VI. Comments on Draft Decision
Pursuant to Rule 77.7(f) of the Commission's Rules of Practice and Procedure, the Commission may reduce or waive comments in an unforeseen emergency situation. Rule 81(g) states that a deadline for Commission action imposed by a court is an example of an unforeseen emergency. The Remand Order constitutes an unforeseen emergency because the court has placed a level of uncertainty over the UNE prices contained in D.99-11-050, D.02-05-042, and interconnection agreements between Pacific and competitive local carriers. Therefore, we will reduce the standard time frame for comments on this order so that we can act on this matter at our next Commission meeting and resolve any uncertainty over UNE prices caused by the Remand Order. Parties shall have five days to comment on this order, and one day to file reply comments.
Comments were filed by ____. Reply comments were filed by _____.
Findings of Fact
1. The Commission adopted a shared and common cost markup of 19% in D.99-11-050.
2. In its Remand Order, the U.S. District Court found that the Commission had double-counted non-recurring costs in the denominator of the shared and common cost markup.
3. The Remand Order vacated and remanded to the Commission the $4.814 billion total direct UNE costs used in the denominator of the markup calculation, and any decision that relied on the $4.814 billion.
4. Pacific included $583 million in non-recurring costs in its original $4.83 billion estimate of total direct UNE costs.
5. The $583 million estimate was decreased to $537.8 million based on a labor rate adjustment.
6. Pacific's original $4.83 billion estimate of total direct UNE costs was revised to $4.814 billion through compliance filings with the Commission, and the revisions did not remove either $583 or $537.8 million in non-recurring costs.
7. The deposition testimony of Pacific's witness Scholl, in which he testified regarding PBON 001684 through PBON 001746 and stated that non-recurring costs were not included in the recurring cost study, was never introduced into the record of the OANAD proceeding.
8. Pacific's 1997 cost filing indicates PBON 001684 through PBON 001746 as the source for $4.139 billion in 1994 Total Regulated Operating Expenses.
9. 1994 Total Regulated Operating Expenses are comprised of recurring costs and $537.8 million in non-recurring costs.
10. 1994 Total Regulated Operating Expenses of $4.139 billion are a component of the $4.814 billion total direct UNE costs.
11. The $4.814 billion total direct UNE cost adopted in D.98-02-106 was used to calculate the 19% shared and common cost markup and recurring charges in D.99-11-050.
12. In D.98-12-079, the Commission adopted $375 million in non-recurring costs, which was used to set Pacific's non-recurring charges.
1. The Commission should subtract $537.8 million in non-recurring costs from the $4.814 billion total direct cost of UNEs in the denominator of the markup calculation.
2. Pacific's shared and common cost markup, originally calculated in D.99-11-050 (Conclusion of Law 19), should now be calculated by dividing $996 million in shared and common costs by $4.651 billion ($4.814 billion in total direct UNE costs minus $537.8 million in non-recurring costs plus $375 million in non-recurring costs (adopted in D.98-12-079). The result of this calculation, 21.4%, should be rounded to the nearest whole percentage point, which results in a markup of 21%.
3. Pacific's shared and common cost markup should be increased from 19% to 21%.
4. We should not rely on Scholl's deposition testimony because it was not introduced in the original OANAD record.
5. Because $537.8 million in non-recurring charges are included in $4.139 billion in 1994 Total Regulated Operating Expenses, and this $4.139 billion was used to calculate $4.814 billion in total direct UNE costs, $537.8 million in non-recurring costs are included in $4.814 billion total direct UNE costs.
6. Pacific is double recovering non-recurring costs because there are $537.8 million in non-recurring costs contained in the to $4.814 billion total direct cost of UNEs, and Pacific is also charging non-recurring prices based on non-recurring costs adopted in D.98-12-079.
7. The $537.8 million in non-recurring costs included in the $4.139 billion 1994 Total Regulated Operating Expenses (which is a component of the $4.814 billion total direct UNE costs), should be removed from Pacific's recurring UNE costs.
8. The Commission should calculate the amount that the expense component of recurring costs was overstated by dividing the $537.8 million in non-recurring costs by the $4.139 billion in 1994 Total Regulated Operating Expenses, which yields 12.9%, or 13%.
9. Pacific should reduce the expense portion of its recurring costs for each UNE by 13% to remove non-recurring costs included in the $4.814 billion total direct cost of UNEs.
10. The Commission has discretion to determine when and if to order retroactive rate adjustments in response to the Remand Order.
11. Bankrupt telecommunications carriers might have difficulty paying retroactive adjustments to UNE rates.
12. Retroactive UNE rate adjustments would be inconsistent with the Commission's duties under Pub. Util. Code § 709 because retroactive payments would be likely to cause regulatory and financial uncertainty and restrict access to capital.
13. Retroactive UNE rate adjustments would not be a good use of resources since the net adjustments are likely to largely offset each other.
14. The Commission should not make retroactive adjustments to rates in response to the Remand Order due to telecommunication carrier bankruptcies, the effect of uncertainty caused by retroactive payments and its effect on the struggling telecommunications sector, the recent findings regarding UNE rates in D.02-05-042 and the UNE Reexamination proceeding, and the fact that the net rate changes probably offset each other to a great degree.
15. The changes to the shared and common cost markup and recurring costs adopted in this order should be made on a prospective basis and be effective on the same date as this order.
16. The actual implementation of the increase to the markup should be stayed pending final determination by the Commission, through additional filings ordered herein, of changes to recurring costs based on the 13% adjustment to the expense portion of recurring costs.
17. The U.S. District Court Remand Order constitutes an unforeseen emergency.
IT IS ORDERED that:
1. The shared and common cost markup that was originally adopted in Decision (D.) 99-11-050, and which is a component of Pacific Bell Telephone Company's (Pacific's) unbundled network element (UNE) prices, shall be increased from 19% to 21%.
2. The expense portion of Pacific's UNE costs adopted in D.98-02-106 shall be modified to incorporate a 13% reduction as set forth in this order.
3. Within 30 days of this order or as otherwise directed by the Administrative Law Judge (ALJ), Pacific shall submit a filing in this proceeding calculating a 13% reduction in the expense portion of each of the recurring costs adopted in D.98-02-106 and calculating the net impact on all of its UNE prices of the markup and recurring cost changes ordered herein. Pacific's filing should be fully supported with workpapers and appropriate documentation. Interested parties may file comments on Pacific's filing 20 days thereafter, unless a revised schedule is set by the ALJ.
4. The changes adopted by this order to Pacific's shared and common cost markup and to the expense portion of its UNE recurring costs shall be effective on the date this order is effective.
5. In order to make the UNE price changes effective as of today's order, Pacific shall track UNEs purchased by interconnecting carriers from the date of this order until the Commission determines the net effect of the UNE price changes resulting from this order.
6. Pacific shall make all billing adjustments necessary to ensure that this effective date is accurately reflected in bills applicable to the UNE prices modified by this order.
This order is effective today.
Dated , at San Francisco, California.
