20000922Comments.doc

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283

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

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION OF GTE
NORTHWEST INCORPORATED FOR
APPROVAL TO REVISE DEPRECIATION
RATES.

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CASE NO. GTE-T-00-9

COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the Notice of Application and Notice of Modified Procedure issued in Order No. 28506 on September 13, 2000, submits the following comments.
GTE NORTHWEST, Incorporated (GTE-NW) filed an Application for changes in depreciation rates with the FCC and Idaho utilizing a 1999 year-end calculation date. The Application requested a three-way depreciation meeting between GTE-NW, the FCC, and Idaho Staff. The three-way meeting was held in Washington, D.C. during the first week of April 2000. As a result of that three-way meeting GTE-NW's annual depreciation and amortization expense will increase from $31.183 million to $34.525 million, an increase of $2.464 million. (See attached schedule.) GTE-NW then filed a Petition for Approval of Revised Depreciation Rates on June 8, 2000 with this Commission (Case No. GTE-T-00-09). Staff supports the depreciation rate changes.
There are two unusual conditions that should be noted in the results from the three-way meeting and the GTE-NW depreciation request. First, GTE-NW requests a three-year amortization of a reserve for Central Office Equipment Software. (See Petition of GTE Northwest Incorporated for Approval of Revised Depreciation Rates, page 2, paragraph 3, Case No. GTE-T-00-9.) The purpose of this amortization is to write off switching software that is no longer in service. The annual write off is $1,342,000, more than half of the total requested increase. The amortization period is the years 2000, 2001, and 2002. Staff agrees with this amortization. However, on a going-forward, test-year basis, Staff would not support establishing tariff rates on a long-term basis that includes this unusual amortization. The overall return on rate base with the three-year amortization included is 8.77%. Were it not for this unusual amortization amount the overall return on rate base would be 9.41%, after all of the other requested depreciation changes. For information comparison an 11% return on equity using the 1999 capital structure would yield a 9.43% overall rate of return.
Second, there was an adjustment to accumulated depreciation accounts as a result of an Agreement between this Commission, GTE-NW, and Citizens Telephone Company. The Agreement settled some issues pertaining to the sale of the old Contel Telephone Company properties to Citizens by GTE-NW (Case Nos. GTE-T-93-2/CTC-T-93-1). The change in the accumulated depreciation accounts has an influence on the traditional method of calculating depreciation rates. (The increase in accumulated depreciation makes it appear that there were less retirements than actually occurred.) Because of that influence Staff agreed at the three-way meeting to a shorter depreciation life, a 17-year life versus a 20-year life, for metallic cable accounts. Staff agreed to the shorter life so as not to lose the benefits to the ratepayers of the Agreement from the GTE-NW/Citizens sale cases.
At the time the Petition was filed on June 8, 2000, Staff was in the process of conducting an audit to determine the level of earnings with a 1999 test year. Staff wanted to see the influence of the requested depreciation rate changes before writing comments or making a recommendation to the Commission. Although the audit is not complete, Staff is comfortable recommending approval of the requested depreciation rates.

DATED at Boise, Idaho, this day of September 2000.

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Weldon B. Stutzman
Deputy Attorney General

Technical Staff: Syd Lansing

WS:SL:jo:umisc/comments/gnrt009.slws
STAFF COMMENTS 1 SEPTEMBER 22, 2000