7. Assignment of Proceeding
Rachelle B. Chong is the Assigned Commissioner and Myra J. Prestidge is the assigned ALJ in this proceeding.
1. This application was filed on May 8, 2006.
2. On May 11, 2006, in ALJ Resolution 176-3172, we preliminarily categorized this proceeding as ratesetting and preliminarily determined that a hearing was unnecessary.
3. No protests to the application were filed.
4. In D.04-03-038, we approved a shared asset methodology for computing payment to Verizon for utilization of its surplus office space and equipment by employees of three service company affiliates, Service Corp., CSI, and VDSI, for transactions that meet the requirements of GO 69-C.
5. In D.04-03-038, we required Verizon to file a Section 851 application to seek our advance approval if it wished to extend the use of the shared asset methodology to additional service company affiliates, other than Service Corp., CSI, and VDSI, or to other types of activities.
6. In this application, Verizon seeks Commission authority to extend the use of the shared asset methodology approved in D.04-03-038 to transactions involving the use of Verizon's unused office space and equipment by additional service company affiliates, some of which are being created as part of an ongoing corporate reorganization and some of which may be formed as part of future corporate reorganizations.
7. Verizon states that the following new service company affiliates, as identified in Exhibit A to the application, will exist after its pending corporate reorganization:
· Verizon Services Organization - Verizon Services Organization will provide a variety of services across business segments, including: corporate real state, corporate purchasing, logistics, electronic repair services, supply chain systems and processes, supplier quality and supplier diversity, accounting operations and receivables, human resources for Verizon Telecom, and corporate fleet and aviation. Verizon Services Organization will includes the following legal entities:
o Verizon Corporate Services Corp.
o Verizon Corporate Services Group Inc. (formerly GTE Service Corp.)
o New Legal Entity #4
· Verizon Domestic Telecom Service Companies - These companies will provide managerial and centralized staffing services to Verizon affiliates, including: administration, advertising, engineering and operations support, corporate communications, finance, marketing, customer services support, public coin operator services support, and professional and computer processing services. The Verizon Domestic Telecom Service Companies will include the following legal entities:
o Verizon Data Services Inc. (VDSI)
o Verizon Services Corp.
o Verizon Services Organization Inc. (formerly GTE Consolidated Services Inc. (CSI))
· The Verizon Corporate Services Companies - The Verizon Corporate Services Companies are administrative corporate headquarters organizations that provide certain human resources, finance, legal, public policy and external affairs, security, cash management, executive and planning, and public affairs services for Verizon affiliates. The Verizon Corporate Service Companies will include the following legal entities:
o New Legal Entity #5
o New Legal Entity #6
8. Under the shared asset methodology approved in D.04-03-038, Verizon determines the charge to service company affiliates for the use of its surplus office space and equipment, by estimating the total number of square feet that the affiliates occupy in Verizon's buildings and then multiplying that amount by the higher of (a) the average FAC for all of the shared buildings, or (b) the FAC for the building used by the majority of service company affiliate employees, or (c) the FMV of the building used by the majority of the service company employees.
9. Verizon proposes no changes to the shared asset methodology approved in D.04-03-038 for transactions with the new service company affiliates, except hat pursuant to D.06-08-005, the annual year-end assessment should be consistent with the FCC's affiliate transaction pricing rules applicable to shared asset usage by service company affiliates.
10. The application of the shared asset methodology to transactions involving the use of Verizon surplus office space and equipment by the new service company affiliates identified in Exhibit A to the application and other service companies that may be formed in future corporate reorganizations, will not impair Verizon's ability to serve the public, will be properly accounted for, and does not have any anti-competitive effects or result in cross-subsidization of the service company affiliates.
11. It is appropriate to require Verizon to file its annual year-end assessment and adjustments for the shared assets involved in transactions with the new service company affiliates identified in Exhibit A to the application and other new service company affiliates that may be formed in future corporate reorganizations, with TD and CPSD by February 1 of each year, in order to ensure that continued use of the shared asset methodology is warranted.
1. There is no need to change the preliminary categorization of this proceeding as ratesetting.
2. No hearing is necessary.
3. Under Section 851, the Commission must determine whether a transaction involving the sale, lease, mortgage, or encumbrance of utility property, which is used or useful in the provision of services to the public, is in the public interest.
4. The purpose of Commission review under Section 851 of transactions involving shared use of utility assets with service company affiliates is to ensure that these transactions are in the public interest.
5. In reviewing applications for approval of transactions with service company affiliates pursuant to Section 851, the Commission applies well-established standards to determine the following:
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 accurately reflect the transaction;
c. Where the transaction is between the utility and an affiliate, whether the transaction has any anti-competitive effects or results in cross-subsidization of the non-regulated enterprise.
6. In D.04-03-038, we found that Verizon's application of the shared asset methodology to transactions which involved the use of Verizon's surplus office space and equipment by three service company affiliates, Service Corp., CSI and VDSI, is in the public interest, so long as these transactions meet the requirements of GO 69-C.
7. Application of the shared asset methodology to transactions between Verizon and the new service company affiliates identified in Exhibit A to the application and new service company affiliates that fall within the FCC definition of "service company," e.g., "affiliates that exist solely to provide services to members of the carrier's corporate family," which involve the use of Verizon's surplus office space and equipment by employees of the new service company affiliates and meet the requirements of GO 69-C, is in the public interest because it will promote smooth and timely corporate reorganizations without the need for cumbersome leasing and licensing proceedings and will compensate Verizon for the use of its assets that otherwise are not being utilized.
8. Under GO 69-C, a utility may 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:
a. The interest granted must not interfere with the utility's operations, practices, and services to its customers;
b. 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);
c. The interest granted must be for a "limited use" of utility property.
9. Under D.06-08-030, the year-end assessment filed by Applicant should be consistent with the FCC's affiliate transaction pricing rules applicable to shared asset usage by service company affiliates.
IT IS ORDERED that:
1. The application of Verizon California Inc. (Verizon) to extend the use of the shared asset methodology approved in Decision (D.) 04-03-038 to transactions with new service company affiliates being formed as part of an ongoing corporate reorganization, as identified in Exhibit A to the Application and other future service company affiliates defined as "affiliates that exist solely to provide services to members of the carrier's corporate family," in which the new service company affiliates will utilize unused Verizon office space and equipment, is approved, so long as these transactions meet the requirements of General Order 69-C.
2. If Verizon wishes to extend the shared asset methodology to activities other than the use of Verizon's surplus office space and equipment by service company affiliates, Verizon shall apply for our prior approval pursuant to Section 851.
3. Verizon shall file its annual year-end assessment and adjustment for the shared assets involved in the approved transactions with the service company affiliates identified in Exhibit A to the application and any new service company affiliates that may be formed in future corporate reorganizations, for the prior year in which the year-end assessment was performed, with the Directors of the Commission Telecommunications Division and the Consumer Protection and Safety Division by February 1 of each year. The year-end assessment shall be consistent with the Federal Communications Commission's affiliates transaction pricing rules, applicable to shared asset usage by service company affiliates.
4. Application 06-05-008 is closed.
This order is effective today.
Dated October 5, 2006, at San Francisco, California.
MICHAEL R. PEEVEY
President
GEOFFREY F. BROWN
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
