II. Terms of the Proposed Settlement

Under the terms of the Settlement, Pacific would recover costs in the amount of $87.5 million, including principal and interest, over a two-year period, beginning January 1, 2001. The amount will be recovered through Pacific's Rule No. 33 Billing Surcharge applicable to exchange, toll, and access billings and would result in a surcharge of magnitude of approximately .737% if calculated based upon the most recent billing base approved. The actual surcharge factor, however, would be based on the years 2001 and 2002 billing bases approved in Pacific's Annual Price Cap filing by the Commission.

The Settlement addresses not only the $175 million implementation costs included in Pacific's December 20, 1999 filing, but also includes Pacific's additional Local Competition Implementation costs, as the Commission has defined them, that Pacific has incurred during 1999 and subsequent years as a result of Commission or Federal Communications Commission (FCC) orders issued before April 18, 2000. The Settlement, however, specifically excludes costs of permanent number portability, and intraLATA presubscription, for which there are separate recovery mechanisms. It also excludes costs of implementing line sharing as described in the FCC's December 9, 1999 Advanced Services Order,¹ Public Education Programs associated with overlays, 1,000-block number pooling, and implementing collocation as described in the FCC's March 31, 1999 Advanced Services Order.²