X. Reexamination Process
When the Commission set UNE rates for SBC in D.99-11-050, it established a procedure for determining which UNE costs should be reexamined. Specifically, if a carrier believes that a UNE price lower than the one adopted for SBC is justified for a particular UNE, based upon a reduction in the costs for that element of at least 20%, the CLC may nominate that UNE as a candidate for reconsideration. The nomination should be made in an application submitted between February 1 and March 1 of each year and should include a brief summary of the evidence supporting the asserted cost reduction. SBC may also nominate UNEs for reexamination during the same window if it believes a higher price is justified owing to an increase in costs of at least 20%. The Commission stated it would choose no more than two UNEs for annual reexamination. (D.99-11-050, mimeo. at 168-9.)
In D.04-09-063, the Commission modified the reexamination process for SBC, noting that the idea of a quick update proceeding had given way to "the reality of modeling difficulties, protracted discovery battles, and various delays." (D.04-09-063, at 246.) The Commission suspended further UNE nominations for SBC until February 2007, citing the benefits of pricing and market stability. (Id.)
In a November 2005 motion, CALTEL requests the Commission allow for further consideration of a process for modification of Verizon's UNE rates. CALTEL notes that it presented a comprehensive proposal for a wholesale price cap plan for Verizon UNE rates in the Verizon/MCI merger proceeding.52 The proposal is designed to avoid resource-intensive cost modeling proceedings by allowing adjustment of UNE rates through an annual compliance filing to adjust Verizon's UNE rates based on inflation and productivity factors. CALTEL contends the Commission should provide certainty to carriers how future UNE price adjustments will be made. Therefore, CALTEL requests the Commission consider its price cap proposal in the next phase of this proceeding. TURN supports CALTEL's request.
Verizon opposes CALTEL's motion, noting that CALTEL's wholesale price cap proposal was rejected by the Commission in the Verizon/MCI merger decision. (D.05-11-029, p. 115.) Further, Verizon maintains that the FCC's TELRIC rules do not contemplate the use of inflation or productivity factors to replace forward-looking cost modeling. (Verizon, 12/7/05, p. 4.)
While we initially considered establishing a procedure for reexamination of Verizon's UNE rates identical to the procedure we have used for SBC, there is no dispute that cost modeling proceedings have expended vast resources and industry changes make it difficult for carriers to litigate these proceedings. It is time to consider other ideas. We agree with TURN that competitive carriers and other parties need some regulatory certainty as to how UNE rates will be treated by this Commission going forward. Thus, we will grant CALTEL's motion and consider other options, such as CALTEL's price cap proposal, in the next phase of this proceeding along with billing adjustment, or "true-up" issues. In this next phase, when the Commission considers CALTEL's proposal, it may also consider adoption of a reexamination procedure similar to the one that has been in place for SBC, consolidation of review with SBC, and reexamination limited to updated inputs and assumptions to the HM 5.3 adopted in today's order. Whatever the outcome of this next phase, it will apply to UNE price adjustments that will take place no sooner than February 2008. Verizon has committed to the FCC as a condition of its merger with MCI that it will not seek any increase in state-approved UNE rates for two years from its merger closing date, except for rates deemed invalid or remanded to a state commission in connection with currently pending appeals.53 Thus, a delay in any UNE reexamination until 2008 matches the timing of this commitment.
52 See Testimony of Joseph Gillan on behalf of CALTEL and Covad, filed August 15, 2005, A.05-04-020, at pages 34-44.
53 Verizon made this commitment in an October 31, 2005 ex parte letter to the FCC regarding its Application for Consent to Transfer Control filed by Verizon Communications, Inc. and MCI Inc., WC Docket No. 05-75.
