III. Petition to Modify Regarding Nonrecurring Prices

Verizon requests that the Commission suspend the schedule for implementing the nonrecurring prices adopted in D.03-03-033, and grant an extension until March 2004 for implementing these prices.² Verizon argues that an extension is warranted because the nonrecurring prices adopted in D.03-03-033 require fundamental changes to Verizon's ordering and billing systems which cannot be accomplished in the 75-day time period established in that order. Specifically, Verizon contends that the changes to distinguish between mechanized and semi-mechanized service orders, establish separate charges for initial and additional orders, set new connect and disconnect charges, and capture customer record changes cannot be implemented until Verizon completes and tests extensive system changes. In addition, Verizon personnel who would implement these changes are currently working on various other system changes and cannot begin work on nonrecurring price changes until mid-June 2003. According to Verizon, changes of this magnitude also require a 73-day time period for testing prior to implementation. As part of its request, Verizon suggests that if a delay to March 2004 is granted, the difference between current rates and the new nonrecurring prices would be refunded so that competitive local carriers (CLCs) would not suffer injury from the delayed implementation.

Parties generally opposed Verizon's extension request because it would maintain, for yet another year, what CLCs consider grossly inflated nonrecurring prices. To illustrate this point, the AT&T Parties maintain that Verizon would continue to charge $52.68 for ordering a UNE loop, switch, and port (also known as a UNE-P conversion), whereas D.03-03-033 reduced the price for that same UNE-P conversion to 32 cents. These parties allege that failure to implement the new and vastly lower nonrecurring prices, even with the promise of a later refund, will create a substantial barrier to entry for most CLCs who will have to pay the higher nonrecurring prices up front when they place UNE orders.

Instead, the AT&T Parties urge the adoption of the interim solution set forth in the ALJ's ruling of May 27, 2003 that denied Verizon's request to suspend the effective date of nonrecurring price changes. In that ruling, the ALJ found that Verizon should defer billing the new nonrecurring prices until it can render correct bills, and it should treat orders as "mechanized" if it cannot determine their origin. In support of this arrangement, the AT&T Parties contend that deferred billing will be closer to the true prices Verizon should charge, whereas Verizon's proposal of continuing to charge much higher nonrecurring prices could lead to a massive true-up. Moreover, the AT&T Parties maintain that the additional year Verizon requests to implement its nonrecurring prices is unreasonable since Verizon has known since 1998 that the nonrecurring costs adopted in that year, plus 22% for shared and common costs, were vastly lower than the nonrecurring prices it has been charging CLCs. Finally, the AT&T Parties suggest that deferring charges, without interest, gives Verizon the proper incentive to expedite corrections to its billing system.

The TMC Parties propose that Verizon waive all nonrecurring charges until it can bill according to the structure adopted in D.03-03-033. They contend that this will act as an incentive to speed Verizon's compliance with implementing new nonrecurring prices and is an appropriate penalty for Verizon's failure to implement the new prices within the time allotted by the Commission. In the alternative, the TMC Parties suggest that Verizon charge only the lowest applicable rate in any category until the new nonrecurring prices are in place. The TMC Parties oppose a true-up or interest payments to Verizon because they contend the CLCs have incurred a much greater cost in business opportunities lost due to what they consider Verizon's inflated UNE prices. Similarly, Telscape proposes that the Commission fine Verizon for missing the implementation date in D.03-03-033. It also proposes that Verizon bill only the lowest applicable rate during the interim.

Verizon opposes a fine, saying it has not violated any Commission order. Verizon states that if an extension until March 2004 is granted, it will pay interest on any overcollections when the new prices are implemented. If its extension request is denied, Verizon proposes that in the interim, it should charge the lowest applicable rate in any category in which the proper charge cannot be determined. Verizon will track the correct charges, and will present deferred bills, with appropriate interest, when the new nonrecurring prices are implemented.

Discussion

Despite the fact that new nonrecurring prices were adopted in March 2003, Verizon is essentially asking that it be able to continue to charge its old nonrecurring rates for an additional year. We will deny this request because it is unreasonable to allow Verizon to continue to charge nonrecurring prices that are out of date for such an extended period. Moreover, this lengthy delay would not give Verizon the proper incentive to expedite its billing changes. In D.03-03-033, the Commission gave Verizon 75 days to implement the new rates. For comparison purposes, the Commission often makes new rates effective on the date of the order, and gives carriers 60 days to implement billing changes. (See D.02-05-042, Ordering Paragraphs 4 and 5, and D.02-09-052, Ordering Para. 4.) Verizon indicates that it is working on other changes to its billing systems, and cannot begin the changes regarding nonrecurring prices until the other changes are completed. While we understand that changes to billing systems take time, conflict with other priorities, and require experienced personnel who may be working on projects, this does not justify Verizon charging rates that the Commission has found are unreasonable.

Instead, we prefer to maintain the effective date that we adopted in D.03-03-033, and allow Verizon to defer billing for nonrecurring charges, with interest, until its billing system changes are complete. If Verizon is unable to determine the type of orders it receives during this deferred billing period, it should assume the lowest rate in that category. Verizon itself offers a similar approach as its backup proposal. This maintains the proper incentive for Verizon to expedite its efforts to implement the new nonrecurring prices. Further, it eliminates the anti-competitive concerns raised by Verizon's proposal, wherin CLCs would continue to pay nonrecurring prices that are orders of magnitude greater than the newly adopted rates.

The approach adopted herein mirrors the approach adopted in the ALJ's ruling of May 27, 2003, although we will allow Verizon to collect interest at the three-month commercial paper rate for its deferred billings. Although several parties opposed allowing Verizon to collect interest, we will allow it as a reasonable compromise given the other billing changes that Verizon must implement at the same time. The nonrecurring prices adopted in D.03-03-033 became effective on May 27, 2003 and this shall remain unchanged. We will modify Ordering Paragraph 7 of D.03-03-033 to add the following language:

If Verizon cannot bill nonrecurring charges at the effective rate, it should track the types of orders it receives and defer billing until it can render a correct bill. Verizon may include interest at the three-month commercial paper rate on its deferred bills. If Verizon is unable to track the types of orders it receives during this deferred billing period, it should assume the lowest rate in any category in which the proper charge cannot be determined.

Therefore, Verizon's petition to change the effective date for nonrecurring prices to March 2004 is denied, but D.03-03-033 is modified to allow deferred billing with interest as set forth above.

We deny the proposal of the TMC Parties to waive all nonrecurring charges until Verizon can implement its billing system changes because it would be improper to require Verizon to provide services to CLCs without any payment. We also deny Telscape's proposal to fine Verizon for failure to meet the 75-day effective date because the solution crafted in this order is preferable under the circumstances and we are not persuaded that punitive measure are necessary at this time.