RECNSDR.docx

Donald L. Howell, II
Idaho Public Utilities Commission
PO Box 83720
Boise, ID  83720-0074
Tele:  [phone]
FAX: [phone]
Attorney for the Commission Staff
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 TITLE 61 SERVICES.  
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CASE NO. USW-S-96-5
STAFF’S PETITION FOR RECONSIDERATION AND/OR CLARIFICATION
COMES now the Staff of the Idaho Public Utilities Commission by and through its attorney of record and respectfully petitions this Commission for reconsideration of specific issues decided in its Order No. 27100 dated August 12, 1997, pursuant to Idaho Code § 61-622 and Commission Rule 325.  IDAPA 31.01.01.325.  Staff also petitions that the Commission clarify or amend several items contained in its final Order No. 27100 pursuant to Idaho Code § 61-624 and Procedural Rules 325 and 326, IDAPA 31.01.01.325 and .326.  The issues for reconsideration and clarification are discussed in greater detail below.
PETITION FOR RECONSIDERATION
AND/OR CLARIFICATION
A.  Allocating CLASS and Custom Calling
Staff witness Susan Baldwin recommended that the Commission directly assign 5% of the local loop investment to CLASS and custom calling services.  Tr. at 2756-63, 2853-72.  The Company derives substantial intrastate revenues from these Title 62 services.  During his cross-examination, Company witness Dallas Elder acknowledged that the Company receives approximately $1.8 million in revenues from these services or approximately 7.3% of total intrastate revenues.  Although these revenues have grown nearly 50% from 1994 through 1995, he acknowledged that the Company’s Cost Accounting and Allocation System (CAAS) does not allocate any local plant to CLASS or custom calling services.  Tr. at 3782-83; Tr. at 3785.  To correct this imbalance, Staff witness Baldwin recommended that the Commission assign 5% of the Company’s local loop investment to custom calling and CLASS services to partially remedy the Company’s uneconomic allocation.  Order No. 27100 at 37.
At the technical hearing, the Company objected to this allocation.  Company witness Elder argued that 15% of the local loop already assigned to Title 62 services is assumed to include such Title 62 products as custom calling and CLASS services.  He testified that current usage studies analyzing the new regional calling areas show that the Title 62 toll and access usage attributable to the local network was approximately 8%.  Tr. at 3772.  Consequently, he argued that the 15% allocated to Title 62 for the local loop is more than sufficient to cover not only the existing toll and access usage but any residual allocation for custom calling and CLASS services.
In its Order No. 27100, the Commission found that the 15% portion of the local loop assigned to Title 62 services “is sufficient to encompass Ms. Baldwin’s 5% recommendation.  Although the Company receives substantial revenue from its custom calling and CLASS services and does not directly allocate any of the local loop to these services, we find that our existing allocation is reasonable and sufficient.  Consequently, we do not adopt Staff’s recommendation to assign an additional 5% of the local loop to Title 62 custom calling and CLASS services.”  Order No. 27100 at 37-38.
The Staff respectfully suggests that the Commission’s decision regarding this issue is unreasonable, erroneous and inconsistent with past Commission orders.  The Staff requests reconsideration by an evidentiary hearing supplemented by written brief.  In addition, Staff requests that the Commission take official notice of its prior Order Nos. 20182 and 21788 (attached).  IDAPA 31.01.01.263.
On page 37 of its Order, the Commission noted that Company witness Elder “argued that the 15% of the local loop already assigned to Title 62 services is assumed to include such Title 62 products as custom calling and CLASS services.”  Staff believes that the characterization of the 15% allocation is an over simplification.  The 15% allocation adopted by this Commission in Order No. 21788 in Case No. U-1500-174 was a gross toll allocator (GTA) to be used to apportion 15% of non-traffic sensitive local loop costs to intrastate toll.  Order No. 21788 at 5.  At the time the Commission issued Order No. 21788 (February 29, 1988), Title 62-601, et seq. was not in existence at the time.  1988 Sess. Laws, Ch. 195.
In Order No. 20182 in Case No. U-1500-153, the Commission adopted a 25% generic GTA.  In that Order, the Commission directed that U S WEST’s predecessor, Mountain Bell, “shall phase up to 25% from its current level of NTS recovery from state toll” services.  Order No. 20182 at 12.  In the subsequent 174 case, the Commission adopted an industry proposal regarding the recovery of NTS costs in conjunction with implementation of the state’s universal service fund.  Order No. 21788.  The Commission determined that U S WEST’s NTS costs allocated to toll services “may be reduced to 15% or subscriber line usage whichever is greater, or may be allowed to vary between 15% or subscriber line usage which is greater and 25% in order to permit reasonable rate design in both toll and local services.  . . . [U S WEST] shall apply to the Commission on an individual basis for the implementation of this change in NTS cost allocation.”  Order No. 21788 at 8.  The Commission’s decision to reject the Staff’s proposed 5% allocation for custom calling and CLASS services because usage associated with intrastate toll and access was represented to less than 15% is a significant departure from prior Commission decisions.  
It was not until the Commission’s last day of the technical hearing that the Company introduced testimony that its subscriber line usage should be set at an amount lower than 15%.  Exhibit No. 65; Tr. at 3765-71.  This was the first instance that the Company had offered to introduce evidence into the record concerning its subscriber line usage.  The Company’s calculation of its subscriber line usage was disclosed to the Staff less than two weeks before the Commission’s technical hearing—well past the close of the discovery period.  Staff and other parties have not been afforded an opportunity to discover facts relating to the Company’s calculation of its SLU.  If reconsideration is granted, Staff intends to submit interrogatories and present evidence regarding the Company’s SLU.  The Staff believes it is erroneous to deny Staff’s 5% custom calling and CLASS services based upon unsubstantial evidence of the Company’s SLU.  For the reasons set out above, the Staff believes that reconsideration of this issue by evidentiary hearing is warranted.
B.  Lit Fiber
In Order No. 27100, the Commission found that the evidence regarding lit fiber was conflicting and that U S WEST and the Staff offered at least four different positions.  After reviewing the record, the Commission determined that 80% of the fiber optic cable in Idaho should be considered used and useful during the 1995 test year.  Order No. 27100 at 28.  The Order states that “the 80% allowance [of lit fiber] reasonably compensates the Company for its fiber in use, the cost of installing such fiber, and contains sufficient capacity to fulfill the needs for such fiber.”  Id. The Staff respectfully suggests that this finding is unreasonable and erroneous because there is no evidence in the record to substantiate the Company’s total cost of installing its fiber optic cable.  The Staff requests reconsideration by written brief or comment.  If the Commission believes that an evidentiary hearing regarding this matter is necessary (i.e., to receive evidence regarding costs), then the Staff asserts that interrogatories may be required to examine the Company’s cost of installing fiber optic cable as well as the appropriate sizing of such cables.
As the Commission conspicuously noted, U S WEST did not provide the Commission with updated data showing the corrected ARMIS data for 1995.  Even assuming arguendo that actual fiber usage in Idaho was a 43% (Plummer, Tr. at 3422), U S WEST has not presented any evidence regarding additional fiber necessary to maintain “binder group integrity” or the cost of installing such fiber.  The Staff agrees with that portion of the Order that notes that the Commission “has traditionally required that utility facilities placed into service be sufficiently sized or have sufficient capacity to meet the near-term needs of the Company and customers.  At the same time, [the Commission] must ensure that utilities are not unreasonably building too much capacity in their facilities or misallocating facilities.  Unnecessary capacity may legitimately be classified as not being used and useful for the provision of utility service.”  Order No. 27100 at 28.
C.  Other Issues
1.  Capitalized Lease Software.  In Order No. 27100 at pages 25-27, the Commission discusses software capital leases.  In particular, the Commission adopted two adjustments suggested by the Staff.  First, capitalized software leases attributable to the sold U S WEST exchanges were removed from the Title 61 rate base in the amount of $14,629.  Second, those software leases identified as supporting Title 62 services (“$3.556 million on an intrastate basis”) were also removed.  The Commission calculated that these two adjustments resulted in a Title 61 reduction of $2.098 million.  Order No. 27100 at 27.
After reviewing the Order, the hearing transcripts, the work papers, and the underlying Exhibit No. 172, it appears that the $3.556 million adjustment was a totalstate amount not an intrastate amount as indicated on page 27.  On page 26 of the Order the Commission refers to the $3.556 million as “a total state” amount citing to U S WEST’s Reply Brief at 12-13 (quoting Staff’s Initial Brief at 13).  Staff suggests that the term “intrastate” be changed to read “total state” on line 8, page 27 of the Order.  Although the $3.556 million was mischaracterized on page 27 of the Order, this should not change the revenue requirement.  The Title 61 amount corresponding to the $3.556 million total state is $1.511 million and was used in the work papers to calculate the revenue requirement ($3.556 total state to $2.561 intrastate to $1.511 Title 61 at 59%).  Thus, the Commission’s calculated revenue requirement pertaining to this issue does reflect the appropriate Title 61 amount using the 59% allocator.
Finally, the amortization expense in the revenue requirement does not properly reflect the Commission’s allowance of capitalized software leases.  Amortization expense should be increased by $706,000.  This increases the Title 61 revenue requirement by $417,000 using the 59% allocator.
2.  Depreciation Expense.  In Order No. 27100, the Commission adopted the second settlement entered into between U S WEST and the Staff.  In particular, the parties agreed to settle the depreciation expense including asset lives, ELG methodology, and the write-off of the depreciation reserve.  Order No. 27100 at 15; Exhibit 48 at 3.  At the time, the parties contemplated that the settlement of this issue “would reduce the Company’s Title 61 revenue requirement by $7.1 million and would increase the Staff’s Title 61 revenue requirement by $3.27 million.”  Order No. 27100 at 15.  The parties calculated the revenue affect based upon their respective positions regarding the remaining disputed issues.  
In examining the work papers accompanying the Order, it appears that depreciation expenses were not adjusted to reflect the Commission’s decisions relating to the plant-in-service particularly relating to lit fiber and the 1.89% error factor in outside plant accounts.  Consequently, it appears that the Company’s Title 61 revenue requirement should be increased to reflect this adjustment.
3.  1.89% Error Factor.  In its Order, the Commission adopted the Company’s position that an across-the-board error factor of 1.89% is not reasonable for outside plant accounts.  Order No. 27100 at 29-30.  In examining the work papers attached to the Commission’s Order, an adjustment of $2,999,000 was removed from Title 61 and added to Title 62.  The Staff and the Company agree that this amount should not have been added to Title 62 but it should have simply been removed from Title 61.  The Title 62 retirement amount should also be removed from the Title 62 plant-in-service when recalculating the plant allocator.  This change will increase the Title 61 revenue requirement because it changes the Title 61 allocation factor.
4.  Weighted Cost of Capital.  The Commission found in its Order that the Company’s composite cost of equity should be 11.2%.  Order No. 27100 at 48.  Multiplying this return on equity by the Company’s equity ratio (55.6%) contained in the capital structure, results in a rate of return component for common stock of 6.2272%.  In its Order, the Commission shows the rate of return component for common stock of 6.22%, or in other words the “truncated” amount.  In the work papers accompanying the Order, the Commission has calculated the Company’s total rate of return utilizing the 6.2272% instead of the truncated amount.  The Staff suggests that the Commission  correct the return on equity shown in the table on page 48 of the Order to read “6.23%” and change the overall rate of return to “9.44%.”  Again, these changes do not impact the calculation of the Company’s revenue requirement.
5.  AT/Bellcore.  On page 51 of its Order, the Commission found that 20% or $290,481 of the Company’s AT and Bellcore expenses should be allowed as Title 61 expenses.  The work papers show an allowance of $182,166 based upon the general corporate allocator of 37% to Title 61 instead of the rate base allocator of 59%.  Thus, the Order and the work papers are not in agreement.  Staff anticipates that the Company will raise this issue on reconsideration.
6.  ITAP Rates.  Finally, Staff has discovered that the monthly ITAP rates for unlimited and measured residential service are in error.  The monthly unlimited calling rates were set at $7.65 and $10.50 outside and inside the EAS regions, respectively.   Based upon Idaho Code § 56-902, the rates should be $7.40 and $12.60 per month, respectively.  This statute prescribes that ITAP rates be set at $3.50 below basic residential rates. The measured monthly ITAP rates were reported as $2.35 and $5.25 but should be $3.25 and $6.10, respectively.  These changes increase Title 61 revenues by $92,374.
7.  Non-published/Non-listed Directory Revenues.  In the calculation of the revenue requirement, Staff believes that the non-recurring charges for non-published, non-listed directory service should be used to offset the decrease in the recurring monthly charges.  In its Order, the Commission set the non-recurring implementation charge for non-listed and non-published directory services at $25.00.  Order No. 27100 at 65.  Utilizing the growth rate for the years 1995-97 (roughly 10% annual growth), would result in an annual revenue increase of approximately $55,000.  Staff believes that this amount was not offset from the decrease in the monthly rates for non-listed and non-published service. Staff is prepared to offer evidence regarding this issue or any other issue if the Commission deems it necessary.
In summary, the Commission Staff respectfully requests that the Commission reconsider and clarify those issues contained in final Order No. 27100 as set out above.  The Staff stands ready to assist the Commission in examining these issues in an expedited manner.
RESPECTFULLY submitted this  2nd  day of September 1997.
                                                                         Donald L. Howell, II
Deputy Attorney General
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