1998 Adjustments

Summary of Adopted Errors to Net Operating Income and Rate Base

Pacific Bell Intrastate Regulated Operations

Phase 2B

1998

Joint Exhibit

Line

Pacific Bell

Non-Reg (Below the

Interstate

Intrastate Reg Before

Income

Intrastate Regulated

Index No.

Number

Adopted Adjustments to Net Operating Income

Total Co.

Line )

Separations

Tax

Tax

After Tax

Phase 2B Net Operating Income

39

1.

SBC Ops FAS 106 Merger Conforming Expense

-

-

-

-

40

2.

AMDOC Awards SBC Operations

-

-

-

-

41

3.

Excess Executive Compensation SBC Operations

1,088,244

53,543

222,924

811,777

(330,767)

481,010

42

4.

SBC Ops Sec. Alloc of Parent Mgt Fees

660,252

32,486

135,251

492,515

(200,680)

291,835

43

5.

SBC Ops Call Ctr Depreciation, Merger Implementation Exp.

784,511

269,817

114,679

400,015

(162,990)

237,025

44

6.

SBC Svcs "Excess" Executive Comp Expense

364,804

12,115

77,783

274,906

(112,013)

162,893

45

7.

SBC Svcs, CFL, TRI Sec. Alloc. of Parent Mgt Fees

596,298

25,231

122,508

448,559

(182,770)

265,789

46

8.

Parent "Excess" Executive Compensation Expense

15,059,186

362,378

3,162,128

11,534,680

(4,699,921)

6,834,759

47

9.

Parent Political and Legislative Influence Expense

21,532,160

-

4,639,061

16,893,099

(6,883,262)

10,009,837

48

10.

Parent Legal Expense

981,611

37,545

203,397

740,669

(301,793)

438,876

49

11.

Parent Public Relations & Corporate Sponsorship Expense

19,455,535

833,439

4,136,395

14,485,701

(5,902,344)

8,583,357

50

12.

Parent Corporate Development Expense

6,859,066

257,693

1,422,273

5,179,100

(2,110,276)

3,068,824

51

13.

Parent Strategic Planning Expense

1,178,332

35,205

245,228

897,899

(365,858)

532,041

52

14.

Parent Contributions, Memberships, Foundation Expense

1,439,107

24,501

304,774

1,109,832

(452,212)

657,620

53

15.

Parent Out of Period Expense

7,415,911

187,881

1,556,204

5,671,826

(2,311,042)

3,360,784

54

16.

Parent Merger Conforming Expense

-

-

-

-

55

17.

Parent Impact of Adjustments on Billings to PBD

6,607,026

-

-

6,607,026

(2,692,099)

3,914,927

56

18.

MSI USA "Excess" Executive Compensation Billed Directly

-

-

-

-

57

19.

Parent PB Employee Transfer Fees Billed Back to Pac Bell

-

-

-

-

59

20.

Nevada Bell Net Directory Revenue

-

-

-

-

62

24.

Customer Service Non-Productive Salary Allocations

(7,450,229)

(1,769,429)

(5,680,800)

2,314,699

(3,366,101)

64

26.

Non-regulated Tracking Code Direct Assignment Errors

9,534,336

2,361,549

7,172,787

(2,922,624)

4,250,163

65

27.

National-Local Strategy Implementation

-

-

-

-

66

28.

1997 Corporate Sponsorship Costs

-

-

-

-

67

29.

Customer Premise Equipment Costs

22,721,475

5,680,369

17,041,106

(6,943,569)

10,097,537

1

30.

Unsupported Contingent Liabilities - Revenues

-

-

-

-

2

31.

Bellcore Dividends

-

-

-

-

3

32.

Uncollectible Revenues - RCRMS (PacBell reports flows thru)

-

-

-

-

-

-

4

33.

Gain on Sale of Bellcore

-

-

-

-

5

34.

Local Number Portability Costs

61,870,980

1,737,102

13,040,878

47,093,000

(19,188,514)

27,904,486

7

36.

Merger Savings

4,200,000

-

-

4,200,000

(1,711,332)

2,488,668

8

37.

Advanced Communications Network

10,034,385

573,833

2,230,593

7,229,959

(2,945,919)

4,284,040

10

39.

Unsupported Contingent Liabilities - Operating Expense

1,920,000

6,034

1,913,966

(779,865)

1,134,101

12

41.

ISP-Bound Traffic Separations

-

-

-

-

13

42.

Uncollectible Settlements - RCRMS

-

-

-

16

43.

SFAS 112

-

-

-

-

-

-

18

45.

SAVR Delayed Retirements

-

-

-

-

20

47.

Equal Access IEMR Ratemaking Adjustment

(10,931,000)

(10,931,000)

4,453,945

(6,477,055)

22

48.

Ameritech Income Tax Misclass

-

-

-

23

49.

Income Tax Normalization - Phase 2B Issues

92,787,000

-

-

92,787,000

-

92,787,000

24

50.

Excess Deferred Income Tax

-

-

-

25

51.

Sales and Use Tax Accrual

-

-

-

26

52.

Employment Tax Error

-

-

-

-

68

53.

PIU Accrual

-

-

-

-

69

54.

USOAR Turnaround Accrual

-

-

-

-

70b

55.

LNP Depreciation

2,678,000

2,678,000

(1,091,178)

1,586,822

57.

Total Phase 2B Net Operating Income

271,386,990

4,448,803

37,886,565

229,051,622

(55,522,383)

173,529,239

Phase 2B Rate Base

29

58.

SFAS 112 Liability

30

59.

Vacation Liability

31

60.

SFAS 106 Accrued Liability

32

61.

Accrued Contingent Liability

27

62.

Cash Working Capital

(91,320,000)

28

63.

Prepaid Directory Expense

-

35

64.

Restructure Reserve

(29,024,711)

36

65.

Accumulated Reserve for Depreciation

5,250,685

37

66.

Accumulated Deferred Income Tax

(55,160,036)

38

67.

Excess Deferred Income Tax

70a

68.

LNP Plant

(32,338,163)

72

69.

PBOP Pre-Funding Plant Adj.

70.

Total Phase 2B Rate Base

(202,592,225)


Summary of Adopted Errors to Net Operating Income and Rate Base
Pacific Bell Intrastate Regulated Operations
Phase 2B
1998
Joint Exhibit	Line		Pacific Bell	Non-Reg (Below the	Interstate	Intrastate Reg Before	Income	Intrastate Regulated
Index No.	Number	Adopted Adjustments to Net Operating Income	Total Co.	Line )	Separations	Tax	Tax	After Tax

		Phase 2B Net Operating Income

39	1.	SBC Ops FAS 106 Merger Conforming Expense	-			-	-	-
40	2.	AMDOC Awards SBC Operations	-			-	-	-
41	3.	Excess Executive Compensation SBC Operations	1,088,244	53,543	222,924	811,777	(330,767)	481,010
42	4.	SBC Ops Sec. Alloc of Parent Mgt Fees	660,252	32,486	135,251	492,515	(200,680)	291,835
43	5.	SBC Ops Call Ctr Depreciation, Merger Implementation Exp.	784,511	269,817	114,679	400,015	(162,990)	237,025
44	6.	SBC Svcs "Excess" Executive Comp Expense	364,804	12,115	77,783	274,906	(112,013)	162,893
45	7.	SBC Svcs, CFL, TRI Sec. Alloc. of Parent Mgt Fees	596,298	25,231	122,508	448,559	(182,770)	265,789
46	8.	Parent "Excess" Executive Compensation Expense	15,059,186	362,378	3,162,128	11,534,680	(4,699,921)	6,834,759
47	9.	Parent Political and Legislative Influence Expense	21,532,160	-	4,639,061	16,893,099	(6,883,262)	10,009,837
48	10.	Parent Legal Expense	981,611	37,545	203,397	740,669	(301,793)	438,876
49	11.	Parent Public Relations & Corporate Sponsorship Expense	19,455,535	833,439	4,136,395	14,485,701	(5,902,344)	8,583,357
50	12.	Parent Corporate Development Expense	6,859,066	257,693	1,422,273	5,179,100	(2,110,276)	3,068,824
51	13.	Parent Strategic Planning Expense	1,178,332	35,205	245,228	897,899	(365,858)	532,041
52	14.	Parent Contributions, Memberships, Foundation Expense	1,439,107	24,501	304,774	1,109,832	(452,212)	657,620
53	15.	Parent Out of Period Expense	7,415,911	187,881	1,556,204	5,671,826	(2,311,042)	3,360,784
54	16.	Parent Merger Conforming Expense	-			-	-	-
55	17.	Parent Impact of Adjustments on Billings to PBD	6,607,026	-	-	6,607,026	(2,692,099)	3,914,927
56	18.	MSI USA "Excess" Executive Compensation Billed Directly	-			-	-	-
57	19.	Parent PB Employee Transfer Fees Billed Back to Pac Bell	-			-	-	-
59	20.	Nevada Bell Net Directory Revenue	-			-	-	-
62	24.	Customer Service Non-Productive Salary Allocations	(7,450,229)		(1,769,429)	(5,680,800)	2,314,699	(3,366,101)
64	26.	Non-regulated Tracking Code Direct Assignment Errors	9,534,336		2,361,549	7,172,787	(2,922,624)	4,250,163
65	27.	National-Local Strategy Implementation	-			-	-	-
66	28.	1997 Corporate Sponsorship Costs	-			-	-	-
67	29.	Customer Premise Equipment Costs	22,721,475		5,680,369	17,041,106	(6,943,569)	10,097,537
1	30.	Unsupported Contingent Liabilities - Revenues	-			-	-	-
2	31.	Bellcore Dividends	-			-	-	-
3	32.	Uncollectible Revenues - RCRMS (PacBell reports flows thru)	-	-	-	-	-	-
4	33.	Gain on Sale of Bellcore	-			-	-	-
5	34.	Local Number Portability Costs	61,870,980	1,737,102	13,040,878	47,093,000	(19,188,514)	27,904,486
7	36.	Merger Savings	4,200,000	-	-	4,200,000	(1,711,332)	2,488,668
8	37.	Advanced Communications Network	10,034,385	573,833	2,230,593	7,229,959	(2,945,919)	4,284,040
10	39.	Unsupported Contingent Liabilities - Operating Expense	1,920,000	6,034		1,913,966	(779,865)	1,134,101
12	41.	ISP-Bound Traffic Separations	-			-	-	-
13	42.	Uncollectible Settlements - RCRMS				-	-	-
16	43.	SFAS 112	-	-	-	-	-	-
18	45.	SAVR Delayed Retirements			-	-	-	-
20	47.	Equal Access IEMR Ratemaking Adjustment	(10,931,000)			(10,931,000)	4,453,945	(6,477,055)
22	48.	Ameritech Income Tax Misclass	-			-		-
23	49.	Income Tax Normalization - Phase 2B Issues	92,787,000	-	-	92,787,000	-	92,787,000
24	50.	Excess Deferred Income Tax				-	-	-
25	51.	Sales and Use Tax Accrual				-	-	-
26	52.	Employment Tax Error	-			-	-	-
68	53.	PIU Accrual	-			-	-	-
69	54.	USOAR Turnaround Accrual	-			-	-	-
70b	55.	LNP Depreciation	2,678,000			2,678,000	(1,091,178)	1,586,822

	57.	Total Phase 2B Net Operating Income	271,386,990	4,448,803	37,886,565	229,051,622	(55,522,383)	173,529,239

		Phase 2B Rate Base

29	58.	SFAS 112 Liability
30	59.	Vacation Liability
31	60.	SFAS 106 Accrued Liability
32	61.	Accrued Contingent Liability
27	62.	Cash Working Capital						(91,320,000)
28	63.	Prepaid Directory Expense						-
35	64.	Restructure Reserve						(29,024,711)
36	65.	Accumulated Reserve for Depreciation						5,250,685
37	66.	Accumulated Deferred Income Tax						(55,160,036)
38	67.	Excess Deferred Income Tax
70a	68.	LNP Plant						(32,338,163)
72	69.	PBOP Pre-Funding Plant Adj.

	70.	Total Phase 2B Rate Base						(202,592,225)