3. Discussion

Settling parties propose three zones. ORA concludes that it does not oppose an interim three-zone approach for deaveraging. No party seeks anything other than three zones at this time in this proceeding. D.00-08-011 adopts three zones. We find a three-zone approach reasonable.

ORA asserts that we must resolve universal funding issues to permit further deaveraging and greater competitive options. Even if true, we are not persuaded to do so here. The record in this proceeding does not support sweeping changes, and we do not believe that this is the time and place to develop a record to undertake such effort, even if it is eventually necessary. Rather, we will consider doing so in proceedings that specifically review UNE prices, and address the CHCF-B.

Moreover, we are not persuaded to establish memorandum accounts with rates subject to later adjustment. Rather, settling parties propose rates that are consistent with rates based on costs and prices adopted in D.99-11-050, and consensus block group zones established for administration of the Universal Service fund in D.96-10-066.⁵ These rates and zones are reasonable on an interim basis. Rates and zones will be addressed further, as necessary, in proceedings that address UNE prices (e.g., A.01-02-024/A.01-02-035), universal service, the CHCF-B, Pacific's Section 271 matter (Rulemaking (R.) 93-04-003/Investigation (I.) 93-04-002/R.95-04-043/I.95.04-044),⁶ and other proceedings as appropriate.

Adoption of a settlement becomes an order of the Commission. (D.88-12-083, 30 CPUC2d 189, 225.) To find a settlement in the public interest, the Commission must know the ramifications of the settlement, to the extent feasible, at the time that finding is made. (Id.) To the extent that our interpretation differs from that of any proponent, or all proponents, it is our interpretation that is definitive. (Id.) For this reason, we specifically comment on four parts of the Agreement.

First, the Agreement states:

"The parties agree that the three-zone pricing structure for loop UNEs brings Pacific's territory into compliance with the FCC [Federal Communications Commission] rules on geographic deaveraging, as set forth in 47 CFR Sec. 51.507(f), and that the geographically deaveraged pricing structure for loops is satisfactory for purposes of Pacific's 271 application." (Agreement, Section V.A.)

We acknowledge parties' agreement on these points. We find that the Agreement is based on geographic cost differences, and complies with FCC rules on geographic deaveraging as set forth in 47 C.F.R. Sec. 51.507(f).⁷

We accept that settling parties believe and agree that the Agreement is satisfactory for purposes of Pacific's Section 271 application. Parties' belief and agreement, however, cannot, and does not, bind the Commission, and adoption

of the Agreement does not prejudge a future Commission decision on this issue. Rather, the Commission will determine in an appropriate future proceeding whether or not this and other factors individually and collectively satisfy tests for any authority Pacific seeks under Section 271 of the Act.

Second, the Agreement does not state the periodicity of zone prices. (Agreement, Attachment B.) We understand that the prices are to be assessed monthly. Our adoption of the Agreement is based on that interpretation.

Third, the Agreement includes a calculation of fund withdrawals in specific scenarios where CLC prices may diverge from Pacific's single flat residential (1FR) rate. It states:

"Where the CLEC's basic exchange service price is equal to or less than Pacific's price plus EUCL [end user common line charge], the subsidy payable to the CLEC shall be the amount payable to Pacific for such customer. Where the CLEC's basic exchange price exceeds Pacific `s price plus EUCL, then the subsidy payable to the CLEC shall be the subsidy amount for the CBG [consensus block group], less all revenues received by the CLEC for the basic exchange service." (Agreement, Section III.A.)

Settling parties state that they think the settlement does not conflict with D.96-10-066, and that they would seek modification of D.96-10-066 if the Commission concludes otherwise. We appreciate settling parties' earnest effort to resolve the problem of how CLEC purchases of deaveraged UNE loops in Pacific's high cost regions might be subsidized by withdrawals from the Universal Service high cost fund. However, notwithstanding settling parties' agreement, calibrating a CLEC's CHCF-B reimbursement to Pacific's reimbursement is not consistent with the Commission's intent in D.96-10-066.

Rule 6.C.2.d of Appendix B of D.96-10-066 provides that "the COLR's [carrier of last resort] draw from the CHCF-B will be offset by the COLR's revenue per subsidized line from the CCLC [common carrier line charge] and the federal Universal Service fund." Our current policy, as expressed in Rule 6.C.2.d in Appendix B of D.96-10-066, requires that each CLEC's draw from the CHCF-B is offset by the COLR's revenue per subsidized line from the CCLC and the federal Universal Service Fund. As we have stated, we are not prepared to adopt sweeping changes in Commission policy or practices in this proceeding. We adopt the Agreement based on the understanding that subsidy calculations will be consistent with applicable provisions in D.96-10-066. Additionally, we understand the Agreement's reference to the "subsidy amount for the CBG" (Section III.A) to mean the `per line cost estimate for the CBG as determined by the Cost Proxy Model.' (D.96-10-066, Appendix B, Rules 6.C.2.a and 6.C.2.b; 68 CPUC2d 524, 675.)

In this way, the Agreement allows CLCs providing basic local exchange service using UNE loops nondiscriminatory access to the Universal Service fund applicable to Pacific's territory. Moreover, it does not limit pricing flexibility for CLCs (or Pacific), and, at the same time, does not change the level of funding necessary to support universal service.

Finally, the Agreement provides that:

"The parties and the Commission staff agree to meet and cooperate in an effort to agree to the least cost, most efficient yet accurate process to ensure that all local exchange carriers are able to make valid claims against the CHCF-B fund applicable to Pacific's service territory in a manner that is the same as or substantially similar to the process utilized by Pacific." (Agreement, Section IV.A.)

Commission staff is not a party to the Agreement. Parties to the Agreement can neither bind staff, nor make a commitment regarding the use of Commission resources. Nonetheless, there is no claim or evidence that Commission staff will not reasonably and responsibly fulfill its role and duty in administration of the CHCF-B, and we are confident they will do so.

For example, we acknowledge that settling parties' proposed census block group zones do not share the same boundaries as wire centers, which serve as the foundation for UNE rates. We will leave it to the staff (who reviews and processes CHCF-B claims) and petitioning CLCs to resolve these boundary discontinuities in the implementation of this order.

The Commission will not approve a settlement unless it is reasonable in light of the whole record, consistent with law, and in the public interest. (Rule 51.1(e).) With the understandings stated above, the proposed settlement meets those tests.

For example, the record includes the proposals made on June 7, 2000 by Pacific and AT&T/WorldCom. The proposed settlement is reasonable in light of those proposals, and the whole record.

The proposed settlement is consistent with law, including the Act, and FCC rules. No party asserts otherwise, and we are not aware of any inconsistency.

The proposed settlement is in the public interest. It reasonably resolves all issues identified in the Scoping Memo, and reasonably promotes additional opportunities for competition. Further, it resolves issues regarding access to Universal Service funds.