II. Background

For many years, telephone companies charged higher rates for some services in order to subsidize the provision of affordable local exchange service for residential customers located in high-cost areas of the State. This system of internal cross subsidies was replaced by the CHCF-B in Decision (D.) 96-10-066. The CHCF-B currently provides Roseville and other large local exchange carriers (LECs) with more than $530 million per year to subsidize residential local exchange service in high-cost areas. Funding for the CHCF-B comes from a surcharge paid by the end users of intrastate telecommunications services.

To ensure that the large LECs did not reap a windfall from the CHCF-B, D.96-10-066 directed the large LECs to reduce their rates as follows:

Concurrent with the effective date of the [CHCF-B], the... LECs...shall reduce all of their rates, except for residential basic service and existing contracts, by an equal percentage. This overall reduction shall equal the anticipated monthly draw... from the [CHCF-B]...We shall [also] afford the . . . LECs the opportunity to decide what rates or price caps should be reduced...to permanently offset the explicit subsidy support. Until that is accomplished, a monthly surcredit shall be used to offset any anticipated monthly draw. The LECs shall be permitted to file applications describing what rates or price caps they seek to permanently [reduce] as a result of receiving monies from the CHCF-B. (D.96-10-066, mimeo., p. 209.)

Roseville currently draws about $400,000 per year from the CHCF-B, and has a surcredit in place to offset its draws. In D.98-09-039, the Commission gave Roseville until September 3, 2000, to file an application to propose targeted rate reductions to offset its draws from the CHCF-B. On July 26, 2000, the Commission's Executive Director granted Roseville a one-year extension to file the application authorized by D.98-09-039. On August 24, 2001, the Executive Director granted Roseville until the date when I.01-04-026 is closed to file the application authorized by D.98-09-039.

In I.01-04-026, the Commission is investigating whether to increase Roseville's rates to offset the loss of $11.5 million in annual revenues for Extended Area Service (EAS) that Roseville previously received from Pacific Bell. To this end, the Commission ordered Roseville to submit a rate-design proposal in I.01-04-026 to recover $11.5 million.¹ Roseville submitted its rate-design proposal on September 17, 2001. On November 30, 2001, the assigned Commissioner in I.01-04-026 issued a scoping memo. Page 2 of the memo provided instructions regarding the content of the rate-design proposal that Roseville is required to submit in that proceeding.

On December 3, 2001, Roseville filed a petition to modify D.98-09-039 (Petition). In its Petition, Roseville asks the Commission modify D.98-09-039 by adding the following sentence to the end of O.P. 17: "In addition, parties are authorized to present proposals to adjust Roseville's rates and price ceilings by an amount equal to its CHCF-B draws in I.01-04-026." Roseville states that it would be far more efficient for the Commission and the parties to consider revisions to Roseville's rates in one proceeding rather than two.

Roseville represents in its Petition that the rate-design proposal it submitted in I.01-04-026 on September 17, 2001, already reflects its draws from the CHCF-B. Roseville also represents that no party in I.01-04-026 has objected to the inclusion of Roseville's CHCF-B draws in its rate-design proposal. In addition, Roseville notes that the assigned Commissioner's scoping memo issued in I.01-04-026 on November 30, 2001, determined that Roseville's draws from the CHCF-B could be included in its rate-design proposal, but only if Roseville filed a petition to modify D.98-09-039 and the Commission approved the petition.

The Office of Ratepayer Advocates (ORA) does not object to Roseville's Petition, but states that Roseville's draws from the CHCF-B do not appear to be included in the rate-design proposal that Roseville filed in I.01-04-026. Therefore, if the Petition is granted, ORA states that it might be necessary for Roseville to update its rate-design proposal.