Response to GTE Motion.doc

CHERI C. COPSEY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5142

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE INVESTIGATION TO DETERMINE AN APPROPRIATE COST MODEL USING FORWARD-LOOKING ECONOMIC COSTS FOR CALCULATING THE COSTS OF BASIC TELECOMMUNICATION SERVICES IN IDAHO
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CASE NOS. GNR-T-00-2
GNR-T-97-22

STAFF RESPONSE TO GTE/VERIZON MOTION TO SUSPEND DOCKET

IN THE MATTER OF THE INVESTIGATION TO ESTABLISH THE IDAHO HIGH COST FUND AS REQUIRED BY IDAHO CODE §62-610A THROUGH F.
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On August 2, 2000, GTE Northwest Incorporated, now Verizon Northwest Inc., filed a Motion to Suspend Docket and requested expedited consideration. GTE/Verizon requests the Commission suspend the dockets for eight weeks in light of its appeal of the Fifth Circuit Opinion in GTE Service Corp. v. FCC, 183 F.3d 393 (5th Cir. 1999) to the United States Supreme Court and the recent Eighth Circuit opinion on remand in Iowa Utilities Board v. FCC. According to its Motion, the constitutionality of the FCC’s decision to use the FCC Synthesis Model at issue in these dockets will be decided by the United States Supreme Court which has clear implications for this Commission’s decision in these dockets.
On August 2, 2000, due to the current schedule, the Commission issued a scheduling order requiring all parties to respond to GTE/Verizon’s Motion by August 7, 2000. Order No. 28471.
As more fully discussed below, Commission Staff neither opposes nor supports GTE/Verizon’s Motion. However, Staff does recommend that the Commission vacate the present hearing dates and schedule a prehearing conference for August 22, 2000, to require the parties to advise the Commission what effect each party believes these rulings may have on the potential use of the FCC Synthesis Model to determine the Idaho High Cost Fund. In addition, if the parties believe adoption of the FCC Synthesis Model is affected by these rulings, the parties should be prepared to identify what action should be taken, including whether there are areas that can be decided in the absence of adoption of a cost model. All parties should be required to bring their calendars prepared to agree to a new hearing schedule. Finally, the Commission should immediately suspend the date for filing rebuttal, which is currently Friday, August 11, 2000, until after the prehearing conference.
I. The Eighth Circuit Decision does not directly affect the legality of this Commission adopting the FCC Synthesis Model to fund the Idaho High Cost Fund.
Contrary to GTE/Verizon’s inference, the recent Eighth Circuit decision in the Iowa case does not affect the legality of this Commission adopting the FCC Synthesis Model to determine the Idaho High Cost Fund. The Iowa case involves the pricing of unbundled network elements (UNEs). How an incumbent local exchange carrier (ILEC) prices UNEs for the use of a competitive local exchange carrier (CLEC) is very different from how the amount of high cost support is determined. Ensuring that an ILEC receives adequate compensation for the use of its existing network has constitutional implications. Because high cost support is not related to ratemaking and is supposed to be revenue neutral, the legal requirements are different. Although the FCC Synthesis Model uses a hypothetical network for developing costs, because the fund is not meant to compensate the ILEC for the use of its system, the Eighth Circuit decision has no direct effect. The only indirect effect is to potentially discredit the use of a hypothetical network for developing costs.
II. The Fifth Circuit Decision and its pending appeal does not directly affect the legality of this Commission adopting the FCC Synthesis Model to fund the Idaho High Cost Fund.
GTE/Verizon appealed the Fifth Circuit’s decision in Texas Office Of Public Utility Counsel, et al v. FCC 183 F.3d 393 (5th Cir. 1999) to the United States Supreme Court. That appeal is pending; opening briefs are due soon. At issue is the constitutionality of the FCC’s use of the FCC Synthesis Model to determine each eligible telecommunications carrier’s high cost support.
While Commission Staff is recommending the use of the FCC Synthesis Model to determine the Idaho High Cost Fund and the appeal being pursued by GTE/Verizon directly attacks the use of this model as unconstitutional, this appeal does not affect the legality of this Commission using the FCC Synthesis Model. The Idaho Code specifically requires this Commission to use a forward looking cost model. Idaho Code § 62-610F. Clearly, while the existence of a statute does not immunize the Commission from constitutional challenge, the purpose for which such a high cost fund is used does. In Idaho, the model will not be used to supplant traditional rate making. The Idaho High Cost Fund is not used to determine rates. It will supplement rates in high cost areas. It is difficult to see how this would implicate the constitutional prohibition against a taking without compensation. Because each of the ILECs that are Eligible Telecommunications Carriers will continue to be allowed the opportunity to earn their fair rate of return, there can be no taking. This fund is to be revenue neutral.
That is not to say that there is no potential for impact from this appeal. In a recent Oregon Public Utility Commission order, the Oregon Commission indicated its Staff supported the use of the FCC Synthesis Model for several practical reasons. The IPUC Commission Staff agrees with the Oregon Staff; the results derived from the use of any of the models currently under consideration are similar. All seem to identify the same high cost areas that should be supported. Commission Staff also agrees with the Oregon Staff that the reasons for supporting the use of the FCC-SM [FCC Synthesis Model] include the following factors:
(1) the FCC’s investigation of cost models was the focus of national attention and general debate from numerous major players in the industry; (2) because of the size and complexity of cost proxy models, it would not be practical or efficient for this Commission to duplicate the FCC investigation, design its own model, or investigate other proprietary industry models; (3) the FCC-SM [FCC Synthesis Model] is non-proprietary and available for public review; (4) use of the FCC-SM [FCC Synthesis Model] allows the Oregon program to be reasonably consistent with and complementary to the federal universal service program; (5) adopting the FCC-SM [FCC Synthesis Model] is the most expeditious way to keep abreast of new telecommunications technologies, network improvements, and cost changes as they are introduced into the network.
Oregon Public Utilities Commission Order entered June 16, 2000, page 6. This means, however, that if the United States Supreme Court finds that the FCC’s use of this model is constitutionally flawed and requires the FCC to materially change the model, many of the advantages for adopting it no longer exist. This may create practical problems for the Commission if it were to adopt the FCC model without knowing the outcome of the appeal. Therefore, the Commission should use the prehearing conference as an opportunity to let the parties identify the benefits of proceeding and the disadvantages.
Conclusion.
Based on the foregoing argument, the Commission should vacate the present hearing dates and schedule a prehearing conference for August 22, 2000, to require the parties to advise the Commission what effect each party believes these rulings may have on the potential use of the FCC Synthesis Model to determine the Idaho High Cost Fund. In addition, if the parties believe adoption of the FCC Synthesis Model is affected by these rulings, the parties should be prepared to identify what action should be taken, including whether there are areas that can be decided in the absence of adoption of a cost model. All parties should be required to bring their calendars prepared to agree to a new hearing schedule. Finally, the Commission should suspend the date for filing rebuttal until after the prehearing conference.
Respectfully submitted this 7th day of August 2000.

Cheri C. Copsey
Deputy Attorney General
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Iowa Utilities Board, et al. v. Federal Communications Commission, No. 96-3321, 2000 WL 979117, (8th Cir. July 18, 2000), on remand, 525 U.S. 366 (1999).
Texas Office Of Public Utility Counsel, et al v. FCC 183 F.3d 393 (5th Cir. 1999), cert. granted sub nom, GTE Service Corp. v. FCC, 120 S.Ct. 2214 (June 5, 2000).

STAFF RESPONSE TO GTE/VERIZON
MOTION TO SUSPEND DOCKET -4-