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PARTIES of RECORD in APPLICATION 01-02-024, Et Al STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE SAN FRANCISCO, CA 94102-3298 October 1, 2004 TO: PARTIES OF RECORD IN APPLICATION 01-02-024, et al. Decision 04-09-063 is being mailed without the Concurrence of Commissioner Carl Wood and without the Concurrences of Commissioners Loretta Lynch and Geoffrey F. Brown. The Concurrences will be mailed separately. Very truly yours, /s/ ANGELA K. MINKIN. Angela K. Minkin, Chief Administrative Law Judge ANG:mnt Attachment 180930 - 1 - COM/CXW/mnt * * Mailed 10/01/04 Decision 04-09-063 September 23, 2004 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Joint Application of AT&T Communications of California, Inc. (U 5002 C) and WorldCom, Inc. for the Commission to Reexamine the Recurring Costs and Prices of Unbundled Switching in Its Application 01-02-024 First Annual Review of Unbundled Network (Filed February 21, 2001) Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050. Application of AT&T Communications of California, Inc. (U 5002 C) and WorldCom, Inc. for the Commission to Reexamine the Recurring Application 01-02-035 Costs and Prices of Unbundled Loops in Its First (Filed February 28, 2001) Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050. Application of The Telephone Connection Local Services, LLC (U 5522 C) for the Commission to Reexamine the Recurring Costs and Prices of the Application 02-02-031 DS-3 Entrance Facility Without Equipment in Its (Filed February 28, 2002) Second Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050. 180930 - 1 - A.01-02-024 et al. COM/CXW/mnt * Application of AT&T Communications of California, Inc. (U 5002 C) and WorldCom, Inc. for the Commission to Reexamine the Recurring Costs and Prices of Unbundled Interoffice Application 02-02-032 Transmission Facilities and Signaling Networks (Filed February 28, 2002) and Call-Related Databases in Its Second Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050. Application of Pacific Bell Telephone Company (U 1001 C) for the Commission to Reexamine the Costs and Prices of the Expanded Interconnection Application 02-02-034 Service Cross-Connect Network Element in the (Filed February 28, 2002) Second Annual Review of Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050. Application of XO California, Inc. (U 5553 C) for the Commission to Reexamine the Recurring Costs of DS1 and DS3 Unbundled Network Application 02-03-002 Element Loops in Its Second Annual Review of (Filed March 1, 2002) Unbundled Network Element Costs Pursuant to Ordering Paragraph 11 of D.99-11-050. OPINION ESTABLISHING REVISED UNBUNDLED NETWORK ELEMENT RATES FOR PACIFIC BELL TELEPHONE COMPANY DBA SBC CALIFORNIA - 2 - A.01-02-024 et al. COM/CXW/mnt* * * TABLE OF CONTENTS Title Page OPINION ESTABLISHING REVISED UNBUNDLED NETWORK ELEMENT RATES FOR PACIFIC BELL TELEPHONE COMPANY DBA SBC CALIFORNIA .............................................................................................................................................3 I. Summary....................................................................................................................3 II. Background ...............................................................................................................8 A. 2001 UNE Nominations ............................................................................................ 9 B. 2002 UNE Nominations .......................................................................................... 10 III. Applicable Standards.............................................................................................13 A. The Consensus Costing Principles ........................................................................ 13 B. The TELRIC Standard ............................................................................................. 14 C. Supreme Court Review of TELRIC Standard ...................................................... 15 D. Recent Updates to TELRIC ..................................................................................... 16 E. Commission Cost Modeling Criteria .................................................................... 16 F. Burden of Proof ........................................................................................................ 17 IV. Overview of Cost Models......................................................................................18 A. HM 5.3 ....................................................................................................................... 18 B. SBC-CA Models........................................................................................................ 21 V. Both HM 5.3 and the SBC-CA Models Are Flawed ..........................................23 A. Flaws in the SBC-CA Models ................................................................................. 30 1. LoopCAT Flaws.................................................................................................32 a. Reliance on Embedded Network Data .........................................33 b. LoopCAT’s Network Configuration .............................................42 c. Modeling of Multiple Dwelling Units...........................................46 d. Integration of Loop Studies...........................................................47 2. SICAT Flaws.......................................................................................................47 3. Transport and High Capacity Loop Study Flaws.........................................49 4. Annual Cost Factors and Expenses.................................................................53 a. Auditing and Modifying ACFs......................................................53 b. Shared and Common Costs ............................................................55 c. Elimination of Miscellaneous Expenses........................................58 i. Non-regulated Expenses ........................................................................ 59 ii. Affiliate Transaction Expenses.............................................................. 60 iii. Project Pronto Expenses ........................................................................ 62 iv. Transition Benefit Obligation (TBO) Expenses .................................... 63 v. Land and Building Factors..................................................................... 64 d. Inflation and Productivity.............................................................65 - i - A.01-02-024 et al. COM/CXW/mnt * * * e. Summary of Annual Cost Factor and Expense Modeling Issues 68 5. Summary of SBC-CA Modeling Flaws...........................................................68 B. Flaws in the HM 5.3 Model .................................................................................... 69 1. Engineering and Design Standards ................................................................71 2. Loop Modeling and Customer Location........................................................78 a. Transparency of the Clustering Process .......................................81 b. Accuracy of Customer Locations...................................................83 c. Sensitivity to Clustering Changes .................................................88 d. Cluster Size ......................................................................................90 e. Summary of Loop Modeling Criticism.........................................92 2. Expert Judgments ..............................................................................................93 3. Switching, Interoffice Demand, and Provisioning High Speed Services .97 4. Spare Capacity .................................................................................................101 5. Expenses............................................................................................................102 6. Validation of HM 5.3 Results.........................................................................103 7. Summary of HM 5.3 Flaws.............................................................................108 C. Adherence to Commission Modeling Criteria................................................... 109 D. Determination of UNE Rates................................................................................ 111 1. Rates Based on HM 5.3 ...................................................................................113 2. Description of HM 5.3 and SBC-CA Model Runs.......................................123 VI. Modeling Inputs ...................................................................................................131 A. Asset Lives and Depreciation............................................................................... 131 1. SBC-CA Proposal.............................................................................................131 2. DOD/FEA and Joint Applicant’s Proposal .................................................134 3. Discussion.........................................................................................................137 B. Cost of Capital ........................................................................................................ 139 1. SBC-CA Proposal.............................................................................................142 2. Joint Applicants’ Proposal..............................................................................144
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