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PA Bulletin, Doc. No. 07-337


Verizon North Inc. 2007 Price Change Opportunity Filing

[37 Pa.B. 1009]
[Saturday, February 24, 2007]

Public Meeting held
February 8, 2007

Commissioners Present: Wendell F. Holland, Chairperson; James H. Cawley, Vice Chairperson; concurring in result only; Kim Pizzingrilli; Terrance J. Fitzpatrick

Verizon North Inc., 2007 Price Change Opportunity Filing R-00061914, P-00001854F1000

Office of Small Business Advocate v. Verizon North Inc. R-00061914C0001



By The Commission:


   Before us for disposition is the Verizon North Inc. (Verizon North or Company) annual 2007 Price Change Opportunity (PCO) filing and the associated revenue increases. Verizon North's annual 2007 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.

Company Filling

   On November 1, 2006, Verizon North filed its annual PCO filing using the change in 2005 and 2006 first quarter GDP-PI (Gross Domestic Product--Price Index) of 2.81% after the inflation offset that produced an annual revenue increase allowable for noncompetitive revenues of $3,420,000. The proposed price increases equal $3,340,100. The Company proposes to bank the difference of BEGIN PROPRIETARY      END PROPRIETARY. In addition, the Company proposes to account for the one and one-half month delay in implementing the increase to the Business Late Payment Charge by banking a one-time increase of BEGIN PROPRIETARY       END PROPRIETARY.

   Verizon North proposes to implement its PCO by increasing rates for the following services: Residence and Business Dial Tone Line, Business Late Payment Charge and the following Residence Local Usage plans: Local Area Unlimited, Basic Calling, Community Calling, Community Plus. The proposed tariff revisions to Tariff Telephone Pa.P.U.C. Nos. 1, 3, 4, 5 and 6 were filed to become effective February 15, 2007, with the exception of the Business Late Payment charge. The new rate for the Business Late Payment Charge is scheduled to become effective April 1, 2007. A summary of the current and proposed rates is as follows:

Service Current Rate Proposed Rate
Residence Dial Tone Line
   Cell 3 $6.44 $6.97
   Cell 4 $6.84 $7.37
Residence Local Usage
   Local Area Unlimited
      Rate Group A $5.82 $5.92
      Rate Group D $7.05 $7.15
      Rate Group F $8.10 $8.20
   Basic Calling Plan $1.13 $1.23
   Community Calling Plan $2.42 $2.52
   Community Plus Plan $3.23 $3.33
Business Dial Tone
   Cell 3 $15.20   $16.00  
   Cell 4 $17.75   $18.60  
Business Late Payment    Charge      1.25%      1.50%

   On November 9, 2006, 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 November 17, 2006, the Office of Consumer Advocate (OCA) filed a Notice of Intervention and Public Statement.

   On December 6, 2006, Verizon North filed an Answer and New Matter to the OSBA complaint.

   On December 22, 2006, the OSBA filed a Reply to Verizon North's New Matter.


   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 2007 PCO calculation and proposed rate increases subject to findings of the Office of Administrative Law Judge (ALJ) regarding the complaint filed by OSBA and subject to refund.

   2.  Banked Revenues

   As noted, the Company proposes to bank the remainder of the 2007 PCO increase and a one-time increase for the one and one-half month delay in implementing the increase to the Business Late Payment Charge. Per our Order entered April 6, 2006, at Docket Nos. R-00051227 and P-00001854F1000, Verizon North was given approval to adopt the following banking methodology and timing that we previously approved for The United Telephone Company of Pennsylvania d/b/a Embarq Pennsylvania (United):2

   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.3 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 United banking methodology constitutes an agreement between the Commission and Verizon North pursuant to § 3013(b) of Act 183. Therefore, we shall approve Verizon North's proposal to bank the BEGIN PROPRIETARY      END PROPRIETARY remainder of its 2007 PCO increase and the BEGIN PROPRIETARY      END PROPRIETARY one-time increase due to the Business Late Payment Charge delay. We note the prior year banked increase per the April 6, 2006 Order is BEGIN PROPRIETARY      END PROPRIETARY. This results in a cumulative banked increase of BEGIN PROPRIETARY      END PROPRIETARY that is available for future use by the Company.

   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) of the Code, 66 Pa.C.S. §§ 3016(b) and (f), and encourage the Company to recover its banked revenue increases from the appropriate group of its noncompetitive customers, consistent with applicable provisions of Chapter 30 (66 Pa.C.S. §§ 3001, et al.). In addition, the recovery of the banked revenue increase due to the Business Late Payment Charge delay should be in a manner that is one-time without resulting in recurring revenues for the Company; Therefore,

It Is Ordered That:

   1.  Verizon North Inc's 2007 PCO filed on November 1, 2006, 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 Complaint filed by 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 2007 PCO increase is approved.

   4.  Verizon North Inc.'s proposal to account for the delay value of the Business Late Payment Charge is approved.

   5.  The Administrative Law Judge who presides over the adjudication of the Office of Small Business Advocate Formal Complaint against the Verizon North 2007 PCO, at Docket No. R-00061914C0001, shall issue a Recommended Decision no later than seven months after the date of entry of the Order in this proceeding.

   6.  The Commission Order in this matter be published in the Pennsylvania Bulletin.

   7.  A copy of this Order shall 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.


[Pa.B. Doc. No. 07-337. Filed for public inspection February 23, 2007, 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  The reference to ''PSI filed on September 1 of each year'' in the United banking methodology should be modified to read ''PCO filed on November 15 of each year'' for Verizon North.

3  For annual price increases, the Company may apply them in future years, without limitation as to time.

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