2. Background

In D.06-03-025, we established final unbundled network element (UNE) rates for Verizon. The rates adopted in D.06-03-025 replace interim rates adopted in D.03-03-033, and revised in D.05-01-057. Pursuant to Ordering Paragraph 4 of D.06-03-025, Verizon was ordered to calculate any billing adjustments owed to or by interconnecting carriers based on the modification of interim rates to the rates in D.06-03-025. However, the payment of any billing adjustments or "true-up" was stayed pending the outcome of further proceedings in this docket to consider payment options or other mitigations to lessen any negative effects of the true-up.

The assigned Administrative Law Judge (ALJ) held a Prehearing Conference on April 25, 2006, followed by a ruling on May 15, 2006 setting the scope and schedule for the proceeding. The scope was to include two issues: the true-up and a process for re-examining UNE rates in the future. In this phase, the Commission is considering the following issues relating to the true-up:

1) Verizon's calculation of true-up amounts;

2) Whether payment of the true-up will have negative effects on the competitive local exchange market or constitute financial hardship for certain competitive local exchange carriers (CLECs); and

3) Whether the Commission should order mitigation, including but not limited to long-term payment options and interest limits, to alleviate possible negative effects of true-up payments.

The ruling also ordered interested parties to file comments on the process the Commission should use for future re-examination or adjustment of UNE rates adopted for Verizon and Pacific Bell Telephone Company (Pacific Bell now AT&T California [AT&T]). This decision focuses strictly on the true-up issue; the UNE re-examination process will be addressed in a subsequent Commission order.

On June 27, 2006, parties filed their true-up and rate re-examination proposals. Verizon also included a motion for leave to file under seal the CLEC-specific true-up proposal and a compact disc (CD) containing CLEC-specific detail.