Summary of Decision in R.93-04-003/I.93-04-002 Adopting Interim UNE Rates For Verizon California

The California Public Utilities Commission ("Commission") set interim monthly UNE rates and ordered revisions to some nonrecurring charges to competitors for ordering and provisioning network facilities for Verizon California. Two alternative decisions were considered by the Commission today. By a 4 to 1 vote, the Commission adopted the draft decision sponsored by ALJ Duda. The new interim monthly UNE rates are summarized below.

 The Commission found that interim rates were justified because the current rates for Verizon California are based on a 1996 GTE total service long run incremental Cost (TSLRIC) study which used data from 1994 and 1995. The Commission had found in 1996 that this study did not reflect forward-looking costing principles and had set rates for GTE UNEs based on Commission ordered changes to this study to approximate forward-looking costs. In addition, since these rates were adopted in 1997, loop and switching equipment costs have declined.

To establish interim rates for Verizon California, the Commission started with the total element long run incremental cost (TELRIC) UNE rates established for Verizon in New Jersey. Next, these rates were adjusted upward where a comparison of the cost difference for each UNE using the FCC’s Synthesis Model showed that California costs are higher than New Jersey costs. Where the FCC’s Synthesis Model indicated that California costs are lower, to be conservative, the Commission used the New Jersey TELRIC UNE rates and did not make any downward adjustment. Finally to calculate the interim Verizon California UNE rates, the Commission replaced the 10 percent overhead cost factor used to calculate the New Jersey UNE rates with a 22 percent overhead cost factor consistent with GTE’s 1996 TSLRIC study. These interim UNE rates are subject to true up or down once permanent UNE rates are established by the Commission for Verizon California.

In addition, the Commission held that Verizon California should adjust its price floors for Category II services (partially competitive services) to reflect the interim UNE rates in this order. Finally, the Commission ordered Verizon California to make several changes to the non-recurring charges to competitors for ordering and provisioning network facilities. First, Verizon should use a 22 percent overhead cost factor for these charges. Next, Verizon California must establish separate costs for mechanized and semi-mechanized orders instead of blending these charges together as it does currently. In addition, Verizon California must establish separate charges for initial and additional orders instead of having a single charge based on the weighted average cost to process the average order size. Also Verizon California should not charge for a disconnect at the time the initial connection order is placed. Finally, Verizon should separately charge for record changes instead of including this cost in its initial order charge because doing so assumes that every order will require a record change.

This summary is based on a review of the draft decision circulated prior to the Commission meeting and the discussion among the Commissioners at today’s business meeting. A formal decision has not yet been issued. While we do not anticipate any major changes from the draft decision, if any occur, a revised summary will be issued.

The Commission found that interim rates were justified because the current rates for Verizon California are based on a 1996 GTE total service long run incremental Cost (TSLRIC) study which used data from 1994 and 1995. The Commission had found in 1996 that this study did not reflect forward-looking costing principles and had set rates for GTE UNEs based on Commission ordered changes to this study to approximate forward-looking costs. In addition, since these rates were adopted in 1997, loop and switching equipment costs have declined.

To establish interim rates for Verizon California, the Commission started with the total element long run incremental cost (TELRIC) UNE rates established for Verizon in New Jersey. Next, these rates were adjusted upward where a comparison of the cost difference for each UNE using the FCC’s Synthesis Model showed that California costs are higher than New Jersey costs. Where the FCC’s Synthesis Model indicated that California costs are lower, to be conservative, the Commission used the New Jersey TELRIC UNE rates and did not make any downward adjustment. Finally to calculate the interim Verizon California UNE rates, the Commission replaced the 10 percent overhead cost factor used to calculate the New Jersey UNE rates with a 22 percent overhead cost factor consistent with GTE’s 1996 TSLRIC study. These interim UNE rates are subject to true up or down once permanent UNE rates are established by the Commission for Verizon California.

In addition, the Commission held that Verizon California should adjust its price floors for Category II services (partially competitive services) to reflect the interim UNE rates in this order. Finally, the Commission ordered Verizon California to make several changes to the non-recurring charges to competitors for ordering and provisioning network facilities. First, Verizon should use a 22 percent overhead cost factor for these charges. Next, Verizon California must establish separate costs for mechanized and semi-mechanized orders instead of blending these charges together as it does currently. In addition, Verizon California must establish separate charges for initial and additional orders instead of having a single charge based on the weighted average cost to process the average order size. Also Verizon California should not charge for a disconnect at the time the initial connection order is placed. Finally, Verizon should separately charge for record changes instead of including this cost in its initial order charge because doing so assumes that every order will require a record change.

This summary is based on a review of the draft decision circulated prior to the Commission meeting and the discussion among the Commissioners at today’s business meeting. A formal decision has not yet been issued. While we do not anticipate any major changes from the draft decision, if any occur, a revised summary will be issued.