27152.pdf

.
Office of the Secretary
. Service Date
September 30, 1997
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
U S WEST COMMUNICATIONS, INC. FOR )
AUTHORITY TO INCREASE ITS RATES AND )
CHARGES FOR REGULATED 1!TLE 61 )
SERVICES. )
)
CASE NO. USW-S-96-5
NOTICE OF REHEARING
ORDER NO. 27152
On August 12, 1997, the Commission issued final Order No. 27100 deciding U S WEST
Communications' general rate case. In that Order, the Commission directed U S WEST to reduce
its annual revenue requirement by $327,000. On September 2, 1997, U S WEST and the
Commission Staff filed timely Petitions for Reconsideration. AT&T Communications of the
Mountain States also petitioned the Commission to clarify its Order relating to one issue.' On
September 9, 1997, U S WEST and the Staff filed Answers and Cross-Petitions for Reconsideration.
After reviewing the petitions, answers, cross-petitions and the record in this case, the Commission
has reconsidered those issues identified in the petitions and, where appropriate, amends and clarifies
its Order No. 27100 in this Order. As set out in greater detail below, the Commission has scheduled
an evidentiary rehearing to reconsider one remaining issue.
PROCEDURAL BACKGROUND
The Commission's final Order resolved more than 70 issues and calculated an annual
revenue requirement for U S WEST. The Commission ordered the Company to establish new local
rates including decreased business rates. On August 18, 1997, U S WEST filed a Petition to Stay
that portion of Order No. 27100 requiring the Company to reduce its Title 61 business rates effective
August 21, 1997. The Company asserted that the Commission's calculation of the authorized
revenue requirement "inadvertently overlooked" inclusion of a "memorandum expense" in the
1 On September 4, 1997, AT&T filed an Amended Petition for Clarification. The Company maintained that some of
the text to the Company's original petition was inadvertently deleted that resulted in the filing of the amended petition.
No party objected to AT&T's amended petition.
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amount of approximately $2.5 million. U S WEST Petition at 2; See Order No. 27100 at 52.
Although the Staff did not agree with U S WEST on the precise revenue impact of the alleged error,
the Staff acknowledged that an error may have occurred The Staff did not oppose the stay of the
Title 61 business rates
In Order No 27112 issued August 20, 1997, the Commission stayed the reduction in Title
61 business rates The Commission noted that "[w]ithout fully deciding the merits of the Company's
contention, we find it is reasonable to stay the reduction of Title 61 business rates It makes little
sense to reduce business rates now if there is a likelihood that those rates may subsequently change
again because of adjustments to the Company's revenue requirement" Order No 27112 at 2
RECONSIDERATION
A Categories of Reconsideration
Both U S WEST and the Staff petitioned the Commission to reconsider several issues
decided in Order No 27100 These issues generally fall into three categories U S WEST Petition
at 2-3 First are issues the parties, including AT&T, request that the Commission clarify or correct
errors or omissions in the Order or the accompanying work papers that calculated the Company's
revenue requirement For example, AT&T asserted in its Petition that Order No 27100
mischaracterized our prior Orders discussing the assignment of 15% of the local loop investment.
AT&T Amended Petition for Clarification at 1-2 referring to Order No 27100 at 38-39. In addition,
Staff asserted that our discussion of lapitalized software leases mischaracterized a $3.556 million
adjustment as an "intrastate" adjustment instead of a "total state" adjustment Staff Petition for
Reconsideration and/or Clarification at 5 referring to Order No 27100 at 27, line 8
The second category of reconsideration issues concerns inconsistencies between the final
Order and the accompanying work papers or the Order's financial Appendix For example, the
Commission initially found in Order No 27100 at page 52 that U S WEST was entitled to
memorandum expenses, yet the Company claimed that the work papers do not appear to include this
expense in the calculation of the Company's Title 61 revenue requirement U S WEST Petition at
27-28 Likewise, the Staff asserted in its Petition for Reconsideration that the calculation of
depreciation expense in the work papers was not adjusted to reflect our decisions relating to specific
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issues such as "lit fiber optic cable" and the 1.89% error factor in outside plant accounts Staff
Petition at 5-6.
Finally, the third category seeks a "more traditional form of reconsideration" for issues
that the parties assert were improperly decided by the Commission. U S WEST Petition at 2. For
example, U S WEST urged us to reconsider our finding that the appropriate cost of equity is 11.2%.
The Staff also argued that too much fiber optic cable was allowed into the Company's Title 61 rate
base. U S WEST Petition at 31-34; Staff Petition at 4. In some instances, the parties asked us to
reconsider issues based upon the present record, but in others the parties asked us to consider
additional evidence
B Standards for Reconsideration
Reconsideration provides an opportunity for a party to bring to the Commission's
attention any issue previously determined and thereby provides the Commission with an opportunity
to rectify any mistake or omission Washington Water Power Co v Kootenai Environmental
Alliance, 99 Idaho 875, 591 P.2d 122 (1979). In those instances where an aggrieved party asks the
Commission to reconsider its decision based upon the record, it may simply do so. The Commission
may also grant reconsideration by rehearing if it intends to take additional evidence or argument.
If reconsideration is granted, the Commission must complete its reconsideration within 13 weeks
after the date for filing petitions for reconsideration Idaho Code § 61-626(2) If the Commission
grants reconsideration, it "must issue its order upon reconsideration within twenty-eight (28) days
after the matter is finally submitted for reconsideration." Id.
Both U S WEST and the Staff have filed cross-petitions for reconsideration The
Commission will only consider cross-petitions that respond to an issue raised in a petition for
reconsideration Consequently, the scope of a cross-petition for reconsideration is limited to those
issues raised in a petition for reconsideration Eagle Water Co v Idaho Public Utilities
Commission, Idaho , 940 P 2d 1133 (1997), Idaho Code § 61-626(l). If the Commission
denies reconsideration of an issue, then any corresponding cross-petition regarding that same issue
will be denied as well.
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I ISSUES FOR RECONSIDERATION
A Direct Assignment of Certain Plant-in-Service Accounts
1 U S WEST Petition The Company urged the Commission to reconsider its "direct
assignment" of certain plant accounts to Title 62 The Company claimed that the net effect of a
series of complex adjustments is to subtract $17.379 million from Title 61 rate base and directly
assign this amount of plant to Title 62 U S WEST Petition at 5 The Company asserted that the
Commission's Order does not address direct assignment but certain accounts were directly assigned
in the work papers that support the revenue calculations in Appendix 1 Id at 5 The Company
insisted that direct assignment has several adverse consequences including: 1) it erroneously
removes $17.379 million in Title 61 rate base, 2) it "reduc[es] the overall allocation of Title 61 total
plant in service (TPIS) from 62% to 59%", and 3) further reduces Title 62 expenses because many
of the Company's expense allocations are driven by the TPIS allocator. Id at 5, 10 The Company
claimed that this direct assignment is unsupported by the record and "appears to directly contradict
other portions of the Commission's Order" Id at 8
The specific accounts directly assigned are reflected in the Commission's Workpaper
A-5 U S WEST Exhibit 67, p.5. The Commission directly assigned these "Toll Capitalized"
("TC") accounts to Title 62.' As shown in Workpaper A-5, the intrastate total for these accounts is
$24,954,477 U S WEST Exhibit 67, p 5 To this amount, the Commission made two adjustments
The Commission removed from Title 61 and directly assigned to Title 62 $2.999 million
representing an adjustment for the 1.89% error factor in the subsidiary ledger. Workpaper A-4, U S
WEST Exhibit 67, p 4, line 8, Order No 27100 at 29-30 The Commission also removed $2.035
million from Title 61 and directly assigned it to Title 62 to reflect the 20% adjustment for fiber cable
2 Title 61 services are defmed as basic local exchange services Toll or message telecommunication services (MTS)
are Title 62 long-distance services. Idaho Code § 62-603(8).
1.89% error factor is discussed in greater detail beginning on page 8
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accounts that were determined not to be used and useful" The calculation of the $17.379 million
net adjustment is shown below.
Plant-in-Service
Adjustment in 000's Source
Accounts Directly Assigned $24,954 Workpaper A-5 & Workpaper A-4,
line 10
1.89% Error Adjustment $2,999 Workpaper A-4, line 8
20% Lit Fiber Disallowance $2,035 Workpaper A-4, line 13

$29,988 Total Workpaper A-4, line 16
Less Loop Fiber Disallowance $(2,035)
$27,953
x .62 Multiplier from line 17, Workpaper A-i
Net Direct Assignment $17,379 U S WEST Exhibit 67, p. 1, line 18
Workpaper A- 1, line 18
If these alleged errors are reversed, the Company calculated that the corrected Title 61 rate base
should be increased by $21.955 million and the corrected Title 61 TPIS allocator should be 62.34%.
U S WEST Exhibits 70, 72, line 17
The Company insisted that the direct assignment of these accounts to Title 62 is not
reflected by the language of the Commission's Order. "Rather than follow the language of the Order
that provides that the Commission would allocate total plant in service using U S WEST's
methodology, (Order p 42) the revenue requirement calculation instead took the fiber plant dollars
originally allocated by Ms. Baldwin and included them in Mr. Lansing's direct assignment to Title
62." U S WEST Petition at 7 (emphasis original).
The Company specifically noted that fiber included in field reporting account codes
85TC, 845TC, and 852TC (underground fiber cable-toll and buried fiber cable-toll) are used for Title
61 local exchange services as well as for Title 62 toll services. The Company claimed that these
accounts comprise the Company's interoffice fiber accounts. Id. at 8. It argued that it is
' This adjustment is discussed in greater detail on page 14 and in Order No. 27100 at 27-29. U S WEST Exhibit 67,
p. 4, line 13.
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unreasonable to assign these accounts entirely to Title 62 U S WEST also noted that fiber facilities
support long established EAS routes and "intra-exchange calls such as Boise Main [switch] to Boise
West [switch]" Id The Company specifically pointed to "the newly created EAS areas ordered by
this Commission" as evidence that these accounts "are used for Title 61 local exchange services as
well as for toll services" Id
2 Staff Answer In its Answer, the Staff urged the Commission to deny reconsideration
of this issue, with the exception of correcting the 1.89% error factor discussed below. Staff asserted
that the facilities accounts represented on the Commission's Workpaper A-5 are classified under the
Uniform System of Accounts (USOA) as being used to support Title 62 services. Staff witness Syd
Lansing testified at the hearing that the initial booking of these accounts is dictated by the USOA
As the Staff noted in its Answer, USOA requires cable used exclusively for toll services (i.e., Title
62 services) to be classified as toll plant and cable exclusively used for local exchange service to be
classified as local exchange plant.' Cable used for both exchange and toll is classified entirely as
either exchange or toll based upon its predominant use Staff Answer at 1-3, Tr. at 1656-58
Although the Company's field accounting practices require that cable used for both
exchange and toll be classified entirely as one or the other based upon the cable's predominant use,
the Company allocated 68% of these accounts to Title 61 based upon its allocation of cable and wire
investment. Staff Answer at 2, Workpaper A-2 note for line 13, Workpaper A-3 (U S WEST Exhibit
67, p. 2 and p. 3). Staff maintained it is not reasonable to assign 68% of these predominantly Title
62 accounts to Title 61.
Subsequent to the Petitions for Reconsideration, Staff supported the removal of corn and
terminal equipment (field reporting codes 188C, 288C, 658C and 988C) from plant-in-service in the
allocator rather than as a direct assignment to Title 62 This increases the total plant-in-service
allocator.
3 Commission Findings Our prior Order did not directly address the issue of direct
assignments. We find that the direct assignment of these 15 accounts as shown in Workpaper A-S
is reasonable and appropriate for several reasons First, the Company's own accounting practices
Plant used exclusively for toll is clearly Title 62 facilities However, under the Company's CAAS system cable used
for exchange services could either be Title 61, Title 62, or a combination of both.
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classify facilities by their predominant use. As indicated by the account description as well as the
field reporting code "TC," facilities placed in these accounts are entirely or predominantly Title 62,
toll accounts U S WEST Exhibit 44A It is inappropriate to include Title 62 facilities in the Title
61 rate base Our ratemaking treatment should follow the accounting treatment for these facilities
While the evidence is conflicting, we find that there is substantial and competent evidence to support
our decision Highland v Hosac, Idaho , 936 P 2d 309 (1997)
Although the facility investment for these accounts is either entirely Title 62 toll or
predominantly Title 62 toll, the Company's cost allocation system allocates 68% of these accounts
to Title 61 We find this is clearly erroneous If, in fact, 68% of these accounts was used for Title
61 local exchange service, then they would not have been classified as "entirely or predominantly"
toll facilities.
Third, the Company's allocation is also contrary to the principles of cost allocation. As
we noted in Order No. 27100, both the Cost Accounting Standards Board and the Federal
Communications Commission require that costs first be directly assigned to specific products and
services whenever practical. Order No. 27100 at 34-3 5. This principle also comports with the
Company's accounting practices Exhibit 44A As we also noted in our Order, the Company's
CAAS was not designed to specifically allocate costs under Idaho's unique regulatory scheme for
Title 61 and Title 62 services. Id, Tr. at 3681; 2741; 2745; 3180; 745-46; 391. ("Title 61 is the
classification of service that is unique to the state of Idaho. The classification has no relevance in
the other 13 states in that we do business.").
Fourth, we also find that the Company's argument concerning EAS is unpersuasive. As
we indicated in Order No 27100, the Company and the Staff settled the cost issues of implementing
the three EAS regional calling areas. In particular, the parties agreed and we adopted a cost shift
associated with separations (shifting toll minutes to local minutes) "thereby increasing Title 61 rate
base by $7.451 million." Order No. 27100 at 21; Exhibit 48; Exhibit 66, p. 21-22 (adj. #27); Tr. at
274, 2122, and 3834. In other words, we have already adjusted the Title 61 rate base to account for
the shift in usage when converting toll lines to local lines. We also reject the Company's argument
that intra-exchange calls would normally be included in these toll accounts. Some of the Company's
larger exchanges have several switches or wire centers. For example, a local call made through the
Boise Main switch to the Boise West switch is a local call, and the investment for cable and wire
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facilities between these two switches would not be found in these toll accounts. As indicated in the
Company's Exhibit 44A "local interoffice circuits and cables used for EAS are considered and
classified as local exchange facilities." (Emphasis added.) Consequently, the investment associated
with intra-exchange plant fiber facilities is not included in the toll accounts.
The Company also complained that this direct assignment of plant to Title 62
unreasonably impacts the allocators. As we noted above, however, the first step in the cost
allocation process is to directly assign assets to specific products and services. When costs cannot
be directly assigned "then they are allocated using a hierarchy of costs-causal methodologies."
Order No. 27100 at 35 citing U S WEST Initial Brief at 10. Accordingly, the calculation of the
appropriate Title 61 TPIS allocator should occur after direct assignments are made.
Finally, we do make one adjustment. We find that the public telephone equipment is not
a Title 61 asset and should be removed. We take official notice of the Federal Communications
Commission's Order FCC 96-388 requiring that carriers transfer payphone assets to a separate
affiliate or reclassify the assets to non-regulated status. Accordingly, direct assignment of payphone
assets included on Commission's Workpaper A-S as not Title 61 assets is appropriate. However,
those assets should not be classified as Title 62 assets in calculation of the common allocator for
asset and expense allocation between Title 61 and Title 62. Consequently, the Title 61 TPIS
allocator will increase.
In summary, we grant reconsideration of this issue to clarify our Order No. 27100 in
relation to the allocator. We also accept removal of the coin and terminal equipment from plant-in-
service for purposes of correcting the allocator. The remainder of the accounts will be directly
assigned to Title 62 in the allocator.
B 1.89% Error Factor
1. U S WEST Petition. The Company does not dispute the Commission's adjustment
concerning the 1.89% error factor (Order No. 27100 at 29-30) but urged the Commission to
reconsider because the work papers erroneously adjusted the Title 61 TPIS. U S WEST Petition at
10-12. The Company asserted that $2.999 million should be removed from the $29.988 million
shown on Workpaper A-4, line 16. Exhibit 67, p.4. This correction will increase the Title 61 TPIS
allocator. U S WEST Petition at 11.
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2.Staff Answer. Staff agreed with the Company that $2.999 million should not have
been assigned to Title 62 on Workpaper A-4 but should have simply been removed from plant-in-
service. Staff Answer at 2, note 1. Removing the $2.999 million from Workpaper A-4, line 8 also
affects the calculation of the allocation and TPIS illustrated on Workpaper A-i at line 18 U S
WEST Exhibit 67, p. 1, line 18 and p. 2 note for line 18.
3.Commission Findings. Given the agreement between the Company and the Staff, the
Commission finds that it is appropriate to grant reconsideration and make this adjustment. This
adjustment will have two effects. First, it will remove the $2.999 million from plant-in-service
rather than shifting it to Title 62. Second, correcting the TPIS adjustment in the work papers will
increase the Title 61 allocation factor, and consequently, increase the revenue requirement.
C. Local Loop Allocation
1. U S WEST Petition. U S WEST urged the Commission to reconsider its decision
regarding the allocation of the local loop. "Local loop" generally refers to facilities connecting
customers to central offices. The Company maintained that the Commission's Order is inconsistent
with the work papers calculating the Company's revenue requirement. U S WEST Petition at 12-13.
More specifically, the Company observed that the work papers allocate the Company's local loop
investment "on the basis of the percentage of Title 61 lines to total access lines" instead of allocating
the local loop based on loop length. Id. at 13. The Company claimed that because the Commission
rejected Staff witness Baldwin's arguments (Order No. 27100 at 36-3 8) to allocate 5% of the local
loop for custom calling/CLASS services and her spare capacity allocation, the Order implicitly
adopted the Company's position regarding local loop allocation.
At the hearing, the Company advocated allocating the cost of the local loop, in part, upon
the "cost differential between more expensive, longer residential loops and less expensive, shorter
business loops" Id at 13 The Company generally maintained that the network facilities used to
serve customers in the local exchange (the local loop) are no longer based upon the general dispersal
of residential customers in an exchange. The Company claimed that businesses are generally
concentrated near central office facilities ("in town"). and are therefore shorter and less expensive
than residential loops scattered throughout the exchange.
The Commission's allocation of the local loop contained in its Workpaper A-i on line
ii shows that the Commission assigned $ 177.506 million or approximately 65% of the local loop
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to Title 61 rate base U S WEST Exhibit 67, p 1, line 11 At the hearing, the Company argued that
the appropriate Title 61 allocation for the local loop should total $185.448 million, or 68% of the
local loop to Title 61 U S WEST Petition at 13
2 Staff Answer. The Staff urged the Commission to deny reconsideration on this issue
but recognized that Order No 27100 should be clarified to reflect the adoption of the Staffs local
loop allocation based upon Title 61 lines in use Staff Answer at 3 Although the Staff recognized
that the Commission rejected its spare capacity argument, it asserted that the same argument is
applicable to allocation of the local loop The Staff also noted the Commission did conclude that
there "may be some question concerning the Company's deployment of plant in excess of demand"
Order No. 27100at38
Staff insisted that allocating the local loop based upon the number of Title 61 lines in
service properly considers the higher cost of serving the more volatile and rapidly growing Title 62
local lines. Staff maintained that use of line counts rather than the Company's loop-length
methodology strikes the appropriate balance when considering the large local loop spare capacity
used to serve the rapid growth of Title 62 lines Tr. at 2871-87. "Staff believes that simply using
the relative number of Title 61 lines in service to Title 62 lines in service is a conservative method
for taking both factors (spare capacity and local loop length) into account, and developing an
appropriate allocation between Title 61 and Title 62" Staff Answer at 4
3 Commission Findings. We deny the Company's Petition for Reconsideration on this
issue, but take this opportunity to clarify our prior Order and the allocation of the local loop
Although we rejected Staff witness Baldwm's spare capacity adjustment as it related to the allocation
of spare capacity for the total plant-in-service, the reasoning for her spare capacity arguments is
applicable and persuasive as it relates to allocation of the local loop We find that allocating the
local loop based upon the relative number of lines in use is a reasonable way of allocating local loop
costs We were not persuaded by the Company's arguments on loop length We conclude that
allocating the local loop based upon the number of lines in use is reasonable and we clarify Order
No 27100 accordingly.
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D. Allocating 5% of the Local Loop to CLASS/Custom Calling Services
1. Staff Petition for Reconsideration. Staff urged the Commission to reconsider its
decision not to allocate 5% of the local loop investment to CLASS' and custom calling services.
Staff Petition at 1-3. The Staff recommended that the Commission directly assign 5% of the local
loop investment to Title 62 for CLASS/custom calling services in recognition of the Company's
ability to derive substantial and increasing revenues from these services. Although Company
witness Elder acknowledged that the Company receives about $12.8 million (or approximately 7.3%
of total intrastate revenues) from these services and CLASS/custom calling revenues have grown
nearly 50% from 1994 through 1995, he stated that the Company's cost accounting and allocation
system (CAAS) does not allocate any local plant costs to these services. Tr. at 3782-83; Tr. 3785.
To correct this imbalance, Staff witness Baldwin recommended that the Commission assign 5% of
the Company's local loop investment to these Title 62 services to partially remedy the Company's
uneconomic and unreasonable allocation. Tr. at 3781, 3782-83; Exhibit 114, Schedule 2, p. 2,
Schedule 7, p. 2, col. X.
In its final Order, the Commission stated that its prior Orders "assigned 15% of the local
loop to Title 62 services Assuming that the actual usage of the local loop for Title 62 services is
approximately 8%, then 15% portion is sufficient to encompass Ms Baldwin's 5%
recommendation." Order No. 27100 at 37 (emphasis added). Staff argued that the Commission's
decision regarding the 5% CLASS/custom calling allocation is erroneous and is not consistent with
prior Orders. Staff presented two arguments.
First, Staff asserted, as did AT&T as discussed below, that the 15% allocation of the local
loop adopted by the Commission in Case No U-1500-174 is a gross toll allocator used to apportion
15% of the non-traffic sensitive local loop costs to intrastate toll See Order No 21788 at 5 Staff
maintained that the Commission mischaracterjzed the 15% allocation in a broad sense to Title 62
services instead of in a narrow sense to simply intrastate toll. Consequently, that passage in the text
6 Custom local area signaling services (CLASS) employ digital switching and out-of-band network signaling to give
customers the ability to screen and selectively reject, forward, trace and redial incoming calls. CLASS services are
optional enhancements to basic local exchange service.
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that concludes that the Staff's 5% recommendation is encompassed in the 15% portion of the local
loop is erroneous.
If the Commission continues to find that 15% of the local loop is allocated not
specifically to toll but to all Title 62 services, then Staff argued that further evidentiary hearings are
necessary to accurately determine the Company's subscriber line usage (SLU) Staff Petition at 3
On the last day of the technical hearing, Staff vigorously objected to the introduction of the
Company's SLU evidence Staff asserted that the Company materially changed its position at the
eleventh hour when it urged the Commission to reject the 15% allocation and to allocate 8% of the
local loop based on its SLU Staff maintained that it and other parties did not have an opportunity
to discover facts relating to the Company's calculation of its SLU and that it was prejudiced by the
introduction of this new evidence. Staff claimed that the Company's calculation of its SLU was
disclosed less than two weeks before the technical hearing, "well past the close of the discovery
period." Id at 3.
2. AT&T Petition for Clarification. In its Petition, AT&T also requested that the
Commission clarify its statement that "prior Commission Orders assign 15% of the local loop to
Title 62 services" Order No 27100 at 37 (emphasis added) AT&T maintained that the prior
Orders that Order No 27100 actually refers required U S WEST "to assign 15% of its non-traffic
sensitive costs to toll services (MTS, WATS and toll access), not to Title 62 services in general"
AT&T Petition at 2 (emphasis original)
AT&T's Petition traces the history of the Commission's allocation of non-traffic sensitive
costs between toll and local services The Company asserted that the historical allocation of non-
traffic sensitive (NTS) costs to toll services is not the same as an allocation to Title 62 services Id
at 5, See Order No 20182 in Case No U-1500-153 (first adopting the 25% generic gross toll
allocator (GTA)) AT&T requested that if the Commission intended that the 15% allocator apply
to all Title 62 services, then the Commission should indicate what percentage of the 15% allocator
is directly attributable to toll and access services Id at 2, 6
3 U S WEST Answer and Cross-Petition In its Answer, U S WEST acknowledged that
the Commission's prior Orders "did not specifically extend that allocator to other 'Title 62'
services" U S WEST Answer 3-4 However, U S WEST maintained that passage of the federal
Telecommunications Act and recent Idaho statutes require that the Commission "consider actual
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usage characteristics more carefully than it had in the past." Id. at 4. The Company insisted that
continuation of a GTA adopted almost 10 years ago does not comport with the dramatic changes in
the telecommunications industry.
Turning next to Staff's request for additional discovery and an evidentiary rehearing, the
Company maintained there is no need for such action U S WEST insisted that the Staff has not
explained how any inaccuracy in the Company's SLU data would affect the reasonableness of the
Commission's decision. Id. at 5. The Company maintained that it should not be placed at risk if the
Staff never explored the SLU data or estimated the impact of EAS on SLU data. Id. at 6.
U S WEST also argued that allocating 5% of the local loop to CLASS and custom calling
services "appears to run contrary to the spirit if not the letter of [Idaho Code § 62-623]." Id. at 8.
The Company stated that this recently enacted legislation requires the Commission to eliminate
implicit subsidies. "Increasing the allocation of loop costs to other services and minimizing the
amount of costs covered by basic local exchange services is inconsistent with the trend toward cost-
based pricing and the elimination of subsidies in the rates of incumbents " Id (emphasis
original).
Finally, in the event that the Commission grants reconsideration to the Staff on this issue,
then U S WEST cross-petitioned that it be allowed to present evidence of SLU for toll and access
services. U S WEST declared that any allocation of the local loop investment to Title 62 services
should be no greater than the 5% Staff proposed plus the actual SLU of 8%. Consequently, the
Company claimed that the appropriate allocation of the local loop investment to Title 62 services
should total approximately 11% rather than the 15% contained in Order No. 27100. Id at 9.
4 Commission Findings Having reviewed the petitions, our prior Orders, and U S
WEST's Answer, we grant the AT&T and Staff requests to clarify our prior Order. As AT&T and
the Staff correctly point out in their petitions, our prior Orders assigned 15% of the local loop
specifically to toll and access services—not Title 62 services in general Consequently, our reference
to allocating 15% of the local loop to Title 62 services must be corrected. As our prior Orders
indicate, the 15% allocation to toll and access services was intended to reasonably apportion or
allocate non-traffic sensitive local loop costs between toll and local services. Although these Orders
predate the more recent federal and state telecommunications legislation, we find the rationale for
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this allocation remains appropriate. Consequently, we clarify Order No. 27100 to indicate that the
15% allocation of the local loop pertains to Title 62 toll and access services only.
We deny Staffs Petition for Reconsideration We decline to allocate an additional 5%
of the local loop to CLASS and custom calling services Although CLASS and custom calling
services provide revenues to the Company without a corresponding allocation of costs from the local
loop, we find that the record in this case is inadequate to support the 5% allocation proposed Now
is not the appropriate time to institute an additional allocation Having denied the Staff's Petition
for Reconsideration on this issue, U S WEST's Cross-Petition is moot
E Unlit Fiber Allowance of 80%
1 Staff Petition for Reconsideration Based upon Company supplied data, Staff asserted
at the evidentiary hearing that only 10.355% of the Company's fiber optic cable in Idaho was "lit"
or used and useful in the 1995 test year. Tr. at 1580, 1602 Consequently, Staff argued that
approximately 90% of the fiber cable should be classified as "plant held for future use and removed
from the Title 61 rate base" In its Order, the Commission found that the evidence concerning this
issue was conflicting and that U S WEST and the Staff had offered at least four different positions
After reviewing the evidence, the Commission found that 80% of the fiber optic cable in Idaho
should be considered used and useful and included in the Company's 1995 rate base The remaining
20% portion was classified as plant held for future use. Order No. 21700 at 28-29.
Staff urged the Commission to reconsider its decision to allow 80% of the fiber in rate
base Staff suggested that there was no evidence in the record substantiating the Company's use of
the fiber or the costs of installing its fiber optic cable to justify an allowance of 80% Staff Petition
at 4 Staff requested reconsideration of this issue by written brief or comment
2 U S WEST Answer and Alternative Cross-Petition In its Answer, U S WEST urged
the Commission to deny reconsideration of this issue The Company maintained that further
evidence is unnecessary because the costs of installing its fiber optic cable are all contained in the
capitalized cost of installation U S WEST Answer at 10 The Company insisted that the record
supports the Commission's decision
If reconsideration is granted on this issue, then U S WEST argued "that all the fiber
investment contained in its books of accounts was used and useful and that no fiber disallowance
should be approved" U S WEST Answer and Alternative Cross-Petition at 13 U S WEST
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indicates that it stands ready to provide additional engineering evidence showing the actual plant in
use. Id.
3.Commission Findings. We deny the Staffs Petition for Reconsideration. Given the
conflicting testimony in this area, we affirm our prior decision that it is reasonable to allow the
Company to include 80% of its fiber in rate base. As the Company argued at the hearing, there are
other factors to consider in determining the appropriate fiber in use such as "binder group integrity
and the cost of the installation." Order No. 27100 at 28. We affirm our prior decision on this issue.
F. Allocation of Unlit Fiber Disallowance
1.U S WEST Petition. Although it accepted the Commission's finding that 20% of fiber
optic cable should not be included in the Company's Title 61 rate base, the Company asserted that
the Commission made an error in assigning the disallowed fiber to Title 62. U S WEST Petition at
14-15. The Company argued that the disallowance of $2.035 million shown in the Commission's
Workpaper A-i, line 12 should not affect the calculation of the Title 61 allocator. U S WEST
Exhibit 67, p. 1, line 12. U S WEST maintained that the disallowance "was treated as an assignment
to Title 62" instead of merely removing the 20% amount from the Title 61 rate base U S WEST
Petition at 15. The Company insisted that the disallowed plant should be allocated on the basis of
plant in service as shown in its Exhibit 72 and that removing the unlit fiber will also affect the
overall Title 61 TPIS allocator.
2.Staff Answer. Staff urged the Commission to deny reconsideration on this point.
3 Commission Findings. We grant the Company's Petition for Reconsideration of this
issue. We find that the Company is correct in its argument that unlit fiber disallowed because it is
not used and useful should not be included in rate base for either regulated or deregulated services.
We have, therefore, removed the disallowed fiber from rate base before allocations between Title
61 and Title 62 are made.
G. Tech Plus and Tech IlAdjustment
1. U S WEST Petition. U S WEST requested the Commission reconsider its direct
assignment of Tech Plus and Tech II costs to Title 61 The Company maintained that if these costs
were directly assigned per the language of the Commission's Order "it would actually increase U S
WEST's Title 61 revenue requirement" and, consequently, require higher rates U S WEST Petition
at 17 (emphasis original) Although the Company acknowledged that the direct assignment of the
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Tech Plus and Tech II primary investment would have no impact on rate base, the impact of the
direct assignment would be substantial because the secondary investment associated with Tech Plus
and Tech II would also be assigned in its entirety to Title 61 and that would have an impact on the
revenue requirement
In its prior Order, the Commission adopted Staff witness Baldwin's recommendation to
directly assign $45.606 million to Title 61. In its findings, the Commission stated that "it is
appropriate for the underlying or secondary investment and related expenses to recognize the source
of the primary investment" Order No 27100 at 40 Following this directive, the Company
calculated that 39% of the $45.606 million (or $17.786 million) would have to be added to the Title
61 allocation and subtracted from Title 62 This would change the overall Title 61 TPIS to 67%
Id at 18, U S WEST Exhibit 74
2 Staff Answer and Cross-Petition The Staff asserted that the Commission's Order
concerning the Tech Plus and Tech II investment warrants clarification Staff expressed concern that
the Order's language may indicate that the Commission only adopted one component of the Staff's
Tech Plus and Tech II advocacy. Staff recommended that the Commission either clarify or
reconsider this aspect of its decision As the Staff stated in its Answer and Cross-Petition
It appears that the Commission adopted U S WEST's proposal to allocate
plant based upon after-the-fact use, and rejected Staff's proposal to allocate
plant based upon cost causation (e.g., to assign urban digital switches to Title
62 because the analog switches were adequate for Title 61 services, etc)
Staff recommends that although the Tech Plus and Tech II TPIS and (all
other plant) would be allocated between Title 61 and Title 62, the $45-million
in accumulated depreciation should be directly assigned to Title 61 Tr. at
2895-2901. The $45-million represents monies that - were it not for the
Company's network modernization - would have flowed directly and solely
to Title 61 customers. This alternative is reflected in Schedules 3a, 3b, and
3c of Exhibit 159.
Staff Answer at 6 If the Commission rejects Staff's recommendation, then Staff urged the
Commission to adopt U S WEST's position outlined in its Petition for Reconsideration and allocate
the Tech Plus and Tech II primary and secondary investment
3 Commission Findings We grant the Petition to Reconsider our prior Order on this
issue As we did throughout our Order, the Commission applied the principles of cost causation as
the yardstick for determining the appropriate assignment and allocation of Tech Plus and Tech II
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investment The Commission rejected the Staff's argument that "cost causation" meant that switches
installed under the Tech Plus and Tech II programs were necessarily Title 61 investments, and that
all other digital switches were, by extension, Title 62 switches This approach over simplifies the
issue, because it is readily apparent that some Title 61 services are provided over the "urban," "Title
62" switches, just as some Title 62 services are provided over the Tech Plus, "Title 61" switches
Staff failed to provide a better allocation methodology than that provided by U S WEST, and the
Commission therefore accepts the Company's allocation ratio as far as the allocation of digital
switch investment is concerned.
However, the Staff's point that Tech Plus and Tech II switch investments were paid for
by Title 61 ratepayers, and were stipulated therefore to be fully expensed at the time of installation,
is of great importance, and must also be addressed Upon reconsideration, the Commission affirms
its initial decision regarding the direct assignment of accumulated depreciation As Staff
appropriately observed in its Answer and Cross-Petition, the $45-million in accumulated
depreciation represents monies that, were it not for the Tech Plus and Tech II programs, would have
flowed directly and solely to Title 61 services
Also, as Baldwin stated in her testimony, "[r]egardless of the methodology adopted for
assigning or allocating the primary investment between Title 61 and Title 62 services, if the
depreciation reserve is allocated in any other way, besides direct assignment to Title 61, Title 61
ratepayers will effectively be forced to pay for the Tech Plus investment twice, since some of the
depreciation reserve that cancels out that investment will no longer be in Title 61 Indeed, any
allocation of the depreciation reserve associated with Tech Plus or Tech II to Title 62 will give Title
62 customers a free ride, at the expense of Title 6l." Tr at 2895 The Commission agrees and finds
that this accumulated depreciation should be directly assigned to Title 61 The plant-in-service
related to Tech Plus and Tech II, however, should be allocated as explained above
H Capitalized Software Leases
1 U S WEST Petition In its Order, the Commission adopted two adjustments to remove
capitalized software leases from the Title 61 rate base U S WEST accepted the Commission's
partial disallowance of this expense but maintained that if the Commission adopts the previous
financial adjustments, it will have to change the TPIS Title 61 allocator from the 59% used in the
Order to 63.8% that the Company calculated on reconsideration U S WEST Petition at 20 In the
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event that the Title 61 TPIS allocator is increased, then the Commission must recalculate (and
increase) the capitalized lease investment included in the Title 61 rate base Id
2.Staff Petition The Staff did not cnntet this issue and reni7ed that if the Title 1
TPIS allocator is changed as a result of the Commission's decision on prior issues, then an increase
in the capitalized software leases investment will result. The Staff also suggested clarification of the
prior Order. In Order No. 27100 at pages 25-27, the Commission discusses capitalized software
leases. In describing the adjustments it adopted, the Commission inadvertently referred to a $3.556
million adjustment as an "intrastate" amount instead of a "total state" amount Order No 27100 at
27 To correct this reference, the Staff suggested that the term "intrastate" be changed to read "total
state" on line R nce 77 of the t- flrler fiffPe*itiia f S Alf1iri h rn fl wt ,illa Iiic,+1m1+ , ro —. LflJSS#VSLLLJZI t4.t. .1. £ SI%J1JL*5L1 LII%.' tV.? ..J.F'.J IhiLtfl'JJS U.J.J Lflh1IdL1t,
was mischaractenzed on page 27 of the Order, the Staff asserted that this mischaracterization does
not affect the calculations contained in the work papers. Id.
3.Commission Findings. We agree with the Staff and the Company that our decisions
on reconsideration may result in an increase to the Title 61 TPIS allocator. If the allocator increases,
then the capitalized lease investment for inclusion in the Title 61 rate base will increase. Based upon
our decisions on reconsideration, we calculate that the Title 61 TPIS allocator has increased from
the 59% to 59.96%. Utilizing the increased TPIS allocator increases the capitalized software leases
in Title 61 by $104,000 to $6.530 million.
We also clarify that the term "intrastate" on page 27, line 8 of Order No. 27100 should
be changed to read "total state." This correction does not change the Company's Title 61 revenue
requirement but clarifies our prior Order.
I. Capitalized Leases Amortization Expense
1. —US WEST Petition. As previously mentioned, the Commission adopted a Staff
adjustment associated with the Company's capitalized software leases. Although the Commission
allowed the Company to recover some of its Title 61 expense attributed to this issue, the
Commission's financial Appendix to Order No. 27100 is not in agreement with the language of the
Commission's Order. U S WEST Petition at 28. As a result, "the revenue requirement calculation
found on Appendix 1 fails to include any amortization expense associated with the capitalized lease
investment for software." Id. at 29. The Company calculated that the appropriate level of the
amortized expense yields the sum of $706,000 on an intrastate basis Id, U S WEST Exhibit 82, p
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1. Calculating the increase in the Title 61 amortized expense is made by multiplying $706,000 by
the overall Title 61 allocator. Using its Title 61 TPIS allocator of 63.8%, the Company calculated
that the Title 61 revenue requirement must be increased by $450,000. U S WEST Petition at 29.
2.Staff Answer. The Staff did not contest that the intrastate amortized expenses
associated with the capitalized software leases should be increased by an intrastate amount of
$706,000. Staff Answer at 10.
3.Commission Findings. Based upon the agreement of U S WEST and Staff, as well
as our review of the record, we find that the amortized expense associated with the capitalized
software leases should be increased on an intrastate basis by $706,000. Multiplying this amount by
our adjusted Title 61 TPIS allocator of 59.96%, we calculate that the Company's Title 61
amortization expense should be increased to $598,000 as shown on the attached Appendix, page 1,
line 33.
J. AT and Bellcore Expenses
I. U S WEST Petition. U S WEST requested that the Commission reconsider its
decision limiting the Company's Applied Technologies (AT) and Bellcore expenses to 20% The
Company asserted that there is no evidence in the record to support the Commission's disallowance
of 80% of these affiliate expenditures. U S WEST Petition at 20-25.
In Order No. 27100, the Commission found that the Company failed to meet its burden
of demonstrating the reasonableness of its affiliate transactions with AT and Bellcore by simply
relying on the use of its CAAS system. As the Commission stated in its Order,
transactions between affiliate companies are to be subject to close scrutiny
and the utility has the burden of proving the reasonableness of its affiliate
transactions. General Telephone of the Northwest v. Idaho PUG, 109 Idaho
942, 712 P.2d 651 (1986); Boise Water Corporation v. Idaho PUC, 97 Idaho
832, 555 P.2d 163 (1976). U S WEST has the burden of proving that its
affiliate transactions are reasonable. The Company cannot simply rely on the
fact that expenditures were incurred.
U S WEST stated that the Commission "has failed to appreciate the true nature of the services provided by AT and
Bellcore" when it described the AT/Bellcore expenses as "research projects." U S WEST Petition at 21; Order No.
27100 at 49. The Commission understands that these affiliates provide a range of services that are not strictly related
to "pure" research. However, as Company documents reveal, the acronym "Bellcore" means Bell Communications
Research, Inc. Exhibit 103. The Company supplied organizational chart indicates that AT provides technical
management and research and development services. Exhibit 102, Tr. at 1691.
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Order No. 27100at50
Although the Commission found that the Company's cost allocation system does not
reasonably allocate affiliate expenses between Title 61 and Title 62, the Commission concluded that
it was reasonable to allow the Company to include 20% of its AT and Bellcore expenses (m addition
to the restructuring expenses included the second stipulation) in the Title 61 results of operations
"This results in an additional Title 61 allowance of $290,481" Order No 27100 at 51
U S WEST made two arguments on reconsideration First, the Company argued that it
"was incumbent upon the Commission to look at the record evidence to determine the reasonable
level of expense for Title 61 operations" rather than to simply adopt an arbitrary percentage of
expenses to include in the amount to be allocated U S WEST Petition at 21-22. After subtracting
the allowed restructuring expense included in the AT/Bellcore expenditures, U S WEST and the
Staff agreed that the intrastate expenses at issue totaled $2,461,700 U S WEST Petition at 22, note
10.8
Accepting the Commission's criticism that it failed to "directly assign" AT and Bellcore
expenses to Title 61 and Title 62, the Company has offered an alternative allocation methodology.
Based upon Staff Exhibit 154, the Company created a new exhibit that purportedly directly assigns
projects and their associated expenses Id at 23 Exhibit 79 categorized the 1300 AT/Bellcore
project as directly assigned to Title 62, directly assigned to Title 61, or projects that are "common"
to both Title 61 and Title 62 The Company maintained that those expenses identified as common
to both Title 61 and Title 62 "should be allocated between Title 61 and Title 62 since the undisputed
record of this case indicates that they are, in fact, 'common' projects whose expenses are incurred
to support both Title 61 and Title 62 operations" Id
After the Staff questioned the accuracy of Exhibit 79 (Staff Answer at 7), the Company
submitted a Revised Exhibit 79 on September 19, 1997 After directly assigning numerous projects
to Title 62, Revised Exhibit 79 calculated that the "common" project expenses on an intrastate basis
total $1,580,522. Multiplying this amount by the Company's CAAS allocators, produced Title 61
AT/Bellcore expenses of $875,842 Revised Exhibit 79, p 2
8 The 20% allowance was multiplied by this amount ($2,461,700) to yield the sum of $492,340 This amount was then
allocated between Title 61 and Title 62. Id.
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The second argument raised by the Company on reconsideration concerned an alleged
discrepancy between the Commission's Order and its work papers. In its Order, the Commission
found that the Company was entitled to a Title 61 expenditure of $290,481. Order No. 27100 at 51.
This amount was calculated by multiplying the allowed 20% intrastate amount ($492,340), by the
Title 61 TPIS allocator of 59% Id, U S WEST Petition at 24 The Commission's financial
Appendix 1 indicates that the Commission used the corporate operations allocator of 37% U S
WEST Petition at 24. This resulted in a Title 61 AT/Bellcore expense of $182,040. Id. at 25.
2.Staff Answer. Staff urged the Commission to deny reconsideration of this matter with
the exception of correcting the allocator to be used to calculate the allowable AT/Bellcore expense.
Staff Answer at 6-7. The Staff asserted that the record supports the Commission's finding that the
Company failed to meet its burden of demonstrating the reasonableness of its affiliated transactions
Id.
Staff maintained that neither the 59% allocator contained in the Order nor the 37%
allocator used in the work papers to calculate the Company's Title 61 expenses is correct. Staff
proposed using a composite allocator of 44.38% based upon the Title 61 TPIS allocator, the
customer operations allocator, and the corporate operations allocator (discussed in greater detail
below). Staff Reconsideration Exhibit 190, p. 2. As shown in Staff Exhibit 190, the allowed Title
61 expense is $218,508.
3.Commission Findings. We affirm the portion of our prior Order that finds the
allowable AT/Bellcore expenses should be limited to 20%. We affirm our decision that the
Company has not met its burden of proving that these affiliated transactions were reasonably
allocated. Although the Company's Revised Exhibit 79 is a step in the right direction in that it
purports to directly assign affiliated project expenses to Title 62, it suffers from the same infirmity
that we identified in our prior Order. Under the Company's alternative approach portrayed in
Exhibit 79, it uses its CAAS allocators to allocate the cost of "common" projects to Title 61 and
Title 62. As was demonstrated at the hearing, however, there are projects that are classified as
"common" but are clearly Title 62. Our review of the proprietary exhibits along with the admission
of Company witness Maggie Barrington reveal the following Title 62 projects assigned in a common
category: Exhibit 176 (Advanced Intelligent Network, Tr. at 1934); Exhibit 178 (consulting for
carrier market unit, Tr. at 1937); Exhibit 196 (IntraLATA PlC projects, Tr. 1952); Exhibit 199
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(software for directory services, Tr. at 1953), Exhibit 200.8 (measuring video, interactive voice,
E91 1, voice mail, Tr. at 1959-60), and Exhibit 200 10 (call waiting deluxe, Tr. at 1959) Although
these projects clearly support Title 62 services, they were classified as common and a portion of their
costs were allocated to Title 61
We affirm our finding that the Company's CAAS system does not properly allocate
AT/Bellcore expenses given Idaho's unique regulatory structure Thus, we conclude that the
Company's CAAS system does not reasonably allocate expenses and that Revised Exhibit 79 does
not reasonably or fairly demonstrate that the CAAS system can properly allocate AT/Bellcore
expense.
We next turn to the issue of the inconsistent AT/Bellcore allocators As mentioned
above, our prior Order used the overall Title 61 TPIS allocator of 59% while the financial Appendix
1 used a 37% allocator. The Staff suggested in its Answer and Cross-Petition that the Commission
should consider using a 44.38% composite allocator. Staff Answer at 7; Staff Exhibit 190.
The Commission finds that the 59% allocator used in the Order is inappropriate. This
allocator is greater than even the Company's own CAAS composite allocator (55.4%) derived from
Revised Exhibit 79 As outlined above, the Commission found that the Company's CAAS allocator
system still contains sufficient errors, from that we conclude that it fails to reasonably and
appropriately allocate AT/Bellcore expenses between Title 61 and Title 62 We further find that the
37% is inappropriate in that it merely represents use of the corporate operations allocator (discussed
below) Consequently, we find that use of the Staff's composite allocator shown in its Exhibit 190
is reasonable However, this allocator must also be adjusted to account for the increased Title 61
TPIS allocator. We find that the correct allocator for calculating the Title 61 AT/Bellcore expenses
is 44.71% based on a new TPIS of 59.96%. This results in a Title 61 allowance of $220,111 as
shown on the attached Appendix, p 2 This amount shall be directly assigned to Title 61
K Corporate Operations Allocator
1 U S WEST Petition The Company urged the Commission to reconsider the allocator
used for corporate operations The Company noted that the Appendix to the Order utilized an
allocator of 37% to determine the appropriate amount of corporate operations allocated to Title 61
U S WEST maintained that the Order does not address this issue and argued that the appropriate
allocator is 49.99%. U S WEST Petition at 25-27, Exhibit 78
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In its Petition, the Company noted that the Staff was critical of the Company's allocation
of expenses in the corporate operations area U S WEST Petition at 25 The Company claimed that
once it and the Staff settled "virtually all of the expense disputes in the second Stipulation" (Order
No 27100 at 12-20), there was no basis to support the Staff's corporate operations allocator of 37%
Id
The Company acknowledged that Staff witnesses Madonna Faunce and Baldwin were
critical of the Company's cost allocation system and recommended that U S WEST improve its
reporting system so that a greater percentage of corporate expenses are directly assigned. U S WEST
Petition at 2 5-26. The Company asserted that calculating the corporate operations allocator based
upon the relative ratio of Title 61 and Title 62 revenues is not an appropriate method Id at 27 U S
WEST insisted that the revenue for Title 61 revenue "is too low", thus, the allocator will also be too
low.
The Company maintained that use of the 37% allocator constituted a "double penalty"
Id at 26-27 The first penalty was the Commission's decision to restrict the AT/Bellcore expenses
to 20% The second penalty occurred when the Commission uses a lower allocator on the remaining
operational expenses Id
2 Staff Answer Staff asserted that U S WEST presented no compelling evidence that
its proposed method of assigning and allocating corporate operations expenses appropriately reflects
the services with which the corporate activities are likely to be associated Staff concluded that a
more appropriate general allocator for corporate operations is revenues, because corporate expenses
are likely to be "disproportionately associated with advanced, lucrative and/or competitive services"
Staff Answer at 7
According to the Company, the Commission's use of a revenue-based allocation of
corporate expenses based upon current Title 61 revenues is inappropriate because this is the very
revenue that the Company claims is "too low." U S WEST Petition at 27 Staff insisted that this
argument is circular. Under the Company's premise, the Commission could never allocate
because the revenue is always changing. Staff did not contend that a revenue-based allocator was
the ideal cost allocator for corporate operations However, given the unavailability of information
needed to directly assign a large share of corporate operations expenses, Staff believed existing
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revenues are the best indication available to demonstrate where the Company's executive staff,
lawyers, etc profitably devote their time Staff Answer at 8
As an alternative, the Staff stated that the Commission could allocate 33% of corporate
expenses to Title 61 to mirror the 33% of customer operations expenses that are allocated to Title
61 Section III 0, page 10 of the CAAS manual indicates that the allocation of customer
operations expenses "reflect time reporting." Tr at 2786 The ultimate interest of U S WEST
is to increase its revenue stream by selling products and services, and therefore, it is reasonable
to expect that corporate overhead will generally track customer operations. Staff Answer at 8.
Staff maintained that the Company's own allocator for customer operations (33%) supported the
Commission's conclusion that the corporate activities are similar.
3 Commission Findings. We deny reconsideration of this issue We find Staff witness
Baldwin's recommendation to calculate the allocator based upon the Company's revenues
compelling Unlike the allocation of customer operations expenses, that, according to the Company
reflect time reporting (Section III 0, page 10 of the CAAS Manual), there is no reference to time
reporting systems being used by U S WEST to allocate and assign corporate operations expenses
We have found that the Company's CAAS manual does not adequately track expenses and
investments between Idaho's unique regulatory categories, Title 61 and Title 62 Although we
adopted the Company and Staff's settlement of several corporate expense issues, the direct
assignment of $4.7 million to Title 61 ($73,000) and $4.594 million to Title 62 does not affect the
appropriateness of using revenues as the allocator of the remaining investment in that category.
We further find that the Company's argument concerning a double penalty is without
merit The analysis we adopt does not 'penalize' U S WEST in any way. Rather, it identifies those
expenses that can appropriately be assigned to either Title 61 or Title 62 As indicated in the
preceding section, the allowed AT/Bellcore and restructuring expenses are directly assigned to Title
j. Direct assignment of those corporate operations expenses that could be so assigned does not
dilute the pool of remaining expenses to be allocated The Company's view of any direct assignment
as a 'penalty' is misguided Such assignment simply represents the principle that certain costs
incurred in the provision of services should be borne by those services
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L. Memorandum Expense
1.U S WEST Petition. In its Petition, the Company urged us to reconsider the
memorandum expense issue.' Despite the fact that this issue was not prominently litigated in the
technical hearing, the Commission determined that U S WEST had met its burden in establishing
the Title 62 memorandum expenses. Order No. 27100 at 52. Although the Commission granted the
Company's Title 62 memorandum expenses, U S WEST claimed that these expenses were "not
included in the calculation of revenue requirement contained in Appendix 1" of the Order. U S
WEST Petition at 27. Consequently, the Company maintained that there is an inconsistency between
the Commission's Order and its calculation of the Company's revenue requirement found in
Appendix 1. Id at 27-28.
2.Staff Cross-Petition. In its Cross-Petition, the Staff argued that the Company was not
entitled to a memo expense in the full amount of $2.5 million for four reasons. First, the Staff
insisted that the Company did not attribute any memo expense to the 12 exchanges that U S WEST
sold in 1995 and 1996. Compare Exhibit 22, line 9 with Exhibit 23, line 9; Staff Answer at 8-9;
Order No. 27100 at 7. The Staff maintained that the failure to attribute any memorandum expense
to the sold exchanges is unreasonable. Second, the Staff took issue with the Company's calculation
of the memo expenses More specifically, the Company's CAAS manual indicates that "tariff or
market rate[s]" are used to calculate these memorandum costs. Staff Answer at 9 citing Exhibit 64,
p. 2. Staff maintained that it is inappropriate, when determining actual "cost," that such costs to be
based on market or tariff rates.
Third, although the Company claimed that its Exhibit 81 demonstrates that memorandum
expenses were never included in intrastate booked expenses but were added as a function of the cost
allocation process, the Staff claimed that "the actual expenses incurred in providing the services are
included in the Company's intrastate expenses." Staff Answer at 9. Finally, the Staff maintained
that an examination of the memo expense data reveals that there was no "memo revenue" to offset
memo expense. Id Although the Company argued that Title 62 facilities were used to support Title
The Company asserted that Title 62 services are used to support Title 61 operations. Consequently, the Company
claimed that its cost allocation system (CAAS) allocated approximately $2.5 million of Title 62 expenses to Title 61.
Order No. 27100 at 52.
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61 facilities, the inverse may also be true—Le., , that Title 61 facilities support Title 62 services For
example, when U S WEST solicits non-published and non-listed customers to subscribe to other
Title 62 services, the Company has not acknowledged that Title 61 facilities incur costs to sell Title
62 services The memo expense data shows no Title 61 revenues to offset Title 62 services Id
Consequently, the Staff maintained that if the Commission grants reconsideration of this issue a "full
evidentiary hearing is necessary to properly decide this issue" Id at 10
3. Commission Findings. As we previously noted, the Commission stayed the reduction
of Title 61 business rates based upon the Company's argument that we inadvertently omitted the
memorandum expense from our calculation of the revenue requirement See Order No 27112 After
reviewing the Petition, Cross-Petition, and the record, we find it reasonable to grant reconsideration
to both the Company and the Staff. As we noted in our prior Order, the memo expenses were not
discussed by any party at the technical hearing but appeared as a footnote to the Company's Exhibit
22 We find that the Company is entitled to recover some amount of memo expenses The amount
of memo expenses may need to take into account appropriate offsetting adjustments
Having granted reconsideration of this issue by rehearing, we must also establish a
rehearing schedule Idaho Code § 61-626 requires that we complete our reconsideration no later than
December 2, 1997 Accordingly, we require the parties participating in this phase of the case to
comply with the following schedule
Deadline for issuing discovery requests October 9, 1997
Deadline for responding to discovery requests October 17, 1997
Staff and Intervenor Direct Prefile Testimony
on Memorandum Expenses October 31, 1997
Deadline for filing the Company's Rebuttal
Testimony November 14, 1997
1:30 P.M. Technical Hearing in Boise November 20, 1997
The dates specified above are the dates that all documents must actually be received by all parties.
To improve the efficiency of this rehearing, the Commission will require those parties desiring to
participate in this rehearing phase to notify the Commission Secretary of their intent to do so
Parties shall notify the Commission Secretary of their intent to participate no later than
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October 6, 1997 At that time, the Commission Secretary shall issue a revised service list to those
parties desiring to participate in this phase of the case.
M. Depreciation Expenses
1.U S WEST Petition. The Company maintained that depreciation expenses will change
if the overall Title 61 plant numbers and TPIS allocator is changed. U S WEST Petition at 29-30.
Although the Company did not calculate the full scope of the depreciation adjustments, it had
requested that the Commission grant reconsideration of this issue but permit "U S WEST to submit
a precise calculation of the correct amount of that [depreciation] expense after some of the other
issues and questions presented in this case have been clarified." Id. at 30.
2.Staff Answer. The Staff agreed with the Company that depreciation expenses need
to be adjusted based upon the actual Title 61 plant numbers and TPIS allocator chosen by the
Commission. In examining the Commission's work papers, the Staff concluded that changes in
depreciation expenses are necessary specifically relating to 1) the 1.89% error factor, 2) direct
assignments, 3) unlit fiber, and 4) Tech Plus and Tech II adjustments Staff Answer at 10, Staff
Petition at 5-6. Staff calculated that the total intrastate depreciation is $38.589 million as shown in
its Exhibit 192.
3 Commission Findings. Based upon the agreement of U S WEST and Staff as well as
a review of our work papers, we find that Title 61 depreciation expenses will need to be revised due
to changes in the Title 61 plant numbers and the TPIS allocator. Having reconsidered this matter,
we find it is reasonable to increase depreciation expense for Title 61 to $23.138 million as shown
in the Appendix, page 1, line 32 .10
N. Cost of Equity
1 U S WEST Petition In its Order, the Commission found the fair and reasonable return
on equity for U S WEST to be 11.2%. Order No. 27100 at 48. The Commission noted that this
return is within Carlock's DCF range. The Commission also found that this rate comports with other
10 At page 31 of its Petition, U S WEST observed that if the Company's revenue requirement after reconsideration or
clarification becomes positive, then the "effective state tax rate should be 6.594% and the gross-up factor should be
1.6722." As stated in our prior Order, U S WEST and the Staff had agreed to this gross-up factor that we subsequently
adopted. Order No. 27100 at 23. As indicated in our work papers, the Commission has utilized the appropriate gross-up
factor to calculate the Company's revenue requirement.
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factors to be considered by the Commission including the Company's business risk and relative
financial risk. Id. U S WEST requested that the Commission reconsider its decision to fix the
Company's cost of equity at 11.2%. U S WEST Petition at 32 U S WEST does not request that the
Commission adopt the cost of equity advocated by the Company at the hearing, but to adopt Staff
witness Tern Carlock's cost of equity recommendation of 11.5%. Id at 34 The Company argued
that because the Commission rejected the Staff's 50 basis-point adjustment for inadequate service,
there was no reason to adopt a cost of equity at either end of Carlock' s range but that her mid-point
was the best measure Id at 32
2 Staff Answer. Staff urged the Commission to deny reconsideration of this issue Staff
maintained that the Commission's adoption of a point within Carlock's DCF range is lawful and
clearly supported by substantial and competent evidence The Staff maintained that a closer reading
of Carlock' s testimony was warranted In particular, Carlock specifically acknowledged that any
point within her range is reasonable, but the return would not normally be at either extreme of the
fair and reasonable range. Staff Answer at 10; Tr. at 2089.
The Staff observed that our Supreme Court has recognized that questions concerning the
"cost of equity" raise extremely complicated issues "Deciding the cost of equity is a function of the
Idaho Public Utilities Commission Application of Utah Power & Light Co., 107 Idaho 446, 452,
690 P 2d 901, 907 (1984) In Utah Power, the Court held "the Commission is not bound to accept
Carlock's recommendation that admittedly was merely one point within the ranges of
reasonableness she found applicable The Commission is not bound to accept this one point within
the ranges but was free to choose among equally reasonably points within the ranges of
reasonableness" Id (footnotes omitted), Staff Answer at 11
3 Commission Findings We decline to reconsider our decision regarding the
Company's cost of equity. As the Staff has noted, our duty is to choose a return on equity within
a range of reasonableness and we are free to choose among equally reasonable points within the
range of reasonableness For the reasons outlined in our prior Order, we find that there is substantial
NOTICE OF REHEARING
ORDER NO 27152 -28-
S .
and competent evidence to support our decision to authorize the Company an 11.2% return on
equity.
0. Weighted Cost of Capital
1.U S WEST Petition. The Company urged us to clarify our Order concerning the
weighted cost of capital because of an inconsistency between the Order and our 'work papers. U S
WEST Petition at 34-3 5. The Company suggested that the Commission's Order "truncated" the rate
of return for common stock as 6.22% rather than rounding the amount of 6.2272% to 6.23%. Id.
Making this change would revise the Company's overall rate of return from 9.43% to "the more
correct rounded amount of 9.44%." Id. at 34.
2.Staff Petition. In its Petition for Reconsideration and/or Clarification, the Staff
observed that the Commission's Order No. 27100 showed the truncated weighted return for common
stock of 6.22%. However, the Staff maintained that the working papers accompanying the Order
correctly reflected the total rate of return utilizing the 6.2272% amount. The Staff suggested that
the Commission correct the weighted return on equity shown in the table on page 48 of its Order to
read "6.23%" and to change the overall rate of return to "9.44%." Staff Petition at 6.
3.Commission Findings. We grant the parties' petition to clarify our Order. As they
noted in their respective petitions, we inadvertently truncated the weighted rate of return for common
stock and the Company's overall rate of return in the table on page 48 of our prior Order.
Accordingly, we adopt their recommendations to show the correct weighted return on common stock
as 6.23% and the overall rate of return at 9.44%. As Staff noted, these revisions do not affect the
Company's revenue requirement.
U S WEST also suggested that another factor weighing toward reconsideration is that the current IBES forecast
growth rate for U S WEST is now 5% instead of the 4.5% as Company witness Cummings testified "If the Commission
truly believes that the most current IBES forecast growth rate for U S WEST should be controlling, that number is 5%
not the 4.5% implied in the Commission's determination." U S WEST Petition at 33. In its Answer, the Staff urged
the Commission to not consider the 5% growth rate for two reasons Staff declared that it would be inappropriate to
accept the forecast growth rate without examining "the myriad of all the other factors that may [have] change[d] since
the Commission closed the record in this case." Staff Answer at 11, note 4. We agree with Staff's argument and decline
U S WEST's invitation.
NOTICE OF REHEARING
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S S
II. OTHER ISSUES
A Classification of Toll Restriction Service
1. U S WEST Petition. The Company urged the Commission to reconsider its decision
classifying toll restriction service as Title 61 service The Company presented several arguments
why our decision is erroneous or is contrary to law. U S WEST Petition at 3 5-39. In its prior Order,
the Commission determined that the Company's toll restriction service is appropriately considered
to be a Title 61 service Order No 27100 at 58 "We see no difference between toll restriction and
other toll blocking services that are classified as Title 61 services Consequently, we adopt Staff
witness Hart's recommendation that toll restriction service should be made available at no monthly
charge but have a non-recurring initial charge of $6 00" Id
First, the Company argued that toll restriction does not meet the statutory definition of
a Title 61 service The Company maintained that the definition of "basic local exchange service"
found at Idaho Code § 62-603(1) cannot be construed as including toll restriction This section
provides that local exchange service means "the provision of access lines to residential and small
business customers with the associated transmission of two-way interactive switched voice
communications within a local exchange calling area." The Company basically insisted that toll
blocking does not constitute the "provision of [a] line nor can it be described as the transmission of
two-way interactive switched voice communications" U S WEST Petition at 36-37. The Company
argued that Staff witness Wayne Hart's rationale "that toll-restricted service is local service only,
without any access to toll or Title 62 service" is poor reasoning Id at 37 The Company claimed
that toll restriction is merely a blocking functionality provided by U S WEST's switches. "It does
not provide any local exchange communications abilities whatsoever" Id
Second, the Company argued that the Commission lacks authority under the "claw-back"
provision of the Telecommunications Act to regulate toll restriction service Id at 38 Idaho Code
§ 62-605(5) provides in pertinent part for any telecommunications service that was subject to the
Commission's Title 61 jurisdiction on July 1, 1988 and that was subsequently removed to Title 62,
that the Commission "shall have continuing authority to review the quality of such service, its
general availability, and terms and conditions under that it is offered" If the Commission finds that
the general availability, or terms and conditions of such service are adverse to the public interest, the
Commission shall have authority to negotiate or require changes in how such telecommunication
NOTICE OF REHEARING
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services are provided. In addition, the Commission has the authority to require that such
telecommunication service be taken back into Title 61.12 The Company insisted that toll blocking
did not exist as a Title 61 service on July 1, 1988 It distinguished toll blocking from 900 and 976
blocking by asserting that it agreed to blocking of 900 and 976 numbers as a Title 61 service U S
WEST Petition at 36. The Company maintained that its tariffs and catalog filings demonstrate that
toll restriction was not offered by U S WEST until September 1992. Consequently, the Company
asserted that reregulation of toll restriction is outside the scope of the Commission's statutory
authority and it is therefore, unlawful for the Commission to classify it as a Title 61 service. Id.
Finally, the Company argued that even if the Commission had the authority to bring toll
restriction under its Title 61 authority, the rates established by the Commission are not supported
by the evidence. The Company maintained that establishing rates that do not recover the cost of
providing the service "results in the confiscation of U S WEST's property in two important
respects." Id. 39. First, by not including the cost of toll restriction, the Commission has confiscated
the use of the Company's property in the form of its investment and labor costs. Second, moving
toll restriction to Title 61 fails to "reimburse the Company for its [Title 62] revenue loss." Id at 39.
2. Staff Answer. The Staff argued that toll restriction does meet the statutory definition
of a basic exchange service. The Staff suggested that the Commission focus on the phrase
"provision of access lines to residential and small business customers with the associated
transmission. .. ." Staff Answer at 11. In other words, Staff believed it is the provision of an access
line that constitutes basic service and other basic services are merely appertenant to the provision
of basic service. "Given the joint use telecommunications network (i.e., the public switched network
is used for both local and toll calls), 'access' to the toll network is part of basic local service.
Without an access line, there can be no access to toll." Id.
12 Idaho Code § 62-605(5) states: For any telecommunication service that was subject, on the effective date of this act,
to title 61, Idaho Code, and that at the election of the telephone corporation became subject to this chapter, the
commission shall have continuing authority to review the quality of such service, its general availability, and terms and
conditions under that it is offered. Upon complaint to the commission and after notice to the telephone corporation
providing such service and hearing, the commission finds that the quality, general availability or terms and conditions
for such service are adverse to the public interest, the commission shall have authority to negotiate or require changes
in how such telecommunication services are provided. In addition, if the commission finds that such corrective action
is inadequate, it shall have the authority to require that such telecommunication services be subject to the requirements
of title 61, Idaho Code, rather than the provisions of this chapter.
NOTICE OF REHEARING
ORDER NO. 27152 -31-
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In the alternative, the Staff believed that the Commission can reasonably classify toll
restriction as a Title 61 service pursuant to Idaho Code § 62-605(5) Staff maintained that the
difference between toll blocking and 900 and 976 blocking is a distinction without a difference.
Staff maintained that there is no functional distinction between toll restriction and 900 and 976
blocking. In addition, the Staff asserted that toll restriction was in existence and regulated as a Title
61 service on July 1, 1988 The Staff noted that the Commission had previously approved toll
restriction services as part of a service package implemented by U S WEST's predecessor, Mountain
Bell, on April 1, 1986 See Order No 20349 at 1 In addition, the Staff argued that it is in the public
interest to regulate toll restriction as a Title 61 service Relying upon the FCC's universal service
order, the Staff maintained that the FCC found that such toll blocking service is a component of
basic local exchange service for low-income consumers The Staff argued that it is clearly in the
public interest to insure that toll restriction was accessible to all customers at a reasonable price
Staff Answer at 12.
Staff maintained in its Answer that the $6.00 non-recurring rate for toll restriction service
was sufficient to cover costs. Although Staff witness Hart acknowledged that the Company had
recommended a $20.00 one-time charge for this service, he noted that the Company's answer to Staff
Production Request No. 444 indicated "that the actual costs for providing this service are
approximately $5.00 to connect and $5.00 to disconnect and estimated an approximate cost of $0.50
per month for ongoing monthly expenses." Tr. at 1214.
Finally, the Staff argued that the Commission was under no obligation to reimburse the
Company for lost Title 62 revenues if toll restriction was reclassified as a Title 61 service. The
Commission's responsibility is to allow the Company to recover its costs in providing this Title 61
service Staff Answer at 13, note 5
3. Commission Findings. Having fully reconsidered this issue, we partially grant the
Company's petition We affirm our decision contained in our prior Order that toll restriction service
is appropriately classified as a Title 61 service for two primary reasons First, we find that toll
restriction should be viewed as a component of basic access We have previously stated on a number
of occasions that the components or standards of basic local exchange service evolve over time.
Twenty years ago, basic local service meant party-line service, rotary telephone set, mechanical
switches, and voice grade service Today's standard for basic local service includes single-party
NOTICE OF REHEARING
ORDER NO. 27152 -32-
C
.
service, touch tone, digital switches, voice grade, and in the case of U S WEST in Idaho a standard
9600 bps data transmission rate deployed as part of our Tech II projects In addition, the FCC has
recently promulgated standards for basic service that include additional features such as access to
911 and toll blocking Consequently, we find it is just and reasonable and in compliance with the
letter and spirit of the statute to regulate toll restriction as a Title 61 service
Regarding the Company's argument that the Commission had not exercised its regulatory
authority over toll restriction services prior to July 1, 1988, we direct its attention to Case No U-
1000-163 and Order Nos 18188, 18304, 19364, 19663, 19701, 19716, 19822, 19931 and 20366
Over a period of nearly three years, this Commission investigated the "feasible methods of providing
service for calls within Idaho or within a portion of Idaho such as LATA only or local only" Order
No 19364 at 2 (emphasis added) It is disingenuous to now claim that the Commission did not
regulate this aspect of local service prior to the effective date of the Telecommunications Act of
1988 Technological advancement has simply brought us to the point where what the Commission
asked of the Company in 1983 can be accomplished
We next turn to the rate issue Based upon the arguments of the Company and our review
of the record, we reconsider that portion of our prior Order that fixed the rate for toll restriction
service at a non-recurring rate of $6.00. Staff witness Hart testified that the Company calculated its
actual cost of providing this service as $5.00 to connect and $5.00 to disconnect with a monthly cost
of approximately $0.50 per month. Based on this evidence, we find that the appropriate initial non-
recurring rate should remain at $6.00 and that a non-recurring rate of $6.00 to remove toll blocking
service should also be implemented We find these rates to be reasonable, just and in the public
interest. There is insufficient evidence to support a cost of $0.50 per month for this blocking service
and therefore we do not adopt a monthly charge. Clearly, more and better information on the cost
of providing this service may be available. The Company is free to file a tariff advice proposing a
different rate or rate structure, if it deems it appropriate
B. Restricting Solicitation of Non-Published or Non-Listed Customers
1 U S WEST Petition In its Order, the Commission directed that customers subscribing
to the Company's non-published and non-listed directory services should be removed from the
Company's telemarketing solicitation lists The Commission found that "customers have a
legitimate expectation that they will not receive solicitation from either U S WEST or other
NOTICE OF REHEARING
ORDER NO. 27152 -33-
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telephone solicitors" Order No 27100 at 63 The Company urged the Commission to reconsider
this issue. The Company maintained that the Commission's directive is unnecessary, overly
burdensome, and does not meet the needs of most customers U S WEST Petition at 39-41.
U S WEST stated that the non-published and non-listed "privacy" services are merely
intended to prevent the publication of the subscribers' numbers in the telephone directory or the
disclosure of the numbers through directory assistance The Company insisted that customers who
truly want to avoid solicitation by telephone need to notify U S WEST so the Company can place
them on a "do not call" list of customers "This list provides the customers who do not wish to be
solicited with the protection that the Commission is attempting to provide in this case" U S WEST
Petition at 40, 39
To address the Commission's concerns, the Company proposed to begin using a modified
confirmation mailer for all new privacy listing customers The mailer would advise customers who
do not wish to be solicited by U S WEST to call a 1-800 number to remove their names from U S
WEST's solicitation list Id at 41
2 Staff Answer In its Answer, the Staff observed that several customers at the public
hearings in this case testified that they subscribed to non-published or non-listed services to avoid
solicitation calls Tr. at 822-23, 837-38, 855, Staff Answer at 14 As the Commission stated in its
Order, removing its non-published and non-listed customers from its telemarketing solicitation lists
"does not prohibit U S WEST from marketing its products ,but does direct the Company to stop
telemarketing to these customers" Staff Answer at 14
Staff also addressed the Company's mailer proposal The Staff believes that the mailer
does not go far enough to address the customers' concerns in this case The Staff suggested that U S
WEST be required to verbally advise its new non-listed and non-published customers at the time of
subscription so that they may request that their names be removed from the Company's
telemarketing list Id The Staff also suggested that rather than simply notifying all new customers
with the confirmation mailer, "the Company should be required to notify all of its existing non-
published and non-listed customers of this option" Id
3 Commission Findings After reviewing the record, petition, and answer, we grant
reconsideration of this issue We find that the Company's proposed confirmation mailer is an
appropriate way to address the customers' needs We also find the Staffs recommended change to
NOTICE OF REHEARING
ORDER NO. 27152 -34-
.
fl
the mailer proposal to have merit. Rather than specifically prohibit all telemarketing of the
Company's non-published and non-listed customers, we direct the Company to implement the
following program First, the Company shall provide a confirmation mailer to all existing non-
published and non-listed customers notifying them that they may place their names on the "do not
call" list of customers 13 Second, the Company shall verbally advise customers at the time they elect
to subscribe to non-listed and non-published privacy services that they may specifically request that
their names be removed from U S WESTs' telemarketing lists. If the customer service
representative cannot at that time place the customer's name on the "do not call" list, then the
representative must provide the customer a toll free number to use to be removed from the lists We
find that this practice balances the needs of the Company and customers We further find that it is
not overly burdensome and will meet the reasonable expectations of customers
C Non-Published and Non-Listed Rates
1 U S WEST Petition The Company petitioned the Commission to reconsider the rates
that were established for non-published and non-listed services In its Order, the Commission
substantially reduced the monthly rates for these privacy services and established a uniform non-
recurring charge The Commission lowered the monthly charges for non-listed and non-published
services from their existing rates of $2.50 and $4.00, respectively to $.50 and $3 5. The Commission
increased the existing non-recurring charge of $8.00 for residential customers and $20.00 for
business lines to a uniform flat rate charge of $25.00. Order No. 27100 at 65.
The Company urged the Commission to reconsider its decisions for two reasons. First,
the Company indicated that the Commission may need to increase rates for various Title 61 services
in the event that "the Commission grants reconsideration on the various revenue requirement issues
[discussed in the Company's Petition for Reconsideration]" U S WEST Petition at 42 In general
terms, the Company suggested that it "will be necessary to reconsider the rate design adopted by the
Commission for Title 61 services" if there is a substantial increase in the Company's revenue
requirement Id The Company also questioned the wisdom of instituting a large one-time charge
13 Of course, the Company does not have to send a mailer to its existing privacy service customers who are already on
this list.
NOTICE OF REHEARING
ORDER NO 27152 -35-
. .
of $25.00. Id. at 43. The Company argued that the non-recurring charge of this magnitude "creates
a strong disincentive for Title 61 residence customers to order this service." Id.
Second, the Company declared that there is "no evidence [that] supports the dramatic
reduction ordered" by the Commission. Indeed, the Company noted that the Staff had recommended
that the rates be maintained at their current levels after Staff witness Bill Eastlake considered the
revenue impact on customers. Tr. at 2189, 2218-19.
2.Staff Answer. Staff did not directly address this issue. However, Staff stated in its
Answer that in the event that the Commission finds the Company entitled "to additional Title 61
revenues, then the Staff believes the rates for all the Company's Title 61 services. . .are subject to
change." Staff Answer at 13, note 6.
In its Petition for Reconsideration and/or Clarification, the Staff noted that the
Commission's work papers do not include the annual revenue increase from the non-published and
non-listed privacy services. Staff Petition at 7. The Staff maintained that implementing a $25.00
non-recurring charge for non-listed and non-published services would result in an annual revenue
increase of approximately $55,000. Id. The Company did not respond to this statement in its
Answer.
3.Commission Findings. Although we agree that an increase in its revenue requirement
may necessitate increases in the Title 61 rates recently established by the Commission in Order No.
27100, we find that the current monthly rates for non-published and non-listed service are
unreasonably high. After we conclude the rehearing on the memo expense issue, we intend to review
the monthly rates for these services and bring them more in line with the costs of providing the
services.
D. Overall Rate Design
1. U S WEST Petition. The Company maintained in its Petition for Reconsideration that
because of the errors contained in the prior Order, "the Commission will clearly need to reconsider
the rate design that it has ordered in this case." U S WEST Petition at 43. If, following
reconsideration, the Commission determines that the Company is entitled to a substantially greater
revenue requirement, then the Company maintained that the Commission may be required to
consider increasing and/or changing the Title 61 rates.
NOTICE OF REHEARING
ORDER NO. 27152 -36-
S

.
The Company urged the Commission to consider bringing "the rates of Title 61
residential service and Title 62 business service closer together." Id. The Company reiterated its
position that "all of the revenue requirement increase . . . should be put on the basic residential
service in order to bring the rates for that service closer to recovery of the actual cost of its provision
and to narrow the artificially large gap between the rates for business and residential service." Id.
at 43-44.
2. Staff Petition. As previously mentioned, the Staff in its Answer, stated that if the
Company's revenue requirement was positive, then the rates for all services should be subject to
change. "This would include possible changes in the Commission's business-residential rate ratio."
Staff Answer at 13, note 6.
3 Commission Findings We recognize that if the Company's revenue requirement is
substantially increased from the $327,000 reduction in Order No 27100, then the Commission must
raise Title 61 rates to meet the revenue requirement. As indicated in greater detail in our financial
Appendix and the work papers, the changes that the Commission has adopted thus far in this Order
result in a positive revenue requirement of approximately $3 million. This amount does not include
the additional $2.5 million in memorandum expense that the Commission will examine on rehearing.
When the Commission has concluded its reconsideration of the memo expense issue, it will adjust
Title 61 rates to reflect the total rate impact of reconsideration We find it is not reasonable to do
the rate changes piece-meal given the short period of time allowed for reconsideration.
SUMMARY
The Commission has reviewed the Petitions for Reconsideration, the Answers and Cross-
Petitions, as well as the lengthy record in this case, and finds it just and reasonable to grant the
Petitions to the extent discussed in this Order. The changes to Order No. 27100 approved in this
Order, and the limited evidentiary hearing granted on reconsideration, will result in changes to the
rates approved in Order No 27100 The Commission will approve new rates when it issues a final
order on reconsideration.
ORDER
NOTICE OF REHEARING
ORDER NO. 27152 -37-
. .
IT IS HEREBY ORDERED that the Petitions for Reconsideration are granted in part and
denied in part, as discussed in the text of this Order. Reconsideration by rehearing is granted only
for the purpose of receiving additional evidence on the memorandum expense issue Rehearing shall
be conducted pursuant to the schedule set forth in this Order.
IT IS FURTHER ORDERED that parties desiring to participate in the rehearing phase
of this proceeding advise the Commission Secretary of their intention no later than October 6, 1997
The Commission Secretary shall then prepare a rehearing service list Service of documents in the
rehearing phase shall be limited to those parties participating in the rehearing phase
THIS IS AN INTERLOCUTORY ORDER Any person interested in this Order may file
a petition for review within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order. A petition to review may request that the Commission (1) rescind,
clarify, alter, amend, (2) stay, or (3) finalize this Interlocutory Order. After any person has petitioned
for review, any other person may file a cross-petition within seven (7) days See Rules 321, 322,
323 03, 324, 325 (IDAPA 31.01.01.321 -325)
NOTICE OF REHEARING
ORDER NO 27152 -38-
S .
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 30th
day of September 1997.
Commissioner Hansen was out of the
office on this date.
DENNIS S. HANSEN, PRESIDENT
RALPH NELSON, COMMISSIONER
CILL iJ
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Myrna J. Walters
Commission Secretary
b1s/0:usws965.dh8
NOTICE OF REHEARING
ORDER NO. 27152 -39-
REVENUE REQUIREMENT CALCULATION
CASE NO. USW-S-96-5
U S WEST COMMUNICATIONS, INC
-C-
ALL DOLLARS WITH "000 OMITTED
(A+B=C)
SYD LANSING U.965USW40.WK4 (HIDE A&B)
ADJUSTED
INTRASTATE
-F- -G- -H- h
SETTLEMENT AGREEMENT
STAFF STAFF NUMBER TWO COMMISSION RECON
DIRECT INTRASTATE ORDERED ORC
SIGNMENT ASSIGNMENT DIRECT TO ALLOCATED ADJUSTMENT
TO NOT TITLE 61 TITLE 61162 TO
TIT[ F R4 TIT1 TITI = 94
SEPT. 30, 1997
4. -J- -K-
AVAILABLE COMMISSION ORDER
TITLE 61
TITLE 62 ALLOCATION ALLOCATION
Al I ('.t'ATlfM TITI ) rITi 4
I Average Plant in Service
2 Capitalized Leases etc.
Materials and supplies
4 Cash Working Capital
5 Pension Assets
6 Accumulated Depreciation
7 Deferred Income Tax
8 Customer Deposits
9 Adjust Ave. Rate Base
10 EAS ADJUSTMENT
11 Average Rate Base
12
13 Return for Debt Payment
14 Return on Equity 11.2%
15 Gross Up For Taxes 1.672
16 TOTAL RETURN ON RATI
Page
534,073 0 166,840 (136,852) 0 504,085 201,836 302,249
13,476 5,495 (2,910 10,891 4,361 6,530
2,247 2,247 900 1,347
(2,524 (2,524) (1,01 (1,513
9,431 18,862 (9,431 0 0 0
(234,067) (45,606 (14,247) (11,443) (7,276) (4,799) 0 (150,696 (60,3 (90,357
(48,742 (2,960) 4,860 (6,208) 261 (44,695 (17,8 (26,79
(475 (475 (2 (17
(29,115 (29,115 (11.6 (17,45
2,159 0 (5,292 5,29
244,304 (45,606 289,718 110,6 179,116
BASE
Maintenance 23,405 8,472 5,984 0 20,917 8,375 12,542 12,542
Engineering Expense 3,728 1,700 2,028 812 1,216 1,216
Network Operations 5,505 99 5,406 2,165 3,241 3,241
Network Administration 556 77 (2 477 191 286 286
Access expense 9,145 9,145 0 0 0 0
Other (29 0 (29) (12 (17 (17
Total cost of services 42,310 19,493 28,799 11,531 17,268 17,268
Intervenor Funding 8 8
Customer Operations 29,531 1,513 (841 28,859 19,336 9,523 9,523
Corporate Operations 22,091 58 6,229 507 1,635 0 16,932 10,667 6,265 6,830
AT/ Bellcore 220
Property and Other Taxes 4,496 __ 4,496 1,800 2,696 2.
Uncollectibles 1,781 1,781 1,193 588
Total Selling and General 57,899 58 7,742 52,068 32,996 19,072 19, EAS Costs 0 2,129 918 0 0 0 3,047
Other Operating 1,146 731 415 166 249
Depreciation 36,492 11,481 7,276 6,302 38,589 15,451 23,138 23.
Amortization 1,625 1,333 706 998 400 598 um
Total expenses 139,472 2,187 40,780 120,869 60,544 60,325 64,
SETTLEMENT AGREEMEIN NO. 1 2,167 4,121 2,167
TOTAL REVENUE REQUII LMENT 83.
Local Revenues 110,472 (1,254) 55 110,472 37,803 71,470 71,47
Toll Revenues 57,227 57,227 57,227
Access Revenues 13,675 13,675 13,675
EAS PROFORMA REVENUE 10,286 0 10,286
Rent Compensation (10,234 (10,234) (6,294 (3,940) (3,940
Miscellaneous 4,912 4,912 2,136 2,776 2,776
Directory
2 8,645 (8,645 8,645 8,645 0
Imp iuted Revenue 0 346 _ (117 346 346 229
Total Revenue 176,0521 _ ____________ 185,0431 104,5471 79,297 80,82
U47
Ill U 17148 IDAHO SOUTH JURISDICTION REGULATED REVENUE INCREASE
"ZZ
-n.1-1
01
3,097
0
USW COMMUNICATIONS
AT & BELLCORE COST ALLOCATION
INTRASTATE TOTAL TOTAL
PER RE ADJUSTED COMMISSION IDAHO TITLE 61 TO
STF000-073 ENGINERING INTRASTATE 20% ALLOCATED ALLOCATOR TITLE 61
I ADVANCED TECHNOLOGIES (AT)
2 COST OF SERVICE 387,753 118,231 269,522 20% 53,904 59.96% 32,321
3 CUSTOMER SERVICE 21,152 6,450 14,702 20% 2,940 33.00% 970
4 CORPORATE OPERATIONS 1,078,059 328,714 749,345 20% 149,869 37.00% 55,452
5 TOTAL 1,486,964 453,395 1,033,569 206,714 83
6 BELLCORE
7 COST OF SERVICE 699,010 133,318 565,692 20% 113,138 59.96% 67,838
8 CUSTOMER SERVICE 44,761 8,537 36,224 20% 7,245 33.00% 2,391
9 CORPORATE OPERATIONS 1,020,930 194,715 826,215 20% 165,243 37.00% 61,140
10 TOTAL 1,764,701 336,570 1,428,131 285,626 131,368
11 TOTAL AT & BELLCORE TITLE 61 492,340 220,111
12 FACTOR 44.71%
S
0
-U
M
Um
ou
11 4l
01