Discussion
Verizon's motion to strike ORA's proposal to reduce Verizon's rates by $112 million is denied. As set forth in the ACR, the criteria for determining whether ORA's proposed rate reduction is within the scope of Phase 1 are as follows: (1) the proposal must have a clear and direct connection to ORA's audit, (2) the proposal must be legal, and (3) the proposal must be consistent with NRF. It is premature to determine whether ORA's proposal satisfies these criteria. Rather, this determination should be made after the parties have had an opportunity to develop the record via evidentiary hearings and to present arguments in their post-hearing briefs that reflect the evidentiary record.4
Verizon's motion to strike ORA's proposal to make Verizon's rates subject to refund is denied. Verizon argues that ORA's proposal is not related to ORA's audit and addresses matters that are reserved for Phase 3. It is premature to decide whether ORA's proposal is related to its audit. This is a factual issue that should be decided after the parties have had an opportunity to develop the record via evidentiary hearings and to present arguments in their post-hearing briefs that reflect the evidentiary record. If it is determined that ORA's proposal does relate to its audit, and ORA's assertion that the alleged accounting errors and improprieties that it found during its audit are harming ratepayers is found to be true, then ORA's proposal constitutes the type of remedial action that is properly within the scope of Phase 1.
Verizon's motion to strike ORA's proposal to require Verizon to track sharable earnings in a memorandum account is denied for the reasons set forth in the previous paragraph. 5 Furthermore, even though ORA's proposal involves the NRF sharing mechanism - a matter that is reserved for Phase 3 - the disposition of any sharable earnings is left to another time. Consequently, ORA's proposal does not affect the NRF sharing mechanism in Phase 1. Therefore, ORA's proposal is consistent with the Commission's determination in the Order that it will address issues associated with the sharing mechanism in Phase 3.
Verizon's motion to strike ORA's proposal to require Verizon to report its sharable earnings on a monthly basis is granted. As set forth in the Order,6 issues pertaining to NRF monitoring reports will be addressed in Phase 3.7 Verizon's motion to strike ORA's proposal to reinstate the sharing ceiling of 15.5% is also granted. As set forth in both the Order and the ACR,8 issues regarding the NRF sharing mechanism will be addressed in Phase 3.9
4 ORA's proposed rate reduction and Verizon's motion to strike both hinge, in part, on their contradictory interpretations of the Commission Advisory and Compliance Division's Workshop III Report that was adopted by the Commission, with modifications, in D.91-01-056. (See the Opening Testimony of Danilo E. Sanchez, pp. 14-15, and Verizon's motion to strike, pp. 6-7). So far, neither party has provided a copy of the Report. Presumably, one of the parties will submit a copy of the Report during the course of evidentiary hearings.
5 The obvious purpose ORA's proposals to make Verizon's rates subject to refund and to require Verizon to track its sharable earnings in a memorandum account is to lay the groundwork for imposing ratemaking adjustments at a later time. Accordingly, as set forth on page 4 of the ACR, ORA has the burden of demonstrating that its proposals are legal and consistent with NRF. The determination of whether ORA's proposals meet these criteria should be made after the parties have had an opportunity to develop the record via evidentiary hearings and to present arguments in their post-hearing briefs that reflect the evidentiary record.
6 Order, Appendix A, p. A-10.
7 Although Verizon currently reports its sharable earnings via advice letters, the advice letters themselves constitute a NRF monitoring report. (D.98-10-026, Ordering Paragraph 1.c.)
8 Order, Appendix A, p. A-6, and ACR, pp. 7-8.
9 If the Commission adopts ORA's proposal in Phase 1 to make Verizon's rates subject to refund, ORA may address in Phase 3 whether the amount of any refund should be based, in whole or part, on the sharing ceiling.
