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On Thursday, August 24, 2006, the CPUC held its regularly scheduled agenda meeting. The agenda featured a wide range of telecommunications-related items, including significant items in the Uniform Regulatory Framework (“URF”), California Environmental Quality Act (“CEQA”), and consumer protection dockets. The Commission unanimously endorsed Commissioner Chong’s proposal in URF, thereby ending the New Regulatory Framework. Commissioner Brown’s proposal to adopt an Expedited Treatment Program (“ETP”) for facilitating CEQA review was defeated 3-2. The Commission also adopted a “slamming citation” program, established “catch up” surcredits for Verizon and Frontier, modified the WMDVBE eligibility procedures, and opened a rulemaking to set hourly intervenor compensation rates for 2006. Further details regarding the telecommunications-related items addressing during Thursday’s meeting are provided below.


REGULAR AND CONSENT AGENDA ITEMS

  • Uniform Regulatory Framework Decision Adopted (Items 58, adopted 5-0) — By this decision, the Commission ended the New Regulatory Framework (“NRF”), and replaced it with a deregulatory scheme, generally referred to as the Uniform Regulatory Framework, or URF. Based on an extensive record regarding the state of competition in the current telecommunications market, the Commission found the NRF price-cap regime to be outdated, and that ILECs should be given more regulatory freedom to compete with their lesser-regulated and unregulated competitors.

    Under URF, the former NRF ILECs have pricing flexibility as to all retail services, except for basic residential service. Basic residential measured and flat-rate service remain subject to a price cap until January 1, 2009, and services that receive CHCF-B subsidies will remain price-capped until the CHCF-B proceeding (R.06-06-028) is concluded. URF also provides for streamlined advice letter procedures, whereby most tariff changes will be deemed effective within one day of an advice letter filing. Further, URF removes many of the NRF monitoring reports and other regulatory oversight mechanisms. The URF decision also clarifies that ILEC shareholders can receive 100% of the gains from sales of utility property.

    In introducing her proposed decision, Commissioner Chong noted that the decision is “hefty,” but that she would attempt an overview nevertheless. Chong began by noting how outdated NRF had become. Chong summarized the many regulatory shifts and market transformations that have occurred since NRF was adopted, emphasizing that the telecom world has now been “turned on its ear.” In light of the robust and increasing competition that ILECs are facing from VoIP providers, wireless carriers, and other competitors, Chong concluded that the strictures of NRF are no longer appropriate. While Chong acknowledged that the limitations on the Commission’s jurisdiction prevent the Commission from adopting a truly “uniform” URF, Chong joked that this decision would at least be a “Sanguine Moderately-Uniform Regulatory Framework,” or “SMURF.”

    Calling this reform effort “long overdue,” Chong noted that 21 other states have already adopted similar reforms. Chong stated her conviction both consumers and competitors will benefit from the decision. She referenced her experiences at the FCC, where she observed that “even imperfect competition is superior to costly and burdensome regulation.” According to Chong, the significant price decreases in the long distance and wireless markets were possible only after a series of deregulatory reforms were adopted.

    Chong offered her assurances that the Commission would continue to safeguard consumer rights, and protect against market abuses. She emphasized that URF signaled a move toward “regulatory forbearance,” not a relinquishment of jurisdiction over the large and mid-sized ILECs. Chong also articulated a vision for further deregulatory reform. In her words, the current telecommunications reform effort is a “three-legged stool.” The first step was price deregulation. The second step is universal service reform, which is underway in two separate CPUC proceedings. The third step is intercarrier compensation reform, an issue that is now being addressed at both the federal and state levels. Moreover, the backdrop of all of these reforms is the consumer protection initiative, which is aimed at educating consumers and enforcing existing consumer protection law.

    Commissioners Brown and Grueneich offered more measured support for the proposed decision. While Brown stated that he supports “significant parts of the decision, and will vote for it,” he warned consumers that “rates will go up where there is not competition.” Brown expressed some regret that the Commission seemed to be in a “hurry” to deregulate, and suggested that the Commission might have put better protections in place to protect consumers against the possibility of price increases in geographic areas and particular markets that are less competitive. Commissioner Grueneich also critiqued certain aspects of the proposed decision, including the extent of deaveraging that it permits, and its failure to identify a specific timeline for adopting monitoring reports in Phase II of URF. Commissioner Brown summarized he and Commissioner Grueneich’s concerns, noting that he had “significant reservations” about the specifics of the decision, but that his “belief in competition” compelled him to believe that “the Commission is moving in the right direction . . . or, some might say, the far right.

    Commissioner Bohn provided some final thoughts on the subject. Bohn characterized the unanimous decision as a “remarkable concurrence in a new policy direction.” He emphasized that “we are not ending regulation of this industry,” but rather, “ending regulations that, in our view, get in the way of increasing competition.” Bohn reaffirmed his commitment to vigilantly monitoring the “unruly and competitive beast” that is the telecommunications industry. Ultimately, all five Commissioners voted to support the proposed decision, with Brown and Grueneich indicating that they would draft concurrences.

  • Brown CEQA Proposal Defeated (Item 55, defeated 3-2) — The Commission voted by a 3-2 vote to reject Commissioner Brown’s proposed “Expedited Treatment Process” (“ETP”) for evaluating carriers’ compliance with CEQA in connection with proposed construction projects. Although the Commissioners and many of the parties to this proceeding recognize the need for some reform in the Commission’s approach to CEQA, the ETP would have applied Commission scrutiny to all construction projects, even those that are exempt from CEQA. With the defeat of the Brown proposal, the CEQA docket will remain open for consideration of other mechanisms for streamlining the Commission’s CEQA procedures.

    In 2000, the Commission opened this rulemaking to examine its application of CEQA to proposed construction projects by various types of carriers. Comments were submitted on the rulemaking, but no immediate action was taken. This past year, Commissioner Brown revived the proceeding, and sought comment on his ETP proposal. Carriers were uniformly opposed to the proposal, although many suggested other ways in which the Commission’s CEQA policy might be modified.

    Commissioner Brown introduced his proposal, referring to the task as “pick and shovel work,” since he acknowledged that it would likely be defeated. Brown submitted that this proposal would comply with the law, and that it would rectify the disparities in treatment between telecommunications providers. He criticized carriers for proffering unsupported, “self-serving” assertions that the ETP would require them to make numerous costly filings, even for small and inconsequential construction projects. Despite these assertions, Brown alleged that he had yet to see any hard data supporting carriers’ claims. Brown “regrettably concluded” that the companies do not believe the Commission should protect the environment. Without this proposal, or something like it, Brown warned that the Commission would likely be “successfully sued and embarrassed by the attorney general” for non-compliance with CEQA.

    Commissioners Chong and Bohn both expressed significant skepticism regarding the proposal, focusing instead on the possibility that further analysis in this proceeding might produce a more reasonable reform idea. Bohn emphasized the need to balance various policy objectives in framing the Commission’s CEQA procedures. While “compliance with CEQA is one goal,” Bohn also identified “competition” and “promoting infrastructure and development” important goals. Since the current proposal would likely “hinder the expansion by many providers, of their networks,” it should be rejected. Chong echoed these sentiments, noting also that the Brown proposal was based on a “stale record,” and that there was insufficient attention given to the economic impact that the proposal might have on the state as a whole. Both Chong and Bohn also questioned the “feasibility” of the Brown proposal, implying that it might create an administrative nightmare for the Commission. Despite their critiques, these Commissioners hoped that the Commission would explore some “new reform ideas” presented in parties’ comments.

    Ultimately, the Brown proposal was defeated 3-2, with Grueneich and Brown dissenting.

  • Citation Program Adopted to Address Noncompliance with Procedures for Verifying Changes in Provider, Resolution UEB-001 Item 59, adopted, 5-0) – With the adoption of this resolution, the Commission initiated a procedure for issuing “citations” for carriers’ non-compliance with the third party verification requirements of Public Utilities Code Section 2889.5(a)(3) and (7). The Director of the CPSD, or someone under supervision of the Director may serve citations of $1000 per alleged violation on carriers who cannot produce a third party verification tape or “other acceptable evidence” showing a change in provider. A citation could also be issued if the carrier fails to verify the specific information required by 47 C.F.R. 64.1120(c)(3)(iii).

    The genesis of this proposal was the March 2006 consumer protection decision, which authorized the CPSD to evaluate the possibility of a “citation forfeiture program for violations of anti-slamming statutes.” After evaluating comments from interested parties, and holding a workshop on the subject, the Commission made certain limited revisions to its proposal.

    CPSD Director Clark briefly introduced this item for the Commission’s consideration. Clark noted that the proposal is “both feasible and effective,” and that various aspects of the resolution mirror the procedures under a similar CPSD program for dealing with violations by household goods carriers. Director Clark emphasized that the citation program would not address all slamming violations – only those related to verifications of “changes in provider” under Public Utilities Code 2889.5.

    Commissioner Peevey expressed support for the proposal, noting that it would be an improvement on the cumbersome OII process that the Commission currently employs. Commissioner Chong also praised this as “an excellent result.” The Commissioners voted unanimously to support this resolution.

  • Arbitrated Interconnection Agreement Approved Between AT&T and Verizon (Item 57, adopted 5-0) — This decision affirms the results reached in a Final Arbitrator’s Report, and thereby resolves the first interconnection agreement between AT&T and Verizon as newly constituted entities. The interconnection dispute began as a negotiation between SBC and MCI over the terms of their interconnection agreement. After a period of negotiation, SBC filed for arbitration of 175 different issues. MCI added 19 issues for resolution by the Commission. The disputed issues covered a wide range of topics, including UNE obligations, Operational Support Systems standards, Network Interconnection mechanisms, collocation, and invoicing. Ultimately, more than 80 issues were resolved by the Commission.

    Commissioner Bohn introduced this item, praising the work of ALJ Mattson in helping resolve the numerous issues in this proceeding. Bohn noted that the parties’ positions did not change materially when the SBC/AT&T and Verizon/MCI mergers took place, which “bodes well” for future competition between these entities. Without extensive discussion, item 57 was adopted 5-0.

  • Permanent Surcredits Adopted for Frontier and Verizon, Resolutions T-17057 and T-17058 (Items 60 and 61, adopted 5-0) — These items adopt incremental permanent surcredits for Frontier and Verizon to account for the differences between these companies’ CHCF-B claim amounts, and the amounts provided to customers via their provisional CHCF-B surcredits. The incremental permanent surcredit for Frontier will be 1.44% of intrastate billings, except residential basic service, contract services and ULTS. The surcredit will commence on October 1, 2006, and it will continue through September 2007. The Verizon surcredit is similarly-configured, but it will be .071%. In both cases, these incremental surcredits will be in addition to the companies’ permanent surcredits, which were adopted at the Commission’s July 20, 2006 meeting.

    Telecommunications Division Director Leutza introduced this item, noting that this decision will finally resolve the proper regulatory treatment of CHCF-B surcredits for these two companies during the disputed period. As Leutza recognized, the incremental surcredits constitute refunds to customers equal to the amounts that the customers would have received over a three year period, even though the disparities between surcredits and the claims existed for a somewhat larger period. Commissioner Peevey expressed his gratitude to the Telecommunications Division and the parties for helping bring this matter to a close. While it was “not the most illustrious chapter in the Commission’s history,” Peevey acknowledged, it does represent a “reasonable compromise.” Since there are some “legal questions” regarding whether customers should have received “anything whatsoever,” the refunds for three years of insufficient surcredits are reasonable.

    These resolutions were adopted 5-0.

  • WMDVBE Eligibility Verification Process Modified (Item 63, adopted 5-0) — This decision modifies the procedure for verifying and determining the eligibility of women, minority, and disabled veteran owned business enterprises for utility procurement contract opportunities. Historically, this verification process has been performed through a contract with an outside clearinghouse, most recently Asian, Inc. This decision authorizes a new procedure, whereby a utility-formed entity or arrangement would operate the clearinghouse, under supervision from the Commission.

    Commissioner Peevey introduced this item, underscoring the importance of the WMDVBE program. As Peevey noted, this rulemaking was made necessary because of a notice from the California Department of General Services that Government Code Section 19130 required the WMDVBE process to be administered by the Commission. This decision seeks a proposal from utilities within 30 days from the effective date of this decision that would facilitate the creation of a utility-administered entity to verify WMDVBE eligibility. If no such proposal is submitted, the Commission would reluctantly assume this function itself.

    Following Commissioner Peevey’s comments, the item was adopted 5-0.

  • Rulemaking Adopted to Set Hourly Rates for Intervenor Compensation for 2006 (Item 64, adopted 5-0) — By this item, the Commission opens a rulemaking to “update[e] the hourly rates used in computing awards of compensation to intervenors who make substantial contributions to Commission decisions.” This rulemaking follows on the heels of a recently-resolved rulemaking to set intervenor compensation rates more generally, R.04-10-010 (concluded by D.05-11-031). In setting 2006 intervenor rates, this new rulemaking will also evaluate the following issues: (1) whether to include a 3% increase in rates over the 2005 figures; (2) whether to include levels of experience in intervenor rates for experts, similar to the procedure for assigning rates to attorneys; (3) whether to allow a representative with no recently-approved rate to request consideration as a new representative; (4) whether to base future intervenor compensation rates on data from a broader period; and (5) whether intervenors should be permitted to recover for “outside representatives” based on actual rates rather than Commission-established rates.

    The large utilities, including AT&T and Verizon, are made respondents to the rulemaking, but other utilities are “invited to participate,” since the conclusions drawn in this proceeding will be applied to all assessments of intervenor compensation. A procedural schedule is outlined in the OIR, starting with an opportunity to comment on the above-referenced issues, within 20 days of the effective date of the OIR.

    ALJ Weismehl introduced this item, noting that the Commission is attempting to approximate market rates. The task, according to Weismehl, is to ensure that the intervenor rates remain comparable to those paid by utilities in the market. Weismehl highlighted an issue of particular difficulty in the OIR, which was how experts should be compensated, an issue that many parties have recognized is more complicated than similar issues for attorneys and other representatives. He expressed the hope of the ALJ Division that this matter be handled in an expeditious matter, and indicated that a procedural schedule had been put in place to achieve that result. The OIR was opened by a 5-0 vote.

  • Commission Grants Qwest Complaint Against Pacific Bell Alleging Excessive Collocation Payments (Item 4, adopted on consent agenda) — This decision rules in Qwest’s favor on a dispute against Pacific Bell regarding the rates that Pacific is charging Qwest for collocation. Qwest had complained that SBC unlawfully applied interim collocation rates differently depending on when the collocation service was ordered. Qwest purchased its collocation service at a certain rate, and then Pacific Bell lowered its interim collocation rate, and sold collocation service to later purchasers at that lower price. This decision finds that Qwest was entitled to be charged in accordance with the current interim rates, regardless of the fact that the rates will eventually be “trued up” when final collocation rates are put in place. The decision orders Pacific Bell (now AT&T) to tabulate the differences between the amount paid and the more current rates, and refund the difference to Qwest, plus interest.

  • Verizon Granted Authority to Grandfather Switch Access Volume Election Plan Service, Res. T-17051 (Item 28, adopted on consent agenda) — This item approves Verizon’s request to withdraw its Switch Access Volume Election Plan offering, a volume discount plan aimed at interexchange carriers. This service has only one customer, and it is unlikely that other carriers will sign up for the service, since they have all been made aware of it. The revenue generated from this service does not justify incorporating this functionality into Verizon’s new billing system, so Verizon requested its withdrawal. This item approves that request.

  • Compensation Agreement Approved Between GVNI and Metro PCS, Res. T-17038 (Item 10, adopted on consent agenda) — This item approves a CMRS compensation agreement between Global Valley Networks, Inc. and MetroPCS California/Florida, LLC. This agreement is approved pursuant to Section 252 of the Telecommunications Act of 1996, and in accordance with G.O. 96-A.

  • Volcano Telephone Granted Authority to Grandfather Foreign Exchange Network Access and ISDN Services, Res. T-17034 (Item 16, adopted on consent agenda) — This item grants Volcano Telephone Company’s request to grandfather Foreign Exchange Network Access (“FX”) service, and Integrated Service Digital Network (“ISDN”) service. Volcano only has two customers for each of these services, and each of them has been appropriately notified of Volcano’s intent to grandfather the services. FX service is a service whereby a telephone in a given local exchange area is connected, via a private line, to a central office in another “foreign” exchange, rather than the local exchange area’s central office. FX service allows subscribers to get their dial tone from another exchange, and to make calls in that same exchange at local rates instead of at higher toll rates. Cellular service, low-cost toll service, and special access point-to-point service have made FX service obsolete. ISDN is a network service that offers end to end digital connectivity with integrated access to a wide range of services, including voice and non-voice services, through standard user-network interfaces. DSL is a better alternative to ISDN. Based on the extremely small number of customers that subscriber to these services, and the availability of suitable alternatives, the Commission granted Volcano’s request to grandfather the services.

  • 2007-2008 Fiscal Year Budget Adopted for DDTP (Item 22, adopted on consent agenda) — This item approves a budget of $69.03 million for the DDTP for Fiscal Year 2007-2008. This budget will permit the Commission to test new technologies for delivering telecommunications services to the deaf and disabled communities.

  • TURN Granted Intervenor Compensation in Connection with NRF Proceeding (Item 11, adopted on consent agenda) — This item grants more than $519,000 in intervenor compensation to TURN in connection with its participation in the SBC and Verizon NRF proceeding. This amount is approximately $80,000 less than TURN’s request, due to reductions for issues on which TURN did not prevail in the proceeding.


SIGNIFICANT HELD AND WITHDRAWN ITEMS

  • Decision Addressing Petitions for Modification of Decision Resolving Triennial Review Order Proceeding (Item 56, held by Brown until 9/7 for further deliberation) – This item would resolve Petitions for Modification filed by Verizon and SBC with respect to the decision concluding the Triennial Review Order, 9-month phase. In particular, the large ILECs seek to reverse the requirement that batch hot cut process and pricing disputes be submitted to arbitration. The draft decision in this case would defer these issues to a pair of pre-hearing conferences in the consolidated arbitration proceedings for Verizon and SBC.

  • Decision Resolving Dispute Regarding Rule 94 of General Order 95 (Item 45, held by staff until 9/7) — This item would modify Rule 94 of General Order 95, and thereby adopt revised rules for attaching wireless antennas on jointly used utility poles and towers. In doing so, the decision would reject assertions by some parties that certain elements of Rule 94 are preempted by the FCC’s rules regulating radio frequency emissions.

  • Decision Rejecting CPCN Application Based on Previous Slamming Record (Item 21, held by staff until 9/7) — This draft decision would deny Acceris Management and Acquisition LLC’s application to provide resold local exchange service, in light of data from the FCC which shows that the applicant engaged in slamming 11 times between 2003 and 2005. However, if the applicant can operate for a 12-month period without being the subject of regulatory action, it may reapply for a CPCN in California.

  • Possible CPUC Comments on ILECs’ FCC Petition for Forbearance from Title II and Computer Inquiry Rules as Applied to Broadband Services (Item 66, held by staff until 9/7) — This item would evaluate whether the CPUC should offer comment on a pending petition by AT&T, Bell South, and Qwest for forbearance from Title II and Computer Inquiry requirements as to their broadband services.

  • Commission Position on California Video Legislation (Item 69, withdrawn) — This item would allow the Commission to take a position on AB 2987, a currently-pending bill that would modify the procedures by which telecommunications companies could enter the video market.

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