TIM/eap 3/13/2002
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking on the Commission's Own Motion to Assess and Revise the New Regulatory Framework for Pacific Bell and Verizon California Incorporated.
Rulemaking 01-09-001
(Filed September 6, 2001)
Order Instituting Investigation on the Commission's Own Motion to Assess and Revise the New Regulatory Framework for Pacific Bell and Verizon California Incorporated.
Investigation 01-09-002
(Filed September 6, 2001)
ADMINISTRATIVE LAW JUDGE'S RULING REGARDING VERIZON'S MOTION TO STRIKE PORTIONS OF ORA'S PHASE 1 TESTIMONY
This ruling grants in part and denies in part the motion filed by Verizon California Incorporated (Verizon) to strike portions of the Phase 1 opening testimony filed by the Office of Ratepayer Advocates (ORA).
Background
The scope of Phase 1 is set forth in (1) the Commission's combined Order Instituting Rulemaking 01-09-001 & Order Instituting Investigation 01-09-002 (Order), and (2) the Assigned Commissioner's Ruling Determining the Category, Scope, Schedule, Need for Hearing, and the Principal Hearing Officer for the Proceeding issued on December 27, 2001 (ACR). As set forth in both the Order and the ACR, parties may address in Phase 1 what corrective measures, if any, the Commission should implement at the conclusion of Phase 1 in response to ORA's audit of Verizon. In particular, parties may propose ratemaking adjustments that are based on ORA's audit, but any party making such a recommendation has the burden of demonstrating that its proposal has a clear and direct connection to ORA's audit report, is legal, and is consistent with the New Regulatory Framework (NRF).1 In Phase 3, parties will have an opportunity to recommend specific revisions to NRF based on ORA's audit. Accordingly, parties may not recommend revisions to NRF in Phase 1 unless the revisions are remedial actions taken in response to ORA's audit that should be implemented expeditiously.
The parties submitted Phase 1 opening testimony on January 22, 2002. In its testimony, ORA recommends, among other things, the following:
_ Reduce Verizon's rates by a total of $112 million over three years. The proposed rate reduction equals the amount of the alleged accounting errors and improprieties that ORA found during its audit of Verizon.2
_ Make Verizon's rates subject to refund pending the conclusion of Phase 3.
_ Require Verizon to track in a memorandum account the amount of its earnings that exceed the former sharing benchmark of 13%3 (referred to hereafter as "sharable earnings").
_ Require Verizon to report its sharable earnings on a monthly basis.
_ Reinstate the former sharing ceiling of 15.5%.
On February 22, 2002, Verizon filed a motion to strike those portions of the Opening Testimony of ORA's witness Danilo E. Sanchez that pertain to the previously identified recommendations. Verizon argues that ORA's proposal to reduce Verizon's rates by $112 million should be stricken because ORA failed to demonstrate that its proposal has a clear and direct connection to its audit report, is legal, and is consistent with NRF. Verizon argues that ORA's other proposals should be stricken because they have no connection to ORA's audit report and address matters that are reserved for Phase 3. ORA opposes Verizon's motion to strike, while Pacific Bell supports the motion.
1 ACR, p. 4.
2 Verizon disputes many of ORA's audit findings. Today's ruling makes no determinations regarding the merits of ORA's audit findings.
3 ORA recommended that Verizon should be required to track its earnings that exceed the "sharing benchmark of 12%." There was never a sharing benchmark of 12% for Verizon. Rather, the Commission established a sharing benchmark of 13% in D.89-10-031 (33 CPUC 2d 43, 233), and suspended sharing for Verizon in D.93-09-038 (50 CPUC 2d 684, 695). This ruling assumes that ORA meant to recommend that Verizon should be required to track its earnings in excess of the former sharing benchmark of 13%.
