EAS11182.txt

1 DRIGGS, IDAHO, TUESDAY, NOVEMBER 18, 1997, 5:05 P.M.

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4 COMMISSIONER HANSEN: We will call this

5 hearing to order, then, in GNR-T-97-8 and we'll start

6 with Mr. Ward.

7 MR. WARD: Thank you, Mr. Chairman. We

8 call Mr. Hendershot.

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10 RAYMOND A. HENDERSHOT,

11 produced as a witness at the instance of Columbine

12 Telephone Company, Inc., d/b/a Teton Telecom, having been

13 first duly sworn, was examined and testified as follows:

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15 DIRECT EXAMINATION

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17 BY MR. WARD:

18 Q Mr. Hendershot, would you state your name

19 and address for the record?

20 A Ray Hendershot. I work for GVNW, 2270

21 La Montana Way, Colorado Springs, Colorado.

22 Q And, Mr. Hendershot, did you cause to be

23 prepared prefiled testimony in preparation for this case?

24 A Yes, I did.

25 Q And did that testimony include Exhibits 1

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 through 2?

2 A Yes, it did.

3 Q If I asked you the questions contained in

4 your prefiled testimony today, would your answers be as

5 given?

6 A I believe so.

7 Q And do you have any corrections or changes?

8 A Not that I'm aware of.

9 Q And do you have some revised exhibits,

10 Mr. Hendershot?

11 A I do.

12 MR. WARD: First of all, I'm not going to

13 ask for 1 and 2 to be marked, original 1 and 2, unless

14 anybody wants them in the record because we're going to

15 revise them.

16 Q BY MR. WARD: All right, Mr. Hendershot,

17 very briefly, would you walk through these exhibits one

18 at a time? Let's start with No. 1 and explain what it

19 contains.

20 A No. 1 reflects the changes on the rate of

21 return to use the same rate of return that was used in

22 the Silver Star EAS case and also the same gross-up

23 factor that was used in that case.

24 Q All right, and you adopted the Staff's

25 proposal in that regard or -- no, you adopted the same

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 thing as in Silver Star's case?

2 A Yes.

3 Q Okay, thank you.

4 A 2A, B and C, they just tie to the revenue

5 requirement on Schedule 1 revised.

6 Q All right, it just ties the rate design to

7 the revised revenue requirement you calculated?

8 A Right. The next exhibit, which we I guess

9 could number No. 3, which is EAS Stimulation, Holbrook to

10 Malad, this was in an EAS case that Albion had that I

11 participated in and had experience with. It just shows

12 the stimulation from 1989, the growth after EAS was

13 established in 1996, a growth of 524 percent.

14 MR. WARD: Mr. Chairman, in a prior

15 proceeding involving Rockland Telephone Company and

16 Lakeside Communications, this exhibit was introduced.

17 There was cross-examination on it and direct

18 examination. I would just ask the Commission to take

19 official notice of that section of the record for use in

20 this case and I won't have to walk him through that

21 exhibit again.

22 COMMISSIONER HANSEN: Okay, it's granted.

23 THE WITNESS: The next exhibit, I guess, we

24 would number No. 4. This just shows a comparison between

25 what we did, the company's exhibit and the Staff's

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 exhibit, relative to the development of the access

2 revenue requirement and the billing and collection

3 revenue requirement, the difference on line 2, and I

4 believe it's an oversight on Staff's part on the rate

5 that they used on the carrier common line. They

6 inadvertently used the originating CCL rate and they

7 should have used the terminating CCL rate.

8 Q Going to the -- all right, and that

9 accounts for a difference of $6,700 and change?

10 A Yes.

11 Q All right, and that washes through to the

12 bottom line on this exhibit?

13 A Yes.

14 Q All right, and if the Staff made the

15 correction you suggested there, then your revenue

16 requirement and the Staff's would be the same?

17 A Would be zero.

18 Q All right.

19 A Okay, the next exhibit, which we would

20 number No. 5, is just a comparison of Exhibit No. 1 to

21 the Staff where we have differences.

22 Q We better slow down just a little bit so

23 that people can follow what we're looking at for

24 Exhibit 5. Is that one headed "Columbine Telephone

25 Company, Inc., d/b/a Teton Telecom, Comparison of Company

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 Exhibits and Staff Exhibits" and then "Loss of Access and

2 B&C Revenues Due to EAS"?

3 A Right, and that covers lines 1 through 7.

4 There are two line 8's, I want you to realize that. We

5 rushed and put this together late Monday. Line 8 is

6 just the expenses. We have no differences there. The

7 second line 8 is the interstate shift. We're using a

8 400 percent stimulation there and the Staff is using a

9 200 percent stimulation. Line 9 reflects the difference

10 in the gross-up factor and the rate of return.

11 Now, that note says using 1.77, that should

12 be 1.64690 which ties to the number that's on Schedule 1,

13 line 8 there. That just shows that difference in the

14 gross-up piece, and then line 10 shows a difference in

15 the loss of the gross revenue. Likewise, that should be

16 corrected and say using a 1.64690 for a gross-up factor

17 and this just breaks it out and shows the comparison by

18 item between what we did in the company's exhibit and the

19 Staff's exhibit.

20 Q All right; so can I capsulate this by

21 saying the difference between the company and the Staff

22 now comes down to a couple of items, a difference in

23 gross-up factor used which is presumably relatively

24 small; correct?

25 A Yes.

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q The difference in the terminating CCL rate

2 used where you believe the Staff has an error and that

3 accounts for $6,700, is that correct, or 6,776?

4 A Yes.

5 Q And then the two major ones with regard to

6 interstate, the interstate shifts, Staff used a 200

7 percent stimulation and you used a 400 percent

8 stimulation; correct?

9 A Yes.

10 Q And the difference there appears on the

11 right-hand side of the second line 8 of this exhibit --

12 A Yes.

13 Q -- $24,972? And, finally, the other

14 significant difference for the Staff is at line 10 where

15 you have included the growth potential in access charges

16 and Staff has not; is that correct?

17 A Yes.

18 Q And that's 43,229; correct?

19 A Yes.

20 Q All right, does that complete your revised

21 exhibits, Mr. Hendershot?

22 A Yes, it does.

23 MR. WARD: I think we've covered areas well

24 enough, Mr. Chairman. I'm not going to have any

25 additional questions. If I didn't move that his

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 testimony be spread, I'd do so now.

2 COMMISSIONER HANSEN: Okay, if there be no

3 objection, so ordered. And what about the exhibits so we

4 get those straight, too, as marked? You wanted

5 Exhibit 1 --

6 MR. WARD: 1 through 4 marked for

7 identification, Mr. Chairman, and I will move their

8 introduction at the end of the case.

9 COMMISSIONER HANSEN: And 5?

10 MR. WARD: I'm sorry, you're correct.

11 COMMISSIONER HANSEN: Okay, if there be no

12 objection, then the exhibits will be identified as

13 indicated on the record.

14 (The following prefiled testimony of

15 Mr. Raymond Hendershot is spread upon the record.)

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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q PLEASE STATE YOUR NAME AND BUSINESS

2 ADDRESS.

3 A My name is Raymond A. Hendershot. My

4 business address is 2270 LaMontana Way, P.O. Box 25969,

5 Colorado Springs, Colorado 89036.

6 Q BY WHOM ARE YOU EMPLOYED AND IN WHAT

7 CAPACITY?

8 A I am a Vice President for GVNW

9 Inc./Management ("GVNW").

10 Q PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND

11 AND WORK EXPERIENCE.

12 A I graduated from Brigham Young University

13 with a Bachelor's Degree in Accounting in 1972 and a

14 Master's Degree of Accounting in 1973. I received a CPA

15 Certificate from Texas. Upon graduation, I was employed

16 by General Telephone and Electronics ("GTE"), where I

17 served in a variety of positions within the financial

18 area of the company. In 1985, I joined GVNW. GVNW

19 provides a wide variety of management services within the

20 communications industry. My primary areas of

21 responsibility include the development of rates and

22 tariffs, preparation of toll cost separation studies and

23 depreciation rate studies, consulting on acquisitions and

24 sales of telephone properties, and providing various

25 other management services. I was promoted to my present

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Case No. GNR-T-97-8 HENDERSHOT (DI) 1
October 29, 1997 Teton Telecom

1 position in July 1994.

2 Q HAVE YOU PREVIOUSLY TESTIFIED BEFORE ANY

3 REGULATORY COMMISSIONS?

4 A Yes. I have provided testimony on

5 telecommunications issues before this Commission on

6 numerous occasions. I have also testified in various

7 telephone company filings and generic regulatory

8 proceedings

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Case No. GNR-T-97-8 HENDERSHOT (DI) 1A
October 29, 1997 Teton Telecom

1 before the Arizona Corporation Commission, the Wisconsin

2 Public Service Commission, and the Utah Public Service

3 Commission.

4 Q FOR WHOM ARE YOU APPEARING IN THIS

5 PROCEEDING?

6 A I am appearing on behalf of Columbine

7 Telephone Company, Inc. d/b/a Teton Telecom ("Teton"),

8 the Respondent in this case.

9 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?

10 A My testimony explains Teton's position on

11 extended area service ("EAS") between and among its

12 Victor, Driggs, and Tetonia exchanges and U S WEST's

13 eastern Idaho calling area. My testimony also discusses

14 the impact on Teton's revenue requirement as a result of

15 providing EAS. Finally, I will quantify the amount of

16 annual Idaho universal service fund ("USF") distributions

17 Teton is entitled to receive in compensation for its EAS

18 costs.

19 Q WHAT IS TETON'S POSITION ON EAS?

20 A Teton supports EAS if it recovers its

21 incremental revenue requirement and if a substantial

22 majority of the customers support EAS and are willing to

23 pay its costs.

24 Q HAVE YOU CONDUCTED A STUDY TO DETERMINE

25 WHETHER THE TETON EXCHANGES MEET THE TRADITIONAL

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Case No. GNR-T-97-8 HENDERSHOT (DI) 2
October 29, 1997 Teton Telecom

1 COMMUNITY OF INTEREST TEST FOR EAS?

2 A No, I have not. I have reviewed the

3 calling data, but I have not analyzed calling volumes in

4 detail. When the Commission established the three

5 U S WEST calling areas in southern Idaho it clearly

6 discarded the traditional community of interest test for

7 EAS. In effect the Commission created a new standard or

8 definition of toll free calling

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Case No. GNR-T-97-8 HENDERSHOT (DI) 2A
October 29, 1997 Teton Telecom

1 areas. The independent local exchange companies have no

2 choice but to meet this new standard.

3 Q WHY DO YOU SAY THE INDEPENDENT COMPANIES

4 HAVE NO CHOICE IN THIS MATTER?

5 A If they do not participate in the U S WEST

6 calling areas, the independent companies will be

7 portrayed as offering second class service. This is

8 intolerable in the new competitive telecommunications

9 environment. If the incumbent local exchange companies

10 do not offer EAS, their unregulated competitors are

11 likely to offer it on a selective basis to their best

12 customers. This is precisely the type of cream skimming

13 the independent companies have to fend off if they want

14 to remain in business and continue offering quality

15 service at an affordable price.

16 Q HAS U S WEST AGREED TO EAS IMPLEMENTATION

17 BETWEEN THE TWO COMPANIES?

18 A My understanding is that U S WEST is

19 generally agreeable to the extension of EAS to

20 independent company exchanges. With regard to this

21 particular case, U S WEST will, of course, speak for

22 itself. If EAS is authorized, Teton believes that

23 compensation between the companies should be a bill and

24 keep arrangement, at least on an interim basis.

25 Q HAVE YOU CALCULATED TETON'S COST TO

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Case No. GNR-T-97-8 HENDERSHOT (DI) 3
October 29, 1997 Teton Telecom

1 IMPLEMENT EAS?

2 A Yes. But I have to confess this has not

3 been an easy process. As the Commission knows, the Teton

4 exchanges were acquired from U S WEST earlier this year.

5 When Teton ran the traffic studies for this

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Case No. GNR-T-97-8 HENDERSHOT (DI) 3A
October 29, 1997 Teton Telecom

1 EAS petition, it became obvious that two of the three

2 months for which data was requested were corrupt and

3 unreliable. As this is being written, we don't know the

4 reason for this problem. In any event, we only have one

5 month of reliable traffic information. Consequently, in

6 some instances, we have been forced to used information

7 from other small company studies to construct our revenue

8 analysis. I believe this produces reliable results, but

9 it is admittedly a departure from normal practice.

10 Q WITH THAT EXPLANATION IN MIND, PLEASE BEGIN

11 YOUR CALCULATION OF TETON'S EAS COSTS.

12 A Exhibit No. 1 summarizes my calculations of

13 Teton's incremental costs to provide EAS. Line No. 1 of

14 the exhibit shows an $49,944 reduction in interstate

15 revenue. When intrastate toll routes are converted to

16 EAS, the local usage increases significantly. The result

17 is that costs shift from the interstate to the state

18 jurisdiction and the interstate settlements go down,

19 while intrastate revenue requirements increase. The

20 $49,944 figure incorporates the anticipated reduction in

21 interstate settlement revenue that will occur because of

22 this shift. For the purposes of this estimate, we

23 assumed a 4x stimulation factor; in other words, the new

24 local usage on the converted routes will be four times

25 the existing toll usage. Lines 2 and 3 of the exhibit

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Case No. GNR-T-97-8 HENDERSHOT (DI) 4
October 29, 1997 Teton Telecom

1 show reductions of $148,728 in intrastate access charges,

2 and $30,261 in billing and collection revenues. The

3 $148,728 figure is simply the foregone access charge

4 revenue that is attributable to the routes that will be

5 converted

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Case No. GNR-T-97-8 HENDERSHOT (DI) 4A
October 29, 1997 Teton Telecom

1 to EAS. The $30,261 number is lost billing and

2 collection revenue from calls on the same routes.

3 Q PLEASE EXPLAIN LINE 4 OF EXHIBIT NO. 1.

4 A This is an unusual cost item that requires

5 some explanation. As the Commission will recall, when

6 Teton acquired the Paris exchange from U S WEST it agreed

7 to freeze rates at then current levels for three years.

8 When it made that agreement, Teton contemplated that

9 intrastate access charge revenues and billing and

10 collection revenues would grow seven percent per year

11 during the three years the commitment was in place, and

12 this growth rate was incorporated in its business plan.

13 If the Commission grants EAS in this case, it is only

14 fair that it compensate Teton for the lost revenue growth

15 that it otherwise would have received. In the case, the

16 annual amount required to compensate Teton is $26,248.

17 If the Commission doesn't include this element in revenue

18 requirement, it is in effect holding Teton to its rate

19 freeze "contract," but at the same time depriving it of a

20 considerable portion of the revenues it relied upon when

21 making that agreement. If the Commission wants to

22 terminate the rate agreement, it is free to do so, but

23 Teton would then be entitled to its full revenue

24 requirement calculated on a normal basis.

25 Q PLEASE EXPLAIN LINE 5 OF EXHIBIT NO. 1.

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Case No. GNR-T-97-8 HENDERSHOT (DI) 5
October 29, 1997 Teton Telecom

1 A This line calculates the revenue impact of

2 the plant additions that will be necessary to provide

3 EAS. The $11,440 in plant additions consists of the

4 purchase of a translation card and trunk cards, plus

5 installation labor. Fortunately, Teton already has

6 sufficient interconnection

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Case No. GNR-T-97-8 HENDERSHOT (DI) 5A
October 29, 1997 Teton Telecom

1 facilities with U S WEST, so there will be no need for

2 additional trunking capacity to handled the increased EAS

3 traffic.

4 Q PLEASE EXPLAIN LINE 6 OF EXHIBIT NO. 1.

5 A This line lists the estimated cost to Teton

6 of consulting and legal costs occasioned by this EAS

7 case. We estimate $15,000 in total costs, and propose to

8 amortize it over the three years the rate freeze will be

9 in effect. Again, this revenue item is required because

10 these are costs that are incremental to the rate freeze

11 bargain.

12 Q WHAT IS THE TOTAL TETON REVENUE REQUIREMENT

13 ATTRIBUTABLE TO IMPLEMENTATION OF EXTENDED AREA SERVICE?

14 A The total revenue requirement impact if

15 $466,899 after the gross up for taxes.

16 Q HOW DOES TETON PROPOSE TO RECOVER THIS

17 REVENUE DEFICIENCY?

18 A I have provided several alternative rate

19 designs in Exhibits 2A, 2B, and 2C. In each case, rates

20 have been designed to make Teton eligible for Idaho USF

21 disbursements.

22 Q LET'S START WITH EXHIBIT 2A. PLEASE

23 EXPLAIN THE RATE DESIGN EMBODIED IN THIS EXHIBIT.

24 A This exhibit shows an increase in the local

25 rates for residence and a decrease in business rates to

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Case No. GNR-T-97-8 HENDERSHOT (DI) 6
October 29, 1997 Teton Telecom

1 the state USF threshold of $17.51. What we are really

2 doing here is eliminating the business rate entirely.

3 The rationale is that, in rural areas, there is little or

4 no difference between the service provided at a residence

5 or business. Most businesses are

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Case No. GNR-T-97-8 HENDERSHOT (DI) 6A
October 29, 1997 Teton Telecom

1 very small, with only one or two lines, and a usage

2 pattern much like residential customers. Conversely,

3 many residential accounts are actually farm businesses.

4 The policy of setting rates for business at

5 roughly twice the residence rate was a social policy that

6 may have made sense during a period when each local

7 exchange company had a complete monopoly in telephone

8 service. But in today's environment, this policy is not

9 sustainable in the long run. Where there is no

10 difference in the cost of providing service to a

11 residence or business, the rate should be identical.

12 Q HOW DID YOU PRICE ACCESS CHARGES IN THIS

13 SCENARIO?

14 A In all of the pricing scenarios I will

15 describe, I have lowered access charges to the USF

16 threshold level of 6.086 cents per minute. If the

17 Commission believes it has the discretion to leave access

18 charges as they are and still allow Teton to qualify for

19 Idaho USF distributions, then the reduction would not be

20 necessary.

21 Q WHAT IS THE BOTTOM LINE IN RATE DESIGN

22 SCENARIO 2A?

23 A The answer appears on lines 18-21 of the

24 exhibit. In this scenario, the increase in local rates

25 produces $95,354 in additional revenue, access charge

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Case No. GNR-T-97-8 HENDERSHOT (DI) 7
October 29, 1997 Teton Telecom

1 revenues decrease by $15,673, and the Idaho USF would be

2 required to fund $387,218 in revenue requirement.

3 Q PLEASE EXPLAIN HOW YOU ESTABLISHED THE

4 RATES IN EXHIBIT NO. 2B?

5 A In this exhibit the business/residential

6 distinction is preserved, and both rates are set at the

7 new USF eligibility levels of $17.51 and

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Case No. GNR-T-97-8 HENDERSHOT (DI) 7A
October 29, 1997 Teton Telecom

1 $36.57 respectively. The additional Idaho USF funding

2 requirement would then be $247,927.

3 Q PLEASE DESCRIBE EXHIBIT 2C.

4 A In this case, I have minimized the gap

5 between residential and business rates by holding

6 business rates at current levels. Residential rates are

7 increased in the amount necessary to raise the same

8 amount of revenue that would be generated by increasing

9 both residential and business rates to USF threshold

10 rates. In other words, the average local rate (business

11 and residential) is the same as in Exhibit 2B.

12 Q WHEN SHOULD THESE RATES BE EFFECTIVE?

13 A These changes should be made effective with

14 the implementation of the EAS routes between U S WEST and

15 Teton.

16 Q PLEASE SUMMARIZE YOUR TESTIMONY.

17 A This Commission has determined that EAS

18 throughout the eastern Idaho region is in the public

19 interest. Teton's service territory is part of this

20 region, and its customers are anxious to participate in

21 the same EAS benefits their neighbors are receiving.

22 Teton is, however, entitled to compensation for the lost

23 revenues and additional costs it will incur as a result

24 of EAS. In order to make the service feasible, local

25 rates must increase and Teton will need annual

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Case No. GNR-T-97-8 HENDERSHOT (DI) 8
October 29, 1997 Teton Telecom

1 disbursements from the Idaho Universal Service Fund.

2 Q DOES THIS CONCLUDE YOUR TESTIMONY?

3 A Yes, it does.

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Case No. GNR-T-97-8 HENDERSHOT (DI) 8A
October 29, 1997 Teton Telecom

1 (The following proceedings were had in

2 open hearing.)

3 COMMISSIONER HANSEN: Okay, we'll go to

4 Ms. Hobson, do you have any questions?

5 MS. HOBSON: No questions.

6 COMMISSIONER HANSEN: Mr. Howell.

7 MR. HOWELL: Thank you, Mr. Chairman.

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9 CROSS-EXAMINATION

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11 BY MR. HOWELL:

12 Q Mr. Hendershot, on page 2, you indicate at

13 the bottom that the Commission has created a new standard

14 for using or determining EAS routes. What do you believe

15 that new standard is?

16 A If the public wants it and there's a strong

17 interest from the public and they express themselves on

18 that and they're willing to pay for that, the Commission

19 should offer it.

20 Q And upon what do you base that opinion?

21 A Based on what I've seen in the Idaho

22 Falls/Pocatello U S WEST case and talking with some

23 members of Staff in some previous cases where they've

24 identified that.

25 Q It's true, is it not, that the Staff

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CSB REPORTING HENDERSHOT (X)
Wilder, Idaho 83676 Teton Telecom

1 doesn't represent the Commission's opinion at all times?

2 A No, but they do have insight into it.

3 Q On page 3 of your testimony on lines 6

4 through 12, you more or less indicate there that Silver

5 Star has to or that Teton has to also be forced to offer

6 the same kinds of EAS services. Isn't it true that Teton

7 Telecom has asked to be exempted from the Section 251(c)

8 requirements?

9 A 251(c), are you talking about being a rural

10 local exchange carrier?

11 Q Let me ask you a different question. There

12 you're saying it's intolerable in a new competitive

13 world, an environment that there be one EAS standard for

14 Teton and one EAS standard for everybody else. Isn't it

15 true that Teton isn't necessarily going to be in a new

16 competitive environment because the company has asked the

17 Commission to suspend the federal telecom requirements

18 contained in Section 251(c)?

19 MR. WARD: I'm going to object. That's not

20 what the company has requested. They requested a

21 suspension of very specific portions of interconnection

22 and resale requirements. It does not request suspension

23 of all resale requirements or all interconnection

24 requirements, nor does it prevent competition because, of

25 course, facilities-based competition is always possible.

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CSB REPORTING HENDERSHOT (X)
Wilder, Idaho 83676 Teton Telecom

1 COMMISSIONER HANSEN: Mr. Howell.

2 MR. HOWELL: I'll let the company's

3 application stand for itself.

4 COMMISSIONER HANSEN: Okay, proceed on.

5 Q BY MR. HOWELL: On page 6 of your

6 testimony, Mr. Hendershot, you discuss on line 5 an

7 estimate of the company's costs in preparing the EAS

8 costs for the Teton Telecom case. Can you explain to the

9 Commission why the estimate for the company in this case

10 was $15,000 and $20,000 in the last two cases?

11 A In the last two cases?

12 Q Mr. Kelly's expenses.

13 A I couldn't explain why his -- I'm beginning

14 to think maybe my estimate was too low.

15 Q Maybe the company is getting a bargain. Is

16 it your position, Mr. Hendershot, that there is no

17 difference in the cost of service in providing a

18 residential customer local access and a business customer

19 local access?

20 A That's correct.

21 Q And what's your basis for that?

22 A What's the basis for it?

23 Q Uh-huh.

24 A You run a local line out there to both a

25 residence and business, they could be similar locations

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CSB REPORTING HENDERSHOT (X)
Wilder, Idaho 83676 Teton Telecom

1 to wherever it is and it doesn't take any difference in

2 cost of materials. Probably in some cases you have the

3 residential customers being more demanding of the

4 telephone company than the businesses are, plus another

5 item is, in today's world, you have so many people

6 performing businesses out of their home, you can't tell

7 the differences.

8 Q I asked Mr. Kelly earlier whether under his

9 scenario and I assume under your rate design scenario or

10 alternative that if business customers are charged the

11 same rate as residential customers, aren't business

12 customers getting free EAS?

13 A Well, what we're trying to do is illustrate

14 the point that we need to move the rates to the same

15 place, both res and business. Now, the rates we have in

16 there were established prior to where the new USF level

17 probably is going come to in the state, so I recognize

18 that Ms. Hall has indicated probably $21.00 and that's

19 probably in the ball park, but at least we need to have

20 the same residence and business rates equal. That's what

21 we're after.

22 Q And I guess simply for clarification, then,

23 when you had proposed rates in your Exhibit 2A revised of

24 17.51 and said that was at the USF threshold, that was

25 based on the USF threshold or statewide average rate

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CSB REPORTING HENDERSHOT (X)
Wilder, Idaho 83676 Teton Telecom

1 before the U S WEST rate case rates?

2 A It's the official one that's out there now

3 today.

4 MR. HOWELL: Mr. Chairman, I have no

5 further questions.

6 COMMISSIONER HANSEN: Mr. Ward, do you have

7 any redirect?

8 MR. WARD: I do not.

9 COMMISSIONER HANSEN: Oh,

10 Commissioner Nelson, do you have any questions? That

11 will give you another chance for redirect.

12 COMMISSIONER NELSON: I had just a couple

13 of questions. Thank you.

14

15 EXAMINATION

16

17 BY COMMISSIONER NELSON:

18 Q How many access lines does Columbine

19 Telephone Company have? Would that be approximately the

20 3,300 that Mr. Hoopes was talking about?

21 A Yes. If you look on Exhibit 2A in

22 column A, those are the numbers that were used.

23 Actually, at that point in time it was about 2,800, but

24 when he was talking about the growth rate, he was talking

25 growth rate that they've experienced since they've taken

28

CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Teton Telecom

1 it over, so when you're talking 10 percent, you're

2 talking for about seven months, so you can see it's

3 rather significant.

4 Q Well, I'm struck by how much larger the

5 revenue requirement is in this case than the prior case

6 that we just heard and so I was just curious how that

7 worked out. My back-of-the-envelope math tells me it's

8 something a little over $7.00 per month per customer;

9 would you agree with that?

10 A I think that would be in the ball park.

11 Q Why is it, do you have an opinion as to why

12 it's less per customer per month than the prior EAS cases

13 we've been looking at at this point?

14 A I think you're starting to gain your

15 economies of scale because of the size of the company and

16 it's starting to make a difference, plus with their close

17 proximity with the existing company, you're beginning to

18 see those efficiencies which we spoke about in the

19 acquisition.

20 Q Do the calling patterns have much to do

21 with that?

22 A The calling patterns?

23 Q I mean, are we experiencing fewer toll

24 calls into the proposed EAS area per month with Columbine

25 than we are with Silver Star or do you know?

29

CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Teton Telecom

1 A I haven't studied Silver Star that well

2 that I could actually explain that.

3 COMMISSIONER NELSON: Okay, that's all I

4 have.

5 MR. WARD: No, I don't.

6 COMMISSIONER HANSEN: Okay, thank you for

7 your testimony.

8 (The witness left the stand.)

9 MR. WARD: I do need to put both Mr. McCue

10 and Mr. Hoopes on briefly. Does anybody have any

11 questions for Mr. McCue?

12 MR. HOWELL: I do not.

13

14 RON B. McCUE,

15 produced as a witness at the instance of Columbine

16 Telephone Company, Inc., d/b/a Teton Telcom, having been

17 first duly sworn, was examined and testified as follows:

18

19 DIRECT EXAMINATION

20

21 BY MR. WARD:

22 Q Mr. McCue, please state your name and

23 business address for the record.

24 A My name is Ron B. McCue and my address is

25 104101 Highway 89, Freedom, Wyoming.

30

CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q By whom are you employed and in what

2 capacity?

3 A I'm employed by Teton Telecom as a

4 vice president.

5 Q Did you prepare prefiled direct testimony

6 for use in this case?

7 A Yes, I did.

8 Q Do you have any corrections or changes that

9 you know of?

10 A Yes, I do.

11 Q Oh, okay, give me your corrections.

12 A Page 4 at line 8, please strike "Irwin and

13 24 for Wayan," and just leave "48 EAS circuits for

14 Driggs."

15 Q Any other changes?

16 A Yes. At line 11, reading from line 10,

17 "implementation be accomplished on the fiber system"

18 should say "microwave and fiber system." That is all.

19 Q Did you have an exhibit for that testimony,

20 too?

21 A I did have an exhibit.

22 MR. WARD: I think that's Mr. McCue's

23 resume and would ask that it be marked as Exhibit 6 and

24 with his changes, I'd request that the prefiled testimony

25 be spread on the record as if read and Mr. McCue is

31

CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Teton Telecom

1 available for cross-examination.

2 COMMISSIONER HANSEN: Okay, if there be no

3 objection, it will be so ordered.

4 (The following prefiled testimony of

5 Mr. Ron McCue is spread upon the record.)

6

7

8

9

10

11

12

13

14

15

16

17

18

19

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21

22

23

24

25

32

CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q PLEASE STATE YOUR NAME, POSITION, AND

2 CURRENT ADDRESS.

3 A My name is Ron B. McCue. I am the Vice

4 President of Columbine Telephone Company, Inc., d/b/a

5 Teton Telecom, hereinafter referred to as Teton, and the

6 Vice President of Silver Star Telephone Company, Inc. My

7 business address is 104101 Highway 89; P.O. Box 226;

8 Freedom, WY 83120.

9 Q DOES EXHIBIT NO. 1 CORRECTLY SET FORTH YOUR

10 EDUCATIONAL AND OCCUPATIONAL BACKGROUND?

11 A Yes, it does.

12 Q HAVE YOU PROVIDED EXPERT TESTIMONY BEFORE?

13 A Yes, I have provided testimony during a

14 variety of telecommunications related hearings before

15 Commissions in Alaska, Montana, Colorado, North Dakota,

16 Idaho and Wyoming. In addition, I have appeared before

17 the Federal Communications Commission on issues such as

18 independent company networks and network reliability.

19 Last, I have appeared before legislative bodies of the

20 states of Wyoming, Alaska, Montana as well as appearing

21 before members of the United States Congress to testify

22 about telecommunications related matters. Further, I

23 have written or co-written seven articles on

24 telecommunications matters.

25 Q PLEASE STATE YOUR CURRENT RESPONSIBILITIES

33

Case No. GNR-T-97-8 McCUE (DI) 1
October 29, 1997 Teton Telecom

1 FOR TETON TELECOM.

2 A My duties currently include the general

3 guidance and supervision of the day to day activities of

4 a number of departments at Teton Telecom

5

6 /

7

8 /

9

10 /

11

12

13

14

15

16

17

18

19

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21

22

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34

Case No. GNR-T-97-8 McCUE (DI) 1A
October 29, 1997 Teton Telecom

1 and Silver Star Communications. These include

2 supervision of all plant and switching activities and

3 personnel; supervision of some of the administrative

4 personnel; organization and direction of some office

5 activities; legislative and regulatory activities;

6 customer relations, tariff drafting and execution and

7 rate case participation.

8 Q WHAT IS THE PURPOSE OF YOUR PARTICIPATION

9 IN THIS PROCEEDING?

10 A As the Vice President, I am responsible for

11 many of the day to day operations of the company.

12 Because of this involvement over the last eight months,

13 it has become clear to me that the customers in the

14 Driggs, Victor and Tetonia areas are demanding an

15 Extended Area Service, ("EAS") arrangement be

16 implemented. My testimony supports the wishes of the

17 communities involved and offers the requisite

18 documentation and/or schedules to demonstrate that EAS

19 can easily be accomplished.

20 Q WOULD YOU PLEASE DESCRIBE WHAT YOU HAVE

21 DONE IN THIS FILING.

22 A In conjunction with Mr. Allen Hoopes, I

23 prepared, or caused to be prepared, all of the documents

24 contained in this filing. In preparing many of the

25 documents, I personally worked with Mr. Ray Hendershot,

35

Case No. GNR-T-97-8 McCUE (DI) 2
October 29, 1997 Teton Telecom

1 Cost Consultant.

2 Q WHY DO YOU BELIEVE THAT THE CUSTOMER'S OF

3 THESE EXCHANGES DESIRE TO HAVE EXTENDED AREA SERVICE?

4 A During my eight month tenure at Teton

5 coupled with nearly three years of work prior to take

6 over, I have had the opportunity to be in

7

8 /

9

10 /

11

12 /

13

14

15

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17

18

19

20

21

22

23

24

25

36

Case No. GNR-T-97-8 McCUE (DI) 2A
October 29, 1997 Teton Telecom

1 contact with a considerable number of our customers. One

2 of the dominant issues in those conversations is the lack

3 of EAS service between the commerce areas of Southeast

4 Idaho. Customers have been emphatic about their desire

5 to eliminate the long distance calling in these areas.

6 Additionally, Teton conducts customer satisfaction

7 surveys on a routine basis. In those surveys Teton asks

8 for direct suggestions or comments from the customers.

9 To the best of my knowledge, a survey has not been

10 completed to date without a number of comments about this

11 EAS matter. In my eight months, I have only heard one

12 person who felt like EAS should not be implemented. When

13 you measure that with the dozens of comments in support,

14 a clear pattern seems to present itself.

15 Q WHAT PERIOD DID YOU USE TO ANALYZE THE

16 TRAFFIC FOR THIS CASE?

17 A The period that was utilized was

18 information that was prepared for July of 1997.

19 Q BASED UPON YOUR UNDERSTANDING OF THE

20 COMMUNITIES, DO YOU ADVOCATE ONE-WAY EAS FROM TETON

21 TELECOM TO THE U S WEST EXCHANGES, OR DO YOU ADVOCATE

22 TWO-WAY EAS?

23 A Because of the potential for by-pass such

24 as code calling and other methods of toll avoidance, I

25 have always been an advocate of two-way EAS. To only

37

Case No. GNR-T-97-8 McCUE (DI) 3
October 29, 1997 Teton Telecom

1 grant one-way EAS would be to penalize the residents of

2 those areas for having service from U S WEST instead of

3 Teton.

4

5 /

6

7 /

8

9 /

10

11

12

13

14

15

16

17

18

19

20

21

22

23

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25

38

Case No. GNR-T-97-8 McCUE (DI) 3A
October 29, 1997 Teton Telecom

1 Q DO ADEQUATE FACILITIES EXIST TO COMPLETE

2 THE IMPLEMENTATION OF TWO-WAY EAS?

3 A From Teton's perspective adequate

4 facilities do exist. Teton has analyzed the number of

5 trunks necessary to provide Extended Area Service, based

6 upon the data provided it by U S WEST. We do not

7 believe, however, that this number will remain static.

8 Based upon my best engineering judgement, I have inflated

9 the actual traffic by 400%. This would then call for 48

10 EAS circuits for Driggs to be established. With this

11 change, more than adequate facilities exist.

12 Q WHEN COULD IMPLEMENTATION BE ACCOMPLISHED

13 ON THE MICROWAVE AND FIBER SYSTEM AS YOU HAVE

14 RECOMMENDED?

15 A To the best of my knowledge, January 1,

16 1998.

17 Q YOU MENTIONED REVENUE NEUTRAL. IS THIS HOW

18 TETON TELECOM HAS APPROACHED THIS CASE?

19 A Yes. In meetings and conference calls we

20 have been consistently directed to prepare a revenue

21 neutral case. Mr. Ray Hendershot of the firm GVNW, Inc.

22 will give testimony on behalf of Teton in support of this

23 process and the costing associated with this case.

24 Q WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY.

25 A Yes, it is Teton's position, and my

39

Case No. GNR-T-97-8 McCUE (DI) 4
October 29, 1997 Teton Telecom

1 personal recommendation, that EAS between the Eastern

2 Idaho exchanges, and the Driggs, Victor and Tetonia, and

3 Alta and Leigh Canyon exchanges of Teton have EAS

4 implemented in the most efficient and expeditious manner

5 possible. With the facilities available, the number of

6 calls that we have seen,

7

8 /

9

10 /

11

12 /

13

14

15

16

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18

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22

23

24

25

40

Case No. GNR-T-97-8 McCUE (DI) 4A
October 29, 1997 Teton Telecom

1 and the dollars involved, it is clear to me that the time

2 has come to provide the customers of these areas the

3 service that they desire.

4 Q DOES THIS CONCLUDE YOUR TESTIMONY?

5 A Yes, it does.

6

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41

Case No. GNR-T-97-8 McCUE (DI) 5
October 29, 1997 Teton Telecom

1 (The following proceedings were had in

2 open hearing.)

3 COMMISSIONER HANSEN: And let's see if we

4 have any questions. Ms. Hobson?

5 MS. HOBSON: No questions.

6 COMMISSIONER HANSEN: Mr. Howell?

7 MR. HOWELL: No questions.

8 COMMISSIONER HANSEN: Commissioner Nelson.

9 COMMISSIONER NELSON: No, thank you.

10 COMMISSIONER HANSEN: Do you have any

11 redirect?

12 MR. WARD: No redirect.

13 COMMISSIONER HANSEN: Thank you very much

14 for your testimony.

15 (The witness left the stand.)

16

17

18

19

20

21

22

23

24

25

42

CSB REPORTING McCUE
Wilder, Idaho 83676 Teton Telecom

1 ALLEN R. HOOPES,

2 produced as a witness at the instance of Columbine

3 Telephone Company, Inc., d/b/a Teton Telecom, having been

4 first duly sworn, was examined and testified as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. WARD:

9 Q Mr. Hoopes, would you please state your

10 name and address for the record?

11 A Yes. My name is Allen R. Hoopes. My

12 address is 104101 Highway 89, Freedom, Wyoming, 83120.

13 Q And by whom are you employed and in what

14 capacity?

15 A Teton Telecom, dba of Columbine Telephone

16 in this capacity.

17 Q All right, Mr. Hoopes, did you prepare

18 prefiled testimony for this proceeding?

19 A Yes, I did.

20 Q And do you have any corrections or changes

21 to that testimony?

22 A I do not.

23 Q If I asked you the questions contained

24 therein today, would your answers be the same?

25 A Yes, they would.

43

CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q Did you have an exhibit, also, in this one?

2 A Yes, I did.

3 MR. WARD: I would ask, Mr. Chairman, that

4 Exhibit ARH-1 be marked No. 7 for identification.

5 COMMISSIONER HANSEN: So ordered.

6 MR. WARD: And I would ask that Mr. Hoopes'

7 prefiled testimony be spread on the record as if read.

8 COMMISSIONER HANSEN: If there be no

9 objection, so ordered.

10 (The following prefiled testimony of

11 Mr. Allen Hoopes is spread upon the record.)

12

13

14

15

16

17

18

19

20

21

22

23

24

25

44

CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q PLEASE STATE YOUR NAME, POSITION AND

2 CURRENT BUSINESS ADDRESS.

3 A My name is Allen R. Hoopes. I am

4 President and CEO of Columbine Telephone Company, Inc.,

5 (d/b/a Teton Telecom) "Teton". My business address is

6 104101 Highway 89, P.O. Box 226, Freedom, Wyoming 83120.

7 Q DOES EXHIBIT NUMBER 1 CORRECTLY SET FORTH

8 YOUR EDUCATIONAL AND OCCUPATIONAL BACKGROUND?

9 A Yes, it does.

10 Q WHAT IS THE PURPOSE OF YOUR APPEARANCE

11 BEFORE THIS COMMISSION TODAY?

12 A As President and CEO of Teton, I am

13 appearing before you today to present testimony in

14 support of two-way Extended Area Service (EAS) between

15 the Driggs, Tetonia and Victor exchanges and the

16 Southeastern Idaho EAS calling areas of U S WEST.

17 Q WOULD YOU PLEASE DESCRIBE YOUR ROLE IN THIS

18 FILING?

19 A I have participated with our consulting

20 firm GVNW, Teton Telcom's staff, my Vice President,

21 Mr. Ron McCue, and the Idaho Public Utilities Commission

22 Staff in either reviewing, preparing or causing to be

23 prepared, the documents and schedules that are a part of

24 this filing. I have worked personally with both

25 Mr. McCue and Ray Hendershot of GVNW to help prepare this

45

Case No. GNR-T-97-8 HOOPES (DI) 1
October 29, 1997 Teton Telecom

1 filing.

2 Q WHY DO YOU FEEL AS A TELEPHONE COMPANY

3 MANAGER THAT TWO-WAY EAS SHOULD BE IMPLEMENTED IN THESE

4 AREAS?

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46

Case No. GNR-T-97-8 HOOPES (DI) 1A
October 29, 1997 Teton Telecom

1 A There is a great deal of community interest

2 and a large amount of telephone calling that occurs

3 across Southeastern Idaho that supports EAS from a policy

4 perspective.

5 Substantial public interest exists for

6 implementing two-way EAS for Driggs, Victor, and Tetonia

7 for several reasons. First, much of the business needs

8 for individual residents of these communities are located

9 in the Idaho Falls and Rexburg areas. Also many

10 businesses have branches in the Idaho Falls and Rexburg

11 areas. Second, over the years many customers have asked

12 for EAS and are continuing to indicate that this is a

13 service they desire between the communities. Third,

14 during the past two decades recreational and tourism

15 activities have grown bringing many citizens from the

16 Idaho Falls area who own property in the Teton Valley

17 area. These individuals often spend their weekends in

18 Teton Valley and have a need to communicate with family

19 and work on a regular basis in the Idaho Falls area.

20 Q CAN YOU JUSTIFY EAS IMPLEMENTATION ON A

21 TRADITIONAL EAS APPROACH WHERE AT LEAST 50% OF THE

22 CUSTOMER BASE MAKES TWO OR MORE CALLS TO A GIVEN EXCHANGE

23 PER MONTH?

24 A Under this approach EAS cannot be justified

25 but many residents would have been included in this

47

Case No. GNR-T-97-8 HOOPES (DI) 2
October 29, 1997 Teton Telecom

1 calling area had it been retained by U S WEST. We are

2 dealing more with a market based need for EAS, rather

3 than a need for hospitals, schools, county seat, etc.

4

5 /

6

7 /

8

9 /

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48

Case No. GNR-T-97-8 HOOPES (DI) 2A
October 29, 1997 Teton Telecom

1 Q WHAT IS THE REVENUE IMPACT ON TETON IF IT

2 OFFERS TWO-WAY EAS?

3 A Teton will lose interstate revenues, access

4 charge revenues and billing and collection revenues if

5 EAS is implemented. These losses must be recovered in

6 some fashion. This will require a combination of

7 increased local rates and/or Idaho USF funding. But our

8 intention is to insure that two-way EAS is revenue

9 neutral to Teton Telecom. When I say revenue neutral, I

10 mean that Teton will not lost revenue nor receive any

11 additional revenue from the implementation of this

12 service.

13 Q IF TETON WILL NOT RECEIVE ANY ADDITIONAL

14 REVENUE FROM THIS FILING, THEN WHY IS TWO-WAY EAS

15 IMPORTANT TO TETON AS A COMPANY?

16 A The implementation of two-way EAS is

17 important to Teton because Teton feels it is important to

18 its customers. Communication services are becoming

19 increasingly more important to the average Idaho citizen.

20 Whatever services that Teton's customers require to meet

21 their communications needs are important to Teton.

22 Also, as I stated earlier, Teton's management feels that

23 two-way EAS will be good for the communities as a whole.

24 Q WHO WILL BE COVERING THE CUSTOMER COSTS TO

25 IMPLEMENT THE EAS SERVICES YOU HAVE PREVIOUSLY DISCUSSED.

49

Case No. GNR-T-97-8 HOOPES (DI) 3
October 29, 1997 Teton Telecom

1 A Mr. Ron McCue, my Vice President and

2 Raymond Hendershot will discuss the costs of implementing

3 EAS in their respective testimony.

4 Q WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY.

5

6 /

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8 /

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10 /

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50

Case No. GNR-T-97-8 HOOPES (DI) 3A
October 29, 1997 Teton Telecom

1 A In summary, Teton feels that two-way EAS

2 should be implemented between Driggs, Tetonia and Victor

3 exchanges and the Idaho Falls/Pocatello U S WEST

4 Southeastern Idaho calling areas. Teton feels that such

5 implementation is consistent with the public interest for

6 the reasons stated previously.

7 Q DOES THIS CONCLUDE YOUR TESTIMONY?

8 A Yes, it does.

9

10

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51

Case No. GNR-T-97-8 HOOPES (DI) 4
October 29, 1997 Teton Telecom

1 (The following proceedings were had in

2 open hearing.)

3

4 DIRECT EXAMINATION

5

6 BY MR. WARD: (Continued)

7 Q Just a couple of supplemental quick

8 questions, Mr. Hoopes. One is Commissioner Nelson just

9 asked a question about which of the companies, meaning

10 Silver Star or Teton, has higher calling volumes into the

11 calling area. Do you know the answer to that question?

12 A I don't know the exact answer, but to

13 expand on Mr. Hendershot's answer, I think it is more of

14 an economies of scale difference between the two

15 companies that we see the vast difference in the per line

16 cost.

17 Q Rather than the calling volume?

18 A Correct.

19 Q One other area and that has to do with the

20 growth issue. The Staff in its direct testimony argues

21 that Teton should not recover any amount for potential

22 growth in access charge revenues during the next, during

23 the three-year rate freeze period. Do you recall

24 Ms. Hall's testimony on that point?

25 A Yes, I do.

52

CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Teton Telecom

1 Q And let me cut to the chase and just ask

2 you, what is your impression of the bargain embodied in

3 the rate freeze agreement and why do you believe it's

4 fair to get the revenue, the access charge revenue,

5 growth that you would have otherwise earned?

6 A Well, I believe we made a deal, you know,

7 with someone, I know we made it with U S WEST and,

8 hopefully, we made it with the Commission, too, because

9 they approved it, but I guess you can't have your cake

10 and eat it, too. We either get the growth that we

11 forecasted in that plan, which the parties in this room

12 agreed on, or we go back to a regular rate case and

13 there's no rate freeze and we look at our costs and see

14 what they are and we get an appropriate rate.

15 Q When you agreed to the rate freeze,

16 Mr. Hoopes, did you have in your business plan

17 projections of growth in access charge revenues over the

18 three years the rate freeze would be in effect?

19 A Yes, we did. We offered those to Staff,

20 Commission and also to our financing entities and they

21 bought off on those business plans.

22 Q And would it be true that if you lose some

23 significant portion of those access charge revenues by

24 implementation of EAS, obviously, you'll lose the growth

25 that would have occurred, too, and the revenue associated

53

CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Teton Telecom

1 with that?

2 A That's correct.

3 MR. WARD: That's all I have,

4 Mr. Chairman.

5 COMMISSIONER HANSEN: Ms. Hobson?

6 MS. HOBSON: No questions.

7 COMMISSIONER HANSEN: Mr. Howell?

8 MR. HOWELL: No questions.

9 COMMISSIONER HANSEN: Commissioner Nelson.

10 COMMISSIONER NELSON: No questions. Thank

11 you.

12 COMMISSIONER HANSEN: All right, there

13 would be no redirect, then.

14 MR. WARD: There would be no redirect.

15 COMMISSIONER HANSEN: Thank you for your

16 testimony.

17 (The witness left the stand.)

18 MR. WARD: Teton rests. We'd move the

19 introduction of Exhibits 1 through 7, I believe we

20 identified.

21 COMMISSIONER HANSEN: So ordered.

22 (Columbine Telephone Company, Inc.,

23 d/b/a Teton Telecom Exhibit Nos. 1 - 7 were admitted into

24 evidence.)

25 COMMISSIONER HANSEN: Okay, we'll go to

54

CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Teton Telecom

1 U S WEST.

2 MS. HOBSON: Well, Mr. Chairman, U S WEST

3 prefiled testimony in all three of these cases as a

4 unit. We are prepared to recall Mr. Souba for purposes

5 of cross-examination on his Teton testimony, but with the

6 agreement of the parties, we'd simply rely on what has

7 already put in the record.

8 MR. WARD: I would move, Mr. Chairman, that

9 the Commission take official notice in this proceeding,

10 the Teton case, of all the testimony and exhibits in the

11 prior proceeding, so that when you come to your decision,

12 you can rely on all of the evidence in that, in the

13 Silver Star case as well.

14 COMMISSIONER HANSEN: So granted.

15 Okay, we'll move on, then. Mr. Howell.

16 MR. HOWELL: Staff would call Carolee Hall

17 to the stand.

18

19

20

21

22

23

24

25

55

CSB REPORTING COLLOQUY
Wilder, Idaho 83676

1 CAROLEE HALL,

2 produced as a witness at the instance of the Staff,

3 having been first duly sworn, was examined and testified

4 as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. HOWELL:

9 Q Would you state your name and spell your

10 last for the record, please?

11 A Carolee Hall, H-a-l-l.

12 Q And whom are you employed by and in what

13 capacity?

14 A I'm employed with the Idaho Public

15 Utilities Commission as a telecommunications analyst.

16 Q And are you the same Carolee Hall that

17 caused to be prepared on November the 14th testimony in

18 this case?

19 A Yes, I am.

20 Q And did you also prepare Exhibits 101

21 through 103 in this case?

22 A Yes, I did.

23 Q Do you have any changes or corrections to

24 your testimony or exhibits?

25 A Yes, I do. Page 12, line 14, the question

56

CSB REPORTING HALL (Di)
Wilder, Idaho 83676 Staff

1 should read "4x" to replace "400 percent." Line 18, "by

2 400 percent" should be replaced with "4x." Page 13,

3 line 8, "400 percent" replaced with "4x." Line 15,

4 "factor" should replace "increase," and that is all.

5 Q If I were to ask you the questions set out

6 in your prefiled testimony, would your answers be the

7 same today?

8 A Yes, they would.

9 MR. HOWELL: With that, Mr. Chairman, I

10 would move that Ms. Hall's testimony in this case be

11 spread upon the record as if read and that Exhibits 101,

12 102 and 103 be marked for identification.

13 COMMISSIONER HANSEN: If there be no

14 objection, it will be so ordered.

15 (The following prefiled testimony of

16 Ms. Carolee Hall is spread upon the record.)

17

18

19

20

21

22

23

24

25

57

CSB REPORTING HALL (Di)
Wilder, Idaho 83676 Staff

1 Q. Please state your name and business address.

2 A. My name is Carolee Hall and my business

3 address is 472 West Washington Street, Boise, Idaho

4 83702.

5 Q. By whom are you employed and in what

6 capacity?

7 A. I am employed by the Idaho Public Utilities

8 Commission. My current position is a Telecommunications

9 Analyst.

10 Q. Please describe your work experience and

11 educational background.

12 A. I have been employed with the Commission

13 since April 1997. I recently completed a Regulatory

14 Studies program offered through NARUC.

15 Before coming to work for the Commission, I

16 worked as a Financial Manager for a competitive long

17 distance provider. In 1993, I graduated from Boise State

18 University with a B.B.A. in Finance.

19 Q. What is the purpose of your testimony?

20 A. The purpose of my testimony is to address

21 the petitions received by the Commission requesting

22 extended area service (EAS) from the customers served by

23 Columbine Telecommunications Inc., d/b/a Teton Telecom

24 (Teton). The communities within Teton's service area

25 include Felt, Tetonia, Driggs and Victor. In August

58

GNR-T-97-8 Hall (Di) 1
11/14/97 Staff

1 1997, the Commission assigned Case No. GNR-T-97-8 to

2 consider the reasonableness of establishing EAS routes

3 between the communities of Teton County and the

4 communities of the U S WEST Communications, Inc.,

5 (U S WEST) eastern Idaho EAS region. I will respond to

6 the community of interest factors as set forth in

7 Commission Order No. 26311, which established guidelines

8 and factors to be followed when evaluating EAS petitions.

9 In addition, I will examine the costs and lost revenues

10 associated with the implementation of EAS.

11 Q. What towns or communities are included in

12 the U S WEST eastern Idaho EAS region the petitioners are

13 requesting?

14 A. The Teton customers are requesting to be

15 included in the eastern Idaho local calling area approved

16 by this Commission. Towns included in this EAS calling

17 area are: American Falls, Bancroft, Blackfoot, Dayton,

18 Downey, Firth, Franklin, Grace, Idaho Falls, Inkom, Lava

19 Hot Springs, Lewisville-Menan, McCammon, Montpelier,

20 Pocatello, Preston, Rexburg, Rigby, Ririe, Riverside,

21 Roberts, Shelly, Soda Springs and Thatcher.

22 COMMUNITY OF INTEREST STANDARDS

23 Q. What are the criteria that the Commission

24 established for EAS as set forth in Order No. 26311?

25 A. According to the Order, calling volume and

59

GNR-T-97-8 Hall (Di) 2
11/14/97 Staff

1 calling distribution are among many primary and secondary

2 factors to be used when evaluating EAS calling areas. To

3 determine whether a community of interest exists to

4 support EAS, the primary factors, in addition to the

5 calling data, are as follows:

6
1. geographic proximity (distance
7 between exchanges);
2. the presence of geographic or
8 other physical barriers
(mountains, rivers, valleys)
9 between exchanges;
3. county seat relationship (are
10 both exchanges in the same
county);
11 4. the relationship to school
districts (do both exchanges
12 share the same school
district);
13 5. the proximity to medical
facilities and services;
14 6. the willingness of customers
to pay increased rates.
15
Order No. 26311, page 9.
16
Q. Please explain calling volume and calling
17
distribution.
18
A. Call volume is simply the average
19
number of calls per line made each month from
20
the home exchange to the requested exchange.
21
Call distribution shows how many lines had 1
22
call, 2 calls, 3 calls, etc.
23
Q. Were you able to do an analysis of
24
calling volumes and calling distributions?
25
A. No, I was not. Teton is a new
60

GNR-T-97-8 Hall (Di) 3
11/14/97 Staff

1 company and was only able to provide verifiable

2 calling data for the month of July, 1997. This

3 may not represent actual calling distributions

4 throughout an entire year.

5 Q. Did you look at the calling data

6 provided to identify a community of interest?

7 A. Yes, however it was difficult. I took the

8 July calling data provided and annualized it. Analysis

9 of the numbers showed a community of interest for calling

10 into Idaho Falls and Rexburg. Based on the number of

11 calls per line, per month, Driggs customers had 4.99

12 calls to Idaho Falls and 2.4 into Rexburg. Tetonia had

13 4.4 calls per line, per month to Idaho Falls and 5.2 to

14 Rexburg. Victor had lower calling volumes, but

15 considering the size of the community, it was still

16 significant. Victor showed four calls per line, per

17 month, to Idaho Falls and 1.6 into Rexburg. All the

18 other calls into communities within the U S WEST eastern

19 EAS region from Driggs, Victor and Tetonia were fewer

20 than one call per line per month.

21 Data provided by U S WEST in response to

22 Staffs production request was proprietary and did not

23 show a significant amount of traffic originating in its

24 exchange and terminating in the Driggs exchange.

25 Q. Based on the call data, what would your

61

GNR-T-97-8 Hall (Di) 4
11/14/97 Staff

1 recommendation be for EAS into the eastern U S WEST

2 region?

3 A. If one month of calling data were

4 representative, then I would recommend EAS calling into

5 the eastern Idaho region. The data provided was for only

6 the month of July, and it may not be truly representative

7 of actual calling patterns throughout a year. However,

8 there have been good arguments made that if the customers

9 of Teton are willing to pay for EAS, then they should

10 have the same EAS routes as U S WEST customers. Based on

11 this argument, I would recommend EAS calling to the

12 eastern Idaho region.

13 I would rather see Teton analyze an optional

14 calling plan that would allow customers to "choose" which

15 areas they could call, and pay accordingly. I feel that

16 this would be an equitable and fair option. The

17 customers who call into U S WEST communities could have,

18 and pay for EAS, while those who do not make such calls

19 would not have to pay.

20 Q. Were you able to analyze an optional calling

21 plan as you suggested?

22 A. I do not have enough information to

23 accomplish this. There would need to be an extensive

24 analysis done by the Company to achieve a break-even

25 point for various plans. Since Teton could only provide

62

GNR-T-97-8 Hall (Di) 5
11/14/97 Staff

1 one month of calling data, I doubt that they could

2 accomplish this type of analysis at this time.

3 Q. In Mr. Hendershot's testimony, page 2 at 21,

4 he suggested that when the Commission established the

5 three U S WEST calling regions, it "discarded" the

6 traditional community of interest test for EAS. He goes

7 on to say that the Commission created a new standard or

8 definition of toll free calling areas. Do you agree with

9 this statement?

10 A. No, I do not. Perhaps the weight given to

11 some factors and guidelines has been altered and the

12 priority has shifted, but we still must look at all

13 categories to give a clear picture of the consumer demand

14 for EAS.

15 Q. Addressing the geographic proximity

16 (distance between exchanges) and the presence of

17 geographic or other physical barriers (mountains, rivers,

18 valleys) as set out in Commissions Order No. 26311, what

19 were your findings?

20 A. Driggs, Victor and Tetonia are all located

21 approximately 55 miles east of Rexburg. Rexburg is the

22 closest U S WEST exchange from these communities.

23 Between Rexburg and the Teton communities, is a vast area

24 of agricultural land, with a few rolling hills. See

25 Staff Exhibit No. 101.

63

GNR-T-97-8 Hall (Di) 6
11/14/97 Staff

1 Q. What are the exchanges in Teton Telecom's

2 service area?

3 A. Driggs is the exchange in Teton County with

4 wire centers in Tetonia and Victor. All three towns, and

5 Felt, are in Teton County, which is on the border of

6 Idaho and Wyoming. The Teton Mountain ranges separate

7 the two states. Felt is in the northernmost portion of

8 Teton County and is five miles north of Tetonia. Tetonia

9 is approximately eight miles north of Driggs, which is

10 approximately nine miles north of Victor. See Staff

11 Exhibit No. 101. The area between the towns is largely

12 agricultural.

13 Q. Are the petitioners served by Teton Telecom

14 represented by the same county seat?

15 A. Yes, they are. Driggs is the county seat

16 for Teton County. Driggs is a small town and according

17 to the 1990 census, has a population of 846 people.

18 Within Driggs, one can find a hospital, banks, gas

19 stations, motels, post office, hardware store, car

20 dealerships, farming implement dealers, lumber yard and

21 various fast food chains. It appears to be a growing

22 town and the picture of rural America.

23 Q. Please describe the towns of Tetonia and

24 Victor.

25 A. Tetonia is north of Driggs and has a

64

GNR-T-97-8 Hall (Di) 7
11/14/97 Staff

1 population of 132 people. The town has a post office,

2 gas station equipped with an ATM machine for banking,

3 cafe, seed plant, tire store and many farms. Victor has

4 292 people with a gas station, general store, post

5 office, cafe and motel. The population count is a result

6 of the 1990 census. The area surrounding Victor is also

7 largely agriculture.

8 Q. What are the school arrangements among the

9 four towns within Teton County?

10 A. Driggs, Victor and Tetonia each have

11 elementary schools. Secondary education students attend

12 school in Driggs. Three students from the Swan Valley

13 area, and two students from the Newdale area attend

14 school in Driggs as well.

15 Q. Another factor established by the

16 Commission for consideration when evaluating EAS is the

17 proximity to medical facilities and services. What did

18 your analysis of this show?

19 A. Driggs has a hospital with 13 beds. There

20 is also an Ambulance/EMS service. According to County

21 Profiles of Idaho, the physician per person ratio is

22 1:1,719.5. If further medical services are needed, the

23 people of these towns can seek medical care in the towns

24 of Teton or Rexburg, approximately 40 miles west of

25 Tetonia in Madison County, or travel on to Idaho Falls in

65

GNR-T-97-8 Hall (Di) 8
11/14/97 Staff

1 Bonneville County. The town of Teton is in Fremont

2 Telecom, with Rexburg and Idaho Falls located in

3 U S WEST's eastern Idaho EAS region.

4 Q. Would you please explain that portion of

5 Commission Order No. 26311 that refers to the willingness

6 of customers to pay increased rates and how it relates to

7 this EAS evaluation?

8 A. The willingness of customers to pay

9 increased rates for expanded local calling is a very

10 important item. The petitioners indicated that they

11 would be willing to pay an additional $3.00 to $10.00 for

12 extended area calling into the U S WEST region.

13 Q. Please recap the community of interest

14 factors you have discussed.

15 A. Driggs, Victor and Tetonia are within the

16 same county, the children all attend the same schools and

17 there are basic medical facilities in Driggs. Based on

18 the one month of calling data there appeared to be an

19 interest in calling into U S WEST's eastern Idaho region,

20 specifically Idaho Falls. Idaho Falls offers the

21 residents of Teton County a choice in medical facilities,

22 businesses and other support that the town of Driggs can

23 not offer. When the calling data is factored into what

24 the petitioners have indicated they are willing to pay,

25 then the emphasis shifts to cost.

66

GNR-T-97-8 Hall (Di) 9
11/14/97 Staff

1 EAS COSTS

2 Q. What costs are associated in providing EAS?

3 A. Essentially, two types of costs for

4 providing EAS will influence rate increases absorbed by

5 the customers. Those costs are the actual costs incurred

6 to carry out EAS and the revenue lost to the telephone

7 companies providing the service. Comments received in

8 Case No. GNR-T-93-13 that investigated the provision of

9 EAS regions in Idaho identified some costs that might be

10 incurred, they are: "lost" revenue, including foregone

11 revenue associated with toll, FX and toll access and

12 expenses directly applicable to EAS expansion.

13 Additionally, a shift in overall traffic usage from the

14 interstate to intrastate jurisdiction will result in a

15 reduction of interstate cost recovery.

16 Q. What actual costs will Teton incur to

17 configure its telephone system to provide EAS?

18 A. According to Mr. Hendershot's testimony at

19 page 5, line 23, it will cost Teton $11,440 in plant

20 additions. Teton's response to Staff's Second Production

21 Request No. 19 itemized specifically what plant

22 improvements were needed to facilitate EAS. These

23 improvements were approximately 19 Ericsson Translation

24 cards valued at $166.66 per card, 48 trunk cards at

25 $166.66 each and eight man hours of labor at $40.00 per

67

GNR-T-97-8 Hall (Di) 10
11/14/97 Staff

1 hour for installation. Mr. Hendershot assumed a 400%

2 stimulation factor in determining the additional

3 facilities that would be needed. I believe that a 400%

4 stimulation factor is inflated.

5 When analyzing Silver Star's estimated cost

6 for plant and equipment to facilitate EAS, Silver Star in

7 its EAS case originally used a 200% stimulation factor

8 and later changed it to 400%. This resulted in the man

9 hours remaining constant; however, the number of cards

10 doubled when the higher stimulation factor was used.

11 This would suggest that the relationship is linear.

12 Based on this assumption, I used a 200% stimulation

13 factor that resulted in the following plant expenditure

14 that Teton would need:

15
10 (each) Ericsson Translation cards $1,667.00
16 ($166.66 each)

17 24 (each) Trunk Cards ($166.66 each) 4,000.00

18 8 Man hours to install ($40/hr) 320.00

19 Total Capital Improvements $5,987.00

20

21 If the 400% stimulation factor is utilized, Mr.

22 Hendershot's annual revenue requirement associated

23 with plant was $2,328 and mine was $2,704.92. The

24 discrepancy between these two numbers was that I was

25 using an overall weighted cost of capital of 9.222%,

68

GNR-T-97-8 Hall (Di) 11
11/14/97 Staff

1 which the Commission established during the Silver

2 Star rate case in 1989. Teton is a new company and

3 does not have an established return yet. Teton is an

4 affiliated company of Silver Star, therefore the

5 rate established for Silver Star is the most

6 reasonable to use at this time for the EAS

7 calculation. When using a 200% stimulation factor,

8 my calculated annual revenue requirement is $1,421.

9 See Staff Exhibit No. 103, line 5-16. While there

10 is quite a difference between numbers, I used the

11 200% stimulation factor for this calculation,

12 because I believe the 400% stimulation factor is

13 overestimated.

14 Q. Why do you believe that a 4x

15 stimulation factor is unreasonable?

16 A. Neither the Company or Mr. Hendershot

17 has presented evidence to support its assumption

18 that calling will increase by 4x. Likewise, I

19 have no concrete evidence that calling will double.

20 It is my understanding that call stimulation varies

21 between communities and cant be known with

22 certainty before the fact. I recommend therefore,

23 that whether the Commission accepts the Company's

24 assumption of 400% or Staff's assumption of 200%,

25 the Company be required to report actual stimulation

69

GNR-T-97-8 Hall (Di) 12
11/14/97 Staff

1 experienced during the first year of EAS to the

2 Commission and that rates be adjusted accordingly.

3 Q. You mentioned that the Company used a

4 400% stimulation factor with respect to calling

5 volume and Staff preferred 200%. Can you please explain

6 your reasoning for this?

7 A. The assumption that calling volume will

8 increase 4x, because of toll-free calling, is

9 quite optimistic. The petitioners have indicated

10 that they were spending "hundreds of dollars" per

11 month on long distance phone calls. I believe that

12 calling will increase; however, there has not been

13 enough data gathered since the implementation of the

14 EAS routes to justify conclusive findings that would

15 substantiate a 400% factor.

16 As an alternative, I would propose that

17 the Company report stimulation when a full year of

18 calling data is available. This would allow the

19 Company and Staff to quantify a true stimulation

20 factor because of EAS.

21 Q. Are there particular cost issues for

22 small rural carriers?

23 A. Yes. When a small LEC toll route is

24 converted to EAS, there are two significant impacts.

25 First, toll access charges previously paid to the

70

GNR-T-97-8 Hall (Di) 13
11/14/97 Staff

1 LEC are discontinued. Second, when toll calls

2 become local EAS calls, local calling usage usually

3 increases. This causes a shift in overall traffic

4 usage from the interstate jurisdiction to the

5 intrastate jurisdiction. This shift affects the

6 small companies more dramatically because federal

7 high-cost recovery mechanisms are disproportionately

8 weighted to the interstate jurisdiction.

9 Consequently, the reduction in revenue from these

10 two sources must be recovered from an increase in

11 local rates, or from the federal and state Universal

12 Service Funds (USFs), or both.

13 Q. Do you agree with Mr. Hendershot's

14 calculation in the lost revenue because of the

15 interstate to an intrastate shift in calling?

16 A. Mr. Hendershot's calculation is

17 difficult for me to verify; again he is using a 400%

18 stimulation factor. I requested that this number be

19 calculated using a 200% stimulation factor. Mr.

20 VanHeusen, of GVNW indicated that Mr. Hendershot has

21 not provided this information in the past and could

22 not do so now. I believe that this stimulation

23 factor needs to be addressed. I asked for work

24 papers associated with this calculation, when I

25 received them they were not clear nor did they

71

GNR-T-97-8 Hall (Di) 14
11/14/97 Staff

1 explain exactly how this shift was calculated. I

2 have reduced Mr. Hendershot's $49,944 calculation in

3 half to $24,972. See Staff Exhibit No. 103, line 4.

4 This assumed number was necessary for calculating

5 the cost of EAS. I recommend that this stimulation

6 debate be looked at and recalculated to quantify a

7 true stimulation factor, at which time an adjustment

8 may be necessary.

9 Q. There is a discrepancy between Mr.

10 Hendershot's lost access revenue and your

11 calculation. Could you please explain this

12 difference?

13 A. Mr. Hendershot's calculation of

14 annualized access minutes reconciled with mine. The

15 discrepancy comes in the rate being assessed to

16 those minutes. Mr. Hendershot is using the new

17 state USF access rate; however, that rate does not

18 apply to Teton. According to Commission Order No.

19 26198, U S WEST and the independent telephone

20 companies agreed that upon the consummation of the

21 sale of the exchanges, all rates would be frozen for

22 a period of three years (Teton and U S WEST closed the

23 sale of the Driggs exchange on May 15, 1997).

24 The calculation of $141,951 (Staff Exhibit No. 103,

25 line 1) uses the tariffed access rate for Teton that

72

GNR-T-97-8 Hall (Di) 15
11/14/97 Staff

1 became effective May 15, 1997. This rate is .0597

2 per access minute.

3 Q. How did your calculation of lost

4 billing and collection revenues compare with Mr.

5 Hendershot's?

6 A. We were in complete agreement on this

7 number. See Staff Exhibit No. 103, line 2.

8 Q. Mr. Hendershot has proposed a 7% value

9 for "loss of growth potential" for three years. Do

10 you agree with this proposal?

11 A. I do not for several reasons. First,

12 using Mr. Hendershot's 7% growth rate would be

13 speculative at best. I do not believe that it is in

14 the public interest, or fair and reasonable, to

15 grant compensation for revenue that the Company has

16 never received.

17 Second, as previously mentioned, Teton

18 has only submitted one month of calling data.

19 Basing a growth potential over three years on one month

20 of data appears unreliable.

21 Q. What will be the cost associated with

22 EAS to eastern Idaho?

23 A. Based on the plant additions, the lost

24 access revenues using Teton's tariffed rates, lost

25 billing and collection revenues, and the interstate

73

GNR-T-97-8 Hall (Di) 16
11/14/97 Staff

1 shift, I calculated an annual cost of $203,604 for

2 Teton. See Staff Exhibit No. 103, line 7. When

3 divided by the total number of lines (2909), the

4 monthly cost will be $6.00 per line. See Staff

5 Exhibit No. 103, line 9. This is for access to the

6 entire U S WEST eastern Idaho region.

7 EAS RATE DESIGN

8 Q. How much are the customers of Teton

9 willing to pay for EAS into U S WEST's eastern Idaho

10 region?

11 A. Nearly 500 residents of Teton County

12 signed the petition for EAS and indicated that they

13 would be willing to pay an additional $3.00 to

14 $10.00 per month.

15 Q. Since Teton's rates are frozen, how would

16 this $6.00 monthly cost be assessed?

17 A. I would propose a monthly surcharge, or

18 an "EAS adder," be assessed to each customer phone

19 bill.

20 Q. Would that not effectively change the

21 rates that Teton customers currently pay?

22 A. No, it would not. Rates would not change for

23 existing service. EAS is a new service and Staff views

24 the monthly "adder" as the price of this new service.

25 This EAS adder would be billed to Teton customers in

74

GNR-T-97-8 Hall (Di) 17
11/14/97 Staff

1 addition to their current basic rates of $11.25 for

2 residential and $26.48 for business services. The

3 resulting residential and business rates of $17.25 and

4 $32.48 would fall below the current USF threshold and

5 would be comparable to the rates U S WEST customers are

6 currently paying. U S WEST's monthly rates are $16.99 for

7 residential and $32.00 for business. These rates are for

8 "in region" EAS calling.

9 Q. In Mr. Hendershot's Exhibit No. 2A of his

10 testimony, he proposed increasing the residential rate

11 from the current $11.25 per month to the USF threshold

12 rate of $17.51 and decreasing the business rate from

13 $26.48 to $17.51. In Exhibit 2C he proposes increasing

14 residential rates to $20.38 and keeping business rates at

15 $26.48. Do you agree with either of these

16 recommendations?

17 A. No, I do not. Business rates should not

18 equal residential rates. To increase residential rates

19 and decrease business rates to the same level is not a

20 fair or reasonable option and not something to be

21 undertaken in an EAS case. In the U S WEST rate case, the

22 "gap" between business and residential rates for that

23 company was narrowed from 2.5 to 1.88. Staff's proposal

24 to impose a $6.00 EAS adder on residential and business

25 service does tend to narrow the gap Mr. Hendershot is

75

GNR-T-97-8 Hall (Di) 18
11/14/97 Staff

1 concerned about.

2 Q. Could you please recap your recommendations?

3 A. I would recommend that EAS into the eastern

4 Idaho U S WEST region be implemented. Teton should be

5 using the U S WEST rates that were in place at the time of

6 closing the sale. The stimulation factor of 200% should

7 be used when determining the revenue requirement of this

8 EAS. Staff would recommend that Teton compile call data

9 for one year and present it to Staff so that a true

10 stimulation factor can be determined. If there is more

11 than a 200% stimulation factor determined, then an

12 adjustment could be implemented as needed. Finally, I

13 would recommend an EAS adder of $6.00 per month be added

14 to the customer bill for this service.

15 Q. Did Staff receive any other testimony in

16 this case?

17 A. U S WEST filed testimony in support of this

18 EAS. Staff appreciates the effort and the timeliness of

19 its filing considering the time constraints that

20 surrounded these cases.

21 Q. Does this conclude your direct testimony in

22 this proceeding?

23 A. Yes, it does.

24

25

76

GNR-T-97-8 Hall (Di) 19
11/14/97 Staff

1 (The following proceedings were had in

2 open hearing.)

3 MR. HOWELL: And with that, I would tender

4 this witness for cross-examination.

5 COMMISSIONER HANSEN: Ms. Hobson.

6

7 CROSS-EXAMINATION

8

9 BY MS. HOBSON:

10 Q Ms. Hall, isn't it the case that your

11 testimony in the Teton case does not discuss the subject

12 of U S WEST recovery of lost toll in regard to the

13 implementation of these EAS routes?

14 A It does not.

15 MS. HOBSON: Thank you. That's all I

16 have.

17 COMMISSIONER HANSEN: Mr. Ward.

18 MR. WARD: Just one area, briefly,

19 Ms. Hall.

20

21 CROSS-EXAMINATION

22

23 BY MR. WARD:

24 Q Have you participated in your prior life in

25 private industry in any sales or purchases of private

77

CSB REPORTING HALL (X)
Wilder, Idaho 83676 Staff

1 businesses?

2 A No, I have not.

3 Q Or in evaluating any businesses for sale?

4 A No, I have not.

5 Q In your course work in connection with your

6 degree in finance, have you studied various methods of

7 evaluating businesses for sale or purchase?

8 A Yes, I have.

9 Q Okay. Is it true that it is common -- let

10 me ask you this: Would a business that is growing

11 significantly, by that I mean increasing revenues, be

12 more valuable and more highly valued than one that is

13 not?

14 A Yes, it would.

15 Q And as a general rule, if there were two

16 equally situated businesses, one of which had no growth

17 in revenues and one of which did, would a purchaser be

18 willing to pay a greater price for the one that has

19 potential growth and a growth history?

20 A I guess it would depend on the risk

21 involved, but growth would be substantiated on a past

22 track record, if you will, so that you could have a look

23 back period. We aren't dealing with that here.

24 Q Let me skip that and go to another question

25 related. Would you agree with me that in connection with

78

CSB REPORTING HALL (X)
Wilder, Idaho 83676 Staff

1 EAS cases, it is generally the Commission's policy,

2 acknowledging there may be exceptions, to attempt to make

3 the company whole after EAS is implemented or, in other

4 words, to implement it on a revenue neutral basis?

5 A Yes.

6 Q And would you agree with me that given the

7 fact that we have a rate freeze commitment, which I think

8 you characterize in your testimony at one point as a

9 commitment by the company to provide equivalent services

10 for the frozen price, that's what the rate freeze

11 commitment was, was it not?

12 A Correct.

13 Q And would you agree with me that to some

14 extent what we're really doing here is, if you want,

15 putting it crudely, we're buying out a portion of that

16 commitment; in other words, we want in this case greater

17 service, not the equivalent service, greater service in

18 the form of EAS?

19 A I view it as a new service. EAS is

20 something that was not available when this sale case was

21 taking place and it is now a new service and will be

22 available to the customers.

23 Q And would you agree with me that obviously

24 that's going to result in a reduction of access charges

25 that need to compensated if Teton is to be made whole?

79

CSB REPORTING HALL (X)
Wilder, Idaho 83676 Staff

1 A Based on what I've received, yes, I would

2 go with that, but based on what I've received, the one

3 month of calling data, I think that we need to look at

4 that to come up with a concrete number that compensation

5 could be derived from.

6 Q Just to follow that for just a second,

7 Ms. Hall, I think we would all agree that one month's

8 calling data is not the most desirable situation, is it

9 your understanding that that's all that's available

10 because of the transition from U S WEST and some other

11 problems?

12 A That's what I've been told.

13 Q Okay, going back to my original question,

14 if we characterize this in some sense as a buy-out, if

15 you will, of the customers, of the existing arrangement

16 or deal as Mr. Hoopes called it in the rate freeze,

17 shouldn't they buy it at a price that's equivalent of

18 what Teton actually loses in revenue, not its revenue

19 today, but what it will lose over the period of freeze in

20 the agreement?

21 A Well, it has to be revenue neutral and

22 through the EAS adder the company would remain whole, if

23 you will. There will be lost access revenue, but through

24 the EAS adder, it should not impact the company as much.

25 Q Let me ask it one more way. In

80

CSB REPORTING HALL (X)
Wilder, Idaho 83676 Staff

1 Mr. Hendershot's testimony, he identifies $43,000,

2 roughly, in growth potential in access charges that will

3 no longer exist and in doing that, I think you heard him

4 testify that that's based on the business plan that was

5 used in the acquisitions.

6 A Okay.

7 Q Let's assume that business plan was

8 accurate, there would in fact have been $43,000 worth of

9 increased revenue in access charges on these routes over

10 the three-year freeze, okay? We can dispute whether the

11 number is right, but just assume the number is right for

12 a moment. In order to be fully compensated for the

13 change in the deal, isn't it obvious that Teton is

14 entitled to that revenue in addition to the base cost of

15 200 and some thousand dollars?

16 A I think the operative word would be

17 assumption. It's speculative. I think I would feel

18 better if we could look back after a year and see what

19 the numbers show as far as traffic call data. To

20 compensate a company on an assumed growth number is very

21 speculative and I don't believe it's something concrete

22 that would be quantifiable.

23 Q It's nothing we could quantify

24 retroactively, though, is it, and even if we could, isn't

25 there a general prohibition against retroactive

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CSB REPORTING HALL (X)
Wilder, Idaho 83676 Staff

1 ratemaking?

2 A Yes, there is.

3 MR. WARD: That's all I have. Thank you.

4 COMMISSIONER HANSEN: Commissioner Nelson.

5 COMMISSIONER NELSON: Well, thank you.

6

7 EXAMINATION

8

9 BY COMMISSIONER NELSON:

10 Q I kind of hate to get into this area, but

11 it's here in your testimony, so I want to ask you about

12 your recommendation on page 5 that you'd rather see Teton

13 analyze an optional calling plan. Is this just a

14 discussion or is this your recommendation?

15 A No, it was an aside thought. I feel that

16 it would be something for them to analyze, being a young

17 company to perhaps look into, similar to what GTE has

18 done for their customers, to have a choice in which

19 calling areas they would like to call.

20 Q Do you feel that the July data was

21 representative of -- maybe I'm not asking that

22 correctly. When you analyzed your July data to come up

23 with your numbers, do you have any confidence in those

24 numbers? I see this county as being a county that could

25 have a high summer population and perhaps a high winter

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CSB REPORTING HALL (Com)
Wilder, Idaho 83676 Staff

1 population with low shoulder months and I'm just

2 wondering if your July data is accurate.

3 A It's all I had, but I do not believe it's

4 representative of what actually could happen.

5 Q Has the company talked about providing you

6 more data within any particular time period?

7 A No.

8 COMMISSIONER NELSON: Okay, thank you.

9 That's all I have.

10 COMMISSIONER HANSEN: Mr. Howell, any

11 redirect?

12 MR. HOWELL: No redirect.

13 COMMISSIONER HANSEN: Okay, thank you for

14 your testimony.

15 (The witness left the stand.)

16 MR. HOWELL: That completes the Staff's

17 case and I would move for the admission of Exhibits 101

18 through 103.

19 COMMISSIONER HANSEN: If there be no

20 objection, so ordered.

21 (Staff Exhibit Nos. 101 - 103 were

22 admitted into evidence.)

23 COMMISSIONER HANSEN: This will then bring

24 to a close our technical hearing. We'll recess now until

25 6:00 p.m. when we will begin with our public hearing on

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CSB REPORTING HALL (Com)
Wilder, Idaho 83676 Staff

1 97-8 over at the high school gym.

2 (The Hearing recessed at 5:35 p.m.)

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CSB REPORTING COLLOQUY
Wilder, Idaho 83676