4. Discussion
In D.04-03-038 we limited our approval of the shared asset methodology to Verizon's sharing of office space and equipment with three specific service affiliates, Service Corp, CSI and VDSI. D.04-03-038 specifically requires Verizon to file separate applications under Section 851 if Verizon wishes to obtain similar authority for other activities or other organizations within its corporate structure.2 3
The purpose of Commission review under Section 851 in this context is to ensure that these transactions involving the shared use of utility assets with affiliate service companies are in the public interest.4
In reviewing applications for approval of transactions pursuant to Section 851, the Commission applies well-established standards to determine the following issues:
a. Whether the transaction would impair the utility's ability to provide service to the public;
b. Whether the transaction is accounted for properly, including ensuring that revenue is correctly accounted for, and that the utility's rate base, depreciation, and other accounts correctly reflect the transaction; and
c. Where the transaction is between a utility and an affiliate, whether the transaction has any anti-competitive effects or results in cross-subsidization of the non-regulated enterprise.5
In D.04-03-038, we found that Verizon's application of the shared asset methodology to transactions which involved the utilization of unused Verizon office space and equipment by Service Corp., CSI, and VDSI were in the public interest, pursuant to Section 851. We reasoned that these types of transactions would not impair Verizon's ability to serve the public, that the shared asset methodology properly accounted for the transactions, and that since Verizon would charge the three service company affiliates the higher of FAC or FMV for their shared use of Verizon's general support assets, the transactions did not raise concerns regarding improper cross-subsidization of an affiliate.
Verizon states that extension of the shared asset methodology to additional new service company affiliates is in the public interest because it will facilitate smooth and timely corporate reorganizations without the need for a cumbersome licensing or leasing process. Verizon proposes no change in the shared asset methodology as approved in D.04-03-038, except that pursuant to D.06-08-030, Verizon must follow the FCC's standard accounting practices and affiliate transaction pricing rules.
We agree with Verizon that extension of the shared asset methodology to transactions in which the new service company affiliates identified in Exhibit A and other service company affiliates that may be formed in the future, utilize Verizon's surplus office space and equipment, in return for paying a price consistent with the FCC affiliate transaction pricing rules applicable to shared asset usage by service company affiliates, is in the public interest. The application of the shared asset methodology in this situation will eliminate the need for cumbersome leasing and licensing proceedings and will give Verizon compensation for the use of utility assets that otherwise are not being utilized. We also find that these transactions meet the criteria for approval under Section 851 stated in D.04-03-038.
However, we limit our approval to transactions involving the utilization of Verizon's unused office space and equipment with the new service company affiliates identified in Exhibit A of the application only and to any future service companies that fall within the FCC definition, e.g., "affiliates that exist solely to provide services to members of the carrier's corporate family."
In addition, we limit our approval of Verizon's application of the shared asset methodology to transactions with the new service company affiliates that meet the requirements of GO 69-C. GO 69-C permits utilities to convey licenses, easements, permits or other limited uses of land to third parties without obtaining prior Commission approval under Section 851, if the following criteria are met:
1. The interest granted must not interfere with the utility's operations, practices and services to its customers;
2. The interest granted must be revocable either upon the order of the Commission or upon the utility's determination that revocation is desirable or necessary to serve its patrons or consumers (i.e., at will); and
3. The interest granted must be for a "limited use" of utility property.
In order to ensure that continued use of the shared asset methodology is appropriate, Verizon shall file its annual year-end assessment and adjustments for the shared assets involved in these transactions with the new service company affiliates with TD and CPSD by February 1 of each year, for the prior year in which the year-end assessment was performed. The year-end assessment shall be consistent with the FCC's affiliate transaction pricing rules applicable to shared asset usage by service company affiliates.
2 D.04-03-038 at p. 29.
3 Here, although Verizon filed an application to extend its shared asset methodology to additional service company affiliates pursuant to D.04-03-038, and did not designate the application as a Section 851 application, we construe Verizon's application as a Section 851 application and address it accordingly.
4 Section 851 states in pertinent part:
No public utility...shall sell, lease, assign, mortgage or otherwise dispose of or encumber the whole or any part of its...property necessary or useful in the performance of its duties to the public...without first having secured an order from the commission authorizing it to do so for qualified transactions valued above five million dollars ($5,000,000), or for qualified transactions valued at five million dollars ($500,000) or less, filed an advice letter and obtained a resolution from the commission authorizing it to do so...
5 D.04-03-038 at p. 25.
