2. Background

In D.04-03-038, we approved a shared asset methodology for computing payment to Verizon for use of its office space and equipment by three service company affiliates, Service Corp., Consolidated Services Incorporated (CSI), and Verizon Data Services, Inc. (VDSI), which provide administrative services for Verizon and other Verizon Communications businesses. Employees of these service company affiliates work in Verizon facilities and use office space and equipment that are not being utilized by Verizon.

We noted that our affiliate transaction pricing rules require Verizon to charge these three service company affiliates the higher of fully allocated cost (FAC) or fair market value (FMV) for their shared use of Verizon's general support assets. Under the approved shared asset methodology, Verizon determines this charge by estimating the total number of square feet that the three service company affiliates occupy in Verizon's buildings and then multiplying that amount by the highest of (1) the average FAC for all of the shared buildings, (2) the FAC for the building with the majority of the service company employees, or (3) the FMV of the building with the majority of the service company affiliate employees (i.e., generally the headquarters building at which the highest percentage of shared employees are located). Verizon estimates the square footage allocation in the aggregate based on a percentage head count of total Verizon employees versus service company affiliate employees co-located in Verizon's buildings.

In D.04-03-038, we stated that Verizon need not apply for our approval for the future use of its office space and equipment by Service Corp., CSI, and VDSI under Section 851, so long as the terms of these transactions meet the criteria of GO 69-C.

However, as a safeguard, we required Verizon to submit a year-end assessment and adjustment of shared assets for Service Corp., CSI and VDSI to TD and CPSD annually, so that Commission staff may determine whether the encumbrances on Verizon property to which the shared asset methodology is applied are limited to the use of surplus office space and equipment and otherwise meet the criteria of GO 69-C.