7. Overview of Proposals for Alternative Funding Source

The parties presented three major proposals for an alternative funding source: CHCF-A, CHCF-B, and some sort of rate increases for Roseville's ratepayers. The three proposals are discussed below.

7.1. Use of the CHCF-A as an Alternative Funding Source

7.1.1. Background

The CHCF-A was originally adopted by the Commission in D.85-06-115 as a means of keeping reasonable and affordable basic exchange rates for customers of smaller LECs that concurred in Pacific's statewide average toll, private line, and access rates. The small LECs are typically higher cost than Pacific so rates set at Pacific's levels are insufficient to generate the small LECs' revenue requirement. The rationale provided for the introduction of the CHCF-A was to provide customers of smaller independent LECs with the systemwide rate averaging benefits afforded to Pacific's rural customers by virtue of Pacific having the same rates throughout its territory.

The CHCF-A rules currently in effect require the small LECs to comply with a means test and waterfall provision if they request funding from the CHCF-A. The means test ensures that draws from the fund do not result in intrastate rates of return in excess of those authorized by the Commission. The waterfall provision provides LECs with the incentive to file a GRC while funding levels are still high. Appendix A to D.91-09-042 describes the waterfall as follows:

The issuance of a Commission decision in a general rate proceeding of an independent company will have the effect of a "fresh start" for that company under the HCF [High Cost Fund] plan. Specifically, the phase-down of funding shall be reinitiated effective January 1 following the utility's first subsequent annual October advice letter filing after resolution or decision is rendered in the utility's general rate review proceeding. The phase-down cycle under this reinitiation will be six years: three years at 100% funding level following by three succeeding years at 80%, 50% and 0% respectively, if a local exchange company has not initiated a general rate review proceeding by December 31^st of the previous year.

7.1.2. Roseville's Position

Roseville states it has already established that the Commission can authorize CHCF-A recovery of the $11.5 million payment. (See Brief By Roseville Telephone Company (U 1015 C) On Use of CHCF-A and CHCF-B, filed March 21, 2000.) However, to implement recovery from the CHCF-A, the Commission must make several administrative modifications as applied to Roseville. First, the CHCF-A has a waterfall feature whereby draws issued to rate base regulated companies are automatically reduced depending upon the time since a company's last GRC. Pursuant to NRF, Roseville no longer undergoes GRCs. Accordingly, the waterfall should not apply to Roseville. Second, the CHCF-A applies a means test to rate base regulated companies to ensure that they are not earning in excess of their authorized rates of return when they draw from the CHCF-A. As applied to a NRF company, however, a means test would frustrate the earnings incentive that is the centerpiece of NRF regulation. The $11.5 million payment was an essential aspect of Roseville's start-up revenue requirement. From 1996 to present, those funds have not been subject to a waterfall or means test. When recovered from the CHCF-A going forward, it would therefore be inappropriate to apply such tests, developed for rate-of-return regulated companies, to a NRF company.

Roseville asserts that the purpose of the CHCF-A is to assure that small company exchange rates remain within a reasonable range of Pacific's exchange rates in comparable neighboring exchanges. According to the rules governing the CHCF-A, each rural and small metropolitan company shall file with the Commission an advice letter incorporating the net settlement effects upon such company of regulatory changes ordered by the Commission and the FCC. Among other things, states Roseville, the rules specify that the CHCF-A filings should include the effects of EAS settlement revenue changes.

Roseville reports that it ceased submitting CHCF-A filings upon implementation of the interim opinion in its GRC. In Roseville's rate case order, the Commission found that the rates and charges adopted allowed Roseville a reasonable opportunity to earn its authorized rate of return and eliminated the need for Roseville to receive any further funds from the CHCF-A after February 1, 1997 (the date the rates went into effect). In the rate case order, the Commission also included the $11.5 million in annual revenues received from Pacific pursuant to the STA in the adopted rate design. The elimination or modification of these payments, says Roseville, will necessarily re-open the need for Roseville to receive further funds from the CHCF-A to account for the changes in EAS settlements between Pacific and Roseville, one of the original purposes of the CHCF-A.

According to Roseville, nothing in the Commission's order in its universal service proceeding decision (D.96-10-066) expressly prohibits future CHCF-A draws by Roseville. The order speaks only to Roseville's draws from the CHCF-B, but nowhere in the order does it state that Roseville may never draw again from the CHCF-A. The fact that D.96-10-066 does not expressly terminate Roseville's right to draw from the CHCF-A obviates the need to modify D.96-10-066 to reinstate that ability.

Roseville believes that no other order would need to be modified for Roseville to draw from the CHCF-A. All that would be required would be an order in this proceeding authorizing Roseville to draw replacement revenues from the CHCF-A. As noted earlier, Roseville is now regulated under NRF and therefore will have no further GRC proceedings. The Commission should acknowledge this fact in this proceeding and find that the waterfall provision of the CHCF-A which provides for a phase-down in CHCF-A funding based on the time since the recipient's last GRC does not apply to Roseville. Similarly, the Commission should find that the "means test" is similarly inapplicable to Roseville.

According to Roseville, recovery from the CHCF-A has several advantages over other possible replacement revenue funding sources. First, this revenue recovery mechanism is analogous to Pacific's intracompany cross-subsidization of different cost exchanges. This would treat Roseville's ratepayers in a manner consistent with Pacific's and GTEC's ratepayers who have their costs spread over a large billing base. For example, Pacific keeps its rates in higher cost areas around the state lower by subsidizing operations in those areas with revenues from its lower cost exchanges. A draw from the CHCF-A would mimic this form of cross-subsidization.

Second, Roseville asserts that spreading the burden across a large billing base instead of simply Roseville subscribers comports with Public Utilities Code Section 739.3. Section 739.3 requires the Commission to establish fair and equitable rate structures for telephone companies operating in rural and small metropolitan areas. The Commission may use transfer payments to ensure that rates are fair and equitable. The CHCF-A is the tool the Commission has created to satisfy the requirements of Section 739.3, and it should be used to ensure that Roseville's rates do not increase substantially to recover the $11.5 million payment.

Third, recovery from the CHCF-A is consistent with the Commission's universal service goals. Roseville's access line rates are already higher than comparable areas in the state. Requiring Roseville to recover the $11.5 million payment through rates would drive basic service rates even higher. As rates increase, subscribership declines, contrary to the Commission's universal service goals.

According to Roseville, the impact on statewide rates would be nominal if Roseville's revenue requirement were recovered through the CHCF-A. For example, assuming the surcharge necessary to recoup Roseville's $11.5 million draw were placed on all LEC subscribers, the increase in monthly rates would be approximately four cents per access line. (Exh. 2 at p. 25, Rebuttal Testimony of Gierczak for Roseville.) Four cents per access line is insignificant given that Roseville's subscribers currently subsidize Pacific's operations in the amount of $1.58 per access line per month. (Ibid.) This is because the majority of all the CHCF-B distributions, approximately 86%, flow to Pacific. (See Resolution T-16365.) It is unusual, Roseville believes, for the company with the lowest costs and lowest rates in the state to receive the majority of support, while Roseville receives minimal support to serve its customers yet has higher costs and higher rates.

Roseville states that its proposal to recover the $11.5 million payment from the CHCF-A is consistent with the static payment established under the STA. Under the STA, Roseville's payment was fixed at $11.5 million. The per-access-line revenue attributable to the $11.5 million payment decreases as the number of Roseville's access lines increases. Accordingly, from 1992 until now, the per-access-line revenue attributable to the $11.5 million payment has decreased 37% while the EAS payment has remained fixed at $11.5 million. An increase in access lines leads to higher overall company costs, without any corresponding increase in the EAS payment. Roseville is therefore required to become more efficient as the payment covers fewer of Roseville's costs on a per access line basis as the company continues to grow. Freezing the CHCF-A draw at $11.5 million would more closely resemble the existing payment from Pacific than would any of the other revenue recovery options offered in this proceeding.

As further support for a draw from the CHCF-A, Roseville reminds the Commission it is the only designated Carrier of Last Resort (COLR) in its entire service area. See D.96-10-066 (October 25, 1996). As a COLR, Roseville is obligated and must be ready to serve each potential subscriber in its service area in furtherance of the Commission's universal service goals. Therefore, Roseville does not have the choice of whether to offer services to customers as its competitors do. Accordingly, replacing the $11.5 million payment with a draw from the CHCF-A is consistent with Roseville's COLR obligations.

Roseville states that Pacific opposes Roseville's recovery of the $11.5 million from the CHCF-A, while Pacific receives approximately $368 million from the CHCF-B to subsidize its operations. (Exh. 2, p. 35, Rebuttal Testimony of Gierczak for Roseville.) Pacific's CHCF-B fund draw represents approximately 4% of Pacific's total revenues. Roseville currently receives less than one-half of one percent of its revenues from the CHCF-B. If anything, Roseville claims, replacing the $11.5 million payment with a draw from the CHCF-A will treat Roseville and Pacific in a consistent manner.

7.1.3. ORA's Position

ORA opposes any modification to or use of CHCF-A as a source of replacement funding.⁵ First, CHCF-A was established for the very specific purpose of assisting small LECs, which are still under traditional rate-of-return regulation. Roseville is under NRF regulation and is no longer required to undergo regular rate reviews. Second, both the means and waterfall tests are essential components of CHCF-A. The means test ensures that the utility's earnings do not exceed the rate of return authorized by the Commission. The purpose of the waterfall is to encourage the utility to file a GRC application. Roseville, however, seeks to modify the CHCF-A so that it is exempt from both of these tests. Third, the amount a company draws from CHCF-A is not fixed. In other words, the amount of draw depends on the company's rates of growth, expense and investment. In D.91-05-016, the Commission held that:

The funding in one year should not be automatically flowed through to future years. Although rates are not adjusted between formal rate reviews, CHCF-A support should be. That support should not be used to keep utility's earnings at levels which exceed those authorized by the Commission.⁶

Roseville, however, wants to receive $11.5 million from CHCF-A annually in perpetuity. ORA believes this is inconsistent with the goals of universal service. Fourth, CHCF-A is recovered from California customers statewide. If Roseville is permitted to recover $11.5 million from CHCF-A, ORA says, all California ratepayers would essentially be paying for Roseville's operations even though Roseville is financially healthy. All California ratepayers who contribute to the CHCF-A should not have to subsidize Roseville's operations without any assurance that Roseville is not over-earning.

For these reasons, ORA recommends that the Commission not use CHCF-A as a replacement revenue source. Allowing Roseville to replace its EAS revenues through CHCF-A would only encourage Roseville to continue to run its operations inefficiently to the detriment of ratepayers and harm competition in Roseville's territory.

ORA rebuts Roseville's argument that the only viable replacement funding option is the CHCF-A. Roseville asserts that the fund is available to both small and mid-size LECs. ORA disagrees. According to D. 96-10-066, it is only available to small LECs, not to mid-sized LECs. More importantly, it is a universal service mechanism; it was never intended to subsidize EAS payments.

ORA disputes Roseville's assertion that recovery of the $11.5 million EAS payment from the CHCF-A is appropriate because it comports with Public Utilities Code Section 739.3. To the contrary, says ORA, Roseville's proposed use of CHCF-A is not permissible under § 739.3. First, § 739.3 is clearly intended for small telephone corporations as follows:

The Commission shall develop, implement, and maintain a suitable program to establish a fair and equitable local rate structure aided by transfer payments to small independent telephone corporations serving rural and small metropolitan areas. (PU Code Section 739.3(a).)

According to ORA, the Commission does not consider Roseville a "small telephone corporation." Roseville is a mid-size LEC which has enjoyed the regulatory flexibility of NRF. Second, § 739.3 is intended for small telephone companies providing services in rural and small metropolitan areas. The Commission has also held that Roseville is not a "rural telephone company" because its service area does not have the attributes of a traditional rural company. The Commission concluded that "it is reasonable...to treat Roseville as a non-rural carrier for all purposes, including universal service funding." (See CPUC's FCC filing Opposition by California to Petition for Reconsideration, filed February 3, 2000 in CC Docket, Nos. 96-45 and 97-160, p. 5.)

Third, states ORA, Section 739.3 concerns universal service, not EAS. According to the Commission's Universal Service handbook, the main goals of universal service include:

· Providing consumer choice among competitive telephone companies.

· Providing for addition of new services to basic service as new services become more widely used, to avoid some people having inferior access to information than others; ..." (Universal Service Handbook issued by the Telecommunications Division, December 17, 1998.)

The Commission's universal service handbook also states that the purpose of CHCF-A is to provide a source of supplemental revenues to 17 small LECs whose basic exchange access line service rates would otherwise be increased to levels that would threaten universal service. (Id. at p. 114.)

ORA opposes modifying the CHCF-A to allow Roseville to continue receiving $11.5 million to subsidize its services. Notwithstanding the existing purpose and objectives of CHCF-A, if the Commission still believes Roseville should be able to recover any or all of the $11.5 million from this fund, the fund must be modified. In order to do so, the Commission must provide an opportunity for all contributors to the fund to participate in the modification process. CHCF-A is funded through a surcharge imposed on all intrastate services. Since any change to the fund would impact all contributors to the fund, it would be a violation of due process if the contributors were not afforded an opportunity to participate in the modification process. ORA recommends that

the Commission consider whether CHCF-A should be used as replacement funding for EAS in the universal service triennial review.

7.1.4. Pacific's Position

Pacific opposes Roseville's proposal to transfer the entire $11.5 million to the CHCF-A and exempt Roseville from the CHCF-A's waterfall and means tests. Competitors would not have access to these amounts as they would not be portable⁷ under the CHCF-A. Competitors would, therefore, have unequal funding in Roseville's territory. Unequal funding, Pacific argues, would allow Roseville to more effectively and unfairly compete against all current and potential competitors while continuing an inefficient cost structure. Such a result is completely inconsistent with Roseville's NRF status.

Pacific states that the Commission is already on record as being opposed to such a result in a similar situation. The Commission stated in its July 22, 1999 comments to the FCC in CC Docket No. 96-45 and 96-262 that unequal federal funding would harm a competitor's ability to provide service at competitive rates, with the result that the Incumbent Local Exchange Carrier (ILEC) would not only receive a windfall, but also a competitive advantage that could squeeze out competitors. According to Pacific, this outcome would be counter to the goals of the 1996 Telecommunications Act, and would harm competition in Roseville's territory.

7.1.5. Discussion

Roseville points to the Commission's universal service goals in support of its proposal to utilize CHCF-A funding to replace the revenue which Roseville has been receiving from Pacific. We have stated our support that telephone service be ubiquitously available throughout California, with the highest household penetration rate possible. We recognize that subscribership may fall as rates increase, and we want to avoid that outcome in Roseville's territory. We are well aware that Roseville's customers currently pay one of the highest residential access line rates in California.

Roseville is correct that, since the CHCF-A is funded from a statewide surcharge on all intrastate telecommunications services, it would amount to only a few cents per customer per month to make up Roseville's revenue shortfall. Roseville analogizes this amount to the $1.58 per month that its customers pay to subsidize Pacific's operations under the CHCF-B distributions. But Roseville is mixing apples and oranges when it attempts to compare the two. The CHCF-B has a specified purpose, separate and apart from the purpose of the CHCF-A. (The CHCF-B will be discussed in detail in the following section.)

While the payment may be merely a few cents from customers throughout California to fund Roseville's revenue requirement, the amount charged on California customers' bills is not the issue. The bottom line is that Roseville requests a static draw from the CHCF-A, without adhering to two of the major tenets of the fund, that payments be subject to a waterfall provision and means test. Roseville recognizes that the Commission will have to make several administrative modifications as applied to Roseville. According to Roseville, the waterfall provision should not apply to Roseville, since Roseville is no longer subject to GRCs. We established the waterfall provision to encourage small LECs to file GRCs, if they want to maintain 100% funding from the CHCF-A. Second, the means test is applied to rate-base regulated companies to ensure that they are not earning in excess of their authorized rates of return when they draw from the CHCF-A.

The question we have before us is whether or not it is appropriate to make the alterations Roseville proposes so that Roseville can receive the replacement funding, in perpetuity, without further scrutiny. We created the rules governing the CHCF-A over the past few decades of experience with the fund, and have developed a workable system to maintain reasonable basic exchange rates for customers of small rural telephone companies to further our goal of universal service in rural areas. However, the requirements for the waterfall and the means test assure us that the companies that draw from the fund are submitting themselves periodically to Commission scrutiny of their operations, and are not over-earning. In other words, all California ratepayers should not be funding inefficiencies and excessive earnings.

Also, we agree with ORA and Pacific's conclusion that use of the CHCF-A subsidy by Roseville is anti-competitive, since it allows Roseville to receive an outside subsidy that is not portable to other carriers, and therefore is not available to its competitors. This represents a significant competitive advantage for Roseville as other carriers attempt to compete in its territory.

We are not willing to change the administrative rules to the CHCF-A to allow Roseville to draw on the fund as a permanent part of its revenue requirement. We have not used the fund in that manner for any other LEC and it is not appropriate that Roseville be allowed to have California's telephone ratepayers fund its operations, without any mechanism for determining whether Roseville needs the revenue on an ongoing basis.

Also, we dispute Roseville's conclusion that mid-sized LECs are entitled to draw from the CHCF-A. Roseville states that D.96-10-066 does not preclude a mid-sized LEC from drawing from the CHCF-A. Roseville is correct that the decision does not include an explicit prohibition against mid-sized LECs drawing from the CHCF-A. However, in our discussion in that decision regarding the use of the CHCF-A and CHCF-B, we made it clear which carriers we expected to draw from each of the funds:

For the above reasons, we will include GTEC, Pacific, CTCC [Citizens], Contel, and Roseville in the CHCF-B fund for determining universal service subsidy support in their high cost areas.

As for the seventeen smaller LECs, we shall exclude them from the CHCF-B for the purpose of estimating their costs of service. Instead, we shall continue to allow them to draw from the CHCF-A fund under our existing procedures. (D.96-10-066) [68 CPUC 2d 524, 584].

While Roseville is correct that our decision contains no specific prohibition on a large or mid-size LEC drawing from the CHCF-A, we clearly expressed our intent that the larger companies would draw from the CHCF-B, and that the seventeen smaller companies would draw from the CHCF-A. In addition, there are inherent contradictions in a NRF LEC drawing from a fund intended for use by rate-of-return LECs.

In its Comments on the Proposed Decision (PD), Roseville disputes the PD's conclusion that Roseville is not covered by the provisions of PU Code Section 739.3. After the adoption of Section 739.3 in 1987, the Commission established the rules for the California High Cost Fund (subsequently referred to as CHCF-A). Roseville was authorized and eligible to draw from the CHCF-A under the Commission's implementation of Section 739.3. According to Roseville, the Commission has historically treated Roseville as eligible for the benefits under Section 739.3, and nothing in D.96-10-066 changed the Commission's decision that Roseville is eligible for those benefits.

We support our original contention but wish to clarify our reference to Section 739.3. Section 739.3(a), which was adopted in 1987, did apply to Roseville, but only until 1996 when subsection (c) was added to Section 739.3. Section 739.3(c) provided the basis for the creation of the CHCF-B. As stated above, while our Universal Service decision (D.96-10-066) did not explicitly state that mid-sized LECs were not covered by the provisions of the CHCF-A, we made it clear that that was, indeed, the case. As ORA mentions in its Reply Comments to the PD, the Commission's Universal Service Handbook specifies that the CHCF-A is intended for 17 small, rural telephone companies operating under rate-of-return regulation and CHCF-B is intended for 5 ILECs. (ORA, Reply Comments at 2.) As ORA asserts, the purpose of creating the CHCF-A and CHCF-B was to distinguish between the small rural telephone companies and the large and mid-sized LECs, of which Roseville is one. (Ibid.)

Therefore, we concur with ORA's conclusion that Roseville is not a small LEC and therefore not covered by the provisions of PU Code § 739.3(a), since that section applies only to "small independent telephone corporations." We consider Roseville a mid-sized LEC, not a small LEC, and regulate the company accordingly.

For all the foregoing reasons we deny Roseville's request that the $11.5 million in replacement funding come from the CHCF-A.

7.2. Use of the CHCF-B as an Alternative Funding Source

7.2.1. Background

The CHCF-B was created in D.96-10-066 in the Commission's universal service proceeding. The Commission made a commitment to ensure that residential basic telephone service be made available throughout California and that the rates for such service remain affordable. The decision adopted rules pertaining to how universal service was to be carried out in California as the local exchange telephone markets were opened to competing carriers. As California entered a more competitive telecommunications environment, the Commission found that yesterday's policies supporting universal service were no longer sustainable.

The Commission included the five large and mid-size LECs in the proxy cost model calculation for determining universal service support. They, and other COLRs who serve high cost areas in these service territories, are eligible for subsidy support through the CHCF-B. Using the Cost Proxy Model, a statewide average cost of $20.30 was derived. That statewide average cost serves as the cut-off point for determining which CBGs are high cost. CBGs whose costs exceed the statewide average cost of $20.30 are deemed high cost areas and eligible for support from the CHCF-B.

The decision states that the 17 smaller LECs will not be subject to the rules applicable to the CHCF-B fund, but will continue to be eligible for universal service support under the existing CHCF-A.

In order to avoid a windfall for the five large and mid-size LECs, any subsidy support received from the CHCF-B shall be reduced by the same amount through an equal percentage reduction for all services except for basic service rates. The ILEC and any other designated COLR, shall be entitled to subsidy support for those high-cost CBGs in accordance with the adopted rules. The calculation is made on an access line basis, and is portable to other COLRs who serve residential customers in the high cost CBGs.

7.2.2. Roseville's Position

According to Roseville, the CHCF-B, established in D.96-10-066, provides an alternative to the CHCF-A as an external funding source for replacement revenues to account for changes to the payments made by Pacific. In Roseville's view, however, it is an inferior choice and would require more dramatic changes, including modification of D. 96-10-066 itself, with notice to all parties in the universal service proceeding, either as part of this proceeding or the universal service case (Rulemaking 95-01-020).

Roseville states it currently draws a modest amount (approximately $500,000) of high-cost fund support from the CHCF-B. Roseville's CHCF-B draw is based on the Cost Proxy Model adopted by the Commission in D.96-10-066. Despite the CHCF-B's reliance on the Cost Proxy Model, Roseville believes it may be possible for the Commission to authorize a fixed draw of $11.5 million from the CHCF-B. However, Roseville acknowledges there would need to be a greater number of adjustments made to the CHCF-B process to achieve this result than the changes identified for the CHCF-A. As a consequence, says Roseville, recovery form the CHCF-B is less attractive than recovery from the CHCF-A.

First, CHCF-B draws today are based on a Cost Proxy Model calculation. The CHCF-B rules currently make no provision for fixed draws. The Commission would need to modify its rules to allow for a draw from the CHCF-B, which is not based on the Commission's Cost Proxy Model.

Second, says Roseville, the $11.5 million annual recovery should not be portable. If the $11.5 million were to become portable, under the CHCF-B rules, it would be portable only for residential customers. In addition, if the amount is portable, it would have to be priced on a per-access-line amount which would then grow as the number of residential access lines grows. In effect, it would no longer be a fixed $11.5 million amount. Accordingly, if Roseville's residential access lines were to grow 5% annually, Roseville's draw from the CHCF-B would increase at a corresponding amount, or in this example, Roseville's draw would increase to approximately $12.1 million. Roseville states that it is willing to accept a fixed amount of $11.5 million that was included in its GRC rate design, if the draw amount is not portable. If the Commission decides that any draw should be portable, the amount of the draw should grow as access lines grow.

Third, the CHCF-B process requires recipients to reduce other rates as an offset to any CHCF-B support they receive because that support is considered "new" money in excess of what just and reasonable rates would otherwise produce. This is not the case with respect to the $11.5 million annual payments received by Roseville. Thus, the CHCF-B would need to be modified to eliminate the requirement that rate offsets be implemented for that portion of the CHCF-B funds received in lieu of the $11.5 million annual payments from Pacific.

7.2.3. ORA's Position

ORA states the CHCF-B is specifically designed to provide a subsidy to large and mid-size LECs for residential basic exchange service in high-cost areas. ORA is opposed to modifying the CHCF-B in order to allow Roseville to recover its $11.5 million in EAS revenues from the fund. Furthermore, asserts ORA, since all contributors to the fund would be impacted, any modification to the fund should be considered, if at all, in the universal service triennial review.

7.2.4. Discussion

Roseville's proposal to use the CHCF-B as a source of revenue recovery suffers from some of the same defects as its proposal to use the CHCF-A. First, since the CHCF-B is funded from a statewide surcharge on all telephone ratepayers in California, Roseville is asking to have its operations subsidized by other California ratepayers. Under Roseville's proposal, the subsidy would be permanent, and not subject to any further scrutiny.

Also, the CHCF-B as formulated in 1996 does not provide any new money to carriers. Any carrier, including Roseville, which receives a draw from the CHCF-B must reduce its rates by the same amount. Further, ORA is correct in noting that the Commission specifically limited the scope of the CHCF-B to carriers providing residential local exchange service in high-cost areas. (See D.96-10-066, Ordering Paragraphs 7 and 8.)

Roseville acknowledges that significant changes would have to be made to the CHCF-B in order for it to be used for permanent draws of a fixed amount. In fact, Roseville's proposal would completely change the character of the CHCF-B from a system of support for CBGs in high cost areas. Roseville would turn the fund on its head and make it the source of a subsidy to Roseville, which we clearly never intended and will not entertain at this time.

We deny Roseville's request to use the CHCF-B as a permanent source of funding to replace the $11.5 million payment from Pacific.

7.3. Use of Funding Sources, Other than CHCF-A and CHCF-B

7.3.1. Roseville's Position

In Roseville's last GRC decision, the Commission identified various means by which reductions in EAS revenues could be replaced. Several possible alternatives were suggested without any conclusive statement made as to which alternative should be followed:

EAS resolution might be accomplished by a universal services funding mechanism, a rate realignment, or some other approach. (D.96-12-074 at 151.)

The Commission also discussed the possibility of future Z-factor recovery of a revenue shortfall caused by a change in the EAS payments, once again without committing to this particular approach:

[W]e decline to end Pacific's Extended Area Service (EAS) payment to Roseville. Nonetheless, we may authorize Z factor treatment if and when the EAS payment changes or ends. The EAS payment is a revenue flow to Roseville based on freezing payments at the 1991 level until the Commission renders a decision on how local intercompany traffic should be compensated. If Pacific or Roseville apply for consideration, or the Commission on its own considers the issue, and the EAS flow of funds changes or ends, Roseville may apply for Z-factor treatment. (Id. at 141.)

Roseville states that nowhere in the Roseville rate case decision does the Commission state that changes in the $11.5 million payment from Pacific must be recovered through any particular method. The Commission can choose from the full range of options to replace the $11.5 million payment.

Roseville opposes Pacific's proposal that Roseville recover replacement revenues through a Z-factor surcharge applied to Roseville's subscribers. An increase in rates through a Z-factor surcharge would substantially increase the rates and charges paid by Roseville's subscribers. For example, if the modifications to the EAS payments are treated as a Z-factor and recovered through a surcharge, Roseville's subscribers would pay a surcharge rate ranging between 16% and 22%, depending on the billing base. According to Roseville, Pacific's proposal is self-serving as Pacific's CLEC competes in Roseville's service area for business customers and the use of a surcharge will increase Roseville's business customers' rates which will allow Pacific's CLEC to compete more easily against Roseville. Roseville believes reliance upon the use of a generic surcharge for rate rebalancing would inordinately spread the replacement of this revenue on customers and services that are already paying rates in excess of their respective costs.

7.3.2. ORA's Position

ORA asserts that if the Commission finds that replacement funding is warranted, it should come from Roseville's ratepayers. According to ORA, Roseville's operations will not be jeopardized by the discontinuance of the EAS revenues. Based on Roseville's current financial status, it should not have to raise any rates even if it no longer receives the $11.5 million subsidy from Pacific. In view of Roseville's income statements and reported earnings for the last three years and future earnings, there is no reason why Roseville would not be able to offer its services at current rates, even without the $11.5 million subsidy.

However, if the Commission determines that Roseville is entitled to recover the $11.5 million from another source of funding, ORA asserts that Roseville should recover the revenues from its own ratepayers through rate increases of local exchange services. ORA recommends the following rate design to effectuate this revenue recovery mechanism:

a. Reduce the $11.5 million by the amount that Roseville currently receives from CHCF-B;

b. Increase the rates of local exchange services to cost except for the basic access line services which are currently priced below cost;

c. Increase the rates of local exchange services, except for the basic access line service, by 100 percent;

d. Increase the rates of basic access line services by 15 percent; and

e. Recover any remaining amount by a billing surcharge applied to local exchange services.⁸

This rate design would effectuate the true cost of providing service while at the same time encouraging competition in Roseville's service territory.

ORA states that its proposal would also have a minimal impact on Roseville's local exchange rates. The proposal would not result in rate shock to Roseville's customers. In its GRC, Roseville proposed a higher rate increase than what ORA is proposing in the above rate design, and in its GRC Roseville stated that its rate increase proposal was reasonable. Roseville recommended a 40% rate increase to its residential service rates. Here, ORA is merely proposing a 15% rate increase to the residential rates which were adopted in Roseville's GRC. ORA states its rate design is reasonable and would not have an adverse impact on Roseville's customers.

If the Commission finds that the replacement funding should come from an external source and not from Roseville's ratepayers, the funding should be temporary and competitively neutral. As stated in ORA's direct testimony, this can be accomplished by increasing the rates for all existing activated access lines and providing a billing surcredit by an equal amount. The billing surcredit would be portable with each customer regardless of the service provider so that the external funding is competitively neutral. ORA's witness Jarjoura provided an example in his testimony and further clarified his example during the evidentiary hearings. The proposal would work as follows:

Assume that Roseville has 12,000 existing activated access lines and assume that the Commission authorizes $1.44 million to be recovered from an external source. Roseville would increase the rate by $10 per month and provide a billing surcredit equal to $10 per month. If the customer leaves Roseville and switches to another service provider, the customer would take the $10 per month surcredit to the new service provider, thus rendering the surcredit portable with each customer. This proposal would ensure that any replacement funding is competitively neutral. (Exh. 19, p. 6, Jarjoura for ORA; 2 Tr. 209-10.)

According to ORA, if the Commission authorizes permanent external funding, Roseville's NRF status should be suspended and Roseville should be ordered to file for a GRC immediately.

7.3.3. Pacific's Position

Pacific asserts that Z-Factor treatment should be used for any replacement revenues for Roseville. In D.96-12-074, the Commission ordered:

Roseville is authorized to request exogenous ("Z") factor treatment of the $11.5 million per year extended area service payment from Pacific Bell (Pacific) if that payment changes or ends as a result of a Commission decision, with Commission review of the request before it is authorized. (D.96-12-074 at 166, O.P. 7.)

In its application, Roseville stated that Z-factor treatment would cause a 23% surcharge to be added to its local rates. This would result in its local residential rate increasing from the present rate of $18.90 to $23.25. This new rate level would still be less than the $23.60 that Roseville requested in its last rate case four years ago. (Id. at 146.) Since Roseville did not appear to have any concern about raising its residential rate level to $23.60, the lesser level of $23.25 is not unreasonable, says Pacific.

7.3.4. Discussion

ORA's proposal calls for no replacement funding for Roseville. However, if the Commission finds that replacement funding is warranted, ORA asserts the revenue should be recovered from Roseville's own ratepayers. ORA's rate design includes five separate components. ORA proposes reducing the $11.5 million by the amount that Roseville currently receives from the CHCF-B, which is about $500,000. However, under the rules governing the CHCF-B, Roseville is already required to reduce its rates by the amount it draws from the CHCF-B so no new revenue is generated to reduce the $11.5 million.

ORA's second proposal is to increase to cost the rates of local exchange services that are currently below cost, except for basic access line services. However, according to Roseville, only Roseville's residential rates are priced below cost. (Roseville's Opening Brief at 2.) Therefore, there are no other below-cost services whose rates can be increased. ORA also proposes increasing any rates for local exchange services, except for the basic access line service, by 100 percent, and increasing basic access line services by 15%. ORA would recover any remaining amount by a billing surcharge applied to local exchange services. The net result would be a 15% increase in basic access line services, 100% increase in other local exchange services, and the remainder recovered through a billing surcharge.

Pacific proposes Z-factor treatment for recovering the $11.5 million in revenues which Roseville currently receives from Pacific. According to Pacific, Z-factor treatment would cause a 23% surcharge to be added to Roseville's local rates so that the local residential rate would increase from the present rate of $18.90 to $23.25.

In other words, both ORA and Pacific's rate design proposals would result in rate increases for Roseville's ratepayers. During the two Public Participation Hearings held on June 27, 2000, and in the hundreds of letters received from Roseville's ratepayers, Roseville's customers were almost unanimously opposed to any sort of rate increase. Roseville's customers are well aware that they pay much higher rates than Pacific customers in neighboring exchanges, and they complained about the disparity in rates.⁹

Both ORA and Pacific indicate that no replacement funding is warranted. Pacific bases its recommendation on two major factors. The Commission had expressed concern about Roseville's efficiencies in its GRC decision, D.96-12-074. The Commission disallowed various costs while declining to disallow other costs due to lack of information. Pacific cites paragraph 5.2.3.3 from the decision, where the Commission stated:

We remain concerned with Roseville's total number of employees devoted to regulated operations, but make no further adjustment. As a measure of productivity, Roseville's number of access lines per employee was 195 in 1993 and fell to 189 in 1994. Over the same period, of 15 California telephone utilities excluding Roseville, nine experienced an increase or no change, and six suffered a decline. Based on this scant information, the trend is for California companies to become more, not less, efficient. Ranked by most access lines per employee, Roseville placed seventh out of the 16 California utilities in both 1993 and 1994. While not the most efficient by this measure with clear room for improvement for a mid-size telephone company, Roseville is also not the least efficient. Thus, we find no basis to further adjust Roseville's number of regulated employees. (D.96-12-074 at 121.)

And in paragraph 5.5.1.3, the Commission stated:

ORA correctly observes, however, that Roseville's growth in plant per access line is higher than all other telephone companies in California, except for Sierra. Similarly, its growth is second highest out of the 17 firms nationally. We do not have comprehensive data, however, which may reveal factors explaining the higher growth for Roseville, such as the customer mix, change in customer mix, service mix, change in service mix, growth in other services, growth in minutes of use, types of technology deployed, and region-specific cost effects. Because other factors may justify the higher growth for Roseville, we decline to find Roseville's investment unreasonable simply due to the rate of increase. (Id. at 131.)

Pacific points out that as far back as 1996, Roseville's efficiency, or lack thereof, started to come into serious question. Sufficient data, however, was not then available to make a determination. (Exh. 10 at 16, Peters for Pacific.)

The FCC also found indications of inefficiencies in Roseville's operations. We are aware that the FCC's universal service model is currently being reviewed by the U.S. Supreme Court, but the model itself is not the issue here, nor is the specific amount of any disallowance made by the FCC. What is the issue is that the FCC found the model pointed to inefficiencies on the part of Roseville. We find it significant that the FCC has disallowed some of Roseville's interstate costs due to inefficiencies and have determined that this Commission needs to examine Roseville's intrastate operations to see if similar inefficiencies exist.

ORA cites the results of the audit performed by Overland Consulting of Roseville's operations from 1997 through June of 1999. According to ORA, the audit revealed a severe cost misallocation problem. Roseville moved to strike ORA's portions of ORA's Reply Brief which reference Roseville's NRF

review proceeding. Roseville takes exception to ORA's discussion of the heavily litigated proceedings in Roseville's NRF review application. Roseville asserts that neither Roseville's NRF review application nor the resulting evidentiary record from the hearings on the application are within the record of this proceeding. Second, even if the Commission considers the evidentiary record in A.99-03-025 in this proceeding, ORA inaccurately characterizes Roseville's positions in that proceeding.

ORA filed its Opposition to Roseville's motion to strike portions of ORA's Reply Brief. ORA asks the Commission to take official notice of the audit report submitted by Overland Consulting in Roseville's NRF proceeding pursuant to Rules 72 and 73 of the Commission's Rules of Practice and Procedure. ORA asserts the audit report is an official record of the Commission as it was marked for identification and moved into evidence in the NRF proceeding. (Exhibit ORA-22 in A.99-03-025.)

Roseville is correct that the audit report and findings are not within the scope of this proceeding. ORA has presented as "fact" issues which were litigated by the parties in the NRF proceeding. While the audit report was moved into evidence in the NRF Review proceeding, it was not introduced in this proceeding, and we decline to take official notice of an exhibit in an ongoing Commission proceeding. We have not yet ruled on that case, and the record of that proceeding is separate and apart from the record of this proceeding. The specific audit results which ORA cites will not be given any weight in this proceeding.

We also question ORA's reliance on Rules 72 and 73 in our Rules of Practice and Procedure. A portion of Rule 72 states as follows:

If testimony in proceedings other than the one being heard is offered in evidence, a copy thereof shall be presented as an exhibit, unless otherwise ordered by the presiding officer.

ORA did not present the Overland Consulting audit as an exhibit in this proceeding, nor did ORA ask the presiding officer to order that it was not necessary to present the audit report as an exhibit. It is too late to make the request at the briefing stage of the proceeding.

Rule 73 is entitled "Official Notice of Facts." This is intended to deal with published documents such as orders of the FCC which present factual conclusions and orders from that federal agency. The Overland Consulting audit presents purportedly factual material, which has not been authenticated, since we have not yet ruled on the various aspects of the audit report. Therefore, ORA's reliance on Rule 73 in this instance is problematic. We decline to take official notice of the Overland Consulting audit report in A.99-03-025.

We granted Roseville NRF status in D.96-12-074, and have no intention of returning Roseville to rate-of-return regulation. We have long stated our preference that local exchange companies be regulated under NRF. NRF regulation puts a direct profit incentive on the companies which tends to generate efficiency-producing programs. One of our key goals for NRF companies is economic efficiency, both productive efficiency and pricing efficiency.

We approved Roseville's NRF status with the explicit recognition that the $11.5 million payment from Pacific was a significant portion of Roseville's revenues. (D.96-12-074 at 151.) And, at that time, we recognized that the EAS payment from Pacific would be eliminated at some point in the future. In hindsight, it would have been best to eliminate the payment as part of the GRC/NRF proceeding, but as we stated then:

This EAS payment ($11.5 million) is a significant portion of Roseville's revenues ($11.5 million out of Roseville's $98.3 million estimated test year 1996 total company revenues, $77.0 million intrastate revenues, at present rates). The flow of funds from alternative treatment of intercompany traffic must be carefully considered before reaching a decision, including careful attention to collecting this revenue from Roseville's ratepayers. The parties have not presented sufficient assessment of this topic to authorize changes at this time, nor has a reasonable alternative been presented for recovering these costs should we eliminate the EAS payment. (Id.)

In other words, at the time of Roseville's GRC, we did not have an adequate record before us to determine the best method for recovering the revenues. We mentioned the possibility of using a Z-factor and also the possibility of universal service funding, but declined to set a specific method of revenue recovery at that time.

Now four years later we find ourselves entertaining a request from Roseville for replacement revenues for the $11.5 million payment from Pacific. This is complicated by the fact that both Pacific and ORA point to Roseville as a financially healthy company with exceptionally high corporate expenses in some areas. As Peters cited, the FCC even found cause to disallow some of Roseville's interstate expenses. None of these studies provide us with enough information to conclude that Roseville does not need the $11.5 million payment as part of its revenue requirement. There is no direct cause and effect analysis presented by either Pacific or ORA, which link the specific amount of $11.5 million to increases in revenues or high expense levels. However, we cannot in conscience adopt a rate increase for Roseville's ratepayers to provide the additional revenues without first reexamining Roseville's expense levels and revenue requirement.

In its Comments on the Proposed Decision (PD), Roseville took exception to the PD's statement that the Commission had never before been in the position of having to deal with replacing a sizable outside subsidy to a NRF company several years after granting NRF status. According to Roseville, the Commission faced precisely the same situation with another NRF LEC, GTE California (GTEC).

Roseville states that in 1989 GTEC exited the revenue pooling arrangement that it had entered into with Pacific, which had resulted in a flow of revenues from Pacific to GTEC. To facilitate the termination of pooling between GTEC and Pacific, Pacific agreed to make transitional payments to GTEC. In 1990, GTEC received approximately $195.3 million from Pacific. In setting GTEC's rate design under the original NRF decision, the Commission factored in the significant payments GTEC was receiving from Pacific. See 41 CPUC2d 1, 11 (D.91-07-044). This is precisely the same treatment the Commission afforded to Pacific's EAS payments to Roseville when the Commission established Roseville's original NRF in D.96-12-074.

In its Implementation Rate Design decision (D.94-09-065), the Commission did not consider reviewing GTEC's revenue requirement, but instead focused on replacing the revenues which the Commission had incorporated into GTEC's rate design in the original NRF decision, although five years had passed since that decision. The replacement revenues were considered a rate design issue, and the Commission created a rate design for GTEC that replaced the payments from Pacific on a dollar-for-dollar basis. According to Roseville, it occupies precisely the same position that GTEC occupied when the Commission addressed the replacement of payments from Pacific to GTEC. Roseville asserts there is no basis in the record which supports discriminatory treatment between GTEC and Roseville.

We do not agree that the situation is the same with Roseville, as it was for GTEC. On the contrary, the situation with Roseville is unique and our treatment of it must also be unique. This instant proceeding raised issues of inefficiencies on the part of Roseville which we have determined we must examine further; there were no such allegations surrounding the payment to GTEC.

Furthermore, in the decision which approved Roseville's entry into NRF, we left the door open that we could at some point in the future choose to impose some elements of rate of return regulation on Roseville, for then unspecified reasons:

We decline to satisfy Roseville's request that we affirm rate of return regulation is no longer applicable to Roseville and no traditional ratemaking issues will henceforth be heard. The `clean break' Roseville believes we need to make is made with our decision to convert Roseville to NRF regulation. That is not to say, however, that rate of return issues may never arise nor be considered. (D.96-12-074 at 144.)

We find it appropriate at this point in time to order further examination of Roseville's revenue requirement and expenses in light of Roseville's request for the Commission to find an alternate source of funding to replace the $11.5 million EAS payment currently received from Pacific. Without resorting to traditional rate of return data, we are unable to analyze Roseville's revenue needs and the continued need for the $11.5 million as part of its revenue requirement.

NRF is the cornerstone of our regulation of all large and mid-sized LECs in California, and we do not intend to change that. However, in the case of Roseville, we need to recalibrate Roseville's revenue requirement to determine whether Roseville is able to absorb some or all of the $11.5 million or whether the revenue must come from Roseville's ratepayers. Our ultimate goal is to have Roseville dependent on its own resources for its revenue requirement. In today's competitive environment, a competitor in the telecommunications market should not have the advantage of an outside subsidy to fund its operations.

We do not propose to rescind Roseville's NRF status, and Roseville will continue to operate as a NRF company during the pendency of our investigation. It is not our intention to conduct a full-blown GRC for Roseville. We do not intend to perform a rate design (except to the extent necessary if we determine some of the revenues must come from Roseville's ratepayers). Also, we do not intend to review the rate of return adopted for Roseville in D.96-12-074. Rather, we will focus our attention on Roseville's current revenue requirement and expense levels.

Therefore, we order the assigned Administrative Law Judge to prepare an OII within 45 days of the effective date of this order for our consideration. The focus of the OII will be to investigate Roseville's expense levels and revenue requirement. We are aware that Overland Consulting recently conducted an extensive audit of Roseville's operations, but that audit focused on allocation between Roseville's regulated and nonregulated operations. The audit was too tightly focused to provide us with all the information we need to investigate Roseville's revenue requirement. However, the results of that audit and our findings in Roseville's NRF review could point to expenses which should be disallowed, which could make up some of the $11.5 million. Therefore, we will incorporate the record of proceeding A.99-03-025 and its outcome into the record of the OII so that we can take advantage of information gleaned in that audit.

We find it difficult to consider any sort of rate increase for Roseville's ratepayers until we can assure ourselves that Roseville is an efficiently run company. The OII we are ordering will allow us to address that issue and determine a method and amount of revenue recovery that is fair to Roseville and to its ratepayers.

7.4. Temporary Replacement Revenues for Roseville

We have expressed the view that continuation of the payment from Pacific to Roseville is anti-competitive, so we will terminate that obligation 60 days from the effective date of this order. However, Roseville is entitled to recovery of the $11.5 million on an interim basis while we reconsider Roseville's revenue requirement, since we established in Roseville's GRC four years ago that the $11.5 million made up a significant portion of Roseville's revenue requirement.

We have considered two options for temporary revenue recovery, during the period while we are conducting our investigation into Roseville's operations. First, we considered establishment of an All End User Surcharge (AEUS) such as Roseville proposed in its previous GRC, to make up the $11.5 million of its revenue requirement. (Id. at 156-157.) In that scenario, all telecommunications carriers in the state would be ordered to bill their end-user

customers and remit the surcharge revenue collected. The billing base would be the same as for the public program surcharges collected by the Commission, such as for the CHCF-B.

The AEUS would be an interim expedient, lasting only two years or so until we complete our OII on Roseville's revenue requirement. However, with the proliferation of surcharges on customers' bills, it is not a preferred option to add another surcharge line item to customers' bills. Also, we recognize that carriers expend substantial resources updating billing programs to implement Commission-mandated changes, and do not want to require carriers to update their billing programs to accommodate a temporary surcharge which will continue for only a few years. Also, carriers need 6-8 months lead time to update their billing programs to add a new surcharge line item, and we prefer not to delay termination of the current payment from Pacific to Roseville.

Second, we considered use of CHCF-B funds on a temporary basis, even though here we have rejected use of CHCF-B funds as a permanent replacement for the EAS payments. We are aware that the CHCF-B currently has a substantial reserve. The reserve is projected to be about $160 million at the end of year 2000.¹⁰ The CHCF-B has the same billing base that we would use for an AEUS so the same end-user customers would be paying for an AEUS as contribute on an ongoing basis to the CHCF-B. Rather than set up a new surcharge, we will make use of the reserve in the CHCF-B. Because of the sizable balance in the CHCF-B, we would not be collecting surcharges from customers to fund the payments to Roseville on a prospective basis. If two years of payments to Roseville are taken from the CHCF-B, that would amount to $23 million, which would not have a negative impact on the operation of the CHCF-B.

As Roseville acknowledges, use of CHCF-B funding to replace the $11.5 million in EAS revenues would require that the Commission deviate from the rules governing the CHCF-B established in D.96-10-066. We disagree, however, that deviating from those rules on an interim basis pending resolution of the OII we order in this decision would necessitate wholesale modifications to the universal service program.

Section 276 of the Public Utilities Code codified the CHCF-B and its administrative committee. Section 276(a) specifies that the purpose of the program is to "provide for transfer payments to telephone corporations providing local exchange services in high-cost areas in the state to create fair and equitable local rate structures...." The statute authorizes the Commission to establish a program for the stated purpose, and the Commission did so in D.96-10-066.

The Commission created the universal service fund in order to ensure that customers in high-cost areas would be able to obtain local telephone service at affordable rates. The mechanics of the program specifically authorize use of CHCF-B funds to compensate eligible carriers for costs that otherwise would be passed along to ratepayers in the form of higher rates. In this proceeding, we have determined that the $11.5 million EAS payments constitute a significant percentage of Roseville's annual revenue requirement. As we stated earlier in this decision, without a further analysis of Roseville's revenue requirement we cannot determine whether the $11.5 million remains a necessary component of that revenue requirement. Should we decide here, without an adequate record, that Roseville can get by without the $11.5 million dollars, we run the risk that Roseville will be harmed financially and its customers may suffer. In the alternative, allowing Roseville interim recovery of the $11.5 million EAS payments affords protection of Roseville's customers as we evaluate the company's status in the OII we order here.

Finally, as the purpose of the CHCF-B is to maintain affordable rates for local exchange customers in high-cost areas, the risk that Roseville would need to raise its rates to recoup the $11.5 million justifies the transfer of payments contemplated by Public Utilities Code Section 276.

Parties to this proceeding have been on notice from the filing of Roseville's application that the Commission was considering use of funds from either the CHCF-A or the CHCF-B to cover the loss to Roseville of the $11.5 million EAS payments once the agreement between Roseville and Pacific is terminated. Parties have commented on the proposals, and on the specific elements of the proposals which deviate from the universal service rules adopted in D.96-10-066. Based on this record we authorize a narrow, limited deviation from the universal service rules in order to allow Roseville to receive the transfer from the CHCF-B of $11.5 million to replace the EAS payments. We authorize this arrangement on an interim basis, pending a determination in the OII we issue here as to whether the $11.5 million continues to comprise a necessary component of Roseville's annual revenue requirement.

We must stress that this use of the CHCF-B reserves is simply a temporary expedient and should not be deemed to be precedent-setting in any way. The monthly payments Roseville receives pursuant to this order should not be subject to the rules governing the CHCF-B and shall be separate and apart from any draws Roseville receives under the CHCF-B for providing service in high-cost CBGs. The payment to Roseville is not portable to other carriers.

Therefore, beginning the 75^th day from the effective date of this decision, we will order the California High Cost Fund - B Administrative Committee to make monthly payments to Roseville in the amount of $958, 333. Those temporary monthly payments to Roseville, which total $11.5 million per year, will be made on the same day each month and will continue until we approve a final decision in Roseville's OII and order an end to the payments.

However, Roseville should not view this monthly subsidy as without any strings attached. In return, we expect Roseville to cooperate fully in our OII, and do all in its power to maintain the schedule in the scoping memo issued by the Assigned Commissioner in the upcoming OII. If Roseville does not cooperate fully with the assigned ALJ, Commission staff and parties to the proceeding to move the case forward in an expeditious manner, we direct the assigned ALJ to prepare a decision for our consideration, recommending elimination of a portion of the subsidy payment. We are serious about moving this OII forward so that we can eliminate the California ratepayer subsidy of Roseville's operations, and we will commit the necessary Commission resources to completing the OII as quickly as possible.