Discussion

We shall address both Pacific's motion and ORA's motion together since they both deal with the issue of LE factor recovery of PEP costs. We grant ORA's motion to deny these requests. We deny Pacific's and GTEC's requests for LE factor recovery of PEP costs. Pacific has failed to show that the PEP expenditures meet the criteria for LE factor recovery. We find the opposing parties' arguments persuasive as to why denial of LE factor recovery is appropriate. As stated in D.98-10-026, the LE factor is to be limited to those costs for which LE factor treatment is explicitly authorized in the underlying decision. In the case of the 310 NPA PEP, the underlying decision authorizing the program was D.98-12-081. Yet, in that decision, we did not authorize LE factor recovery for PEP costs. Thus, a key eligibility criterion for LE factor recovery for the 310 NPA PEP has not been satisfied.

In its comments to the ALJ's Draft Decision, Pacific argues that it should not be held to this "technical requirement" since the LE factor rules had not yet even been adopted when the PEP for the 310 NPA was provisionally adopted in July 1998. Moreover, D.98-10-026 (which adopted the LE factor recovery rules) was mailed only 17 days before the final PEP proposal for the 310 NPA was submitted to the Commission. Pacific thus argues that "it is not surprising" that the final PEP proposal submitted on October 30, 1998 did not address LE factor recovery.

Pacific also notes that this rationale for denying LE factor recovery would not apply to the PEP costs for the 408 NPA since the ILECs did state their intent to request LE factor recovery of PEP costs at the time the 408 PEP proposal was submitted. In D.99-07-009 in which the PEP for the 408 NPA was approved, the Commission stated that it would address the issue in a subsequent decision.

Notwithstanding Pacific's arguments, we still find that it had the opportunity to raise the issue of LE factor recovery for PEP costs in the 310 NPA at the time of the final submittal of the PEP on October 30, 1998. Pacific had been actively participating in the proceeding which established the LE factor mechanism, and was duly informed of the requirements for LE factor recovery prior to the submission of the final PEP proposal at the end of October 1998. Yet, Pacific failed to meet this requirement.

We agree with Pacific that this rationale for denying LE factor recovery would not apply to the 408 NPA since the issue was timely raised in that instance. Yet, on other grounds, as described in this order, we find that other criteria for LE factor recovery have not been satisfied, thereby justifying denial of LE factor treatment for PEP costs for both the 310 and the 408 NPAs.

Another of the assumptions underlying Pacific's LE factor request was that PEP expenditures would be ongoing with the cumulative financial effect becoming significant over time. Yet, all previously approved overlay plans in addition to the 310 plan, have since been suspended pursuant to D.99-12-051. ⁵ Because of this, there will be no need for Pacific to incur ongoing PEP expenditures for additional overlay plans, as argued in its filing. With the suspension of the overlay plans, the extent of PEP expenditures are now limited to only funds already spent. There will be no cumulative growth of PEP costs for additional overlay plans the foreseeable future. Based on the limited amounts already spent on all PEPs for overlay plans throughout the state to date, the magnitude of costs absorbed by Pacific and GTEC will be much more limited than they originally anticipated. LE factor recovery is not justified given the limited duration that PEPs for overlay plans were in effect and the resulting limited financial sums involved.

We find Pacific's claim unpersuasive that the PEP costs meet the criteria established in D.94-06-011. We are not persuaded that the PEP costs are the result of an exogenous event. For the event to be exogenous, we would have to find that Pacific had no control over these costs. While it is true that the Commission mandated the PEP as a condition of an overlay and approved the PEP budget, Pacific had a significant degree of control over the PEP costs. Pacific has been among the strongest proponents of the overlay form of NPA relief. Pacific has strongly argued in favor of overlays while acknowledging that a mandatory PEP would be needed in order to prepare the public for the new dialing procedure. Pacific also had a major role with respect to the development of the proposed PEP budget that was submitted to the Commission both for the 310 and the 408 NPA overlays. Although the final budget was subject to Commission approval, Pacific exercised a significant role in developing the budget that was ultimately proposed for PEP expenditures. The development of the proposed budget called for many discretionary decisions concerning the level of effort that would be involved, and how extensively information concerning the overlay would be disseminated among the public interest groups.

In its comments on the ALJ's Draft Decision, Pacific argues that it lacked control over PEP expenditures because the Commission ultimately was responsible for approving the overlay and, consequently, for requiring a PEP to inform and educate the public concerning the overlay. Pacific's argument seems to be that if the Commission approves a utility program or authorizes a budgeted program cost, then the utility consequently has no management control over the related expenditures. Yet, the mere fact that the Commission issues a decision authorizing a budget for implementing a program does not determine whether an underlying cost is beyond management control.

The Commission-approved PEP budget included a number of program elements that were intended to inform and educate the public about the overlay. It remained within the management discretion of the utility to implement each program measure in the most efficient and cost-effective manner. For example, if money was budgeted for advertising or public service announcements about the overlay, it was within management discretion to do comparison shopping and to negotiate the most favorable terms with media sources consistent with maintaining quality control over the results. Guaranteeing LE-factor recovery of PEP expenditures would defeat the purpose of NRF which was to preserve the utility's incentive to manage costs by holding the utility financially responsible for the outcome of its management actions.

The PEP costs have not had a disproportionate impact on Pacific. In developing the allocation of PEP costs among industry participants for the 310 NPA, we specifically required that the cost obligation be directly proportional to the number of NXX codes each carrier holds within the overlay NPA. Thus, while the aggregate percentage of costs absorbed by Pacific may exceed that of other carriers, Pacific also has a greater share of NXX codes as compared to other carriers. Consequently, there is no disproportionate impact in relation to other carriers in terms of the cost per NXX code.⁶ Thus, Pacific fails to satisfy another requirement for LE factor recovery as stated in D.98-10-026:

"Moreover, in considering whether the costs will be allowed, we will consider whether the cost is unique to Pacific and/or GTE, or is a cost generally borne uniformly by all carriers in the industry."

Without going through each of the remaining prescribed criteria for the Z-factor, we conclude that Pacific's failure to satisfy those criteria discussed above is sufficient to justify a denial of its request for LE factor recovery of PEP costs for each of the NPAs for which such costs have been incurred. For similar reasons, we deny LE factor recovery for GTEC.