6. Ancillary Issues

6.1. Cost Recovery

We find that each cost-of-service regulated utility is entitled to recover reasonable costs prudently incurred to comply with the changes to the Commission's rules adopted today. To be clear, we do not find today that all costs incurred to comply with the revised rules will be automatically assumed to be reasonable but that, after the Commission verifies the reasonableness of costs, recovery will be permitted. We direct each cost-of-service regulated utility to record its costs in a memorandum account to avoid retroactive ratemaking.

We will address costs more fully in phase 2 and expect cost-of-service regulated utilities to provide cost data. We will decide the appropriate forum for seeking recovery of these costs in phase 2. In phase 2, we will also develop an appropriate tracking mechanism for these additional costs and decide how to incorporate these costs into each utility's general rate case. We do not, however, agree with SCE's proposal to only track "incremental" costs.

Many parties suggested and we agree that CPSD's proposal, which only addresses costs associated with SCE's vegetation management, is insufficient based on the wide range of costs that cost-of-service regulated utilities anticipate incurring to implement these rule modifications.

Regarding those utilities with deregulated rates, including incumbent local exchange carriers (ILECs), we decline to adopt any mechanisms for recovery of costs associated with today's rule changes, as telecommunications companies with rate flexibility may charge different rates to recover costs without our approval. To the extent that a telecommunications company with rate flexibility seeks to place a line-item on its bill to recover such costs, however, it must not falsely imply that such charge is CPUC-mandated or approved.

Our decision is not "unjustifiably discriminatory,"¹² as AT&T claims, but merely recognizes the fact that certain utilities operate under cost-of-service ratemaking, while others have authority to charge market-based rates. Our decision also recognizes that existing surcharges are legislatively-mandated, such as the Public Purpose Program surcharge that fund public programs and do not constitute profits for AT&T. Moreover, the fact that there may be other unregulated companies, such as Voice Over Internet Providers or VOIPs, that may operate under different safety regulations than telephone utilities, is not a sufficient basis for changing our approach to market-based rates. In fact, while unregulated companies must address issues that regulated companies avoid.

Small local exchange carriers which are on cost-of-service regulation will operate under the same framework set forth above as electric companies.

6.2. Implementation Issues

We direct all entities subject to the revised rules and ordering paragraphs adopted today to take all reasonable measures to immediately begin to implement these directives. We do not adopt any deadlines, except those specifically established in the rules or ordering paragraphs themselves. We do not require compliance plans but, instead, expect each entity to establish a reasonable implementation plan to fit its particular circumstances.

6.3. Initial Framework for Phase 2

We will appoint a neutral facilitator for phase 2 workshops. The neutral facilitator will be one of the Commission's Alternative Dispute Resolution ALJs, the assigned ALJ, or another appropriate staff member. While CPSD fulfilled its role as the facilitator in phase 1 in a commendable manner, we agree with CPSD that a non-party facilitator to assist with workshops would be an effective addition. We also recognize that a number of issues have been deferred to phase 2 and, as a result, the agenda for the last phase of this proceeding will be ambitious. Accordingly, we expect to set a procedural schedule and identify included issues promptly.

¹² AT&T opening brief, p. 6.