20020822Idaho Telephone Association Comments.pdf

Conley E.Ward ISB #1683
GIVENS PURSLEYLLP ,a O 54277NorthSixthStreet,Suite 200
P.O.Box 2720 !C
Boise,Idaho 83701-2720 UTILI S COMMISSION
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S:\MACS\CEW\ITA\IXC\Comments.doc
Attorneys for Idaho Telephone Association
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE )APPLICATION OF CENTURYTEL OF )CASE NO.GNR-T-02-11THEGEMSTATE,INC.AND )CENTURYTEL OF IDAHO,INC.FOR )IDAHO TELEPHONE ASSOCIATION'S
APPROVAL OF A TARIFF ADVICE )COMMENTS
CONTAINING DEPOSIT )REQUIREMENTSBY INCUMBENT )LOCAL EXCHANGE CARRIERS FOR )INTEREXCHANGE CARRIERS.)
Idaho Telephone Association ("ITA")files these Comments in response to the Idaho
Public Utilities Commission's ("Commission")Notice of Application issued on August 5,2002
in the above-entitled case.For the reasons stated below,the ITA urges the Commission to adopt
new,and more stringent,deposit requirements for interexchangecarriers ("IXCs").
1.What is the level of risk that LECs are exposed to absent the requested deposit policy
and how can this risk be quantified?
ITA Response:It is difficult to quantify exactly the overall level of risk for small LECs
such as the ITA member companies.However,the affidavit filed with the WorldCom
("WCOM")bankruptcy court by Charlie Creason,Project Mutual Telephone
Cooperative's General Manager,provides an example of the magnitude of the risk.(A
copy of Mr.Creason's affidavit is attached as Exhibit A).For Project Mutual,WCOM
ITA's COMMENTS -1
billings represented approximately 10%of the company's total revenues.At the time
WorldCom filed its bankruptcy petition,Project Mutual had nearly two months worth of
WCOM receivables ($162,407)on its books,and these sums are almost certainly a total
loss.Moreover,if WCOM is unable to meet its post-petition obligations,Project Mutual
is likely to incur a similar or larger loss before it can terminate service to WCOM in
accordance with the bankruptcy court's order.Most of the ITA members are similarly
situated.
2.Would it be proper to have state requirements regarding these proposed security
deposits that track those that may be endorsed by the FCC?
ITA Response:The Idaho Public Utilities Commission should n echo the FCC's
deposit or termination requirements.The FCC is primarily concerned with the survival
of interexchange carriers,and it can be expected to shift losses to the LECs if necessary
to achieve its goals.
3.If an IXC is providing both intrastate as well as interstate interexchange services,
would having a state standard and an FCC standard be problematic?
ITA Response:A single standard would be preferable,but is not absolutely necessary.
The financial risks to the LECs are far more important than administrative convenience.
4.Should small LECs be treated the same as large LECs concerning usage of the termsofthisproposedtariff?Commission experience has shown that access revenues
represent a larger portion of overall revenues for small LECs than for large LECs.With that in mind,are small LECs at greater risk than large LECs,therebyjustifyingdifferenttreatment?
ITA Response:The ITA is not sufficiently knowledgeable about the large LECs'
finances to confirm that its members have a greater percentage of their revenues at stake
in this matter.It is worth noting,however,that the small LECs are generally more highly
ITA's COMMENTS -2
leveraged than larger companies,and most have little in the way of income from services
other than local rates and exchange access.In addition,larger LECs are probably more
likely to be purchasing some services from the IXCs,and thus are more likely to have
set-offs that could reduce their exposure to IXC failures.
5.Does the current WorldCom bankruptcy filing demonstrate the need for this policy or
the futility of implementing it?
ITA Response:The WCOM bankruptcy clearly illustrates the need for a new IXC
deposit policy.Only timely deposits can prevent pre-petition losses for the LECs.In
addition,once the bankruptcy court takes jurisdiction,both the LECs and the
Commission will be deprived of authority to demand deposits,thus exposing the LECs to
still further losses.
6.Is it appropriate to require a deposit from an IXC that has no history of late payments
regardless of its credit rating?
ITA Response:Yes.At the very least,LECs should be able to demand deposits of large
IXCs who lose an investment grade credit rating.This is a standard practice in the
energy trading industry,and it makes sense in this context as well.
7.Would this requirement become a self-fulfillingprophecy if a financially struggling
company were required to pay a two-month deposit?
ITA Response:It may be that the Commission should entertain separate rules for
existing small IXCs that have only a tiny percentage of the market in a given LEC's
service territory.In such cases,the financial risk to the LEC may not be sufficient to
justifythe customer disruption that would occur if the small IXC is unable or unwillingto
furnish a deposit.But the larger IXCs and all new IXCs entering a market for the first
time should be subject to the new deposit rules.If these carriers lack the financial ability
ITA's COMMENTS -3
to meet the deposit requirements,they are already among the walking dead and are
almost certainlydoomed anyway.
8.If the Commission were to find that the proposed deposit policy was in the public
interest,what is the proper trigger for determining credit worthiness?
ITA Response:Loss of an investment grade credit rating or late payments are two
indicia of financial difficulties that should result in a deposit requirement.These criteria
are not infallible,however.For example,Enron still had an investment grade credit
rating only days before its bankruptcy filing.LECs should be allowed to demand
deposits in other circumstances as well.If the Commission is uncomfortable with the
LECs exercising full discretion on this issue,it could provide for a quick and simple
Commission review process if the IXC protests a deposit requirement.
9.Under the second proposed condition in the tariff,where a carrier's billing increases
beyond the amount initially used to estimate a deposit,what size increase will trigger
a deposit?How big of an increase should trigger a deposit?Also,over what period
will this increase be determined:should it be a one-month increase or a longer term,
such as a three-month average?
ITA Response:The ITA does not have any particular insight on this question.
Obviously any trigger amount will have to be a relatively arbitrary exercise of the
Commission's judgment.
10.If a required deposit is not paid,how will disconnection be accomplished?How will
end users be transitioned to a new provider and how will that provider be determined?
Should customers be polled to see what their preferences are or should they be
allocated based on the current distribution of carriers?What will be done to ensure
that the transition is done in accordance with the Commission's Customer Relations
Rules?
ITA Response:This is a very difficult question,with ramifications far beyond the
deposit requirement issue.The ITA's bankruptcy counsel believes that WCOM will
ITA's COMMENTS -4
likely lack sufficient cash flow to meet its obligations in the near future.If this judgment
is correct,in perhaps as little as a few weeks the LECs and the Commission will have to
be prepared to deal with a possible termination of service to WCOM.How this is
handled will have to depend in part on what is technicallypossible.To pick but one
example of potential problems,other carriers may not have the capacity to handle a
sudden influx of additional customers and traffic even if the transition could otherwise be
handled smoothly.Moreover,there are a number of complicated issues regarding the
services that can or should be terminated in the event of non-payment.For instance,can
special access be terminated for nonpayment of switched access?What if the disrupted
customers include such institutions as the Mountain Home Air Force Base or the INEEL?
The ITA submits that the best way for the Commission to approach this problem is to
schedule an industry workshop with all possible speed.This workshop would be
charged with devising a reasonable plan or options to cope with service transitions in the
event of further IXC defaults.This would at least give the Commission a sense of what is
possible and what the key policy issues are.
The ITA cannot overemphasize the importance of dealing with this issue as quickly
as possible.Further defaults by WCOM or the financial collapse of other large carriers
have the potential to topple other industryparticipants like dominos as they too encounter
cash flow problems and possible debt covenant violations.This horrifying scenario may
not be likely or probable,but it is no longer unthinkable,and the Commission needs to
devise an action plan now while there is still time to deal with the problem in an orderly
fashion.
ITA's COMMENTS -5
11.Are there possible alternative to requiring a deposit from IXCs?Is a surety bond a
reasonable alternative?
ITA Response:A properly structured surety bond is probably an acceptable substitute
for a deposit,but the companies most in need of an alternative may not be bondable.One
other partial remedy would be to allow LECs to bill IXCs more frequently,perhaps as
often as weekly.This would not be a substitute for a deposit requirement,but rather an
additional measure that would cut down the LECs'financial exposure to further losses.
RESPECTFULLY SUBMITTED this 22n day of August,20 .
Co ey
Givens Pursley LLP
Attorneys for Idaho Telephone Association
ITA's COMMENTS -6
CERTIFICATE OF SERVICE
I hereby certify that on this 22nd day of August,2002,I caused to be served a true andcorrectcopyoftheforegoingbythemethodindicatedbelow,and addressed to the following:
Jean Jewell
Idaho Public Utilities Commission
472 W.Washington Street
P.O.Box 83720
Boise,ID 83720-0074
U.S.Mail Fax X By Hand Overnight
Pamela Donovan
CenturyTelof the Gem State
P.O.Box 9901
Vancouver,WA 98668-8701
X U.S.Mail Fax By Hand Overnight
Mary S.Hobson,Esq.
Stoel Rives LLP
101 S.Capitol Blvd.,Suite 1900
Boise,ID 83702-5958
X U.S.Mail Fax By Hand Overnight
Morgan W.Richards,Esq
Moffatt Thomas Barrett Rock &Fields,Chartered
101 S.Capital Blvd.,10th Floor
P.O.Box 829
Boise,ID 83701-0829
X U.S.Mail Fax By Hand Overnight
Dean J.Miller
McDevitt &Miller,LLP
420 West Bannock Street
P.O.Box 2564
Boise,ID 83702
X U.S.Mail Fax By Hand Overnight
Tina Smith
ITA's COMMENTS -7
8/14/2002 11:11 PRO'MUTUAL -RUPERT 12124250330 NO.760 902
KellyGreene McConnell (ID:4900)
Bradley V.Sneed (ID 8542)
GIVENS PURSLEY,LLP
277 North Sixth Street
P.O.Box 2720
Boise,ID 83701
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Email:kemthelvenspursleycom
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UNITEÐSTATES BANKRUPTCYCOURTSOUTIERNDISTRICTOFNEWYORK
:Chapter 11InreCaseNo.02-13533 (AJG)
WORLDCOM,INC.,et al',:(JointlyAdministered)
b
Debtors.
AFFIDAVIT OF CHARLES H.CREASON,JR,,IN SUPPORT OFOBJECTIONOFIDAHOTELEPHONEASSOCIATIONTODEBTORS'MOTION PURSUANT TO SECTIONS 105(a)AND 3dd(b)OF THE BANKRUPTCYCODE FOR AUTHORIZATIONTOPROVIDEADgOUATEASSURANCETOUTILITYCOMPANIES
STATE OF IDAHO )
)ss.
County of Anidoktt)
Charles H.Creason,Jr.,being first duly swom,deposes,states and avers under
penalty of perjury,as follows.
L I am the president of the Project Mutual Telephone Cooperative
te na e
on,InejecanIdaho1¢0tporadon(hendenafterP),cwhichdoesbusiness undet
I have an undergraduate degree in business from the University of Idaho and a law degree
from the University of Idaho which he received in 1978 I arn currently an affiliate
ITA Comments
Exhibit A I
9/14/2002 11:11 PRO MUTU L -RUPERT 4 12124250330 NO.760 903
member of the Idaho State Bar I would testify on the basis of my personal knowledge
and to the best of his information and belief to the following facts and circumstances.
2.PMT is a relatively small company that serves 11,500 telephone customers
in parts of five (5)rural Idaho counties (Minidoka,Lincoln,Cassia,Jerome and Blaine).
The book value of all assets of PMT is approximately $30 million.
3.MCI/Worldcom owes PMT for access since April 16,2001 The total
amount owed up to July 16,2002,is $162,407.16.It is estimated that anotber $12,800.00
is owed for the period from July 16,2002,to July 24 2002.
4.On average,the amoum per month PMT bills MCI/WorldCom is
588,000.00.
5.This figure represents approximatelyten percent (10%)of PMT's monthly
revenue
6.If PMT is not tirnely paid by MCI/Worldcom,severe cash flow problems
will result Although PMT has some cash reserves,PMT is a small company and the
financial pressure of the lack of'payment by MCI/WorldCom could conceivably cause
PMT to cease operations withína few months
1 PMT does not purchase any services ffom MCI/WorldCom or owe any
money to MCI/WorldCont PMT does purchase long distance services from WRLD
Alliance,a Utah company,and these services were in turn purchasedby WRLD A¾iance
from MCIlWorldCom World Alliance is not in any bankruptcy proceeding Because
PMT has no direct contractual relationship to purchase any services from
MCI/WorldCom,PMT has no accounts payable to MCI/WorldCom against which it
could claim an offset against amoums owed PMT by MCI/WorldCom.
8/14/2002 11:11 PROT MUTUAL -RUPERT ÷ 12124250330 NO.760 904
8.PMT is a member of the Idaho Telephone Association ("ITA"),which is a
trade organization of independent telephone companies within the state of Idaho.
9.By virtue of my membership iri the ITA,I am familiar with the financial
circumstances and operations of the other memben of the ITA,including Albion
Telephone Company.Cambridge Telephone Company,Custer Telephone Co-op,Direct
Communications/Starwest,Farmers Mutual Telephone Co.,Inland Telephone Company,
Midland Telephone Exchange,Mud Lake Telephone,Oregon Idaho Utilities,Inc.,Rural
Telephone Company,Silver Star Telephone Company,and Filer Mutual Telephone-
10 All of these other members of the ITA are of like size and are similarly
situated to PMT and would thus be likewise impacted by any ¢ossation of payments by
MCI/Worldcom.
I am available at phone numbers [phone] and [phone] or (208)
431-3166 and understand that the Comt might conduct sessions as late as midnight
Eastem Time on Wednesday,August 14,or Thursday,August 15 to confirm that this
indeed my testimony.I understand that when I am called by the Court,I will need to
have a notary present in order to administer an oath to me.
C les reaso Jr.
SUBSCRIBEDAND SWORN TO before me this|__of August,2002.
Notary Publi for Idaho
Residing at u E,hidoL ÅgMycommissionires(p -/Ÿ 90 04 )