9. Comments on Proposed Decision

Findings of Fact

1. Continuation of the inter-company settlements system is not sustainable in a competitive telecommunications environment.

2. The CHCF-A waterfall and means test assure us that the companies that draw from the CHCF-A are submitting themselves periodically to Commission scrutiny of their operations and are not over-earning.

3. The current inter-company settlement payments from Pacific to the Small LECs are not subject to a waterfall and means test.

4. The annual means test included in the annual CHCF-A process does not equate to a full-blown GRC.

5. The Commission and Small LECs have been performing the annual CHCF-A means test calculation for a number of years.

6. If a Small LEC is found to be over-earning in a particular year, no adjustment is made to the earnings for that base year. The Small LEC is allowed to keep those over earnings.

7. The Small LEC's revenues are adjusted for the following year to eliminate the over-earning indicated in FOF 6.

8. The Small LECs have the option of coming to the Commission if their earnings slip to a level which could impair their ability to provide telephone service, or if they incur unanticipated expenses.

9. Five of the Small LEC applicants currently do not have their rates set at 150% of Pacific's, as required by CHCF-A rules.

10. The five Small LECs provided notice to their customers of a potential rate increase/decrease as a result of this proceeding.

11. Commission policy prohibits interexchange carriers from charging lower rates in the competitive urban areas, and higher rates in the less competitive rural areas.

12. There is no danger that interexchange carriers will charge a 25 cent rate in the Small LEC territories because they would have to offer that rate statewide and would not be able to compete against carriers charging far less than 25 cents per minute.

13. The Small LECs have agreed to be the COLR for intraLATA toll service, if no IXC chooses to provide service in their territories.

14. Small LEC customers will have at least one carrier which provides presubscribed intraLATA toll service.

15. The Small LECs are not well-situated to provide intraLATA toll services in a competitive market, since most do not have the necessary facilities and administrative customer service support in place.

16. Pacific does not own all of the facilities used to provide intraLATA toll service with the Small LECs.

17. The Small LECs' proposal does not place an unfair burden on the IXCs.

18. IXCs are not required to provide intraLATA toll service in any of the Small LEC service territories.

19. At the present time, it is impossible to determine whether IXCs will participate in intraLATA presubscsription in the Small LEC territories.

20. In D. 94-09-065 the Commission eliminated the Carrier Common Line Charge (CCLC) because it is not a cost-based rate.

21. While the FCC did eliminate the CCLC for price cap LECs, the interstate CCLC is still in place for rate-of-return LECs.

22. The Small LECs' access rates, including the CCLC, is about 5.5 cents per minute.

23. The CCLC rate element accounts for about 1 cent per minute.

24. The switched access rate for the Small LECs without the CCLC is about 4.5 cents per minute.

25. The access rates in the Small LEC territories will be significantly higher than Pacific's switched access rates.

26. Changes in intraLATA toll pooling arrangements were clearly delineated as an allowable Z-factor in D.89-10-031.

27. Changes in intraLATA toll pooling were not included on the list of allowable Z-factors in D. 98-10-026.

Conclusions of Law

1. The historical system of inter-company settlements between Pacific and the Small LECs should be terminated.

2. All California ratepayers should not be funding inefficiencies and excessive earnings by Small LECs.

3. The guaranteed CHCF-A subsidy ensures that the Small LECs will have the opportunity to earn their authorized rate of return.

4. This guaranteed subsidy will provide stability for the Small LECs which should encourage investment.

5. The Small LECs' replacement funding for the STAs should be subject to the same rules that apply to current draws from the CHCF-A, namely rates shall be increased to a ceiling as necessary and both the means test and the waterfall provisions should apply.

6. Since the same rules are being applied to the replacement of the settlement payments as for current CHCF-A draws, requests for replacement funding should be incorporated into the advice letter process used for current draws.

7. Decision 00-09-072 granted applicants' request to extend the waterfall at the 100% level for one additional year so the 2001 draws will not be subject to waterfall provisions.

8. Small LEC customers should not be subjected to inferior intraLATA toll service.

9. Small LEC customers should not pay excessive intraLATA toll rates as a result of having only the Small LEC to provide intraLATA toll service as the COLR.

10. If a Small LEC is required, under the terms of this decision, to serve as COLR for intraLATA toll service, the Small LEC should not charge rates higher than Pacific's intraLATA toll rates (ceiling rates for residential intraLATA toll and the maximum rates for business intraLATA toll).

11. The Small LEC which is required to serve as COLR may petition the Commission to increase its intraLATA toll rates in its next GRC.

12. Once an IXC begins to offer service in a Small LEC's territory, the IXC cannot withdraw from service without Commission approval.

13. The Commission should closely scrutinize any requests for IXC withdrawal of intraLATA toll service in the Small LEC territories to ensure that the ongoing interests of Small LEC customers are preserved.

14. Pacific should not be required to serve as the COLR outside of its own service territory.

15. IXCs are not under any legal requirement to participate in the intraLATA equal access process in any part of the state.

16. A Small LEC should be required to provide intraLATA toll service as COLR, if no IXC provides presubscribed service in its service territory.

17. If an IXC provides intraLATA toll service in the Small LEC's service territory, the Small LEC should not be required to continue to provide intraLATA toll service.

18. The Small LEC's IXC affiliate cannot serve as default provider for intraLATA toll service if other IXCs offer intraLATA service in competition with the affiliate.

19. If customers do not respond to notices regarding the need to choose an intraLATA toll carrier, they should be assigned to their interLATA carrier, as long as that carrier is participating in ILP for the Small LEC.

20. If the customer's interLATA carrier is not participating in ILP, those customers which do not make an affirmative choice will be required to utilize 101XXXX dialing for intraLATA calls.

21. Pursuant to Public Utilities Code Section 1708, parties of record were notified that this proceeding could result in modification to our presubscription decision, D. 97-04-083.

22. If parties to proceeding A.99-06-004/A.99-06-009 believe that 30 days is not enough time to perform all the steps ordered in this decision to implement intraLATA presubscription, they should send a letter to the Executive Director requesting an extension of time under Rule 48(b).

23. At the present time, the FCC does not preclude this Commission from establishing an intrastate CCLC rate element.

24. Elimination of the CCLC rate element should encourage IXCs to enter the market and assist in the development of a competitive intraLATA toll market in the Small LECs' service territories.

25. Elimination of the CCLC from the Small LECs' rates means that the anticipated draw from the CHCF-A will be increased by the amount of revenues expected to be received from the CCLC.

26. Changes in intraLATA toll pooling are no longer included among allowable Z-factor adjustments.

27. IntraLATA toll pooling is exempt from either Z-factor or LE-factor treatment.

ORDER

IT IS ORDERED that:

1. The Settlement Transition Agreements (STAs) negotiated between Pacific Bell (Pacific) and each of the 13 Small Local Exchange Carriers shall be approved, with some adjustments, as outlined in this order.

2. Within 15 days of the effective date of this decision, each Small LEC shall supplement its CHCF-A Advice Letter to reflect the results of this decision.

3. The Advice Letter Supplements filed by the Small LECs shall include as a starting point, the amount of the Transition Contract Payment from Pacific in its STA with the Small LEC. That amount shall be adjusted by the net change in billed revenues reflecting the transition from the billed revenue reported to Pacific to the new bill and keep access revenues (excluding the CCLC) and shall show the revenue effect of any customer rate increases.

4. The Telecommunications Division (TD) shall take those advice letter supplements into account in processing the Small LECs' 2001 CHCF-A Advice Letter filings. Those Advice Letters shall be approved by Commission Resolution.

5. Pacific shall be responsible for making its monthly STA payments through the month in which that Resolution is signed, and will have 60 days from the end of that month to complete its payments.

6. The California High Cost Fund - A (CHCF-A) Administrative Committee shall begin making the monthly payments to each Small LEC, based on the Commission Resolution, beginning the month following the month in which the Resolution is approved. The initial month's payment to companies which qualify for CHCF-A funding under their October 1, 2000, advice letter filings shall include the unpaid monthly amounts of such funding due those companies beginning with the month of January 2001, plus interest equal to the 3 month commercial paper rate.

7. The CHCF-A Administrative Committee shall make those payments within 30 days of the close of each calendar month.

8. TD shall recommend the appropriate surcharge rate level for the CHCF-A for calendar year 2001 as part of TD's processing of the Small LECs' 2001 Advice Letter filings. The Commission will set the final surcharge level when it adopts the Resolution approving the CHCF-A Advice Letters.

9. In the event that a Small LEC is required to serve as COLR for intraLATA toll service in its territory, that Small LEC shall charge rates no higher than Pacific's intraLATA toll rates, until further order of the Commission.

10. Any Small LEC that serves as COLR shall continue to offer any toll discount plans in effect as of the date of this decision, until further order of the Commission.

11. If customers have more than one choice for intraLATA toll provider, each Small LEC, with the exception of Sierra Telephone Company, Inc. (Sierra) shall send direct mail notices to customers which include the name and phone numbers of the interexchange carriers (IXCs) which have indicated their intention to provide intraLATA service in the Small LEC's territory.

12. Sierra shall only provide notice to those subscribers who continued to receive intraLATA toll services from Sierra after it implemented ILP.

13. Prior to mailing notices to customers, each Small LEC, with the exception of Sierra, shall provide the assigned Administrative Law Judge and TD Director with a list of the interexchange carriers which have asked to participate in intraLATA presubscription in the Small LEC's service territory.

14. The Small LECs, other than Sierra, shall implement intraLATA presubscription on the following schedule. The start date shall be the date this decision is approved by the Commission:

15. Because Sierra Telephone Company, Inc. (Sierra) has already implemented ILP, Sierra shall transition its existing intraLATA toll subscribers on the following schedule without assessing a charge for the change in presubscribed carrier for intraLATA toll. The procedural requirements of D. 97-04-083 do not apply to this transition process because Sierra has already implemented ILP. The start date shall be the date this decision is approved by the Commission:

16. The Ordering Paragraphs in Decision 97-04-083 shall be modified for the 12 Small LEC parties to this proceeding which have not yet implemented intraLATA presubscription, to reflect the following changes which result from this decision:

a. OP 3: The "full 2-PIC methodology" which permits a customer to presubscribe to different carriers for interLATA and intraLATA service will be modified to eliminate the requirement that the customer's LEC be one of the options for intraLATA service, unless the Small LEC serves as COLR.

b. OP 5: The Small LEC will not be required to provide intraLATA service as long at least one IXC offers presubscribed service. Therefore, the requirement is eliminated that existing customers who do not elect to change their intraLATA toll provide shall continue to receive intraLATA toll service from their LEC.

c. OP 8: The notification timeframes are modified. The requirement that all proposed customer notices be submitted to the Telecommunications Division for review is retained.

d. OP 13(a): The neutral business office procedures do not apply to the extent that the LEC itself will not be offering intraLATA toll service if at least one IXC is willing to offer the service.

e. OP 14: The review of scripts is only required if one of the options for intraLATA toll service is service provided by an affiliate of the LEC.

f. OP 17: Small LECs will be required to use direct mail to notify customers as to their options for intraLATA toll service.

17. The Small LECs shall implement the switched access rate structure in the Amendment to the Joint Application, with the exception of the CCLC rate element, which shall be eliminated from the switched access tariff.

18. Within 15 days of the effective date of this decision, the Small LECs shall file Advice Letters with the switched access rates adopted in this decision. Those compliance filings will not be subject to protest and shall become effective on the first day of the month in which the monthly payments specified in Ordering Paragraph 6 commence.

19. ORA's June 16, 2000, motion to correct the hearing transcript is hereby granted.

This order is effective today.

Dated February 8, 2001, at San Francisco, California.

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