20141009Comments.pdf

DONALD L. HOWELL, il I? E f, E IY I: )
DEPUTY ATTORNEY GENERAL
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PO BOX 83720 tijAl-l{j F iji-jr_l;
BOISE, IDAHO 83720-0074 iilit"lTllJ C,lti.i li$$liii,
[phone]
IDAHO BAR NO. 3366
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-59T8
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF'THE APPLICATION OF )
OREGON-IDAHO UTILITIES,INC. TO ) CASE NO. ORE-T-14-01
INCREASE ITS MONTHLY RESIDENTIAL )
RATE FOR TELEPHONE SERVICE )) cowtMENTS oF THE) coruMrssroN srAFF
)
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of Record, Donald L. Howell II, Deputy Attorney General, and submits the following
Comments in response to Order No. 331 15.
BACKGROUND
On July 17,2014, Oregon-Idaho Utilities, Inc. filed an Application for authority to increase
its residential rates for telephone service from the current monthly rate of $ I 5.77 to $20.00 over a
four-year period. The Company requests that the rate increase be phased-in to coincide with the
increase in the federal universal service threshold established by the Federal Communications
Commission (FCC). Application at l. The FCC has established annual rate floors necessary for a
carrier's continued eligibility to receive funding from the Connect America Fund (CAF) that started
in2012.
STAFF COMMENTS OCTOBER 9,2014
Oregon-Idaho serves four telephone exchanges in southeastern Oregon and southwestern
Idaho that it purchased from Contel of the West in 1990. More specifically, the Company serves a
total of 8l access lines in its Idaho service territory designated as the South Mountain exchange.
This exchange covers 2,126 square miles. The Company maintains that approximately 30% of its
Idaho customers have oono access to commercial power, rely on gas lamps, lantems and/or low-
grade solar for lighting and obtain heat via wood or oil burning stoves." Id. at2. The Company has
not increased its Idaho residential rate since 1990. Id. at3.
Oregon-Idaho currently receives federal high-cost support from the federal Universal
Service Fund (USF - now known as the CAF) but does not participate in the Idaho USF program.
Id. at3. In20l1, the FCC set out to reform the federal USF and created the CAF.I In the
Transformation Order, the FCC established a monthly rate floor'oto ensure that states are
contributing to support and advance universal service and that consumers are not contributing to the
Fund to support customers whose rates are below a reasonable level." Transformation Order atl
238 (emphasis omitted). The FCC concluded that the rate floor would be based upon o'stand-alone
voice seryice."
On June I0,2014, the FCC issued its Connect America Fund - Phase II Order (CAF-II
Order)2 which established the basis for providing federal high-cost support to rate-of-return carriers
(such as Oregon-Idaho) and established a minimum local monthly rate (the "rate floor") that
carriers must maintain to continue their eligibility for full CAF-II funding. ln its CAF-II Order, the
FCC established the monthly rate floor for CAF-II funding at arate of $14.00 per month as of July
1,2014. Id. atl80. During a four-year period, the rate floor will increase to a rate of $20.46 per
month for local service as of July 1,2077. Id. atll80, 85 (excludes Lifeline customers (n.156)).
Carriers that do not have monthly residential rates that meet or exceed the rate floor will have their
federal funds reduced proportionally on a dollar-for-dollar basis. Id. atl75; Application at 5.
To maintain its future eligibility for federal high-cost support from the Connect America
Fund, Oregon-Idaho is proposing to increase its single-party residential monthly rate. The proposed
increase in the monthly residential rate corresponds to the CAF minimum floor and is set out below:
I fLSf/rcC Transformation Order Connect America Fund; National Broadband Planfor Our Future, et seq., Report
qnd Order and Further Notice of Proposed Rulemaking,26 FCC Rcd 17663 (2011) (the "Transformation Order").
2 In the Matter of Connect America Fund, Report and Order, Declaratory Ruling, Memorandum Opinion and Order,
Seventh Order on Reconsiderqtion, qnd Further Notice of Rulemaking FCC 14-54,2014WL2599362 (June 10,2014)
(the"CAF-II Order").
STAFF COMMENTS OCTOBER 9,2014
DATE RATE PERCENTAGE INCREASE
Current Rate $ 15.77
December 1,2014 $16.00 15%
June 1,2016 $ 18.00 12.5%
June 1,2017 $20.00 tr%
Application at 5, Exh. No. 3.
Oregon-ldaho states that its proposed rate increases are'Just and reasonable as
contemplated by ldaho Code $ 6l-302." Application at 6. The Company notes that the
Commission recently found the 2013 statewide average residential rate to be $21 .73 in Order
No. 32883. Consequently, the Company maintains its proposed rates are also reasonable and in
the public interest.
Based on the current number of residential lines, Oregon-Idaho projects that the proposed
rate increase would generate approximately $2,800 in annual revenues when the rate increase is
fully implemented in 2018. Id. Since Oregon-ldaho acquired its South Mountain exchange from
Contel, it has moved many of its customers from multi-party service to single-party sewice. Id.
at3.
STAFF ANALYSIS
Staff completed an audit of the Oregon-Idaho financial records for 2013. A reasonable
revenue requirement range may be calculated depending on several factors, including return on
equity, allocation variables between Oregon and Idaho functions, expense levels, and prudence of
all investments. Using the Company supplied allocation factor, Staff calculated a reasonable
revenue requirement to be between 9365,741 and$372,792. The Staff calculate the Company's
2013 Idaho revenues at$.371,226. Thus, the 2013 revenues fall within the zone of reasonableness.
Staff also noted that the Company's access rates are declining over the next five years as
required by the FCC's Transformation Order and by 2016 those revenues will be eliminated and
transitioned to a "bill and keep" arrangement between carriers. Currently the Company's access
revenues account for over fifty percent of its total revenues. With declining access revenues, the
proposed residential rate increase will help off-set the decline in access revenues and provide some
stability to possibly avoid a need to seek assistance from the Idaho Universal Service Fund (USF).
STAFF COMMENTS OCTOBER 9,2014
The proposed rate on June 1,2017 of $20.00 is lower than the 2013 statewide average
residential rate of 921.73 for USF. Staff determined that the Company-proposed increases will not
create a substantial over earning situation during the phase-in period. Consequently, Staff supports
the Company's proposal to gradually increase the rates over a period of four years so as to avoid
rate shock for the customers.
Because Oregon-Idaho Utilities operates in both Idaho and Oregon, Staff had some
allocation concems. Staff contacted the Oregon Public Utilities Commission Staff regarding any
similar rate increase case for the Company. The Oregon Staff indicated that they have no rate
regulation for companies with fewer than 50,000 lines. After reviewing the current Oregon rates, it
appears that Oregon-Idaho's residential rates in Oregon are in compliance with the current rate floor
requirements for this year.3 Oregon Staff anticipates that the Company may seek a rate increase
next year so that the Company will remain in compliance with the FCC's CAF requirements in the
future.
CUSTOMER RE,LATIONS
The Company's press release and customer notice were included in the application. The
press release and customer notice did not include all information required by the Commission's
Rules of Procedure (IDAPA 31.01.01). More specifically, the notice and press release did not
provide the dollar amount requested, or inform customers that they could file comments with the
Commission and subscribe to the Commission's RSS feed to receive periodic updates via email
about the case. See Rules 125.01 and 125.04. The Company mailed a second customer notice to
customers that informed customers that they could file comments with the Commission, request a
hearing, and subscribe to the Commission's RSS feed. This second notice informed customers that
comments could be filed no later than October 10.
Several of the Commission's Rules of Procedure addressing customer notice were revised
recently, and became effective on February 14,2014. Staff recommends that the Company review
the updated Rules of Procedure and include all required information in its future customer notices
and press releases.
3 The Company's Oregon rate structure has three zones. Including the assessed fees, the monthly residential rates are:
Zone I $14.60; Zone2 $16.35; andZone 3 $21,60. The monthly Business zone rates are: $23.35; $26.35; and $31.35,
respectively.
STAFF COMMENTS OCTOBER 9,2014
The original customer notice was mailed to customers July 17 and the press release was
issued on July 30. The second customer notice was mailed to customers on September 8, 2014. As
of October 9, the Commission has not received any public comments.
STAFF RECOMMENDATION
Staff recommends that the Commission approve Oregon-Idaho's proposed rate increase in
residential rates to preserve its CAF funding.
Respectfully submitted this l lLday of October 2014.
Technical Staff: Carolee Hall
Joe Terry
Daniel Klein
umisc/comments/oretl 4. I dhchjtdk comments
Donald L. Ho*1qil, II
STAFF COMMENTS OCTOBER 9,2014
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9T, DAY oF oCToBER 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. ORE-T-14.0I, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DOUG MUSGRAVE
OREGON-IDAHO UTILITIES
PO BOX 1880
NAMPA ID 83653
DEAN J MILLER
McDEVITT & MILLER LLP
420 W BANNOCK ST
BOISE TD 83702
E-MAIL: [e-mail] E-MAIL: [e-mail]
KENNETH R McCLURE
MICHAEL C CREAMER
GIVENS PURSLEY LLP
601 W BANNOCK ST
BOISE ID 83702
E-MAIL: [e-mail]
mcc@ givenspursley.com
CERTIFICATE OF SERVICE