VI. Discussion

A. The Sale of the Property Should be Approved

Pub. Util. Code § 851 requires advance, discretionary approval before sale or lease of utility property "necessary or useful in the performance of its duties to the public." Advance approval is the mechanism by which the Pub. Util. Code ensures that financial and other transactions do not proceed until the Commission has had a chance to review and, if necessary, place conditions on those transactions. (See, e.g., Pub. Util. Code, §§ 851, 852, 854.) The relevant

inquiry for the Commission in § 851 proceedings is whether the proposed transaction is "adverse to the public interest."⁹

Verizon does not need the Property at issue for public utility purposes and the proposed sale of One Verizon Way will not disrupt service to Verizon customers. The sale allows Verizon to consolidate its operations to other office space that it currently owns or leases and reduce its office space expenses.

In addition, the sale price is above fair market value and the net book value of the Property. The sale allows Verizon to achieve a gain on disposing of an asset that is not fully utilized at present. Under current accounting mechanisms, a portion of this gain is allocated to ratepayers.

We find that the sale is not adverse to the public interest and we will approve it. The sale does not disrupt service to Verizon's customers, and it allows Verizon to dispose of an underutilized asset at a financial gain. The sale is supported by the City of Thousand Oaks¹⁰ and has the potential to benefit the Thousand Oaks community by attracting new jobs to the area through relocation of Baxter to the Property. ORA does not oppose the sale of the Property.

B. ORA's Protest on Ratemaking Should be Denied

We agree with Verizon that the ratemaking proposed in the application follows current NRF policies and mechanisms. Under current NRF policies, sharing is suspended so any sale proceeds above the book value of the buildings, which is credited to accumulated depreciation, cannot flow to ratepayers. While it is true that the Commission's current NRF review rulemaking intends to reexamine gain issues in Phase 3, this review will not begin until late in 2002. Further, Verizon's proposed ratemaking for sale proceeds complies with the rules for gain on sale set forth in D.93-09-038. Any gain resulting from sale of the land will be allocated to ratepayers according to the mechanism adopted in that order and returned to ratepayers through Verizon's annual price cap filing.

We also agree that to defer the ratemaking to Phase 3 of NRF or to A.99-10-010 brings too great a level of uncertainty to this transaction. It would
not be appropriate to defer the ratemaking for this transaction based on a
potential policy change in 2003. Further, we find no connection between the
issues in A.99-10-010, involving allocation of costs between Verizon and its affiliates, and the issue here of allocation of gains between ratepayers and shareholders.

Given the current economic climate, we think that Verizon should be commended for structuring a transaction that reduces its operating expenses without disrupting service to its customers, achieves a gain on sale of an asset, and provides a new use for the Property that appears to benefit the Thousand Oaks region. We do not wish to jeopardize the transaction by injecting regulatory uncertainty and deferring the gain on sale issue to future proceedings. Therefore, we will deny ORA's protest and approve the ratemaking treatment that Verizon describes with the understanding that it complies with current rules. Any future changes to NRF revenue sharing or gain on sale policies should not affect the ratemaking for the sale of this Property.

ORA suggests that if the Commission does not consolidate ratemaking issues in this proceeding with either the NRF Rulemaking or  

A.99-10-010, it still needs to hold a hearing in this proceeding to review and verify the book costs, transaction costs and allocation of those costs. Verizon responds that the current issue in this case is what rules to apply to ratemaking for gains, and not the precise calculation of book value, transaction costs, and gains. We agree with Verizon that these amounts cannot even be known until the transaction closes and the amounts are reported by Verizon in accordance with Commission requirements. To ensure ORA has the opportunity to examine these figures, we will require Verizon to include specific information regarding the final transaction in its next April 1 earnings filing as required by D.93-09-038. Specifically, Verizon's earnings filing should include the calculations supporting the book values, transaction costs, and gains associated with both land and buildings from sale of the Property. ORA may examine the calculations at that time.