NOTICES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Access Rate Reform
[33 Pa.B. 502] A-310200F0002; A-311350F0002; A-310222F0002; A-310291F0003; M-00021596; P-00991648; P-00991649; C-20027195. Verizon Pa, Inc. and Verizon North, Inc. Joint petition of Verizon Pa, Inc. and Verizon North, Inc. regarding access rate reform.
On December 30, 2002, Verizon Pa, Inc. and Verizon North, Inc. filed a joint petition regarding access rate reform.
Written comments are due to be filed within 30 days after publication of this notice in the Pennsylvania Bulletin. Reply comments are due 45 days after publication of this notice. One original plus nine copies of comments must be filed with the Secretary, Pennsylvania Public Utility Commission, P. O. Box 3265, Harrisburg, PA 17105-3265. A copy of the comments may be filed electronically to Elizabeth Barnes of the Pennsylvania Public Utility Commission's Law Bureau at Ebarnes@state.pa.us. Copies of the entire filing are available for full inspection and copying at the Office of the Secretary between 8 a.m. and 4:30 p.m., Monday through Friday.
JAMES J. MCNULTY,
Secretary
Before the
Pennsylvania Public Utility Commission
Joint Application of Bell
Atlantic Corporation and
GTE Corporation for
Approval of Agreement and
Plan of Merger
:
:
:
:
Docket Nos. A-310200F0002
A-311350F0002
A-310222F0002
A-310291F0003Access Charge Investiga-
tion per Global Order of
September 30, 1999:
:
:
Docket Nos. P-00991648
P-00991649
M-00021596AT&T Communications of
Pennsylvania, Inc.:
:: v.
: Docket No. C-20027195 : Verizon North Inc. :
Joint Petition of Verizon Pennsylvania Inc. and Verizon North Inc. Regarding Access Rate Reform
Public Version
December 30, 2002 Julia A. Conover
Suzan DeBusk PaivaCounsel for Verizon
Pennsylvania Inc. and
Verizon North Inc.
1717 Arch Street
32nd Floor
Philadelphia, PA 19103
(215) 963-6068julia.a.conover@verizon.com
suzan.d.paiva@verizon.comVerizon Pennsylvania Inc. (''Verizon PA'') and Verizon North Inc. (''Verizon North'') (collectively ''Verizon'') hereby request that the Commission commence a proceeding for the purpose of determining statewide access rates for Verizon PA and Verizon North, in compliance with a condition of this Commission's November 4, 1999 Order approving the Verizon merger. This Joint Petition and its attachments constitute Verizon's proposal to resolve this proceeding and achieve statewide access rates.
Verizon's proposal is modeled upon and virtually identical in substance to the Joint Access Proposal filed by the Rural Telephone Company Coalition (''RTCC''), the United Telephone Company of Pennsylvania, d/b/a Sprint (''Sprint''), the Office of Consumer Advocate (''OCA''), the Office of Small Business Advocate (''OSBA'') and the Office of Trial Staff (''OTS'') (the ''RTCC/Sprint/OCA/OSBA/OTS Settlement''). The hallmark of that settlement is the requirement that any access reductions be offset through revenue-neutral increases to basic rates. Given that the Commission has explicitly recognized that Verizon's proposal for statewide access rates should also be revenue-neutral, Verizon submits that the Commission should adopt the same access reform mechanism for Verizon as has been proposed--and agreed to by a number of interested parties--for every other ILEC in Pennsylvania.
I. Background
A. The Merger Approval Order
1. By order entered November 4, 1999, this Commission approved the merger by which control of the ILEC formerly known as GTE North, Inc. passed to Bell Atlantic Corporation, the parent of the ILEC formerly known as Bell Atlantic-Pennsylvania, Inc. GTE North, Inc. is now named Verizon North and Bell Atlantic-Pennsylvania, Inc. is now named Verizon PA.
2. Merger approval was contingent upon certain conditions, including those originally set forth in a Memorandum of Understanding (''MOU'') with Pennsylvania's Attorney General. One of the MOU conditions was that ''[w]ithin thirty months after merger closing, GTE-North and BA-PA will commence a proceeding for the purpose of determining statewide rates for access charges based upon consolidated cost studies. . . . Nothing in this agreement shall prohibit BA-PA and GTE-North from arguing in this combined access rate proceeding that any additional reductions which the PUC orders as a result of this new proceeding should be implemented on a revenue neutral basis.'' MOU at paragraph 4 (emphasis added).
3. The Commission's Merger Approval Order stated as follows:
We also note that there is a significant issue in the MOU regarding a proceeding to determine statewide access charges for both GTE North and BA-PA. The MOU provides, in pertinent part, that within 30 months after the merger closing, the Joint Applicants will commence a proceeding for the purpose of developing access charge parity for both companies based on consolidated cost studies. Nothing in the MOU purports to prohibit BA-PA and GTE North from arguing in this combined proceeding that any additional reductions that the Commission orders should be implemented on a revenue neutral basis. The question of achieving access charge parity between BA-PA and GTE North was not an issue in the Global Order. However, in the Global Order, we have provided for an investigation to achieve permanent solutions to access charge reform on or about January 2, 2001. Given the substantial impact a proceeding based on consolidated cost studies may have on the ratepayers for BA-PA and GTE North, we shall direct that the 30-month period provided for in the MOU be ''rolled-in'' and made a part of the Commission's statewide investigation pertaining to access charges.14. The merger closed on June 30, 2000. Therefore, Verizon is required to ''commence a proceeding'' to determine statewide access rates by December 31, 2002. This filing constitutes Verizon's compliance with this merger condition.2
B. The Statewide Access Investigation and the RTCC/Sprint/OCA/ OSBA/OTS Settlement
5. On December 16, 2002 the parties to the RTCC/Sprint/OCA/OSBA/OTS settlement filed a proposal to achieve access reductions offset by revenue neutral rate increases for the ILECs involved in the settlement, which constitute most or all of the non-Verizon ILECs in the state. The proposal has been agreed to by the public advocates--OCA, OSBA and OTS--who filed statements in support of the proposal.
6. This proposal was submitted in response to an October 24, 2001 Secretarial Letter and provisions in the Global Order relating to an investigation of statewide access charges.
7. The Global Order required such an access investigation to be undertaken, acknowledging as a policy matter that it is not simply a question of reducing access charges, but rather ''implicit subsidies'' must be replaced with '' 'explicit and sufficient' support mechanisms to attain the goal of universal service in a competitive environment.''3
8. As discussed above, the Merger Order directed that the issue of Verizon's access charges and ''the 30-month period provided for in the MOU be 'rolled-in' and made a part of the Commission's statewide investigation pertaining to access charges.''
C. AT&T Complaint
9. On March 20, 2002 AT&T filed a formal Complaint against Verizon North, demanding that Verizon North's access charges be reduced to a level ''no higher'' than Verizon PA's.
10. Verizon answered and moved to dismiss the Complaint on April 11, 2002.
11. At its public meeting on December 19, 2002, the Commission determined not to dismiss the Complaint, but directed the parties in the first instance to attempt to resolve the dispute by settlement.
II. Verizon's Proposal
1. Attachment A sets forth Verizon's proposal for achieving statewide access rates. The proposal is modeled upon and virtually identical in substance to the RTCC/Sprint/OCA/OSBA/OTS Settlement proposal, filed with the Commission on December 16, 2002.
2. Like that settlement, Verizon's proposal provides for phased-in increases to weighted average basic rates to offset, in a revenue neutral manner, access reductions. The principal differences in Verizon's proposal are: (a) an end date of January 1, 2004 on step 2, so that the increases could be implemented after the expiration of applicable rate caps; (b) elimination of any reference to the Universal Service Fund; and (3) a provision allowing Verizon the option of making the offsets revenue neutral within the two companies viewed as a single entity, so that any rate increases can be spread over a much larger number of lines and thereby be made smaller.
3. The first step of the proposal allows the companies to align their access rate structures. The structure of the new rates will be based predominantly on Verizon PA's current intrastate rate structure, which is much closer to the interstate structure than Verizon North's (e.g., VZ North has not yet implemented Local Transport Restructure). Concurrent with this alignment, Verizon may include aspects of the recent interstate access reform (e.g. trunk ports) that are not yet reflected in Verizon PA's intrastate rate structure. Verizon PA's and Verizon North's access customers will experience broad, but familiar, changes to their access rate structure.
4. Steps 2 and 3 of the Verizon proposal, like the RTCC/Sprint/OCA/OSBA/ OTS Settlement proposal, are triggered by the current level of the ILEC's weighted average R-1 rates. Those weighted average R-1 rates for each Verizon ILEC, calculated in the manner that Verizon understands was used for purposes of the RTCC/Sprint/OCA/OSBA/OTS settlement, are approximately $13.50.
5. The proposal's Step 2 would allow each Verizon entity up to January 1, 2004 to raise its weighted average R-1 rates to $15 and to make offsetting access reductions. If further access reductions are deemed necessary, Step 3 would allow the companies to raise their weighted average R-1 rates to $17. So long as the off-setting increases are spread across both companies, Verizon does not anticipate that the weighted average R-1 rates would need to be increased to $17.
6. Proprietary Attachment B shows the amount of revenue that would have to be offset, first, if Verizon North's access rates are restructured and reduced to approximately equal Verizon PA's current access rates (leaving both companies with the $0.63 carrier charge currently applicable to Verizon PA) and second, if both companies' access rates are further reduced by complete elimination of the carrier charge.
7. Proprietary Attachment C shows the maximum increase to R-1 rates that would be required to offset the access reductions in each of these scenarios described in Attachment B, assuming that the revenue increases are spread evenly across the residential lines of both companies. While the proposal incorporates a great deal of flexibility in how to structure the offset, including allowing a certain level of increases on business rates at the ILEC's sole option, the examples in Attachment C are intended to give an idea of the order of magnitude of the maximum R-1 increase under the parameters of the proposal.4
8. Verizon notes that the Merger Order's requirements as to what the Verizon access rates should be as a result of this proceeding are not entirely clear. While the MOU mentions ''statewide'' rates and the order mentions ''parity,'' neither expressly requires the rates to match each other exactly. Moreover, even if matching were required, it would be a reasonable interpretation that such matching could be achieved by merging the companies' rate structures and raising Verizon PA's access rates to achieve revenue neutrality. Nonetheless, Verizon PA has proposed a mechanism by which the Commission could reduce Verizon North's rates to the current level of Verizon PA's rates, and could further reduce both companies' rates by entirely eliminating the carrier charge. It is an absolute condition of Verizon's agreement to such reductions that they be offset by revenue neutral rate increases. By making this proposal in the interest of resolving this matter and allowing for a uniform mechanism of ILEC access reform, Verizon does not waive its right to oppose access reductions should any of the material conditions of Verizon's proposal not be accepted.
III. Conclusion
For the foregoing reasons, Verizon requests that the Commission open a proceeding to address statewide access rates for Verizon PA and Verizon North, and resolve that proceeding by adopting the proposal contained in Attachment A.
In keeping with the Commission's handling of such issues in the past (including its direction for negotiation of the AT&T Complaint), Verizon suggests that the Commission set a short schedule for interested parties to intervene in the proceeding and then set a 60 day time period for the parties to discuss settlement before submitting this matter to the Office of Administrative Law Judge for formal resolution.
December 30, 2002 Respectfully submitted,
Julia A. Conover
Suzan DeBusk PaivaCounsel for Verizon Pennsylvania Inc. and
Verizon North Inc.
1717 Arch Street
32nd Floor
Philadelphia, PA 19103
(216) 963-6068
julia.a.conover@verizon.com
suzan.d.paiva@verizon.com
Attachment A
Verizon's Access Proposal
in Response to a Merger Requirement and the Commission's
Access Charge Investigation--Phase II
Defined Terms As employed herein, the following terms shall have these specified meanings:
''ILEC'' means Verizon Pennsylvania Inc. (''Verizon PA'') or Verizon North Inc. (''Verizon North'') (collectively ''Verizon'').
Elements of Proposal 1) Step 1: If an ILEC's intrastate traffic sensitive (TS) rates exceed its interstate TS rates, the ILEC may, at its sole discretion, lower its intrastate TS rates to match or move closer to its interstate TS rates, and simultaneously increase its Carrier Charge (CC) by a corresponding revenue neutral amount using the 12 months ended August 31, 2002, or the most current 12 month period, thereby creating a revised CC. An ILEC may, at its sole discretion, lower its intrastate TS rates to match or move closer to its interstate TS rates, and simultaneously increase its Carrier Charge (CC) by a corresponding revenue-neutral amount, again in 2004, using a recent 12 month period, thereby creating a further revised CC. All references to CC herein shall be to the then current revised CC if the ILEC has chosen to implement this element of the proposal. Concurrent with this TS rate reduction, the ILECs will align their intrastate switched access rate structure with the current interstate switched access rate structure.5
2) Step 2: Pursuant to an Order entered adopting this access proposal without modification, and after notice through bill insert, bill message or separately mailed notice to all customers at least 30 days prior to the date of any rate change, each ILEC will increase local rates, based upon a one-day tariff compliance filing, to be effective on a date between January 1, 2003 and January 1, 2004 (as to be determined at the sole discretion of the individual ILEC) as follows:
(a) Each ILEC with a weighted average R-1 rate below $10.83 as of December 31, 2002, will increase its R-1 rates in a manner to achieve a weighted average R-1 rate of $11. If the increase results in R-1 rates greater than 150% of the current rate, then the increase shall be implemented in two steps, the second of which shall become effective no later than January 1, 2004. This increase shall be subject to the Company's Chapter 30 Plan rate rebalancing limitation with respect to the limitation on calendar year per line increases, i.e. not more than $3.50 per line per month in rate increases in any one year, but shall not be subject to any other Chapter 30 process or requirements. To the extent that any ILEC shall not be able to complete the required rate increase within any year, such rate increase may be deferred to the following year subject to the Company's Chapter 30 Plan rate rebalancing limitations. Any rate rebalancing in excess of that specifically referenced in Paragraph 2 shall be subject to the Chapter 30 Plan rate rebalancing process and requirements.
(b) Each ILEC with a weighted average R-1 rate between $10.83--$12 as of December 31, 2002, will increase its R-1 rates in a manner to achieve a weighted average R-1 rate of $13.50.
(c) Each ILEC with a weighted average R-1 rate between $12.01--$14 as of December 31, 2002, will increase its R-1 rates in a manner to achieve a weighted average R-1 rate of $15.
(d) Each ILEC with a weighted average R-1 rate between $14.01--$16 as of December 31, 2002, will increase its R-1 rates in a manner to achieve a weighted average R-1 rate of $16.
(e) Each ILEC may, at its sole option, increase its weighted average Business line rate by up to the same amount on a dollar basis that its weighted average R-1 rate is increased, but in no event may the B-1 rate be less than the R-1 rate.
3) Step 3: Pursuant to an Order entered adopting this access proposal without modification, and after notice through bill insert, bill message or separately mailed notice to all customers at least 30 days prior to the date of any rate change, each ILEC may increase local rates, based upon a one-day tariff compliance filing, to be effective on a date between January 2, 2004 and December 31, 2004 (as to be determined at the sole discretion of the individual ILEC) as follows:
(a) Each ILEC with a weighted average R-1 rate of $11 (or less) as of January 1, 2004 (as described and calculated in Step 2 above) may increase its R-1 rates in a manner to achieve a weighted average R-1 rate of $13.50.
(b) Each ILEC with a weighted average R-1 rate of $13.50 as of January 1, 2004 (as described and calculated in Step 2 above) may increase its R-1 rates in a manner to achieve a weighted average R1 rate of $15.
(c) Each ILEC with a weighted average R-1 rate of $15 as of January 1, 2004 (as described and calculated in Step 2 above) may increase its R-1 rates in a manner to achieve a weighted average R-1 rate of $17.
(d) Each ILEC with a weighted average R-1 rate of $16 as of January 1, 2004 (as described and calculated in Step 2 above) may increase its R-1 rates in a manner to achieve a maximum weighted average R-1 rate of $18.
(e) Each ILEC may, at its sole option, increase its weighted average Business line rate by up to the same amount on a dollar basis that its weighted average R-1 rate is increased, but in no event may the B-1 rate be less than the R-1 rate.
Any rate rebalancing in excess of that specifically referenced in Paragraphs 2 and 3 shall be subject to the Chapter 30 Plan rate rebalancing process and requirements.
4) The monthly $16.00 cap on R-1 average rates established in the Global Order and any ILEC-specific weighted average rate cap which may have been established in any individual ILEC's Chapter 30 Plan will be increased for all ILECs to the weighted average $18.00 cap for a minimum three (3) year period January 1, 2004 through December 31, 2006.
5) Pursuant to an Order entered adopting this access proposal without modification, each ILEC shall have the right, in whole or in part, in lieu of raising local service rates as provided in Paragraphs 2 and 3 hereof to raise rates on other services by an equivalent amount, based on a one-day tariff compliance filing.
6) To offset the increase to local rates described above in Paragraphs 2 and 3, each ILEC will file a compliance tariff(s) to reduce its CC or TS rates, or any combination thereof, by a revenue-neutral amount (depending upon changes undertaken in Paragraph 1, above), effective on dates consistent with the increases in Paragraphs 2 and 3. For purposes of this revenue neutrality requirement, the ILECs shall be considered as one entity and the implementation of this proposal may be revenue neutral within the combined Verizon entity as a whole or within each individual Verizon ILEC, at the ILECs' sole discretion. The implementation of the local service rate increases as provided in Paragraphs 1, 2 and 3 would allow Verizon to achieve access charge parity between the two companies.
7) On/or after January 1 of each year beginning in 2005 each ILEC may request such rate changes or rate rebalancing as are permitted by any Chapter 30 Plans and/or applicable statutory and regulatory provisions.
Conditions of Proposal 1) Each ILEC reserves the right, subject to Chapter 30 Plan requirements, to change its access rates to ensure that each access rate element at least recovers its cost and the ILEC's service price index continues to be equal to or less than the ILEC's price stability index, in the event the ILEC's access rates are determined to be below cost based upon the development of a cost study.
2) This proposal is made in its entirety and no part hereof is valid or binding unless all components are accepted. Should any part be specifically modified or otherwise adversely impacted at any later date as to any ILEC, the ILEC shall have full unilateral rights to withdraw the proposal or revisit the proposal at its sole discretion. This proposal is put forward by Verizon to meet a merger requirement and to settle the instant controversy and is made without any admission against or use that is intended to prejudice any positions which the ILECs might adopt during subsequent litigation, including further litigation in related proceedings. This proposal is conditioned upon the Commission's approval of all terms and conditions contained herein, except for the terms of this paragraph. If the Commission should fail to grant such approval or should modify the terms and conditions herein, this proposal may be withdrawn upon written notice to the Commission within five business days and, in such event, shall be of no force and effect. In the event that the Commission does not approve the Proposal or Verizon elects to withdraw as provided above and any proceeding continues, Verizon reserves the right to submit testimony or other pleadings and briefs in this or a related proceeding.
3) Elements of this Proposal shall constitute rate rebalancings or rate filings as defined and allowed under each ILEC's Chapter 30 Plan only to the extent of determining the maximum amount of an increase allowed per year, but shall not preclude the filing of one additional rate restructuring/rebalancing filing in the calendar year so long as the total rate rebalancing rate increases do not exceed the maximum annual increase allowed and comply with other Chapter 30 Plan limitations and requirements. That is, implementation of proposed Paragraphs 2, 3 and 5 under Elements of Proposal are not considered rate rebalancings under the Chapter 30 Plans except in determining the maximum limitation on per year line rate increases to monthly dial tone rates. The ILECs retain all other rights under the approved Chapter 30 Plan to implement or oppose all rate rebalancings and other rate filings permitted under its Chapter 30 Plan. The ILECs reserve all rights in any proceedings relative to Chapter 30.
4) Increases to weighted average business rates on a dollar basis will be less than or equal to the increases to weighted average residential rates on a dollar basis.
5) This access proposal will be revenue neutral relative to the ILECs implementing a rate change. Absolutely no changes shall be required which are not revenue-neutral. Other access reductions that are not revenue neutral are permissible at the ILEC's sole option, but not required. For purposes of this revenue neutrality requirement, Verizon PA and Verizon North shall be considered as one entity and the implementation of this access proposal may be revenue neutral within the combined Verizon entity as a whole, or within the individual Verizon ILEC, at the ILECs' sole discretion.
[Pa.B. Doc. No. 03-125. Filed for public inspection January 17, 2003, 9:00 a.m.] _______
1 Merger Approval Order at 36 (emphasis added).
2 The consolidated cost studies referred to in the order have been performed and will be made available to intervening parties under the terms of an appropriate proprietary order entered in this proceeding.
3 Joint Petition of Nextlink Pennsylvania, Inc., No. P-00991648-1649 (Opinion and Order entered September 30, 1999) (''Global Order'') at 26-27.
4 Estimated revenue impacts are based on annualized volumes during the 2002 time period and the interstate rates effective July 2, 2002. Access line counts are also based on current data. Verizon reserves the right to update the amount of the proposed rate changes in steps 2 and 3 based on the volumes, line counts and the interstate rates current at the time of implementation. In addition, if, based on Verizon's consolidated cost studies, the resulting access rates are determined to be below cost, Verizon reserves the right to change access rates such that rates exceed costs, plus provide a reasonable level of contribution.
5 The restructure will include the implementation of Local Transport Restructure by Verizon North and the introduction by both Verizon PA and Verizon North of items, such as trunk ports, currently found in the interstate rate structure.
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