II. Verizon's Petition for Modification

On May 21, 2004, Verizon filed a petition requesting modification of D.03-03-033 because the New Jersey Board of Public Utilities (the "Board") had recently modified its UNE rates.¹ Verizon states in its petition that given the Commission's reliance on New Jersey rates, the Commission must now increase the interim rates to reflect adjustments made by the New Jersey Board.

In D.03-03-033, the Commission found it was reasonable to rely on UNE rates from New Jersey rates because "these are among the most recent forward-looking, TELRIC-based UNE rates" for Verizon. In its petition, Verizon alleges that because the New Jersey Board has modified its UNE rates, interim rates in California are based on outdated New Jersey UNE rates, which are no longer reasonable and must be adjusted.

Specifically, the New Jersey Board made upward adjustments to its UNE rates after finding the cost of capital it had previously adopted required modification to consider future competition and the risk of operating in a competitive market. The Board increased the cost of capital used as an input in its cost studies from 8.82% to 9.88% and it modified switching port and usage

rates to correct cost modeling and allocation errors.² The Board's decision adopting new UNE rates for Verizon New Jersey went into effect on May 14, 2004. Verizon contends these New Jersey UNE rate adjustments are a material change in circumstances that warrant modification of D.03-03-033. Therefore, the Commission must revise its interim UNE rates upwards by the same margin adopted in New Jersey.

Verizon includes in its petition a recalculation of its interim UNE rates based on the newly adopted New Jersey rates. In D.03-03-033, the Commission adjusted New Jersey UNE rates to reflect a Synthesis Model comparison of UNE costs in California and New Jersey. Verizon contends it uses the same methodology applied in D.03-03-033 with the newly adopted New Jersey rates. As a result, Verizon requests the Commission increase the 2-wire interim loop rate by $0.89 in Zone 1 and $1.89 in Zone 2; the 4-wire interim loop rate by $1.90 in Zone 1 and $4.06 in Zone 2; the interim port rate by $0.90; the interim end office switching usage rate by $0.000239; and the interim tandem switching rate by $0.000151.

Commission Rule 47(d) specifies that petitions for modification shall be filed within one year of the underlying order. Verizon contends that although its petition is filed more than one year following adoption of D.03-03-033 on March 13, 2003, its current petition is justified because the New Jersey Board did not issue its decision with updated UNE prices until May 7, 2004. Therefore, Verizon could not have filed this petition prior to the release of the Board's order.