28114.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION OF CUSTOMERS OF THE RURAL TELEPHONE COMPANY TO JOIN THE TREASURE VALLEY EXTENDED SERVICE CALLING AREA .

IN THE MATTER OF THE PETITION OF CUSTOMERS OF THE RURAL TELEPHONE COMPANY BOISE RIVER EXCHANGE TO JOIN THE U S WEST MOUNTAIN HOME EXCHANGE AND/OR THE TREASURE VALLEY EXTENDED SERVICE CALLING AREA.
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CASE NO. GNRT979

CASE NO. GNRT9818

ORDER NO. 28114

On April 7, 1997, the Commission received a Petition from twenty-five (25) of Rural Telephone Company’s customers residing in or near Tipanuk, Idaho, requesting extended area service (EAS) between Tipanuk and Mountain Home and/or Boise and the entire U S WEST Treasure Valley EAS Region. In response, the Commission issued a Notice of Petition on July 11, 1997, opening Case No. GNR-T-97-9. On August 28, 1997, the Commission received petitions from one-hundred thirteen (113) Rural customers requesting EAS from the Rural Boise River exchange (the communities of Pine and Featherville) into the U S WEST Mountain Home exchange and/or the entire U S WEST Treasure Valley EAS region. In response, the Commission issued a Notice of Petition and Hearing on December 10, 1998, and consolidated Case Nos. GNR-T-97-9 and GNR-T-98-18 for the purposes of scheduling and hearings.
A public hearing was held in Mountain Home on February 16, 1999. On February 19, 1999, Rural, U S WEST Communications, Inc. and the Commission Staff filed a Stipulation agreeing to vacate the technical hearing originally scheduled to begin on March 2, 1999. Staff, U S WEST and Rural requested the technical hearing be rescheduled within 60 days. On February 25, 1999, the Commission vacated the technical hearing schedule. Order No. 27942. A technical hearing was held July 7, 1999, in Boise. Staff also conducted a survey of all Rural customers regarding their interest in EAS and their willingness to pay the estimated costs for providing EAS.
Based on the hearings, the record before the Commission, the parties Stipulation and the Commission rules, the Commission grants the Petitions in part.
BACKGROUND
Generally, all the petitioners claimed that the county seat, schools, medical facilities, law enforcement and Internet access are available only via a long distance call to Mountain Home and that many services not available in Mountain Home are only found in Boise.
Rural is an Idaho Universal Service Fund recipient that provides local exchange service to six (6) rural exchanges – Boise River, Tipanuk, Atlanta, Prairie, Three Creek and Shoup. Rural’s exchanges are clear examples of the high-cost, rural exchanges that receive USF. Only customers in the Boise River, Tipanuk, Atlanta and Prairie exchanges requested EAS.
All of Rural’s exchanges are located in sparsely populated and expensive to serve areas. Boise River is Rural’s largest exchange with approximately two-hundred fifty (250) lines. According to census data, eighty percent (80%) of the occupied buildings in Boise River are used as vacation or recreational homes. Tr. 136. The next largest exchange is Tipanuk with fewer than seventy-five (75) lines. The rest are all much smaller than the Boise River and Tipanuk exchanges.
Prairie, Boise River and Atlanta exchanges are all located in northern Elmore County in fairly rugged and mountainous terrain. Tr. 136. Mountain Home is the county seat for Elmore County. Tr. 140. Prairie and Boise River lie along the South Fork of the Boise River. Tr. 139. The Prairie exchange includes the community of Prairie and ranches and recreational property in the foothills to the north of the South Fork. Id. The Boise River exchange includes the area around the Anderson Ranch reservoir, Pine, Featherville and recreational home sites along the South Fork of the Boise River. Altanta is very isolated and located near the headwaters of the Middle Fork of the Boise River on the edge of the Sawtooth Wilderness. Tr. 140. It is separated geographically from Boise, Mountain Home and the other areas within the U S WEST Treasure Valley EAS Region. There are no paved roads to Atlanta and the exchange has fewer than forty (40) lines.
Tipanuk is located in the desert between Mountain Home and Boise. Most Tipanuk residents live within ten (10) miles of downtown Mountain Home. While it may not be considered prime recreational property, the lots are large, more like small farms or ranches. Id. Tipanuk was added to Rural’s certificated area in 1986 when Tipanuk customers requested the Commission expand Rural’s area to include them. Order No. 20762, Case No. U-1130-7. Tipanuk customers did not want to pay the one-time $215 line extension charges plus zone extension charges they would be required to pay in order to receive service from Mountain Bell, U S WEST’s predecessor.
Rural customers in the Boise River, Tipanuk, Atlanta and Prairie exchanges pay toll charges to call government services. Tr. 140. Although they are all located within the Elmore County School system and Atlanta, Prairie and Pine have elementary schools for grades Kindergarten through eighth, the only high school is in Mountain Home. Id. High school students from these communities typically live with families in Mountain Home because no transportation is provided from Prairie, Pine, Featherville or Atlanta to Mountain Home. Id. Some students in the Boise River exchange choose to go to Fairfield for high school. Id. Similarly, some Atlanta students choose the new Idaho City high school. Students from Tipanuk are bused to Mountain Home for all grades.
Likewise, there are no doctors, dentists or medical facilities located in any of these communities. Tr. 141. Moreover, Staff testified that these Rural customers experience higher than average local toll bills. Id. Mr. Hart testified:
According to information from the 1998 USF Administrator's report, the statewide average revenue per line for intrastate toll calls is just over $11. Based upon the billed revenue per line data provided by the Company, Prairie customers paid over twice that amount just for calls to exchanges within the requested region, not including calls to locations outside the requested region. Tipanuk customers paid more than one and a half times the statewide average for calls within the requested region, while Boise River and Atlanta customers paid about the same for calls within the region as the typical customer paid for all in-state calls.

Tr. 141-142. None of the customers in these communities have access to the Internet as a local call. Id.
Tipanuk customers make an average of more than thirty-seven (37.5) calls per line per month to the entire U S WEST Treasure Valley EAS Region – over sixty percent (60%) of those calls to Mountain Home and over thirty percent (30%) to Boise. Tr. 144. Tipanuk customers make an average of twenty-four (24) calls per line per month from Tipanuk to Mountain Home alone. Tr. 143.
Prairie customers average thirty-seven (37) calls per line per month to the U S WEST Treasure Valley EAS Region – an average of eighteen (18) calls per line per month to Mountain Home and six (6) calls per line per month to Boise. Tr. 144-145.
Boise River customers average more than thirteen (13.3) calls per month to all of the exchanges in the U S WEST Treasure Valley EAS Region, seven (7) calls per line per month to Mountain Home and more than four (4) calls per line per month to Boise. Id. Nearly forty percent (40%) made no calls to Boise and more than sixty percent (60%) made fewer than two (2) calls to Boise per month. Id.
Atlanta customers make few calls to the U S WEST Treasure Valley EAS Region. These customers average nearly eight (8) calls per line per month to Boise with approximately forty-five percent (45%) of the customers placing less than two (2) calls per month to Boise. Tr. 146. Atlanta customers also make fewer than one (1) call per line per month to Mountain Home with less than ten percent (10%) of the lines placing two (2) or more calls. Tr. 147. Atlanta customers also make an average of two (2) calls per line per month to their closest neighbor, Idaho City, but more than seventy percent (70%) made no calls at all. Tr. 147.
Telephone service in these exchanges is supported by both federal and state Universal Service Funds. On a per-line basis, Rural receives more support from the Idaho USF than all but one other Idaho telephone company. Tr. 136-137.
THE PUBLIC HEARING
A public hearing was held in Mountain Home, Idaho, on Tuesday, February 16, 1999. Sixteen (16) public witnesses testified. Every public witness spoke in favor of the EAS petitions and urged the Commission to grant EAS. The majority resided in Tipanuk, Idaho. Those witnesses speaking in favor of EAS specifically indicated that they would experience substantial savings in monthly toll charges if EAS were granted and rates were increased.
Several witnesses also testified that the present telephone lines were inadequate to meet their needs and were repeatedly experiencing an “all circuits are busy” message. Tr. 13, 17.
THE TECHNICAL HEARING
Prefiled direct, rebuttal and supplemental testimony was received from Rural, U S WEST and Staff. The technical hearing was held July 7, 1999, and additional testimony taken from Staff witness, Wayne Hart, Rural’s witnesses, Ray Hendershot and James Martell, and U S WEST’s witness, John Souba.
1. Testimony of Staff Witness -- Wayne Hart. Staff witness, Wayne Hart, testified that he considered each of the factors identified by the Commission in Order No. 26311 in analyzing the Petitions. Tr. 118. Based on that analysis, Hart testified the calling data supports a conclusion that a community-of-interest exists between Rural’s Tipanuk, Prairie and Boise River exchanges and U S WEST’s Mountain Home exchange. Tr. 143. In fact, Hart testified that:
Tipanuk, Prairie and Boise River definitely share a strong community of interest with Mountain Home. This is the hub city that provides most of the services these customers need for routine living: banks, grocery supermarkets, car dealers and repairs, medical and dental care, drug stores, variety stores, restaurants, etc. . . . This link is especially strong for Tipanuk and Prairie, which do not have as many vacation or second home residents. Residents of these exchanges rely on businesses located in the exchanges in Mountain Home for most economic transactions, and they share churches and other civic organizations with those in Mountain Home. A typical customer in these exchanges incurs a higher than average toll bill, primarily because they make long distance calls to people and businesses in Mountain Home for services and activities that most Idaho residents can make with a toll free call.

Tr. 147-148.
Hart also testified that the community-of-interest between the Atlanta and the Boise exchange was weaker and that the community-of-interest between Atlanta and Mountain Home was marginal. Tr. 188. According to Hart, there are too many mountain ranges between Mountain Home and Atlanta making Atlanta geographically isolated. Id. In fact, Hart testified that Atlanta customers called Mountain Home less than one (1) time per line per month with more than ninety percent (90%) of the lines placing fewer than two (2) calls per month. Tr. 147. Since Atlanta has less than forty (40) lines, this means less than four (4) lines make more than two (2) calls per month to Mountain Home. Moreover, the calling data for other communities within the U S WEST Treasure Valley EAS Region was equally low. For example, Hart testified that Atlanta calling volumes to Idaho City were only two (2) calls per line per month with more than seventy percent (70%) of the lines placing no calls at all. Tr. 147.
Hart testified that in response to information presented at the public hearing and further data presented by Rural, Staff conducted a written survey of Rural’s customers in each of the four exchanges to determine their willingness to pay for the relatively high cost of providing EAS over these routes. Tr. 174. Staff assumed that no part of the projected EAS costs would be recovered in increased USF funding and that no part of the projected costs was associated with upgrades needed to meet increased demand. This would require customers to pay an increase of $57 per line per month. If the optic fiber upgrades are assumed to be associated with capacity upgrades, the cost increase per line would be $37 per line per month. Tr. 172.
When asked whether they would support EAS to the entire region with those increases, only twelve percent (12%) of the customers in the four exchanges indicated they would. Tr. 175. Although the majority of customers in all four exchanges would not support EAS at these rates, the percentage that would support it varied considerably among the exchanges. More than forty percent (40%) of the Prairie customers would support EAS to the U S WEST Treasure Valley EAS Region even with those rate increases. Tr. 175. Twenty-five percent (25%) of Tipanuk customers supported EAS to the U S WEST Treasure Valley EAS Region. Id. Less than ten percent (10%) of the Atlanta and Boise River customers continued to support EAS to the U S WEST Treasure Valley EAS Region at these rates. Id. Hart testified that this level of support for EAS at such high cost supports Staff’s conclusions that Tipanuk and Prairie both share a strong community of interest with both Mountain Home and the U S WEST Treasure Valley EAS Region. Id. Hart also suggested that it supports the conclusion that the community-of-interest between the region and the Atlanta and Boise River exchanges is marginal at best.
Hart initially testified against granting EAS for any of the requested routes based on the high costs associated with providing EAS. Tr. 178-179. He pointed out that Rural is already a large USF recipient and that the costs associated with accommodating EAS would greatly increase Rural’s USF draw. However, Hart also testified that based on the public testimony, current trunking facilities may be near capacity causing customers difficulty in placing calls. Tr. 168. Therefore, he reasoned, that at least some of the upgrades associated with providing EAS may be required regardless of whether EAS is granted and that as a USF recipient these would be clearly subsidized by USF. Id.
A legitimate argument can be made that these facilities would need to be upgraded in the near future, regardless of the EAS decision. The types of upgrades identified by the Company are also logical choices for dealing with the capacity problem that is now beginning to manifest itself. Rural may be able to delay dealing with these capacity issues for a while, but not for long. Depending upon the rate of growth, that may be 1 to 2 years, or as long as ten years. At most, a decision to implement EAS would simply cause these facilities to be constructed sooner rather than later. Staff believes these upgrades would probably be considered prudent if completed today, independent from a decision on EAS.

Tr. 168-169. Therefore, Hart testified that Staff could support treating the projected expenditures as a “normal cost of service” with the cost of these upgrades borne by the USF. Id.
Finally, Hart testified that if the Commission granted EAS over any of the proposed routes, the Commission should not authorize a measured service rate for these exchanges. Tr. 159, 177-178. He testified:
With the high level of vacation homes in these exchanges, Staff believes the subscription level for any measured option would be high enough to have serious impacts on revenues. Staff believes the revisions to the ITSAP credits should be sufficient to address universal service concerns. If the Commission believes a lower cost option should be made available to these customers, Staff recommends that in lieu of a measured rate option coupled with a mandatory EAS, the Company consider an optional calling plan. The impacts of a measured rate in exchanges with such a high number of vacation homes is probably similar to that of an optional calling plan, yet optional calling plans provide every customer with options to obtain better control over their phone costs.

Tr. 159.
Hart testified that based on his review of costs, the total annual revenue requirement for the additional EAS costs associated with granting EAS for all four exchanges into the U S WEST Treasure Valley EAS Region is estimated to be slightly less than $280,000 per year. Tr. 172, Exhibit 102. However, he further testified that the total revenue requirement associated with the costs for providing EAS would decrease by $100,000 per year if the fiber optic upgrades were assumed to be associated with upgrades necessary to meet increased capacity needs outside of EAS and were assigned to rate base. Id. Staff anticipates Rural would request an increase of USF distributions of $100,000 to cover the costs for facility upgrades. Id.
Finally, Hart testified that the costs for providing EAS over the requested routes would increase rates to U S WEST customers less than two cents ($0.02) per month. Tr. 132-133.
2. Testimony of Rural Witness – Ray Hendershot. Rural witness, Hendershot, testified regarding the costs associated with providing EAS as requested in the Petitions. Originally, he testified that, assuming revenue neutrality, the revenue deficiency would be $410,551, which he recommended be recovered by increased USF funding. Tr. 77. However, at the hearing, he testified that he could accept Staff’s revised assessment of revenue deficiency which was based on a cheaper configuration. Tr. 78, 80. Hendershot also testified that because some of the facilities are near exhaustion and need to be replaced regardless of whether EAS is granted these costs could arguably be associated with growth. Tr. 81-84.
3. Testimony of Rural Witness – James Martell. Rural witness, Martell, testified in favor of granting the Petitions for EAS between the four (4) exchanges and U S WEST Treasure Valley EAS Region so long as the company can recover its costs. Tr. 91. He also testified that he believed customers would be willing to pay $24.10 (residential) and $42 (business) rates if they received EAS to the U S WEST Treasure Valley EAS Region. Tr. 100. He testified that if the Commission approves two-way EAS as requested, the construction of the necessary facilities for providing EAS to the Boise River exchanges may take as long as eighteen (18) months. Tr. 93. Tipanuk could be accomplished more quickly. Id.
Martell also testified that recovering a portion of the costs for providing EAS from USF distributions is justified as a matter of policy because the Telecommunications Act of 1996 “mandates rural telephone service that is reasonably comparable in price and quality to urban areas.” Tr. 99-100. He testified that while he prefers EAS be granted to all four exchanges, he recognized that Atlanta and Boise River are different because Boise River has such a high percentage of vacation homes and Atlanta is so remote. Tr. 100. However, he also testified that Boise River is Rural’s fastest growing exchange with new subdivisions and a golf course under development. Tr. 101. Moreover, he testified that Boise River’s vacation character is also changing and that anticipated growth is not necessarily due to vacationers. Id.
Finally, Martell testified that Rural presently has some capacity and quality of service problems. Tr. 105. He stated:
The toll facility right now from the Boise River, which is our biggest exchange, goes 26 miles to the Prairie exchange and then it goes microwave up to Deer Point and then down here to Boise with a 12-pair cable and it is full at this point. For us to add any more T1's, we have to do something. Also, this cable goes through forestry property along a Forest Service road. They log, they cut it every year two to three times and when they do that, it puts everybody out of service, so our proposal is to take a fiber and run it 15 miles up to Highway 20 so that we have some redundancy. If the cable is cut between the two exchanges, nobody goes out of service and we will split the facilities; some will go to microwave, some will go on the fiber so that we always have our customers in service.

Tr. 105.
3. Testimony of U S WEST Witness – John Souba. U S WEST witness, Souba, testified that if the Commission determines that there is a community-of-interest between each of the four exchanges and the U S WEST Treasure Valley EAS Region, the Commission should approve two-way EAS into the entire U S WEST region. Tr. 113-114. It is against a more limited EAS into one or more specific cities. Id. Souba also testified that there is not a high level of interest among U S WEST customers for adding the petitioning exchanges to the U S WEST Treasure Valley EAS Region. Tr. 117. But he admitted the petitioning exchanges have a different calling pattern and that U S WEST is prepared to include these exchanges if the Commission finds it is in the public interest. Tr. 120.
Finally, relying on Order No. 27633, Souba testified that the costs to U S WEST customers for extending EAS into these exchanges would increase U S WEST customer rates between $0.01 and $0.02 per month. Tr. 129.
FINDINGS
As a result of previous Commission decisions, more than ninety-five percent (95%) of the telephone customers in southern Idaho have toll free calling to either a metropolitan region or to a large city. In deciding whether to grant requests for extended area service to a petitioning exchange, the Commission evaluates requests for enlarging toll free calling by balancing the “community-of-interest” between or among the petitioning exchanges against the costs and rate impacts to each of companies providing EAS. Order No. 26311.
The evaluation begins with an analysis of whether a “community-of-interest” exists but it does not rely on a mathematical formula. Several factors are weighed. For example, the Commission considers the total number of calls per month per line from the home exchange to the requested exchange; the number or percentage of customers making calls, the distance between exchanges; the presence of geographic or other physical barriers (mountains, rivers, valleys) between exchanges; the proximity to medical facilities and services; the county seat; the schools; and the willingness of customers to pay increased rates. Order No. 26311. The Commission does not rank these individual factors or weigh their importance. Once the community-of-interest has been determined, it is balanced against the costs and rate impacts of providing EAS.
The Commission finds that the Prairie and the Tipanuk exchanges each have a strong community-of-interest with the existing U S WEST Treasure Valley EAS Region. Comparisons of both Prairie’s and Tipanuk’s calling data to the EAS standards set out in Commission Order No. 26311 support those community-of-interests. The Commission finds that Boise River’s community-of-interest is weaker than that of Prairie and Tipanuk. However, Boise River customers average more than thirteen (13.3) calls per month to all of the exchanges in the U S WEST Treasure Valley EAS Region. In addition, Boise River is not only Rural’s largest exchange, it is also its fastest growing exchange and while it is presently a vacation community, that is changing. Tr. 105.
The Commission further finds that the community-of-interest for the Atlanta exchange into the U S WEST Treasure Valley EAS Region is minimal. While on average, Atlanta customers make almost eight (8) calls per month per line into Boise, they make virtually no calls into any other community in the U S WEST Treasure Valley EAS Region. Moreover, Atlanta is geographically remote from all the communities within the U S WEST Treasure Valley EAS Region.
The Commission notes that as a USF recipient, Rural will be required to raise its residential and business rates to meet 125% of the statewide average rates in order to continue receiving USF support. Therefore, rates for all Rural customers will be increasing to approximately $21.28 for residential rates and $39.77 for business rates even if the Commission denies the EAS Petitions. The Commission also notes that USF recipients may have rates in excess of the 125% of the statewide average. Idaho Code § 62-610. The Commission further observes that other USF recipients that have recently expanded toll free calling to the U S WEST Treasure Valley EAS Region for their customers charge rates designed to compensate the companies for EAS without increasing USF distributions to those companies by charging $24.10 for residential customers and $42 for business customers. See Order No. 27450 (Case Nos. GNR-T-96-5 and GNR-T-97-7), Order No. 27456 (Case Nos. GNR-T-96-6 and GNR-T-97-3), Order No. 27538 (Case No. GNR-T-97-8) and Order No. 27657 (Case No. GNR-T-97-14).
The Commission finds it is just and reasonable to charge Rural customers who receive the benefits of EAS more than the 125% of the statewide average just as other USF companies charge. However, the Commission also finds that if Rural customers were required to pay the entire costs for EAS by only raising rates, EAS for any of these exchanges would not be justified or in the public interest. If it is assumed that all the identified costs are solely related to providing EAS, the required rates per customer necessary to meet Rural’s revenue requirement would outweigh the benefits to that customer and the Commission would deny the Petitions.
However, the Commission finds that the record clearly establishes that Rural’s customers are experiencing inadequate service now. Tr. 13, 17, 168. The Commission further finds that both Rural and Staff testified that Rural will be required to upgrade its facilities to address the already identified capacity problems regardless of whether the Commission grants EAS. Tr. 101, 168. And Rural’s President, James Martell, testified that he expects significant growth. Tr. 101. Staff testified that these costs would clearly be supported by USF. Tr. 168. Therefore, the Commission finds that, based on the unique facts presented in this case, it is in the public interest to grant EAS for the Tipanuk, Prairie and Boise River exchanges to call toll free into the U S WEST Treasure Valley EAS Region provided those customers’ rates are raised to $24.10 per month for residential service and $42 per month for business service. The Commission further finds that no measured rate should be offered because the revenue implications are not known.
The Commission is mindful of the fact that the USF is funded in whole by surcharges paid by all telephone customers. Based on the strong community-of-interest demonstrated by Tipanuk, Prairie, and Boise River, however, the Commission finds that it is in the public interest to support EAS for these exchanges in part by increased distributions from USF. The Commission further finds that the community-of-interest for Atlanta customers into the U S WEST Treasure Valley EAS Region is too minimal to justify potentially increasing distributions from USF and thereby increasing surcharges paid by all telephone customers.
The Commission further finds the proposed rate increase for U S WEST customers in each of the U S WEST EAS regions is based on the method approved by this Commission in Order No. 27633 for calculating U S WEST costs for implementing EAS and is reasonable.
O R D E R
IT IS HEREBY ORDERED that the Petition requesting EAS between the Tipanuk exchange and U S WEST Treasure Valley EAS Region is granted.
IT IS FURTHER ORDERED that the Petition requesting EAS between the Boise River exchange and U S WEST Treasure Valley EAS Region is granted.
IT IS FURTHER ORDERED that the Petition requesting EAS between the Prairie exchange and U S WEST Treasure Valley EAS Region is granted.
IT IS FURTHER ORDERED that the Petition requesting EAS between the Atlanta exchange and U S WEST Treasure Valley EAS Region is denied.
IT IS FURTHER ORDERED that Rural Telephone Company and U S WEST take the necessary actions to implement EAS as authorized by this Order. The parties shall advise us of the cut-over dates within fourteen (14) days of the service date of this Order.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally decided by this Order) or in interlocutory Orders previously issued in Case Nos. GNR-T-97-9 and GNR-T-98-18 may petition for reconsideration within twenty-one (21) days of the service date of this Order with regard to any matter decided in this Order or in interlocutory Orders previously issued in this in Case Nos. GNR-T-97-9 and GNR-T-98-18. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code  61626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of August 1999.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

O:gnrt979_cc2
Toll-free calling between exchanges is provided via a service arrangement known as extended area service (EAS). The costs associated with converting a former long-distance toll route to a toll-free EAS route are recovered from the affected customers by increasing their rates for local service.

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ORDER NO. 28114

Office of the Secretary
Service Date
August 20, 1999