Opinion ID: 786960
Heading Depth: 3
Heading Rank: 3

Heading: Determination of UNE Costs

Text: 25 In its third and final decision, the CPUC set the rates that Pacific would be permitted to charge for its UNEs. See D.99-11-050 (OANAD Decision). 5 Included in that decision was a determination of how the common cost markup would be calculated. Again, the interested parties offered different methods. Pacific argued that the markup should be determined by dividing the allocated common costs by the total direct costs of the various network elements. Id. at 54. This method creates a fraction, with the numerator being the total common costs, and the denominator being the total direct costs. The CPUC discusses this method in terms of the numerator and denominator, and this terminology was adopted by the district court. For ease of discussion, we will also adopt this terminology. Using this methodology, Pacific arrived at a figure of 22% for the common-cost markup. That is, the direct cost of each UNE would be increased by 22% to account for the common costs incurred by Pacific in producing that UNE. MCI and AT & T, however, argued that the denominator should also include retail-related and Category III costs. Category III costs are associated with unregulated aspects of a LEC, such as the provision of Internet access. MCI estimated that this adjustment would increase the denominator by approximately $2.9 billion, yielding a markup of 14%. 6 26 The CPUC adopted, in substantial part, Pacific's proposal. Although it added $375 million to the denominator to account for direct costs previously not counted, thereby decreasing the markup to 19%, it rejected AT & T and MCI's position that the denominator should include retail-related and Category III costs. In so doing, it adopted a statement from Pacific's representative that AT & T and MCI ignored the fact that all of the shared and common costs that are retail-related have been removed from the shared and common costs in this phase.... It is therefore entirely appropriate and proper to divide the non-retail shared and common costs by the non-retail [direct costs] to obtain the non-retail ... markup for UNEs. Id. at 64 (emphasis in original). 27 With respect to the Category III costs, the CPUC noted that Pacific's unregulated [Category III] businesses have their own overhead organizations. To the extent they use Pacific's overhead departments, the costs are directly billed to them under the Commission-ordered transfer mechanisms. Since these costs, like retail-related costs, are excluded from the common costs claimed by Pacific, the CPUC concluded that they should likewise be excluded from the direct costs in the denominator. Id. at 65-66. 28 Finally, the CPUC declined to revisit the issue of OSS gateway costs. It noted that [n]o OSS [recurring] costs were adopted, because the models submitted by Pacific were [] found to contain significant flaws. Id. at 55 n. 54. It once again suggested that Pacific seek recovery of OSS recurring costs attributable to servicing CLECs in the proceeding addressing implementation costs.