8. Limited Exogenous (LE) Factor Treatment

In their comments on the DD, Pacific and Verizon both assert that the administrative costs associated with any HFPL refund meet the criteria for LE Factor recovery under our NRF framework. Pacific states that in D.98-10-026, the Commission established rules for carriers seeking recovery of costs incurred as a result of Commission mandates. Pursuant to that decision, those costs would be recovered through an LE factor mechanism, under which carriers must demonstrate that the requested costs meet certain specified criteria. As a prerequisite to seeking LE factor treatment, a carrier must show that an LE factor adjustment is authorized in the underlying Commission decision.

Pacific indicates that if the Commission orders it to implement the HFPL surcredit currently described in the DD, it will incur significant administrative costs. Pacific requests that the DD be modified to include language authorizing Pacific to seek LE factor recovery for costs incurred in implementing the processes ordered in the Commission's final HFPL decision.

In its Opening Brief, Verizon makes the comment that the arbitrator in the interim phase incorrectly ruled that the revenues associated with access to the HFPL should be subject to LE factor treatment under NRF. Verizon points out that the LE factor was intended to address cost changes, not revenues, and in any event, this event would not satisfy the nine criteria for LE factor treatment established by the Commission. The Final Arbitrator's Report in the Interim Line Sharing proceeding indicates that the balance in the memorandum account shall be subject to limited exogenous factor treatment under the CPUC's NRF framework. (FAR at 124.)

We grant Pacific and Verizon the authority to request LE factor treatment, since they were given the expectation in the Interim Phase that they would be authorized to seek LE factor recovery. However, we clarify here that LE factor treatment is for the administrative costs associated with returning HFPL revenues to CLECs, and we caution the ILECs that we expect those administrative costs to be minimal, since they have the records of which CLEC leased HFPL lines, and only limited numbers of CLECs lease DSL-capable lines. This plan should prove much less burdensome and less costly for the ILECs than returning the revenues to their own ratepayers.