Conclusions of Law

1. The Commission retains the independent state authority to review UNE costs and prices and should move forward with its review of selected UNEs, namely unbundled loops and unbundled switching, rather than await the outcome of federal litigation.

2. Pacific's August 15 cost filing does not allow parties and Commission staff to (1) reasonably understand how costs are derived, (2) generally replicate Pacific's calculations, and (3) modify assumptions from the prior OANAD models.

3. Without the ability to modify assumptions in Pacific's cost filing, it is not possible for parties and Commission staff to test the effects of declining input costs and volume and line growth.

4. Delays in this case may prolong current rates at non-cost-based levels that are not just and reasonable.

5. The Commission has the authority to set interim rates for UNEs.

6. Interim rates are necessary due to delays in this proceeding caused by the inadequacies of Pacific's cost filing and the need to examine competing cost models.

7. Pacific is not harmed by the interim rate levels if rates are subject to adjustment once final rates are determined.

8. The Commission can rely on the HAI model to set interim rates because the HAI model meets two of the three criteria set forth in this proceeding and because the Commission is not basing interim rates on the actual output of the HAI model but on a trend analysis of the change in loop costs from 1994 to 2000.

9. The Commission may impose discovery sanctions where parties violate discovery procedures and rulings of the presiding officer.

10. The presiding officer must have the authority to rule on discovery motions and impose sanctions for discovery abuse to ensure all material evidence is disclosed without undue delay.

11. Pacific has waived any argument it does not have access to and/or control of documents of its affiliates and parent company by producing documents and witnesses of SBC and SBC-Ameritech in this proceeding.

12. We should deny Pacific's appeal of the September 28 ruling and its October 12 appeal of the ALJs' discovery rulings.

13. We should affirm the ALJ rulings requiring Pacific to produce out of state cost information and the Assigned Commissioner ruling of February 21, 2002 imposing an issue sanction against Pacific for its noncompliance with discovery rulings. The material that Pacific refused to produce should be deemed to support the adoption of interim rates for unbundled loops and unbundled switching that are lower than current rates.

14. We should deny Pacific's motion to vacate the September 28 ruling because we should not amend the schedule of the UNE Reexamination based on a conditional proposal that is currently pending in another docket.

15. We should account for growth in DS-1 and DS-3 lines on a physical pair basis rather than through the use of voice grade equivalents. DS-1 lines should be counted as two access lines and DS-3 lines as one access line for purposes of setting an interim loop rate.

16. Any customer location shortcomings in the HAI model are somewhat mitigated by adjustments to the model to remove voice grade equivalents.

17. We should dismiss Pacific's comments regarding the cost of plant extension growth because a forward-looking cost model should consider the cost to serve total demand, not merely an extension of it.

18. It is not reasonable based on the current record to assume that plant extension growth counteracts loop cost reductions.

19. If assumptions regarding RTs and other DLC non-equipment costs are held constant in the HAI trend analysis, these factors will not impact the results of the trend analysis.

20. It is not reasonable to assume that price decreases for certain loop technologies automatically lead to lower loop expenses.

21. Because the record on expenses per loop is unclear, we should leave expenses per loop constant for the loop cost trend analysis.

22. The investment/expense factors in HAI should be removed for purposes of the Commission's loop trend analysis.

23. Pacific's assertions about factors that could lead switching costs to be higher in California than in Illinois should not be accorded significant weight because Pacific's failure to comply with discovery orders has deprived the record of information that would have allowed Pacific's assertions to be effectively analyzed.

24. It is reasonable to base interim switching rates on the rates that SBC-Ameritech proposed in Illinois.

25. Once final rates are adopted, these Interim rates should be adjusted, either up or down, from the effective date of this order.

26. The interim loop discount of 15.1% should be applied to the deaveraged loop rates adopted in D.02-02-047.

27. We should affirm the Assigned Commissioner and ALJ ruling of June 14, 2001, which (1) denied review of the costs of the DS-3 entrance facility without equipment, (2) denied review of the EISCC, and (3) denied Pacific's motion to defer this proceeding.

ORDER

IT IS ORDERED that:

1. The motion for interim relief, filed on August 20, 2001 by AT&T Communications of California, Inc. and WorldCom, Inc., is granted in part as set forth herein.

2. The monthly recurring prices for loop and switching unbundled network elements (UNEs) offered by Pacific Bell Telephone Company (Pacific) that are set forth in Appendix A to this decision satisfy the requirements of Sections 251(c)(2), 251(c)(3), and 252(d)(1) of the Telecommunications Act of 1996 and are hereby adopted on an interim basis.

3. Pursuant to Commission Resolution ALJ-181 (adopted October 5, 2000), Pacific shall prepare amendments to all interconnection agreements between itself and other carriers. Such amendments shall substitute the interim monthly recurring UNE prices for loops and switching set forth in Appendix A, for the UNE prices set forth in such interconnection agreements. Such amendments shall be filed with the Commission's Telecommunications Division, pursuant to the advice letter process set forth in Rules 6.1 and 6.2 of Resolution ALJ-181, within 30 days after the effective date of this order. Unless protested, such amendments shall become effective 5 days after filing.

4. The interim UNE prices for loops and switching adopted in this order shall be effective on the date this order is effective. Pacific shall make all billing adjustments necessary to ensure that this effective date is accurately reflected in bills applicable to these UNEs.

5. Pacific may have 60 days from the date of this order to complete the billing program changes necessary to reflect in bills the interim monthly recurring prices for UNEs adopted in this order. Upon completion of said billing program charges, Pacific shall notify the Director of the Telecommunications Division in writing that all of the necessary billing program changes have been completed.

6. Within 10 days of the effective date of this order, Pacific shall file an advice letter to establish a balancing account to track the revenues received from these interim UNE rates, beginning on the same date the interim rates become effective. The balancing account should accrue interest at the three-month commercial paper rate. Unless protested, the advice letter shall become effective 5 days after filing.

7. The assigned Administrative Law Judge shall issue a ruling soliciting further comments on applying the interim port discount to all port types.

8. Application 01-02-034, filed by The Telephone Connection Local Services LLC, is dismissed.

9. The Assigned Commissioner's and Administrative Law Judge's ruling dated June 14, 2001, which denies Pacific's February 28, 2001 Motion to Abey, is affirmed.

10. Pacific's October 9, 2001 appeal of the September 28 ruling is denied.

11. Pacific's October 19, 2001 motion to vacate the September 28 ruling is denied.

12. Pacific's October 12, 2001 appeal of the ALJs' discovery rulings is denied.

13. Pacific's October 31, 2001 Motion for Official Notice and its November 20, 2001 motion to strike the response of Joint Applicants to its October 31 motion are denied as moot.

14. We take official notice of the December 28, 2001 decision by the D.C. Circuit Court in Sprint Communications Company v. FCC.

15. The Assigned Commissioner's ruling in this proceeding dated February 21, 2002, which imposes discovery sanctions on Pacific, is affirmed.

16. This proceeding shall remain open so that the Commission can determine final rates for Pacific's unbundled loops and unbundled switching.

This order is effective today.

Dated May 16, 2002, at San Francisco, California.

LORETTA M. LYNCH

President

CARL W. WOOD

GEOFFREY F. BROWN

Commissioners

I dissent.

/s/ MICHAEL R. PEEVEY