XII. Assignment of Proceeding
Michael R. Peevey is the Assigned Commissioner and Dorothy J. Duda is the assigned Administrative Law Judge in this proceeding.
1. In D.95-12-016, the Commission adopted a set of Consensus Costing Principles that it has applied in TSLRIC and TELRIC cost proceedings.
2. The Commission must comply with the FCC's TELRIC methodology when setting UNE rates for Verizon.
3. The Commission established cost modeling criteria for this proceeding in a July 2002 ruling.
Verizon Model
4. Verizon's model replicates its existing network and does not reconfigure or re-size facilities to meet current and reasonably foreseeable future demand.
5. Verizon's loop model assumes the use of new equipment without considering more efficient network configurations, and without aggregating small distribution areas into larger groupings.
6. Verizon's loop model overlays modern equipment on an embedded network design, resulting in investment levels far above current levels.
7. Verizon attempts to follow current network routes, but admits it had to rely on surrogate data in some instances and there are discrepancies between equipment locations in the model and Verizon's actual network.
8. Verizon's model contains an error in calculating the economically efficient cross-over point from fiber to copper facilities.
9. VzLoop contains a high percentage of collocated distribution terminals and overlapping distribution areas.
10. The Verizon model is not fully integrated because it uses different approaches to model feeder and distribution, and it requires multiple steps to process model input changes.
11. The expense portion of Verizon's model is difficult to audit and verify because it relies on numerous factors that are difficult to trace and changes to the factors require multiple steps.
12. Verizon does not explain how it arrived at the level of forward-looking expenses it uses in its FLC factor.
13. Verizon's FLC factor assumes expenses will remain at current levels even as investments change.
14. Verizon uses two data-intensive switching cost models that make it difficult to run sensitivity analyses with varying assumptions for the percentage of new and growth lines, switch discounts, or switch types.
15. Verizon has purchased only one GTD-5 switch since 1990.
HM 5.3 Model
16. The rebuttal version of HM 5.3 contains some changes that were not reasonably explained in JC's rebuttal filings.
17. HM 5.3 relies on a cluster input database developed by a third party vendor.
18. HM 5.3 starts with actual customer locations to cluster customers into efficient groupings, but does not model all loops in the exact locations where they exist today.
19. Both HM 5.3 and VzLoop use preprocessed network information that cannot be modified as a modeling input.
20. Both HM 5.3 and VzLoop lack transparency and limit the Commission's ability to test scenarios.
21. HM 5.3 models the location of existing wire centers coupled with forward-looking equipment and network design.
22. The inputs and assumptions in HM 5.3 can be modified more readily than those in the Verizon model.
Asset Lives
23. Verizon's proposed asset lives are similar to those adopted for SBC in D.04-09-063.
Cost of Capital
24. Verizon proposes a cost of equity based solely on the DCF approach, using forecasts for a proxy group of S&P Industrials.
25. JC use the CAPM method to calculate a 12.03% long-term cost of equity, similar to the analysis used to set an 11.78% cost of equity for SBC in D.04-09-063.
26. JC's Murray uses a beta of 1.0 in her CAPM analysis, based on FCC guidance in the Virginia Arbitration.
27. JC propose a cost of debt based on both long and short-term debt costs.
28. In D.04-09-063, we found that a forward-looking capital structure for a firm is based on a firm's target capital structure, and the best predictor of target capital structures uses both market and book value information.
29. Target capital structures of other telecommunications companies are similar to the capital structure proposed by JC.
30. The Commission has generally excluded short-term debt when determining a capital structure and a cost of capital for utilities.
31. Verizon's proposed risk adder of 2.74% is similar to a proposal rejected by the Commission in D.99-11-050.
IDLC/UDLC
32. UDLC loops are required for circuits that cannot be provisioned over an IDLC system.
33. In D.04-09-063, the Commission found that while IDLC is the forward-looking technology choice, operational issues remain to be resolved regarding the provisioning of unbundled loops over IDLC.
Fill Factors
34. JC's proposed distribution and feeder fill factors are similar to those adopted for SBC in D.04-09-063.
35. Verizon, SBC, and BellSouth have seen business and consumer access line reductions since 2002.
36. JC's proposed SAI fill factors assume 3.5 lines per residential living unit and 2 lines per business, identical to assumptions the Commission adopted in the SBC UNE case.
DLC Costs
37. Verizon proposes DLC installation costs based on a nationwide sample and a review of 17 Verizon California projects, while JC propose DLC cost inputs the same or lower than those the Commission rejected in D.04-09-063.
Labor Costs
38. JC have proposed labor inputs similar to, and in some cases lower, than those the Commission rejected in D.04-09-063.
39. Verizon developed an alternative set of HM 5.3 labor inputs based on cost data from the Verizon model.
Switching Inputs
40. The Commission has twice rejected the assumption that switch vendors would sell over 90% of lines at the discounted "new" switch price.
41. Verizon's switch price per line assumes that 63% of switch purchases are GTD-5 switches.
42. The current generation of digital switches has call processing capabilities that far exceed current call volumes. Forecasted call volumes are stable or declining.
