II. Background
This section reviews prior Commission rate regulation decisions. It then reviews parties' comments at workshops and hearings, and describes procedural decisions made in the URF proceeding.
A. History of the New Regulatory Framework
During the 1980s, the Commission recognized the need for California's telecommunications regulations to respond to significant changes in the telecommunications marketplace. Technological innovations and federal regulatory developments had spurred nascent competition in voice markets, and monopoly-style rules no longer seemed appropriate for certain services. Consequently, the Commission issued an Order Instituting Investigation (OII) to address pricing flexibility for services subject to competition; examine alternative approaches to ratemaking for basic service rates; and evaluate lifting the ban on intraLATA competition for message toll service and related services.8 The Commission subsequently adopted NRF for SBC California, now known as AT&T,9 and Verizon in Decision (D.) 89-10-031. Several years later, the Commission applied NRF to mid-sized ILECs.10 These mid-sized ILECs include Frontier11 and SureWest.12
The new incentive-based regulatory framework proved superior to the traditional rate-of-return (ROR) method of setting rates for the ILECs. The traditional ROR regulatory structure based rates on an ILEC's forecasted costs. An ILEC's past costs were used to predict these forecasted costs, so if an ILEC became more efficient and decreased its costs, the Commission would respond by decreasing the rates the ILEC could charge. ILECs, thus, had little incentive to decrease their long-run costs. In contrast, NRF created a profit-driven incentive for the ILECs to manage their operations in the most efficient manner possible. Resulting cost savings benefited both ratepayers and shareholders. NRF also supported rate stability and eliminated ongoing requirements imposed by traditional rate cases.
The centerpiece of NRF was the price-cap index that annually adjusted rates for individual services based on the following formula:
New Rate = Old Rate x (Inflation - Productivity +/- Z-Factors)
Inflation was measured by the gross national product price index (GNP-PI), and productivity was initially set at 4.5%. Z-Factors were other rate adjustments approved by the Commission.13
NRF included an earnings-sharing mechanism structured around a benchmark ROR of 13.00% and a ceiling ROR of 16.50%. SBC California kept 100% of its earnings up to the benchmark ROR, shared 50% of its earnings with ratepayers between the benchmark and ceiling RORs, and refunded to ratepayers 100% of its earnings above the ceiling ROR. Any refund of shareable earnings was to be implemented by reducing customers' rates through a surcredit.
Services were organized into three categories. Basic monopoly services were classified as Category I services.14 Discretionary or partially competitive services were classified as Category II services.15 Fully competitive services were classified as Category III services.16 The price for a Category I service was fixed, except for an annual adjustment equal to the price-cap index. The price for a Category II service could vary within a price floor and price ceiling. The price floor was increased annually by inflation, and the price ceiling was revised annually by the price-cap index. Prices for Category III services were provided with more flexibility.
D.89-10-031 also established a triennial review cycle for NRF. The first triennial review resulted in several significant changes to NRF. In D.93-09-038, the Commission permitted Verizon to keep all of its earnings up to the ceiling ROR, reduced Verizon's rates by $53 million, and increased the productivity factor in Verizon's price-cap index. In D.94-06-011, the Commission increased the productivity factor in SBC California's price-cap index; replaced GNP-PI in SBC California's price-cap index with the gross domestic product price index; reduced SBC California's benchmark ROR and ceiling ROR to 11.5% and 15%, respectively; and allowed SBC California to retain 70% of its earnings above the ceiling ROR, with the remaining 30% refunded to ratepayers.
In the second triennial review of NRF, the Commission, in D.95-12-052, set the productivity factor equal to the inflation factor. This decision effectively suspended the price-cap index except for Z-Factor adjustments. At the same time, the Commission capped the prices of both SBC California's and Verizon's Category I and II services at their existing rates. Both the suspension of the formula and the price caps remained in place, and were listed as items that would be reevaluated in the next triennial review.17
In the third triennial review, the Commission, in D.98-10-026, suspended the earnings-sharing mechanism, continued the suspension of the price-cap index, phased out existing and new Z-Factor adjustments, and replaced Z-Factor adjustments with a streamlined advice letter process for a limited set of exogenous costs and revenues.18 In that decision, the Commission also placed rate caps on residential services.19
The fourth triennial review was a multi-phased proceeding. D.02-10-020 concluded Phase I of the review, and addressed 144 factual issues that emerged from the Division of Ratepayer Advocates' (DRA)20 audit of Verizon's NRF monitoring reports and accounting procedures. The issues examined in Phase I included the following: whether Verizon and its affiliates were abiding by the Commission's rules for affiliate transactions; whether they had properly tracked and allocated costs for non-regulated activities; and whether the existing non-structural safeguards offered adequate protections. The parties settled most of the issues raised in the audit report.
The settlement required Verizon to implement new procedures to ensure proper regulatory accounting for affiliate transactions and unregulated activities, and to submit restated financial reports reflecting many of the financial adjustments identified by DRA. The parties, however, could not agree on the ratemaking treatment for DRA's suggested financial adjustments. Ultimately, the Commission declined to adopt certain rate reductions, and rejected the proposal to revise the affiliate transaction rules. Instead, in D.02-10-020, the Commission directed DRA to conduct another audit of Verizon and authorized it to hire certified public accountants and technical experts to perform the audit.
In D.04-02-063, Phase 2A of the fourth triennial review, the Commission addressed four of the seventy-two findings that came out of a SBC California audit conducted by the Commission's Telecommunications Division (TD). These four issues pertained to (1) pensions; (2) post-retirement benefits other than pensions (PBOPs); (3) write down of plant assets; and (4) income taxes. The Commission held that SBC California properly reported its expenses for pensions, depreciation, and the write-off of its PBOP regulatory asset, but misstated expenses reported for certain other PBOP costs and income taxes by $119.1 million. The Commission also determined that SBC California improperly withdrew $180 million from one of its PBOP trust funds in 1999 and ordered SBC California to return the money, with interest, to the trust fund.21
In D.04-09-061, Phase 2B of the review, the Commission examined the remaining sixty-eight findings. It held that a number of audit determinations were justified, and that SBC California overreported expenses in some instances. While there were findings of accounting errors and misinterpretations of Commission policy, the Commission did not find SBC California liable for any fraudulent action. The Commission decision required SBC California to remedy the company's earnings reporting for 1999; the changes ordered, however, did not result in ratepayer sharing for that year.22 Finally, as required, SBC California prepared schedules that identified each of the detected errors and demonstrated that it had corrected or would properly correct the earnings reporting, consistent with Generally Accepted Accounting Principles.23 Thus, despite years of litigation and controversy, the contentious audit produced no changes that affected rates in any year covered by the review.
On October 15, 2004, the Assigned Commissioner24 of the fourth triennial review set forth the scope of Phases 3A and 3B. The scoping ruling provided parties with the opportunity to submit comments regarding whether and how the issues of Phases 3A and 3B should be revised in light of technological, regulatory, and market changes that have occurred since the phases were initially established. A number of parties submitted comments. The initiation and progress of this proceeding (Rulemaking 05-04-005) have enabled us to close these final phases, which otherwise would have been anachronisms.
The triennial review history for the mid-sized ILECs is far shorter than that of AT&T and Verizon. In Frontier's first triennial review, the Commission, in D.99-04-003, assessed the company's service quality experience both in general and in reference to the Service Quality Assurance Mechanism (SQAM)25 and Improvements. Frontier's second triennial review included a settlement agreement that the Commission approved in D.00-03-040, which modified reporting requirements, eliminated SQAM and depreciation filings, and continued the suspension of the price-cap index. The Commission approved SureWest's first triennial review in D.01-06-077, and adopted a revised settlement in D.04-11-032, which modified the framework until 2010. For both companies, the structure of the regulatory framework was generally aligned with that in place for SBC California and Verizon at that time.
B. Order Instituting Rulemaking for a Uniform Regulatory Framework
On April 14, 2005, the Commission instituted this rulemaking to assess and revise the rate regulation of large and mid-sized ILECs in California.26 The primary purpose of the proceeding was to develop a uniform regulatory framework, to the extent that such a framework would be feasible and in the public interest. The Order Instituting Rulemaking (OIR) listed, described, and appended, along with the elements of a hypothetical Uniform Regulatory Framework, specific issues to be considered within the proceeding.27
C. Filings of the Parties
Parties to the proceeding filed comments pursuant to the OIR in 2005. On May 31 of last year, sixteen parties filed opening comments in the rulemaking:28 The two largest ILECs filed newly proposed "frameworks;" DRA and The Utility Reform Network (TURN) assessed and proposed specific changes to the existing framework; and Frontier and SureWest proposed frameworks similar to the one set forth in the OIR's Appendix A, Issue 10. The other parties' comments offered more limited evaluations and suggestions. On September 2, 2005, twelve parties filed reply comments.29
Parties filed briefs on the proceeding in 2006. On March 6, 2006, thirteen parties submitted opening briefs on topics addressed in this phase of the proceeding, including the issue of the level of competition.30 The level of competition was further examined during an evidentiary hearing lasting four days, from January 30 to February 2, 2006. On March 24, 2006, eleven parties filed reply briefs.31
D. Workshops
Two workshops were held during the URF proceeding. This section describes the parties' participation and how the Commission responded to various issues raised in the workshops.
On June 3, 2005, a one-day session addressed pending requests for changes in the schedule; parties' participation in the planned June 27, 2005 en banc informational hearing and parties' questions and concerns about the structure of the OIR. Some parties asked whether a more definite scoping memo would be issued, because it would help them better determine how they should advocate for evidentiary hearings.32 Several parties also urged the Commission to adjust the schedule in consideration of pending merger proceedings for the two largest California ILECs, or at the least, extend the deadline for reply comments in this proceeding.33
Issues regarding the proceeding schedule and need for evidentiary hearings sparked significant debate among proceeding participants. On the one hand, the ILECs argued that it was important to keep the proceeding schedule on track. They stated there was an urgent need for regulatory reform, that reform would bring benefits to consumers, and that parties already had ample time to consider issues raised in the OIR 34 On the other hand, DisabRA, DRA, and TURN35 urged the Commission to include public participation hearings in the ultimate procedural schedule. They noted that "in the original NRF proceeding there were 13 public participation hearings held throughout the state."36 TURN also called for convening of further technical workshops, where parties could discuss and work through the details of various proposed frameworks.37
The preliminary layout for the en banc hearing was outlined at the conclusion of the workshop. Some parties indicated that they would prefer not to participate actively in the en banc hearing,38 so the Commission invited academic experts and non-parties to participate in the hearing instead.
Subsequent to the first workshop, the Assigned Commissioner and the Administrative Law Judge issued a memo that resolved scoping ambiguities identified in the workshop.39 This scoping memo led to the withdrawal of parties whose interests were beyond the scope of this phase of the URF proceeding.40
During the second workshop, from September 20-22, 2005, the parties that submitted URF framework proposals gave presentations on their proposals, and then answered any questions elicited by either their written comments or their oral presentation. Parties also were encouraged to meet informally and identify the issues on which they agreed and disagreed.
Delivering the initial presentation, DRA argued that AT&T, Frontier, SureWest, and Verizon should continue to be subject to price caps set at the existing statewide average prices.41 DRA stated that it was "not convinced that there is enough competition out there to ensure that every California consumer has safe, reliable, affordable primary line service to their home."42 DRA, TD, California Cable and Telecommunications Association (CCTA), SureWest, TURN, DisabRA, AT&T, Cox California Telecom (Cox), Frontier, and Time Warner Telecommunication of California (Time Warner) questioned DRA on its presentation and its comments.43
In the second presentation, Cox stated that it agreed with a number of elements in the ILECs' proposals. These elements included the following: (i) the elimination of earnings sharing; (ii) the streamlining of the reports process, and how there should be equalization of reporting burdens; (iii) less review of sensitive, proprietary data; and (iv) standardization of notice requirements with CLECs.44 Cox added that differences between its position and that of other parties "aren't necessarily as wide as we might think they are."45 According to Cox, differences with the ILECs included the need for price floors, restrictions on promotions for basic service, and time limits on certain promotions. TD, DRA, TURN, SureWest, and AT&T asked questions after the presentation.46
AT&T, delivering the third presentation, set forth fifteen elements of its URF proposal. These elements included (i) the elimination of earnings regulation; (ii) full pricing flexibility for residential and business services, with an exception for primary-line basic residential service; (iii) a one-day advice letter process; and iv) no restrictions on promotions.47 Like Cox, it observed that "there are many items in which there is at least substantial agreement. . . ."48 TD, DRA, Cox, CCTA, and TURN asked questions during the AT&T presentation.49
On September 21, 2005, Verizon gave the fourth presentation in the workshop, and reviewed areas of agreement and disagreement in parties' proposals. It emphasized that that there were many areas of agreement in AT&T's, DRA's, and Verizon's proposals.50 Yet Verizon noted four areas of significant disagreement: (1) "the `basic' residential services that are subject to a cap for some amount of time"; (2) the definition of basic business services that will be subject to the cap; (3) the length of the caps; and (4) revenue neutrality.51
Dr. Deborah Aron, Verizon's economic expert, described and explained the reasoning behind Verizon's disagreements with other parties. She stated that the "rate structures in place today are the legacy of a long history of regulation" and are "not benign."52 Aron maintained that the rate caps unduly restrained ILECs' ability to price their services in a manner consistent with the "very substantial inter- and intramodal competition in the marketplace today."53 DisabRA, TURN, DRA, Cox, CCTA, AT&T, and Time Warner asked questions after Verizon's presentation.54
Delivering the next presentation, MCI, Inc. (MCI) summarized its framework proposal as "driven by and towards technology-neutral regulation."55 Their proposal included, among other items, (i) the elimination of the entry certification process and replacement with a registration process; (ii) reform of merger and acquisition requirements; (iii) elimination of the retail tariff process; (iv) elimination of monitoring and reporting requirements, (v) elimination of service quality standards and rules unnecessary for consumer protection or public health and safety; and (vi) maintaining the Commission's existing role with regards to wholesale regulation.56
DisabRA followed MCI and submitted comments it had compiled from members of the disabled community. Hoping to sensitize the Commission and parties to their concerns, DisabRA stated that "no matter what framework is in place . . , the Commission needs to make sure that people with disabilities continue to have access to affordable, accessible and high quality . . . products and services that most people would think of as . . . something other than basic services but that are certainly necessities to people with disabilities."57 DisabRA further maintained that "having incentives for making a product more accessible would be a really good way" to encourage development of products that are more usable by all consumers.58 TD, DRA, and AT&T asked questions and discussed aspects of DisabRA's presentation.59
TURN focused its presentation on market power, which it asserted was the "the crux" of this proceeding."60 TURN stated that its proposal was based upon its determination of "where market forces were operative, and where they were not."61 This proposal included the following: (i) continued regulation of basic exchange services for residences and businesses; (ii) some pricing flexibility for other services; (iii) continued monitoring of subscription rates, price changes, service quality, and competition status; and (iv) retaining certain elements of earnings sharing.62 TURN reiterated its call for public hearings. 63 Noting that Frontier and SureWest faced no facilities-based competition, TURN further maintained that the Commission should apply the new regulatory framework solely to AT&T and Verizon. TURN, with respect to AT&T and Verizon, conceded that "there is at least some evidence that market forces have advanced from the pure monopoly level."64 CCTA, Verizon, AT&T, SureWest, Frontier, DRA, and DisabRA commented and asked questions about statements made in TURN's presentation.65
In making its workshop presentation, SureWest described its plan as "very similar to what [AT&T] has presented. Some parts of that are also [similar to] what Verizon submitted."66 SureWest, however, focused on the differences between its proposal and AT&T's in order to clarify its position. SureWest questioned the need for filing contracts with the Commission. SureWest's proposal also included the elimination, or application to all providers, of audit requirements; and the elimination of NRF monitoring reports and processes.67 After the presentation, Cox and CALTEL commented that they too supported the elimination of contract filing.68
Frontier, which followed SureWest, focused on five areas of its URF proposal: (i) the basic service definition; (ii) a two-year phase-in period; (iii) movement toward a regime where services are detariffed; (iv) rate rebalancing; and (v) deaveraging that would be appropriate under a uniform regulatory framework. Frontier noted that apart from encouraging the Commission to move more toward detariffing services, the other areas emphasized were similar to those set forth in AT&T's and Verizon's plans.69 CALTEL asked a question after Frontier's presentation.70
The Greenlining Institute (Greenlining) followed Frontier with a brief statement, informing parties that it would be actively participating in the proceeding and that it would primarily focus on "closing the Digital Divide, and developing a strategy designed to ensure . . . affordable and accessible quality services for low-income and minority communities."71 Greenlining added that it strongly supported holding evidentiary hearings.72
The Department of Defense/Federal Executive Agencies (DOD/FEA) made the final presentation of the workshop. Their expert, Harry Gildae, described their plan as similar to DRA's "in many ways."73 Specifically, DOD/FEA proposed that "the Commission continue to maintain pricing surveillance for basic residence and business services, with pricing flexibility for all other services."74 The principal difference Gildae pointed out between DOD/FEA's proposal and DRA's is that DOD/FEA recommends a revenue cap in place of a price cap for the aggregate of the basic residence and business services.75
While it did not submit a plan, Time Warner also made a brief statement at the workshop. Its proposal included maintaining price floors for business service.76 Time Warner also indicated that it was interested in following the debate on intermodal competition.77 TimeWarner expressed concern that the debate on intermodal competition was not focused enough on the business market, which it characterized as "a fiber cable market into the office space where people still want wireline systems of some sort."78 TimeWarner added that this market was less competitive and warranted more regulatory consideration.79
On the third and final day of the workshop, the parties discussed areas of agreement and disagreement within and outside of their various proposals. Procedural issues were the subject of much of these discussions. Cox reiterated its support for evidentiary hearings, 80 while AT&T and Verizon continued to argue that evidentiary hearings were unnecessary.81 Parties also discussed engaging in informal discussions in the future. DRA recommended the parties get together and begin "at least partial settlement negotiations" to see if they could develop a consensus and pare down the list of areas where there remains disagreement.82 Most parties said they were uncomfortable with characterizing the upcoming discussion as "settlement negotiations;" instead they agreed that they would work together to develop "a conglomeration of everybody's different proposals into a series of either agreements on subjects, or disagreements on subjects."83
After the workshop, parties met for regular sessions for a period of time in order to generate a document that would accurately reflect the URF proposal agreements and disagreements. DRA then submitted a matrix entitled Comparison of URF Proposals on October 13, 2005. All parties to this proceeding endorsed the matrix.
E. En Banc Informational Hearing
On June 27, 2005, the Commission convened a daylong informational hearing to help it determine what changes are needed in California's telecommunications regulation.84 The hearing was designed to perform two primary functions: (i) to provide the Commission with a conceptual framework for thinking about issues central to regulatory reform , and (ii) to show the Commission how California businesses, workers, and consumers are affected by the state's telecommunications industry.
The Assigned Commissioner presided over two sessions of several panels comprised of industry, financial, and regulatory experts; academics; consumer representatives; and special interest groups. The morning session's topic, "The Impact of Regulation and Regulatory Reform on Regulated Enterprises and Telecommunications Companies," described the contours of the national regulatory framework and status and expected developments of telecommunications industry.
The first two speakers, Dr. John M. De Figueiredo85 and Dr. Tom Hazlett,86 gave economic and historical accounts of how different regulatory frameworks have affected various U.S. industries. They both concluded that the main drivers of reform were technological advances and economic development, and a regulatory framework should be designed to encourage such advances and development. DeFigueiredo emphasized that successful deregulatory reform required proper timing; knowledge about marketplace activity and competition; and speedy implementation of deregulatory activity. Hazlett commented that for deregulated activity to be successful, facilities-based investment was necessary for long-term consumer welfare and meaningful competition.
Dr. Yale Braunstein,87 the third speaker, advised the Commission that regulators should develop and enforce rules so that consumers, both residential and business, understand what they are buying and how much they will have to pay.88 He also recommended that policymakers recognize that the telecommunications and information needs of the public are changing and that broadband is becoming a necessity.89
Dr. Ed Rosenberg,90 the fourth speaker, reviewed current state telecommunications deregulatory initiatives.91 Looking at approximately twenty-one states, Rosenberg found that the scope of deregulation varied from state to state,92 but overall there was a general national trend toward "less regulation of services that are potentially competitive, and in markets where there's more competition, more price flexibility for the companies, more ability to offer bundles and packages."93 He added that none of these reforms had been in effect long enough to gauge their effectiveness, either positively or negatively.
The Commission's Telecommunications Division Director Jack Leutza closed the first session with a summary of telecommunications regulation in California. He also described the challenges of responding to changes in the voice communications marketplace, while maintaining a commitment to the mission of protection, access, quality service, and reasonable cost for the consumer.
In the afternoon, Commissioners heard from three panels. Members of these panels were asked to address the following two questions:
1. How do California's telecommunications regulations affect your constituency?
2. Where should California go from here in regulation to advance the public interest?94
Panelists in the afternoon included representatives from consumer groups and information technology companies.
The members of the first panel - comprised of representatives from several consumer groups,95 the disabled community,96 and the minority small-business community97 - called for targeted regulation. They urged the Commission to maintain its oversight role and focus on consumer protection. In particular, the first panelists recommended that the Commission sponsor telecommunications consumer education programs;98 continue price regulation of basic services;99 and safeguard accessibility rights of disabled persons.100
The second panel was comprised of California business technology experts101 who discussed how regulatory policies impact investment in telecommunications infrastructure. According to the panelists, the deregulated federal framework for Internet Protocol (IP) services reflects the difference between today's competitive communications environment and the prior communications environment, where voice service was limited to the Public Switched Telephone Network (PSTN) and regulations strictly controlled consumer choices.102 While acknowledging that issues like 911 and Universal Service require special consideration, the experts advocated a deregulatory approach.103 Some encouraged the streamlining of certain rights-of-way decisions,104 and, with respect to Internet-based services, that the Commission "continue [its] policies of regulatory restraint under the auspices of a uniform federal policy."105
Richard Siderman, Standard and Poor's Managing Director of Corporate and Government Ratings, was the sole speaker on the final panel of the day. He presented an overview of significant financial trends in the telecommunications industry and a financial community perspective on the effects of regulation. In the past, with ROR regulation, Siderman said telephone companies "traded limits on profits for safety."106 The ratings firms considered such companies a solid investment.107 But recognizing the change in regulation in 2000, Standard and Poor's implemented a new rating policy, which no longer accepts "regulatory separation."108 Now Standard and Poor's considers regulated telephone companies to be a riskier investment, no longer protected by the regulators. Finally, Siderman's assessment of credit prospects for telephone companies was generally negative.109 He explained that telephone companies are losing customers to wireless and cable companies, appear to be facing more pressure on prices and margins, and are confronting new competition from VoIP providers.110 In these uncertain times, Siderman concluded that investors will seek clarity and predictability from a state regulatory framework.111
F. Hearings
On December 16, 2005, the Commission President, the Assigned Commissioner, and ALJ issued a joint ruling setting three days of evidentiary hearings (EHs) for the end of January 2006. The purpose of the EHs was to allow the parties an opportunity to go beyond their workshop discussion regarding the existing level of competition in the statewide voice communications market. Although no party identified a material factual dispute pertaining to the data underlying parties' competition analyses, a review of the framework proposals, comments, and workshop transcripts revealed that there were clear differences of interpretation of such data.
EHs took place from January 30 through February 2, 2006.112 AT&T, Verizon, SureWest, Frontier, DRA, TURN, and DOD/FEA presented witnesses for cross-examination, and most of the active parties in the proceeding participated in the EHs.113 The new Assigned Commissioner was in attendance for a majority of the EHs.114
On the last day of the EHs, the Assigned Commissioner gave each party the opportunity to present a five-minute oral presentation summarizing the party's framework proposal and/or position in the URF proceeding. Eleven parties delivered summary presentations.115
8 Re Alternative Regulatory Frameworks for Local Exchange Carriers, D.89-10-031, 33 CPUC 2d 43, 61 (1989).
9 AT&T was known as Pacific Bell Telephone Company and SBC California in prior phases of this proceeding, and any company filing will be referenced in accordance with the company's name as it is listed on the title page of the filing. In the text of this decision, however, we will refer to the company only by the name it presently does business as (AT&T) when describing positions it has taken.
10 Eighteen wireline carriers, however, still are subject to traditional rate-of-return regulation. These carriers are smaller than most, and principally serve rural areas. Specifically, they include the following: Calaveras Telephone Company, California-Oregon Telephone Company, Century Telephone of Oregon, Citizens Telecommunications Company of the Golden State, Citizens Telecommunications Company of Tuolumne, Ducor Telephone Company, Foresthill Telephone Company, Global Valley Networks, Inc., Happy Valley Telephone Company, Hornitos Telephone Company, Kerman Telephone Company, Pinnacles Telephone Company, The Ponderosa Telephone Company, Sierra Telephone Company, Siskiyou Telephone Company, Verizon West Coast Incorporated, The Volcano Telephone Company, and Winterhaven Telephone Company.
11 While its filings are submitted under the name Citizens Telecommunications Company of California, this company does business as Frontier. Any company filing will be referenced in accordance with the company's name as it is listed on the title page of the filing (Citizens). In the text of this decision, however, we will refer to the company only by the name it presently does business as (Frontier) when describing positions it has taken.
12 The Commission authorized the NRF for Frontier and SureWest in Re Citizens Utilities Company of California, D.95-11-024, 62 CPUC 2d 244 (1995), and Re Roseville Telephone Company, D.96-12-074, 70 CPUC 2d 88 (1996), respectively.
13 Id. at 162. Z-Factors are a limited category of costs beyond the control of utility management; exogenous factors, whose effects were not reflected in the GNP-PI. Only specific types of costs were considered, such as, changes in federal and state tax laws to the extent they disproportionately affected ILECs more than other industries. Other examples included jurisdictional separations changes mandated by the FCC; changes to intraLATA toll pooling arrangements; and accounting procedures adopted by this Commission. This Commission, however, did not authorize Z-Factor treatment for all unforeseen or exogenous factors. We stated that normal costs of doing business (including costs of complying with existing regulatory requirements) or general economic conditions would not qualify as Z-Factor items. Id. at 60.
14 Including switched access services. Rates are changed only with Commission approval.
15 I.e., custom calling, vertical features.
16 Examples include enhanced services and inside wiring.
17 Re Incentive-Based Regulatory Framework for Local Exchange Carriers, D.95-12-052, 63 CPUC 2d 377, 381 (1995).
18 The reporting of earnings continued; annual depreciation reviews, however, were permanently eliminated.
19 Re Third Triennial Review of the Regulatory Framework Adopted for GTE California Inc. and Pacific Bell, D.98-10-026, 82 CPUC 2d 335, 376-377 (1998).
20 DRA previously was known as the Office of Ratepayer Advocates, and any filing will be referenced in accordance with the entity's name as it is listed on the title page of the filing. In the text of this decision, however, we will refer to the organization only by its present-day name (DRA) when describing positions it has taken in this proceeding.
21 Interim Opinion Regarding Selected Issues Related to the Audit of SBC Pacific Bell Telephone Company, D.04-02-063, 2004 Cal. PUC LEXIS 55 at 65 (2004).
22 Interim Opinion Regarding Phase 2B Audit Issues, D.04-09-061, 2004 Cal. PUC LEXIS 477 at 127 (2004).
23 Id. at 165.
24 The Assigned Commissioner at that time was Commissioner Susan P. Kennedy.
25 SQAM is a program evaluating service quality.
26 See footnote 10 for a list of small ILECs excluded from this review.
27 See OIR 05-04-005.
28 DRA, The Utility Reform Network (TURN), SBC California, Verizon California, SureWest Telephone, Frontier, Cox California Telcom, LLC DBA Cox Communications; Department of Defense and all other Federal Agencies (collectively, DOD), Disability Rights Advocates (DisabRA), XO Communications (XO); Nextel of California (Nextel), California Cable and Telecommunications Association (CCTA); Pac-West Telecom and Level 3 Communications; MCI, Inc. and California Small Business Roundtable and California Small Business Association (collectively, CSBRT/CSBA).
29 DRA; TURN; SBC California; Verizon California; SureWest Telephone; Frontier; CCTA; DOD; Time Warner Telecom of California, LP (Time Warner); Cox Communications; The Greenlining Institute (8/12/05) (Greenlining); DisabRA; and MCI.
30 These parties included the following: DRA; TURN; SBC California; Verizon California; SureWest Telephone; Frontier; Cox Communications; CCTA; DOD; Time Warner; Greenlining; CPA; and DisabRA.
31 Neither CCTA nor California Payphone Association filed reply briefs.
32 Nextel, WS-1 Tr. at 6; CCTA, id.. at 12; Time Warner, id. at 14; CALTEL,id. at 30.
33 Pac-West and Level 3, id. at 16; Cox Communications, id. at 18-21; DisabRA, id. at 23; DRA, id. at 25-27, 35-36; TURN, id. at 29-30, 34; CALTEL, id. at 31; XO, id. at 32-33, and DOD, id. at 33.
34 SBC California, id. at 9-10; SureWest and Frontier, id. at 15; Verizon California, WS-1, id. at 21-23.
35 DisabRA, id. at 24; DRA, id. at 26, 28-29; TURN, id. at 30.
36 Id. at 30.
37 Id. at 30.
38 Id. at 50.
39 Scoping Memo (issued Aug. 4, 2005).
40 Nextel of California, XO Communication, California Association of Competitive Telecommunications Companies (CALTEL), PacWest, and Level 3 filed opening comments, but none filed reply comments (or briefs). Nextel formally withdrew from Phase 1 of the case on August 12, 2005. Level 3 filed a notice of withdrawal from Phase 1 on August 25, 2005. While they were not active in the remainder of Phase 1, no other party listed above formally withdrew from Phase 1 or the proceeding.
41 WS-2 Tr. at 55.
42 Id. at 55.
43 Id. at 62, 64-70, 71, 72-78, 86, 91, 93, 79-80, 82, 84-85, 89-91, 93-99, 105-106, 106-111, and 112-114.
44 Id. at 120-121.
45 Id. at 116-117.
46 Id. 125, 126-127, 128, 129-132, and 134.
47 Id. at 140-147.
48 Id. at 147.
49 Id. at 148-154, 156-161, and 163-166.
50 WS-3 Tr. at 173.
51 Id. at 175-180.
52 Id. at 182.
53 Id.
54 Id. at 183-185, 185-186, 187-193, 194, 195-199, 200, 203-204, 207, 209, 210, 211-213, 214-216.
55 Id. at 227.
56 Id. at 228-230.
57 Id. at 240.
58 Id.
59 Id. at 250-251, 255-257, 258-259.
60 Id.
61 Id. at 265.
62 Id. at 262-265, 282-284, 284-285.
63 Id. at 263-264, 264-265.
64 Id. at 271.
65 Id. at 285-287, 288-289, 289-290, 291-292, 293, 299-301, 302, 304, 306-309.
66 Id. at 310-311.
67 Id. at 311-314.
68 Id. at 318.
69 Id. at 314-317.
70 Id. at 319.
71 Id. at 321.
72 Id.
73 Id. at 323.
74 Id.
75 Id.
76 Id. at 331.
77 Id. at 328.
78 Id.
79 Id.
80 WS-4 Tr. at 338-346.
81 Id. at 348-350, 353-354.
82 Id. at 362.
83 Id. at 370.
84 President Michael Peevey was attending merger hearings in Southern California, and was necessarily absent. Commissioners John Bohn, Geoffrey Brown, Dian Grueneich, and Susan P. Kennedy were in attendance.
85 Research Fellow in Law and Public Policy at the Woodrow Wilson School, Princeton University.
86 Adjunct Professor of Business and Public Policy at the Wharton School and Senior Fellow at the Manhattan Institute of Policy Research, University of Pennsylvania.
87 Professor, School of Information Management and Systems, University of California at Berkeley (En Banc Tr. at 57-67).
88 Id. at 66.
89 Id. at 66-67.
90 Senior Economist at the National Regulatory Research Institute, Ohio State University.
91 Id. at 81-90.
92 In what was covered or left under regulatory control.
93 Id. at 167.
94 Id. at 100.
95 Robert Gnaizda, General Counsel and Policy Director of Greenlining Institute; Jim Conran, President of Consumer First; Ken McEldowney, Executive Director, Consumer Action. Id. at 108-110.
96 Deborah Kaplan, Former Executive Director of World Institute on Disabilities and a private consultant.
97 Aubry Stone, President and CEO of the California Black Chamber of Commerce. Id. at 114-117.
98 Id. at 122.
99 Id. at 121.
100 Id. at 136.
101 The panelists were as follows: Rodney Vidal, Vice President, Level 3 Communications Group (Id. at 140-164); James Hawley, General Counsel and Director, TechNet Outreach (Id. at 164-171); Jeffrey Campbell, Director of Technology and Communication Policy, Cisco (Id. at 172-180).
102 Id. at 141-145.
103 Id. at 170, 179, 180.
104 Id. at 169-170.
105 Id. at 169.
106 Id. at 196.
107 Id.
108 Id. at 197.
109 Id. at 199.
110 Id. at 199.
111 Id. at 203.
112 An additional day was added during the hearings.
113 The participants included AT&T, Verizon, SureWest, Frontier, DRA, TURN, DisabRA, and DOD/FEA.
114 On January 1, 2006, Commissioner Kennedy resigned from the Commission. Commissioner Rachelle Chong replaced Commissioner Kennedy as Assigned Commissioner to the URF proceeding on January 19, 2006.
115 The parties that delivered presentations were, in order, AT&T, Verizon, SureWest, Frontier, DRA, TURN, DOD/FEA, Greenlining, Cox, CCTA, and Time Warner Telecom.
