3. Discussion
3.1. Modifying and Clarifying Rules for URF Advice Letters
After having considered the record, we modify in this section our existing one-day effective advice letter filing requirement and apply instead the Commission's existing protest timeframe set forth in GO 96(a), now subsumed into GO 96-B. See General Rule 7.4 of GO 96-B.25 Specifically, we modify our requirement that URF advice letters are effective on one day after filing to "effective pending disposition" under GO 96-B's General Rule 7.3.3. Therefore, the following URF Carriers' advice letters shall be effective on the day of filing (or other requested date by carrier): 26
· Changes to services other than basic service;27
· promotional offerings, bundles,28 new services; and
· withdrawal of services other than basic residential (1MR and 1FR) and basic business (1MB) services where withdrawal of service would raise public safety issues.29
We will reflect this treatment as Tier 1 in the Telecommunications Industry Rules that we are adopting today in our companion decision. On or after October 1, 2007, URF Carriers shall file these types of advice letters under Tier 1. As for tariff changes to basic service, we are addressing basic service rates in R.06-06-028 and in that decision will address how such changes shall be filed with the Commission. As also discussed in our accompanying GO 96-B decision, we find that changes to terms and conditions for basic service shall be filed in Tier 1, to the extent that such changes are not inconsistent with law, or Commission orders or decisions, and to the extent that such changes are not more restrictive. Such treatment is consistent with findings in URF Phase I. Imposition of more restrictive basic service terms and conditions, however, shall be filed in Tier 3.
Protests may be filed to these advice letters during a 20-day protest timeframe under GO 96. Because in URF Phase I, we granted URF Carriers pricing flexibility for most services other than basic service, the grounds for protest of URF advice letters are more limited than for advice letters filed by traditionally regulated utilities. URF Carriers' advice letter filings are effective on the date of filing and are not suspended if protested, consistent with the language of General Rule 7.3.3 and 7.5.3. See also D.07-01-024. However, if the Commission or staff finds that the advice letters should not have been filed in Tier 1 or pursuant to General Rule 7.3.3, the carrier may be required to withdraw the filing and make refunds or other adjustments as the Commission may require. General Rule 7.3.3.
Before we explain our basis for applying GO 96-B to URF advice letter filings, we consider the reasons for why we adopted one-day effective filings in D.06-08-030. The most extensive discussion of our basis for the one-day effective filing is the following (from D.06-08-030 at mimeo., pp. 182-83):
In a fast-moving technology space like telecommunications, there is no public interest in maintaining an outmoded tariffing procedure that requires the burdensome regulatory review of cost data and delays the provision of services (particularly new or less expensive ones) to customers. This system only made sense in a world where there was a single dominant ILEC, and active regulatory intervention was required to protect consumers. Thus, it is reasonable that all advice letters for tariffed services should go into effect on a one-day filing.
We ordered in Ordering Paragraph 9 of the URF Phase I decision:
AT&T , Verizon, SureWest, and Frontier shall be authorized to allow all tariffs to go into effect on a one-day filing, but any tariffs that impose price increases or service restrictions shall require a thirty-day advance notice to all affected customers.
We granted similar flexible tariff filing procedures for CLECs in Ordering Paragraph 13.30 What the above text reveals are the policies we hoped to advance by means of the one-day filing procedure. Among other things, we wanted to provide URF Carriers with the ability to innovate and offer new services or rates, terms, and conditions without regulatory delay. Furthermore, before we issued our URF Phase I decision, there were differing filing procedures for different carriers. Incumbent LECs were subject generally to a 30-day approval period, while CLECs were subject to expedited five-day approvals for minor rate increases and 30-day approval periods for major rate increases.31 Accordingly, we attempted to create a more uniform filing procedure for URF Carriers but conditioned the increased flexibility granted to URF Carriers with customer notification requirements.
We acknowledge that there could have been more guidance in D.06-08-030 about the implementation and procedural requirements for "one-day filing." We discuss in greater detail below our reasons for modifying our one-day effective filings for URF advice letters in this decision, and provide additional guidance on how the new rules will work.
Although the Commission has previously established one-day effective advice letters in resolutions for specific carriers, reference to those individual decisions is not useful in the URF context as such precedent was adopted years ago by the Commission in the New Regulatory Framework (NRF) context and thus is outdated.32 However, we do have established guidance on notice, suspension, and review of advice letters for telephone corporations in GO 96-A. These rules are to some extent now found in the Commission's recently adopted GO 96-B, but GO 96-B also contains other revisions incorporating requirements adopted in different decisions over the years. We find that GO 96-B provides an adequate framework for URF advice letter filings. We also establish a few additional rules for treatment under Tier 1 for URF Carriers, which we discuss below and will incorporate in our companion decision today adopting Telecommunications Industry Rules for GO 96-B.
GO 96-B provides an appropriate framework because it recognizes the emergence of alternative regulatory approaches at this Commission, and the greater flexibility we have accorded utility management in all the regulated industries. As we discussed in the URF Phase I decision, high levels of telecommunications competition compels us to relax outdated "command and control" style regulation in many areas. GO 96-B meets the changing needs of today's regulatory environment. Under GO 96-B, there are three tiers of filings for advice letters, with different treatment:33
· Tier 1 advice letters are effective upon filing and are approved automatically within 30 days ("deemed approved") if not protested. General Rule 7.3.3 of GO 96-B.
· Tier 2 advice letters are effective only after approval by staff, but if there is no protest and no action by the staff within 30 days, they are deemed approved, as in the case of Tier 1 advice letters. General Rule 7.3.4 of GO 96-B.
· Tier 3 advice letters are effective only after approval by Commission resolution (and cannot be deemed approved). General Rule 7.3.5 of GO 96-B.
Advice letters filed by URF Carriers qualify for inclusion in Tier 1 or Tier 2 because they concern matters over which the utility already has broad authority to take the proposed actions under applicable statutes or Commission orders. The job for the industry division staff in reviewing a Tier 1 or Tier 2 advice letter is ministerial: So long as the proposed action is squarely within the applicable statutes or Commission orders, it must be approved.34 Accordingly, Tier 1 advice letters are especially suitable for partly or fully deregulated industries. In competitive conditions, market participants must be able to act quickly.35
When we approved the Tier 1 concept, we expressly endorsed its use in contexts similar to URF:
The main reason to allow many advice letters to go into effect pending disposition . . . is to better accommodate innovation and competition in the marketplace. According to some commenters, a utility that must publicly announce and then wait regulatory approval for a new product or service will often find that competitors are able to copy the program before the utility has had any significant chance to benefit from its initiative. As a result, the incentive to innovate is reduced, nominal competitors tend to "me too" each other so that prices move in lockstep, and any genuinely innovative advice letter is correspondingly more likely to elicit protests from competitors who hope to gain time to catch up with similar proposals of their own. By allowing certain types of advice letters to take effect before regulatory approval, we can fulfill our responsibilities while giving greater scope to market forces.
D.07-01-024, mimeo., p. 13 (emphasis in original). For the foregoing reasons, we believe that the existing rules under GO 96-B (e.g., General Rule 7.3.3 governing Tier 1 filings) are appropriate for the URF advice letters at issue.36
In addition, we note that there is no real benefit to have a one-day delay between filing and effectiveness. For example, in the absence of applying the general rules under GO 96-B, it is unclear whether, if a party files a protest to the one-day effective filing on the day of filing, the advice letter would then be suspended.
We find that there should be some safeguard (consistent with our review of GO 96 procedures and the precedents for advice letters becoming effective one day after filing) against filing of an advice letter that the Commission finds to be unlawful. Under GO 96-B, an advice letter that was not lawfully filed under the "effective pending disposition" Tier 1 category may be rejected and the carrier required to take remedial actions. The Tier 1 procedures also enable a utility to wholly mitigate any risk of rejection and consequent rescission by permitting the utility to submit an advice letter that would qualify for Tier 1 treatment to submit it nevertheless under Tier 2 (effective upon staff approval) so that the utility can obtain approval before implementing the advice letter.37
We noted in the foregoing discussion of Tier 1 that GO 96-B states the grounds on which an advice letter may be protested. The specific grounds are as follows:
(1) The utility did not properly serve or give notice of the advice letter;
(2) The relief requested in the advice letter would violate statute or Commission order, or is not authorized by statute or Commission order on which the utility relies;
(3) The analysis, calculations, or data in the advice letter contain material errors or omissions;
(4) The relief requested in the advice letter is pending before the Commission in a formal proceeding;
(5) The relief requested in the advice letter requires consideration in a formal hearing, or is otherwise inappropriate for the advice letter process; or
(6) The relief requested in the advice letter is unjust, unreasonable, or discriminatory, provided that such a protest may not be made where it would require relitigating a prior order of the Commission.
Id., General Rule 7.4.2.
The grounds for protest are even more narrow, where the Commission has determined, for example, not to regulate rates. General Rule 7.4.2 sets forth that protests may not object on policy grounds to an advice letter where the relief requested is consistent with rules or directions established by a Commission order. For example, GO 96-B sets forth in Example 2 that:
Where the Commission does not regulate the rates of specific type of utility, an advice letter submitting a rate change by a utility of the specified type is not subject to protest on the grounds that the rates are unjust, unreasonable, or discriminatory.
Id., General Rule 7.4.2 (emphasis added). Accordingly, a protest could not challenge an URF Carrier's filed increased rates pursuant to Example 2 above.38 We believe that the general rules of GO 96-B appropriately limit the grounds for baseless protests to advice letters and that staff's review of such protests should be relatively ministerial.39
Another ground for protest is that the advice letter would violate applicable law. The following list illustrates potential grounds for protest with regard to URF advice letters:
· An advice letter tendered under URF may be protested on the ground that it concerns subject matter expressly excluded or deferred from URF, such as service quality. (See D.06-08-030, Ordering Paragraph 17.)
· An advice letter tendered under URF may be protested on the ground that it unlawfully increases a rate for basic telephone service subject to pricing controls. (See Pub. Util. Code § 5950.)
· An advice letter tendered under URF may be protested on the ground that it would increase a rate for basic telephone service in order to finance the cost of deploying a network to provide video service. (See Pub. Util. Code § 5940.)
These grounds are fairly narrow and result from the Commission's decisions and/or law. The first example reflects D.06-08-030 while the latter two examples reflect the requirements of the Digital Infrastructure and Video Competition Act of 2006, Assembly 2987 (Ch. 700, Stats. 2006).40 Therefore, with the light-handed regulatory policies we established in URF Phase I, protests of advice letters based on the purported lack of authority by the utility to take the proposed action should be far less frequent under URF than under the prior "New Regulatory Framework," not to mention traditional ratemaking. Further, staff should be able to discern whether a protest should be rejected easily or whether it merits further consideration.
However, in anticipation of cases where a protest of a Tier 1 URF advice letter raises issues that cannot be easily resolved by staff, we direct staff to notify the Director of the Communications Division within the initial 30-day period of review that the protest may require longer than 30 days to resolve, and thereafter, the staff shall report back on the status of the review of the protest every 30 days. The staff's goal should be to resolve the issue within 60 days. In certain cases, if staff cannot resolve the issue, the Commission shall issue a resolution to decide the matter no later than 150 days after the date of filing of the advice letter.
With the above modifications that we adopt for the Telecommunications Industry Rules today in our companion decision, we find that GO 96-B procedures are well-suited to URF, and that the one-day filing procedure adopted for advice letters in D.06-08-030 should be replaced by Tier 1 as set forth in D.07-01-024 (see General Rule 7.3.3) and adopted in our concurrent industry rules. Our consideration of the parties' comments on this issue, to which we now turn, confirms our view that Tier 1 treatment under GO 96-B should supplant one-day filing.
Cox/Time Warner's comments support the approach that we have taken above of applying the GO 96-B rules and the different tiers of treatment for specific types of advice letters filed by URF Carriers. Specifically, Cox/Time Warner supports using Tier 1 for the range of URF advice letters that we considered initially for one-day effective advice letter filing.41 As discussed, we believe that this approach best accommodates the policies of URF while providing guidelines for the advice letters.
The large local exchange carriers reject with little analysis the tier structure in GO 96-B. See, e.g., Opening Comments of Pacific Bell Telephone Company on Phase 2 Issues (March 2, 2007) at p. 50 ("In fact, the tiers discussed in Rules 7.3.3, 7.3.4, and 7.3.5 are inconsistent with the URF Decision...."); Opening Comments of SureWest Telephone on Phase 2 Issues (March 2, 2007) at p. 21 (interpreting GO 96-B as deferring to the "supremacy" of D.06-08-030);42 Reply Comments of Verizon California Inc. and Its Certificated California Affiliates on All Phase 2 Issues Other than Detariffing (March 30, 2007) at pp. 8-10 (preferring the "streamlined advice letter process adopted in Phase 1" to the tiered structure of GO 96-B). Among other things, Verizon asserts advice letter tiers "would also undermine another key URF goal"-namely, "competitive neutrality"-because Voice-over-Internet Protocol (VoIP) and wireless carriers do not have to file advice letters to make tariff changes, in contrast to local and interexchange carriers. Id., p. 9.
These carriers correctly identify streamlined process and competitive neutrality as among the goals of URF. However, they assume with virtually no analysis that one-day filing furthers those goals, while arguing that the tiered process of GO 96-B is inconsistent with URF. These arguments do not recognize that Tier 1 under GO 96-B would promote streamlined regulation, and in fact would permit advice letters to become effective upon filing. In general, these parties also offer no alternative guidelines for processing advice letters. Verizon only concedes that one-day effective advice letters may be protested for procedural reasons, but as we discuss above, there may be substantive reasons for protesting an URF advice letter under Tier 1 at this time (e.g., an URF Carrier may not submit an advice letter to increase basic service rates).43
Verizon's argument regarding competitive neutrality is unpersuasive. Verizon's concern does not pertain specifically to one-day filing versus Tier 1 procedures but rather pertains to advice letters in general. Many carriers, including Verizon, must file advice letters, while VoIP and wireless carriers do not file advice letters due to federal jurisdictional issues, and to that extent, they have a competitive advantage, regardless of GO 96-B.44 Due to jurisdictional issues, the Commission cannot achieve perfect competitive neutrality with today's decision; that is not a realistic goal. But in URF and in other proceedings, such as the Consumer Protection Initiative, Universal Service, and California High Cost Fund B, the Commission is taking important steps toward competitive neutrality. First, under Tier 1, we allow URF advice letters to take effect immediately upon filing; there will be no time lag between filing and effectiveness and no possibility of suspension. This will allow URF carriers to respond to offerings of competitive local exchange carriers, wireless and VOIP carriers. Second, as discussed above, we have established procedures for detariffing of telecommunications services by advice letter via Tier 2 treatment.45
The small local exchange carriers continue to be subject to rate regulation.
The Division of Ratepayer Advocates (DRA) argues:
Even a streamlined tariff regime would have to include some basic processes and details in order to be implemented in a coherent manner. Rather than attempting to craft unique tariff rules for telephone companies based on the sole principle established in the Phase 1 decision that all tariffs must be effective upon one day's notice, it makes more sense to adapt the [GO 96-B] framework to the regulatory needs of the telecommunications industry.
Comments of DRA on Phase 2 Issues (March 2, 2007) at p. 48. DRA's recommended adaptations to GO 96-B, however, would be inconsistent with our adopted URF policies.
DRA begins by recommending that URF tariffs be filed as Tier 1 advice letters (id. at p. 46). Then, however, DRA states that tariff changes that "impose price increases or service changes, or raise public safety issues, should be filed as Tier 2 advice letters...." (Id. at p. 47, emphasis in original). This "exception" seems so broad as to swallow the rule. Moreover, and in apparent contradiction to GO 96-B, DRA emphasizes that Tier 1 advice letters would be subject to suspension until the end of the 30-day initial review period (Id. at pp. 47-48).
We believe that GO 96-B's treatment of suspension for Tier 1 is consistent with our URF policies. Under GO 96-B, Tier 1 advice letters are not suspended (since they are effective pending disposition). We retain the power to reject an advice letter that is shown to be improperly designated at Tier 1 and to require appropriate remedial action by the carrier (see General Rule 7.5.3); what we have declined to do under Tier 1 is to suspend an already effective advice letter while we decide whether or not to reject it.46 Without directly criticizing this aspect of GO 96-B, DRA cites to federal law and GO 96-A (soon to be superseded entirely by GO 96-B) as authority for DRA's preferred process for handling advice letter protests, suspensions, and revocations.
The reason the Commission must be able to suspend a tariff filing, according to DRA, is that "[r]egardless of the pricing flexibility granted to the four largest carriers in California, the Commission must still ensure that rates are just and reasonable."47 This assertion by DRA suggests that DRA rejects or misunderstands the findings of our Phase 1 decision regarding the competitive telecommunications marketplace in California. In a competitive marketplace, the rates of the market participants are disciplined by each other's offerings. Moreover, even if there were a suspension procedure available, it could not be invoked to force the Commission to review rates that the Commission no longer regulates:
Where the Commission does not regulate the rates of a specific type of utility, an advice letter submitting a rate change by a utility of the specified type is not subject to protest on the grounds that the rates are unjust, unreasonable, or discriminatory.
GO 96-B, General Rule 7.4.2, Example 2. Thus, while DRA has recognized the need for URF advice letter procedures and the desirability of consistency with GO 96-B, DRA's recommendations are at odds with URF and GO 96-B on several important points.
The Utility Reform Network (TURN), like DRA, supports use of GO 96-B but would impose more restrictive review procedures on URF advice letters, which are inconsistent with our URF Phase I decision. TURN would make Tier 1 available to URF advice letters that "do not impose price increases or have the effect of increasing a rate or charge, impose a more restrictive term or condition or material change in service, involve matters of public safety or withdraw or grandfather a service...." Comments of The Utility Reform Network (March 2, 2007) at p. 19. For other advice letters, TURN proposes a "modified" Tier 2, under which the advice letter becomes effective one day after filing per the Phase 1 decision but is otherwise subject to protest and suspension per the Tier 2 procedures.48
Because TURN's recommendations are very similar to DRA's, we need not repeat our response here. However, there are certain assumptions DRA and TURN seem to share but that surface sharply in TURN's arguments. For example, TURN defends its modified Tier 2 by saying "to the extent a carrier's service is tariffed, there must be some meaningful review of changes to those tariffs." Reply Comments of The Utility Reform Network (March 30, 2007) at p. 30. The statement is undeniably true, but what is "meaningful" logically relates to the kind of regulatory scrutiny required.
Due to new and vibrant competition, our regulation of the telecommunications industry has changed. In that context, we may and should question the usefulness of procedures, such as advice letter suspension, which DRA and TURN regard as critical to our procedures. We discussed above the reasons why the grounds for protest of URF advice letters should be narrow and why there should not be suspension of these advice letters. When we approved the Tier 1 procedure in D.07-01-024 adopting GO 96-B earlier this year, we also rejected the possibility of suspension for Tier 1 filings generally,49 and we see nothing in DRA's or TURN's arguments to convince us to do otherwise with URF advice letters.
25 In General Rule 7.4, GO 96-B states that any person (including individuals, groups, or organizations) may protest or respond to an advice letter within 20 days of the date of filing of the advice letter. The grounds for protest are set forth in General Rule 7.4.2, and are narrow, as discussed further below.
26 We will allow URF Carriers to file their advice letters under Tier 1 of the Telecommunications Industry Rules (adopted today in R.98-07-038), but if the carrier chooses to file its advice letter under Tier 2, it may do so at its discretion, in order to obtain prior Commission staff authorization before taking a particular action other than one mandated by statute or Commission order.
27 D.06-08-030 requires 30-day notice to customers for rate increases, or more restrictive terms and conditions.
28 Bundling generally refers to a combination of services that are packaged together for a single price. In our URF Phase I decision, we noted that "bundling" often refers to the "'triple play' sale of voice, data, and video in one package for a single price by major communications market participants, including telephone companies, cable providers, satellite service providers, wireless companies, BPL providers, and others." D.06-08-030 at 75, n.298.
29 See D.06-08-030, at 202.
30 There are other fleeting mentions of "one-day filing," notably Conclusions of Law 35, 40, 44, and 48, and Ordering Paragraph 12.
31 See, e.g., D.95-07-054, Appendix A.
32 Commission precedent for "advice letter filings effective in one day without prior Commission approval" exists in Resolution (Res.) T-15139 (March 24, 1993). That resolution, the earliest of its type, authorized Pacific Bell to use this advice letter procedure for changes to certain Category III Services under the New Regulatory Framework.
33 As discussed in our companion decision, our draft Telecommunications Industry Rules issued in 2001 also established three tiers of advice letter filings. We have revised the subjects falling under each of those tiers pursuant to D.06-08-030 and those are reflected in the Telecommunications Industry Rules we adopt today.
34 Our later discussion of the grounds for protest regarding URF advice letters includes practical examples of how ministerial review works.
35 Tier 1 procedures provide carriers flexibility because Tier 1 advice letters are effective upon filing, and because they are already in effect, they may not be suspended. (See D.07-01-024, mimeo. at 15.)
36 The customer notice requirements that we adopted in URF Phase I shall continue to apply to these URF advice letters.
37 D.07-01-024, mimeo. at 14. In all likelihood, a utility will choose immediate effectiveness whenever possible. But there may be circumstances where the assurance of prior approval is desired. For example, if the utility is responding to a new statute, good faith questions of interpretation may arise. It seems consistent with URF policy to leave with utility management the choice between immediate effectiveness and prior approval.
38 Basic service or residential rates are still regulated by statute and Commission order; thus, advice letters changing residential rates may be protested for violating a cap or other limitation set by applicable law.
39 As for the other grounds for protest, the first ground for protest concerns proper notice and service. Notice and service of advice letters are both covered under GO 96-B. (See General Rules 4.1 - 4.4.) Notice to customers under certain conditions such as rate increases or more restrictive terms and conditions is a major concern of URF; failure to follow the rules is an appropriate ground of protest to an URF advice letter. Defective notice may be cured, however, and an improperly noticed or served advice letter will be rejected without prejudice, as we discuss later in today's decision where we deal with the Telecommunications Industry Rules.
40 Any increase to basic service will be addressed in R.06-06-028.
41 See Cox/Time Warner Comments (March 2, 2007) at 1-2.
42 GO 96-B does make provision for Commission orders authorizing "an advice letter to go into effect on a date different from that otherwise provided by these General Rules." See General Rule 7.3.1. GO 96-B accommodates one-day filing within its procedures for review and disposition of advice letters, even though its tier system does not include one-day filing. GO 96-B also accommodates unique statutory provisions, such as those regarding the effective date for advice letters that pertain to recycled water service (see Pub. Util. Code § 455.1) or oil pipeline rate changes (see Pub. Util. Code § 455.3). The need to encompass this great variety of effective dates was a prime motivation when we created a comprehensive manual for advice letter practice in GO 96-B. However, in light of our need to address other aspects of advice letters, including protest and disposition issues, we believe that the Tier 1 treatment is most consistent with URF policies and goals.
43 See Verizon Comments on Phase 2 at 16.
44 This competitive disparity, however, results from federal preemption over certain aspects of VoIP and wireless service. The disparity does not result from any action taken in the URF or GO 96 rulemakings.
45 "If the Commission does decide to approve detariffing of most services, the question of the effectiveness of most advice letters will become moot." Opening Comments of Cox California Telcom LLC on Phase 2 Issues (March 2, 2007) at 15. Cox supports Tier 1 treatment for most advice letter filings. Id.
46 D.07-01-024 at 16.
47 DRA Comments on Phase 2, at 47, footnote omitted.
48 In contrast, under DRA's Tier 2 proposal, DRA would require the URF utility to file its advice letter on the same day the utility gives notice to its customers.
49 D.07-01-024 at 15.
