19991102Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
STEPHANIE MILLER
TONYA CLARK
RON LAW
JOE CUSICK
JUDY STOKES
WAYNE HART
MADONNA FAUNCE
TERRI CARLOCK
WORKING FILE

FROM:

DATE: November 2, 1999

RE: CAMBRIDGE AND COUNCIL TELEPHONE COMPANIES’ APPLICATION
FOR A GENERAL RATE INCREASE, CASE NOS. CAM-T-99-2 AND
COUT-99-2

On October 20, 1999, Cambridge Telephone and Council Telephone Companies filed an Application requesting that the Commission authorize a general rate increase. Cambridge is a Title 61 regulated telephone company providing service in Cambridge, Indian Valley, Cuprum and Lowman exchanges. Council is a wholly-owned subsidiary of Cambridge providing service in the Council exchange. Each Company serves approximately 1,000 access lines in their respective service areas.
In a companion Application, the Companies have requested that the Commission authorize the merger of the two companies with Cambridge as the surviving corporation. In that case (Nos. CAM-T-99-1/COU-T-99-1) they maintain that the merger is revenue neutral and will not affect the rates or charges of either Company. In the present rate case, the Companies’ Application is based upon the Companies being merged.

THE APPLICATION
The Companies maintain that since Cambridge’s last general rate case in 1987, increased competition and passage of the federal Telecommunications Act of 1996 “have transformed the telecommunications industry and dramatically impacted the economics of independent local exchange toll-free companies such as applicants.” Application at 3. The Companies propose to implement several toll-free Extended Area Service (EAS) routes, increase the rates for local service, decrease their long-distance access charges to the statewide average, and increase Cambridge’s disbursement from the state Universal Service Fund (USF). According to the Companies’ Application, they seek an increase in their combined annual revenue requirement of approximately $602,792 ($242,108 in telecommunications revenue and $360,684 from the state USF.
1. Capital Structure. In calculating their annual revenue requirement, the Companies proposed to use a capital structure comprised of 66.35% debt and 33.65% equity. The Companies request that the Commission authorize a return on equity of 13.5%. Ultimately, the Companies seek an overall rate of return on their combined rate base of 8.28%.
2. EAS. Presently pending before the Commission is a Petition for Extended Area Service (EAS) between Cambridge’s exchanges and other exchanges. See Case No. GNR-T-99-11. The rate case Application is based upon the assumption that the Commission will approve the requested EAS routes. The Companies are proposing EAS between and among their own exchanges and the exchanges of Midvale, Weiser, Payette, and Fruitland. The Companies are also recommending that the Commission approve EAS between Council and New Meadows. Finally, they propose that the Commission approve EAS from Lowman to Garden Valley, Idaho City and Horseshoe Bend. Several of the requested EAS exchanges are served by other telephone companies including: Citizens Utilities, U S WEST Communications, Midvale Telephone, and Farmers Mutual Telephone Cooperative. The Applicants maintain that Midvale and Farmers are agreeable to the proposed EAS but the EAS request to the U S WEST and Citizens exchanges is more problematic. Granting EAS will decrease the Companies’ revenue from long-distance access charges and shift expenses from the interstate to the intrastate jurisdiction (a shift of $128,507).
3. Local Service Rates. The Companies propose to increase existing local rates by approximately $320,000. They propose to increase the monthly residential rates for unlimited local calling for customers in Cambridge/Indian Valley, Cuprum, and Lowman from the existing rates of $15.35, $12.90, and $14.05, respectively, to a uniform monthly rate of $24.10. The parties propose increasing the rates for residential customers in Council from the existing monthly rate of $10.11 to the uniform monthly rate of $24.10. Thus, the existing monthly local residential rates for single-party customers would increase in Cambridge/Indian Valley by $8.75; in Cuprum by $11.20; in Lowman by $10.05; and in Council by $13.99. This represents increases in the residential rates for unlimited local calling ranging from 57% to 138%.
The Companies also propose to increase their local monthly business rates. The monthly rates for single-line business service would increase in Cambridge/Indian Valley, Lowman, Cuprum, and Council from $25.00, $23.00, $21.00, and $26.02, respectively, to a uniform single-line business rate of $42.00 per month. Thus, the increase in monthly local business rates for single-party customers would range from 61% to 100%.
The Companies also propose to increase the monthly rates for measured local service for their residential customers. Measured service customers pay a monthly flat-charge plus a per-minute usage fee. They suggest the monthly flat charge for residential measured service be increased from $5.19 to $16.00. This represents an increase in the monthly measured local residential flat-rate of 208%. The Companies apparently propose to eliminate business measured service. The Application does not disclose whether the Companies are proposing any changes to the per-minute usage charge for measured service or the amount of local calling minutes included in the monthly flat-rate service charge.
4. Other rate changes. The Companies also propose to adjust the rates for various other services including custom calling features, directory listing, voice mail, dialing or ringing features, and certain non-recurring charges. For example, the monthly rates for Caller ID (number only) in the Cambridge and Council exchanges are $4.95 and $2.95, respectively. The Companies proposed a uniform rate for this service of $4.50 per month. The rates for Caller ID (name and number) for residential customers is $4.95 in the Cambridge exchanges and $4.50 in the Council exchange. The Companies propose a uniform rate for this service of $5.50 per month. The monthly rates for residential Call Waiting in Cambridge and Council is $3.00 and $5.00 per month, respectively. They propose to charge a uniform rate of $3.50 per month. The Companies proposed to eliminate the distinction between residential and business custom calling features. The Companies also propose to increase their non-recurring charges for service order changes from $10.00 per occurrence to $12.50. The Companies also propose to increase their line connection charge from $20.00 to $25.00. If adopted, these proposed increases result in an annual revenue increase of approximately $300.00.
5. Access Charges. As previously mentioned, the Companies propose to restructure and reduce their access charges to the existing statewide average. More specifically, the Companies propose to eliminate the rate differentials between peak and off-peak local transport and switching for Cambridge. They next propose to reduce the common carrier line (CCL) rate for originating traffic in the Cambridge exchange from $.01716 to a uniform rate of $.01000 per access minute. The originating CCL rate for Council would remain at $.01 per access minute.
Currently the Companies’ CCL rate for terminating service in the Cambridge and Council exchanges are $.01716 and $.01570 per access minute, respectively. These rates are proposed to be reduced to $.01 per access minute. The Companies also propose to adopt a uniform local transport and local switching access rates of $.02019 per access minute. This represents an increase in the Cambridge rates for local transport and switching but a decrease in the Council rates for local transport and switching. If the Commission approves the proposed changes in access rates, and the EAS routes, the Companies calculate an annual revenue deficiency caused by these changes (excluding the shift of expenses from the interstate to intrastate jurisdiction) of $118,899.
6. State USF. Cambridge (but not Council) currently receives disbursements from the Idaho USF. In the 1998 test year, Cambridge received $413,380 in USF payments. In this case, the combined companies are requesting an increase in the annual funding from the Idaho USF in the amount of $360,684 or a total of $774,064. See Exhibit 6; Application at 3.
7. Waiver Request. The Companies request a waiver of the Commission’s Procedural Rule 121.01 which requires the filing of complete tariffs showing existing rates and proposed changes in legislative format. IDAPA 31.01.01.121.01(a). The Applicants maintain that the proposed rate changes are clearly delineated in the testimony and exhibit. Once the Commission issues a final Order in this case, then the Applicants will file an appropriate tariff incorporating the changes approved by the Commission.
8. Effective date. The Applicants request that the Commission consider this rate case without evidentiary hearings and instead process this matter under Modified Procedure. The Applicants also request that the Commission adopt the new rates to be “effective with bills issued on and after November 15, 1999.” Application at 4.

STAFF ANALYSIS AND RECOMMENDATIONS
1. Presumptions. As previously mentioned, the Companies’ rate case is premised upon a number of presumptions. First, the Companies have filed a companion case requesting that the Commission approve the merger of the two Companies. Staff believes that the merger case should be processed separately from the rate case.
Second, this rate case assumes that the Commission will approve of the Companies’ EAS requests arising in Case No. GNR-T-99-11. The Companies’ witnesses noted in their prefiled testimony that Midvale Telephone and Farmers Mutual have indicated a willingness to adopt the EAS proposals contained in this rate case. However, they indicate that a number of details will have to be worked out with Citizens and U S WEST. Consequently, Staff believes that it would be appropriate to take up the EAS requests as soon as possible in this rate case. The Staff suggests that the other local exchange companies involved in the EAS requests be made parties to the rate case if the EAS matter is to be joined with the rate case.
2. Waiver. The Companies also request a waiver of Procedural Rule 121.01, which generally requires companies to submit complete tariffs showing all proposed changes. While the Commission Staff does not oppose the waiver request, it notes that some services and rates are not mentioned or portrayed in the testimony and exhibits offered by the Companies. For example, the Companies do not mention any changes in measured service usage rates or vacation rates. Without the proposed tariff changes, Staff assumes that measured usage rates and basic calling allotments are not changing.
3. Effective Date. Although the Companies’ Application was filed on October 20, they requested an effective date of November 15, 1999. Idaho Code § 61-307 provides that utilities may not change any rates, fares, charges or services “except after thirty (30) days’ notice to the Commission and to the public as herein provided.…The Commission, for good cause shown, may allow changes without allowing the thirty (30) days’ notice herein provided for.…” In addition, Idaho Code § 61-622 provides that the Commission may suspend any request for a rate increase or changes to services for up to a period of 30 days plus 5 months to examine the proposed rate increase. The Companies’ Application does not specifically cite to any reasons why these rate increases should become effective on less than thirty days’ notice.
4. Customer Notice. The Commission’s Telephone Customer Information Rule 102 requires that each LEC that applies for a rate change for any service “give to each…customer a statement (customer notice) announcing the Application.” IDAPA 31.41.02.102. The purpose of this rule is to notify each customer of the company’s requested rate increase, the nature of the increases, the reasons for the increase, and that copies of the Application are available for public review. Rule 102.02 provides that this customer notice “may be mailed to customers as bill stuffers over the course of a billing cycle or may be contained in additional comment pages to the customer’s monthly bill.” In this case, the Commission Staff believes it would be inappropriate to grant rate increases before customers are made aware of the proposed increases.
5. Public Notice. The Commission’s Telephone Customer Information Rule 102.03 requires that a telephone company seeking a rate increase must also send press releases containing the same information contained in the customer notice to all newspapers and radio and television stations in the affected area. This rule also requires that such “press releases shall be mailed or delivered simultaneously with the filing of the Application. A copy of the press release shall be filed with the Application.” IDAPA 31.41.02.102.03. In this particular case, the Application is not accompanied by a press release nor are there any representations that a press release has been distributed simultaneously with the filing of the Application.
6. Recommendation. Rather than rejecting the Application and returning it to the Applicants because of the lack of any press release, the Commission Staff believes that a more appropriate course of action would be to “toll” or postpone the effective filing date of the Application until such time as a press release has been supplied and distributed by the Applicants.
Given the complexity of the rate case, the lack of notice to affected customers, and the need to process the underlying EAS requests, the Staff recommends that the rate case be suspended for a period of thirty (30) days plus five (5) months beginning on the day that the Applicants submit the press release in compliance with Rule 102. Staff also recommends establishing a deadline for intervention.

COMMISSION DECISION
1. Does the Commission wish to grant the Companies a waiver of Procedural Rule 121 regarding the filing of tariffs showing proposed changes in rates and service?
2. Does the Commission believe there is good cause to approve the Companies’ Application on less than 30 days’ notice?
3. Does the Commission wish to suspend the effective date of the Application for a period of thirty days plus five months? Should the suspension period run from such time as the Companies file its conforming press release?
4. Should the Companies be ordered to submit and distribute the press release?
5. Does the Commission wish to make the other LECs involved in the EAS requests parties to this case?
6. Should a deadline for intervention be established?

vld/M:CAM-T-99-2_COUT-99-2_dh2

DECISION MEMORANDUM 1