to justify any controls they were imposing on interconnectors' use of floor space, to explain the violations of tariff terms and conditions that warrant eviction for inefficient use of space, and to justify policies of reserving the right to refuse to rent additional space to an existing interconnector on the ground that the interconnector has not efficiently used its space, particularly in central offices in which there is existing space available for physical collocation. ii. Discussion 331. We conclude, in Section III.E.1.a above that it is unreasonable for LECs electing to provide physical collocation to cap the physical collocation space they will make available to an interconnector because such a restriction may interfere with that interconnector's ability to offer additional services and expand its customer base. We recognize, however, that with the first come, first served rule, allowing initial interconnectors to warehouse unused or inefficiently used space may prevent subsequent interconnectors from establishing a physical collocation arrangement or preclude existing interconnectors from expanding their physical collocation space when they have legitimate needs for such expansion. Moreover, once central office space is exhausted, space that is either unused or inefficiently used may undermine the LEC's ability to expand its own operation in order to meet growing demands of its customers. Accordingly, if space is needed by subsequent interconnectors or the LECs, we find that it is not unreasonable for LECs to reclaim space that is either not being used or not being used efficiently. 332. We find that it is not unreasonable for LECs to require that "substantially all" of the floor space be occupied by transmission equipment needed to provide service. This requirement is not unreasonably restrictive because it still gives interconnectors the flexibility they need to design their floor space usage to meet their unique needs. In determining whether an interconnector's space is being used efficiently, we expect that LECs will consider all relevant factors, including the need to meet minimum safety standards, the amount of space needed for ventilation and access, the need for an adequate amount of storage space and the number of bays needed for the type of equipment deployed. Moreover, we order LECs subject to this investigation that are currently offering physical collocation service to state in their tariffs that they will provide interconnectors with at least 180 days to satisfy the requirement that floor space be efficiently used. We require LECs to make this tariff modification to ensure that interconnectors have ample time to plan the use of their space, order their equipment, and have the equipment installed. 333. Accordingly, we conclude that anti-warehousing provisions in LEC tariffs that allow LECs to reclaim existing space or restrict allocation of additional space if the interconnectors are not using their existing space in an efficient manner are not unreasonable. Such provisions, however, must not restrict the amount or type of equipment occupying the space as long as "substantially all" the space is being occupied by transmission equipment. We therefore require Pacific to remove language in its tariff that provides for reclamation of floor space unless the space is occupied by at least six bays of equipment in a 100 square foot area. c. Ordering Charges i. Background 334. Lincoln, NYNEX, Nevada, Pacific, and SNET impose, for additions to physical collocation space, the same nonrecurring charges they charge for new orders, and in essence require a repetition of the entire ordering process for new orders. In the Designation Order, the Bureau directed these LECs to explain why such orders cannot be processed as an addendum to the original agreement with a simplified procedure and correspondingly lower nonrecurring charge. ii. Discussion 335. We find that it is not unreasonable for LECs to impose, for orders for additional space, the same non-recurring charges they impose for initial orders, because the record indicates that the non-recurring costs associated with initial orders for physical collocation also are incurred in subsequent orders for additional space. For example, it appears that, in processing new orders, LECs must ascertain the adequacy of existing support structures, review existing designs or redesign available space, modify cable racking, and install additional cable. On the other hand, interconnectors have submitted no evidence from which we could conclude that the costs of processing orders for additional space are less than for initial orders. d. Contiguous space for expansion i. Background 336. In the Designation Order, the Bureau directed the LECs to state their policies for providing contiguous space when interconnectors expand their operations and direct cabling between noncontiguous spaces and to explain why these policies are reasonable. All six LECs currently providing physical collocation state that they provide contiguous space for expansion when it is available. If contiguous space is not available, certain LECs state that they will allow interconnectors to connect noncontiguous space with direct cabling. ii. Discussion 337. For reasons of convenience and efficiency, when interconnectors expand their operations, they prefer to use contiguous space. We therefore require all LECs providing physical collocation to state in their tariffs that they will make reasonable efforts to provide contiguous space when interconnectors require it for expansion. Because we are only requiring LECs to provide contiguous space when it is reasonably available and all six LECs currently providing interstate physical collocation under tariffs subject to this investigation state that they follow this practice, we find that this requirement is not unreasonably burdensome. 338. Where contiguous space is not reasonably available, we find that direct cabling between non-contiguous spaces enables interconnectors to use non-contiguous spaces as if they were contiguous. We therefore conclude that direct cabling between non-contiguous spaces, offered at tariffed rates, is a reasonable alternative where contiguous space is not available. All six LECs currently offering interstate physical collocation under tariffs subject to this investigation state that they already follow this practice, and we require that they continue to do so. 2. Inspection Provisions a. Background 339. In the Designation Order, the Bureau asked the LECs to identify the provisions in their physical collocation tariffs governing inspection of interconnector space and facilities, to state whether the interconnector must pay for such inspections, and to explain why they believe their requirements are reasonable. Lincoln, Nevada, Pacific, NYNEX, and SNET provide for inspection following initial installation of equipment and subsequent inspections at periodic intervals. Rochester's tariff does not contain provisions addressing inspections. Most of the LECs state that they provide interconnectors with notice and do not charge the interconnectors for the inspection. NYNEX states that it charges interconnectors if the inspection reveals that the interconnector is not complying with terms and conditions of the tariff. b. Discussion 340. Regular inspections can ensure that the interconnectors' equipment and space are being used according to the terms and conditions of the tariff and that the interconnectors' equipment and space utilization meet safety standards and do not pose a hazard to the LECs' network or the LECs' employees. For these reasons, we conclude that it is not unreasonable for LECs offering interstate physical collocation to conduct inspections following the initial installation of equipment, installation of additional equipment, and reconfiguration of equipment and space utilization and to conduct regular inspections of interconnectors' space, provided that such inspections occur no more frequently than once a month. We also find that it is not unreasonable for LECs to conduct emergency inspections of collocators' equipment and space because in an emergency, LECs need to inspect the entire central office in order to determine the cause and the extent of the problem. 341. The record indicates that, with the exception of NYNEX, none of the six LECs that currently provide physical collocation under tariffs subject to this investigation charges interconnectors for inspections. NYNEX states that it charges interconnectors for an inspection only if the inspection reveals that the interconnector was in violation of the tariff. We find that this practice is not unreasonable. 342. To minimize the burden on interconnectors, we conclude that interconnectors have a right to be present for inspections of their physical collocation equipment and to have two weeks' advance written notice for non-emergency inspections. If an inspection is conducted by an outside agency (e.g., fire, safety, insurance), the LEC is required to notify the interconnector promptly in writing of the outside agency inspection unless notice in writing is not practicable. If notice in writing is not practicable, the LEC must provide the interconnector with prompt non-written notice so that the interconnector can exercise its right to be present at the inspection. In the event that an emergency necessitates an inspection, we require the LECs, as soon as reasonably possible, to notify the interconnector of the emergency, the nature of the emergency, and that an inspection is being conducted in response to the emergency. 3. Insurance Requirements a. Levels and Types of Insurance i. Background 343. In the Special Access Expanded Interconnection Order, the Commission stated that concerns regarding the insurance levels required for physical collocation arrangements and similar matters are best resolved through informal discussions among interested parties, with the resolutions of those discussions reflected in the LECs' tariffs. The Commission also required that the arrangements in the tariffs must meet legitimate concerns, but not be unreasonably restrictive or expensive. In theDesignation Order, the Bureau directed the LECs to justify the levels and types of insurance coverage they require for interconnectors to carry. The Bureau directed LECs that impose insurance requirements for automobiles to justify those requirements when their tariffs specifically prohibit parking by interconnector-personnel. Likewise, LECs were directed to justify differences between the insurance levels and types of coverage LECs require of interconnectors and the levels and types of coverage that they hold themselves. 344. All six LECs currently offering physical collocation require the interconnectors to carry general liability insurance ranging from $1 million to $5 million. In addition, Rochester, Lincoln, NYNEX, and SNET require interconnectors to carry excess liability coverage in amounts ranging from $5 million to $10 million. All six LECs also require interconnectors to maintain statutory levels of coverage for workers compensation and require employer's liability insurance in the following amounts: Pacific and Nevada, $1 million; Lincoln, NYNEX, Rochester, and SNET, $2 million. Finally, Lincoln requires interconnectors to maintain $1 million in automobile liability insurance for automobiles used on its premises; Rochester requires $3 million; Pacific and Nevada, $5 million; and SNET requires the amount specified in relevant state statutes. NYNEX's tariff does not require automobile liability coverage.' ii. Discussion 345. Types of Insurance. As a preliminary matter, we find that none of the commenters opposes the LECs' workers compensation and employer liability insurance requirements, and we conclude that such requirements are reasonable. Moreover, due to the unique circumstances posed by physical collocation, we find that it is not unreasonable for LECs to require interconnectors to maintain a reasonable amount of general liability and excess liability insurance coverage to protect against occurrences that may potentially arise out of the physical collocation arrangement. We disagree with Teleport's argument that the physical collocation arrangement is the equivalent of adding a few racks of multiplexing equipment and therefore poses no additional risk to a central office. We find that the presence of interconnectors in the LECs' central office adds additional risk to the LECs' property and operations because the LECs do not have control over the interconnectors' equipment or the personnel that operate the equipment. In the absence of such control, we find that it is not unreasonable for LECs to require general liability insurance to protect against property damage to the LECs' equipment, personal injury to the LECs' employees, and losses to the LECs' customers because of service interruptions caused by interconnectors. For these reasons, we conclude that the LECs are justified in requiring the interconnectors to carry a reasonable amount of liability insurance coverage. We also believe that it is not unreasonable for LECs to require interconnectors to carry a reasonable amount of automobile insurance, provided that interconnector-employees are permitted to park their vehicles on LEC property. 346. Levels of Insurance Coverage. We note that because each LEC central office is unique, the LECs are in the best position to determine the amount of insurance coverage that would be necessary to protect their investment. The insurance coverage needed by each central office will vary according to the size of the central office, its location, the number of personnel, the value of the LEC's property and equipment housed there, and the revenue stream attributable to that office. It is difficult, therefore, for us to prescribe the specific level of insurance that would be required to insure against risk for each LEC without first conducting a financial analysis of each LEC on a case-by- case basis. We decline to take this approach, and choose instead to examine the reasonableness of the required insurance levels and to establish a maximum acceptable insurance level based on an industry average plus one standard deviation. Under this standard, we will find a LECs' requirement for an interconnector's level of insurance is not unreasonable as long as it does not exceed one standard deviation above the industry average. 347. Based on our analysis, we find that the insurance levels of all LECs that currently provide physical collocation do not exceed one standard deviation above the industry average, and are therefore not unreasonable. We calculate the industry average plus one deviation by including the amount of coverage required for general liability, excess liability, employer's liability and automobile liability in the aggregate. We base our analysis on insurance levels in the aggregate rather than on the individual categories of insurance because the coverage needs of each LEC may vary, and this approach assures the LECs greater flexibility in determining how much insurance they will require under each category of insurance. Although we ordinarily would examine only the insurance levels proposed by the six LECs subject to this investigation that are currently offering physical collocation, we determine the reasonableness of these LECs' insurance levels by conducting this comparison with a larger sample of LECs in order to develop a more reliable range of insurance levels. We therefore compare the insurance levels proposed by all fourteen LECs that actually provided physical collocation to at least one customer. Although eight of the fourteen LECs in this sample no longer provide physical collocation, we find that because all fourteen LECs provided physical collocation at one time, their insurance requirements provide for a reasonable comparison that should be included in the sample. 348. The LECs' overall average for insurance requirements in the aggregate is $12.88 million and the standard deviation relative to that average is $8.28 million. The average plus one standard deviation is, therefore, $21.15 million. The total insurance requirements of the six LECs subject to this investigation that currently offer physical collocation are as follows: $15 million for Lincoln, $15 million for Nevada, $6 million for Pacific, $13 million for Rochester, $14 million for SNET, and $9 million for NYNEX. The insurance levels of all six LECs subject to this investigation that currently offer physical collocation service are, therefore, below the average plus one standard deviation. Accordingly, we find that their required levels of insurance are not unreasonable. b. Self-insurance i. Background 349. In the Designation Order, the Bureau required LECs that do not permit interconnectors to self-insure under any circumstances to explain their reason for that policy. NYNEX and Pacific object to self-insurance, although Pacific states that it would allow companies that have obtained state approval with respect to workers compensation to self-insure. Nevada states that it permits self-insurance with regard to workers compensation claims only, and only when its interconnector- customers have obtained proper authorization. Rochester states that it does not oppose self-insurance in "appropriate circumstances." Lincoln states that it permits self-insurance, if the program is satisfactory to Lincoln. SNET does not address this issue. ii. Discussion 350. A requirement that LECs permit interconnectors to self-insure would force the LEC into the position of having to examine the interconnector's financial records and make a judgment regarding the interconnector's financial condition. To mandate such a process would place unnecessary burdens on both LECs and interconnectors. We note that Teleport asserts that there may be "less intrusive" methods to determine an interconnector's financial stability. Teleport, however, fails to offer alternatives for consideration, and we find none in the record. Although we encourage LECs currently offering physical collocation to provide the flexibility to interconnectors to self- insure where it is mutually beneficial, we do not find the LECs' tariff restrictions on self-insurance to be unreasonable. c. Underwriters i. Background 351. In the Designation Order, the Bureau directed LECs that require interconnectors to use underwriters with particular rating levels to justify these requirements. Most LECs require the interconnectors' general liability carrier to have particular minimum rating levels in order to ensure adequate coverage by reputable insurance carriers. SNET and NYNEX require at least a AA-12 rating. Nevada and Pacific state that they require at least a Best insurance A rating and Pacific notes that its own insurance companies must have A+ ratings. Lincoln states only that it requires an insurer to be licensed in the state in which expanded interconnection is offered and that the company be satisfactory to Lincoln. Rochester's tariff does not specify a rating requirement, but Rochester notes that it requires interconnectors to carry insurance with the same rating Rochester requires of its own insurers. ii. Discussion 352. We find that it is not unreasonable for LECs providing physical collocation to require that interconnectors' insurers meet minimum rating requirements. The LECs' customers, end users, and shareholders have an interest in ensuring that the interconnector's insurance company will be able to cover a claim in the event of loss to the LEC, and insurance ratings are considered to be indicators of an insurance company's reputation for solvency and ability to pay claims. We find, however, that the required rating should be no higher than what the LEC requires of its own underwriters because interconnectors pose no greater risk to the LEC's facilities than the LEC does itself, and requiring interconnectors to use insurance carriers with higher ratings would unreasonably increase the interconnectors' cost of business and would be an anticompetitive barrier to entry. Those LECs that provide interstate physical collocation under tariffs subject to this investigation that have provisions inconsistent with this mandate must amend their tariffs accordingly. We also find that Lincoln's requirement that the interconnector's insurance company be "satisfactory" to Lincoln is unreasonably vague, and we require Lincoln to delete this provision from its tariff. d. Effective Date of Insurance i. Background 353. In the Designation Order, the Bureau directed LECs requiring proof that an interconnector's insurance is effective at a certain time to explain why their policy is reasonable. The Bureau also required opposing parties to comment on the type of proof required. All six LECs that currently offer physical collocation require that interconnectors' insurance be effective on or before the date the interconnector occupies the LEC's premises. In addition, Lincoln, NYNEX, and SNET require proof of the interconnectors' insurance prior to the date construction of an interconnector's cage commences. Nevada requires its interconnection customers "to furnish upon request" copies of its insurance policies. ii. Discussion 354. The record indicates that, in a typical physical collocation arrangement, the LEC is responsible for configuration of the floor space and cage construction. It is not until after construction is complete that the interconnector is permitted to take possession of the cage for installation, provisioning, and operation of its own equipment. Because the interconnector is not involved in the construction of its cage, the interconnector does not pose any risk to the LEC's property or the public network before construction is complete and the interconnector takes possession of the cage. Accordingly, we prohibit Lincoln, NYNEX, and SNET from requiring interconnectors to have insurance in effect prior to completion of construction, unless during the construction period the interconnector has access to the LEC's premises either directly or through its contractors. 355. We believe, however, that it is reasonable for LECs to require proof of insurability prior to the commencement of construction on the interconnectors' space. We believe that such a requirement is not unduly burdensome for the interconnector and affords the LEC assurance, before construction of the interconnector's space begins, that the interconnector is insurable. Finally, we agree with Teleport that requiring a copy of the insurance policy as proof of insurance coverage is unnecessary and may result in disclosure of confidential information. We believe that an insurance certificate, stating the amount of insurance and the effective date of coverage, is sufficient proof that the interconnector has purchased the proper insurance coverage. Accordingly, we require Nevada, and any other LEC currently offering physical collocation that has tariff provisions directing the interconnectors to provide a copy of their policy as proof of their insurance coverage to revise their tariffs to delete such provisions. 4. LECs' Liability Provisions a. Background 356. In the Designation Order, the Bureau directed the LECs to explain the policies articulated in their tariffs concerning an interconnector's right of action against a LEC for negligence, gross negligence, willful misconduct, or intentional harm, and to explain why it is reasonable to include language limiting the LECs' own liability, while holding the interconnectors to a higher standard than the LECs themselves would be held to under their tariffs. Pacific, Rochester, Nevada, and SNET state that the same liability provisions that apply to their other customers of interstate access service also apply to their expanded interconnection customers. Lincoln, Nevada, Pacific, NYNEX, and SNET's tariffs contain provisions that hold the LECs liable to interconnectors only for willful misconduct, while holding their interconnector-customers to an ordinary standard of negligence. In addition, Pacific, Lincoln, NYNEX, and Rochester have tariff provisions requiring interconnectors to indemnify them against all claims and liabilities arising out of the operation of their facilities in the central office. Pacific also includes provisions in its tariff holding interconnectors liable for losses from interconnector activities for at least three years from the termination, cancellation, modification, or rescission of the physical collocation arrangement. b. Discussion 357. Prior to tariffing physical collocation, the LECs' general access tariffs provided that their liability for outages would be limited to credit allowances based on the applicable charges for the period the service was affected. Certain LECs now seek to limit their own liability in the expanded interconnection arrangement with similar provisions, while holding interconnectors liable for additional damages. Additionally, certain LECs' tariffs hold interconnectors to a stricter standard of care than the LECs would hold themselves in their relationship with interconnectors. For example, Pacific holds the interconnectors liable for any damage or outage to Pacific's network due to the interconnectors' willful or negligent conduct. Pacific's tariff states, however, that it cannot be held liable for any interruption of service or for interference with the operation of the collocator's facilities unless caused by Pacific'swillful misconduct. 358. We are not persuaded by the LECs' arguments that the interconnector should assume broader liability because the relationship between LECs and interconnectors is analogous to a landlord/tenant relationship. We find that limitations on the LECs' liability for service interruptions, as well as for other types of damages, are unreasonable unless they are applied symmetrically to both LECs and interconnectors. We believe that disparity in liability provisions that permit a LEC to limit an interconnector's right of action against the LEC, without similar limitations on the LEC's right to sue the interconnectors, is unreasonably discriminatory. 359. Unlike other special access customers, the expanded interconnector-customer operates as both a customer and a competitor of the LEC. Because both the interconnector and the LEC may compete to serve the same access customers, both have similar concerns regarding service interruptions and service quality. Moreover, unlike other LEC access customers, the interconnector's transmission equipment and personnel are physically present in the LECs' facilities, giving rise to added potential risks that the LECs' negligent conduct may result in harm to the interconnectors' equipment or personnel. Conversely, the presence of the interconnector's equipment and employees in the LEC's central office creates the possibility that the interconnector's negligent conduct may cause physical damage to the LEC's equipment or injury to LEC personnel. Because the interconnector's physical presence in the LEC's central office poses a risk of harm for both LECs and interconnectors, the limitations on LEC liability that apply to other customers of interstate access service are unreasonable in a physical collocation arrangement. We have reviewed the record and find no justification for tariff provisions that allow the LEC to deprive the interconnector of a right of action against the LEC for service interruptions and other types of damages caused by the LECs or that hold the interconnector to a stricter standard of care while waiving such liability for the LEC. We therefore conclude that all LECs providing physical collocation must impose on themselves the same standard of liability they impose on their interconnectors. 360. Although we note the LECs' concerns that they are subject to greater financial risk than the interconnectors, we do not agree that this concern justifies imposing stricter liability standards on interconnectors. The interconnector's potential loss may be smaller in terms of absolute dollar amounts, but its financial loss relative to its entire business may be as significant or even more significant because it often relies on a few large customers for a substantial share of its total revenue. Accordingly, we require all six LECs currently offering physical collocation to delete any language from their tariffs that imposes a different standard of care on the interconnectors than the LECs impose on themselves. 361. Additionally, we agree with the commenters that it is unreasonable for Pacific to include tariff provisions holding interconnectors liable for losses from interconnector activities for at least three years from the termination, cancellation, modification, or rescission of the physical collocation arrangement. The record has not provided, nor can we envision, circumstances in which a LEC would not discover property damage or personal injury caused by an interconnector for three years from termination of the physical collocation arrangement. Accordingly, we order Pacific to file a tariff revision removing such language from its tariff. 5. Termination of Service a. Background 362. In the Designation Order, the Bureau directed the LECs to justify their tariff provisions permitting termination of service for any violation of the tariff. In addition, the Bureau directed the parties to discuss the circumstances under which termination of service is reasonable and the circumstances under which termination of a collocation agreement should be prohibited. Finally, the Bureau directed interested parties to describe the conditions, if any, under which interconnectors should be charged for termination of the collocation arrangement and what type of notice period should be required by the parties. 363. SNET, Pacific, NYNEX, and Nevada state that all terms in their tariffs are "material" terms and that violations of any of these terms warrant termination of an expanded interconnection arrangement. Nevada specifically states that it may terminate an interconnection arrangement if the customer fails to comply with the insurance coverage requirements or fails to meet its responsibilities under the tariff to ensure that the customer's equipment pose no unreasonable risk to Nevada's service. Pacific reserves the right to terminate a collocation agreement if the central office is closed, sold, or subject to eminent domain, or the interconnector fails to pay a tariffed fee or charge, breaches security, fails to interconnect within 180 days of occupancy, or offers service in conflict with any rule, order, regulation, or judicial or administrative decision. NYNEX's tariff permits termination of service if the interconnector files for bankruptcy or violates state or federal law. SNET and Rochester reserve the right to terminate service for nonpayment or for "unlawful" or "abusive" use of the service. Lincoln states that it will terminate service for default or breach of material terms or conditions of expanded interconnection and Lincoln's tariff states that either party has the right to terminate in the event of the other party's bankruptcy, liquidation, insolvency, or receivership. None of the six LECs that currently offer interstate physical collocation under tariffs subject to this investigation imposes charges for termination of service beyond any charges accrued prior to the date of termination. 364. NYNEX, SNET, Pacific, Nevada, and Lincoln provide notice to interconnectors prior to termination. The notice period for termination ranges from fifteen days to six months, depending on the reason for termination. NYNEX permits the interconnector to terminate the collocation arrangement on 60 days' notice for cause or no cause. Pacific requires 30 days notice from its customers seeking to terminate a collocation arrangement. Except for cases of breach, for which it requires 60 days' notice, Lincoln does not require any advance notice of termination by the interconnectors. SNET requires interconnectors to provide six months notice of their intentions to terminate. Rochester states that its tariff does not contain termination notification provisions specifically applicable to expanded interconnection and that interconnectors may terminate an interconnection arrangement under "standard connection and disconnection intervals." b. Discussion 365. We conclude that an interconnector's failure to comply with certain tariff provisions could have potentially serious consequences for the LEC, and that tariff provisions permitting termination may offer the LEC a reasonable mechanism for assuring compliance with tariff provisions that are essential for protecting the integrity of the LEC's network and financial investment. Nevertheless, because the current record does not permit us to determine all the possible circumstances that would warrant termination of service, we believe that individual determinations of whether a LEC termination of an interconnector's service was warranted will have to be addressed in a formal complaint proceeding in which the specific facts may be fully examined. We emphasize, however, that LECs may not terminate physical collocation service for minor infractions of the tariff provisions. 366. We find that if a LEC determines that termination is warranted, the interconnector should receive reasonable notice and an opportunity to cure any tariff violation. Accordingly, we order all LECs that currently provide interstate physical collocation under tariffs subject to this investigation to include language in their tariffs stating that they will not terminate an interconnector's service for violating a tariff provision unless the interconnector has been given notice and an opportunity to cure the violation. 367. We also find that it is unreasonable for LECs to terminate interconnection for reasons related to issues raised in a pending Section 208 complaint. We decline, however, to adopt Teleport's proposal that "the Commission should as a matter of policy routinely require continuation of service during a Section 208 complaint[.]" In cases in which an interconnector has filed a complaint with the Commission, we will consider on a case-by-case basis whether to grant injunctive relief requiring the LEC to continue service during the complaint's pendency. As a general matter, however, we believe that the notice procedures outlined below are sufficient to protect the interconnectors from unnecessary and premature termination. 6. Catastrophic Loss a. Background 368. Of the six LECs currently offering interstate physical collocation under tariffs subject to this investigation, only Lincoln and NYNEX include provisions governing catastrophic loss in their expanded interconnection tariff. When damage to the central office can be repaired, these carriers state that they will repair the damage as quickly as possible, and that fees charged to the interconnector will be apportioned according to the amount of usable floor space until the repair is completed. In the event the central office is damaged extensively and must be abandoned, NYNEX's tariff states that the LEC may terminate the interconnection arrangement on 90 days' notice; Lincoln will terminate the interconnection agreement on 60 days' notice. Nevada states that the provisions in its general access tariff governing man-made and natural disasters also apply to its interconnection tariff. 369. In the Designation Order, the Bureau asked the LECs with tariffs that specify the time period in which the LECs are willing to inform interconnectors of their plans to rebuild or relocate a central office following a catastrophic loss to justify those time periods. The Bureau also requested that the parties discuss whether the LECs' tariffs should specify the conditions under which a LEC will provide alternative facilities following a catastrophic loss, the amount of time in which LECs must provide alternative facilities in such an event, and whether the LEC or the interconnector should be responsible for the costs of repairs or relocation. Finally, the Bureau asked the parties to comment on whether the LECs' tariffs should address obligations of interconnectors and LECs when an interconnector is responsible for a catastrophic loss. b. Discussion 370. We recognize that the LECs' ability to respond to a catastrophic event, one resulting in substantial damage to the central office or physical collocation space, will depend on several factors, including the LECs' resources, the extent of the damage, the geographic location of the central office, and the availability of contractors. We believe it would be a difficult, if not an impossible task, for LECs to address, in their tariffs, all potential contingencies arising from a catastrophic event. We decline, therefore, to require LECs to include tariff provisions that would specify, in the event of a catastrophic loss, the conditions under which they will provide alternative facilities, the amount of time that would be needed to provide alternative facilities, or the party that would be responsible for the costs of repairs or relocation. Nevertheless, we believe that it is reasonable to require LECs to state in their tariffs that in the event of a catastrophic loss, resulting in damages to the central office and the physical collocation space, they will inform interconnectors of their plans to rebuild as soon as is practicable and that they will restore service to interconnectors as soon as practicable. We believe that this requirement will not interfere with the LECs' business decisions and will provide interconnectors with assurance that their service will be restored as quickly as possible. 7. Relocation a. Background 371. In the Designation Order, the Bureau directed the parties to state (1) how much advanced notice they will give interconnectors for relocating an interconnector's space; (2) the conditions under which the LEC will require relocation; and (3) the charges, if any, for relocation. 372. In its tariff, NYNEX reserves the right to relocate an interconnector's nodes if relocation is required as a result of a legal obligation, a taking by eminent domain, the need to install additional facilities, or an emergency. NYNEX will give the interconnector advance notice in all cases, except emergencies, but does not specify the length of advance notice. In an emergency, NYNEX will use "reasonable efforts" to give advance notice. Pacific states that it has not attempted to specify all of the conditions under which it would be necessary to relocate an interconnector, but that such circumstances would include unexpected growth, technological or regulatory changes, "or other developments that are inherently unforeseeable." Pacific also states that it provides 90 days' written notice before relocating customers within the same central office. Nevada states that its tariff does not authorize it to relocate an interconnector but that, if relocation is necessary because of unexpected demand, Nevada will amend its tariff to permit relocation under specified conditions. Rochester states that it does not reserve the right to relocate an interconnector's equipment unilaterally and states that it would expect to resolve such issues through good faith negotiation. SNET provides six months' notice to the customer when its equipment must be relocated. Lincoln's tariff does specify a notice period, but the company states that it will negotiate a schedule with the interconnector. Lincoln's tariff states that "under a `force majeure' situation, the delayed party shall give immediate notice to the other." b. Discussion 373. We believe LECs should be permitted to relocate interconnectors to another central office when unusual circumstances make such relocation necessary. For example, LECs may reasonably require interconnectors to relocate when a central office is taken by eminent domain, when a state commission requires a LEC to move its central office, or when an unsafe or hazardous condition makes abandonment of a central office necessary. In such cases, relocation of an interconnector may be necessary because of circumstances beyond the LEC's control. In addition, a LEC may make a reasonable business decision to sell a central office or close a central office because of network engineering considerations. We believe that relocation under these circumstances also would not be unreasonable because an interconnector's presence in a LEC's central offices should not prevent a LEC from making reasonable business decisions regarding the number of central offices or their locations. As we stated in the Special Access Expanded Interconnection Order, however, we will not permit LECs to relocate interconnectors to another central office for other reasons, absent extraordinary circumstances. 374. We require LECs that currently provide interstate physical collocation service under tariffs subject to this investigation to state in their tariffs that, if they reasonably relocate interconnectors to another central office, they will make all reasonable efforts to minimize disruption of the interconnectors' services. In addition, we require that if these LECs relocate interconnectors to either a central office at a new location or to a new location within the central office for reasons other than an emergency, they provide interconnectors with at least 180 days' advance written notice. We find that a shorter period may not provide interconnectors with the time they need to execute an orderly relocation plan that minimizes disruption in service to the interconnectors' customers. 375. Finally, we do not have enough information in the record to determine the circumstances that would justify requiring a LEC to bear the cost of relocating an interconnector. We expect that such cases will occur infrequently and that, if they do occur, the parties will attempt to negotiate all the terms of a relocation. If necessary, we will address this issue at a later time. 8. Dark Fiber 376. In the Designation Order, the Bureau required Bell Atlantic, BellSouth, SWB, and US West, the only LECs that were required to provide dark fiber service, to state whether their expanded interconnection tariffs prohibit or permit a collocator to cross-connect to LEC-provided dark fiber service in the same way in which an interconnector would cross-connect to LEC- provided DS1 or DS3 service. Because these LECs are not among the six LECs currently providing physical collocation within the context of this investigation, this issue is moot, and we give it no further consideration in this proceeding. 9. Channel Assignment a. Background 377. In the Designation Order, the Bureau directed the LECs to explain the limits they had imposed on the interconnectors' ability to make their own channel assignments. Lincoln, Nevada, Pacific, SNET, and Rochester permit interconnectors to designate the channel facility assignments for their circuits. NYNEX permits interconnectors to designate channel facility assignments in its New York central offices, but it reserves the right to designate channel facility assignments in its New England central offices. b. Discussion 378. Channel facility assignment refers to the designation of the individual derived channels within a high capacity facility. When the interconnector retains control of the channel facility assignment, it is able to design the network configuration between its customer and the LEC's main distribution frame by designating which channel facilities a LEC must connect to specific channels on the interconnector's own network. Based on the record, it appears that, with the exception of NYNEX's New England offices, all six LECs that currently offer interstate physical collocation subject to this investigation already permit the interconnector to assign the channel facilities on the LEC's side of the network to match the channel facilities on its own network. By contrast, in NYNEX's New England offices, the ordering system is fully automated, and the channel facility assignments are made mechanically at the time the orders are processed. In this situation, the interconnector must wait for NYNEX to provide it with a design layout record that designates which of the channels the LEC will connect to its end user. NYNEX explains that it is currently developing a mechanized solution that will give the interconnector the capability to designate the assignment when it places its order for initial services. 379. We therefore require LECs to permit interconnectors to control channel assignment in a physical collocation arrangement. The record indicates that a process that permits interconnectors to designate channel facility assignments is not overly burdensome for the LEC and is more efficient and less costly for the interconnector. Accordingly, within 180 days from the date this order is released, we order all LECs currently offering physical collocation to develop the capability and to state in their tariffs that they will allow the interconnector to designate the channel facility assignments for non-multiplexed channels. 10. Letters of Agency a. Background 380. In the Designation Order, the Bureau directed the parties to discuss the reasonableness of requiring LECs to accept letters of agency (LOA) from interconnectors' customers for ordering and billing of access services. With the exception of SNET and Nevada, all LECs currently offering physical collocation indicate that they either accept, or are willing to accept, LOAs for ordering and billing for expanded interconnection services. Nevada states that its tariff does not authorize or prohibit the use of LOAs, and SNET states that this issue is not applicable to SNET's physical collocation service. b. Discussion 381. We require all LECs currently providing interstate physical collocation service under tariffs subject to this investigation to revise their tariffs to state that they will accept LOAs for ordering and billing purposes. We find that the record supports this requirement because it is a widely accepted business practice and all LECs currently providing physical collocation appear to be willing to accept LOAs that authorize interconnectors' customers to order and be billed for expanded interconnection services. Moreover, we find that permitting the use of LOAs will allow interconnectors to compete more efficiently with LECs because LOAs allow interconnectors to lower their costs by eliminating duplicative administrative functions. We also conclude that because most LECs appear to permit the use of LOAs in connection with other special and switched access services, it would be unreasonably discriminatory for LECs to refuse to honor LOAs that authorize interconnectors' customers to order and be billed for expanded interconnection service. 11. Billing from State/Interstate Tariffs a. Background 382. In the Designation Order, the Bureau directed LECs to discuss the reasonableness of using the ten percent rule to determine if interstate or intrastate tariffs should apply, and, specifically, "how the ten percent rule, as used in the LECs special access tariffs, should apply to the rate elements in the collocation tariffs." LECs that opposed using the ten percent rule were directed to explain why the alternative they prefer is more reasonable. The Bureau also directed the parties to discuss these issues as applied to switched access charges. 383. Lincoln, Nevada, Pacific, and SNET state that they do not tariff intrastate expanded interconnection. Rochester states that interconnectors using Rochester's expanded interconnection services will do so for the purpose of providing special access service and, because the rule applies to special access service, "there is no reason the 10 percent rule should not apply." NYNEX's tariff states that nonrecurring and recurring charges for expanded interconnection will be apportioned based on the percent interstate use (PIU) of all services provided to the customer's node; the PIU must be supplied by the customer. b. Discussion 384. The "ten percent rule," which was adopted by the Commission in 1989 on recommendation of the Joint Board, requires LECs to assign 100 percent of the costs of a special access line to the interstate jurisdiction if more than 10 percent of the traffic on the line is interstate. The Commission adopted this rule because of the difficulties in determining the jurisdiction of traffic on special access lines, which are not connected to a LEC switch at which traffic can be measured. The Commission adopted this non-usage based separation method for special access lines to avoid administrative problems associated with determining jurisdictional separations on a usage basis. The ten percent rule, however, does not apply to traffic on the switched network because the LECs can determine the jurisdiction of switched traffic through measurements at their switches. Using the data captured by its switch, a LEC can allocate costs to interstate traffic based on the percentage of interstate usage (PIU). 385. LECs provide both special access and switched transport expanded interconnection through physical collocation. The record indicates that NYNEX apportions the nonrecurring charges for the initial construction of the multiplexing node and the recurring charges for space and power based on PIU. The PIU NYNEX uses is based on the proportions of intrastate and interstate entrance facilities, in voice grade equivalents, that are connected to the multiplexing node. In the case of special access services, the jurisdiction of each entrance facility is determined by the customer when it orders the facility. In the case of switched access services, the entrance facilities are apportioned between intrastate and interstate jurisdictions, in voice grade equivalents, based on the percentage of usage that is intrastate or interstate over those facilities, as measured by NYNEX or as reported by the interconnector. The combination of switched and special access voice grade equivalents, by jurisdiction, determines the total PIU for the multiplexing node. 386. Based on the record before us, we cannot conclude that the tariff provisions at issue in this investigation that use either the ten percent rule or PIU are unreasonable for interstate ratemaking purposes. Although it appears that NYNEX's approach is a feasible method for determining interstate and intrastate usage of a physical collocation arrangement, we are unable to conclude, on this record, that it is appropriate to prescribe this approach for all LECs. 12. Payment of Taxes a. Background 387. In the Designation Order, the Bureau requested that any LEC with tariff provisions requiring that interconnectors pay all taxes to explain why it is reasonable to include such a requirement in a physical collocation tariff. Lincoln's tariff requires interconnectors to pay all such taxes promptly, and to provide Lincoln with appropriate documentation that they have paid these taxes. b. Discussion 388. We find that it is unreasonable for a LEC to require interconnectors to demonstrate to the LEC that they have paid their taxes. Whether interconnectors pay their taxes promptly would has no impact on the service LECs provide interconnectors and is therefore of no concern to any LEC. Accordingly, we order Lincoln and any other LEC subject to this investigation with similar provisions to delete such language from their tariffs. F. Compliance Filings 1. Rate Structure, Direct Costs, and Overhead Loadings a. Introduction 389. As discussed in Sections III.B and III.C, we find that certain rate structures and certain direct costs contained in the physical collocation tariffs of Ameritech, Bell Atlantic, BellSouth, Central, CBT, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, SNET, SWB, and US West are unlawful. We also find, as discussed in Section III.D, that the overhead loadings contained in the physical collocation tariffs of Ameritech, Bell Atlantic, BellSouth, Central, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, and US West are unlawful. We will determine the lawfulness of the overhead loadings contained in the physical collocation tariffs of CBT and SWB when we resolve the requests by these companies for confidential treatment of the overhead loading and direct cost data they submitted for their comparable DS1 and DS3 services. 390. We order those LECs that still have in effect physical collocation tariffs that were designated for investigation in CC Docket No. 93-162 -- Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET -- to submit tariff revisions and plans for issuing refunds, as described below. Moreover, we order Ameritech, Bell Atlantic, BellSouth, Central, CBT, GTOC, SWB, and US West, the LECs that phased out physical collocation service following the Virtual Collocation Order, to submit plans for issuing refunds, as described below. b. LECs That Still Have in Effect Physical Collocation Tariffs That Were Designated for Investigation in CC Docket No. 93-162 391. We order Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET to revise their tariffs to establish their rates in accordance with Sections III.B, III.C, III.D, and Appendix C of this Order. These companies must submit tariff revisions establishing new rates, with full explanations of how they have complied with the findings in this Order, no later than 45 days from the release date of this Order. In particular, these LECs must file new TRP charts for each function for which we make a direct cost or an overhead loading disallowance in this Order. These new TRP charts must set forth each LEC's revised investments, direct costs, overhead loading factors, and rates in the format the Bureau required in the Designation Order. 392. We further order these companies to refund, with simple interest, the difference between the rates that result from the direct cost or overhead loading disallowances we make in this Order and the actual rates charged to those customers subscribing to physical collocation services of these LECs between December 15, 1994 and the day before each LEC's new physical collocation rates take effect pursuant to this Order. All refunds shall be calculated in accordance with the requirements established in Sections III.A, III.B, III.C, III.D, and Appendix C of this Order. The companies are ordered to submit plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority within 45 days of the release of this Order. Interest shall be computed on the basis of interest rates specified by the United States Internal Revenue Service. These LECs' refund plans must contain full explanations of how they have complied with the findings of this Order. c. LECs That Phased Out Physical Collocation Service Following the Virtual Collocation Order 393. We order Ameritech, Bell Atlantic, BellSouth, Central, GTOC, and US West to refund, with simple interest, the difference between the rates that result from the direct cost or overhead loading disallowances we make in this Order and the actual rates charged to those customers subscribing to physical collocation services of these LECs between December 15, 1994 and the date each LEC discontinued providing physical collocation service. All refunds shall be calculated in accordance with the requirements established in Sections III.A, III.B, III.C, III.D, and Appendix C of this Order. The companies are directed to submit their plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority within 45 days of the release of this Order. Interest shall be computed on the basis of interest rates specified by the United States Internal Revenue Service. These LECs' refund plans must contain full explanations of how they have complied with the findings of this Order. In particular, these LECs must file new TRP charts for each function for which we make a direct cost or an overhead loading disallowance in this Order. These new TRP charts must set forth each LEC's revised investments, direct costs, overhead loading factors, and rates in the format the Bureau required in the Designation Order. 394. We also order CBT and SWB to refund, with simple interest, the difference between the rates that result from the direct cost disallowances we make in this Order and the actual rates charged to those customers subscribing to physical collocation services of these LECs between December 15, 1994 and the date each LEC discontinued providing physical collocation service. All refunds shall be calculated in accordance with the requirements established in Sections III.A, III.B, III.C, and Appendix C of this Order. The companies are directed to submit their plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority within 45 days of the release of this Order. Interest shall be computed on the basis of interest rates specified by the United States Internal Revenue Service. These LECs' refund plans must contain full explanations of how they have complied with the findings of this Order. In particular, these LECs must file new TRP charts for each function for which we make a direct cost disallowance in this Order. These new TRP charts must set forth each LEC's revised investments, direct costs, and rates and unrevised overhead loading factors in the format the Bureau required in the Designation Order. 395. The investigation and accounting order imposed by the Common Carrier Bureau in CC Docket No. 93-162 for the physical collocation tariffs of CBT and SWB will remain in effect pending resolution of the requests by these companies for confidential treatment of the overhead loading and direct cost data they submitted for their comparable DS1 and DS3 services. If, at the conclusion of this investigation, we determine that the overhead loading factors that CBT and SWB assigned to physical collocation services resulted in rates that are above just and reasonable levels, we will require CBT and SWB to pay additional refunds to customers that purchased physical collocation service from these LECs during the period from December 15, 1994 to the date each LEC discontinued providing physical collocation service. 2. Terms and Conditions 396. We also find unlawful certain terms and conditions appearing in the physical collocation tariffs of Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET. We address only the terms and conditions for physical collocation service offered by these LECs because retroactive application of modified terms and conditions can have no practical effect upon LECs that no longer provide interstate physical collocation service under the tariffs subject to this investigation. We order Lincoln, Nevada, NYNEX, Pacific, Rochester, and SNET to file tariff revisions reflecting our findings in this investigation, as specified in Section III.E of this Order, no later than 45 days from the release date of this Order. IV. BELLSOUTH'S PETITION FOR RECONSIDERATION OF THE INTERIM OVERHEAD ORDER A. Background 397. On June 9, 1993, the Bureau released the Physical Collocation Tariff Suspension Order to address several petitioners' concerns that certain LECs were using an overhead costing methodology to price their interconnection service in an anticompetitive manner. The Bureau determined that LECs had failed to justify their overhead loadings because they did not provide adequate data on comparable service offerings. The Bureau partially suspended the LECs' expanded interconnection rates because they included, without adequate explanation, overhead loadings that exceeded overhead loadings the Bureau derived from ARMIS data for special access services. In addition, the Bureau adjusted the overhead loadings to eliminate double-counting of overhead costs. 398. In the Designation Order, released on July 23, 1993, the Bureau directed the LECs to file the overhead loading factors they had used to develop each expanded interconnection rate element, to explain the basis for these factors, and to demonstrate how the factors were derived. On November 12, 1993, we released the Interim Overhead Order, which stated that the LECs had still not presented persuasive overhead cost showings with sufficient detail and explanation to justify their proposed overhead loading factors, although they had ample opportunity to do so. Accordingly, we found the LECs' rates for expanded interconnection service unlawful, and pursuant to authority under Sections 154(i), 201 and 205 of the Communications Act, 47 U.S.C.  154(i), 201, 205, we prescribed the maximum permissible overhead loading factors to be used in calculating interim rates for expanded interconnection services pending further investigation. 399. In prescribing the maximum permissible overhead loading factors for expanded interconnection rates for the interim period, we concluded that the ARMIS-based overhead levels used in the Physical Collocation Tariff Suspension Order continued to represent the best currently available, verifiable, and reasonable surrogate for the upper limits on overhead loading factors. We emphasized, however, that we were not finding that ARMIS-FDC overhead levels were the only verifiable and reasonable upper limits for overhead loading levels for expanded interconnection service, or much less the ideal upper limits for overhead loading levels for this service. We stated that we would continue to examine this issue and that our interim prescription was subject to a two-way adjustment mechanism to protect both interconnectors and LECs if further investigation revealed that refunds or supplemental payments would be warranted at the conclusion of the physical collocation tariff investigation. B. Pleadings 400. On December 13, 1993, BellSouth filed a petition for reconsideration of the Interim Overhead Order in which it contends that the Commission's interim rate prescription was an unlawful exercise of its authority. According to BellSouth, Section 4(i) provided no basis for the interim prescription because the interim prescription was inconsistent with the requirements of Sections 204 and 205 of the Act. Specifically, BellSouth claims that because the Commission failed to make a determination that BellSouth's rates were "unjust and unreasonable" as required under Section 204(a) of the Act, it was obligated to permit its tariffs to go into affect after a five month suspension period. Additionally, BellSouth claims that the Commission did not provide for a full hearing or prescribe "just and reasonable" rates as required by Section 205. According to BellSouth, a prescribed rate under Section 205 must be determined to be just and reasonable. BellSouth argues that when the Commission determines a rate to be just and reasonable, it cannot subsequently find that same rate to be unjust and unreasonable by implementing, at some future date, a two-way adjustment mechanism. BellSouth further argues that the Commission's reliance on Lincoln Telephone Telegraph v. FCC ("Lincoln Telephone") is misplaced because unlike this case, Lincoln Telephone did not involve carrier-initiated rates and a Section 204 proceeding. 401. On February 4, 1994, Ameritech filed comments in support of BellSouth's petition. Ameritech contends that the Commission's attempt to prescribe rates, while at the same time allowing refunds, improperly blends its authority to order refunds under Section 204 with its authority to prescribe rates prospectively under Section 205 of the Act. Ameritech contends that the Commission must either act under Section 204(a) and allow the filed rates to become effective subject to a suspension and accounting order, or prescribe just and reasonable rates under Section 205. 402. MFS, Ad Hoc Telecommunications Users Group (Ad Hoc), and ALTS filed comments in opposition to BellSouth's petition for reconsideration in which they argue that the interim prescription was a proper exercise of the Commission's authority under Section 4(i) and Section 205 of the Act. ALTS argues that Section 205 grants the Commission substantial latitude in structuring a rate prescription, that when it imposed a maximum overhead rate level based on ARMIS FDC cost overhead levels, the Commission was well within the authority granted it by that section, and that the Commission's inability to prescribe a final rate does not undermine the validity of its conclusion that the proposed rates were unlawful. ALTS, Ad Hoc, and MFS maintain that Lincoln Telephone supports the Commission's authority to prescribe an interim rate. ALTS and MFS further contend that the result BellSouth is seeking is inconsistent with the Commission's goals for expanded interconnection and the public interest because the carrier seeks to have the Commission either allow unlawful tariffs to go into effect or reject the tariffs, and deny the interconnectors and their customers the benefit of expanded interconnection. ALTS asserts that BellSouth's interpretation of the Act would effectively permit a LEC to refuse to submit sufficient evidence to enable the Commission to make a determination about the reasonableness of the LECs' rates and then require that those rates become effective because a determination about reasonableness was not possible. 403. In its reply, BellSouth argues that the oppositions of ALTS, MFS, and Ad Hoc are predicated on incorrect factual assumptions or a misapplication of the prevailing law. BellSouth maintains that the Interim Overhead Order does not mandate a just and reasonable prescription because the interim prescription is subject to a two-way adjustment mechanism which may require either refunds or retroactive charges. BellSouth contends that in the Interim Overhead Order, the Commission improperly blended its authority to order refunds in Section 204(a) with its authority to prescribe rates prospectively under Section 205. C. Discussion 404. In the Interim Overhead Order, we relied primarily on Section 4(i) of the Telecommunications Act for our authority to prescribe an interim rate. Section 4(i) grants this Commission discretionary authority to "perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with [the] Act, as may be necessary in the execution of its functions." Indeed, our authority to prescribe interim rates as a necessary consequence of our responsibilities under Sections 204 and 205 was affirmed by the United States Court of Appeals for the District of Columbia Circuit in Lincoln Telephone, a case that we cited for support of our position in the Interim Overhead Order. In Lincoln Telephone, the court held that an interim collection billing and collection system subject to later adjustment was a valid exercise of the Commission's authority under Section 4(i), clearly supporting our authority to prescribe interim rates under this section when helpful and necessary to implement our orders. We disagree with BellSouth's assertion that our reliance on Lincoln Telephone was misplaced. We find that Lincoln clarifies that prescribing an interim rate is a valid exercise of discretionary power given the Commission by Section 4(i) and does not become inconsistent with the Act when it is accompanied by a two-way adjustment mechanism. 405. We reject BellSouth's argument that we lacked sufficient information to make a determination with respect to the justness and reasonableness of BellSouth's rates and that the interim rate prescription was, therefore, inconsistent with the requirements of Section 204(a). Section 204(a) of the Act states that carriers, not this Commission, have the burden of proving that their rates are just and reasonable. In the Special Access Expanded Interconnection Order, we required LECs to justify their physical collocation tariffs using the "new services test." Under the new services test, LECs must file detailed cost support to enable the Commission to make a conclusive finding that the rates derived on the basis of such costs are just and reasonable. Cost support under the new services test must include engineering studies, time and wage studies, or other cost accounting studies that identify the costs of providing the new service. Notwithstanding these clear and specific filing requirements, all LECs that filed a physical collocation tariff generally failed to provide adequate support for their overhead loading factors. Partly as a result of the LECs' failure to explain and justify their overhead loading factors, the Bureau suspended and initiated an investigation into the LECs' physical collocation tariffs. 406. LECs that were required to provide physical collocation were given another opportunity to justify their overhead loading factors when they filed their direct cases in response to the Bureau's Designation Order. In that order, the Bureau directed the LECs to explain how they developed their overhead loading factors for each rate element of expanded interconnection because, in most cases, the LECs' overhead factors exceeded, without explanation, those calculated by the Bureau in the Physical Collocation Tariff Suspension Order. Specifically, the Bureau required the LECs to file the overhead factors they had used to develop each rate element of expanded interconnection service, to explain the basis for these factors, and to demonstrate how they were derived. To the extent that overheads varied among expanded interconnection rate elements, LECs were asked to explain why. In response to theDesignation Order, all LECs, including BellSouth, filed direct cases that failed to include all the information requested by the Bureau. Hence, despite repeated directions from the Bureau that LECs provide cost support and explanations for their overheads, the LECs failed to submit adequate cost justification for their high levels of overhead loadings assigned to physical collocation services. 407. In the Interim Overhead Order, we specifically noted that the LECs had failed to meet their burden of proof and therefore concluded that their overhead loading factors were unjust and unreasonable, and therefore unlawful: In view of the numerous deficiencies in the LECs' direct cases, we find that the LECs have thus far justified neither their overhead loading factors nor their comparisons based on closure factors using prospective costs. Based on the current record, the LECs have failed to meet their burden of proof under Section 204(a) of justifying their proposed overhead loadings for expanded interconnection services. Although our Orders permit LECs to use any reasonable level of overheads, the current levels have not been justified as reasonable. Accordingly, based on the current record, we must find the LECs' originally filed rates for expanded interconnection to be unlawful. Contrary to BellSouth's argument, therefore, the Commission made a clear finding that the LECs' rates were unjust and unreasonable and therefore unlawful. We found that under Section 204(a), LECs have the burden of proving that their rates are "just and reasonable," and that LECs in this case failed to meet this burden after receiving ample opportunity to do so. Accordingly, we were within our statutory authority to declare their rates unjust and unreasonable. 408. We also reject BellSouth's arguments that we did not offer a full opportunity for hearing and our interim rate was unreasonable because it was subject to a future adjustment. As discussed above, the LECs, including BellSouth, participated in a hearing in which they failed to provide adequate cost support, despite repeated direction from the Bureau that they provide such data. Further, we reject BellSouth's assertion that the interim rate was not just and reasonable. We find that our interim prescription of maximum permitted overhead loading factors was just and reasonable because it was derived from the overhead loading factors assigned to special access services that compete with services provided by interconnectors. We find that assigning to physical collocation service the overhead loading factors of LEC services that face competition from interconnectors is reasonable because these services are comparable to services provided by interconnectors. We made this prescription on the basis of the best surrogate data available subject to a two-way adjustment mechanism. In our view, an interim rate prescription subject to future adjustment is a rate set using the best available data and should not necessarily represent the compensation that ultimately will be received for the service provided. Once a fair and reasonable rate can be determined and a permanent rate is established, the two-way adjustment enables the difference between the interim and the final rates to be refunded to the appropriate party. Thus, the interim rate assures that a fair and reasonable rate will ultimately be established and that no party will be prejudiced. 409. To accept BellSouth's interpretations of these sections of the Communications Act would effectively eviscerate our authority under these provisions by giving the LECs an incentive to withhold data justifying their rates, while preventing this Commission from rejecting the rates because of the insufficient justification. As we stated in the Interim Overhead Order, without the authority to prescribe an interim rate once we determine that the LECs' rates are unlawful, we would have been faced with the choice of either removing expanded interconnection service for lack of lawful rates or allowing rates to return to their originally filed rates, thereby discouraging customers from taking expanded interconnection due to the excessive costs. We reaffirm our conclusion that these alternatives would have frustrated the public interest by delaying the benefits of expanded interconnection service. The interim overhead rate prescription was thus necessary to ensure that rate levels were based on a reasonable overhead loading factor pending further investigation and was a proper exercise of our authority under Sections 4(i), 204(a) and 205 of the Act. 410. Accordingly, we deny BellSouth's petition for reconsideration of the Interim Overhead Order. V. APPLICATIONS FOR REVIEW OF THEPHYSICAL COLLOCATION TARIFF SUSPENSION ORDER A. Background 411. On July 9, 1993, NYNEX, SWB, and US West filed applications for review of the Physical Collocation Tariff Suspension Order. In the Physical Collocation Tariff Suspension Order, the Bureau found that the LECs' expanded interconnection tariffs raised significant questions of lawfulness regarding rate levels, rate structures, and terms and conditions that warranted investigation. The order, among other things, partially suspended the LECs' special access expanded interconnection tariffs pursuant to Section 204(a) of the Communications Act, initiated an investigation into the lawfulness of these tariffs, imposed an accounting order, rejected patently unlawful terms and conditions, and ordered certain tariff revisions. 412. The applications for review essentially raise three issues. First, all three LECs contend that the Bureau did not have authority to prescribe interim rates for a new service under Section 204(a). Second, SWB contends that, even if the Bureau had authority to prescribe interim rates, the methodology applied by the Bureau in prescribing interim rates was "arbitrary." Third, US West and NYNEX raise issues regarding collocation in leased central offices: US West contends that the Bureau unlawfully ordered the LECs to offer physical and virtual collocation in leased offices, while NYNEX seeks clarification of the Bureau's requirements for waiver of the obligation to provide collocation in leased offices. We discuss each of these issues in turn. For the reasons discussed below, we deny the applications for review and affirm the actions taken by the Bureau in the Physical Collocation Tariff Suspension Order. B. Discussion 1. Authority Under Section 204(a) to Partially Suspend Rates 413. All three LECs contend that the Physical Collocation Tariff Suspension Order exceeds the authority of the Commission under Section 204(a). The LECs argue that the Bureau's "partial suspension" of the LECs' proposed rates for special access expanded interconnection is tantamount to a prescription of rates for a new service, which is not authorized under Section 204(a). They argue that rate prescriptions are only authorized under Section 205, and the Bureau did not cite that provision as authority for its action or follow the procedural requirements of that section. They further argue that the Bureau's action under Section 204(a) is not supported by legislative history or case authority. They assert that the legislative history indicates that Section 204(a) only permits the Commission to suspend portions of rate changes for existing services, not new services. 414. We find that the authority granted to the Commission in Section 204(a), and specifically invoked by the Bureau in the Physical Collocation Tariff Suspension Order, permits partial suspension of rates pending an investigation. Section 204(a)(1) of the Act states in relevant part: Whenever there is filed with the Commission any new or revised charge, classification, regulation or practice, the Commission may . . . enter upon a hearing concerning the lawfulness thereof; and pending such hearing . . . may suspend the operation of such charge, classification, regulation or practice, in whole or in part but not for longer period than five months beyond the time when it would otherwise go into effect . . . . 415. We find that the plain language of Section 204(a) permits suspension of a charge "in whole or in part" for five months beyond the period when it would otherwise go into effect. A fundamental principle of statutory interpretation holds that when the language of a statute is clear, an examination of legislative history is unwarranted. Moreover, contrary to the LECs' argument, we find nothing in the legislative history to indicate that the Bureau's partial suspension authority is limited to existing services. The statute explicitly states that it applies to "new or revised" charges, and the LECs have not directed us to legislative history or case law interpreting Section 204(a) that contradict our interpretation. 416. Furthermore, we disagree that the Bureau's action was in effect a Section 205(a) prescription. The Physical Collocation Tariff Suspension Order simply ordered that the carrier's proposed rates for expanded interconnection be partially suspended, which had the effect of temporarily establishing interim rates based on the remaining charges filed by the carriers. As explained above, this action is consistent with our authority under Section 204(a). Furthermore, we believe the Bureau was fully justified in taking this action because a total suspension would have deprived customers of service during the suspension period, and investigation without a five-month suspension could have subjected customers to excessive rates. We find that the Bureau's action ensured that expanded interconnection would be available, without interruption, at rate levels that better enabled interconnectors to provide economically efficient competition during the first five months of this investigation. 2. The Bureau's Methodology for Making Partial Disallowances 417. Separately, SWB contends that, even if the Bureau had authority to prescribe interim rates under Section 204(a), the methodology the Bureau applied was "arbitrary." Specifically, SWB complains that the order fails to justify why the Bureau made reductions to SWB's direct costs for four of its proposed rate elements -- conduit, DC transmission power, DS1 interconnection cross connect and DS3 interconnection cross connect, that, contrary to the Bureau's findings, the overhead loading methods used by SWB were sufficiently explained in its filing and reply comments, and the overhead loading factors substituted by the Bureau in its recalculation of SWB's rates were based upon improper use of ARMIS data, and that the manner in which the Bureau adjusted ARMIS data to calculate new overhead loading factors incorrectly exclude all of the land and building investment amounts from its general support facilities costs. 418. We reject SWB's argument that the methodology applied by the Bureau was "arbitrary." Under the new services test, LECs must file detailed cost support that includes engineering studies, time and wage studies, or other cost accounting studies that identify the costs of providing the new service. Notwithstanding these requirements, the LECs did not submit cost data with sufficient detail and explanation to enable the Commission to make a conclusive finding that the rates derived on the basis of those costs were just and reasonable. Absent such information, the Bureau determined that overhead loading factors based on ARMIS data represented the best currently available, verifiable and reasonable surrogate for the upper limits of overhead loading factors for expanded interconnection. Accordingly, we find that the Bureau did not arbitrarily suspend the LECs' overhead loading factors to the extent those factors exceeded those derived from ARMIS-based FDC data for the interim tariff investigation period. Furthermore, we reject SWB's argument that the Bureau incorrectly calculated its direct costs for four of its rate elements and affirm the method applied by the Bureau which we apply in this investigation. We therefore affirm the Bureau's decision in the Physical Collocation Tariff Suspension Order to the extent consistent with our current findings in this order. 3. Expanded Interconnection in Leased Offices 419. US West contends that the Physical Collocation Tariff Suspension Order unlawfully requires US West to secure agreements from parties from whom it rents central office space to allow collocation at those central offices. It asserts that it will face additional burdens, ranging from increased rental rates to guarantee requirements. While US West states that it does not oppose this collocation requirement for future lease agreements, it urges the Commission to reverse that part of the order that applies the requirement to leases that were in effect at the time the Special Access Expanded Interconnection Order became effective. NYNEX, on the other hand, seeks clarification of the Bureau's holding regarding the LECs' responsibility to provide expanded interconnection in leased offices. Specifically, NYNEX asks the Commission to clarify -- for offices leased subsequent to the effective date of the Special Access Expanded Interconnection Order -- what would constitute "extraordinary circumstances" in order for a LEC to be entitled to a waiver of the collocation requirement in leased offices. 420. Federally tariffed interstate physical collocation is no longer mandatory in light of the June 10, 1994 decision of the U.S. Court of Appeals for the District of Columbia Circuit in Bell Atlantic v. FCC. In Bell Atlantic, the D.C. Circuit vacated in part the first two of the Commission's expanded interconnection orders on the ground that the Commission lacked authority under the Communications Act of 1934 to require LECs to provide expanded interconnection through physical collocation. The D.C. Circuit remanded the Commission's orders to permit the Commission to consider whether and to what extent to impose virtual collocation requirements in the absence of a physical collocation requirement. Because tariffed interstate physical collocation is no longer mandatory, US West's complaint regarding the requirement that LECs provide physical collocation if all leased central offices is moot. We also find that NYNEX's request for clarification of the requirements for obtaining a waiver of the provision of physical collocation in leased offices is moot. With respect to the provision of virtual collocation in leased offices, we affirm the Bureau's conclusion that "[w]aiver of virtual collocation is not justifiable on the ground that the office is leased by the LEC because virtual collocation does not require permitting third-party access to LEC premises." Requests to waive the provision of virtual collocation in leased offices will be granted on the same basis as requests to waive provision of virtual collocation in owned offices, i.e., only if the LEC has proven that there is insufficient space to provide virtual collocation. VI. BELL ATLANTIC'S PETITION FOR CLARIFICATION OF THE SUPPLEMENTAL DESIGNATION ORDER A. Background 421. In the Special Access Expanded Interconnection Order, we prohibited the LECs from pricing, on an individual case basis (ICB), certain connection charge elements, including the labor and material charges for initial preparation of central office space under physical collocation. We stated that time and materials charges for central office construction could reasonably be uniform within each LEC's central office and we therefore required uniform per unit pricing for these elements. On May 31, 1994, the Bureau released a Supplemental Designation Order and Order to Show Cause (Supplemental Designation Order) to designate for investigation additional issues raised in oppositions to direct cases filed in response to the Bureau's earlier Physical Collocation Tariff Suspension Order. These new issues related to certain LECs' use of time and material charges for central office construction for physical collocation. Specifically, several commenters raised concerns that certain LECs' tariffs failed to include specific costs and rates for construction as required by the Special Access Expanded Interconnection Order. In the Supplemental Designation Order, the Bureau determined that, based on the record, it appeared that certain LECs had misunderstood the Commission's discussion of time and materials charges in the Special Access Expanded Interconnection Order. The Bureau explained that these LECs had not included specific time and materials charges in their tariffs, but instead had implied that they would develop rates for construction in response to individual customer requests. 422. In light of the Commission's prohibition against the use of ICB rates for these services, the Supplemental Designation Order designated for investigation the issue of whether the LECs' approach to time and materials charges for central office construction is reasonable. The Bureau stated that "[p]ricing access services on an individual case basis . . . represents a departure from normal practice and is usually reserved for unique or unusual common carrier service offerings for which the carrier does not yet have sufficient experience to develop general rates." The Bureau stated further that "once sufficient knowledge is gained about the costs of service, the Commission requires that the ICB rates be converted to averaged rates applicable to all customers." The Bureau added that ICB rates are "`generally available' if tariffs embodying these rates are filed and are available to all similarly situated customers." B. Pleadings 423. On June 30, 1994, Bell Atlantic filed a Petition for Clarification of the Bureau's Supplemental Designation Order, in which it argues that the Bureau's discussion of ICB arrangements is inconsistent with long-standing Commission policy because it does not distinguish ICB offerings from common carrier offerings. In support of its argument, Bell Atlantic cites Southwestern Bell Telephone Co. v. FCC ("Dark Fiber") in which, according to Bell Atlantic, the court concluded that Commission policy distinguishes ICB arrangements from common carrier offerings. Bell Atlantic urges the Commission to vacate the language in the Supplemental Designation Order and to clarify this distinction. 424. SWB and US West filed comments in support of Bell Atlantic's position, claiming that the language in the Supplemental Designation Order does not accurately characterize the state of the law regarding ICB offerings. According to SWB, the Designation Order implies that carrier ICB offerings must be generally available to all similarly-situated customers, whether or not the offering meets the test for common carriage. SWB states that the Dark Fiber decision made it clear that an ICB arrangement does not necessarily subject a carrier to Title II regulation and argues that some ICB rates for private service arrangements need not be converted to averaged rates, even after the carrier has gained sufficient knowledge about the costs of the service. SWB also complains of disparate application of the Bureau's ICB policy, arguing that the Commission allows SWB's competitors to incorporate language in their tariffs that would allow continued use of ICB pricing, while rejecting SWB's identical ICB tariff language. 425. US West states that the language of the Supplemental Designation Order addressing ICB arrangements is confusing and should not be interpreted to equate ICB offerings with general carrier offerings based solely on the type of service offered or on the filing of an ICB rate in a carrier's tariff. US West suggests adoption of alternative language to modify the policy statement in the Supplemental Designation Order. 426. ALTS, Ad Hoc, NYNEX, Sprint, MFS, and MCI urge the Bureau to deny Bell Atlantic's petition. These carriers argue that, read in its proper context, the language of the Supplemental Designation Order is consistent with Commission policy and the Dark Fiber decision. MCI and Ad Hoc explain that there are two types of ICB offerings: those that are unique service arrangements that meet the needs of specific customers and never evolve into generally-available offerings, and those service arrangements that eventually are tariffed as generally available offerings. They argue that the language in the Supplemental Designation Order refers only to the second type of offerings, a conclusion that is consistent with Dark Fiber. ALTS and Sprint explain that the Dark Fiber decision did not hold that ICB service offerings could never qualify as common carrier offerings, but rather rejected a per se rule that the mere filing of ICB contracts with the Commission is sufficient to demonstrate that the services are common carrier offerings. MFS also argues that SWB's claim is irrelevant to the issue of whether ICB arrangements are to be treated as common carrier service. 427. Bell Atlantic replies that clarification of the language in the Bureau's Supplemental Designation Order is necessary. Bell Atlantic maintains that an ICB service offering can be regulated as a common carrier service under Title II only after it is voluntarily held out to "the general public, or a subset of the public" or to a "significant number of customers." It is only at that point, Bell Atlantic argues, that the Commission can reasonably find that an ICB offering is a common carrier service. Bell Atlantic warns that for the Commission to act otherwise disregards precedent and raises constitutional issues under the Fifth Amendment. C. Discussion 428. We disagree with Bell Atlantic's assertion that the language in the Supplemental Designation Order is inconsistent with Commission policy and the Dark Fiber decision. As we have previously stated, there are two types of ICB offerings: (1) those that provide a new technology for which little demand initially exists, but that later evolve into a generally-available offering as demand grows; and (2) those that are unique service arrangements offered to meet the needs of specific customers and that never evolve into a generally-available offering. We find that, in reading the Supplemental Designation Order, it is clear that the Bureau was addressing only the first type of ICB offerings, those cases in which a carrier is offering a new service that evolves into a generally available offering as demand grows. The Bureau limited its discussion to this type of ICB because connection charge elements for physical collocation are generally available to all customers who request these services. In that order, the Bureau did not state that all ICB arrangements are generally-available, common carrier offerings. Rather, the Bureau explained the manner by which some ICB pricing arrangements are converted to averaged rates applicable to all customers. 429. Moreover, the Bureau's statement on ICB offerings is not inconsistent with the holding of Dark Fiber. In that case, contrary to Bell Atlantic's argument, the court did not reject the Commission's treatment of a series of dark fiber offerings as common carrier services on the ground that ICB arrangements are not considered common carriage offerings. Rather, the court rejected the Commission's attempt to treat dark fiber offerings as a common carrier service based on the mere filing of an ICB arrangement with the Commission. The court stated that the mere filing of an ICB arrangement as a tariff, standing alone, is insufficient to establish a service as a common carrier communications service, thereby subjecting it to the Commission's jurisdiction under Title II of the Communications Act. 430. We conclude that the language regarding ICB filings in the Supplemental Designation Order, when read in context, is an accurate description of an ICB filing that should evolve into generally-available offerings. We do not find that further clarification is necessary and therefore deny Bell Atlantic's petition for clarification. VII. ORDERING CLAUSES 431. Accordingly, pursuant to Sections 4(i), 201(b), and 204(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), and 204(a), WE FIND that certain rate structures identified in this Order and contained in the physical collocation tariffs of Ameritech Operating Companies, Bell Atlantic Telephone Companies, BellSouth Telecommunications, Inc., Central Telephone Companies, Cincinnati Bell Telephone Companies, GTE Telephone Operating Companies, Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, Southern New England Telephone Company, Southwestern Bell Telephone Company, and US West Communications, Inc. are UNLAWFUL. 432. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), and 204(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), and 204(a), certain direct costs identified in this Order and contained in the physical collocation tariffs of Ameritech Operating Companies, Bell Atlantic Telephone Companies, BellSouth Telecommunications, Inc., Central Telephone Companies, Cincinnati Bell Telephone Companies, GTE Telephone Operating Companies, Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, Southern New England Telephone Company, Southwestern Bell Telephone Company, and US West Communications, Inc. are UNLAWFUL. 433. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), and 204(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), and 204(a), the overhead loadings contained in the physical collocation tariffs of Ameritech Operating Companies, Bell Atlantic Telephone Companies, BellSouth Telecommunications, Inc., Central Telephone Companies, GTE Telephone Operating Companies, Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, and US West Communications, Inc. are UNLAWFUL. 434. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), and 204(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), and 204(a), certain terms and conditions identified in this Order and contained in the physical collocation tariffs of Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, and Southern New England Telephone Company are UNLAWFUL. 435. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), 203, 204(a), and 205(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), 203, 204(a), and 205(a), Lincoln Telephone and Telegraph Companies, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, and Southern New England Telephone Company SHALL FILE tariff revisions reflecting our findings in this investigation, as specified in Section III.E of this Order, no later than 45 days from the release date of this Order. 436. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), 203, 204(a), and 205(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), 203, 204(a), and 205(a), Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, and Southern New England Telephone Company must establish their rates in accordance with Sections III.B, III.C, III.D, and Appendix C of this Order. These companies ARE ORDERED to submit tariff revisions establishing new rates, with full explanations of how they have complied with the findings in this Order, no later than 45 days from the release date of this Order. 437. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), 204(a), and 205(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), 204(a), and 205(a), Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, and Southern New England Telephone Company SHALL REFUND, with simple interest, the difference between the rates that result from the cost disallowances in this Order and the rates charged to those customers that subscribed to the physical collocation services of these LECs between December 15, 1994 and the day before each LEC's new physical collocation rates take effect pursuant to this Order. All refunds shall be calculated in accordance with the requirements established in Sections III.A, III.B, III.C, III.D, and Appendix C of this Order. These companies ARE ORDERED to submit their plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority under Section 0.291 of the Commission's Rules, 47 C.F.R.  0.291, within 45 days of the release of this Order. These companies shall issue full refunds to their customers no later than 30 days from the date that the Common Carrier Bureau approves their refund plans. Interest shall be computed on the basis of interest rates specified by the United States Internal Revenue Service. 438. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), 204(a), and 205(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), 204(a), and 205(a), Ameritech Operating Companies, Bell Atlantic Telephone Companies, BellSouth Telecommunications, Inc., Central Telephone Companies, GTE Telephone Operating Companies, and US West Communications, Inc. SHALL REFUND, with simple interest, the difference between the rates that result from the cost disallowances in this Order and the rates charged to those customers that subscribed to the physical collocation services of these LECs between December 15, 1994 and the date each LEC discontinued providing physical collocation service. All refunds shall be calculated in accordance with the requirements established in Sections III.A, III.B, III.C, III.D, and Appendix C of this Order. These companies ARE ORDERED to submit their plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority under Section 0.291 of the Commission's Rules, 47 C.F.R.  0.291, within 45 days of the release of this Order. These companies shall issue full refunds to their customers no later than 30 days from the date that the Common Carrier Bureau approves their refund plans. Interest shall be computed on the basis of interest rates specified by the United States Internal Revenue Service. 439. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201(b), 204(a), and 205(a) of the Communications Act, 47 U.S.C.  154(i), 201(b), 204(a), and 205(a), Cincinnati Bell Telephone Companies and Southwestern Bell Telephone Company SHALL REFUND, with simple interest, the difference between the rates that result from the cost disallowances in this Order and the rates charged to those customers that subscribed to the physical collocation services of these LECs between December 15, 1994 and the date each LEC discontinued providing physical collocation service. All refunds shall be calculated in accordance with the requirements established in Sections III.A, III.B, III.C, and Appendix C of this Order. These companies ARE ORDERED to submit their plans for issuing refunds to the Common Carrier Bureau for review and approval pursuant to our delegation of authority under Section 0.291 of the Commission's Rules, 47 C.F.R.  0.291, within 45 days of the release of this Order. These companies shall issue full refunds to their customers no later than 30 days from the date that the Common Carrier Bureau approves their refund plans. Interest shall be computed on the basis of interest rates specified by the United States Internal Revenue Service. 440. IT IS FURTHER ORDERED that Section 61.59 of the Commission's Rules, 47 C.F.R.  61.59, IS WAIVED for the purposes of compliance with this Order. Carriers should cite the "FCC" number of this Order as authority for their tariff filings. 441. IT IS FURTHER ORDERED that, pursuant to Section 204(a) of the Communications Act, 47 U.S.C.  204(a), the investigation and accounting order imposed by the Common Carrier Bureau in CC Docket No. 93-162 for the physical collocation tariffs of Ameritech Operating Companies, Bell Atlantic Telephone Companies, BellSouth Telecommunications, Inc., Central Telephone Companies, GTE System Telephone Companies, GTE Telephone Operating Companies, Lincoln Telephone and Telegraph Company, Nevada Bell, New York Telephone Company and New England Telephone and Telegraph Company, Pacific Bell, Rochester Telephone Corporation, Southern New England Telephone Company, United Telephone Companies, and US West Communications, Inc. ARE TERMINATED. 442. IT IS FURTHER ORDERED that the investigation and accounting order imposed by the Common Carrier Bureau in CC Docket No. 93-162 for the physical collocation tariffs of the Cincinnati Bell Telephone Companies and Southwestern Bell Telephone Company shall remain in effect pending resolution of the requests by these companies for confidential treatment of the overhead loading and direct cost data they submitted for their comparable DS1 and DS3 services. Thus, pursuant to Section 204(a) of the Communications Act, 47 U.S.C.  204(a), Cincinnati Bell Telephone Companies and Southwestern Bell Telephone Company SHALL KEEP ACCURATE ACCOUNT of all earnings, costs, and returns associated with the rates that are the subject of this investigation, and of all amounts that were paid thereunder and by whom such amounts were paid. If, at the conclusion of this investigation, the Commission determines that the overhead loading factors that Cincinnati Bell Telephone Companies and Southwestern Bell Telephone Company assigned to physical collocation services resulted in rates that are above just and reasonable levels, the Commission will require these LECs to pay refunds to customers that purchased physical collocation service from these LECs between December 15, 1994 and the date each LEC discontinued providing physical collocation service. 443. IT IS FURTHER ORDERED that the Petition for Reconsideration of the Commission's Interim Overhead Order, filed by BellSouth Telecommunications, Inc., IS DENIED. 444. IT IS FURTHER ORDERED that the Applications for Review of the Common Carrier Bureau's Physical Collocation Tariff Suspension Order, filed by New York Telephone Company and New England Telephone and Telegraph Company, Southwestern Bell Telephone Company, and US West Communications, Inc., ARE DENIED. 445. IT IS FURTHER ORDERED that the Petition for Clarification of the Common Carrier Bureau's Supplemental Designation Order, filed by Bell Atlantic Telephone Companies, IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton, Acting Secretary Appendix A List of Pleadings DIRECT CASES FILED IN RESPONSE TO ORDER DESIGNATING ISSUES FOR INVESTIGATION August 20, 1993 Ameritech Operating Companies (Ameritech) Bell Atlantic Telephone Companies (Bell Atlantic) BellSouth Telecommunications, Inc. (BellSouth) Central Telephone Companies (Central) Cincinnati Bell Telephone Companies (CBT) GTE System Telephone Companies (GSTC) GTE Telephone Operating Companies (GTOC) Lincoln Telephone and Telegraph Company (Lincoln) Nevada Bell (Nevada) New York Telephone and New England Telephone and Telegraph Company (NYNEX) Pacific Bell (Pacific) Rochester Telephone Corporation (Rochester) Southern New England Telephone Company (SNET) Southwestern Bell Telephone Company (SWB) United Telephone Companies (United) U S West Communications, Inc. (US West) OPPOSITIONS FILED IN RESPONSE TO DIRECT CASES September 20, 1993 Association for Local Telephone Services (ALTS) MCI Communications Corporation (MCI) MFS Communications Company, Inc. (MFS) Public Utilities Commission of Ohio (PUCO) Sprint Communications Company L.P. (Sprint) Teleport Communications Group Inc. (TCG) Teleport Denver Limited (TDL) REBUTTALS FILED IN RESPONSE TO OPPOSITIONS TO DIRECT CASES September 30, 1993 Ameritech Bell Atlantic BellSouth Central Cincinnati Bell GSTC GTOC Lincoln Nevada NYNEX Pacific Rochester SNET SWB United U S West ********************* SUPPLEMENTAL DIRECT CASES FILED IN RESPONSE TO SUPPLEMENTAL DESIGNATION ORDER AND ORDER TO SHOW CAUSE June 15, 1994 Bell Atlantic Rochester United and Central OPPOSITIONS FILED IN RESPONSE TO SUPPLEMENTAL DIRECT CASES June 22, 1994 MCI MFS PETITION FOR RECONSIDERATION OF INTERIM OVERHEAD ORDER December 13, 1993 BellSouth COMMENTS FILED IN SUPPORT OF PETITION FOR RECONSIDERATION OF INTERIM OVERHEAD ORDER February 4, 1994 Ameritech OPPOSITIONS FILED IN RESPONSE TO PETITION FOR RECONSIDERATION OF INTERIM OVERHEAD ORDER February 4, 1994 Ad Hoc Telecommunications Users Group (Ad Hoc) ALTS MFS REPLY FILED IN RESPONSE TO OPPOSITION TO PETITION FOR RECONSIDERATION OF INTERIM OVERHEAD ORDER February 22, 1994 BellSouth PETITION FOR CLARIFICATION OF SUPPLEMENTAL DESIGNATION ORDER June 30, 1994 Bell Atlantic COMMENTS FILED IN SUPPORT OF PETITION FOR CLARIFICATION OF SUPPLEMENTAL DESIGNATION ORDER August 29, 1994 SWB US West OPPOSITIONS TO PETITION FOR CLARIFICATION OF SUPPLEMENTAL DESIGNATION ORDER August 29, 1994 ALTS MCI MFS Sprint REPLY COMMENTS TO OPPOSITION TO PETITION FOR CLARIFICATION OF SUPPLEMENTAL DESIGNATION ORDER September 13, 1994 Ad Hoc Bell Atlantic MFS NYNEX APPLICATION FOR REVIEW OF PHYSICAL COLLOCATION TARIFF SUSPENSION ORDER July 12, 1993 NYNEX SWB US West APPENDIX C CALCULATING NEW RATES TO REFLECT STATISTICAL DISALLOWANCES I. Introduction 1. This Order makes direct cost disallowanaces in cases where LECs' monthly direct costs are in excess of the overall LEC direct cost average plus one standard deviation for a particular function and they failed to provide sufficient information to justify these high direct costs. Accordingly, these LECs must recalculate their direct costs in order to determine refund amounts and, where appropriate, to establish proper rate levels on a going forward basis. This section sets forth the methodology that LECs must use to recalculate their direct costs. 2. This Order did not develop monthly construction direct costs for Bell Atlantic, Rochester, and Central because these LECs did not tariff a rate or provide direct cost data in TRP format for this function. Moreover, it was not possible to develop construction or entrance facility and space direct costs for Lincoln because Lincoln did not file complete data for construction or entrance facility direct costs. As a result, Bell Atlantic, Rochester, Central and Lincoln must use the methodology set forth in this section to determine whether their direct costs for these functions are in excess of the overall LEC average plus one standard deviation. These LECs must calculate appropriate refund amounts to the extent that they imposed physical collocation rates for these functions that recovered direct costs in a dollar amount greater than the average plus one standard deviation. 3. In order to perform a function-by-function analysis of direct costs, LECs' recurring and nonrecurring per unit direct costs for every function, except for the DS3 cross-connection and termination equipment function, were converted to direct costs by multiplying these per unit costs by the number of units required to provision 100 DS1s. LECs' recurring and nonrecurring per unit direct costs for the DS3 cross-connection and termination equipment function were converted to direct costs by multiplying these per unit costs by the number of units required to provision four DS3s. Moreover, monthly direct costs were developed for LECs' nonrecurring direct costs by amortizing such costs over a 60 month period at an 11.25 percent rate of interest. This Order makes disallowances to these monthly direct costs to the extent that such costs are in excess of the overall LEC average plus one standard deviation for a particular function. However, LECs' do not tariff physical collocation rates to recover such monthly direct costs; they recover recurring and nonrecurring per unit direct costs. This appendix, therefore, explains the methodology for converting the monthly direct cost disallowances into recurring and nonrecurring per unit direct cost disallowances. The tables in this appendix set forth the calculations for these per unit direct cost disallowances. The following is an explanation of the calculations contained in those tables. II. Direct Cost Data Base 4. In each of the tables developed for the LECs that recovered direct costs in excess of the overall LEC average plus one standard deviation for a particular function, column (a) shows the disaggregated functions (e.g., the DC power installation function and the DC power generation function) that comprise the aggregated function (e.g., the aggregate DC power function) on which the average cost analysis is based. A disaggregated function for which recurring and nonrecurring direct costs are developed is listed twice so as to identify separately each of these costs. 5. Column (b) identifies the rate elements that correspond to the functions listed in column (a). Depending on the LEC's particular rate structure, a particular function may include several rate elements. Conversely, a rate element may include costs for more than one function. 6. Column (c) identifies the date on which the TRP data used for this function-by-function analysis was filed with the Commission. The data on which this analysis is based represent the initial cost data filed by LECs with modifications of such data through June 3, 1994. 7. Column (d) identifies the direct costs on a per unit basis. 8. Column (e) identifies the units by which the per unit direct costs identified in column (d) are measured. The rates in the LECs' tariffs and these corresponding per unit direct costs are expressed in terms of the same unit of measure. 9. Column (f) identifies the number of units needed to provide each function listed in column (a), except for the DS3 cross-connection and termination equipment function, assuming that 100 DS1s are provisioned. Where the DS3 cross-connection and termination equipment function is listed in column (a), column (f) identifies the number of units needed to provide that function, assuming that four DS3s are provisioned. 10. Column (g) identifies the recurring direct costs. These costs are derived by multiplying the per unit recurring direct costs in column (d) by the number of units in column (f). 11. Column (h) identifies the nonrecurring direct costs. These costs are obtained by multiplying the per unit nonrecurring direct costs in column (d) by the number of units in column (f). 12. Column (i) identifies the amortized amount of the nonrecurring direct cost in column (h). The nonrecurring cost is amortized over 60 months at an 11.25 percent rate of interest. 13. Row (8), column (i) identifies the total direct cost per month. Total direct cost per month is equal to the sum of the total recurring costs in row (7), column (g) and the total amortized amount of the nonrecurring costs in row (7), column (i). 14. Row (9), column (i) identifies the overall LEC average plus one standard deviation in most cases. The direct costs of every LEC on which this average and standard deviation are based were calculated by following the steps set forth in columns (a) through (i) of the attached charts. In a few cases, the total direct cost per month in row (8), column (i) is a LEC's direct cost for a central office, other than that of its highest-priced central office, and the direct cost for this other central office must be reduced by the percentage by which the direct cost for the highest-priced central office must be reduced to equal the overall LEC average plus one standard deviation. Row (9), column (i) identifies that percentage direct cost disallowance per month. 15. Row (10), column (i) identifies the total direct cost disallowance per month. This disallowance is derived by subtracting the overall LEC average plus one standard deviation in row (9), column (i) from the total direct cost per month in row (8), column (i) in most cases. In a few cases, the total direct cost per month in row (8), column (i) is a LEC's direct cost for a central office, other than that of its highest-priced central office, and the direct cost for this other central office must be reduced by the percentage by which the direct cost for the highest-priced central office must be reduced to equal the overall LEC average plus one standard deviation. In these few cases, the total direct cost disallowance per month in Row (10), column (i) is derived by multiplying the total direct cost per month in row (8), column (i) by the percentage direct cost disallowance per month in row (9) column (i). 16. Column (j) identifies the percentage of the total direct cost per month in row (8), column(i) that each recurring direct cost in column (g) and each amortized nonrecurring direct cost in column (i) represents. 17. Column (k) identifies the "monthly disallowance" for each rate element in column (b). This monthly disallowance is derived by multiplying the percentages of the total direct cost per month in column (j) by the total direct cost disallowance per month in row (10), column (i). 18. Column (l) identifies the present value of the monthly disallowance in column (k). The present value is calculated using an 11.25 percent discount rate for a 60-month period. The present value of the nonrecurring direct cost component of the "monthly" disallowance is calculated because the nonrecurring direct costs are amortized in computing the total direct cost per month in row (8), column (i). In effect, that amortization converts a nonrecurring direct cost to a recurring direct cost by assuming that the nonrecurring cost is incurred in equal amounts over a 60 month period. The amortization also provides a monthly dollar allowance to reflect an 11.25 percent cost of money and this allowance is reflected in the amortized monthly amount of the nonrecurring cost. The present valuation eliminates this amortization by discounting the monthly disallowances of the amortized monthly amount of the nonrecurring costs back to the present. The present value of the recurring direct cost components of the monthly disallowance in column (l) is precisely equal to the dollar amount of the monthly recurring direct cost disallowances in column (k) because the recurring direct costs are not amortized for the purpose of computing the total direct cost per month in row (8) column (i). In short, the present value of the monthly amount of a recurring cost is equal to the dollar amount of that cost at the time that it is incurred. 19. Column (m) identifies the per unit disallowances for each rate element in column (b). The per unit disallowances are calculated by dividing the present values of the disallowances in column (l) by the corresponding number of units in column (f). 20. Column (n) identifies the allowable per unit cost for the functions in column (a) that may be recovered in each corresponding rate element in column (b). The allowable per unit cost is computed by subtracting the per unit disallowance in column (m) from the per unit direct cost in column (d). 21. LECs for which direct cost disallowances are made on the basis of the statistical analysis in this Order must recalculate their per unit direct costs to reflect the disallowances set forth in column (m). These LECs' revised rate elements may not recover per unit direct costs for these functions in excess of the allowable per unit direct costs in column (n). These LECs' refund amounts are to equal the difference between actual revenues derived from rates that reflect unrevised per unit direct costs and those that would have been derived from rates that reflect the per unit direct cost disallowances. 22. Bell Atlantic, Lincoln, Rochester, and Central must complete columns (a) through (i) to determine whether they recovered construction direct costs in an amount greater than the overall LEC average direct cost plus one standard deviation for this function. If any one of these LECs determines that its total direct cost per month in row (8), column (i) is greater than the overall LEC construction direct cost average plus one standard deviation of $1,125 per month, then it must complete columns (j) through (n) to determine the per unit direct cost disallowance in column (m) and allowable per unit direct cost in column (n) applicable to its construction direct costs. These LECs' refund amounts in such a case must be equal to the difference between actual revenues derived from rates that reflect unrevised per unit direct costs and those that would have been derived from rates that reflect the per unit direct cost disallowances. 23. Lincoln must also complete columns (a) through (i) to determine whether it recovered entrance facility installation and space direct costs in an amount greater than the overall LEC average direct cost plus one standard deviation for this function. If Lincoln determines that its total direct cost per month in row (8), column (i) is greater than the overall LEC entrance facility installation and space average plus one standard deviation of $446 per month, then it must complete columns (j) through (n) to determine the per unit direct cost disallowance in column (m) and allowable per unit direct cost in column (n) applicable to its entrance facility and space direct costs. Lincoln installs the interconnector's cable and it must, therefore, compare its total entrance facility installation and space direct cost per month with the overall LEC average plus one standard deviation of $446 per month for LECs that install the interconnector's cable. Lincoln's refund amount in such a case must be equal to the difference between actual revenues derived from rates that reflect unrevised per unit direct costs and those that would have been derived from rates that reflect the per unit direct cost disallowances. Appendix E Pleading Summaries Table of Contents Paragraph No. A. RATE STRUCTURE 1. Nonrecurring Charges for Recurring Costs . . . . . .1 2. Nonrecurring Charges for Equipment . . . . . . . . .6 3. Charges for Additional, Extraordinary, or Individually Determined Costs. . . . . . . . . . . . . . . . . 10 4. Advance Payment of Central Office Construction Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5. Responsibility for Payment of Common Construction Costs . . . . . . . . . . . . . . . . . . . . . . 17 6. Payment of Interconnector-Specific Charges by Subsequent Interconnector. . . . . . . . . . . . . . . . . . . 21 7. Electric Power . . . . . . . . . . . . . . . . . . 25 B. DIRECT COSTS 1. Annual Cost Factor a. Cost of Money . . . . . . . . . . . . . . . . 28 b. CBT's Annual Cost Factors . . . . . . . . . . 32 c. GTE's Income Tax Calculations . . . . . . . . 33 d. US West's Recovery of Depreciation, Cost of Money, and Income Taxes . . . . . . . . . . . . 34 e. Nevada's Depreciation Expense for Initial Capital Outlay . . . . . . . . . . . . . . . . . . . . . . . . 37 g. Bell Atlantic's Inflation Factor. . . . . . . 38 2. US West's and SWB's Common Construction Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3. Charges for Repeaters and POT Bays a. POT Bays. . . . . . . . . . . . . . . . . . . 44 b. Repeaters . . . . . . . . . . . . . . . . . . 51 4. Bell Atlantic's Rates for Cable Racking. . . . . . 55 5. Floor Space Costs. . . . . . . . . . . . . . . . . 58 6. Power Costs. . . . . . . . . . . . . . . . . . . . 66 7. Cross-Connection and Termination Equipment Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 8. Security Costs . . . . . . . . . . . . . . . . . . 91 9. Construction Costs . . . . . . . . . . . . . . . . 95 10. Entrance Facility Costs . . . . . . . . . . . . .107 11. Time and Materials. . . . . . . . . . . . . .118 C. OVERHEAD LOADING. . . . . . . . . . . . . . . . . . . .131 D. TERMS AND CONDITIONS 1. Floor Space for Physical Collocation a. Minimum and Maximum Space . . . . . . . . . .135 b. Warehousing and Efficient Use of Floor Space . . . . . . . . . . . . . . . . . . . . . . . . . . . .140 c. Ordering Charges. . . . . . . . . . . . . . .147 d. Contiguous Space for Expansion . . . . . . .150 2. Inspection Provisions. . . . . . . . . . . . . . .153 3. Insurance Requirements a. Levels and Types of Insurance . . . . . . . .158 b. Self-insurance. . . . . . . . . . . . . . . .167 c. Underwriters. . . . . . . . . . . . . . . . .171 d. Effective Date of Insurance . . . . . . . . .175 4. LEC's Liability Provisions . . . . . . . . . . . .179 5. Termination of Service . . . . . . . . . . . . . .186 6. Catastrophic Loss. . . . . . . . . . . . . . . . .193 7. Relocation . . . . . . . . . . . . . . . . . . . .202 8. Channel Assignment . . . . . . . . . . . . . . . .209 9. Letters of Agency. . . . . . . . . . . . . . . . .211 10. Billing From State/Interstate Tariffs. . . . . . .214 11. Payment of Taxes . . . . . . . . . . . . . . . . .218 A. RATE STRUCTURE 1. Nonrecurring Charges for Recurring Costs 1. Direct Cases. Ameritech, BellSouth, GTE, and US West develop nonrecurring rates based on the present value of recurring costs. The other LECs develop nonrecurring rates to recover nonrecurring costs and recurring rates to recover recurring costs. These LECs do not impose nonrecurring rates that recover more than the original value of the assets that comprise the initial capital outlay or the investment used to provide a particular physical collocation service function. Ameritech contends that its calculation of the present value of its central office build out includes costs for income taxes, maintenance expense, ad valorem taxes, and gross receipts taxes, as well as the cost of money and depreciation. Additionally, Ameritech claims that this rate element includes discounted costs for security checks and issuance of identification cards to employees of the interconnectors. Ameritech also states that it will continue to incur these costs over the life of the physical collocation service, and that the inclusion of such costs in the present value calculation is appropriate. Ameritech uses a discount rate of 10.9 percent, and computes the present value over seven years, which is an estimate of the average length of time an interconnector would occupy space in a central office. Ameritech contends that the present value of these costs, which is $29,013.02, is less than the capital outlay of $33,604.52. Ameritech explains that the rate, $40,212.53, is greater than the capital outlay because of the overhead loading factor assigned to this rate element. Nevada Bell states that it does not include the present discounted value of depreciation or the cost of money in its nonrecurring charge. Nevada Bell states that it also does not include the discounted value of other recurring expenses, such as maintenance and taxes. 2. In their direct cases, GTE and BellSouth describe the methodology used in their original tariff filings. GTE states that it included maintenance, in addition to depreciation, cost of money, and federal and state income taxes in developing the present value calculation for its building modification charge. According to GTE, the value of the property, and therefore property taxes, will increase due to physical collocation. GTE explains that it uses a discount rate of 11.25 percent and a time period of 20 years, which it claims is the useful life of the investment. BellSouth states that it computes a nonrecurring charge for one investment related rate element -- the space construction charge -- per 100 square foot module. In computing this nonrecurring charge, BellSouth discounts its depreciation expense, cost of money, and income tax expense over the life of the investment. BellSouth's discount rate is equal to its estimate of its overall cost of capital, or 13.34 percent, and the amortization period is 44.7 years, BellSouth's estimate of the useful life of the investment. 3. US West contends that it recovers all of the construction costs of the physical collocation offering up front because there may be no additional requests for physical collocation service when an interconnector leaves. US West further claims that none of the recurring rates are structured to recover enclosure construction costs, and no present discounted value of future maintenance expenses is included in the nonrecurring construction charge. Bell Atlantic, CBT, and Rochester do not propose any nonrecurring charges for recurring costs in their tariffs, and Lincoln does not address this issue in its direct case. 4. Oppositions. ALTS argues that GTE adds additional costs to construction on the unsubstantiated theory that the additions will increase the value of the building and consequently increase its property taxes. Sprint argues that Ameritech, BellSouth, and US West develop nonrecurring charges based on discounted taxes, maintenance, and other expenses, resulting in excessive nonrecurring charges. Sprint further notes that US West computes nonrecurring charges for the entrance enclosure, conduit, core drill, fiber cable splicing, fiber placement, riser, power cable installation, and virtual fiber optic cable rate elements based on the discounted value of recurring costs associated with capital outlay, such as taxes, administrative and other expenses. Sprint claims that the recovery of recurring expenses associated with an investment outlay, other than depreciation and the cost of money, through a nonrecurring charge will result in a mismatch of revenues and expenses and should not be allowed. 5. Rebuttals. In reply, GTE and US West contend that nonrecurring charges are appropriate for recurring cost recovery because of the large amount of initial investment required by the LECs and the lack of alternative uses for physical collocation equipment. Ameritech claims that the inclusion of expenses such as maintenance in nonrecurring charges is appropriate because the company will continue to incur these expenses over the life of the service, even if the service is discontinued by the original interconnector. BellSouth contends that it would incur a revenue shortfall if the income tax expense were excluded from the calculation of the nonrecurring charge. BellSouth argues that the discounted amounts reflect the total costs that BellSouth would incur as a result of constructing the 100 square foot collocation cage, and it is reasonable to recover these costs as a nonrecurring charge. 2. Nonrecurring Charges for Equipment 6. Direct Cases. SWB, NYNEX, GTE, and US West all assess a nonrecurring charge for equipment. SWB contends that it does not know how long the interconnector will remain a customer in a specific wire center, and that the equipment used to provision physical collocation is not reusable by SWB. Therefore, SWB states that it is reasonable to assess a nonrecurring charge for equipment dedicated solely to a specific interconnector. According to SWB, recurring charges for all start up costs could mask the true costs of entry into the expanded interconnection market. NYNEX contends that it includes the cost of racking and support structures in the nonrecurring charge for the multiplexing node, and that these structures are installed at the same time the interconnector's cage is constructed. NYNEX explains that because the equipment is dedicated to the interconnector, the costs of equipment necessary for each cage are reasonably included in the multiplexing node nonrecurring charge. 7. GTE explains that the only equipment costs recovered in nonrecurring charges are those incurred to provide the physical separation within the central office. According to GTE, if the costs of the equipment are to be recovered in a monthly recurring charge, GTE would have to forecast the period of time the equipment would be in service, which would be extremely speculative. US West claims that the equipment is dedicated to the interconnector for its full life, and in order to ensure that all costs associated with its month-to-month physical collocation service are recovered, it treats the equipment dedicated to the interconnector as a nonreusable investment. US West contends that it has no historical information on which to base a forecast of how long an interconnector will occupy space within a central office, and no guarantee as to the length of the occupancy by the interconnector. Nevada, Pacific, Rochester, SNET, and United have not tariffed a nonrecurring charge for equipment, and Ameritech, CBT, Bell Atlantic, and Lincoln do not address this issue in their direct cases. 8. Oppositions. ALTS maintains that SWB's nonrecurring charges for equipment are a barrier to entry. TDL asserts that any equipment for which the interconnector paid a nonrecurring charge should be considered the interconnector's property so that it may reuse the equipment if it relocates. 9. Rebuttals. SWB states that its nonrecurring charges only recover the total installed cost up front and all recurring expenses such as maintenance are recovered through a monthly recurring charge. SWB adds that imposing monthly recurring rates to recover the cost of what LECs are mandated to provide offers no assurance that such cost would ever be recovered because there is no guarantee as to the length of time that an interconnector will remain at a wire center. 3. Charges for Additional, Extraordinary, or Individually Determined Costs 10. Direct Cases. Most LECs' tariffs contain provisions that allow them to recover from interconnectors' additional, extraordinary, or individually determined costs. Ameritech states that in rare instances it should be permitted to recover unforeseen costs which have not been reflected in the central office build out charge for modifying a central office for physical collocation. Ameritech defines "extraordinary costs" as unforeseen costs not included in its average cost for central office modification directly related to a request for physical collocation (e.g., asbestos removal). CBT argues that a charge for additional or extraordinary costs is reasonable because such charges would be imposed when an interconnector requests or otherwise causes the activity leading to the extraordinary cost. CBT states that it would charge any construction necessary to provide interconnection service to an interconnector which requires service that is different from standard interconnection service. GTE argues that it needs to recover costs associated with modifications beyond the initial building modifications to accommodate interconnectors or it will be unable to minimize GTE's shareholders' and ratepayers' exposure to valid expenditures not covered in the tariff. US West asserts that although it removed a general provision allowing it to charge for extraordinary costs, including asbestos removal, it plans to amend its tariff when it identifies the situations that might result in such costs. SNET states that it will provide features beyond those specified in the tariff on an individual case basis (ICB). CBT states that "Special Construction" denotes construction necessary to provide services other than standard interconnection service. 11. NYNEX states that its tariff does not contain provisions for extraordinary costs other than for the provisioning of microwave expanded interconnection. According to NYNEX, microwave antenna support structures and associated transmitter and receivers space vary greatly depending on the customer's specific needs and therefore it must initially provide ICB service for such features. SWB contends that it has traditionally been allowed to recover additional or extraordinary costs not covered by tariff rates and charges and it does not propose to treat interconnectors differently from its other customers in this regard. Pacific contends that it has the right to recover the costs of compliance with governmental regulation associated with its provision of service to specific customers and, therefore, it should be able to recover extraordinary costs associated with modifications or upgrades to a central office due to physical collocation. Bell Atlantic contends that exceptional circumstances are situations beyond those identified in the tariff that would inappropriately or unfairly result in an interconnector paying more for the collocation common space than a previous or subsequent interconnector. Nevada Bell states that its tariff contains a provision for extraordinary costs incurred on behalf of the customer, such as any unusual and substantial costs associated with governmental authorizations. Nevada Bell maintains that it does not include the costs of improvements and other modifications that it would have incurred even if the interconnector had not placed its facilities in the company's central office. United contends that it is appropriate to charge an individual interconnector based on the actual costs of performing required work. Lincoln and Rochester do not address this issue in their direct cases. 12. Oppositions. ALTS claims that Ameritech's extraordinary cost provisions would require interconnectors to submit a blank check for Ameritech to fill in. MFS opposes extraordinary cost provisions, and disagrees with the imposition of asbestos abatement charges upon interconnectors because LECs need to remove existing health hazards in central offices, regardless of whether physical collocation occurs. 13. Rebuttals. Ameritech defends its extraordinary cost provisions, noting that interconnectors receive cost estimates in advance and sign a letter of election. Pacific asserts that it is economically efficient to assess costs to their direct cause, rather than requiring customers of other services to cover these costs. Bell Atlantic and United state that the remodeling needed to provide physical collocation would be, in most cases, the sole cause of disturbing asbestos and therefore requiring asbestos removal. SWB states that its averaged construction costs reflect asbestos abatement work based on sample buildings used to develop costs. 4. Advance Payment of Central Office Construction Charges 14. Direct Cases. Most LECs require advance payment of 50 percent of all construction charges. Pacific, Nevada, and BellSouth require advance payment of 100 percent of the construction charges. Bell Atlantic states that it requires 50 percent of the estimated construction charges in advance, with the remaining due after the construction is complete. Bell Atlantic explains that this is a common real estate industry practice and limits Bell Atlantic's exposure if an interconnector withdraws its request for physical collocation before completion of the construction. CBT and SNET state that the charges for design and construction are included in their application fees and vary depending on the amount of work required to process each interconnector's request. CBT and SNET both contend that the charge is applied to the actual work performed with the remainder refunded to the interconnector if the interconnector decides not to collocate. United contends that, although it does not require partial or total construction payment prior to commencement of construction, it believes that it is reasonable to expect a partial payment prior to commencement of work. Lincoln states that requiring payment of nonrecurring charges before commencement of construction is reasonable because it ensures that the other customers of Lincoln do not finance or subsidize the construction of a competitor's facilities. NYNEX states that if an interconnector withdraws a request for physical collocation, it will only be responsible for the nonrecurring costs incurred on its behalf. Pacific argues that deferring payment is unnecessary because the interconnectors do not need additional assurances that LECs will complete construction work. Ameritech and Rochester do not address this issue in their direct cases. 15. Oppositions. Sprint contends that an advance payment of 50 percent of the nonrecurring charges, with 50 percent due upon completion, is a reasonable requirement consistent with structured payments generally found in commercial construction contracts. Sprint claims that full payment before the provision of service deprives interconnectors of leverage if work is not performed to their satisfaction, and is contrary to the LECs' access policies. 16. Rebuttals. Pacific contends that its requirement for advance payment properly imposes the cost of financing construction on the interconnector and removes any risk of non- recovery due to default from its ratepayers and shareholders. 5. Responsibility for Payment of Common Construction Costs 17. Direct Cases. Bell Atlantic, CBT, Pacific, and GTE charge the full amount of common costs to the first interconnector, with a pro rata refund to the first interconnector, if a subsequent interconnector takes service in the central office within a specific period. GTE and Pacific impose a one year limit on the time for receiving refunds, and limit the number of interconnectors eligible for refunds to three and four interconnectors, respectively. CBT does not impose a time limit on refunds. 18. Most of the other LECs estimate demand by interconnectors for central office space and average common costs among interconnectors. Ameritech asserts that this approach assures the least amount of double recovery and avoids burdening the first interconnector with payment of the total cost. BellSouth explains that because its space preparation charge is based on costs for one module, it does not segregate common costs or have a special mechanism for pro ration of such costs. SWB contends that this methodology does not provide for refunds or increases if the forecasts are not realized. Nevada does not include common costs in its nonrecurring charge because its offices have substantial vacant space. Lincoln recovers common construction costs through the recurring floor space rate. Lincoln states that this method ensures that interconnectors will share the cost evenly and in a nondiscriminatory manner. US West contends that the common construction costs are split between each group of three interconnectors that occupy the same central office location. US West argues that it is both reasonable and practical to estimate and design the electrical feed to serve three interconnectors instead of one interconnector because of the construction savings realized by consolidating the electrical distribution for interconnectors within one central office location. Rochester does not address this issue in its direct case. 19. Oppositions. MFS argues that Pacific's rate structure imposes all central office preparation costs on the first party to obtain physical collocation and thus constitutes a significant barrier to competitive entry. MFS submits that Pacific should be required to reduce its central office preparation nonrecurring charges to reflect the demand estimate of four interconnectors per central office that Pacific used to develop its other charges. MFS contends that the Commission should eliminate Pacific's 12-month restriction on refunds, claiming it will result in windfall earnings to Pacific whenever a party obtains physical collocation more than one year after the first arrangement is established. ALTS argues that SWB's rate structure for common construction costs has an anti-competitive effect. 20. Rebuttals. Pacific argues that there is a much greater risk of nonrecovery if nonrecurring charges are based on an inflated demand forecast. Pacific defends its cessation of pro rata refunds after one year on the basis that after that period an interconnector will have received a significant return on its investment that outweighs the interconnector's need for a refund. NYNEX claims that its estimate of common costs is reliable because it is based on actual experience with multiplexing nodes, and reflects the use of outside contractors selected by a competitive bidding process. 6. Payment of Interconnector-Specific Charges by Subsequent Interconnector 21. Direct Cases. Only one LEC, BellSouth, states that, to avoid double recovery, interconnectors vacating the central office will be credited the unamortized amount of the space construction charge upon occupancy by another interconnector, and the subsequent interconnector would be responsible for paying the remaining unamortized amount of that charge. Bell Atlantic states that upon termination of the physical collocation arrangement, it plans to restore the space to its original condition unless there is immediate or expected demand for that same space by another interconnector; if there is demand for the space, the original interconnector would not be billed for restoration costs and the subsequent interconnector would not be billed time and materials construction costs associated with the existing space. CBT states that if the original interconnector leaves the cage in a condition acceptable to the subsequent interconnector, CBT would not assess cage construction charges on the subsequent interconnector. Nevada and Pacific do not include the present discounted value of future maintenance expenses in its nonrecurring charge for expanded interconnection services. Pacific argues that the probability of double recovery is slight and insufficient to justify the cost of developing an administrative scheme for addressing such a possibility. Ameritech develops its central office build-out nonrecurring costs by averaging the cost of central office modifications over the expected number of 100 square foot transmission nodes within an office anticipated to be requested over a three year period. Ameritech claims that this method assures the least amount of double recovery because it does not assess the entire build out cost to any single customer. SWB contends that its rates are not interconnector-specific and it does not double recover its costs to prepare an office for collocation. SWB explains that it utilizes the interconnector-provided forecasts submitted as a result of the Special Access Expanded Interconnection Order to determine the number of interconnectors likely to physically collocate in a given wire center. SWB states that the total cost of preparing an office for collocation, based on size of central office, is divided by the forecasted number to arrive at the rate per interconnector. According to SWB, this method does not require a provision for a pro rata refund nor does it provide for retroactive tenant accommodation charge increases if forecasts are not realized. Lincoln states that it would avoid double recovery by refunding any funds collected for which it did not incur cost. 22. United contends that if an interconnector abandons its plans to collocate in a central office after construction has begun, the costs will either be absorbed by the LEC or passed through to other access customers. United argues that passing costs through to other access customers is not an equitable solution unless the LEC has alternative uses for the construction. US West imposes a one-time up-front construction charge and permits service on a month-to-month basis rather than for an extended period. US West contends that it is unwilling to assume the risk that once the interconnector leaves, the space in question will not be desirable. US West states that it has no chance of double recovering because none of its recurring rates are structured to recover enclosure construction costs. GTE contends that if the central office has a vacated cage when an expanded interconnection service is requested, it will not impose the office arrangement charge if the cage size meets the requirements of the new interconnector. GTE states that if the new interconnector requires additional cage construction or modification, the cost will be subject to ICB charges. GTE notes that although its tariff does not presently address this issue, it will add tariff language so that the potential for double recovery of interconnector-specific construction is avoided. 23. NYNEX states that if an interconnector vacates the facility, it may, with NYNEX's consent, assign its rights to that facility to another interconnector and, in such case, the second interconnector would not be assigned the construction nonrecurring charges. However, if the first interconnector does not assign its rights to the second interconnector, the second interconnector will be assessed a full nonrecurring charge for construction. NYNEX maintains that this approach avoids discrimination against interconnectors that do not place their orders immediately after the first interconnector, or that desire space in an office where a vacant cage is not available. Nevada and Pacific contend that it is unlikely that an initial customer would terminate service and remove its equipment and that a subsequent customer would reuse exactly the same location. Rochester and SNET do not address this issue in their direct cases. 24. Oppositions. PUCO opposes payment of full construction charges by subsequent interconnectors, who may move into a space with little or no construction expense. With respect to LECs recovering recurring costs through nonrecurring construction charges, Sprint maintains that there will be double recovery if a second interconnector replaces the initial interconnector before the end of the number of years of recurring expenses included in the nonrecurring charge. 7. Electric Power 25. Direct Cases. Bell Atlantic and BellSouth charge for 10 and 40 amp increments of direct current (DC) power, respectively, rather than on an actual usage basis. Pacific charges for DC power in 40 amp increments, contending it is more efficient than providing power in smaller increments. US West charges for electric power based on the number of amps requested by an interconnector, on a recurring basis, although the nonrecurring charge for power cable installation is billed at the 20, 40 or 60 amp capacity break point which is greater than or equal to the actual number of amps requested. Ameritech and CBT charge for power on a per fuse amp basis. GTE, United, and Central charge for DC power on a per square foot basis. GTE assumes that an interconnector within a 100 square foot cage would require 100 amps of such power to operate equipment in computing its charge. SWB charges for 40 or 100 amps of DC power. NYNEX provides electrical power on an actual usage basis and bills the interconnector for that actual usage on a per amp basis. Lincoln charges for power in 15 amp increments, while SNET and Nevada charge for power in 10 amp increments. Rochester charges for DC power on a per kilowatt hour basis. 26. Oppositions. ALTS and TDL contend that LECs should meter power usage to avoid overcharging interconnectors. TDL claims that the interconnector can report the actual amount of power used by the equipment. ALTS contends that the cost per fuse amp approach forces interconnectors to order more power than they expect to require at peak load, and then pay the LEC at that high level on a full time basis, resulting in significant excess costs. ALTS maintains that SWB's minimum charge for power, based on 40 amps, unreasonably jumps to 100 amps as the next increment, which is unreasonable when other LECs offer increments of 10 amps or less. 27. Rebuttals. US West contends that an interconnector is not overcharged when it pays a standard, tariffed rate for power. Ameritech maintains that the cost of providing metered service would be prohibitive due to the additional cost of procurement and installation of individual meters, secondary power distribution management, periodic meter readings, and the administration of billing. Ameritech maintains that its cost per fuse amp approach is cost-effective and allows customers to determine energy usage costs up front based on the fuse size required for its individual equipment. B. DIRECT COSTS 1. Annual Cost Factors a. Cost of Money 28. Direct Cases. CBT, GSTC, GTOC, Lincoln, Nevada, NYNEX, Pacific, Rochester, United and Central use a percentage cost of money equal to the Commission's authorized rate of return of 11.25 percent in developing their rates for physical collocation service. Ameritech, Bell Atlantic, BellSouth, SWB, and US West use percentage costs of money equal to 10.9 percent, 12.8 percent to 13 percent, 13.34 percent, 12.32 percent, and 11.5 percent, respectively, to calculate their rates. SNET uses a percentage cost of money equal to 11.34 percent to develop the rates set forth in its direct case. On November 12, 1993, SNET filed Transmittal No. 584 to revise its rates for physical collocation. SNET's Transmittal No. 584 rates for physical collocation were developed based on a percentage cost of money equal to 10.33 percent. LECs that use a rate other than 11.25 percent assert that their percentage cost of money represents a weighted average of their costs of debt and equity capital, where such weights are the proportions of debt and equity that comprise their capital structure. Bell Atlantic, BellSouth, SWB, and US West argue that the percentage cost of money determined by such a methodology reflects the expectations of investors in financial markets and is the rate of return that they must earn in order to continue to attract financial capital. 29. Ameritech, BellSouth, Pacific, and SWB point out that the percentage cost of money that they used in developing their rates differs from the annual cost of money factor displayed on the TRP charts because their methodologies differ from the formula specified in the Special Access Physical Collocation Designation Order for computing the factor on the charts. BellSouth asserts that this difference arises because the factor on the charts reflects the effects of accelerated depreciation and the length of the planning period relative to a given investment. Pacific argues that the annual cost of money factor set forth on each of its TRP charts is necessarily less than its percentage cost of money because the factor on the TRP charts represents the average cost of money as a percentage of gross investment over the life of the new plant item. SWB explains that it developed a levelized cost of money factor which equals the net present value of the expected cost of money divided by the net plant in service for the account for which the factor is being developed. 30. Oppositions. MCI states that there is no risk involved in provisioning expanded interconnection service because LECs have a monopoly over local switching and, therefore, a rate of return in excess of 11.25 percent is not justified. MCI alleges that Bell Atlantic uses a cost of money ranging from 13.75 percent to 15.05 percent, CBT uses 13.4 percent and US West uses a range from 11.25 percent to 11.50 percent in developing their rates for expanded interconnection, and that these percentage rates are not justified. MFS states that LECs' cost of money factors vary widely from LEC to LEC and service element to service element. MFS points out that NYNEX and Pacific apply uniform cost of money factors of 1.7 percent and 6.28 percent, respectively, while Bell Atlantic applies a variety of cost factors ranging from 12.09 percent to 15.05 percent. Similarly, Teleport alleges that NYNEX uses a cost of money equal to 2.7 percent, Bell Atlantic uses 13.99 percent, SWB uses 10.89 percent, and Pacific uses 6.25 percent in computing DC power costs. MFS concludes that the Commission should prescribe the established 11.25 percent rate of return as the maximum cost of money because no LEC provides evidence of its cost of equity in this proceeding. 31. Rebuttals. Bell Atlantic and BellSouth argue that the percentage cost of money that they use in developing their direct costs represents a forward looking estimate of the rate of return expected by their investors and that they must provide these investors with a return at least as great as that expectation to ensure that they are able to continue to attract investors' capital. Bell Atlantic also asserts that its cost of capital is between 12.8 percent and 13 percent and that confusion regarding that rate appears to be the result of the Bureau's methodology set forth in the TRP charts for calculating the cost of money. US West states that its estimate of the future cost of capital is appropriate for setting rates for new services because it establishes prices for such services based on long run incremental cost. CBT, GTE, Pacific, United and Central confirm that they use the Commission's authorized cost of money of 11.25 percent in developing their rates. b. CBT's Annual Cost Factors 32. Direct Case. CBT uses annual charge percentages to develop the depreciation expense, cost of money, federal income tax, property tax, maintenance expense, and administrative and other expense for each function on its TRP charts. In particular, CBT multiplies the annual charge percentages, which are the ratios of the expenses to investment, by an investment amount required for a particular physical collocation function to determine the annual recurring costs incurred in connection with that investment. In addition, CBT uses land and building investment associated with central office equipment for the purpose of establishing land and building factors for physical collocation. CBT also uses central office common equipment investment to determine the central office equipment factors for physical collocation. c. GTE's Income Tax Calculations 33. Direct Case. GTE develops each of its recurring rates so as to recover an allowance for federal and state income taxes based on an after-tax 11.25 percent rate of return and the applicable composite federal and state income tax rate. More specifically, GTE computes the income tax allowance by calculating: (1) the annual dollar returns for each year of the revenue life of an investment by multiplying the after-tax 11.25 percent rate by the average annual undepreciated value of the investment; (2) multiplying the annual dollar returns by the applicable federal income tax factor to compute the allowance for federal income taxes for each year and then averaging these annual allowances, which yields the average annual allowance for federal taxes; and (3) multiplying the annual dollar returns by the applicable state income tax factor to compute the allowance for state income taxes for each year and then averaging these annual allowances, which yields the average annual allowance for state income taxes. GTE's recurring rates recover the average annual federal taxes and the average annual state income taxes on a monthly basis. d. US West's Recovery of Depreciation, Cost of Money, and Income Taxes 34. Direct Case. US West establishes several nonrecurring rate elements for the purpose of recovering depreciation, the cost of money, and income taxes for certain investments. These rate elements are those identified by US West in its TRP charts as: (1) "DS1 EICT" under the DS1 cross- connection provisioning function; (2) "DS3 EICT" under the DS3 cross-connection provisioning function; (3) "Quotation Preparation Fee" under the construction provisioning function; (4) "Inspector (During normal business hours)" under entrance facility installation; and (5) "Inspector (Out of normal business hours)" under entrance facility installation. 35. Opposition. Teleport claims that Pacific Bell's and US West's monthly rates for provisioning a single cross connect order, $179.20 and $487.00, respectively, include depreciation, cost of money, and taxes. Teleport maintains, however, that there should be no investment for this nonrecurring charge. 36. Rebuttals. US West states that there is no direct investment related to its nonrecurring DS1 cross connection rate, but that depreciation, cost of money, and tax expense are part of an administrative cost factor. US West contends that such factor includes annual expenses or carrying charges associated with an allocation of investments that are related to the administrative expenses. e. Nevada's Depreciation Expense for Initial Capital Outlay 37. Direct Case. Nevada develops recurring rates and nonrecurring rates for several functions that recover the depreciation of the same initial capital outlay. The depreciation for which a recurring rate is imposed is to recover the value of the initial capital outlay in equal monthly amounts over the estimated useful life of the investment. The "depreciation" for which a nonrecurring rate is assessed is for the "cost of removal" and the "non-recoverable cost." According to Nevada, the cost of removal represents the one time expense to remove the investment immediately after it has been installed and the nonrecoverable cost represents the at-risk costs should the customer disconnect the service before Nevada has a chance to recover the cost through the recurring rate element. The particular rate elements that Nevada establishes to recover depreciation on a recurring basis and on a nonrecurring basis (for the cost of removal and the non-recoverable cost) are identified in its TRP charts as: "EIS Channel Termination DS1," "EIS Channel Termination DS3," Interconnection Chamber - RENONV02, RENONV13, CRCYNV01, and SPRKNV11," "Power - Preferred DC," and "Conduit." f. Bell Atlantic's Inflation Factor 38. Direct Cases. Bell Atlantic states that it may have used an inflation factor to adjust vendor prices in developing the investment on which its recurring rates are based. According to Bell Atlantic, such a factor may have been used in cases where vendors price lists are different from the previous year. In addition, Bell Atlantic's calculations reveal that its AC power costs are adjusted by an inflation factor equal to 11.20 percent. 39. Oppositions. MFS argues that Bell Atlantic does not quantify or justify the inflation factors it uses to adjust its costs. MFS further asserts that the 11.20 percent factor Bell Atlantic uses to adjust AC power is excessive in comparison to the Gross National Product Price Index that reflected an annual rate of inflation equal to 1.019 percent for the second half of 1992. 40. Rebuttals. Bell Atlantic claims that the inflation factor it uses to adjust vendor price lists is the actual historical price trend for the type of equipment being procured. Bell Atlantic adds that it derives the 11.2 percent inflation factor that it uses to adjust the cost of AC power on the basis of data from the Department of Energy showing the actual annual increases in electric power charges. 2. US West's and SWB's Common Construction Costs 41. Direct Cases. US West's nonrecurring common construction cost consists of (1) the material and the labor to install an alternating current 120/208 volt electrical panel and feed wiring to the interconnector's cage; (2) a 20 percent contingency percentage multiplied by and added to the cost of the panel and the feeder to account for unknown barriers and obstacles that require additional labor and materials; (3) an American With Disabilities Act (ADA) percentage of 20 percent multiplied by, and added to, the sum of the cost of the panel, the feeder, and the contingency amount to reflect the costs of complying with the provisions of the ADA; and (4) a professional engineering services percentage of 15 percent multiplied by, and added to, the cost of the panel, feeder, contingency amount, and the ADA amount. SWB estimates costs for small, medium and large central offices based on a sample comprised of 27 of the 127 central offices tariffed for physical collocation. SWB's nonrecurring charges for construction include contractor labor, SWB's project engineer, outside consultant's labor and contracted construction observer's time. SWB increases its construction costs by 10 percent to account for unforeseen conditions. 42. Oppositions. ALTS, MFS, Sprint and TDL argue that US West does not justify the allowances for the construction contingency percentage, the ADA percentage and the professional engineering consulting service percentage in developing its nonrecurring common construction costs. TDL states that it would be more appropriate for US West to impose a surcharge to recover the actual cost for any unique contingencies than to require that all interconnectors pay an extra 20 percent to protect US West against the possibility that an unexpected obstacle may arise. TDL further adds that unknown barriers are particularly unlikely because US West's central offices are specifically designed for the type of construction and use to which they would be put by interconnectors. 43. Rebuttals. US West contends that the use of a construction contingency is common in construction projects which are handled through a bidding process that generally prevents the bidding entities from securing payment in excess of the bid. Therefore, US West asserts, the bid contains some kind of contingency factor which may or may not be disclosed to the entity receiving the bid to protect the bidder against unforeseen construction problems that may develop. US West contends that its ADA contingency factor is also reasonable because the space for expanded interconnection service is likely to be located in vacant space within a central office building and that it would have had no reason to render such space ADA-compliant were it not for the occupancy of that space by interconnectors. US West defends its professional engineering consultant factor on the grounds that the services of such a consultant are needed in order to certify compliance with certain health and safety code regulations of state and local governments with regard to the design and construction of the leased physical space and that it does not maintain on its own payroll architects or engineers whose job activities include verifying construction-activity compliance. 3. Charges for Repeaters and POT Bays a. POT Bays 44. Direct Cases. Ameritech, BellSouth, NYNEX, Pacific, SNET, SWB and US West include the POT bay as part of the investment on which their cross-connection rates are based. These LECs maintain that the equipment serves several functions, such as a "point of termination" or demarcation between their network and the interconnector's network, an interface between the parties' networks, a location for isolation of trouble and determining responsibility for repair, and an "equal level test point" where the LEC can hand off an industry- standard DS1 or DS3 signal. LECs generally oppose direct connection from the cage to the MDF. 45. Ameritech's original tariff filing required the interconnector to purchase an Ameritech provided POT bay. However, on August 13, 1993, Ameritech filed Transmittal No. 755, which unbundled POT bays as a separate rate element and permitted the interconnector to choose between providing and installing its own POT bay within the interconnection space or using one provided by Ameritech. The POT bay that Ameritech supplies provides both signal equalization and test access capabilities, thereby qualifying as an equal level signal point. The POT bay that the interconnector provides is a passive termination panel with test access but no equalization capability. SWB also allows interconnectors to provision their own POT frames and DS1/DS3 interconnection arrangements. US West's DSX (POT bay) is placed within the interconnector's leased physical space. 46. Bell Atlantic, CBT, GTE, Lincoln, Nevada, Rochester, United and Central do not include the POT bay as a part of the investment on which their cross-connection rates are based. GTE requires the interconnector to provide the cabling from the interconnector's equipment to the DSX cross-connect panel. According to GTE, the cross-connect panel is located in the POT bay, which is part of GTE's normal DS1 or DS3 lineup. GTE states that the patch panel is the only component that is dedicated to the interconnector. Nevada uses a jack as the point of demarcation between an interconnector and Nevada's facilities and installs cabling to interconnect the jack with the DS1/DS3 cross-connect panel. United and Central state that they do not require a POT frame or POT bay but they do require a relay rack and DSX-1 or DSX-3 cross-connect panel for terminating the interconnector's facilities and recover the investment in this equipment through the cross-connection rate elements. 47. SWB asserts that it applies in-place factors to vendor's material prices to estimate the amount of investment required in plant and equipment when only material prices are known. SWB states that its in-place factors are ratios of material cost to total booked cost for recently completed plant and equipment additions. 48. Oppositions. Teleport, ALTS, and TDL assert that the POT bay is an unnecessary piece of equipment that merely increases interconnectors' costs. ALTS argues that if POT bays are for the collocator's benefit, they should at least be made optional. Teleport argues that the POT bay interferes with channel assignment and introduces a new point of failure in the network. Teleport maintains that the point of termination between the parties' networks should be the interconnector's cage itself, as permitted by Ameritech. Teleport alleges that over $5 of NYNEX's and Pacific Bell's DS1 monthly cross-connect charges are related to the POT Bay. 49. Further, Teleport questions the use of a POT bay as an equal level test point. Teleport contends that for proper equal level testing, circuit levels must be equalized at the point of cross-connection, which is usually the MDF. Moreover, Teleport asserts, equal level test point POT bays require the installation of unnecessary repeaters because they limit the distance a signal can travel without requiring a repeater. Teleport considers Ameritech's requirement of an interconnector-supplied "passive" POT bay a reasonable compromise. 50. Rebuttals. LECs reply that POT bays are a necessary interface between the LEC's and the interconnector's facilities. BellSouth submits that without a POT frame that mechanically assigns cable pairs, it will have to keep track of cable pair assignments manually -- and incur additional recordkeeping costs. Several LECs object to Teleport's assertion that POT bays increase the need for repeaters. Pacific maintains that Teleport does not propose elimination of the POT bay, but simply recommends that the point of termination be moved into the cage. According to Pacific Bell, this raises unacceptable security and liability issues. In addition, Pacific asserts that Teleport's approach does not comply with Bellcore's requirement that a POT be an equal level test point for setting signal parameters. BellSouth states that the cost of a POT bay represents only five percent of the monthly cost for a DS1 cross- connect and four percent of the monthly cost for a DS3 cross- connect. Pacific argues that the actual charge that the POT Bay adds to the DS1 cross-connect is $0.71 each month. b. Repeaters 51. Direct Cases. Bell Atlantic, BellSouth, US West, Pacific, and Ameritech include the cost of repeaters in the cost to provision DS1 or DS3 cross-connection service. Bell Atlantic contends that repeaters are needed on every circuit to ensure the quality of service to the customer and to prevent potential degradation to other customer's circuits. Bell Atlantic assumes that 100 percent of cross-connected circuits will require repeaters. Bell Atlantic estimates that repeaters comprise 95 percent of the DS1 connection service rate and 77 percent of the DS3 connection service rate. BellSouth submits that it provides repeaters when the length of the cable between the customer's equipment and the cross-connect frame exceeds the distance limitations delineated in the ANSI standard. BellSouth assumes that 10 percent of the cross-connection arrangements would require repeaters in developing its rates for cross- connection. US West asserts that the distance limitation for its standard cable types for a DS1 is 85 feet and for a DS3 is 27 feet. US West states that its rates include charges for repeaters on a majority of circuits. Pacific filed tariff revisions to include repeaters in the averaged rates for cross-connection, subsequent to the filing of its direct case. Pacific states that repeaters are required when the distance between an interconnection panel and a network element exceeds 450 feet for a DS3 and 655 feet for DS3. Ameritech's original expanded interconnection tariff included the cost of repeaters on every circuit. On August 13, 1993, Ameritech filed Transmittal No. 730 to, inter alia, unbundle repeaters from cross-connection rates, and establish separate DS1 and DS3 repeater rate elements. Pursuant to Transmittal No. 730, Ameritech requires repeaters under the following circumstances: (1) when the interconnector self- provisions a passive POT bay and the distance between the interconnector's transmission equipment is more than 655 feet for DS1s and 450 feet for DS3s; or (2) when the interconnector elects to use Ameritech's signal level test point POT bay and the distance between the interconnector's transmission and Ameritech's equipment is more than 85 feet for DS1s and 27 feet for DS3s. 52. CBT, GTE, Lincoln, NYNEX, Nevada, SNET, SWB, Rochester, United and Central do not include the cost of repeaters in the cost to provision DS1 or DS3 cross-connection service. NYNEX, GTE, and SNET state that customers are responsible for providing repeaters if they are required. Nevada claims that repeaters are not needed because of the short distance between the interconnector's equipment and its special access facilities. 53. Oppositions. ALTS contends that the Commission should reject required repeaters in the absence of an exceptional showing of necessity based on credible technical information. MFS, Sprint, TDL, and Teleport contend that the repeaters required by Bell Atlantic and US West are technically unnecessary and needlessly increase the cost of physical collocation. Teleport alleges that Bell Atlantic and US West's requirement that an interconnector purchase repeaters adds $10.62 and $13.44 per DS1 per month, respectively. MFS asserts that Bell Atlantic and US West have the most expensive rates for cross-connection in the country and that both require a repeater for all or most cross-connects, regardless of the length of the cable that actually connects the collocator's equipment to the LEC's main or intermediate distribution frame. MFS submits that because several LECs permit collocators to provide their own repeaters within their collocated cages when such equipment is necessary, the Commission should require Bell Atlantic and US West to adopt similar requirements. MCI claims repeaters are unnecessary and urges the Commission to make the repeater optional and remove it from cost and rate calculations. ALTS observes a wide disparity in the LECs' use of the equipment, noting that even LECs requiring repeaters employ different standards for their necessity. 54. Rebuttals. LECs generally defend the need for repeaters. BellSouth objects to Teleport's suggestion that repeaters be unbundled from the cross-connect element, maintaining that a repeater is not an optional element because its necessity is determined by the availability of space in a central office. BellSouth asserts that because the need for repeaters is beyond the control of the interconnectors, it is reasonable to average this cost across interconnection arrangements. BellSouth states that the cost of repeaters represents no more than 18 percent of cross-connect costs. Ameritech states its repeater rate of $7.88 per month is properly based on the apportionment of one repeater's share of the cost of a repeater bay, plus one repeater's share of the cost of a repeater panel, plus the cost of one DS1 repeater. US West argues that ALTS objects to paying averaged rates, as opposed to paying for only the cabling necessary for individual interconnections. US West notes that it averaged "no repeater" situations with "two repeater" situations. 4. Bell Atlantic's Rates for Cable Racking 55. Direct Cases. Pursuant to Transmittal No. 557, filed on February 16, 1993, Bell Atlantic's rates for physical collocation connection service covered the cost of network cable rack, repeaters, and coaxial cable. On July 16, 1993, Bell Atlantic submitted Transmittal No. 585 to unbundle network cable rack from its rates for DS1 and DS3 connection service. This unbundled rack rate was developed on the basis of an interconnector using a dedicated path between its cage and Bell Atlantic's frame. On April 1, 1994, Bell Atlantic filed Transmittal No. 645 to restructure the network cable rack rate element from a per foot, per service rate to a per service only rate. 56. Oppositions. MFS argues that Bell Atlantic's requirement that interconnectors purchase a dedicated cable rack for each cross-connect order is unreasonable because cable racks routinely support multiple cables. Teleport asserts that Bell Atlantic has set its rate for racking at a "ridiculously high" level. 57. Rebuttals. Bell Atlantic claims that it spreads the racking investment over the number of cross-connections that interconnectors in an average central office were expected to demand. 5. Floor Space Costs 58. Direct Cases. BellSouth, CBT, Nevada, NYNEX, Rochester, United and Central base their floor space rates on embedded cost (i.e., actual historical cost or book value) of land and building, claiming that this is a standard practice that avoids the difficulty of obtaining detailed information on the market value of central offices. These LECs develop recurring rates for floor space by applying annual cost factors for depreciation, cost of money, income taxes, property taxes, maintenance expenses, and administrative expenses to the embedded value of land and building investment assigned to interconnectors. 59. Bell Atlantic, SWB, and US West contend that the proper basis for rental rates is the current cost at market value. Bell Atlantic and SWB calculate the market rental value of standard commercial office space using a published real estate industry source, the Building Owners and Managers Association's (BOMA) Experience Exchange Data Report, and adjust that value with factors from a second source of data, R.S. Means' Building Construction Cost, to account for differences in the costs of constructing central office space and commercial office space. Bell Atlantic asserts that the costs that it identified as "administrative" in its February 16, 1993 collocation filing, which the Commission disallowed in the Physical Collocation Tariff Suspension Order, are justified because such costs are not reflected in the R.S. Means data. Bell Atlantic further avers that it differs from those that typically use R.S. Means data because, unlike such other users, Bell Atlantic must make complex assessments of its needs for space within telecommunications offices, in light of the additional occupancy required under the Commission's collocation mandates. SWB states that the use of BOMA data results in rates that do not include any unusual overheads. US West develops its floor space rates using pricing information obtained from two real estate brokerage firms. US West explains that it adjusted the market value component of its floor space rates upward by 17 percent to account for areas used to access the interconnectors enclosure that are common to the building. US West also states that its floor space rates recover property taxes on rental area that is adjusted upward by an additional 40 percent to account for other usable space not common to the building that was created to access the interconnector's enclosure. 60. Ameritech and Pacific base their rates on the current cost of constructing a new central office building (i.e., replacement cost) as derived from R.S. Means data. Pacific asserts that it increased the 100 square feet of land and building investment required for a standard interconnector's enclosure by 30 square feet to account for the additional space required to allow access to the collocation space. Pacific further states that the additional 30 square feet is not available for its own use due to physical collocation and is not part of common access building space. GTOC, GSTC, and Lincoln also base their rates on replacement cost, but use the C.A. Turner Telephone Plant Index in arriving at that cost. SNET develops floor space rates on the basis of replacement cost using actual cost data for recently constructed office space in two of its central offices. Lincoln contends that the important issue is not whether the LEC uses embedded or replacement costs, but whether it chooses a reasonable method for evaluating the cost or value of its central office. 61. Bell Atlantic, CBT, GTOC, GSTC, Nevada, NYNEX, Pacific, US West, United and Central do not base floor space rates on costs in a sample of central offices in calculating their floor space rates. These LECs either use data on every one of their central offices or a methodology that does not require a sample. Ameritech uses a sample of 45 central offices; BellSouth uses 90 central offices; Lincoln uses the one office at which it offers expanded interconnection; Rochester uses the one office at which it proposes to offer expanded interconnection; SNET uses two central offices; and SWB uses every city within its territory that was listed in the BOMA publication in developing each of five state averages for floor space rates. 62. Oppositions. ALTS, MCI, Sprint, and TDL assert that floor space rates should be based on embedded costs. In particular, Sprint argues that the direct cost of floor space to interconnectors is the cost of the LEC's existing floor space not the construction cost for hypothetical space which the LEC is not constructing or a derived rental rate for floor space that the LEC would not be renting, absent expanded interconnection. Sprint further argues that current construction costs are not relevant because many central offices have vacant office space due to a reduction in the size of switches and because LECs are not required to provide expanded interconnection where sufficient space does not exist. MFS objects to the use of current cost data because the cost of new construction will be much greater than the costs that the LECs actually incurred in the past when constructing their central offices. MCI and TDL argue that the only methodology for determining floor space rates that will prevent price discrimination is one based on book value, and that the methodology used for floor space rates should be identical to that used to allocate the cost of land and building investment for existing DS1 and DS3 channel termination rates. 63. MFS generally supports the use of BOMA data to establish a base rental rate for floor space because such data are readily ascertainable and ensure adequate compensation to the LECs. MFS argues, however, that the adjustments that Bell Atlantic and SWB make to this base rate to account for differences in building and telephone construction costs results in double recovery because LECs already recover telecommunications-specific costs through non-recurring charges for central office preparation and cage construction. MFS further states that Bell Atlantic's use of a factor to recover administrative costs also results in double recovery because such costs are typically reflected in the comparative rental rates published by BOMA. ALTS and Teleport contend that the LECs have established excessively high rates and have failed to provide the market value data to support such charges. ALTS alleges that GTE's use of replacement cost data to establish floor space costs results in rates that are essentially twice those that would result from the use of embedded cost data or BOMA data. Sprint asserts that Pacific Bell's and US West's use of factors to increase floor space rates to reflect space used to provide access to collocators' cages should not be permitted because the cost of such space would be recovered in the rate for common space in the central office. MFS argues that Pacific's use of such a factor is unreasonable because the extra space is not dedicated to the exclusive use of the interconnector. PUCO contends that Ameritech included costs in the floor space charge, such as environmental conditioning, and that these costs are also included in the charge for the central office build-out rate. 64. Rebuttals. Ameritech, GTE, and US West reject the use of BOMA data for developing floor space rates because such data reflect operating costs for commercial buildings in major metropolitan areas which provide different features than those that are available in central office buildings. Bell Atlantic, BellSouth, SWB, United and Central maintain that the standards for central office space exceed those for commercial office space and, therefore, the cost of central office space could exceed the rental cost of the same size space in a commercial office building. SWB also disputes that the allegation that its adjustment to basic floor cost data for these standards results in double recovery of costs. SWB argues that this allegation confuses the higher cost of telephone exchange buildings with the specific and additional cost of modifying these buildings for interconnector occupancy. Ameritech asserts that its use of R.S. Means data to develop floor space costs and its charges for central office buildout do not result in double recovery of costs because the R.S. Means data provide information applicable to a typical central office, and Ameritech must recover the costs of customizing the interconnector's space. United and Central also argue that they do not recover telecommunications-specific construction costs through their nonrecurring charges for central office preparation and cage construction. Bell Atlantic argues that it adjusts market real estate prices to account for the additional costs of interconnector occupancy that are unique to telephone company operations and are not reflected in benchmark real estate prices for comparable space. NYNEX asserts that the use of embedded costs provides an effective check against price discrimination because it is the same method used to allocate and cost land and building investment for existing DS1/DS3 channel termination rates. Pacific maintains that embedded costs are irrelevant to rates under price caps, and that new services may be based on incremental costs. 65. GTE and Pacific contend that current costs are the most relevant because interconnection will exhaust central office space, requiring LECs to build new space at current costs. Pacific further argues that current costs are a reasonable proxy for the long run incremental cost incurred as a result of satisfying the demand for floor space for physical collocation, and pricing based on long run incremental cost results in the economically efficient allocation of resources used to serve those customers that are willing to pay those costs caused by their demand. US West argues that the market value of collocation space in the same geographic area as the central office is the most appropriate value of that space because an interconnector is substituting US West's real estate for real estate it would otherwise have to purchase or lease on the open market were it not for regulatory mandates. Pacific and US West state that their adjustments to floor space rates for the general provision of access to the interconnectors' space are reasonable because there will be areas such as corridors and hallways used primarily by interconnectors that are no longer usable by the LECs for their own business purposes. 6. Power Costs 66. Direct Cases. Bell Atlantic, Nevada, SNET, SWB, and US West all use equations to compute the costs of the AC power included in the direct cost of DC power. Bell Atlantic, for example, calculates the monthly cost of converting AC power to DC power by multiplying the average cost per kilowatt hour by the average hours per month, by the rectifier load, and by the total discharge load. Nevada uses separate equations to calculate the costs of AC power and DC power. 67. Ameritech, GTE, and Lincoln use equations to directly calculate the cost of DC power. Ameritech, for example, calculates the cost of DC power per fuse amp by multiplying voltage DC per fuse amp by annual kilowatt hours, by average cost per kilowatt hour, adding the annual incremental cost of air conditioning, and dividing by 12. 68. NYNEX has no AC power costs in the cost of DC power. NYNEX develops the costs of DC power using an engineering study of a typical central office power plant configuration to identify the investment and power capacity (measured in amps) required for such an office. NYNEX divides the power plant investment by the power plant capacity to derive an investment per amp. NYNEX multiplies the investment per amp by a carrying charge factor which was based on ARMIS data to derive a DC cost per amp. 69. Pacific includes AC power costs used to operate its network as part of the maintenance factor of each equipment account. Pacific develops its DC power generation recurring costs based on a model central office power serving arrangement that includes a back-up generator, power plant, cable, cable racking and the battery distribution fuse bay. Pacific divides each element of the model by the number of amps that item of equipment is capable of providing. Pacific applies annual cost factors to the per amp investment to develop annual recurring costs. Pacific's calculation also reflects the land and the building required to house the power equipment. 70. BellSouth, CBT, United and Central appear to include all of their AC power costs in their floor space costs. Rochester does not use an equation to calculate AC power costs in developing its per kilowatt hour DC power costs. 71. SWB states that the recurring and nonrecurring POT power arrangement rate elements are set to recover the costs of installing and maintaining the physical facilities required to provide power from the central office power equipment to the interconnector's space. SWB explains that the POT power arrangement nonrecurring rate element recovers power cables, terminating equipment, and the distribution panel installed in the POT frame. SWB further states that the POT power arrangement recurring rate element recovers the expenses expected to be incurred by SWB in maintaining and administering the equipment. SWB contends that the DC transmission power monthly rate element is set to recover the costs of producing the required amounts of DC power offered, including the cost of the required AC power and the costs associated with equipment used to convert AC to DC power. 72. SWB states that it applies in-place factors to a vendor's material price to estimate the plant investments required to produce a particular function. SWB asserts that the in-place factors are developed from the ratio of material cost to total booked cost on recently completed plant and equipment additions. 73. BellSouth states that the power plants in the central offices for which physical collocation was requested are either electronic digital or electronic analog (depending on the switch type at that central office). BellSouth explains that it, therefore, assumes an equal split of collocation arrangements in central offices having each type of power plant in developing the average cost of power in its floor space rates. 74. Oppositions. Teleport avers that LEC recurring rates for power vary between $199 and $424 for 40 amps, and investment ranges from $6,343 to $258,915. MCI claims that LECs' recurring rates for power range from $0.20 to $8.88 per DS1. ALTS alleges that GTE's charges for power apparently will sometimes exceed its floor space rate. Teleport asserts that SWB proposes a rate of $2,191 for the installation of what Teleport presumes are 110 volt plugs. MFS alleges that NYNEX's power charges in New York are excessive because NYNEX requires collocators to pay twice for dual power feeds, which MFS argues is contrary to standard industry practice. ALTS argues that US West double recovers for power and equipment because US West places equipment and power costs in some functions and also charges the interconnector for extra power for the cost of incremental air conditioning to cover the heat generated by equipment. 75. Rebuttals. Bell Atlantic argues that its investment for 40 amps of DC power is $17,261, not $258,915, as Teleport alleges. GTE replies that there is no cost relationship between its charges for DC power and floor space. SWB states that its house electric rates recover the costs of installing overhead fluorescent lighting, electrical outlets, early warning fire detection, conduit and wire and all associated contract labor, rather than just a few 110 volt plugs as Teleport alleges. NYNEX maintains that its tariff rates for power provide for redundancy, using two feeds, as is standard industry practice. Pacific Bell claims that it develops its DC power costs based on the assumption that all components of the power plant are used at full capacity, which results in lower rates than when compared to calculating costs on the basis of average power plant capacity actually used. 7. Cross-Connection and Termination Equipment Costs 76. Direct Cases. Ameritech's DS1 and DS3 cross- connection cable/cable support function recurring costs are for cabling, racking, and ABAM jumper cabling. Ameritech's DS1 and DS3 recurring cross-connection equipment functions consist of costs associated with the DS1 and DS3 repeater elements. The investments on which Ameritech bases these costs include a prorated portion of a repeater bay, a repeater panel, and a DS1 repeater. Ameritech's recurring termination equipment function consists of costs that were included in its DS1 and DS3 Termination panel elements. Ameritech's investments in the termination equipment recurring function are for the prorated share of one DS1 or DS3 termination in a passive point of termination bay for the prorated share of one DS1 or DS3 termination in a DS1 or DS3 termination panel. 77. BellSouth's DS1 and DS3 cross-connect elements consist of the cable connection between the collocation space and the central office distributing frame (DSX frame) as well as the cross-connect panels on the DSX frame, interface panels, cable rack, bay framework, and other supporting hardware. 78. Bell South states that the DS1 and DS3 cross- connect equipment will not have 100 percent utilization. BellSouth further explains that the equipment will be used by various interconnectors simultaneously and, therefore, growth capacity as well as maintenance capacity are required.BellSouth also states that the .85 utilization is BellSouth's estimate of the objective utilization of DS1 and DS3 cross- connect equipment and that this factor is typical for similar DS1 and DS3 cross-connect equipment used in other DS1 and DS3 offerings. 79. BellSouth states that the IFCPC labor costs are costs associated with the engineering and installation of the DS1 and DS3 equipment and is capital labor. BellSouth also maintains that this labor cost is incurred each time an additional 28 DS1 or 12 DS3 cross-connect capacity is installed and the IFCPC labor cost, therefore, is part of the installed investment for each 28 DS1 and 12 DS3 cross connect capacity. BellSouth contends that utilization is always applied to the total capitalized investment for equipment and, therefore, the .85 is applied to IFCPC capitalized labor cost. 80. NYNEX bases its expanded interconnection channel termination rate element on cross-connection and termination equipment investments comprised of four components: (1) a termination at NYNEX's digital service cross- connection (DSX) frame; (2) the cable between the DSX frame and the point of termination intermediate frame; (3) a termination at the NYNEX side of the POT frame; and (4) a termination at the interconnector-customer's side of the POT frame. In addition, NYNEX calculates termination and cable investments from vendor price information, and engineering and labor costs associated with the placement of the equipment in the central office. NYNEX derives the fully distributed monthly recurring costs associated with DS and DS3 office channel termination rates by applying ARMIS carrying charge factors to the termination and cable investments associated with providing the office channel termination. 81. GTE's DS1 and DS3 Cross Connect rate recovers the cost for the DSX-1 and the DSX-3 cross-connect panel, respectively. GTE develops costs for this element by taking GTE's material cost for a fully equipped DSX-1 or DSX-3 bays and dividing by the bay's DS1 or DS3 capacity. GTE includes the cost for racks in the cross-connect panel (patch panel) and cable space (space occupied on the rack) charges. 82. Pacific identifies the investment associated with the recurring cable and cable support function by estimating the average material and labor costs associated with placing a cable between the interconnector's space and Pacific's facilities. Pacific develops the investment associated with the recurring cross-connection equipment function on the equipment required for interconnection in the Los Angeles-Madison office. In addition, Pacific computes a state-wide average investment based on in-service DS1 volumes in the Madison office divided by the in-service volumes for all collocation offices. Pacific also derives the nonrecurring cross-connection provisioning function direct costs by: (1) identifying the work groups involved in provisioning DS1 and DS3 cross-connections to collocators; (2) identifying the specific tasks necessary to provision DS1 and DS3 cross- connections; and (3) multiplying average task times by the actual work time labor rate to determine the costs associated with each work group; and (4) summing the work group costs to identify total costs for installation. Finally, Pacific's recurring termination equipment function consists of termination equipment unit investment associated with a digital interface panel, a digital cross-connect panel, a digital cross-connect system and a DSX termination. 83. SWB allows interconnectors to provision their own POT frames and DS1/DS3 interconnection arrangements. SWB's interconnection arrangement is comprised of the facilities that are installed in the POT frame, including two digital cross connect (DSX-1 or DSX-3) panels, jumpers, a fuse panel, cabling, and associated hardware. 84. SNET's recurring point of termination costs include the installed costs for the DS1, DS3, DSX1, and DSX3 panels that establish a demarcation point between the collocator and SNET. 85. US West calculates its costs for the cross-connect element based on the investment for cabling, DSX panels, repeaters and fiber optic terminals required to provide virtual and physical collocation service under four different provisioning models. US West estimates that 90 percent of the time the cross-connection would be physical and 10 percent would be virtual. 86. BellSouth, Lincoln, Nevada, SNET, SWB, United, and Central use a distributed configuration to develop cost estimates for physical collocation tariffs. BellSouth states that it uses a distributed collocation configuration to develop cost estimates because it does not expect to be able to provide adjoining space in every central office so that all interconnectors could be located in the same area. Lincoln states that the interconnector has complete ability to configure its own circuit facility assignment, without interruption by other interconnectors by shared termination equipment. Nevada states that it plans to use a distributed configuration because it estimates that no more than one interconnector will order special access expanded interconnection in any one of the four central offices in which it is available. SNET states that the benefits of a distributed system are quick provisioning, provision of a trouble isolation point, elimination of the need to access the customer's point of presence to provision additional capacity, and the capability for customers to make their own channel assignments. SNET argues that such a system requires approximately $2,000 per cage in additional investment compared to a centralized system. SWB argues that its use of a dedicated configuration minimizes maintenance and repair costs, simplifies and reduces the cost of service provisioning and service tune-up, and ensures network protection and reliability. United and Central maintain that a distributed cross-connection function provides a defined termination point for an interconnector's network and facilitates both the interconnector's and the LEC's access to a point of termination for maintenance, installation and testing. United and Central further argue that the distributed configuration enables an interconnector to "prewire" its network facilities to the cross-connect and simply place an order with the LEC for connection to the LEC's main distribution frame. 87. CBT, GTE, and US West use a centralized configuration to develop cost estimates for physical collocation tariffs. CBT states that it uses a centralized configuration as much as possible to minimize cost. CBT contends that if a repeater is required to meet an interconnector's request to collocate in a particular location within a wire center, then the cost of the repeater would be charged to the interconnector and prorated among later interconnectors who use the same repeater. GTE argues that a centralized collocation configuration simplifies engineering and installation of equipment because existing equipment lineups are used. GTE also argues that the centralized configuration allows for better maintenance because all the cross-connect equipment is located at common locations in the central office. US West states that this design benefits interconnectors because they are charged only for the portion of the equipment used, versus being charged for the entire cost of equipment. 88. Ameritech, NYNEX, Pacific, and Rochester do not categorize their collocation configurations as either distributed or centralized. Ameritech states that its collocation configuration provides for aggregated repeater bays to serve multiple transmission nodes within a central office. Ameritech also states that it allocates to each interconnector separate repeater shelves to meet service requirements. NYNEX states that it places fiber within the central office and equips the frame for the specific number and type of special access cross-connects on an individual interconnector basis. Pacific contends that it will use the least expensive configuration method and, whether a centralized or a distributed configuration is the one that meets that criterion, depends on such factors as the number of collocators in a central office, the number of expanded interconnection cross-connection circuits, the availability of circuit terminating equipment, the distance between the collocation area and facility area and special access facilities, and the timing of service requests. Rochester's states that it uses a physical collocation arrangement that is neither a centralized nor a decentralized configuration. 89. Oppositions. Teleport claims that Pacific Bell's and US West's monthly rates for provisioning a single cross-connect order, $179.20 and $487.00, respectively, include depreciation, cost of money, and taxes. Teleport maintains, however, that there should be no investment for this nonrecurring charge. MCI argues that the LECs' rates for the DS1 cross-connect rate element range from $3.40 to $21.63. 90. Rebuttals. US West states that there is no direct investment related to its nonrecurring DS1 cross-connection rate, but that depreciation, cost of money, and tax expense are part of an administrative cost factor. US West contends that such factor includes annual expenses or carrying charges associated with an allocation of investments that are related to the administrative expenses. Pacific Bell argues that its cross-connection provisioning costs are reasonably based on the assumption of 2.5 hours of total provisioning time. GTE states that its rate structure does not include the cost of the jumper cable from the interconnector's cage to the termination point because the cable is to be provided by the interconnector. 8. Security Costs 91. Direct Cases. All LECs, except for SNET and Rochester, require a security escort, although some impose this requirement under limited circumstances. LECs contend that security escorts are needed to protect central offices from unsupervised interconnector- employees, to protect interconnectors' property, and to ensure network security and reliability. Ameritech, Bell Atlantic, and Nevada require escorts in cases where interconnectors must pass through unsecured central office space. BellSouth and GTE require a security escort where it is not feasible to separate areas housing their network from physical collocation space. BellSouth requires that interconnectors be escorted by a trained network technician in those central offices when the interconnector is working in common areas. United and Central require escorts only when an interconnector needs access to common operational areas. NYNEX requires a security escort where a card access system is not available. CBT requires a security escort in the one central office where there is no card access system, but only where access to common areas is necessary. Pacific personnel escort the interconnector to the collocation area in central offices not equipped with an electronic card access system. SWB requires security escorts in locations where separate access to collocation space is not available. US West uses an independent security service which can be contacted through an 800 number, 24 hours per day. US West marks up the rate that it pays for this service to recover the costs of tracking hours and billing. Lincoln believes that it is reasonable to require security escorts any time an interconnector-personnel is on its premises. SNET states that it charges interconnectors only for keys to their dedicated areas and cages because it prohibits access to the rest of the central office. 92. Ameritech, BellSouth, Pacific, Nevada, SWB, GTE, CBT, and Lincoln develop and recover costs for the construction associated with additional security needs attributable to physical collocation. Ameritech's security installation direct cost is based on the initial capital outlay for investment in walls, doors, locks, and keys and the present value of the recurring direct costs related to that investment. BellSouth will provide secured access to collocation areas through the addition of walls, doors, and hallways. Pacific controls access to and within most of its central offices through an electronic card access system. Pacific derives its security installation direct costs using current vendor information. Nevada provides interconnectors with access to their collocation area through a separate door that leads directly to their caged enclosures. SWB indicates that in some locations electronic access will be implemented to control entry into and exit from the general collocation space. GTE's security installation direct costs include costs for card access systems, partitioned walls, doors and hardware, and making access card modifications to elevators. CBT provides interconnectors with card access to all its central offices, except one, 24 hours per day. NYNEX provides access through a card system, where available, and issues access cards to employees and contractors designated by the interconnector. NYNEX does not, however, develop costs or tariff a rate for security installation. 93. Oppositions. Sprint argues that Pacific Bell's cost for the installation of a security system appears extremely high, assuming that there are four collocators per central office. ALTS asserts that SWB's charges are $30.93 per half hour for escort service and that this rate is unreasonable compared to US West's rate of $10-$15 per hour. ALTS further asserts that SWB proposed excessive nonrecurring charges for security installation that range from $5,196 to $15,130 per interconnector. ALTS also states that GTE's has not justified charges for the installation of equipment that range from $10,000 to $30,000. ALTS further asserts that Bell South has not justified imposing a nonrecurring charge of $12,500 per interconnector for security installation. Teleport claims that Ameritech, Southwestern Bell, Bell South, and GTE filed rates that appear to recover the cost to install an entirely new security monitoring and access system in their central offices. Teleport also asserts that Ameritech proposes a nonrecurring "security" rate of $1,146 and that such rate is comprised entirely of seven years of recurring expenses. 94. Rebuttals. LECs defend their security measures as necessary to protect their central office facilities. Pacific maintains that its security installation nonrecurring charge is based on an assumed demand of one interconnector per central office. Ameritech asserts that it charges an interconnector only for the cost of modifying its existing access systems to accommodate interconnection. SWB argues that its rates for security are based on only that portion of the work which is associated with provisioning collocation. GTE contends that its rates for security recover only the cost of securing the offices necessitated by the provision of physical collocation. Bell South agrees to modify the design of its physical collocation modules to provide for a single card reader access system, rather than requiring one per nodule and to reduce its nonrecurring construction and floor space rates to reflect this change. On October 29, 1993, BellSouth filed Transmittal No. 157, which sets forth rates to recover the cost of a single card reader system. 9. Construction Costs 95. Direct Cases. Ameritech's common construction direct costs are related to investments for heating, ventilation, air conditioning systems, and overhead lighting. Ameritech averages common construction costs over all interconnectors rather than imposing the total cost on the first interconnector. Ameritech's construction provisioning direct costs are the costs associated with identifying where walls, doors, locks and keys are required. Ameritech's interconnector-specific construction direct costs are for the transmission node enclosure and an AC outlet. Ameritech develops the common construction costs and the interconnector-specific direct costs based on the present value of the annual cost for these functions calculated over 7 years using a 10.9 percent discount rate. 96. Bell Atlantic's interconnector-specific direct costs are based on contractor-provided cost estimates for standard and nonstandard 100 to 400 square foot cage construction costs. Bell Atlantic recovers common construction costs on a time and material basis. BellSouth develops construction direct costs based on the present value of annual depreciation expense, cost of money and income tax expense calculated over 44.7 years using a discount rate equal to 13.4 percent. SWB estimates its construction costs for its medium and large central offices from a sample of 27 central offices that offer physical collocation service. It imposes a nonrecurring charge to recover costs of contractor labor, the project engineer's labor, an outside consultant's labor, and a contracted construction observer's labor. SWB also increases its construction costs by ten percent in order to recover costs that may be incurred due to unforeseen circumstances. CBT grouped wire centers into four groups and developed costs based on a representative wire center within each group. CBT developed costs for general construction, mechanical and environmental work, card access and security system work, consulting fees and architectural and engineering fees. 97. NYNEX's averaged actual nonrecurring costs associated with 12 multiplexing NYNEX nonrecurring construction direct costs include design and engineering of the physical collocation space, installation of cable racks, cabinets, caging, lighting and power equipment. Pacific recovers material and equipment costs up front. Pacific's common construction nonrecurring costs include the costs for survey labor and implementation labor. Pacific uses current vendor information to determine the cost for fiber cable ironwork and cable racking, and uses actual cost experience to determine the cost for a telephone service distribution terminal, central office ground wire and bus bar. Pacific derives enclosure costs for a single collocator by identifying the installed costs for two adjacent cages, and dividing by two. GTE's common space preparation costs are for the activities needed to physically separate the interconnector's space from GTE's network. GTE's interconnector-specific costs are primarily contractor costs required to construct the cage. United and Central's construction provisioning costs are those for which it imposes an application fee, which varies by study area. United and Central recover all other central office construction costs on a time and material basis. 98. US West's nonrecurring common construction cost consists of: (1) the material and the labor to install an alternating current 120/208 volt electrical panel and feed wiring to the interconnector's cage; (2) a 20 percent contingency percentage multiplied by and added to the cost of the panel and the feeder to account for unknown barriers and obstacles that require additional labor and materials; (3) an American With Disabilities Act (ADA) percentage of 20 percent multiplied by and added to the sum of the cost of the panel, the feeder, and the contingency amount to reflect the costs of complying with the provisions of the ADA; and (4) a professional engineering services percentage of 15 percent multiplied by, and added to, the cost of the panel, feeder, contingency amount, and the ADA amount. 99. Lincoln tariffs a rate of $7,500 for advanced payment to cover the cost of service preparation and cable installation. Lincoln would refund monies if the actual cost of service preparation and installation were less than $7,500 and would bill the customer if these costs are greater than $7,500. SNET averages common construction costs over the total number of cages expected to be built over a five year period. Rochester recovers cage construction costs on a time and materials basis. Nevada does not develop common construction costs because its four central offices have substantial unoccupied space. Nevada recovers the installation costs for racks, AC power feeds and other equipment on a customer-specific basis. Nevada's interconnector-specific nonrecurring costs are comprised of three components: (1) the cost to remove the investment; (2) the nonrecoverable cost, which represents the at risk cost should the interconnector discontinue service before Nevada completely recovers the investment; and (3) the allocated fixed cost, which Nevada states represents one time labor and administrative expenses associated with the filing. 100. Opposition. ALTS, MFS, Sprint and TDL argue that US West does not justify the allowances for the construction contingency percentage, the ADA percentage and the professional engineering consulting service percentage in developing its nonrecurring common construction costs. TDL states that it would be more appropriate for US West to impose a surcharge to recover the actual cost for any unique contingencies than to require that all interconnectors pay an extra 20 percent to protect US West against the possibility that an unexpected obstacle may arise. TDL further adds that unknown barriers are particularly unlikely because US West's central offices are specifically designed for the type of construction and use to which they would be put by interconnectors. Teleport asserts that Pacific's, US West's, Bell Atlantic's and Ameritech's proposed rates for cage construction are $16,000, $27,000, $6,500, and $5,747, respectively, and claims that a cage that meets the requirements for expanded interconnection can be constructed for approximately $1,000. 101. Sprint asserts that Pacific assumes four collocators on average per central office in developing its recurring costs, but does not specify the number of collocators it assumes in developing its nonrecurring costs. Sprint adds that the lone exception is that Pacific Bell assumes two collocators per central office in developing its nonrecurring costs for the interconnector- specific construction function. MFS asserts that Pacific should be required to reduce its central office preparation nonrecurring charges to reflect an expected demand of four collocators because Pacific did so in establishing its other recurring and nonrecurring charges. 102. Teleport and MFS assert that NYNEX's $54,900 non-recurring common central office construction charge is based on an unsupported average of the inflated rates it charges for intrastate collocation arrangements. Sprint asserts that US West's loaded rate for a construction management engineer under the construction provisioning function includes corporate overhead and property overhead costs and that such costs may, therefore, be recovered twice because an overhead ratio is subsequently applied to the direct costs to develop the rate for this nonrecurring function. ALTS argues that GTE's recovery of increases in property taxes as an additional cost of construction, on the theory that the construction increases the value of the buildings, is not justified. ALTS and TDL object to US West's alleged $15,672 charge for a redundant air conditioning unit. ALTS alleges that Bell Atlantic's methodology for developing construction costs results in a $353.35 rate for a standard two- socket electrical outlet, which is said to require eight hours to install. ALTS objects to US West's alleged $162.50 per hour cost for a construction project engineer that is said to be used to derive rates for all 16 construction provisioning nonrecurring charges. 103. Rebuttals. US West contends that the use of a construction contingency is common in construction projects, but they are handled through a bidding process that generally prevents the bidding entities from securing payment in excess of the bid. Therefore, US West asserts, the bid contains some kind of contingency factor which may or may not be disclosed to the entity receiving the bid to protect the bidder against unforeseen construction problems that may develop. US West contends that its ADA contingency factor is also reasonable because the space for expanded interconnection service is likely to be located in vacant space within a central office building and that it would have had no reason to render such space ADA-compliant were it not for the occupancy of that space by interconnectors. US West defends its professional engineering consultant factor on the grounds that the services of such a consultant are needed in order to certify compliance with certain health and safety code regulations of state and local governments with regard to the design and construction of the leased physical space. US West explains that it does not maintain on its own payroll architects or engineers whose job activities include verifying construction- activity compliance. US West maintains that expanded interconnection service will force US West to add HVAC and humidification systems for which it will incur construction and engineering design costs because conversions to digital technology have rendered US West's offices without surplus HVAC. 104. Bell Atlantic asserts that it filed the actual proposals of contractors as support for its cost of constructing facilities for interconnectors. Bell Atlantic adds that interconnectors may choose to construct their own cages if their contractors are able to construct the cages for a lower price than Bell Atlantic's contractor. NYNEX avers that it used an average of the actual total cost of each of 12 multiplexing nodes for which it billed state expanded interconnection customers in developing its nonrecurring construction charge for interstate expanded interconnection. NYNEX adds that the multiplexing node construction costs reflect the use of outside contractors that were selected by a competitive bidding process and, therefore, these costs provide the best evidence of the costs of provisioning multiplexing nodes for interstate expanded interconnection. 105. SWB and Pacific assert that it is impossible to construct a cage which meets all electrical and electromagnetic requirements for $1,000, as Teleport alleges. Pacific also explains that its interconnector-specific construction charge recovers not only the labor and materials costs of constructing the cage, but also other costs that are incurred in connection with providing this facility, such as ironwork, cable racking, lighting and other items. Pacific states that its actual interconnector- specific construction function charge is $12,993, not $16,000 as Teleport alleges. GTE argues that it provides a cage with an AC outlet, lighting, fire protection equipment, grounding equipment, and battery connection equipment. Such features, GTE argues, are required to make the cage usable as well as to meet fire safety regulations and the costs of these items, therefore, are recovered properly in the cage construction element. 106. Pacific argues that it does not use a demand forecast of four interconnectors in developing its recurring rates as it did for its recurring charges because recurring rates designed to recover fixed costs will never recover such costs if the rate is based on an inaccurately high demand forecast. By contrast, Pacific argues, it can file to modify its recurring rates at some point in the future if its forecast proves to be inaccurate and will only have foregone the apportioned amount of the recurring charge not collected during the initial period. GTE asserts that it is reasonable to expect that building improvements related to expanded interconnection will lead to increased property taxes and to include these incremental costs in its rates for such service. 10. Entrance Facility Costs 107. Direct Cases. Ameritech's entrance facility installation nonrecurring costs are for splice tray material, splice case material, and the labor to perform the splicing, splice testing and pulling. Ameritech's entrance facility space recurring costs are related to conduit and riser investment. Ameritech's entrance facility space nonrecurring costs are the labor expenses incurred to pull the cable from the vault to the transmission node. 108. Bell Atlantic develops entrance facility recurring costs based on the investment for the manhole, conduit, vault, riser duct, cable rack, and conduit. Bell Atlantic determines the value of these investments using vendor prices. Bell Atlantic adds to the vendor price of materials the engineering and installation costs and the incremental land and building associated with the investment. Bell Atlantic's nonrecurring entrance facility installation costs are labor costs. BellSouth's interconnector customers install and maintain the fiber optic cable. BellSouth derives entrance facility space recurring costs based on the installed value of the investment in cable rack riser and land and building. 109. NET installs and maintains entrance facilities for the interconnector. NYT's interconnector-customers install and maintain entrance facilities other than the cable vault. NYNEX derives cable space direct costs based on the investment for the cable vault and the frames and the other hardware that support cables within the central office. NYNEX computes the cost of the cable vault by multiplying the ratio of the average square feet of vault space to the average square feet of total central office space in those offices where there are intrastate expanded interconnection arrangements by the average cost per square foot of space. NYNEX computes the cost of frames and hardware by multiplying the average frame investment per square foot by a carrying charge factor developed from ARMIS data. 110. Pacific derives recurring entrance facility space costs based on investment consisting of vault racking, cable riser and ladder racking, land, and building. Pacific's nonrecurring entrance facility installation costs are the labor costs for engineering, vertical placement and removal of the collocator's fiber cable, and horizontal placement and removal of the collocator's fiber cable. 111. Nevada's recurring facility installation costs are based on investment for land and building. Nevada's nonrecurring facility installation costs are the cost of removing conduit and innerduct and the nonrecoverable cost for these investments, which represents the at risk cost should the interconnector disconnect before these investments are recovered. Nevada tariffs labor rates for cable pulling and splicing. 112. US West computes nonrecurring charges for the entrance enclosure, conduit and innerduct, core drill, fiber cable splicing, fiber placement, and riser rate elements based on the present value of recurring costs associated with the capital outlay for these items. It calculates the present value over a 10 year period using a discount rate of 10.29 percent. US West allows interconnectors to self-provision entrance enclosure, conduit/innerduct, core drill, fiber cable splicing and fiber placement. US West will, however, assess a charge for the presence of an inspector if the interconnector wishes to self- provision these items. 113. SWB derives the recurring cost of conduit space from the manhole to the vault from company records of conduit additions and conduit costs. GTE's nonrecurring entrance facility costs are the costs associated with pulling the interconnector's fiber optic cable from the manhole to the interconnector's cage and splicing within the cable vault. GTE determines the cost for cable pulling by multiplying the area contractor price for cable pulling by the number of feet from the manhole to the fiber termination terminal. GTE's nonrecurring entrance facility space costs are the costs associated with the space that the cable occupies within the manhole, vault, riser and racks. 114. United and Central compute recurring costs for entrance facility installation and space based on investment in conduit systems and buildings. United develops nonrecurring entrance facility installation costs that are for the labor cost of cable pulling and splicing. CBT's interconnector customers install and maintain the fiber optic cable. CBT derives recurring entrance facility space costs based on investment in land, buildings, conduit and equipment. Rochester's interconnector customers install and maintain the fiber optic cable. Rochester develops recurring entrance facility space costs based on investment for cable rack and conduit. 115. SNET's entrance facility installation costs are the nonrecurring labor costs for splicing, pulling and engineering. SNET's recurring entrance facility space costs are the annual carrying costs for duct structure, conduit and innerduct between the manhole and the vault and the annual carrying costs for conduit between the vault and the customer's cage. Lincoln derives recurring entrance facility space costs based on the investment in the manhole, conduit, innerduct, floor opening, and cable rack. Lincoln computes the nonrecurring entrance facility installation cost based on the labor costs for an equipment engineer, building design engineer, network technician, cable technician, cable attendant, and contract labor. 116. Oppositions. Teleport asserts that SWB and US West both impose excessive rates on interconnectors to recover the costs to build entirely new manholes and conduit. 117. Rebuttals. US West claims that a manhole can be shared by three interconnectors and, therefore it developed costs and nonrecurring charges to allow a single interconnector to pay for one third of the cost of the enclosure. US West adds that it allows an interconnector to self-provision the manhole. US West states that it tariffs a nonrecurring charge for the installation of brand new conduit, but allows an interconnector to self- provision the conduit. SWB asserts that its rates recover the cost of new conduit additions, but not manholes. 11. Time and Materials 118. Supplemental Direct Cases. Bell Atlantic contends that the time and material provisions in its tariff are just and reasonable and should be approved. Bell Atlantic argues that, because its time and materials provisions are available to all those entities authorized by Commission order to collocate in the central office, physical collocation is not an ICB service. Bell Atlantic contends that LECs should not be required to provide time and materials charges through a "menu" of specific prices for different service components in order to make site preparation charges easier to predict from the outset. It argues that it should be permitted to develop prices at the time an interconnector requests collocation. It also states that its approach is justified under the circumstances because it uniformly uses outside contractors that do not generally publish price lists, but instead tailor their charges to the characteristics of the job in the preparation of collocation space. It further states that this situation differs from the typical pricing of new service offerings because in the usual case Bell Atlantic either uses its own personnel and procures it own materials in offering the service or uses contractors under long-term arrangements at standard prices. 119. With respect to setting pre-construction estimates, Bell Atlantic states that an estimate of charges is provided to interconnectors prior to construction. According to Bell Atlantic, once it receives a request from a potential collocator for a central office construction charge estimate, it prepares an estimate internally before soliciting bids from outside contractors. It then prepares a final estimate and submits it to the requestor in writing. It states that it provides the requestor an estimate within 25 days of receipt of the request. It further states that the estimate consists of a single dollar figure, and it will provide an itemization upon request. The requestor then is given 30 days to accept the estimate by paying 50% of the estimated charge. The remaining payment is due when the office is accepted and the charge for that office is filed in the tariff. Bell Atlantic states that the estimates it provides the collocator are based upon bids obtained from contractors. Accordingly, Bell Atlantic asserts that it anticipates little deviation between the final cost and the initial estimate. Bell Atlantic agrees with the Bureau's suggestion of capping final charges at no more than ten percent over the initial estimate, but only where the collocator does not make changes to the construction request for which the estimate was prepared. If any changes are requested after the initial estimate, Bell Atlantic states that it will supply the collocator with a new estimate for the changed work, and that new estimate would be subject to the ten percent cap. In addition, if, as a result of a local real estate inspection or other activity outside of Bell Atlantic's control, Bell Atlantic is required to perform additional work to complete the construction, Bell Atlantic states that the cost of that work will be added to the price estimate and not included in the cap. 120. Rochester contends that its time and materials charges are fully consistent with the Commission's orders precluding the use of ICB pricing. It explains that when it receives a bona fide request for expanded interconnection within a specific central office, it intends to file a generally available rate for central office construction of that office. It maintains that the rates for central office construction may vary by central office, but they will not vary by customer for the same facility. It asserts that its approach represents an administratively efficient means of establishing a rate for a service that, by its very nature, is not susceptible, at this time, to averaged rate development. Rochester also notes that it has offered expanded interconnection from only one central office and has experienced no demand for this service. Rochester asserts that, while it anticipates that it will experience future demand, it currently lacks the experience or data upon which to develop generally available "menu" of central office construction offerings. Rochester further asserts that a "menu" approach would cause it to create an unduly complex tariff structure. It states that it should not be forced to anticipate all possible configurations and to tariff each such configuration. It contends, therefore, that the Bureau should decline to adopt its suggested "menu" approach. 121. United and Central argue that their time and materials charges are not ICB rates because an ICB offering, as the court determined in Southwestern Bell Tel. Co. v. FCC, is not a common carrier offering. They contend that, in contrast to ICB offerings, their time and material charges for central office construction are common carrier services that are available to all those entities to collocate in the central office on a nondiscriminatory basis. They note that their time and materials charges represent a pass through of actual construction costs which vary, even within a single central office, due to the cage configuration requested by the customer and the construction rates available when the request is made. They state that, unlike an ICB arrangement, its time and material quotes do not involve negotiations over price, termination liabilities, profits or other factors. United and Central also contend that because they have little experience in constructing physical collocation arrangements and labor and material costs can vary widely over time, they are unable to develop averaged per-unit rates for construction. They also note that their tariffs provide customers with the option of refusing their time and materials quotes, and utilizing contractors that are mutually acceptable to the customer and United and Central. They believe that this option ensures the availability of just and reasonable construction charges to any customer requesting collocation space. 122. United and Central contend that a "menu" approach would prevent them from presenting a simplified approach for a tariffed construction offering and that the interests of the customer would not be well served. They assert that the potential number of differing materials and the combination of such materials would require an exhaustive list to be published that would be in need of constant updating and revising that would only complicate its tariffs. Furthermore, United and Central believe that the "menu" approach will not produce just and reasonable rates because such rates would reflect prices at a particular point in time and could not reflect potentially dramatic changes in labor and material construction costs. 123. With respect to its procedures for developing pre- construction estimates, United and Central explain that their tariff requires customers to provide a written application for physical collocation service construction. United and Central obtain a quote for the work from a construction vendor and then provide the customer a written, itemized estimate of time and material construction charges based on the details the customer outlined in the application. The written estimate also specifies how long the customer has to accept the estimate and also states that they have no objection to a ten percent cap over the pre- construction estimate, subject to any changes in configuration or requirements requested by the customer after the estimate is provided and accepted. 124. United and Central state that the criteria they use in approving contractors selected by customers is the same as that used for contract work performed for United and Central. United and Central state that if they determine that a proposed contractor is unacceptable, they provide the customer with a written explanation of the rejection. They believe that the customer's ability to select an outside contractor ensures the availability of just and reasonable construction charges. According to United and Central, a requirement to abandon tariffed time and materials pricing in favor of averaged bundled or menu construction rates, would force them to withdraw the customer's option of securing its own contractor. 125. Finally, United and Central agree with the Bureau's conclusion that its tariffs should not contain the phrase "individual case basis." United and Central state that they will remove that phrase from their filed tariffs. 126. Oppositions. MFS urges the Commission to require Bell Atlantic to file fully averaged rates for preparation of central office space for physical collocation. MFS states that Bell Atlantic's tariffed time and materials charges are the equivalent to ICB arrangements and, therefore, violate the Commission's Expanded Interconnection Special Access Order. It argues that Bell Atlantic's approach would allow the Tier 1 LECs to charge widely divergent rates for identical collocation arrangements in the same telephone company central office. 127. MFS also contends that Bell Atlantic's time and materials charges are unreasonably discriminatory under the Communications Act, create unfair barriers to entry, and would require case-by-case Commission review. MFS argues that if Bell Atlantic chooses the final bid to submit to the collocator, a ten percent deviation from that estimate does not provide any protection against the likely possibility of initial estimate overcharges. MFS argues that Bell Atlantic provides no basis to distinguish its circumstances from other Tier 1 LECs that have established average rates as the Commission has ordered. It further argues that Bell Atlantic provides no justification for not using contractors under long-term arrangements at standard prices. 128. MCI opposes the supplemental direct cases filed by Bell Atlantic, Rochester, and United and Central. MCI asserts that tariff references to "time and materials" charges that are left unspecified can lead to ICB pricing and discrimination. MCI states that the problem with Rochester's approach is that until the first interconnector generates a request for physical collocation, it is impossible for a potential interconnector to discern the construction rates for physical collocation from the tariff. MCI believes that the better course is to require Rochester to establish a time and materials charge for construction in advance of a request, as other carriers have done. MCI states that if the Commission permits Rochester's approach to tariffing the charges when an interconnection arrangement is requested, the Commission should require Rochester to specify with particularity in its tariff when the charges will be tariffed relative to the interconnection request. 129. MCI argues that regardless of whether a "menu" of available construction options is included in the tariff, Bell Atlantic has an obligation to tariff a uniform construction rate for each central office. MCI also states that it has no strong preference for a "menu" approach in tariffing the construction charge. MCI argues that Bell Atlantic, United and Central should not be permitted to develop pre-construction estimates in lieu of a per unit rate for construction. 130. Finally, MCI argues that self-provisioning options for collocation arrangements is the most efficient way for the Commission to ensure that the LECs are not abusing their bottleneck control of interconnection facilities. MCI states that it strongly supports self-provisioning options, such as the one offered by United and Central for cage construction. C. OVERHEAD LOADING 131. Direct Cases. Ameritech, GTE, Nevada, and SNET contend that a comparison of the overhead loadings for the comparable services and the physical collocation services is not appropriate because while physical collocation overheads are cost based, overheads for comparable services are determined under the price cap regulatory regime. BellSouth states that the overhead loading factors assigned to expanded interconnection range from 1.29 to 1.81, and that those for comparable services range from 1.14 to 2.69. According to BellSouth and SWB, market forces are a factor in assigning overheads to their comparable services. CBT and United claim that they assign the same overhead levels to both the physical collocation services and comparable services, while Lincoln and Pacific state that the overheads for the physical collocation services and the comparable services are developed using the same methodology. NYNEX contends that its loading methodology for expanded interconnection is reasonable because the channel termination rate for DS1 and DS3 services is higher than the fully distributed cost, but the expanded interconnection service is priced at the fully distributed cost. 132. Rochester argues that its rate levels for physical collocation are reasonable and among the lowest that are currently in effect. US West argues against comparing physical collocation overhead loadings with the overhead loadings of comparable services. US West argues that if any overhead loadings assigned to comparable DS1 or DS3 services are relevant, only the overheads assigned to the month-to-month comparable services should be compared to the overheads assigned to the physical collocation services. US West further argues that instead of comparing the overhead loadings assigned to the physical collocation and DS1 and DS3 comparable services, the Commission should analyze the amount of savings realized by the interconnectors from using a physical collocation arrangement versus the costs to an interconnector of "constructing its own facilities to the end user." 133. Oppositions. Some commenters contend that the LECs' physical collocation rates are excessive due to the high overhead loadings, and that none of the LECs have justified the overhead loadings assigned to their physical collocation services. 134. Rebuttals. Pacific denies that its rates are excessive due to high overhead loadings and SWB contends that its overhead loading factors are reasonable. D. TERMS AND CONDITIONS 1. Floor Space for Physical Collocation a. Minimum and Maximum Space 135. Direct Cases. All six of the LECs that currently offer physical collocation under federal tariffs require interconnectors to order a minimum of 100 square feet of floor space. NYNEX, Rochester, and SNET indicate that they are willing to negotiate arrangements for less than 100 square feet. For initial orders, NYNEX and Lincoln impose a maximum space limitation of 300 square feet; Rochester, SNET, and Pacific impose a maximum space limitation of 400 square feet. Nevada does not impose a maximum limitation for initial floor space orders. For subsequent orders, Nevada, Pacific, and SNET provide additional floor space in 100 square foot increments; NYNEX and Rochester provide additional space in 20 square foot increments. Lincoln's tariff does not address orders for additional floor space, but Lincoln states that it "would prefer" to provide additional space in increments of 50 square feet. SNET states it is willing to negotiate arrangements for more or less space on a case-by-case basis. 136. Pacific Bell and Nevada Bell argue that designing collocation floor space in increments of 100 square feet allows the LECs to use floor space efficiently. These LECs argue that configuring available floor space in smaller increments would be inefficient because it would require that more floor space be allocated for aisles. Pacific states that a 10 foot by 100 foot area accommodates six bays of equipment and that standardization of collocation spaces simplifies planning and design of floor space. According to Pacific, no potential physical collocation customer requested initial space in increments of less that 100 square feet. 137. NYNEX defends its 300 square foot maximum on floor space orders, arguing that this limitation is necessary to ensure space for all prospective interconnectors. Pacific notes that 400 square feet will accommodate up to 16,000 DS1s or more, which is more than the total DS1 demand served by Pacific's largest central office. Lincoln argues that having no maximum space limitation for interconnectors could discriminate against smaller, late-entry interconnectors, due to the first-come, first-served rule, and advocates that until the economies of scale are more firmly established, the Commission not artificially limit the number of collocators by setting a maximum. According to Lincoln, a mechanism to define and prevent inefficient use of space would eliminate the need for a prescribed maximum space. 138. Oppositions. Teleport agrees that the 100 square foot size for the initial physical collocation space requirement is generally reasonable, unless the result of that requirement would be to deny physical collocation. Teleport states that LECs should allow interconnectors to lease less space if there is a shortage of available space in a central office. Teleport urges that LECs not be allowed to limit the maximum space that an interconnector may use because it would "put a ceiling on an interconnector's ability to grow." According to Teleport, interconnectors "are not rate-based utilities who can recover excess costs from captive ratepayers, and therefore . . . have no incentive to purchase expensive and unnecessary space." Additionally, Teleport advocates making additional space available in 20 square foot increments. ALTS contends that "given the high prices that the LECs are proposing to charge for the space and the build-out," they have not justified their inflexible approaches to the increments of space that can be ordered. 139. Rebuttals. Based on its survey of more than 53 central offices for physical collocation, Pacific argues that physical collocation space in increments of less than 100 square feet would not satisfy security and safety requirements such as secured access and proper aisle spacing. Pacific replies that "Teleport 's proposed increment of 20 square feet would not provide for efficient use of its central office floor space and is less than the minimum space specified by Bellcore Network Equipment Building System (NEBS) guidelines to support one equipment bay." Nevada concurs with Pacific's rebuttal. b. Warehousing and efficient use of floor space 140. Lincoln, NYNEX, Nevada, and Pacific reserve the right to either reclaim space or refuse to provide additional space if the interconnector is not using existing space in an efficient manner. Specifically, Nevada and Pacific may reclaim floor space if the interconnector has not activated transmission equipment within 180 days of occupancy. Additionally, Nevada and Pacific do not permit interconnectors to lease additional space if their existing space is not used "efficiently." Lincoln and NYNEX's tariffs provide that they may reclaim floor space not being used "efficiently" by the interconnector if all the floor space in a central office is exhausted and floor space is needed by the LEC or another interconnector for service. Rochester and SNET do not have any restrictions on how the interconnectors' floor space must be used. 141. According to NYNEX, a customer's space is "efficiently used" when the customer has "interconnected with [NYNEX's] special access service(s) and substantially all of the floor space of its cage is occupied by equipment needed to provide service." Nevada defines efficient use to mean "substantially all of the floor space is taken up by operating transmission equipment, placed no greater than 20 percent above minimum distances permitted by NEBS." According to Nevada, this requirement is designed to prevent interconnectors from devoting excessive space to aisles and walkways. Nevada states that it retains the right to repossess unutilized space from interconnectors on 60 days' notice when additional space is needed by Nevada for its own use. Pacific does not permit interconnectors to request additional space unless the interconnector's existing space segments are occupied by at least six bays of equipment, which Pacific asserts are easily accommodated by a 100 square foot area. Pacific claims this requirement prevents premature exhaustion of space and unnecessary construction of additional space at potentially greater cost. Pacific states that the determination of whether an interconnector has met the "efficient use" requirement should be "solely within the reasonable judgment of Pacific Bell." Rochester states that it does not regulate the interconnector's use of floor space. 142. Lincoln, NYNEX, Nevada, and Pacific state that they do not restrict the amount of floor space that certain items such as ancillary equipment and file cabinets may occupy within an interconnector's space. Lincoln states that if there is no demand for space by other customers, it will not initiate reclamation proceedings, and argues that as long as Lincoln's other customers are not disadvantaged, the purchase of non- revenue producing space is the interconnector's concern. 143. Oppositions. Teleport also opposes the LECs' limitations on ordering additional space limitations, stating that such limitations will limit the ability of the interconnector to grow. According to Teleport, there should be no limits on ordering additional space in the absence of a waiting list. Teleport recommends that, in the absence of a waiting list, an interconnector that is operational with at least five cross- connections in service or on order should be allowed to order new space. In general, Teleport contends that the various LEC provisions to prevent interconnectors from "warehousing" space are unnecessary because interconnectors would gain no competitive advantage by ordering excessive amounts of collocation arrangements. 144. Teleport objects to the LECs' requirements that interconnectors be operational within a specified period of time. Teleport argues that interconnectors should not be forced to turn up service earlier than their business needs require in order to avoid losing their paid-for collocation arrangements. Teleport states that LECs have an incentive to advance the date interconnectors become operational because LECs can implement their zone density pricing plans after an interconnector becomes operational in a study area. Teleport argues that a requirement that interconnectors be operational within a specified period of time should be rejected unless: (1) interconnectors have a minimum of one year to turn up a cross-connect element; (2) the one-year period does not begin until the LEC has received a collocation request from a new interconnector; (3) the LEC lacks space to accommodate a new interconnector; and (4) the LEC provides notice to the interconnector that the one year period has begun. 145. ALTS maintains that a collocator should not have to meet a vague standard LECs set for space utilization. Nor, argues ALTS, should interconnectors be subject to Pacific's "sole discretion" standard in order to use space that it has paid for in a reasonable manner according to its judgment. 146. Rebuttals. Pacific states that its "efficient use" requirement applies only to customers that request additional space. Pacific argues that LECs have an incentive to maximize efficient use of space to avoid needless new construction and unnecessary increases in cost of service to ratepayers. c. Ordering Charges 147. Direct Cases. Lincoln, NYNEX, Nevada, Pacific, and SNET impose the same nonrecurring charges for additions to existing physical collocation space as they do for new orders because additions to the physical collocation space require a repetition of the ordering process. NYNEX states that, if experience demonstrates significant differences in work effort in processing orders, it will "reevaluate" its ordering process. Pacific calls the Commission's suggestion, in the Special Access Physical Collocation Designation Order, that additional space be processed as an addendum to the original agreement "puzzling" because expanded interconnection is offered under tariff, not as an executed agreement between the LEC and the physical collocation customer. Moreover, Pacific states that "the recurring charge for space might not decline as much as interconnectors would anticipate because the maintenance and administrative nonrecurring charges recovered on materials installed would not be diminished by a lower allocation of space." 148. Oppositions. ALTS argues that treating orders for additional space as a new order is unreasonable and burdensome, particularly in light of the high nonrecurring charges imposed by many LECs. Teleport contends that the LECs have not explained why they will follow all the same procedures and incur all the same costs for orders for additional space as they do when they provide initial space. Because LECs collect large nonrecurring charges for the initial interconnection space, Teleport urges the Commission to limit the charges for additional space to the direct costs for the space, and to require a separate, tariffed, nonrecurring charge for such additions. 149. Rebuttals. Pacific argues that it incurs the same costs for leasing additional space as it does for new orders. d. Contiguous space for expansion 150. Direct Cases. All six LECs currently offering physical collocation state that they provide contiguous space for expansion when it is available. If contiguous space is not available, these LECs allow interconnection of noncontiguous space by cable. Lincoln states that it will file any new rate elements required for connection of noncontiguous space in its tariff for the use of all similarly situated interconnectors, while Rochester provides cabling between areas at tariffed time and material rates. NYNEX notes that NYT requires the customer to supply, install, and maintain cabling between nodes, while NET allows the customer to supply the equipment, but the LEC performs installation and maintenance. Nevada permits customers to select the location of the additional space from the space available in the central office. Nevada and SNET state that if contiguous space is not available, they will install direct cabling between the customer's areas; Pacific allows customers access to cable racking in the common collocation area "in order to cable between equipment in their respective spaces." 151. Oppositions. Teleport notes that although the LECs generally agree to provide contiguous space when available, the terms and conditions for connecting noncontiguous space by cable vary among the LECs. Teleport contends that LECs should adopt NYNEX's solution and allow an interconnector to provide the cabling itself to connect its own facilities, presumably without charge. Teleport also requests that Pacific be required to define the role of its "common collocation area," where it allows cable racking, to ensure that Pacific does not unreasonably limit interconnectors' options or add to their costs. TDL argues that if the Commission investigates an interconnector's complaint and finds a LEC's policy regarding provisioning of space to be unreasonable, the LEC should be required to bear the cost of providing contiguous collocation space. 152. Rebuttals. According to Pacific, Teleport incorrectly asserts that Pacific allows customers to place cable rack in the collocation common area. Pacific explains that customers may use the cable racking that is already in place or that will be in place after Pacific builds new spaces within the common collocation area. According to Pacific, the use of this cable rack is limited to transmission facilities and interconnection cable appropriate for use with the cable rack being provided for collocation. 2. Inspection Provisions 153. Direct Cases. Lincoln, Nevada, Pacific, NYNEX, and SNET inspect interconnectors' space and facilities following initial installation of equipment at varying periodic intervals. Rochester's tariff does not address inspections. Lincoln provides for periodic and irregular inspections for safety and tariff verification purposes. Nevada, Pacific, Lincoln and SNET state that they provide interconnectors reasonable prior notice, and do not charge an inspection fee. Lincoln and SNET state that they allow interconnectors to be present at inspections, and Nevada states that it conducts most inspections from exterior walkway areas. NYNEX states that it does not charge interconnectors for inspections unless an inspection reveals that an interconnector is not complying with the terms and conditions of the tariff. 154. Pacific objects to limiting inspections to initial inspections and annual inspections thereafter. Pacific argues that these limitations are unreasonable because it is also necessary to conduct monthly fire and safety inspections. Pacific opposes Teleport's proposed two-week advance notice requirement, stating that such a requirement ignores the fact that state and local authorities provide shorter notice when they request inspections. Pacific also posits that, if given advance warning, interconnectors could disguise deficiencies that could later cause problems. 155. Oppositions. ALTS, TDL, and Teleport agree that LECs may inspect interconnectors' space and facilities at the initial installation, upon installation of additional equipment, upon reconfiguration of equipment or space, and in emergencies. They argue that LECs should be limited in the number of subsequent inspections that they may perform and that LECs be required to provide interconnectors with advance notice. TDL and Teleport urge that LECs be required to provide at least 15 days' notice and be limited to one inspection every 12 months. ALTS contends that the LECs' provisions raise potential for abuse through harassment, added costs, and disclosure of confidential information. ALTS objects to inspections unless the LEC agrees to suitable protection of proprietary information. 156. According to Teleport, the LECs do not define, inter alia, routine inspections, the reason for such inspections, what is measured during an inspection, or what standards are used for evaluating the results of an inspection. Moreover, Teleport argues that the LECs do not justify imposing the costs for such inspections on the interconnectors. Teleport states that a LEC should only charge for inspections if it finds that the interconnector poses an immediate and significant threat of harm to the LEC's network. Teleport warns that allowing LECs discretion to charge interconnectors for inspections and violations could give LECs an incentive to increase interconnectors' costs through fines and penalties. 157. Rebuttals. In response to Teleport's opposition, Pacific contends that its tariff provides for inspection of equipment in the cage area only at the time of initial inspection and at the time of any subsequent additions to equipment. According to Pacific, periodic inspections are required to assure ongoing compliance with safety, fire, environmental, and security requirements. Pacific states that it conducts the majority of inspections from outside the interconnection space. While Pacific does not object to the presence of a customer's representative, it will not postpone or reschedule an inspection if a representative cannot be present. Finally, Pacific notes that it cannot regulate the frequency of inspections by authorities. 3. Insurance Requirements a. Levels and Types of Insurance 158. Direct Cases. All six LECs that provide interstate expanded interconnection under tariffs subject to this investigation require interconnectors to carry general liability insurance ranging from $1 million to $5 million. With the exception of BellSouth and Ameritech which require interconnectors to maintain general liability insurance coverage of $25 million and $10 million, respectively, all the other LECs with tariffs subject to this investigation also require general liability insurance in amounts ranging from $1 million to $5 million. 159. In addition, Rochester, Lincoln and NYNEX require interconnectors to carry excess liability coverage of $5 million; SNET requires $10 million. In comparison, the eight LECs that discontinued providing physical collocation required interconnectors to maintain excess liability policies in amounts ranging between $5 million to $10 million, except CBT, which required $20 million. 160. All six LECs also require interconnectors to maintain statutory levels for workers compensation and require employer's liability insurance in the following amounts: Pacific and Nevada, $1 million; Lincoln, NYNEX, Rochester, and SNET, $2 million. In comparison, the LECs that discontinued providing physical collocation required interconnectors to maintain employer's liability insurance policies in amounts ranging from $0.5 million to $2 million, except CBT, which required $5 million. 161. Pacific and Nevada require interconnectors to maintain $5 million in automobile liability insurance for automobiles used on their premises; Rochester requires $3 million; Lincoln requires $1 million; and SNET requires the level of insurance coverage mandated by state law. NYNEX's tariff does not require automobile liability coverage. In comparison, most of the LECs that discontinued providing physical collocation required automobile liability, either for $1 million or the level of insurance mandated by state law. 162. Lincoln contends that its commercial general liability policy is reasonable because of the disparity of investment that Lincoln and the interconnectors have at risk and the uncertainty of the interconnector's ability to manage risks. According to Lincoln, it has a larger public obligation to provide service and must have financial assurance that the customer will not damage the network. Pacific, Nevada and SNET argue that their own coverage substantially exceeds the levels and types of insurance required of interconnectors. NYNEX states that the amount it requires interconnectors to provide for general and excess liability are the same amounts that are required under state tariffs. Rochester claims that its insurance requirements are the standard coverage required in many commercial leases and, for the most part, reflect statutory requirements. 163. Oppositions. MFS states that the insurance requirements of Ameritech ($10 million), BellSouth ($25 million) and Pacific ($5 million) are excessive and unjustified. Moreover, MFS asserts that these LECs' requirements depart from the industry standard of $1 million to $2 million in coverage, and that Ameritech, BellSouth, and Pacific should be required to amend their tariff to require insurance coverage not exceeding $2 million. 164. PUCO, Sprint, and Teleport claim that the LECs are tariffing excessive insurance requirements which bear little relationship to the risk arising from an interconnector occupying space in a LEC central office. Teleport contends that a physical collocation arrangement requires only the addition of a few racks of multiplexing equipment and does not, therefore, create additional risk justifying excessive insurance coverage. MFS and Sprint further argue that LECs should not require the interconnectors to cover the catastrophic loss of the entire central office. Finally, MFS states that the LECs maintain their own coverage for such contingencies. PUCO argues that Ameritech did not justify its requirement that interconnectors carry automobile insurance. 165. Rebuttals. NYNEX asserts that the levels of insurance it requires are among the lowest mandated by any of the LECs and are reasonable in light of NYNEX's exposure to risk. Pacific disputes MFS's claim that levels of insurance over $2 million are excessive, noting that an interconnector could cause the catastrophic loss of an entire central office. Further, Pacific denies that MFS's proposed coverage requirement is an industry standard. Pacific argues that the determination of an adequate level of coverage varies on the basis of differences in the location and value of the insured property. 166. Pacific also responds to Teleport's opposition by arguing that it weighed the degree of risk added by collocation in developing its $5 million coverage requirement. According to Pacific, Teleport ignores the risk associated with the presence of personnel not under Pacific's direct control. In addition, Pacific observes that neither MCI nor Sprint, companies with greater experience in evaluating risks in the provision of telecommunications service, object to the level of Pacific's insurance coverage. b. Self-insurance 167. Direct Cases. NYNEX and Pacific object to self- insurance, although Pacific states that it would allow companies that have obtained state approval with respect to workers compensation to self-insure. Nevada states that it permits self- insurance with regard to workers compensation claims only, and only when customers have obtained proper authorization. Rochester states that it does not oppose self-insurance in "appropriate circumstances." Lincoln's states that it permits self-insurance, provided that the program is satisfactory to Lincoln. SNET does not address this issue. 168. NYNEX and Pacific consider it inadvisable to conduct a financial review of their competitors to determine whether to allow self-insurance. NYNEX states that decisions determining the financial condition of the interconnector could result in disputes between the LECs and the interconnectors in cases where the LEC determines that the interconnector does not qualify financially to self-insure. Additionally, NYNEX states, the interconnector's financial condition may change over time. Thus, while the interconnector may have sufficient resources to self-insure at one point in time, NYNEX notes, it may not qualify financially at a later time. Pacific argues that evaluating the financial condition of interconnectors will expose Pacific to claims of discrimination. Additionally, Pacific maintains that allowing the most financially secure customers to self-insure provides those interconnectors with a competitive advantage over other customers. 169. Oppositions. Teleport argues that the Commission should require all carriers to allow interconnectors to self-insure, subject to reasonable limitations. According to Teleport, the refusal by Pacific and NYNEX to allow interconnectors to self- insure handicaps the interconnectors' ability to compete against the LECs, while providing no public interest benefit. Moreover, Teleport argues that although Pacific and NYNEX claim that allowing interconnectors to self-insure would require LECs to review financial data which the interconnectors may not wish to share with a competitor, such a decision should be left to the interconnector. Teleport also posits that there may well be far less intrusive methods that would satisfy any legitimate needs of the LECs for assurance regarding the financial capability of the interconnector. 170. Rebuttals. NYNEX argues that it should not be required to permit self-insurance because it would be inappropriate for NYNEX to make judgments on the financial condition of interconnectors. NYNEX also contends that requiring a reasonable amount of insurance is the most effective and equitable way to handle liability concerns. Pacific maintains that it wishes to avoid allegations of discrimination or disputes regarding its criteria for evaluating an interconnector's financial stability, and thus Pacific urges the Commission to reject Teleport's suggestion to require LECs to allow interconnectors to self-insure. c. Underwriters 171. Direct Cases. Most LECs require the interconnectors' general liability carrier to have particular minimum rating levels in order to ensure adequate coverage by reputable insurance carriers. SNET and NYNEX require at least an "AA-12" rating. Nevada and Pacific state that they require at least a best insurance "A" rating, and Pacific notes that its own insurance companies must have "A+" ratings. Lincoln requires an insurer to be licensed in the state where expanded interconnection is offered and that the company be satisfactory to Lincoln. Rochester's tariff does not specify a rating requirement, but Rochester notes that it requires interconnectors to carry insurance with the same rating Rochester requires of its own insurers. 172. Pacific and NYNEX also note that their own insurance companies have "A+" ratings. Pacific asserts that there is no connection between a company's rating and the premium it charges, and thus no basis for the Commission to find it unreasonable to require a minimum acceptable rating. 173. Oppositions. Teleport states that interconnectors, like the LECs, have a vested interest in obtaining insurance from a reputable insurer with an ability to pay claims, that selection of an insurance company is a business decision that should be left to the interconnector, and that the Commission should, therefore, prohibit LECs from requiring interconnectors to use insurers with particular rating levels. ALTS argues that the high ratings required by some LECs are likely to create barriers to entry and are not justified because other LECs have lower and more reasonable requirements. 174. Rebuttals. In response to Teleport's complaint that the LECs' rating requirements are not uniform, Pacific contends that each company must make a decision reflecting the degree of risk it deems reasonable. Further, Pacific asserts, ratings are necessary because an interconnector interested in minimizing its short run costs may choose coverage at a low rate from a company unable to pay a large claim. Pacific states that, contrary to ALTS's assertion, an insurance carrier rating is necessary and does not, therefore, present an artificial barrier to entry. d. Effective Date of Insurance 175. Direct Cases. All six LECs that continue to offer physical collocation throughout this investigation require that interconnectors' insurance be effective on or before the date the interconnector occupies the LEC's premises. In addition, Lincoln, SNET, and NYNEX, require proof of the interconnectors' insurance prior to the date they commence construction of an interconnector's cage. SNET states that it requires the interconnector to provide a certificate of insurance prior to commencement of construction, naming SNET as an additional insured on the interconnector's insurance policies. SNET states that proof of insurance prior to construction is reasonable "since it can be expected [that] the customer and/or customer equipment will be on the premises upon commencement of the work." Lincoln does not require the insurance to be effective prior to commencement of construction because, according to Lincoln, "the greater risk to the public network resides in the operation of the interconnector's equipment, not the mere existence of interconnection space in an office." 176. Pacific states it will accept a copy of the policy or certificate of insurance as proof. Nevada and Pacific will accept a copy of the insurance policy or a certificate of insurance as proof of coverage. According to these carriers, this verification provision is not burdensome. 177. Opposition. Teleport proposes that insurance or self-insurance should not be required to take effect prior to an interconnector occupying its space and advocates requiring interconnectors to provide proof of insurance or a certificate of insurance, as is customary in the industry in general. Teleport adds that interconnectors should not be required to provide a copy of the policy itself as proof of insurance coverage, because the policy may disclose confidential information, if an interconnector subscribes to a single policy covering multiple locations. 178. Rebuttal. Pacific maintains that insurance must be in effect on the date service begins because the customers' employees will have access to the central office. In response to Teleport's concern that its policy may include confidential information, Pacific states that it will amend its tariff to require customers to provide only the pertinent portions of the policy, including the details on terms and conditions of the policy and an indication that the amount of coverage is at an acceptable level. 4. LECs' Liability Provisions 179. Direct Cases. Pacific, Rochester, Nevada, and SNET state that the same liability provisions that apply to their other customers of interstate access service also apply to their expanded interconnection customers. Lincoln, Nevada, Pacific, NYNEX, and SNET hold themselves liable to their interconnector-customers only for willful misconduct, while holding their interconnector-customers to a higher standard of care. In addition, Pacific, Lincoln, NYNEX, and Rochester have tariff provisions requiring interconnectors to indemnify them against all claims and liabilities arising out of the operation of their facilities in the central office. Pacific also includes provisions in its tariff holding interconnectors liable for losses from interconnector activities for at least three years from the date of termination, cancellation, modification, or rescission of the physical collocation arrangement. 180. All six LECs that continued to provide physical collocation service throughout this investigation state that holding interconnectors to a stricter standard of care is appropriate. Lincoln argues that interconnectors should be held to a stricter standard of care because they lack experience with risk management and safety procedures, and that in the event of damage to the central office, Lincoln is subject to a greater financial risk than interconnectors. Pacific and Nevada note that it is well-established that limitations on a telephone company's liability serve to restrict the cost of damage awards against the company and are, therefore, essential to maintaining its costs and rates at reasonable levels. NYNEX, Pacific and Nevada state that the relationship between the LEC and the interconnector is analogous to a landlord-tenant relationship and they argue that landlords of commercial real estate typically require their tenants to assume broader liability in order to protect the landlord's investment against the risk of damage by its tenants. SNET states that because the interconnector is using SNET's facilities but SNET is not using the interconnector's facilities, the standard liability provision traditionally applicable to common carrier service should be applied. 181. Oppositions. The commenters generally oppose the LECs' liability provisions that assign to the interconnector full liability for any loss arising out of simple negligence, but waive such liability for themselves. ALTS maintains that, at a minimum, no LEC should be relieved of liability for willful or grossly negligent acts or omissions, no party should indemnify the other against the results of its own negligence, and all provisions should have mutual application. ALTS rejects the LECs' argument that the lack of reciprocal standards is justified because such provisions are not contained in other service tariffs. ALTS argues that liability provisions in typical service tariffs are irrelevant because, unlike interconnectors, typical access customers are unlikely to suffer harm due to the actions of the LEC. 182. Teleport and Sprint reject the LECs' use of a landlord-tenant analogy to justify shifting liability to the interconnector. Teleport argues that the LECs differ from traditional landlords because they have a monopoly on the space sought by interconnectors and engage in direct competition with the interconnectors. Sprint argues that a landlord would be responsible for damages to the leased premises, resulting from its own negligence. 183. MFS objects to the LECs disparate liability provisions, arguing that competitive access providers and interexchange carriers are not customers in the traditional sense, but are "co-carriers," operating interconnected networks with the same service obligations and concerns about quality and cost that the LECs have, and that parity among the network operators is essential if the Commission's collocation policies are to have their intended pro-competitive effect. MFS also rejects as without merit the LECs' arguments that sharing reciprocal responsibility for gross negligence and willful misconduct with the collocators will adversely affect ratepayers. MFS states that, because "the amount and cost of the facilities a collocator may place in a central office are limited, any liability attached to LEC-inflicted damage upon such facilities is similarly limited" and, states MFS, the LECs retain adequate levels of insurance to cover any foreseeable claim for damages arising out of a collocation arrangement. MFS argues that LECs should not be allowed to use collocation as a means of imposing liability for consequential damages on collocators, and that potential liability should end when a collocator's arrangement ends and its facilities are removed from the central office. Specifically, MFS, along with Teleport, oppose tariff provisions that impose liability upon collocators for three-years after the arrangement is terminated. 184. Rebuttals. NYNEX asserts that because it will exercise no supervisory control over interconnector activities, it is appropriate that interconnectors indemnify NYNEX against damages arising from their activities. Rochester states that its liability provisions apply equally to all customers and have been included in its tariff for years. In response to MFS and ALTS, Pacific Bell insists it does not waive its liability for willful misconduct. 185. Pacific argues that its liability provisions are similar to those applied to interstate access customers in the past and that ALTS is seeking more favorable treatment than is accorded other access customers. Pacific maintains that, as in a landlord-tenant relationship, it is justified in allocating risk to the interconnector. Pacific further rejects MFS's argument that interconnectors and interexchange carriers are "co-carriers," stating that IXCs, unlike interconnectors, have broader public interest responsibilities because they have a legal obligation to provide service universally to all qualified customers. Pacific also rejects MFS's request that the Commission require LECs to waive interconnector-liability for consequential damages. According to Pacific, this requirement would eliminate a tariff provision that holds an interconnector-customer liable for credit allowances that must be given to Pacific's customers as a result of damage or outages caused by willful misconduct or negligence of interconnectors. Pacific asserts that this provision is necessary for interconnectors (as opposed to other access customers) because interconnectors are physically present in central offices. Finally, Pacific asserts that it is reasonable to hold customers liable for damages caused by their actions or inactions, even when that liability accrues after termination of service because, in the absence of such a provision, customers would have the incentive to terminate service to escape liability. 5. Termination of Service 186. SNET, Pacific, NYNEX, and Nevada state that all terms in their tariffs are "material" terms, and violations of these terms warrant termination of an expanded interconnection arrangement. Nevada states that it may terminate an interconnection arrangement if the interconnector fails to comply with the insurance coverage requirements or fails to ensure that its equipment will not pose an unreasonable risk to Nevada's service. Pacific states that it reserves the right to terminate a collocation agreement where the central office is closed, sold, or subject to eminent domain, or where the interconnector fails to pay a tariffed fee or charge, breaches security, fails to interconnect within 180 days of occupancy, or offers service in conflict with any rule, order, regulation, or judicial or administrative decision. NYNEX's tariff permits termination of service if the interconnector files for bankruptcy or violates state or federal law. SNET and Rochester reserve the right to terminate service for nonpayment or for "unlawful" or "abusive" use of the service. Lincoln terminates service for default or breach of material terms or conditions of expanded interconnection and Lincoln's tariff states that either party has the right to terminate in the event of the other party's bankruptcy, liquidation, insolvency, or receivership. None of the six LECs currently offering physical collocation impose charges for termination of service beyond any charges accrued prior to the date of termination. 187. NYNEX, SNET, Pacific, Nevada, and Lincoln provide notice to interconnectors prior to termination. The notice period for termination ranges from 15 days to six months, depending on the reason for termination. NYNEX permits the interconnector to terminate the collocation arrangement on 60 days' notice for any reason. Pacific requires 30 days' notice from its customers seeking to terminate a collocation arrangement. If an interconnector has breached Lincoln's tariff provisions, Lincoln will terminate service on 60 days' notice. Lincoln does not require any advance notice of termination by the interconnectors. SNET requires interconnectors to provide six months notice of their intentions to terminate. Rochester states that its tariff does not contain termination notification provisions specifically applicable to expanded interconnection and that interconnectors may terminate an interconnection arrangement under "standard connection and disconnection intervals." 188. NYNEX argues that its termination provisions are standard commercial terms and objects to designating particular breaches "material" on the ground that a party would have little or no remedy for breaches that are not material. SNET and Rochester state that their provisions permitting termination have been in effect for their other access services, and Rochester argues that applying different termination standards to expanded interconnection customers that apply to its other access services would be problematic and raise significant discrimination concerns. Pacific claims that the risk of termination is the only method it can use to ensure compliance with its tariff. According to Nevada and Pacific, LECs should only be prohibited from terminating service when it would violate the law to terminate the service of a particular interconnector. Lincoln states that termination of a collocation arrangement for tariff violations is an effective and efficient method of protecting the public network. 189. Pacific states that limited notice is reasonable in cases of a security violation because of the potentially serious impact a security breach may have on Pacific, its personnel, ratepayers and other collocation customers. Pacific argues that the 30-day notice it requires from its customers seeking to terminate a collocation arrangement is consistent with what is required of its other access customers, and it is reasonable because physical collocation is offered on a month-to-month basis. 190. Oppositions. Teleport argues that LECs should not be allowed to terminate collocation arrangements "unless there is a material and serious breach of relevant tariff provisions." Teleport states that the Commission should review any such action, perhaps through a Section 208 process, during which service should continue pending resolution of Section 208 proceeding, subject to reasonable requirements set by the Commission. Teleport also contends that the LECs should be required to provide evidence that they routinely terminate other interstate access services for the same type of tariff violation. 191. ALTS contends that no LEC should have the right to either suspend service, reclaim space, or evict a collocator for any breach other than a material breach or a breach involving nonpayment or active interference in the ability of the LEC to provide its services. ALTS also argues that unless an interconnector has breached a tariff provision, LECs that reclaim an interconnector's space should provide ample notice and full reimbursement of costs, and avoid disrupting the collocator's provision of service to its end users. ALTS contends that Pacific's proposal for 15 days' notice to cure an alleged breach is unjustified. Teleport states that all LECs should be required to provide notice within a reasonable period of time before instituting any important changes in service. Teleport argues that Pacific should, therefore, be required to remove its tariff provisions that allow for immediate service termination without notice in the event of security breaches or violations of the law, as defined by Pacific. 192. Rebuttals. Pacific emphasizes that its "immediate termination" provision applies only to "serious" breaches of security and reiterates that if certain tariff provisions are arbitrarily classified as nonmaterial, it would not have any means of assuring compliance with those provisions. In addition, Pacific notes that interconnectors may avoid or rectify breaches through compliance with Pacific's tariff provisions. Pacific states that neither ALTS nor Teleport offer specific standards for determining which tariff violations warrant termination. Pacific objects to Teleport's suggestion that the Commission require LECs to continue to provide interconnection, pending completion of a Section 208 proceeding, arguing that permitting the filing of a Section 208 action to operate as a bar against termination would simply invite groundless actions by customers to delay termination. Pacific also maintains that despite ALTS's assertion that its 15-day written notice provision would have an adverse impact on customers, Pacific has no other means of securing compliance with its tariff requirements. 6. Catastrophic Loss 193. Direct Cases. Of the six LECs currently offering physical collocation, only Lincoln and NYNEX have included provisions governing catastrophic loss in their expanded interconnection tariff. When damage to the central office can be repaired, these carriers state that they will repair the damage as quickly as possible, and that fees charged to the interconnector will be apportioned according to the amount of usable floor space until the repair is completed. In the event that the central office is damaged extensively and must be abandoned, NYNEX may terminate the interconnection arrangement on 90 days' notice; Lincoln will terminate the interconnection agreement on 60 days' notice. Nevada states that the provisions in its general access tariff that govern manmade and natural disasters also apply to its interconnection tariff. 194. Lincoln argues that if neither the interconnector nor the LEC is responsible for causing the catastrophic event, each party should be responsible for repairing its own facilities, but if the interconnector is responsible for damage to the central office, the interconnector should pay for restoration of Lincoln's property, the property of its other customers, and its own property. Lincoln also states that it will not waive nonrecurring charges for creation of a new space following an emergency, and argues that interconnectors should be required to pay for temporary collocation space during reconstruction of the central office space. Otherwise, Lincoln contends that it would incur significant additional expense without assurance of receiving compensation for the temporary space once interconnectors reoccupy their original space. Lincoln agrees that if it is unable to repair the original interconnection space within 90 days of the catastrophic event, the interconnector should be allowed to move to another central office. 195. NYNEX states that the Commission should not require LECs to provide alternative facilities for expanded interconnection in case of a catastrophic event with a specified period of time. Rather, NYNEX urges the Commission to permit the parties to work together to relocate the interconnector as quickly and as reasonably as possible. NYNEX states that if it is responsible for the loss, it will cover most relocation expenses, including relocating the multiplexing node enclosure, POT and associated NTC cabling. NYNEX argues, however, that other relocation expenses should be borne by the insured interconnector. 196. SNET, NYNEX, Rochester, Nevada, and Pacific argue that it is impossible to specify a precise amount of time required for relocation because each situation is unique and the length of time required to implement a relocation depends on many variables. Nevada argues that any mandate requiring Nevada to reestablish service within a specific amount of time following a catastrophic event may force Nevada to make uneconomic decisions regarding repair or reconstruction, may prohibit Nevada from properly recovering charges attributable to customers, and may not serve the needs of the interconnector. 197. Pacific asserts that where it is feasible and makes economic sense to repair the collocator's space, it will replace only the equipment and facilities for which it is responsible, and that replacement costs of facilities and equipment belonging to the interconnector would be covered by the interconnector's insurance. Pacific also states that it may not be feasible to relocate an interconnector in another central office because of lack of available space for collocation or because the space that is available may not be suitable for the interconnector's needs. Pacific further argues that LECs should not be required to restore physical collocation, particularly if this effort would divert the resources needed to restore basic exchange services. 198. SNET states that it would work with customers to restore space at no charge when it is reasonable to do so, but that, in a situation where a central office is destroyed and the customer wished to collocate in a different office, SNET would charge such customers a space preparation charge. If the customer causes the catastrophic loss, SNET asserts, the customer should be liable for all resulting damages and costs. 199. Oppositions. ALTS argues that, in the event of catastrophic loss, the LECs should be obligated to give interconnectors early notice of their plans to rebuild the central office and that LECs, not interconnectors, should be required to pay for damages that are caused by LECs. Teleport argues that all LECs should be required to provide notice of relocation in the event of catastrophic loss within a reasonable period of time. Teleport notes that other LECs have not objected to Ameritech's proposed 30-day notice period in the event a central office is damaged has not been protested by other LECs. Teleport urges the Commission to adopt a standard requiring the interconnector's space to be returned to service as promptly as that of other access customers. 200. Rebuttals. Pacific responds that Ameritech's proposed 30-day notice period is appropriate for all carriers. Pacific objects to "arbitrary" notification dates, arguing that catastrophic events are likely to vary among the different geographic areas served by different exchange carriers. Pacific further asserts that it has a "compelling service incentive" to determine as promptly as practicable whether to rebuild an end office. 201. Pacific also objects to Teleport's suggestion that the Commission require LECs to return service to interconnectors at the same time the LEC's other access customers are returned to service. According to Pacific, restoration of collocation space may require more extensive repairs than those required to restore the LEC's facility. In such circumstances, argues Pacific, it would be unreasonable to deny service to all of its customers until collocation space can be repaired. Further, in response to ALTS, Pacific claims its tariff clearly delineates Pacific's liability for physical damages directly and primarily caused by its negligence, and for interruptions of service and interference with facilities due to willful misconduct. 7. Relocation 202. Direct Cases. NYNEX states that it retains the right to relocate an interconnector's nodes if required to fulfill legal obligations, upon a taking by eminent domain, if necessary to install additional facilities, or in an emergency. Nevada states its tariff does not authorize it to relocate an interconnector, but that if relocation is necessary because of unexpected demand, Nevada will amend its tariff to permit relocation under specified conditions. Pacific states that it has not attempted to specify all of the conditions under which it would be necessary to relocate an interconnector, but that such circumstances would include unexpected growth, technological or regulatory changes, "or other developments that are inherently unforeseeable." Rochester states that it does not reserve the right to unilaterally relocate an interconnector's equipment and that it would expect to resolve such issues through good faith negotiation with the interconnector. Lincoln's tariff states that relocation of an interconnector will be required only if there is no other alternative. SNET's tariff does not specify the conditions under which it would require a customer to move to a different space. 203. NYNEX states that it will provide the interconnector advance notice in all cases, except emergencies, but does not specify the length of advance notice. In an emergency, NYNEX states that it will use "reasonable efforts" to give advance notice. Lincoln's tariff does not specify a notice period, but it states that it will negotiate a schedule with the interconnector. Lincoln's tariff states that "under a 'force majeure' situation, the delayed party shall give immediate notice to the other." Pacific states that it provides 90 days' written notice before relocating customers within the same central office, and if Pacific requires relocation it will provide reimbursement for all reasonable costs incurred. Nevada provides 60 days notice and imposes the same requirement on interconnector-customers that wish to relocate. SNET provides six months' notice to the customer when its equipment must be relocated. 204. NYNEX's tariff permits it to charge the interconnector for relocation in the event of an emergency caused by the customer, its agents, or contractors. If a customer requests relocation, Pacific states that, "if feasible," it will provide for such relocation and will impose ICB charges on the interconnector. SNET states that although its tariff does not so specify, it would not apply charges if it initiated the move. Lincoln states that it would require compensation for any work done on the interconnector's equipment at its request. 205. Oppositions. ALTS argues that, unless extreme circumstances cause the relocation, no relocation should be permitted without reasonable notice. Teleport states that relocation of interconnectors' transmission equipment has the potential to produce serious disruptions in customer service, and argues that, barring legitimate catastrophic emergencies, LECs should provide interconnectors with a minimum of six months advance notice for all moves to ensure a seamless transfer of service. 206. Teleport recommends that disputed relocations be referred to the Commission for resolution before a change can be made in the collocation arrangement and argues that LECs be required to show that relocation of the interconnector is the least intrusive way to resolve the LEC's alleged space problem. In addition, Teleport argues that LECs should be obligated to conduct relocations in a manner that eliminates the possibility that interconnector-customers will experience a disruption in service. Teleport further proposes that, with the exception of an authorized interconnector eviction, LECs should be required to reimburse the interconnector for its reasonable costs associated with relocation in order to prevent and discourage LECs from using relocation as a tool to impede competitors. 207. Rebuttals. Pacific responds that relocations are costly and disruptive and that it would not, therefore, relocate interconnectors without good reason. Pacific states that its relocation provisions relate solely to intraoffice moves involving minimal equipment and circuit design, and that 90 days' advance notice of plans to relocate is, therefore, sufficient. Pacific states that it cannot guarantee that service will continue to be uninterrupted during a move. 208. NYNEX argues that formal notification periods are unnecessary, and that Teleport's proposed six months' notice for rearrangement of an interconnector's facilities will not always be possible. Further, NYNEX asserts that prospective interconnectors should not be required to wait six months if relocation of an existing customer's facilities will meet their needs. NYNEX objects to Teleport's request that the Commission require LECs to guarantee that service will not be interrupted in the event of relocation. 8. Channel Assignment 209. Direct Cases. Lincoln, Nevada, Pacific, SNET, and Rochester permit interconnectors to designate the cross- connect assignments for their circuits. NYNEX permits interconnectors to designate circuit assignments in its New York central offices, but it retains the ability to designate circuit assignments in its New England central offices. NYNEX explains that because the channel assignment procedure is fully automated in its New England offices, interconnectors are not able to designate circuit assignments. 210. Oppositions. ALTS argues that the LECs' responses cast doubt as to whether collocators would be permitted to control their own channel assignments. 9. Letters of Agency 211. Direct Cases. Lincoln, NYNEX, Pacific, and Rochester indicate that they either currently accept LOAs or are willing to accept LOAs for ordering and billing for expanded interconnection services. Nevada states that its tariff does not authorize or prohibit the use of LOAs, and SNET states that LOAs are not applicable to the services provided by SNET. 212. Oppositions. Teleport recommends that each LEC be required to state in its tariffs that it will accept orders for end- to-end service and installation of the cross-connect to the interconnector's space when an interconnector's customer presents a LOA from the interconnector. 213. Rebuttals. Pacific states that it permits the cross- connect to be ordered and billed through LOAs, and claims that no party has challenged its procedures. 10. Billing from State/Interstate Tariffs 214. Direct Cases. Lincoln, Nevada, Pacific, and SNET state that they do not tariff intrastate expanded interconnection service. Rochester states that interconnectors utilizing Rochester's expanded interconnection services will do so for the purpose of providing special access service, and since the ten percent rule applies to special access service, "there is no reason the 10 percent rule should not apply." NYNEX's tariff provides that nonrecurring and recurring charges for expanded interconnection will be apportioned based on the percent interstate use (PIU) of all services provided to the customer's node; the PIU must be supplied by the customer. 215. NYNEX objects to the ten percent rule. NYNEX claims that because the multiplexing node will be used for switched and special access services, both state and interstate, the PIU is a more precise and equitable method of allocating multi-jurisdictional costs and revenues. Moreover, NYNEX argues, the ten percent rule was developed because usage over special access facilities was not measurable. NYNEX states that unlike special access customers, the expanded interconnection customer controls the number of switched and special access services terminating at its multiplexing node and is, therefore, in the best position to identify the jurisdictional nature of these services. 216. Oppositions. Teleport states that interstate traffic will usually comprise more than ten percent of interconnection traffic and that the ten percent rule is, therefore, reasonable. According to Teleport, NYNEX's plan is too complicated and might create an incentive for parties to report all traffic as interstate to avoid the difficulties of using NYNEX's method. 217. Rebuttals. NYNEX responds that because the multiplexing node will be used for both state and interstate switched access services, as well as for special access services, the use of a PIU is the appropriate mechanism for jurisdictional revenue and cost allocation for expanded interconnection. Pacific recommends that the Commission defer resolution of this issue until both special access and switched access issues can be addressed. 11. Payment of Taxes 218. Direct Cases. Lincoln requires interconnectors to pay all taxes promptly, and to provide Lincoln with appropriate documentation that they have done so. 219. Oppositions. Teleport contends that such tax provisions are unnecessary and should be removed from expanded interconnection tariffs because federal and state statutes include sufficient enforcement provisions to ensure collection of interconnectors' taxes and no party has demonstrated that a tax dispute between an interconnector and a taxing authority could have an adverse impact on a LEC.