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On Thursday, May 25, 2006, the CPUC held its regularly-scheduled agenda meeting. The meeting addressed a variety of telecommunications-related matters and featured a lively discussion regarding the circumstances where party settlements are appropriate in Commission proceedings in connection with an energy matter. The meeting marked the end of several longstanding Commission inquiries, and the beginning of some important new proceedings. The Verizon/SBC New Regulatory Framework proceeding was brought to a conclusion, in light of the ongoing Uniform Regulatory Framework proceeding. The Commission adopted rules for allocations of “gains on sale,” and initiated new rules governing ETC designation and recertification. The Commission also opened a new rulemaking to examine the funding and operation of the public policy programs. Further information about these items, and regarding other items of interest from the May 25, 2006 meeting, is provided below.


REGULAR AND CONSENT AGENDA ITEMS

  • Decision Adopted Addressing Allocations of Gains on Sale of Utility Property (Items 48, 48a, Item 48 adopted 3-2) – This item adopted guidelines for allocating gains and losses upon the sale of utility property.  Commissioners Brown, Bohn and Chong voted to adopt the Brown-sponsored proposed decision, with Commissioners Grueneich and Peevey dissenting. The decision provides that 100% of the gains or losses from sales of depreciable property will be allocated to ratepayers, and that the gains or losses from sales of non-depreciable property will be split evenly between shareholders and ratepayers.  The Brown alternate originally adopted a 75/25 split in favor of ratepayers, while an alternate proffered by Chong’s office would have adopted a 50/50 allocation standard.  Ultimately, Brown was persuaded by the commenting parties and Commissioner Chong’s office to embrace a 50/50 split, thereby obviating the need for the Chong alternate.

    Commissioner Brown began the discussion on this item by articulating the underlying policy basis for the proposed decision.  According to Brown, the allocation adopted in this decision relies on “who bears most of the risk” associated with utility property.  While Brown stated that ratepayers incur “most of the risk,” he acknowledged that shareholders “do face some risk” that justifies them sharing in 50% of the gains when non-depreciable assets are sold.  Further, the shareholders’ interest in gains on sale is designed “partly to compensate for some financial risk borne by the utility” and “partly as an incentive [for the utility] to manage its assets wisely.”  This rule of thumb will apply to “routine sales” where the sale price is $50 million or less.  Brown emphasized that the allocation cannot be done “with exact precision,” but that a 50/50 split is a “reasonable outcome” that will provide much-needed predictability regarding this issue.

    In expounding his position, Brown also alluded to an experience that he had when he was new to the Commission that spurred his interest in the “gain on sale” issue.  In connection with the Commission’s oversight of a GTE property sale, Brown observed that “there were virtually no rules” addressing gain on sale.  As a result of the amorphous rules, according to Brown, the allocations of gain on sale during that time were often resolved “on the back of an envelope between Commissioners.”  Brown expressed his belief that this decision would end that type of practice by bringing certainty to the allocation procedures associated with sales of utility assets.

    Commissioners Bohn and Chong expressed support for the proposed decision.  Bohn recognized that “the issue is not about ownership,” since utilities own these assets. Rather, according to Bohn, the issue is about “getting the incentives straight” so that the assets are “not wasted or languish somewhere.”  Bohn commended Commissioner Brown for “getting us to a more predictable game.”  Commissioner Chong then explained that the “substantial policy differences” between her alternate and the proposed decision had been eliminated.  Chong hoped that utilities can now “get on with business life and know what kind of gain on sale they are going to get.”

    Commissioner Peevey expressed stark disagreement with the majority approach. Peevey described a 50/50 split as “too rich” and “too much of a giveaway to shareholders,” even if it does provide predictability.  Commissioner Grueneich joined Peevey’s dissent.  The proposed decision was adopted 3-2.

  • Rulemaking Opened to Review ULTS, CTF, DDTP and Payphone Programs (Item 45, adopted 5-0) – This item opens a rulemaking to address various issues regarding the future of the CPUC’s public policy programs. The rulemaking will examine the funding base for all of the public policy programs (including the CHCF-A and CHCF-B) to determine whether the current funding structure will be viable on a going-forward basis, and make whatever changes may be necessary to ensure the ongoing vitality of these programs.  In addition, the rulemaking will answer a series of pointed questions regarding the scope and operation of the ULTS, CTF, DDTP, and Payphone programs, including whether these programs are achieving their statutory goals, how they may be impacted by federal regulatory developments, and whether the programs should be expanded to accommodate new technologies.

    ALJ Minkin introduced this item, emphasizing that a comprehensive look at the public policy programs is very important given the many technological and market changes that have occurred since the Commission last evaluated these programs.  Minkin noted that there was significant “pre-proceeding work” in crafting this rulemaking, including the preparation of a staff report, an opportunity for comment on staff report, and a two-day workshop.  Minkin thanked the parties and Commissioner Chong for their participation in these activities, and observed that it will help the Commission complete the proceeding with the statutorily-mandated timeframe.

    Commissioner Chong echoed Minkin’s sentiments, and provided some background regarding her interests in the public policy programs.  Chong mentioned her involvement in the URF hearings, noting that the CHCF-B issues addressed in that forum caused her to look more closely at all of the public policy programs.  She described the need for an examination as “overdue,” emphasizing that “these programs were created over a decade ago,” and that “they aren’t competitively neutral anymore.” Chong also underscored the need to be mindful of the size of the funds, and the resulting surcharges that will be necessary to generate those funds.  Chong then summarized the “program” for the public program reform effort.  This rulemaking was described as “Act I.”  Act II will be a specific rulemaking to look at the operation of the CHCF-B, to be followed by Act III, which will examine the CHCF-A.  The rulemaking was adopted by a 5-0 vote without further discussion.

    Opening comments on the rulemaking are due on July 28, 2006, with reply comments due on September 15, 2006.  There will also be three public participation hearings conducted around the state, at times and locations to be announced.

  • Resolution Adopted Outlining Comprehensive Guidelines for ETC Designation and Recertification , Res. T-17002 (Item 5, adopted on consent agenda) – By this item, the Commission adopted a set of procedures for ETC designation and recertification. The resolution was prompted by the FCC’s Report and Order addressing the Federal-State Joint Board recommendations on universal service (FCC 05-46), which encouraged the states to adopt additional prerequisites for ETC designation and strengthen the reporting requirements for existing ETCs.

    This resolution adopts both of these suggestions.  Carriers wishing to be designated as ETCs must submit maps showing their proposed service areas, and provide specific information demonstrating their “commitment and ability” to serve those proposed areas.  Prospective ETCs must also submit a two-year service quality improvement plan.  Similarly, existing ETCs must provide a two-year service improvement plan, and must observe some additional ongoing reporting requirements.

  • NRF Docket Closed in Light of URF Proceeding (Item 10, adopted on consent agenda) – This decision closes the longstanding proceeding to examine the New Regulatory Framework for SBC and Verizon, since the remaining issues in that proceeding are now under consideration in the Uniform Regulatory Framework proceeding.  The NRF proceeding (R.01-09-001 / I.01-09-002) has been open since 2001.  The proceeding was divided into three phases.  Phase 1 addressed an audit of Verizon.  Phase 2 considered SBC’s audit, and evaluated how service quality fared under NRF.  Phase 3 would have determined whether modifications to the Verizon and SBC NRF structures should be made based on the record in Phases 1 and 2.  Phase 3 was pending when URF was initiated, and any remaining issues to be addressed in Phase 3 are now superseded by URF.
  • Decision Adopted Regarding Proper Rates to be Charged to CLECs Who Have Not Transitioned Away from UNE-P (Item 44, adopted 5-0) – This decision resolves a dispute between AT&T and various UNE-based CLECs regarding the appropriate rate to be applied to UNE-P arrangements that were not transitioned to other market solutions by the transition deadline of March 11, 2006.  Pursuant to the FCC’s Triennial Review Remand Order, the FCC set a transition rate for discontinued UNEs, ending on March 11, 2006.  On March 10, 2006, AT&T sent a notice to various CLECs who continued to rely on UNE-P announcing that these carriers would be charged a rate of $37.24 going forward.  In computing this rate, AT&T included price components for basic resale, unlimited usage, three custom calling features, the EUCL, and an access charge recovery fee.  On March 29, 2006, a group of UNE-P CLECs filed a motion in the Commission’s UNE proceeding, alleging that the AT&T-proposed rate was inconsistent with recent Commission guidance regarding the appropriate transition rates.  In D.06-01-043, AT&T was ordered to charge “total service resale” rates for CLECs whose services could not be migrated by the end of the transition period.

    In resolving the CLECs’ motion, ALJ Jones issued a ruling on April 13, 2006 that adopted a reduced $25.19 rate for the transitioning CLECs.  This decision in large part ratifies that ALJ ruling, but adopts a further reduced rate of $23.16 by further modifying the assumptions underlying AT&T’s rate calculation.  Further, the decision finds that a $15.93 rate is appropriate for FONES4ALL, since FONES4ALL serves only residential customers, and should therefore be subject to a different set of rate calculations.

    Commissioner Peevey introduced this item, sarcastically chuckling to himself that “this is absolutely clear to all.”  Peevey expressed his sympathies with some carriers that have experienced difficulties in transitioning away from UNE-P, but warned that “at some point in the near future, these lines must be converted.”  Peevey then briefly explained the decision’s basis for modifying the AT&T-proposed rate, noting that the two additional rounds of comments on the draft decision had allowed for some further refinements to the pricing methodology.  In passing, Peevey mentioned that he was “amused because obviously FONES4ALL is an oxymoron,” since the company serves only business customers.  None of the other Commissioners had any comments on this item, except for Commissioner Brown, who joked that “if you are going to be a Commissioner, Governor Schwarzenegger has required that you take a multiple choice test on UNE rates.”  Laughing, Brown concluded that “only Commissioner Chong is qualified.”  This decision was then adopted by a 5-0 vote.

  • Resolution Adopted Granting AT&T Request to Grandfather Number Retention Service, Res. T-17018 (Item 26, adopted on consent agenda) – This item permits AT&T to grandfather its “number retention service.”  This service was originally designed to allow business customers to retain their phone numbers when they upgrade to Centrex or PBX with Direct Inward Dialing.  Since AT&T’s switches are now programmed to permit number retention without the need for a separate service offering, the service is no longer necessary.  This resolution approves AT&T’s request to grandfather the service.

  • Disability Rights Advocates Awarded Intervenor Compensation in Connection with Advanced Telecom Proceeding (Item 24, adopted on consent agenda) – This item grants Disability Rights Advocates $35,461.17 in intervenor compensation in connection with the group’s participation in the advanced telecommunications proceeding (which led to the preparation of the Broadband Report in D.05-05-013).  The intervenor award approved by this item represents approximately 65% of the amount originally requested by Disability Rights Advocates.  The requested figure was reduced to remove costs sought prior to the date that DRA sought party status, and to reflect the appropriate rates for the attorneys involved.
  • Decision Rejecting Proposed Settlement Between Energy Utilities and Commercial and Industrial Energy Customers Regarding Critical Peak Pricing (Items 35, 35a, Item 35 adopted 4-1) – This matter involved a proposed settlement offered between the large energy utilities and the large commercial and industrial customers regarding the critical peak pricing structure.  The proceeding was initiated by various Commission decisions, which called upon the large utilities to file their proposals for critical peak pricing.  A series of settlement talks then ensued between the large customers and the utilities, resulting in a joint settlement that was presented to the Commission.  By a 4-1 vote, the Commission voted to reject the settlement.

    Commissioner Peevey introduced the proposed decision.  While he praised the concept of alternative dispute resolution, Peevey announced that he does “not believe in slavish adherence” to a settlement presented by the parties.  Peevey explained that “settlements must be evaluated on their merits,” and that this one was “clearly out of sync with the spirit of the energy action plan.”  Rather than adopting the settlement, the proposed decision modifies the settlement into a series of “preferred outcomes.”  If the parties reject the approach outlined in the proposed decision, the issue will be considered in each utility’s general rate case.  According to Peevey, the settlement “simply does not go far enough,” and will “do little more than ratify the status quo.”

    In support of his alternate, which would have approved the settlement, Commissioner Bohn warned that “we won’t get reasonable settlements in the future if we don’t take them seriously when they are before us.”  With strong words for his fellow Commissioners, Bohn urged that “this is an issue of respecting the people who appear before us.”  In light of the “many, many hours [that] have been spent at high levels and technical levels” to arrive at this settlement, and the fact that it “moves us toward a goal that we want to more toward,” Bohn strongly supported the settlement.  To do otherwise, in Bohn’s words, “invites gamesmanship,” since parties can attempt to influence an outcome in comments on a draft decision even after they have already supported a settlement.

    Commissioner Grueniech responded to Bohn’s comments by stating that “I don’t think that casting a vote on any of the proposals before us means that I didn’t consider it, nor does it mean that I didn’t give the parties respect.” Commissioner Chong also assured the audience that she had given full consideration to the settlement.  With that, the proposed decision passed, with Bohn as the lone dissenter


SIGNIFICANT HELD ITEMS

  • Decision Awarding Intervenor Compensation to TURN in Connection with Consumer Protection Proceeding (Item 3, held by staff until 6/15 consent agenda) – This proposed decision would partially grant requests by TURN and other consumer groups for additional intervenor compensation in connection with their participation in the consumer protection proceeding.  The request seeks compensation for time spent monitoring federal litigation in which carriers sought to overturn the original decision adopting G.O. 168, D.04-05-057.  This draft would deny large portions of TURN’s request, based on the fact that many of the costs for which compensation is sought were incurred to prepare for a motion to dismiss that was never brought, and which was rendered moot by the withdrawal of the carriers’ claims.

  • Resolution Granting AT&T Request for Deviation from Public Utilities Code 320 Undergrounding Requirements, Res. E-3975 (Item 15, held by staff until 6/15 consent agenda) – This draft resolution would grant AT&T’s request for a deviation from the requirements of Public Utilities Code Section 320, which requires that any new communications or electric distribution facilities be undergrounded if they are in close proximity to designated California scenic highways.  This deviation would be granted on the basis that undergrounding is not economically viable in this circumstance, and that undergrounding would be more environmentally intrusive than putting the additional facilities on existing utility poles.

  • Decision Resolving Dispute Regarding Rule 94 of General Order 95 (Item 37, held by Chong until 6/15 for further consideration) – 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.

  • Resolution Granting SBC Request for Waiver from Penalties Due to Repeat Out-of-Service Intervals , Res. T-17024 (Item 46, held by Chong until 7/20 for alternate) – This draft resolution grants SBC’s request for a waiver of the penalty that would have otherwise applied in connection with repeat out-of-service intervals for residential customers during 2005.  This item would impose a penalty of $2.4 million against SBC, but would waive various other penalties, based on the fact that SBC’s out-of-service violations occurred during months when states of emergency were in effect.

  • Legislation to Support Further Broadband Report , SB 850 (Item 49, held by staff until 6/15) – This item would commit the Commission to a “support” position on SB 850, a piece of legislation that calls for the submission of another report to the legislature on the state of broadband access in California. The Commission report on this legislation notes that the CPUC does not have jurisdiction over all forms of broadband providers, and recommends some minor revisions to reflect that fact.

  • Legislation Addressing Unauthorized Charges for Mobile Data and Voice Services , SB 440 (Item 55, held by staff until 6/15) – This bill would adopt an assortment of requirements related to wireless services. The bill would require wireless carriers to inform customers of their potential liability for wireless charges, in the event that a customer’s wireless handset is stolen, and unauthorized charges are thereby incurred. The bill would also limit customers’ responsibility for unauthorized charges of this sort to $50. Moreover, the bill would prevent carriers from changing wireless customers to more restrictive or more expensive plans unless certain prerequisites are met.


NOTES AND COMMISSIONER REPORTS

  • Report on Progress of Consumer Protection Initiative – Director Larson and Director Leutza gave a brief report on various aspects of the consumer protection initiative.  Leutza reported on some pushback that the CPUC has received in the Legislature, noting that that the assembly committee report recommended that the budget allocated to the consumer protection be cut by $2 million, from $12 million to $10 million.  This would result in eliminating or delaying 11 hirings.  Despite this apparent setback for the CPUC’s funding request, Leutza noted that the Commission would continue to work with the Legislature and the Department of Finance to stress the importance of receiving the additional funding.  Leutza also mentioned that the consumer education task forces have developed five brochures on various consumer protection issues that will be made available in English, Spanish, and Chinese.  In addition, the effort has produced a consumer education website: www.calphoneinfo.com.  It is not yet active, but apparently it will be soon.  Leutza also indicated that there would be a workshop on June 26th to address “in language” issues. As part of that workshop, a demographic expert will make a presentation to attempt to identify where the “in language” populations are, and therefore where the greatest “in language” needs might be.  Finally, Leutza reported on behalf of CPSD Director Clark that the Commission is continuing to communicate with other law enforcement agencies, as well as the FCC and the FTC, to develop possible synergies in addressing telecommunications consumer protection.

  • CPUC E-Filing Update – Chief ALJ Minkin reported on the status of the Commission’s e-filing program, which is expected to become active sometime this year. This week, the Commission will be opening up the e-filing process to a “select group” of internal users, to be followed by a “controlled expansion” to external users.  Once the “bugs are worked out,” a “Practitioner’s Manual” will also be created.

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