19970912Faunce Direct Testimony.doc

Q. Please state your name and business address for the record.
A. My name is Madonna Faunce. My business address is 472 West Washington Street, Boise, Idaho.
Q. By whom are you employed and in what capacity?
A. I have been employed by the Idaho Public Utilities Commission (IPUC) as an auditor since 1989. I am licensed as a Certified Public Accountant in the State of Idaho.
Q. Please give us a brief description of your educational and professional background.
A. I received a B.A. degree in Accounting from Boise State University in 1975 and an M.B.A. from Boise State University in 1977. I have attended several seminars since graduation in accounting, tax, law, personnel, management and negotiation. I have also attended a Training for Utility Management Analysts seminar sponsored by NARUC in September of 1989.

Prior to working for the Idaho Public Utilities Commission, I was employed by Grays Harbor College as Assistant Dean for Administration. I was in charge of all accounting, payroll, capital projects, contracts, personnel and affirmative action. While at the College, I also taught accounting and management. Before working for the College, I was Chief Operational Officer, Treasurer and Controller in private industry.
Q. What is the purpose of your testimony?
A. The purpose of my testimony is to present the results of the audit of Filer Mutual Telephone Company conducted at Filer, Idaho on July 28, 1997. The results of the audit on an intrastate basis was to reduce rate base from $2,284,676 (Exhibit No. 105, Column I, line 16) to $2,093,562, (Exhibit No. 105, Column H, line 16) increase revenue by $38,892 (Exhibit No. 106, Column K, line 9), and reduce expenses by $23,023 (Exhibit No. 106, Column K, line 21).
Q. What is the impact of Staff changes on the Companys net income and Universal Service Fund (USF) eligibility?
A. With the adjustments I have made to Idaho intrastate and Staff witness Carolee Hall has made to revenue, the projected net income is $156,036 (Exhibit No. 106, Column H, line 26) and projected USF eligibility using the Companys requested 10% is $53,320 (Exhibit No. 105, Column H, line 21).
Q. What is the reason for the reduction in rate base?

A. The Company inadvertently included the Hollister, Idaho to Jackpot, Nevada fiber and related equipment installed in 1995 in the Idaho rate base. This fiber line and equipment is used primarily to serve Jackpot, Nevada. Although one could argue that 100% of this line should be assigned to Nevada operations, the Company argues and I will accept, in considering the total audit, that it is not unreasonable to allocate 50% of the line to Idaho. In removing the fiber line and equipment from Idaho rate base, the accumulated depreciation associated with the line and equipment must also be removed from the Idaho rate base.
Q. What would be the impact of removing
one-half of the Hollister, Idaho to Jackpot, Nevada fiber line and related equipment from rate base?
A. On an intrastate basis the removal of
one-half of this line would reduce rate base by $189,804 and reduce depreciation expense by $10,726.
Q. Were there any other adjustments to rate base?
A. Yes, due to my changes in intrastate expenses, working cash was reduced by $1,310 on an intrastate basis (Exhibit No. 105, Column J, line 14).
Q. What adjustments have you made to revenue?

A. As shown on my Exhibit No. 106, Column K, lines 1 and 7, I have adjusted local services intrastate revenues by $3,430 to reflect an increase in pay phone rates from 10 to 25. I will discuss the rationale for this adjustment later. I adjusted intrastate miscellaneous revenue by $5,794 and $29,668.
The Company shows in Exhibit 6, miscellaneous revenue of $29,032 which comes from the Company as Exhibit 7, line 15, Billing & Collection projected revenue. The increase in miscellaneous revenue is from two adjustments. My audit showed that the Company also had directory revenue on an intrastate basis of $5,911. This was partially offset by other negative revenue on an intrastate basis of ($3,312). In addition, I found that each year the Company has Patronage outstanding checks that are not claimed. Some Patronage outstanding checks are canceled each year. By looking at the Patronage outstanding checks on an aged basis, the Company and I agreed that on an intrastate basis miscellaneous revenue should be increased by $3,195 for reoccurring Patronage outstanding checks. These three adjustments equaling $5,794 ($5,911 - $3,312 + 3,195) are shown in Exhibit No. 106, Column K, line 7.

I also found that the Company had $1,710,461 in cash and savings that had been generated by the operations and retained in revolving funds for capital improvements rather than returning this money to Filer Mutuals customers. This fund produced $84,273 in interest income. The Company agreed that this interest income should be split between Idaho and Nevada and interstate and intrastate based on the revenue generated by the customers. On an Idaho intrastate basis, this increased miscellaneous revenue by $29,668 (Exhibit No. 106, Column K, line 7).
Q. In Exhibit No. 106, Column H, lines 23, 24 and 25, you show adjustments in revenues of $54,173, $30,793 and $3,574. Can you explain these adjustments?
A. These adjustments were made by Staff witness Hall and will be discussed by Ms. Hall.
Q. What is the adjustment you have made to intrastate plant-specific expense, Exhibit No. 106, Column K, line 11?
A. The plant specific adjustment is to Account No. 8200-26 titled Expense Items Non-Regulated. This account is a clearing account that contains expenses that would not be used in determining the need for USF funds and that were accidentally allocated to the accounts being used to determine the USF funding account. The total amount that was allocated to operations and should be removed is:
a) $2,378, Column K, line 11, plant specific;
b) $ 20, Column K, line 13, plant non-specific;

c) $1,588, Column K, line 14, customer operations, and d) $ 970, Column K, line 15, corporate operations.
Q. What is the adjustment you have made to depreciation expense, Exhibit No. 106, Column K, line 12?
A. The largest intrastate adjustment Column K, line 12, of $10,726 is the depreciation expense associated with the Hollister, Idaho to Jackpot, Nevada fiber line. As I mentioned earlier, this is one-half the expenses associated with this line.
Q. You have stated that on an intrastate basis you have already removed $970 of costs from corporate operations expense in Exhibit No. 106, Column K, line 15. What is the remaining $5,521 adjustment to corporate operations?
A. The remaining $5,521 adjustment results from allocating $3,550 (intrastate $2,193)on a total state basis or 5% of the managers salary to operations outside of telephone activities, allocating $200 (intrastate $123) or 5% of the insurance premiums to operation outside of telephone activities, removing $4,175 (intrastate $2,579)of image advertising and removing $1,014 (intrastate $626) of Nevada dues and advertising.
Q. What is the $1,820 intrastate you have removed from miscellaneous charges in Exhibit No. 106, Column K, line 19?

A. The $1,820 is for contributions that would not be allowed in the revenue requirement of a regulated utility, and therefore should not be included for the purpose of determining the need for USF funds.
Q. You stated earlier that you would discuss pay phones. In view of the fact that pay phones have been deregulated at the federal level and therefore should not be allowed in the revenue requirement for determining USF, why should there be any pay phone rate base, revenue or expenses included in this case?
A. The Company claims that pay phones are a public necessity and, therefore, should be included in the costs we are examining. At the Idaho intrastate level, the Company has a $4,256 net intrastate investment in pay phones, revenue from payphones of $2,287, and expenses of $4,503 for a net loss of $2,216. The Company currently charges 10 per local call but has agreed to ask the Board to increase the charge to the 25 per call charged by most other Idaho pay phone providers. This change would increase Idaho intrastate revenue by $3,430 and would result in a positive income for this service. With this change, USF funds would not be used to support this service.
Q. Does this conclude your direct testimony in this proceeding?
A. Yes, it does.

FIL-T-97-1 FAUNCE (Di) 1
9/12/97 Staff

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