19990107Comments.doc

BRAD PURDY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]

Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF CITIZENS UTILITIES COMPANY, CITIZENS NEWCO COMPANY, CITIZENS TELECOMMUNICATIONS COMPANY OF IDAHO, CITIZENS TELECOMMUNICATIONS COMPANY, AND ELECTRIC LIGHTWAVE, INC. FOR A TRANSFER OF CONTROL.

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CASE NO. CTC-T-98-5

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its attorney of record, Brad Purdy, Deputy Attorney General, and in response to the Notice of Application and Notice of Modified Procedure issued on December 17, 1998, submits the following comments.

BACKGROUND

On December 7, 1998, the Citizens Utility Company (CUC) filed an Application for transfer of control with respect to its telecommunications business. CUC is a diversified, publicly held company providing telecommunications, electric, gas, water and waste water services throughout the country. CUC provides these services through many subsidiaries divided into two primary businesses: (1) the public services sector including all of CUCs utility businesses which provide electric, gas, water and waste water services, and (2) the communications sector including all of CUCs communications-related businesses including local exchange, long distance and competitive communications subsidiaries.
Through this filing, CUC and its subsidiaries request Commission approval of the separation of the CUC into two separate, independent companies and the transfer by CUC of all communications stock and ownership control to a new holding company to be known as Citizens Newco Company.
CUC contends that the only effect of its proposal will be to transfer control over the communications sectors subsidiaries from CUC to a new entity to which the capital stock can be transferred to complete the split. After the separation, CUC will remain the holding company for the utility businesses. Citizens Newco Company (Newco) is a newly created holding company to which CUC will transfer all outstanding stock in its communications businesses. CUC states that it is not anticipated that there will be any changes in the day-to-day operations of the local communications subsidiaries as a result of the pro forma transfer of control from one holding company to another. The proposed transaction, CUC purports, does not involve a purchase, sale or transfer of assets or a merger or acquisition. It is simply dividing the two business sectors of one company into two separate companies.
In summary, CUC proposes the following: Citizens Newco Company will split its capital stock; CUC will transfer all its capital stock and control of CUCs wholly-owned two Idaho Communications Subsidiaries and CUCs ownership of 83% of the common stock of Electric Lightwave, Inc. to Citizens Newco, and CUC will transfer the capital stock of Citizens Newco to CUCs shareholders.

DISCUSSION
Staff has evaluated the propriety of the proposed separation of subsidiaries and the transfer of all Communications stock and ownership control of the Communications subsidiaries to a new holding company, currently named Citizens Newco Company. Staff primarily considered whether this division is in the public interest and whether customers will be adversely affected by changes resulting from the division of subsidiaries with control transferred to the new

company. The Applicant states no changes are anticipated in the day-to-day operations of the local subsidiaries.
The Applicant states benefits of the separation include the following:
 Improve the ability to attract capital. Improvement is anticipated from the separation and formation of two stand-alone, publicly traded companies. Separation allows investors to target risk/return goals with the separate communication activities.
 Provide regulators and investors with more direct revenue requirement calculations and business valuation.
 Enable Newco, and its subsidiaries, to compete more effectively in the changing telecommunications market.
 Provide Newco, and its telecommunications subsidiaries, the opportunity to develop a new market-driven image so consumers perceive it as a high-tech, customer-oriented, competitive communications company.
Staff believes that these alleged benefits are worthwhile and should not adversely affect the core telecommunication customer. No significant changes are contemplated regarding the finances, operations, accounting, depreciation, capital structure, operating schedules, maintenance or management of the Idaho subsidiaries. Local exchange rates will not change. Existing services will continue to be provided with the same, or better, standard of service, but with the ability to improve existing plant and develop necessary new utility plant more efficiently.
Separating the operating control of the Company appears to make reasonable business sense. Costs could decline if the above benefits are achieved with the focus of Newco dedicated exclusively to the operation of the communications businesses to more efficiently and economically attract capital and focus on customers and investors needs and demands.
Staff will monitor the results of the separation to evaluate whether Newco is able to attract capital investment more efficiently, maintain or improve bond ratings, minimize capital cost and better fund capital programs to provide high quality of service to customers. The allocation of costs and affiliate transactions will continue to be audited. Any deviations or unexpected results will be addressed with Citizens Telecommunications Company of Idaho and if necessary the Commission.

STAFF RECOMMENDATION
Staff recommends approval of the Application.

Respectfully submitted this day of January 1999.

_______________________________
Brad Purdy
Deputy Attorney General

Technical Staff: Terri Carlock

BP:TC:gdk\umisc\comments\ctct985.bpt

STAFF COMMENTS 1 JANUARY 7, 1999