VIII. Comments on Draft Decision and Revised Draft Decision

The Commission mailed the draft decision of ALJ Bushey in this matter on December 19, 2005, in accordance with Section 311(g)(1) of the Public Utilities Code and Rule 77.7 of the Rules of Practice and Procedure.

Parties filed comments on January 10, 2006. Surewest and the Small LECs¹¹ raised procedural and substantive objections to the components of the draft decision which addressed local exchange carriers other than SBC and Verizon. That section has been substantially revised for today's decision to reflect the changes requested by Surewest and the Small LECs. ORA and TURN also supported these changes.

Verizon argued that access charges paid by LEC affiliates should be included in calculating a revenue neutral offset rate increase. Verizon stated that excluding LEC affiliates was not supported by the record and was contrary to the Phase I decision. Verizon also contended that the Commission's policy is to treat affiliates and local exchange carrier as separate entities for ratemaking and regulatory purposes. Excluding the affiliate amounts would also violate the standard of revenue neutrality because the competitive market would not allow Verizon's affiliates to retain all the benefit of access charge reductions. The affiliate issue is addressed in section V.C. of today's decision.

Verizon also opposed using a memorandum account to track lost revenues because it was a temporary measure that required administratively burdensome annual filings. Verizon pointed out that its local billing base was declining so that using 2004 access charge data to calculate a permanent percentage surcharge would result in similarly declining total revenue.

SBC echoed Verizon comments and pointed out two errors in the draft decision, which have been corrected.

ORA and TURN filed joint comments that continued to oppose rate rebalancing as creating a windfall for the local exchange carriers because the Commission is unwilling to order corresponding reductions to long distance prices. ORA and TURN agreed, however, that using only actual lost revenues from unaffiliated entities would partially mitigate but not eliminate the windfall. They also opposed making the surcharge permanent. ORA and TURN stated that making the LEC "whole" for rate elements not based on costs is fundamentally inconsistent with Commission policies and sound ratemaking principles.

Sprint filed comments supporting the draft decision, and advocating for further reforms of intrastate switched access rates and the intercarrier compensation system.

Verizon replied in opposition to ORA and TURN's comments, and supported the small LEC's. SBC focused its opposition on ORA and TURN's proposal to limit the duration of the surcharge.

In their reply comments, ORA and TURN dispute SBC's and Verizon's assertions that the Commission has previously addressed the issue of including affiliate transfers in the lost revenue tabulation. ORA and TURN provided quotations from the record showing the issue on which the Commission sought comment was whether "reducing access charges and permitting the LEC to make corresponding increases to other rates would provide a windfall to the LEC's family of companies if the long distance affiliate is not compelled to make corresponding rate reductions." ORA and TURN also contended that recording actual lost revenues in a memorandum account did not violate previous Commission decisions, but that Verizon's and SBC's proposal amounted to "making them whole for revenue losses in perpetuity."

Surewest's reply comments supported SBC's and Verizon's opening comments, and the Small LECs observed that ORA and TURN agreed with their request to be excluded from this decision.

Qwest filed reply comments opposing ORA's and TURN's assertion that revenue rebalancing was unnecessary, and stating that revenue neutrality must ensure that no LEC is penalized for the progressive restructuring of intrastate access rates.

¹¹ Calaveras Telephone Company, Cal-Ore Telephone Co., Ducor Telephone Company, Foresthill Telephone Co., Global Valley Networks, Happy Valley Telephone Company, Hornitos Telephone Company, Kerman Telephone Company, Pinnacles Telephone Co., The Ponderosa Telephone Co., Sierra Telephone Company, Inc., The Siskiyou Telephone Company, Volcano Telephone Company, and Winterhaven Telephone Company.