HomeMy WebLinkAbout28394.docBEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT APPLICATION OF U S WEST COMMUNICATIONS, INC. AND CITIZENS TELECOMMUNICATIONS COMPANY OF IDAHO FOR TRANSFER OF A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY. )
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) CASE NOS. USW-T-99-25
CTC-T-99-2
ORDER NO. 28394
BACKGROUND
U S WEST Communications, Inc. (U S WEST) and Citizens Telecommunications Company of Idaho (Citizens) on October 7, 1999, filed a Joint Application requesting authority to transfer a Certificate of Public Convenience and Necessity (CPCN). U S WEST provides telecommunications services in eight local exchanges in northern Idaho pursuant to a CPCN issued by the Commission. U S WEST and Citizens Utilities Company (CUC), the parent corporation of Citizens, entered into a purchase agreement providing for the sale of U S WEST’s northern Idaho assets to CUC, which assigned its rights under the agreement to Citizens. In this Order, the term “Citizens” shall refer collectively to both Citizens Telecommunications Company of Idaho and Citizens Utilities Company. Pursuant to their agreement and subject to approval by the Commission, Citizens will acquire and begin providing telecommunications services in the exchanges of Cottonwood, Craigmont, Grangeville, Kamiah, Kooskia, Lapwai, Nez Perce, and Lewiston-Sherwood.
On October 20, 1999, the Commission issued a Notice of Application and Notice of Right to Intervene. Petitions to Intervene were filed by AT&T Communications of the Mountain States, Inc. and Avista Communications of Idaho, Inc. Both Petitions to Intervene were granted by the Commission, but AT&T withdrew from the case on February 17, 2000 by filing a Notice of Withdrawal of Appearance and Intervention.
The Commission scheduled and issued notices for a technical hearing in Boise on April 13, 2000, and a public hearing in Lewiston on April 27, 2000. Prior to the hearings, prefiled testimony and exhibits were submitted by the parties; two exhibits are stipulations between the Commission Staff and U S WEST (Exhibit 106) and the Staff and Citizens (Exhibit 107). The testimony of the witnesses for U S WEST, Citizens, Avista, and Staff all supports approval of the sale to Citizens.
THE PROPOSED SALE AND FITNESS OF THE PURCHASER
The Joint Application identifies the assets Citizens intends to acquire from U S WEST as (1) federal and state licenses and permits necessary to operate the systems; (2) interest in assigned contracts, including equipment leases and agreements with suppliers, customers and subscribers; (3) 911 facilities; (4) tangible telephone plant facilities; (5) real property rights; and (6) books and records. Joint Application, p. 9. The total number of access lines in the eight exchanges is 43,129 as of December 31, 1998. Tr. pp. 10-11. The parties assert in the Application that Citizens will assume U S WEST’s customer contractual obligations and will “continue existing customer services, including the provision of 911 service.” Joint Application, p. 7. As part of the purchase agreement, Citizens agreed “that for a period of six months after closing, it will adopt and maintain intrastate tariffs similar in all material respects to U S WEST’s intrastate tariffs.” Joint Application, p. 7. Citizens’ witness testified that the Company intended to “spend at least $27 million in the new Idaho exchanges including the Clarkston, Washington exchange over the next three years following the acquisition.” Tr. p. 119.
U S WEST and Citizens provided financial information regarding the sale price in a proprietary exhibit. Exh. No. 1. The effective purchase price per access line in Idaho compares favorably to the per access line price in the sale by U S WEST of several local exchanges in southern Idaho during 1994. Tr. pp. 184-85. See Case No. GNR-T-94-4.
Citizens currently provides telecommunications, electric, gas, water, and waste water services to approximately 1.9 million customers in 22 states. Tr. p. 77. However, Citizens testified that it has begun selling its other utilities to focus on telecommunication services. Tr. pp. 79, 97-98. By selling its non-telecommunications utilities, Citizens expects to pay cash for its purchase of U S WEST’s north Idaho exchanges. Joint Application, p. 6; Tr. pp. 79-80, 183.
Citizens had annual operating revenues of $1.542 billion in 1998. Tr. p. 81. Staff reviewed the financial information provided by Citizens and concluded that “Citizens has the financial means and operating history required to absorb the sale.” Tr. p. 184. The record shows that Citizens sold its water and waste water operations for approximately $835 million in 1999 and has reached an agreement to divest its electric utility operations for $535 million. Tr. p. 183. In addition, Citizens’ revenue and expense projections for the exchanges it will acquire are reasonable and show that its expected operation is financially viable. Tr. pp. 179-182. Finally, Citizens is not unknown to the Commission. Citizens previously purchased telephone exchanges in Idaho and satisfactorily met the operational requirements requested by the Commission. Tr. p. 164. Citizens currently provides telecommunication services to approximately 20,000 in southern and central Idaho. Tr. p. 80.
The record amply demonstrates that Citizens is financially able to purchase and operate the eight exchanges in north Idaho. In fact, no witness presented evidence suggesting that Citizens is not capable of successfully completing the purchase or that the purchase terms are inappropriate as set forth in the purchase agreement. On this record, we find that Citizens is fit, willing, and able to purchase the exchanges and that the sale price is reasonable and appropriate.
THE STIPULATIONS
Exhibit 106 is a stipulation between U S WEST and the Commission Staff. The primary purpose of this stipulation is to address “a highly contested issue” regarding treatment of the gain to be realized by U S WEST from the sale of depreciated assets. Exh. 106, p. 4. Legal precedents support use of the gain on the sale of depreciable assets to benefit customers in the sold exchanges, while U S WEST maintained “the proposed transfer to [Citizens] represented a complete liquidation of its northern Idaho operations and that, as a result, its shareholders were entitled to all of the gain on the transaction.” Exh. 106, p. 2; Tr. p. 178. In order “to avoid the lengthy process and significant expense involved in extended, contested litigation,” the parties compromised by agreeing to a “settlement amount” of $12.44 million to be treated as set forth in the U S WEST/Staff stipulation and a stipulation between Staff and Citizens, submitted as Exhibit 107. Tr. p. 27; Exh. 106, p. 3. From the $12.44 million settlement amount, Exhibit 106 provides for a $7.5 million regulatory liability account to be recorded by Citizens, which Exhibit 107 provides “shall be used to purchase and replace the central office switch in Lewiston.” Exh. 107, p. 3. U S WEST will provide $7.5 million to Citizens to fund the regulatory liability account. Tr. p. 187.
The U S WEST/Staff stipulation further provides that $4.94 million of the settlement amount “will be deposited by U S WEST within ten days of closing into the Idaho Universal Service Fund [USF] established by the Commission pursuant to Idaho Code § 62-610A, 62-610F.” Exh. 106, p. 3. Because the new USF is not yet established, the stipulation provides for U S WEST to hold the $4.94 million deposit until the new USF account is opened, and to “compute interest on the universal service deposit at the same rate and at the same compounding schedule as the USF funds the Commission has on deposit with the Merrill Lynch Brokerage.” Exh. 106, p. 3.
Exhibit 107 is a stipulation between Citizens and Staff. In this stipulation, Citizens agreed to use the $7.5 million from the U S WEST settlement amount to replace the central office switch in Lewiston. In the event the switch replacement cost is less than $7.5 million, Citizens agreed to review any remaining amount with Staff “and make a recommendation to the Commission for the disposition of the funds for the benefit of the customers of the exchanges.” Exh. 107, p. 3. Citizens also agreed to a “rate cap” for local exchange access and intrastate switched access rates for a period of 24 months following the closing date for the sale transaction. Exh. 107, p. 2. During that period, Citizens will not seek to increase rates affected by the rate cap.
Citizens in Exhibit 107 agreed to honor existing interconnection agreements between U S WEST and other telecommunication service providers operating in the exchanges, and to negotiate new interconnection agreements and “not assert a claim for rural exemptions to avoid interconnection pursuant to 47 U.S.C. § 251(b) or (c) of the federal Telecommunications Act of 1996.” Exh. 107, p. 2. Citizens also agreed to file “capital deployment plans” with the Commission showing actual and projected capital expenditures in the exchanges. The first report is to be filed six months after the closing date and will detail the capital expenditures expected in the first two years of Citizens’ ownership. The second report is to be filed eighteen months after the closing date “and will detail the first year and a half of completed projects and eighteen months of projected expenditures.” Exh. 107, p. 3.
Finally, it was agreed in the stipulation that “ratemaking treatment for the acquisition premium paid by [Citizens] will be deferred as a below the line item until a future proceeding.” Exh. 107, p. 3. In other words, Citizens “recognizes that, absent proof that ratepayers have been provided benefits exceeding those that would have been realized under continued ownership by U S WEST, no recovery of the acquisition premium resulting from this transaction will be allowed.” Exh. 107, p. 3.
THE SALE IS IN THE PUBLIC INTEREST
The evidence presented in this case is almost unanimous in its support of the Joint Application. U S WEST explained the reason that Citizens was selected among several prospective purchasers: “Citizens possesses the necessary financial, managerial, and operational resources and experience to provide quality service to the customers in the exchanges it is purchasing. Citizens also has experience integrating purchased territories into its operations, based on previous purchases of access lines in Idaho and other states.” Tr. p. 16. The witnesses agree that Citizens’ purchase of the eight northern Idaho exchanges fits well in its business plans. U S WEST testified that “customers located in the exchanges being sold will be positioned to receive the benefits of the evolving telecommunications market sooner than would otherwise be the case, given Citizens’ business focus on small and medium sized communities.” Tr. p. 17. Citizens testified that the “acquisition of these exchanges in northern Idaho will complement Citizens existing operations in central and southern Idaho and will ultimately allow certain operating efficiencies.” Tr. p. 79. According to Staff, “Citizens has a good operating history in Idaho and has…demonstrated the technical and financial ability to acquire and maintain these Idaho exchanges.” Tr. p. 196.
The evidence also demonstrates that the sale will benefit customers in the eight exchanges. First, Citizens intends to spend $27 million, including the Clarkston area of the Lewiston exchange, to upgrade facilities and improve services during the first three years of ownership. The evidence is that “this investment represents more improvement to the network than customers would have realized under U S WEST’s continued ownership.” Tr. p. 192. Citizens has committed to make replacement of the analog central office switch a top priority as it begins its capital improvements. Exh. 107; Tr. pp. 130-31. A new digital switch will enable Citizens to bring additional products and services to customers, including competitive companies that must interconnect with the incumbent’s facilities in order to provide services to their customers. Tr. pp. 26, 130, 192. Avista currently is a competitive provider in the exchanges and supports the sale and in particular replacement of the central office switch “sooner rather than later.” Tr. p. 153. Additionally, the stipulations provide for replacement of the switch at no cost to customers. Necessary upgrades to facilities normally become part of a company’s rate base, thereby increasing rates. By making replacement of the switch part of the sale transaction as set forth in Exhibits 106 and 107, customers will receive the benefit of a new digital switch without the cost being added to rate base.
Customers also will benefit from Citizens commitment to freeze local rates at existing levels for at least 24 months following close of the transaction. Citizens in the Joint Application initially proposed a six month rate freeze, but subsequently agreed to the two year rate cap in its stipulation with Staff. Exh. 107, p. 2. The two year moratorium on increases in local rates ensures customer rates will not be adversely affected by the sale to Citizens.
To minimize any disruptions to customers, U S WEST and Citizens both have made commitments to make the transition as seamless as possible. As part of the transaction, the parties will sign a Transition Agreement to provide “a smooth change of ownership fully complying with applicable rules and regulatory orders, without disrupting service provisions or causing customer confusion or inconvenience.” Tr. p. 114. For example, the parties have made arrangements for no interruptions of public safety services such as 911 or E-911 emergency dialing service. Tr. pp. 20, 116-17. Citizens will assume existing customer accounts without asking customers to submit to credit verifications. Tr. p. 159. For the convenience of customers, Citizens will identify payment locations where customers can drop off service payments, although the locations may be different from the ones used by U S WEST. Tr. pp. 99, 162-63. Staff reviewed Citizens’ plans for issuing final bills, notifying customers of the proposed sale, closing customer accounts and handling deposits to ensure they comply with applicable Commission rules. Tr. p. 160. In short, the parties have developed procedures to provide a relatively transparent transfer for customers.
The record also demonstrates that issues relating to interconnection between U S WEST’s current facilities and competitor telecommunication providers have been largely resolved, making the transfer for competitive providers less troublesome. Tr. p. 152. Citizens has committed to negotiate in good faith to obtain interconnection agreements with all competitive telecommunication providers, including those that currently have agreements with U S WEST. Tr. pp. 82-83. Until new agreements are reached, Citizens will provide interconnection to a company currently providing service according to the terms of the existing agreement between that provider and U S WEST. Tr. p. 83; Exh. 107, p. 2. Citizens will not attempt to assert a claim for rural exemption to avoid interconnection pursuant to 47 U.S.C. 251(b) or (c), a provision of the federal Telecommunications Act of 1996. Exh. 107, p. 2
Finally, Citizens has committed to make significant improvements to the facilities in the exchanges, starting with replacement of the analog central office switch. Citizens “contemplates that it will spend at least $27 million in the new Idaho exchanges including the Clarkston, Washington exchange, over the three years following the acquisition. Tr. p. 118. Citizens will report to the Commission six months and eighteen months after the closing date, detailing completed projects and projected improvements. Exh. 107, pp. 2-3. Based on undisputed evidence in this case, the Commission finds that the sale will benefit customers by resulting in improvements to facilities and services, and that customer rates will not be adversely affected by the transaction.
The Commission also finds that the public interests are enhanced by the stipulations between the Companies and Staff. The U S WEST stipulation preserves a significant portion of the sale proceeds to the benefit of customers, and also prevents protracted litigation over a contested issue. The $7.5 million committed directly to the switch replacement and other improvements or customer benefits will have no effect on rate base. The Citizens stipulation makes replacement of the switch a top priority. In addition, customers benefit from Citizens commitment to a two year freeze on local rates and Citizens’ recognition that the acquisition premium will not be recovered in rates.
In sum, the Commission finds the stipulations to be reasonable, appropriate and in the public interest, and therefore approves the stipulations, with one reservation. The U S WEST stipulation provides for a deposit of $4.94 million to the new state USF to be established later this year. Until the new USF account is opened, the stipulation provides for U S WEST to hold the funds and compute interest on the funds until deposited. While the Commission approves the provision in the stipulation as to the amount and method of accounting for the balance of the settlement amount, the Commission is not convinced the record establishes that deposit to the new USF is the best use of the funds. Specifically, the Commission desires additional information regarding possible implementation of extended area service or local calling option plans to increase toll free calling areas for customers in the eight exchanges. While not rejecting the possibility that a deposit to the new USF may provide the greatest benefit, the Commission intends to obtain additional evidence in a separate proceeding before making a final decision regarding disposition of the $4.94 million balance of the settlement amount. In the meantime, U S WEST is directed to hold the funds and compute interest as provided in its stipulation.
ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Commission has jurisdiction over the proposed sale transaction and transfer of U S WEST’s CPCN to Citizens pursuant to Title 61, Idaho Code. Upon review of the evidence in this case, the Commission finds that the transfer of U S WEST’s CPCN and assets in its eight northern Idaho local exchanges to Citizens is in the public interest. More specifically, we find that Citizens is fit, willing and able to purchase the exchange assets and that the sale price and terms are not adverse to the public interest. The Commission also finds that the sale will ultimately result in improvements in services and facilities and will not cause an increase in customer rates. Finally, the Commission finds the stipulations to be fair, reasonable and in the public interest and thus approves the stipulations, with the reservation discussed above. The Commission will open a separate docket in the future to consider local calling options or EAS for the affected exchanges. A determination as to the ultimate disposition of the $4.94 million balance of the settlement amount will follow that case.
Based on the evidence and preceding discussion, the Commission orders the following to enable the parties to complete the transaction between U S WEST and Citizens:
The proposed transfer of U S WEST’s CPCN to Citizens for the local exchanges of Cottonwood, Craigmont, Grangeville, Kamiah, Kooskia, Lapwai, Nez Perce and Lewiston-Sherwood is approved. The parties may proceed to consummate the sale pursuant to the terms of their purchase agreement as modified by this Order.
As part of the transaction, Citizens is designated an eligible telecommunications carrier (ETC) for the same study area defined by the eight wire centers for which U S WEST was granted ETC status in Order No. 27270.
The stipulations filed as Exhibit 106 and Exhibit 107 are approved, with the reservation discussed in this Order. U S WEST is directed to hold the settlement balance of $4.94 million and compute interest on that amount as directed by its stipulation.
Citizens is directed to report to the Commission its capital expenditures for facilities improvement as directed by the stipulation. Citizens must provide an accounting of costs to replace the central office switch and, as the stipulation provides, Citizens is directed to work with Staff to make a recommendation for the use of funds remaining after the switch replacement cost is determined.
U S WEST and Citizens are directed to continue working with Staff during the transition to help ensure that the process does not unnecessarily disrupt customer service.
O R D E R
IT IS HEREBY ORDERED that
The proposed transfer of U S WEST’s CPCN to Citizens for the local exchanges of Cottonwood, Craigmont, Grangeville, Kamiah, Kooskia, Lapwai, Nez Perce and Lewiston-Sherwood is approved.
As part of the transaction, Citizens is designated an eligible telecommunications carrier (ETC) for the same study area defined by the eight wire centers for which U S WEST was granted ETC status in Order No. 27270.
The stipulations filed as Exhibit 106 and Exhibit 107 are approved, with the reservation discussed in this Order. U S WEST is directed to hold the settlement balance of $4.94 million and compute interest on that amount as directed by its stipulation.
Citizens is directed to report to the Commission its capital expenditures for facilities improvement as set forth in its stipulation. The cost to replace the central office switch should be included in the initial report to the Commission.
U S WEST and Citizens are directed to continue working with Staff during the transition to help ensure that the process does not unnecessarily disrupt customer service.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally decided by this Order) or in interlocutory Orders previously issued in this Case No. USW T 99 25 and CTC-T-99-2 may petition for reconsideration within twenty-one (21) days of the service date of this Order with regard to any matter decided in this order or in interlocutory Orders previously issued in this Case No. USW-T-99-25 and CTC-T-99-2. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of June 2000.
DENNIS S. HANSEN, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
PAUL KJELLANDER, COMMISSIONER
ATTEST:
Myrna J. Walters
Commission Secretary
Vld/O:USW-T-99-25_CTC-T-99-2_ws4
Approximately 10,000 access lines in the Lewiston-Sherwood exchange are located in Clarkston, Washington, and the sale thus is also subject to approval by the Washington Utilities and Transportation Commission.
ORDER NO. 28394 1
Office of the Secretary
Service Date
June 2, 2000