2006 Price Change Opportunity Filing [36 Pa.B. 1966] Public Meeting held
April 6, 2006Commissioners Present: Wendell F. Holland, Chairperson; James H. Cawley, Vice Chairperson, statement concurring in part and dissenting in part follows; Bill Shane; Kim Pizzingrilli; Terrance J. Fitzpatrick
Verizon North Inc. 2006 Price Change Opportunity Filing; Doc. Nos. R-00051227 and P-00001854F1000 Office of Small Business Advocate v. Verizon North Inc.; Doc. No. R-00051227C0001 Office of Consumer Advocate v. Verizon North Inc.; Doc. No. R-00051227C0002 Order By the Commission:
I. BACKGROUND
Before us for disposition is the Verizon North Inc. (''Verizon North'' or ''Company'') annual 2006 Price Change Opportunity (''PCO'') filing and the associated revenue increases. Verizon North's annual 2006 PCO filing was made under the provisions of the new Chapter 30 law, Act 183 of 2004, P. L. 1398 (66 Pa.C.S. §§ 3011--3019) (''Act 183'') and pursuant to the Company's Alternative Regulation and Network Modernization Plan (''Chapter 30 Plan'') that this Commission approved at Docket No. P-00001854F1000.1
As a result of the passage of Act 183, companies with Chapter 30 Plans are entitled to significantly lower inflation offset values within their respective price cap formulas in exchange for a commitment to accelerated broadband deployment. Inflation offsets previously ranging from 2% to 2.93% were reduced to either 0% or 0.5%, depending on each company's Chapter 30 Plan. In Verizon North's case, the inflation offset was reduced from 2.50% to 0.5%. Accordingly, annual PCO filings have the potential for substantial revenue and rate impacts on end-user consumers.
Under the Company's Price Stability Plan (''PSP''), the Price Stability Mechanism (''PSM'') calculates the allowable change (increase or decrease) in rates for noncompetitive services based on the annual change in the Gross Domestic Product Price Index (''GDP-PI''). The actual total price changes for noncompetitive services are then tracked using the Service Price Index (''SPI''). The PSP also addresses revenue neutral rate rebalancing/restructuring and the introduction of new services. The PSP set forth in Verizon North's Chapter 30 Plan is a complete substitution of the rate base/rate of return regulation. Noncompetitive services are defined as regulated services or business activities that have not been determined or declared to be competitive.
II. COMPANY FILING
On December 30, 2005, Verizon North filed its annual PCO filing using the change in 2004 and 2005 second quarter GDP-PI (Gross Domestic Product--Price Index) of 2.16% after the inflation offset that produced an annual revenue increase allowable for noncompetitive revenues of $3,257,000. The proposed price increases equal $3,188,000. The Company proposes to bank the difference of $69,000, consistent with the PCO banking methodology and timing that has been approved for Sprint/United.2
Verizon North proposes to implement its PCO by increasing rates for the following services: Residence and Business Dial Tone Line, Return Check Charge and the Operator Surcharges on local Station-to-Station and Person-to-Person calls. The proposed tariff revisions to Tariff Telephone Pa. P.U.C. Nos. 1, 3, 4, 5, 6 and 11 are to become effective April 15, 2006.
On December 30, 2005, the Office of Small Business Advocate (''OSBA'') filed a Formal Complaint. The OSBA contends that the Company's proposed rates, rules, and conditions of service may be unjust, unreasonable, unduly discriminatory, and otherwise contrary to law, particularly as they pertain to small business customers.
On January 10, 2006, the Office of Consumer Advocate (''OCA'') filed a Formal Complaint. The OCA contends that the Company's proposed rates, rules, and conditions of service may be unjust, unreasonable, unduly discriminatory, and otherwise contrary to law. The OCA also disagrees with the Company's banking of the remaining 2006 PCO increase.
On January 26, 2006, Verizon PA filed Answers to the complaints and Motions to Dismiss the complaints reaffirming its position on the various issues contained in the filing.
On February 6, 2006, the OCA and OSBA filed Answers to Verizon's Motion to Dismiss Complaint.
III. DISCUSSION
1. PCO Calculations and Rate Increases
The annual Verizon North PCO submissions under Chapter 30 laws must conform to its Commission-approved Amended Chapter 30 Plan. Our review of the calculations submitted by Verizon North indicates that they are accurate and consistent with the terms of the Company's Price Stability Mechanism/Price Change Opportunity formula approved in its Chapter 30 Plan at Docket No. P-00001854F1000. In addition, we are of the opinion that the proposed rate increases appear to be reasonable and in conformance with the Company's Chapter 30 Plan. Therefore, we shall approve Verizon North's 2006 PCO calculation and proposed rate increases subject to findings of the Office of Administrative Law Judge (''ALJ'') regarding the complaints filed by OCA and OSBA and subject to refund.
2. Banked Revenues
As noted, the Company proposes to bank the remainder of the 2006 PCO increase consistent with the PCO banking methodology and timing that has been approved for Sprint/United. The approved Chapter 30 Plans for Sprint/United and other ILECs contain certain provisions for banking. We note that the OSBA does not object to the banking, and the OCA did not object to the proposal to bank a portion of the increase. The OCA, however, did suggest that the Commission set restrictions on Verizon North's use of the banked portions similar to restrictions that exist in other ILEC Chapter 30 plans. The OCA did not state whether the Sprint/United banking rules would be acceptable. We further note that in our Order entered October 11, 2005, at Docket Nos. P-00930715 and P-00001854, we directed Verizon PA to bank a portion of its 2003 PCO filing to be used to fund its required contribution to the Pa. USF. Here, we placed a restriction on the use of the funds, similar to that which the OCA requested, without Verizon PA's Chapter 30 Plan containing any banking provisions. Finally, it is noted that if the banking is not permitted, the only alternatives available to Verizon North are to (1) forego that portion of the PCO that they desire to bank or (2) increase rates by the full $3.3 million instead of the proposed $3.2 million. In our opinion, we cannot force Verizon North to forego an increase to which it is entitled. As such, the only option available to Verizon North would be to make the increases larger than proposed. However, we do not support giving Verizon North, or any utility, an increase greater than that requested. Therefore, in order to ensure an equitable balance between Verizon North's entitlement while avoiding further rate increases beyond what Verizon North proposed in this filing, we shall approve Verizon North's proposal to bank the $69,000 remainder of its 2006 PCO increase consistent with the following banking methodology and timing that we previously approved for Sprint/United:3
1. After 2001, annual price decreases calculated under the PSI filed on September 1 of each year may be banked for application in future years, not to exceed four (4) consecutive years.4 Such banking of decreases will be with interest at a rate set forth in 66 Pa.C.S. § 1308.
2. The banked price changes must be implemented no more than four (4) years after the annual price change is applied.
3. If a decrease is greater than $500,000, the Company will implement the decrease immediately.
This adoption of the Sprint/United banking methodology shall constitute an agreement between the Commission and Verizon North pursuant to § 3013(b) of Act 183. We make no determination at this time whether the recoveries of banked amounts are affected by a company's past or future competitive service declarations. However, we are mindful of Sections 3016(b) and (f) and encourage the Company to recover its banked revenue increases from the appropriate group of its non-competitive customers, consistent with applicable provisions of Chapter 30 (66 Pa.C.S. §§ 3001, et al.);
Therefore,
It Is Ordered That:
1. Verizon North Inc's 2006 PCO filed on December 30, 2005, is in compliance with its Commission-approved Amended Chapter 30 Plan.
2. The tariffed rate increases proposed by Verizon North Inc. be permitted to go into effect as filed subject to findings of the Office of Administrative Law Judge regarding the complaints filed by the Office of Consumer Advocate and the Office of Small Business Advocate and subject to refund investigation and recoupment.
3. Verizon North Inc.'s proposal to bank the remainder of its 2006 PCO increase is approved.
4. The banking methodology and timing approved by the Commission for Sprint/United at Docket No. P-00981410F1000, Order entered June 23, 2005, be adopted by Verizon North Inc.
5. The Commission Order in this matter be published in the Pennsylvania Bulletin.
6. A copy of this Order be served on the Office of Consumer Advocate, Office of Small Business Advocate, the Office of Trial Staff and the Office of Administrative Law Judge.
JAMES J. MCNULTY,
SecretaryStatement of Vice Chairperson James H. Cawley
Concurring in Part and Dissenting in PartPublic Meeting: April 4, 2006; MAR-2006-FUS-0435* Verizon North Inc. 2006 Price Change Opportunity Filing; Doc. Nos. R-00051227 and P-00001854F1000 Office of Small Business Advocate v. Verizon North Inc.; Doc. No. R-00051227C0001 Office of Consumer Advocate v. Verizon North Inc.; Doc. No. R-00051227C0002 Before us for disposition is the Staff recommendation regarding the Verizon North Inc. (''Verizon North'' or ''Company'') 2006 Price Change Opportunity (''PCO'') filing that was made on December 30, 2005. This filing was submitted under the provisions of the new Chapter 30 law, Act 183 of 2004, P. L. 1398, 66 Pa.C.S. §§ 3011--3019 (''Act 183'' or ''new Ch. 30''), and the Company's Amended Alternative Regulation and Network Modernization Plan (''Amended NMP''), that this Commission approved at Docket No. P-00001854F1000.5
Consistent with my statement concurring in part and dissenting in part in the corresponding Verizon Pennsylvania Inc. (''Verizon PA'') 2006 PCO filing,6 I similarly concur in part and dissent in part to the disposition of the Verizon North 2006 PCO adopted by the majority. Although the Company is entitled to a revenue and rate increase under the new Ch. 30 law, there are certain troublesome aspects in these filing that should be explored in depth in the associated adjudication of the formal complaints by the Office of Small Business Advocate (''OSBA'') and the Office of Consumer Advocate (''OCA'') on a going-forward basis. I also continue to disagree with the position adopted by the majority that amendments of a Ch. 30 incumbent local exchange carrier's (''ILEC's'') Amended Network Modernization Plan (''Amended NMP'') can be proposed, considered, and adopted through PCO tariff filings.
A. Ch. 30 PCO Revenue Increase
I concur with the proposed increase in Verizon North's annual non-competitive service revenues in the amount of $3,188,000. I note that the majority of this revenue increase is allocated to the residential and small business end-user customers of basic local exchange telephone service.
B. Potential Rate Discrimination
Although we are permitting the proposed $3,188,000 non-competitive services revenue increase to go into effect subject to the adjudication of the formal OSBA and OCA complaints, I am concerned that the resulting rates may be discriminatory. Basic local exchange services of residential and small business customers will absorb the bulk of the proposed PCO revenue increase. It appears that the pending complaint proceedings will explore whether the PCO revenue increase could (or must) be lawfully allocated to other non-competitive service categories of the Company in accordance with its Ch. 30 Amended NMP and the statutory mandates of Act 183. The same complaint proceedings will also provide the legal and evidentiary basis for a future decision on whether the provision of rate discounts to certain categories of small business customers that sign-up for the Verizon North 24-month business local exchange term plan, where such customers still subscribe to non-competitive local exchange services of the Company, gives rise to unlawful rate discrimination.7
My additional concern involves the relationship of the Company's PCO revenue and rate increase, the concept of ''protected services'' as these are defined under the new Ch. 30 law, 66 Pa.C.S. § 3012, and Verizon North's flexible provision of ''bundled packages of services'' ''which include nontariffed, competitive, noncompetitive or protected services,'' and the ''services of an affiliate, in combinations and at a single price selected by the company.'' 66 Pa.C.S. § 3016(e)(2). Verizon North provides such ''service bundles'' as ''competitive service'' offerings to both residential and business customers under its informational Tariff No. 11.8 It does not appear that Verizon North has included any revenues from the ''protected'' local exchange service portions of such ''service bundles'' in its overall non-competitive service category revenues on which the overall PCO revenue and rate increase is calculated. Correspondingly, the Company's PCO filing does not provide sufficient information indicating whether the ''protected'' local exchange service portion of these ''service bundles'' is affected in any way by the proposed PCO-related local exchange service dial tone line rate increases.
The complaint proceedings should address the issue of whether there is unlawful rate discrimination if the ''non-competitive'' basic local exchange service residential and small business customers absorb PCO related revenue and rate increases, but such rate increases are not reflected in the corresponding ''protected services'' portion of residential and small business customers that subscribe to the Company's ''service bundles'' offered under its informational Tariff 500. More specifically, are ''protected services'' offered as parts of a ''service bundle'' somehow transformed into ''competitive'' services? If so, is such transformation compatible with the statutory mandate and classification of telecommunications services under Act 183? And should the ''protected service'' portion of ''service bundles'' be accounted in the Company's PCO mechanism in some fashion? These issues are important because they relate to basic telephone service consumer protections that are the subject of an ongoing proceeding.9
C. Banking of 2006 PCO Revenues
It is my tentative conclusion that a PCO tariff filing is not the proper method to obtain amendments to an ILEC's Ch. 30 Amended NMP. Act 183 provides for the orderly process of filing a petition in order to obtain such amendments to an ILEC's Ch. 30 Amended NMP.10 Like many other ILECs, Verizon North could have inserted a ''banking'' provision in its Amended NMP, or it could have petitioned for an appropriate modification to its Amended NMP. The Commission would have evaluated and ruled on such a petition within the statutorily prescribed 100-day time interval. 66 Pa.C.S. § 3014(e). Verizon North did not choose to do either. Instead, it seeks a modification of its Amended NMP through its 2006 PCO tariff filing.
Since Act 183 provides a specific method to modify Amended NMPs, it appears that the Commission may not entertain Verizon North's request for such a modification in this PCO filing.11 I doubt that we may ignore the requirement of Section 3014(e) any more than we may ignore the Legislature's deletion of Section 1308 from Section 3019(h).
It does not necessarily follow that the Company may alternatively collect the full amount of the revenues to which it is entitled in 2006 should the procedure in Section 3014(e) be found mandatory. The Company having voluntarily placed itself in a ''use it or lose it'' position, it may well be required to ''lose'' the amount it now wishes to bank.
Although I disagree with the banking amendment to the Verizon North Amended NMP that is being implemented through the Company's 2006 PCO, I agree with the safeguard contained in the adopted Order regarding the rate recovery of the banked revenues from non-competitive services. Although the banked revenues only amount to $69,000, they should be recovered from the non-competitive services from which this banked revenue increase arose in the first place. It is rather self-evident that if the Company has any of these services declared ''competitive'' and substantially deregulated, the banked revenues associated with such services cannot be recovered from the remaining non-competitive services of Verizon North since that would constitute an unlawful subsidization of competitive services by its non-competitive services. 66 Pa.C.S. § 3016(f).
For these reasons, I concur in part and dissent in part.
[Pa.B. Doc. No. 06-693. Filed for public inspection April 21, 2006, 9:00 a.m.] _______
1 Petition for Amended Alternative Regulation and Network Modernization Plan of Verizon North Inc., Docket No. P-00001854F1000 (Order entered May 20, 2005).
2 Petition for Amended Alternative Regulation and Network Modernization Plan of United Telephone Co., Docket No. P-00981410F1000 (Order entered June 23, 2005).
3 The reference to ''PSI filed on September 1 of each year'' in the Sprint/United banking methodology should be modified to read ''PCO filed on November 15 of each year'' for Verizon North.
4 For annual price increases, the Company may apply them in future years, without limitation as to time.
5 Petition for Amended Alternative Regulation and Network Modernization Plan of Verizon North Inc., Docket No. P-00001854F1000, Order entered May 20, 2005.
6 Verizon Pennsylvania Inc. 2006 Price Change Opportunity Filing, Docket Nos. R-00051228, P-00930715F1000, R-00051228C0001, R-00051228C0002, Order entered March 22, 2006, Statement of Vice Chairman James H. Cawley.
7 Docket No. R-00051227, Verizon North 2006 PCO filing, December 30, 2005, Executive Summary; OCA Formal Complaint, Docket No. R-00051227C0002, filed January 10, 2006, ¶ 4.C, at 2.
8 See generally Verizon North Tariff Telephone-Pa. P.U.C. No. 11, Sec. 24, Orig. Sheets 2-12.
9 Petition of Trinsic Communications, Inc. f/k/a Z-tel Communications, Inc. for Waiver of Certain Billing and Collection Rule Requirements Set Forth at 52 Pa. Code Chapter 64 to Permit Provision of Singly-Priced Service Packages to Customers, Docket No. P-00052169, Order entered February 1, 2006.
10 See generally Petition for revision to the Amended Alternative Regulation and Network Modernization Plan of Commonwealth Telephone Company, Docket No. P-00961024F1000, Order entered February 10, 2006; and 66 Pa.C.S. § 3013(b).
11 Nor should the Commission prejudge the propriety of this attempted shortcut. It is an issue included within OCA's complaint. Answer of the Office of the Consumer Advocate to the Verizon North Inc. Motion to Dismiss, Docket No. R-00051227C0002, February 6, 2006, at 6-10, and Appendix A.
