8. Assignment of Proceeding
Susan P. Kennedy is the Assigned Commissioner for this proceeding and Timothy Kenney is the assigned Administrative Law Judge.
1. Decision 02-10-020 ordered ORA to conduct a comprehensive audit of Verizon covering the years 1999 - 2002. ORA has not yet started the audit.
2. ORA and TURN's joint petition to modify D.02-10-020 seeks to expand the audit to include 1999 through 2004 or, alternatively, 2000 through 2004.
3. Verizon's petition to modify D.02-10-020 seeks to (1) reduce the scope of the audit ordered by D.02-10-020, (2) revise the audit to include only the most recent years, and (3) implement these revisions in Phase 3 of this proceeding.
4. Granting ORA and TURN's petition will provide the Commission with additional audited data with which to make informed decisions regarding NRF and other matters.
5. The Commission needs accurate historical information about Verizon in order to identify trends in Verizon's performance and to serve as a reference point for evaluating Verizon's current and future performance.
6. It is prudent for the Commission to monitor large utilities like Verizon that provide essential services to millions of Californians.
7. Audits are an essential part of NRF. They provide a means for the Commission to monitor Verizon, to determine if Verizon is complying with Commission rules and statutory requirements, and to assess whether the Commission's goals for NRF are being met.
8. Despite the need for audits under NRF, there has not been a comprehensive audit of Verizon during the 15 years that NRF has been in effect.
9. Verizon should incur minimal out-of-pocket costs for a comprehensive audit covering 1999 through 2004 because (i) D.02-10-020 authorized Verizon to seek recovery from ratepayers of the audit costs billed by ORA or the Commission, and (ii) regulatory compliance costs were built into Verizon's startup revenue requirement.
10. It is unlikely that the audit costs passed through to ratepayers will be unduly burdensome, as the amount is likely to be tiny in relation to Verizon's intrastate operating revenues that totaled $1.721 billion in 2004.
11. The Commission is currently considering in A.05-04-020 a proposed merger of Verizon and MCI.
12. If there is another triennial review of NRF, it will not commence until 2008 or 2009, assuming the instant proceeding ends in 2005 or 2006.
13. The FCC's Uniform System of Accounts recognizes a distinction between GAAP and regulatory accounting.
1. ORA and TURN's petition to modify D.02-10-020 should be granted for the reasons set forth in Findings of Fact (FOFs) 4 through 10.
2. Verizon's petition to modify D.02-10-020 should be denied for the reasons set forth in FOFs 4 through 10.
3. If the Commission approves the proposed merger of VCI and MCI and orders an audit of the merger, the merger audit can be combined with the audit ordered by D.02-10-020, as modified by today's Decision.
4. The following matters should be considered in Phase 3 of this proceeding:
i. Whether ORA's audit of Verizon should include the years 2005, 2006, 2007, and 2008, and the scope of the audit during 2005 - 2008.
ii. The appropriate proceeding for considering ORA's audit report if NRF is replaced by another regulatory framework.
5. The commencement of ORA's audit of Verizon can be postponed until after the conclusion of Phase 3 or A.05-04-020, whichever is later. This will enable ORA to plan and conduct one comprehensive audit that incorporates developments in Phase 3 and A.05-04-020 if it chooses.
6. The following order should be effective immediately.
IT IS ORDERED that:
1. The petition to modify Decision (D.) 02-10-020 filed by Verizon California Inc. (Verizon) is denied.
2. The petition to modify D.02-10-020 filed by the Office of Ratepayer Advocates (ORA) and The Utility Reform Network is granted.
3. ORA's audit of Verizon is expanded to include the years 2003 and 2004.
4. The following matters will be considered in Phase 3 of this proceeding:
i. Whether ORA's audit of Verizon should include the years 2005, 2006, 2007, and 2008, and the scope of the audit during 2005 - 2008.
ii. The appropriate proceeding for considering ORA's audit report if the New Regulatory Framework for Verizon is replaced by another regulatory framework.
5. If the Commission approves the merger of Verizon Communications Inc. and MCI, Inc. that is pending in Application (A.) 05-04-020 and orders an audit of the approved merger, the merger audit shall be combined with the audit ordered by D.02-10-020, as modified by today's Decision, unless that audit has already commenced.
6. The commencement of the audit ordered by D.02-10-020, as modified by today's Decision, shall be permitted to be postponed by ORA until after the conclusion of A.05-04-020 or Phase 3 of the instant proceeding, whichever is later.
7. This proceeding remains open.
This order is effective today.
Dated ___________________, at Los Angeles, California.
