28690.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE COMMISSION STAFF’S PROPOSAL FOR INSTALLATION OF A FIBER ROUTE BETWEEN RIGGINS AND GRANGEVILLE, IDAHO
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CASE NO. GNR-T-00-40

ORDER NO. 28690

PROCEDURAL BACKGROUND
On January 3, 2001, the Commission issued a Notice of Proposal, Notice of Modified Procedure and Order No. 28606 notifying interested parties that the Commission would consider whether installation of a fiber optic route between Riggins and Grangeville, Idaho is in the public interest. Funds for the construction would come from a portion of the gain on the sale of local exchanges in northern Idaho by U S WEST Communications, Inc. (now Qwest Corporation) to Citizens Telecommunications Company of Idaho. That sale was approved in Case No. USW-T-99-25/CTC-T-99-2, and the Commission’s Order approved a stipulation providing that part of the sale proceeds would be used to benefit telephone customers in the affected exchanges. The parties to the stipulation recommended that $4.94 million be deposited by Qwest to a yet-to-be established universal service fund, but the Commission did not approve that provision, stating it “is not convinced the record establishes that deposit to the new USF is the best use of the funds.” Order No. 28394.
In its Notice of Proposal, the Commission provided a period of 28 days for the filing of written comments. Written comments were filed by Citizens Telecommunications Company of Idaho, Verizon Northwest, Inc., Avista Communications of Idaho, Inc., Qwest, and the Commission Staff. In addition, the Commission received dozens of written comments from the public. In light of the issues discussed by the parties, the Commission subsequently determined to provide an opportunity for reply comments. Accordingly, the Commission issued a Notice and Order No. 28640 on February 7, 2001, providing an additional comment period of 21-days. Reply comments were filed by Verizon, Qwest, and the Staff.
THE COMMENTS
In its comments, Avista expressed support for the goal of improving telecommunication services in Idaho overall and in particular for deployment of a high-speed fiber optic telecommunications route between Riggins and Grangeville. Avista nonetheless expressed concern that the proposal be “sufficiently competitively neutral.” Avista stated that “a decision by this Commission that would, in effect, provide an incumbent telephone company with an additional $4.94 million in assets free and clear. . .would not be competitively neutral absent provisions which ensure that all CLECs [competitive local exchange carriers] are assured equal access to the fiber at revenue neutral rates charged by Citizens.” Avista also cautioned that CLECs competing with Citizens “must be assured that their customers will not be required to pay for fiber optic connectivity access that Citizens customers receive ‘cost-free’.”
Verizon in its comments likewise stated its support of the proposed fiber facilities. In addition, Verizon recommended the Commission “direct its Staff to investigate and evaluate adding the Lewiston to Genesee link to the fiber construction project at issue in this proceeding.”
The comments of Citizens and Staff are similar in identifying reasons to support the proposed fiber optic construction. Staff and Citizens note that the fiber route would improve communications between northern and southern Idaho, provide Citizens’ customers with access to high-speed broadband service, and improve access to emergency services in Idaho County, especially by improving 911 service.
In its comments, Qwest recognized that installation of a fiber route between Riggins and Grangeville would provide public benefits. Qwest stated it did not intend to attempt to “block” the construction of such a facility. Qwest nonetheless expressed its concern that, “on the record provided here, it is not clear what the benefits of such a facility are or who the beneficiaries might be.” Qwest posed several questions regarding the proposal.
In regard to a fiber route increasing high-speed broadband service, Qwest stated that “there is no information in the record in this case that allows for analysis of this statement.” Qwest presented numerous questions it stated are unanswered in the record regarding access to broadband services, improvement of emergency services and the status of a north-south fiber route after the proposed construction. Qwest also raised questions regarding the regulatory treatment for the proposed fiber route and access to the facility by competitors.
Reply comments were filed only by Verizon, Qwest and the Staff. In its reply comments Verizon again expressed support for construction of a fiber route between Lewiston and Genesee and, in response to the questions raised by Qwest, stated its assumption that additional information could be provided by further investigation by Staff. Verizon recommended the Commission make a decision approving the project, and directing further investigation by Staff if necessary.
In its reply comments, Staff responded to the specific questions raised by Qwest and Avista regarding access by competitors. Staff noted “this is an opportunity for the Commission to oversee infrastructure development that the market place has not addressed and probably will not address for some time.” Staff recommended if the construction is approved that sufficient facilities, including a spare duct, be available to other carriers on the route and that other carriers be treated equitably. Staff noted that competitors will have the ability to carry traffic north and south through the fiber optic cable which will mean increased capacity, reduced route mile requirements for leasing or installing facilities, and more reliable service because of the redundancy it provides. As for regulatory treatment, Staff stated the treatment should be similar to that for the switch replacement in Lewiston approved by the Commission as part of the Qwest-Citizens sales transaction. Funds for the fiber construction could be transferred to Citizens and booked into an Idaho intrastate regulatory liability account and then used to offset the intrastate cost of the fiber route when it is actually completed. The result is a fully depreciated intrastate asset, meaning there is no increase in intrastate rate base or depreciation expense to be included in Citizens’ rates. Staff again reiterated that “to ensure maximum benefit, the Commission must provide that this fiber is available to competitors on a competitively neutral, non-discriminatory basis.”
In its reply comments, Qwest conceded “it is not seriously disputed that a fiber route between Riggins and Grangeville is in the public interest.” Nonetheless, Qwest believes the real question is “whether building a fiber route is a better use of the $4.94 million than the stipulated deposit in the Idaho high-cost fund for universal service support.” Qwest stated it believes “the benefits of a fiber route between Riggins and Grangeville can be achieved by other means and that those companies interested in providing ‘broadband services in central and north Idaho’ should be encouraged to do so through the private investment contemplated by Governor Kempthorne in his January 2001 budget address in which he favored tax incentives as a means to spur broadband connectivity.”
The comments filed by members of the public appear to be unanimous in their support of the proposed fiber route construction. The comments voice support “for anything that improves the communication infrastructure in the area, and the improved 911 service that would result from construction of the route.” The Commission received numerous form letters from customers extolling the benefits of the proposed fiber optic route, some of which conclude that “upgrading the services currently available is not only necessary and overdue, but simply the sensible and reasonable thing to do.”
COMMISSION DECISION
The Commission hereby approves construction of the fiber route between Riggins and Grangeville, using a portion of the gain on the sale of exchanges approved in Case No. USW-T-99-25/CTC-T-99-2. In its final order in that case, the Commission specifically stated it would “obtain additional evidence in a separate proceeding before making a final decision regarding disposition of the $4.94 million balance of the settlement amount.” Order No. 28394, p. 8. The comments filed in this case convince us that construction of the proposed fiber route is an appropriate use of a portion of the funds. There is no dispute the fiber route would significantly improve telecommunication services within and between central and north Idaho, and could eventually be part of a broadband network connecting south Idaho with the northern part of the state. As Staff noted, construction of this route will close the longest and costliest gap in a future continuous fiber route connecting the southern and northern parts of our state.
The fiber route will directly benefit customers in the northern Idaho exchanges to be acquired by Citizens from Qwest. There currently is no direct connection between these eight exchanges and southern Idaho, and thus all calls south are routed to Spokane and then to Boise. Telecommunication services for these customers will become faster and more reliable when calls are made to other parts of the state. In addition, emergency telecommunication service in Idaho County will be greatly improved. When an emergency call now is made by a customer in Riggins or White Bird, the customer must dial an 800 number, and the call is routed to McCall, to Boise, to Spokane, to Lewiston, and then finally to Grangeville, where the nearest facilities are located. Installation of the fiber route would eliminate this problem by providing a direct route for the call, thereby improving 911 service throughout Idaho County. As stated in many of the customer comments filed in this case, this is “the sensible and reasonable thing to do.”
In short, the record reflects almost unanimous support for construction of a fiber optic route between Riggins and Grangeville, Idaho, and the Commission finds the construction to be reasonable and an appropriate use of funds generated by the sale of north Idaho local exchanges. It also is prudent to address some issues identified in the written comments. First, the funds for the proposed construction will come from the $4.94 million “settlement amount” approved in Case No. USW-T-99-25/CTC-T-99-2, and thus will be available only after the sale of exchanges to Citizens closes. Based on information provided by Citizens, Staff estimated the construction costs to be approximately $3.8 million. Once the sale of exchanges closes, Citizens must prepare and provide a more detailed estimate of the construction costs, and report actual costs throughout the construction project. A written estimate of construction costs must be provided within 90 days of close of the sale, and Citizens must provide written reports of actual costs at least twice—once at the approximate mid-point of construction and again at the completion of the project.
Second, it is appropriate for the Commission to clarify the regulatory treatment of the construction costs, which will be similar to the treatment of the costs to replace the central office switch in the Lewiston exchange. At the close of the sale transaction, the $4.94 million amount will be transferred to Citizens and placed in a regulatory liability account on Citizens’ books, and then used to offset the intrastate cost of the fiber route when it is actually completed. This regulatory liability account shall accrue interest at the same rate as on customer deposits, which rate is established annually by the Commission and currently is six percent. When Citizens files its final accounting entries at completion of the project, Staff will audit the results. The Commission anticipates the actual construction costs will be less than the amount deposited from the sale of exchanges, and the Commission will determine the best use for the remaining funds after completion of the project.
Finally, the Commission will ensure access to the route by competitor telecommunications companies on a competitively neutral basis. Citizens must allow access to the fiber route by competitor telecommunication providers on a non-discriminatory, competitively neutral basis. In addition, Citizens must build in sufficient capacity, including a spare duct, in the fiber route to serve competitor companies.
O R D E R
IT IS HEREBY ORDERED that the construction of a fiber optic route between Riggins and Grangeville, Idaho, is approved, using funds available from the sale of exchanges approved in Case No. USW-T-99-25/CTC-T-99-2. Citizens must prepare and provide a more detailed estimate of the construction costs, and report actual costs throughout the construction project. A written estimate of construction costs must be provided within 90 days of close of the sale, and Citizens must provide written reports of actual costs at least twice—once at the approximate mid-point of construction and again at the completion of the project.
IT IS FURTHER ORDERED that, at the close of the sale of exchanges to Citizens, the amount of $4.94 million will be transferred to Citizens and placed in a regulatory liability account on Citizens’ books, and then used to offset the intrastate cost of the fiber route when it is actually completed. The account will accrue interest at the same rate as established by the Commission for customer deposits. When Citizens files its final accounting entries at completion of the project, Staff will audit the results.
IT IS FURTHER ORDERED that Citizens must allow access to the fiber route by competitor telecommunication providers on a non-discriminatory, competitively neutral basis. In addition, Citizens must build in sufficient capacity, including a spare duct, in the fiber route to serve competitor companies.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of April 2001.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:GNR-T-00-40_ws3

ORDER NO. 28690 1

Office of the Secretary
Service Date
April 6, 2001