VII. Comments on Draft Alternate Decision

The draft alternate decision of President Michael Peevey was mailed in this matter to the parties in accordance with Rule 77.6 of the Rules of Practice and Procedure on February 3, 2005. Opening comments were received from AT&T, MCI, Covad, XO, ACN Communication, MPower and RCN, Anew and Navigator, and ORA and TURN. Reply comments were received from SBC and AT&T. Generally, the comments focused on the shared and common cost markup. We do not make any substantive changes to the decision and instead will address the comments in an effort to clarify our actions.

The comments claim that the 21% shared and common cost markup is the improper level and/or the 19% shared and common cost markup should be made retroactive. This decision has discussed these issues in the appropriate sections, but will briefly respond to the comments. The shared and common markup had been set at 21% by D.99-11-050. The scope of this proceeding excluded a review of that 21% figure. The permanent rates set in D.04-09-063 are based upon a shared and common cost markup of 21%. The only reason the shared and common cost markup is an issue at all is because of the Ninth Circuit Court's remand. Before that Court was a narrow issue of the "retail related costs" being included in the 21% markup. As noted earlier in this decision, removal of the remainder of the retail related costs results in a 19% markup. Therefore, all retail related costs are removed. Again, as noted earlier in this decision, the Commission has the authority to make the reduced markup effective retroactive. However, for reasons of consistency and policy we choose not to make the reduced markup retroactive and instead set the 19% markup only on going forward basis. ORA and TURN comment that the numbers behind the 19% have not been tested nor has there been a review of other numbers that may modify the markup. In part we agree. The lowering of the markup to 19% is conservative in that it does assume that the entire estimate of retail related costs is accurate. We set the markup at a potentially low number to safely address the Ninth Circuit Court's remand and with the knowledge that the markup will be looked at anew in A.04-03-013.