20020102Comments.pdf

STAFF COMMENTS 1 JANUARY 2, 2002
LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
ISB NO. 5733
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
POTLATCH TELEPHONE COMPANY AND
TROY TELEPHONE COMPANY FOR
AUTHORITY TO MERGE INTO A SINGLE
CORPORATION AND FOR AN AMENDED
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY.
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CASE NO. POT-T-01-1/
TRO-T-01-1
COMMENTS OF THE
COMMISSION STAFF
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COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, submits the following
comments in response to Order No. 28913 issued on December 13, 2001.
APPLICATION OF POTLATCH AND TROY TELEPHONE COMPANIES
On November 19, 2001, Potlatch Telephone Company (Potlatch) and Troy Telephone
Company (Troy) filed a Joint Application to merge into a single company. The Application
requested that Potlatch’s Amended Certificate of Public Convenience and Necessity No. 263 be
further amended to reflect the addition of Troy’s Amended Certificate No. 201. Potlatch will be
the surviving corporation following the merger. Potlatch requests authority to continue applying
Troy’s rates and tariff provisions to the former Troy exchange areas indefinitely. According to
the Application, Potlatch intends to apply for authority to combine the Potlatch and Troy tariff
provisions, other than rates, into a single coherent tariff in the first half of 2002. Both Potlatch
STAFF COMMENTS 2 JANUARY 2, 2002
and Troy state that the proposed merger does NOT include a change in rates. The Application
further indicates that the merger will not impact the day-to-day operations or services provided
by these companies. Potlatch and Troy expect that the merger will reduce the administrative
requirements and tariff updates currently required for these two companies. The requested
effective date is January 1, 2002.
In addition, Potlatch and Troy have requested permission to blend the current approved
depreciation rates of the two companies into a single set of rates. The companies estimate that
the annual change in depreciation will result in increased expense, but do not seek to increase
customer rates.
STAFF ANALYSIS AND RECOMMENDATIONS
Staff supports the Potlatch and Troy request to merge and blend the current approved
depreciation rates. In July 2000, Staff conducted an audit of Potlatch, Troy and the allocations
from their parent corporation, Telephone Data Systems, Inc. (TDS). In this audit, Staff found
that all accounting functions for both Potlatch and Troy were done at TDS. The direct costs are
assigned by TDS to each affiliate. TDS identified common costs and allocated these costs to
regulated and non-regulated affiliates. The one exception Staff found was that not all costs and
assets had been allocated to Troy from Potlatch. Staff also found that while Troy’s direct and
management costs were properly charged, other items such as telephone plant in service,
depreciation expense, and material and supplies were distorted because Troy’s operations took
place in the Potlatch office.
In November 1997, Troy transferred all motor vehicles, work equipment, furniture, and
office equipment to Potlatch. Since this date, Troy has had no employees and all operations were
handled out of the Potlatch office. Moreover, the Troy exchange has a remote switch with the
host switch at Potlatch. Therefore, Staff believes that merging the two companies would result
in fewer allocation errors, better accounting records and reduced cost.
Given the fact that Troy is and has been controlled from the Potlatch office for some
time, Staff believes that the merger will have no effect on the service being provided. Also,
given that Potlatch and Troy desire to have the existing tariffs continued unchanged, Staff
believes customers will be unaffected by the merger.
STAFF COMMENTS 3 JANUARY 2, 2002
Staff has examined the proposed depreciation rates. Because the companies have not
requested any increase in rates, Staff believes it is fair to allow Potlatch to book these rates until
the surviving company files a general rate case. Staff would then examine depreciation rates in
conjunction with any rate increase or decrease requested. However, Staff does not advocate
retroactively adjusting depreciation rates or accumulated depreciation reserves at the time a rate
increase or decrease is subsequently filed. An effective date of January 1, 2002 is reasonable for
both the merger and booking the change in depreciation rates. January 1, 2002 is the beginning
of the accounting year and this effective date will greatly simplify tax filings for Potlatch and
Troy.
RECOMMENDATION
Staff recommends that the proposed merger be approved as requested in the Application.
Staff recommends that the proposed depreciation rates be acknowledged, booked effective
January 1, 2002 and reviewed for appropriateness in the next rate case. Staff recommends
Potlatch be notified that depreciation rates or reserves cannot be retroactively adjusted in a rate
case filing.
Respectively submitted this day of January 2002.
_______________________________
Lisa D. Nordstrom
Deputy Attorney General
Technical Staff: Madonna Faunce
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