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1 DRIGGS, IDAHO, TUESDAY, NOVEMBER 18, 1997, 2:30 P. M.
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4 COMMISSIONER HANSEN: Good afternoon,
5 ladies and gentlemen. This hearing will be in order.
6 This is the time and place set by the Idaho Public
7 Utilities Commission for a technical hearing in
8 GNR-T-96-6 and we're going to combine that with
9 GNR-T-97-3, and this is known as in the matter of the
10 petition from residents of Swan Valley, Irwin and
11 Palisades requesting extended area service to all of
12 Bonneville County, and the towns of Ririe, Victor and
13 Driggs, and also in the matter of the petition from
14 residents of Gray's Lake, Wayan and Freedom requesting
15 inclusion in the U S WEST Communications eastern Idaho
16 calling region, and then we'll follow after this
17 technical hearing, we'll follow with the technical
18 hearing on GNR-T-97-8, known as in the matter of the
19 petition from residents of Teton County requesting
20 extended area service to the greater Idaho Falls area, so
21 we'll begin by taking the appearances of the parties and
22 we'll start with you, Mr. Ward.
23 MR. WARD: My name is Conley Ward with the
24 firm Givens, Pursley and Huntley for Silver Star
25 Telephone Company.
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CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 MS. HOBSON: I'm Mary Hobson with Stoel
2 Rives for U S WEST Communications. With me today is John
3 Souba who is the company's witness.
4 MR. HOWELL: And I am Donald Howell, Deputy
5 Attorney General, representing the Commission Staff.
6 COMMISSIONER HANSEN: Okay, thank you.
7 Before we start, do we have any members from the public
8 representing the public that would like to speak today
9 that will not be able to attend this evening? I think we
10 have, I know, one request and we'd like to do that and
11 then we'll proceed with the technical hearing. We'd
12 ask you to come forward, if you would, and
13 Commissioner Nelson needs to swear you in. He'll ask you
14 to raise your right hand and we'll have you take your
15 oath here.
16
17 JERRINE BEARD,
18 appearing as a public witness, having been first duly
19 sworn, testified as follows:
20
21 EXAMINATION
22
23 BY MR. HOWELL:
24 Q Good afternoon.
25 A Hi.
2
CSB REPORTING BEARD
Wilder, Idaho 83676
1 Q Could you state your full name and spell
2 your last name for the record, please?
3 A My name is Jerrine Beard, B-e-a-r-d.
4 Q And where do you reside?
5 A In Tetonia or out of Tetonia on Badger
6 Creek.
7 Q Are you a petitioner in one of these three
8 cases before the Commission today?
9 A Yes.
10 Q And which case were you petitioning in?
11 A For the -- I don't know what it's called --
12 long distance, to not be long distance, you know, in the
13 upper valley.
14 Q Close enough, and do you have a statement
15 you'd like to give the Commission today?
16 A I'd just like to see it come to pass. I
17 just don't think that it's fair that they drew the line
18 where they did and didn't let the rest of us in on it.
19 Q And who is your telephone company?
20 A Teton Telecom.
21 Q And can you give us an address for the
22 record as well?
23 A Their address?
24 Q Your address.
25 A My address is 36 West 1000 North, Tetonia,
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CSB REPORTING BEARD
Wilder, Idaho 83676
1 Idaho.
2 Q Great, thank you. Do you have any other
3 comments?
4 A No.
5 COMMISSIONER HANSEN: Let's see if we have
6 any questions. Do we have any questions from any of the
7 parties?
8 Thank you for your testimony.
9 THE WITNESS: You bet. Thank you.
10 (The witness left the stand.)
11 COMMISSIONER HANSEN: Do we have anyone
12 else from the public that would like to make a statement
13 here this afternoon that will not be here this evening?
14 Okay, we will now start with the technical
15 hearing and we'll begin with you, Mr. Ward, are you
16 ready?
17 MR. WARD: Yes, we are. Thank you,
18 Mr. Chairman. We'd call Kevin Kelly to the stand.
19 Mr. Chairman, while Mr. Kelly is getting
20 settled, because of the time frame in these cases and the
21 need to put our case together relatively quickly in
22 response to Staff, we will have some live rebuttal and
23 some additional exhibits and when I get to those, I
24 believe the Commissioners have a set of the exhibits in
25 front of them.
4
CSB REPORTING BEARD
Wilder, Idaho 83676
1 I should also say just parenthetically, a
2 quick 10-second opening remark, with the exception of a
3 few hundred dollars' difference in revenue requirement,
4 in terms of the cost of this case, we are down to
5 basically two issues with the Staff, both having to do
6 with the stimulation factor to be applied to the traffic
7 in estimating the additional costs. As I said, we're
8 just a few hundred dollars apart, but there are a few
9 hundred dollars we can't quite match up for whatever
10 reason and Mr. Kelly will explain that further.
11
12 KEVIN J. KELLY,
13 produced as a witness at the instance of Silver Star
14 Telephone Company, having been first duly sworn, was
15 examined and testified as follows:
16
17 DIRECT EXAMINATION
18
19 BY MR. WARD:
20 Q Mr. Kelly, would you please state your
21 name, position and current business address?
22 A My name is Kevin J. Kelly. I'm a senior
23 regulatory consultant with the firm TCA out of Colorado
24 Springs and my business address is 3617 Betty Drive,
25 Colorado Springs, Colorado, 80917.
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 Q Mr. Kelly, in preparation for your
2 appearance today, did you cause prefiled direct testimony
3 to be prepared?
4 A Yes, I did.
5 Q And did that testimony include Exhibits
6 Nos. 1 through 5?
7 A Yes.
8 Q Were those exhibits prepared by you or
9 under your direction and control?
10 A Yes.
11 Q If I were to ask you the testimony in
12 your -- the questions contained in your prefiled
13 testimony today, would your answers be as given?
14 A Yes.
15 Q And do you have any corrections to your
16 testimony?
17 A Just a couple. On page 3, line 12, delete
18 the year "1996" and that same correction needs to be made
19 on line 24 at page 3 as well, and then on page 4,
20 line 19, the number needs to be changed to "157,565."
21 Q Are there any other corrections you're
22 aware of other than minor typos?
23 A No.
24 Q Okay. Now, Mr. Kelly, in my opening
25 statement, I suggested that we are down to virtual
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 agreement with the Staff on most of the revenue
2 requirement issues. Is it your understanding that
3 there's general agreement between the Staff and TCA with
4 a couple of exceptions?
5 A Yes, there's just a couple of minor
6 exceptions and I think we were within $1,000 of the
7 number that Staff came up with.
8 Q All right. Now, when you say that you're
9 within less than $1,000 of the number the Staff came up
10 with, does that assume, in making that statement, are you
11 assuming that that would be so if you used the same
12 stimulation factor the Staff used?
13 A No, there would be quite a much larger
14 difference using the 400 percent stimulation factor that
15 we proposed than the one that was utilized in Staff's
16 analysis, the 200 percent stimulation factor, and I
17 believe my numbers on that, I think the 200 percent
18 stimulation showed a state to interstate revenue shift of
19 approximately 43,000, which we were in agreement with
20 Staff on; however, at the 400 percent stimulation of
21 local traffic, that shift becomes $100,975.
22 Q All right. You mentioned that the
23 stimulation factor affects the interstate shift in
24 costs. Is there any other revenue item that it affects?
25 A I believe that it has a small impact on the
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 amount of plant required, the 400 percent. Traffic
2 stimulated at 400 percent is going to require slightly
3 more plant and I think that has about a $3,000 impact
4 according to, I believe, Ms. Hall's analysis in her
5 testimony.
6 Q All right. Now, in her testimony,
7 Ms. Hall implies you agreed to use the 200 percent
8 stimulation factor. Is that in fact the case?
9 A Well, the 200 percent stimulation factor
10 that we ran our study at was mostly in an effort to get
11 to the same -- let me start over. We utilized different
12 methodologies in coming up with our numbers and were
13 having quite a bit of discrepancy between the two, so in
14 an effort to get closer to Staff's number, we decided to
15 use the same stimulation rate that they did and that
16 enabled us to get within the $1,000 that we mentioned
17 earlier.
18 Q So you ran the 200 percent stimulation
19 factor to see if you could duplicate Staff's numbers?
20 A Yes, that was the primary reason.
21 Q But does that indicate that you are
22 abandoning your proposal for use of a 400 percent
23 stimulation factor?
24 A No, it does not.
25 Q All right. Mr. Kelly, in preparation for
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 the hearing today after it became obvious that there was
2 a dispute about the stimulation factor we used, did you
3 attempt to review additional evidence that may have been
4 available to you regarding stimulation factor that in
5 fact occurred in other EAS cases?
6 A Yes, I did.
7 Q And did you prepare some exhibits to
8 illustrate those stimulation factors?
9 A Yes, I did.
10 MR. WARD: Okay. Mr. Chairman, there's a
11 packet of exhibits, hopefully, in front of you, beginning
12 with Exhibit 6 which has the denomination in the upper
13 left-hand corner "Silver Star Telecom, Inc., EAS
14 Stimulation Analysis, Selected Colorado Exchanges" and I
15 believe that's been premarked as Exhibit 6.
16 Q BY MR. WARD: Mr. Kelly, can you tell the
17 Commission what's represented by Exhibit 6?
18 A Well, Colorado went through a similar
19 proceeding a few years back in expanding calling areas.
20 They came up with a plan called CICP and what it does is
21 just expand EAS pretty similar to what we're doing in
22 this case here, and our firm was contracted by several of
23 the companies to prepare the data and this is some of the
24 data that we have that we showed as reflected within
25 these different calling areas for different companies and
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 it shows considerable local minute growth in the three
2 exchanges and --
3 Q Mr. Kelly -- excuse me, I didn't mean to
4 interrupt you.
5 A That's okay.
6 Q With respect to Exhibit 6, could you
7 explain the communities, give the Commission a
8 description of the communities involved here?
9 A My exhibits are the non-numbered ones,
10 Conley.
11 MR. WARD: May I approach the witness,
12 Mr. Chairman?
13 COMMISSIONER HANSEN: You may.
14 (Mr. Ward approached the witness.)
15 THE WITNESS: Just to make sure we're all
16 on the same page here. Thank you. The first one is
17 several smaller communities within the Colorado Springs
18 area and it shows the base study of minutes, about
19 36,000. After several years of the expanded calling
20 area, the minute growth is probably 10 times what it was
21 prior to initiation of the calling area.
22 Q BY MR. WARD: Mr. Kelly, does the label at
23 the bottom indicate the communities involved in EAS
24 there?
25 A I'm sorry. Yes, it's Simla, which is a
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 small town, and allows calling into primarily Colorado
2 Springs, but also the Black Forest, Calhan, Peyton and
3 Limon exchanges as well.
4 Q Can you give the Commission a rough idea of
5 the number of access lines in Simla on the one hand and
6 Colorado Springs on the other?
7 A Simla is a fairly small community. I
8 believe probably it's less than 1,000 access lines.
9 Colorado Springs is probably a population of 400,000
10 right now.
11 Q Okay. Let's turn to Exhibit 7. What
12 communities were involved there?
13 A This is a small community of Arriba, I
14 believe it's pronounced, and the expanded scope allowed
15 them to call into Limon, Hugo, Flagler and Genoa. Arriba
16 is a much smaller town, probably 3 to 400 access lines;
17 whereas, the other communities in here are also smaller.
18 Limon is probably 2 to 3,000 people and the other ones
19 are smaller than that yet.
20 MR. HOWELL: Mr. Chairman, I hate to
21 interject, but at this point if we're going to move
22 through these exhibits, I guess I would lodge an
23 objection to the introduction of Exhibits 6, 7, 8, 9 and
24 10 as being irrelevant, and the purpose for my motion to
25 strike these exhibits or not to admit them is that the
11
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 issue in this case deals with the stimulation of
2 exchanges ideally situated in Idaho. A number of these
3 exhibits deal with Colorado exchanges and as Mr. Kelly
4 has already indicated, one of the calling areas, at least
5 as it pertains to Exhibit 6, is in excess of 400,000
6 population.
7 What the issue before this Commission is
8 what is the stimulation between Irwin and Wayan and the
9 U S WEST eastern Idaho calling area. These stimulation
10 factors are merely numbers and don't have a relevancy to
11 this proceeding. We do not know of the other community
12 of interests, we do not know whether there was growth,
13 industrial growth, in these communities. We have just
14 seen these exhibits an hour ago. We have not had an
15 opportunity to probe the relevancy of these exhibits and
16 for those reasons, I would urge that these exhibits not
17 be admitted.
18 COMMISSIONER HANSEN: Mr. Ward.
19 MR. WARD: Mr. Chairman, in Ms. Hall's
20 testimony, and, if necessary, I can probably turn right
21 to it in a couple of minutes, in Ms. Hall's testimony,
22 one of the things she says is the companies don't have
23 any concrete evidence of stimulation and neither do I.
24 Now, if the only relevant evidence would be the amount of
25 stimulation that occurs from Irwin to Wayan to the
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 eastern Idaho service territory, we, obviously, have a
2 little proof problem. You can never prove that until you
3 actually do that.
4 What is relevant, and I maintain these
5 other communities are clearly relevant, we don't contend
6 that they are all identical, we tried to pull the numbers
7 that we had or could get available on short notice and in
8 terms of whether they are convincing, that's another
9 question and that's a question for the Commission to
10 decide, but I don't see how it can be seriously argued
11 that the experience of stimulation in other communities
12 is not relevant when you're trying to assess the
13 stimulation you will experience in these communities, and
14 I would say it's true that the Staff has not had these
15 exhibits but just today and, of course, we didn't have
16 Ms. Hall's testimony until Friday and everybody is
17 working under a compressed time frame here.
18 I would have no objection if after the
19 hearing if the Staff wants to send additional production
20 requests to us and find out additional information within
21 reason about this, we can do that, too, but I want to be
22 accommodating, but this is the only kind of probative
23 evidence you can get on this subject and I think it's
24 clearly relevant.
25 COMMISSIONER HANSEN: I believe we'll go
13
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 ahead and allow these exhibits. The Commission will take
2 into consideration those objections made by the Staff and
3 we'll weigh these exhibits accordingly, so you can
4 proceed on them.
5 MR. WARD: Thank you, Mr. Chairman.
6 Q BY MR. WARD: Let's see, I believe you had
7 described the communities in Exhibit No. 7. Just so it's
8 clear, I think it's obvious, Mr. Kelly, but let me just
9 ask you, looking at Exhibit 7, for example, would I be
10 correct in assuming that EAS was implemented sometime in
11 1991 and that you have selected just one month,
12 obviously, in each year, the same month in each year to
13 get the comparative traffic data?
14 A Yes, that would be correct.
15 Q And so if I look at line 4 of Exhibit 7, it
16 says 280.53 percent on the right-hand side of the page,
17 that would be the stimulation in the first year of the
18 EAS implementation?
19 A Yes.
20 Q All right, turning to Exhibit 8, would you
21 please tell the Commission what territories were involved
22 in this EAS?
23 A This was another exchange, Bennett, and a
24 smaller community, probably less than 500 access lines,
25 and calling into not the entire metropolitan area of
14
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 Denver, but to the eastern suburbs of Denver, primarily
2 Aurora, which I'm not exactly sure what the calling scope
3 of that community is, maybe a couple hundred thousand
4 access lines.
5 Q Okay. In your opinion, which of these
6 three exhibits we've just identified or three historical
7 examples would be most closely analogous to what we're
8 considering today?
9 A I'd say the numbers into -- of calling into
10 the Exhibit No. 6 which identifies the calling into the
11 Colorado Springs area would probably be most relevant.
12 It's not quite as large a community as the eastern
13 suburbs of Denver, plus a lot of these, the town, the
14 size of the town, that is initiating the phone calls, the
15 smaller communities are probably more similar to the
16 Wayan, Irwin ones.
17 Q All right, thank you. Now, looking at all
18 three of these exhibits, we see some pretty dramatic
19 growth over the period of, I guess we have, seven years
20 captured here, with two of them going, well, two of them
21 going over 1,000 percent growth in the course of seven
22 years, do you have an opinion as to the factors that may
23 be causing that kind of stimulation to occur?
24 A Yes, there's a couple of them, but I think
25 primarily is the initiation of flat rate Internet
15
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 service. Really, once that becomes accessible to a small
2 community, it really increases the amount of local
3 calling minutes and I think that's why you notice a
4 considerable increase is in the last, you know, quite
5 sizeable in the last, couple of years. I'm looking at
6 Exhibit 6. There was over a 100,000 minute increase
7 between December of '96 and October of '97. There was
8 also kind of life-style changes as well with the advent
9 of computers and more people are able to telecommute.
10 For example, myself, I can telecommute from
11 home when my daughter is sick or the weather is bad or
12 something like that. I just dial into the server on our
13 network at the office and that precludes a trip into
14 work; however, it does also greatly increase the number
15 of local minutes the local telephone company is
16 recording.
17 Q And is it your understanding that the
18 implementation of EAS in this case will make Internet
19 access available for a local call for residents who do
20 not now have it?
21 A Yes, that is my understanding.
22 Q Okay. Just one more area, if you would.
23 Ms. Hall in her testimony suggests that the Commission
24 should choose a stimulation factor for the immediate
25 determination in this case and then true-up at the end of
16
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 the year. Do you agree with that suggestion?
2 A Not really. I think there's a couple of
3 problems with that proposal. I guess the first one I see
4 is this going to be a retroactive true-up or a
5 prospective true-up. If it's continually a retroactive
6 true-up, the company is going to lose each time the
7 true-up occurs unless it is retroactive.
8 A second reason is just the cost involved.
9 The company is going to have to retain consultants,
10 attorneys and it's going to require additional Staff time
11 to do a true-up and the first one is -- and a final
12 reason, I guess, is just the growth in minutes does not
13 all occur in one year. As you can see from the exhibits
14 that I'm presenting here, it kind of multiplies on itself
15 and it's going to take place over a several-year period.
16 That in itself is going to necessitate more than a
17 one-year, I think, true-up if one were to occur and,
18 finally, I guess in this case I would hope that we'd be
19 setting rates in this case that would extend for more
20 than just a one-year period and it would be more of a
21 prospective period that we can set these rates, that
22 they'll be in place and there will be some rate stability
23 for the local ratepayers.
24 MR. WARD: Thank you. That's all the
25 supplemental testimony I have. If I did not ask that
17
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 Exhibits 6 through 8 be identified, I would do so and I'd
2 ask that Mr. Kelly's testimony be admitted and with that,
3 he's ready for cross-examination.
4 COMMISSIONER HANSEN: Okay, if there be no
5 objection, it will be so ordered and the exhibits as
6 marked, I have 1 through 5, plus the addition of Exhibits
7 6, 7 and 8, Mr. Ward, in that packet, I also have
8 Exhibits 9 and 10, at this time you do not want those
9 admitted, then?
10 MR. WARD: That's correct. Mr. McCue who
11 will follow will sponsor those.
12 COMMISSIONER HANSEN: Okay, fine. If there
13 be no objections, then, the exhibits as marked and
14 identified will be part of the record. So ordered.
15 (Silver Star Telephone Company Exhibit
16 Nos. 1 - 8 were admitted into evidence.)
17 (The following prefiled testimony of
18 Mr. Kevin Kelly is spread upon the record.)
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CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 Q PLEASE STATE YOUR NAME, POSITION AND
2 CURRENT BUSINESS ADDRESS.
3 A My name is Kevin J. Kelly. My business
4 address is 3617 Betty Drive, Colorado Springs, CO 80917.
5 Q BY WHOM ARE YOU EMPLOYED AND IN WHAT
6 CAPACITY?
7 A I am a Senior Consultant, employed by TCA,
8 Inc. (TCA), a telecommunications consulting firm. TCA
9 provides regulatory, management and financial consulting
10 services to independent telephone companies.
11 Q PLEASE SUMMARIZE YOUR EDUCATIONAL
12 BACKGROUND AND PROFESSIONAL EXPERIENCE.
13 A I hold a Bachelor of Business
14 Administration, with an accounting major, and a Masters
15 in Business Administration, with an emphasis in finance,
16 both from the University of Iowa. I am a Certified
17 Public Accountant.
18 From 1980 to 1985, I was employed by Kiesling and
19 Associates, a regional CPA firm specializing in external
20 audits of independent telephone companies. From 1985 to
21 1990, I was employed by Sprint in several positions for
22 three subsidiaries. During 1991 and 1992, I was employed
23 by the Kansas Corporation Commission as a Managing
24 Regulatory Auditor. From 1992 to 1994, I was employed as
25 a Senior Consultant by Overland Consulting Inc., a
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Case No. GNR-T-96-6 KELLY (DI) 1
November 3, 1997 Silver Star Telephone Company
1 regulatory consulting firm. From 1994 to March 1997, I
2 was employed by Frederick & Warriner, LLC., a CPA firm
3 which provides auditing, regulatory, tax and
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Case No. GNR-T-96-6 KELLY (DI) 1A
November 3, 1997 Silver Star Telephone Company
1 consulting services to a clientele consisting primarily
2 of independent telephone companies.
3 I have participated in regulatory proceedings in
4 Kansas, Oklahoma, Missouri, California, New Jersey,
5 Texas, Vermont and Minnesota. Several of these
6 proceedings required providing expert testimony.
7 Q PLEASE DESCRIBE THE PURPOSE OF YOUR
8 TESTIMONY.
9 A I have been retained by Silver Star
10 Telephone Company, Inc. ("Silver Star" or "Company") to
11 quantify the revenue requirement impact of Extended Area
12 Service ("EAS") implementation. My analysis assumes
13 implementation of both proposed two-way EAS routes
14 between US West's Idaho Falls and Pocatello calling areas
15 and Silver Star's Irwin and Wayan exchanges.
16 Q PLEASE DESCRIBE HOW EAS REVENUE IMPACTS ARE
17 CALCULATED.
18 A There are two basic methods for quantifying
19 the impact of proposed EAS routes. The simplest, and
20 most widely used, is a revenue neutral direct analysis.
21 In this method, the analyst calculates the annual effect
22 of each EAS caused change in plant investment, expenses
23 and revenues. These individual items are summed, and
24 rates are then adjusted to produce additional revenues
25 equal to the net change in annualized expenses and
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Case No. GNR-T-96-6 KELLY (DI) 2
November 3, 1997 Silver Star Telephone Company
1 revenues. This method is reasonably accurate and
2 relatively inexpensive.
3 There is, however, a second method of calculating
4 EAS costs that is both more sophisticated and more
5 accurate. In this method, the
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Case No. GNR-T-96-6 KELLY (DI) 2A
November 3, 1997 Silver Star Telephone Company
1 analyst conducts a full cost of service study using test
2 year data, and then conducts a second study after EAS
3 changes are input. This method fully captures all EAS
4 driven cost impacts.
5 Q WHICH APPROACH DID YOU USE IN THIS CASE?
6 A We used the cost of service approach in
7 this case. At the time we were asked to conduct this EAS
8 cost analysis, we were already engaged in preparing a
9 general rate case for Silver Star's Idaho operations.
10 This made the cost of service method cost effective
11 because we had to prepare a test year cost of service
12 study for the rate case anyway.
13 Q PLEASE DESCRIBE HOW THIS COST OF SERVICE
14 METHOD WAS APPLIED IN THIS CASE.
15 A We began by preparing a test year cost of
16 service study for Silver Star. This cost study, which is
17 summarized in Exhibit No. 1, was used as a starting point
18 for my EAS analysis. The cost study was then modified in
19 Exhibit No. 2 to incorporate identified cost impacts
20 associated with the proposed EAS routes. These proforma
21 adjustments begin with the increased investment in plant
22 directly attributable to EAS implementation. Proforma
23 expense adjustments include increased labor and
24 regulatory costs that are caused by EAS. Next, traffic
25 between the proposed EAS routes was stimulated to provide
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Case No. GNR-T-96-6 KELLY (DI) 3
November 3, 1997 Silver Star Telephone Company
1 a more accurate reflection of future calling patterns,
2 and access charge revenues and billing and collection
3 revenues on the proposed routes were removed. Finally,
4 the revised cost study results were compared to the
5 original cost study to determine the net revenue impact
6 of EAS.
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Case No. GNR-T-96-6 KELLY (DI) 3A
November 3, 1997 Silver Star Telephone Company
1 Q PLEASE DESCRIBE THE MOST IMPORTANT OF THE
2 COST IMPACTS CAUSED BY EAS.
3 A Silver Star revenue streams will be
4 impacted in a number of ways. First, and most
5 importantly, converting traffic from long distance to
6 local will result in a loss of intrastate network access
7 revenues (including billing and collection charges) to
8 Silver Star. Secondly, traffic within the extended
9 calling area will increase disproportionately, which
10 impacts jurisdictional separation factors. The
11 resultant decrease in costs allocated to the interstate
12 jurisdiction will reduce interstate network access
13 revenues and support payments, thus increasing intrastate
14 costs. Finally, there are the direct costs of
15 implementing EAS, including costs attributable to
16 incremental investments and additional labor and
17 regulatory costs.
18 Q PLEASE SUMMARIZE THE NET EFFECT OF EAS
19 IMPLEMENTATION ON SILVER STAR.
20 A The net effect is summarized in Exhibit
21 No. 3. The bottom line is that providing two-way EAS
22 between both US West calling areas and Silver Star's
23 Wayan and Irwin exchanges will result in an increased
24 local exchange revenue requirement of $157,565.
25 Q HOW IS SILVER STAR PROPOSING TO RECOVER THE
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Case No. GNR-T-96-6 KELLY (DI) 4
November 3, 1997 Silver Star Telephone Company
1 LOST REVENUES FROM IMPLEMENTATION OF TWO-WAY EAS?
2 A Silver Star is proposing recovering the
3 revenue shortfall from the combination of an increase in
4 local rates and an increase in support payments from the
5 Idaho USF.
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Case No. GNR-T-96-6 KELLY (DI) 4A
November 3, 1997 Silver Star Telephone Company
1 Q HAVE YOU PREPARED A RATE DESIGN PROPOSAL
2 THAT WILL RECOVER THE COST OF EAS?
3 A I have prepared three alternative proposals
4 for the Commission's consideration. Each of the three
5 incorporates an adjustment of access charges to the new
6 USF eligibility level specified by the Commission in
7 Order No. 27126.
8 Q PLEASE DESCRIBE YOUR RATE DESIGN PROPOSALS.
9 A Exhibit No. 4 provides three scenarios for
10 allocating the shortfall. All three options require
11 recovering a portion of the shortfall from State USF.
12 Q PLEASE DESCRIBE EXHIBIT NO. 4A.
13 A In this alternative, residential and
14 business rates set at the residential USF threshold of
15 $17.51.
16 Q PLEASE DESCRIBE EXHIBIT NO. 4B.
17 A In this scenario, residential and business
18 rates set at their respective USF thresholds of $17.51
19 and $36.57.
20 Q PLEASE DESCRIBE EXHIBIT NO. 4C.
21 A This final alternative increases
22 residential and business rates by a uniform percentage in
23 order to avoid exacerbation of the business residential
24 rate gap. If the Commission adopts this approach, it
25 will have to use federal USF support payments as a credit
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Case No. GNR-T-96-6 KELLY (DI) 5
November 3, 1997 Silver Star Telephone Company
1 to reduce business rates from the nominal USF rate of
2 $36.57 to the rates proposed in Exhibit No. 4C. My
3 understanding is that there is precedent for the adoption
4 of this approach.
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Case No. GNR-T-96-6 KELLY (DI) 5A
November 3, 1997 Silver Star Telephone Company
1 Q WHICH OPTION IS DO YOU RECOMMEND THE
2 COMMISSION ADOPT?
3 A I recommend the Commission adopt Option 1.
4 In today's increasingly competitive environment it is no
5 longer appropriate for business customers to pay
6 considerably higher rates than residential customers.
7 Customers required to pay rates in excess of cost will
8 simply migrate to other providers.
9 Q DOES THIS CONCLUDE YOUR TESTIMONY?
10 A Yes.
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Case No. GNR-T-96-6 KELLY (DI) 6
November 3, 1997 Silver Star Telephone Company
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER HANSEN: All right, the
4 witness then is available for questions.
5 Ms. Hobson.
6
7 CROSS-EXAMINATION
8
9 BY MS. HOBSON:
10 Q Just a couple of things, Mr. Kelly. When
11 you were testifying for Mr. Ward a few minutes ago, you
12 gave the Commission a number for the
13 interstate/intrastate revenue recovery shift and I didn't
14 get that number using the 400 percent stimulation factor,
15 what's that number?
16 A The shift results at $100,975.
17 Q And is that number depicted someplace in
18 your exhibits?
19 A No, it's not.
20 Q That helps, I guess. Is that number going
21 to be depicted somewhere in Mr. McCue's exhibits?
22 A No. The number was calculated --
23 initially, when we prepared our initial case, we utilized
24 kind of a revenue requirement basis; however, in an
25 attempt to get a little closer to the numbers that the
30
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 Staff was using, we kind of switched to this revenue
2 neutral approach and at that time we reran the -- and
3 using that methodology, we had a base study and then we
4 just stimulated traffic at 200 and 400 percent, so we did
5 not ever submit the final results of that for the
6 record. It was never included in any exhibits.
7 Q Okay, and do you know, will Mr. McCue be
8 offering exhibits that show the result of that
9 calculation as a final impact of implementing EAS in his
10 case, his supplemental testimony?
11 A I don't believe he will, no.
12 Q Can you tell me, then, what your estimation
13 of the cost of EAS is with the 400 percent stimulation?
14 A That would be the 157,565.
15 Q And is that depicted in your exhibits?
16 A No, that's not depicted in the exhibits. I
17 think the number that's depicted in the exhibits is
18 134,000, but that was as a result of the change in
19 methodologies of calculating.
20 Q Thank you, and forgive me again if this was
21 obvious to everybody else but me, but in Exhibits 7
22 through 9, was EAS implemented at some particular point
23 for all of these exchanges?
24 A Yes. It was implemented 1991. I think the
25 base minutes that you see up above there was prior to the
31
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 implementation of EAS.
2 Q So as far as you know, this number, the
3 base number, was 1991 and then the 1991, December 1991,
4 number was the end of the partial year of implementation
5 of EAS?
6 A It was in the first year. I'm not exactly
7 sure of the dates that it was implemented.
8 Q For purposes of your federal cost recovery,
9 does the interstate jurisdiction, does the FCC look at
10 those numbers on an annual basis for minutes of use for
11 local and toll calling to determine what your cost
12 recovery will be or do they do that at different periods?
13 A I'm not sure what you mean by look at it,
14 but, yes, those are utilized to calculate your interstate
15 revenue requirement, yes.
16 Q On an annual basis?
17 A Yes, on an annual basis.
18 MS. HOBSON: Thank you. That's all I have.
19 COMMISSIONER HANSEN: Mr. Howell, do you
20 have any questions?
21 MR. HOWELL: I do. Thank you,
22 Mr. Chairman.
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32
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 CROSS-EXAMINATION
2
3 BY MR. HOWELL:
4 Q Mr. Kelly, good afternoon.
5 A Good afternonn.
6 Q Let's start with, I guess, a couple of
7 points that you mentioned in your supplemental direct.
8 You mentioned that one of the causes of stimulation has
9 or is the advent of flat rate Internet service. Do you
10 know if Silver Star provides flat rate Internet service
11 in its service territory?
12 A It's my understanding that they do not
13 provide, these communities that we're looking at do not
14 have access to flat rate Internet service.
15 Q And so in answer to my question, Silver
16 Star does not provide flat rate Internet service?
17 A These Silver Star communities do not have
18 access to flat rate Internet.
19 MR. WARD: Mr. Chairman?
20 COMMISSIONER HANSEN: Mr. Ward.
21 MR. WARD: Mr. Howell, would you accept
22 that I could give you a better witness to ask that
23 question to?
24 MR. HOWELL: Sure. Rather than dancing
25 around, all right, I'll hold that.
33
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 Q BY MR. HOWELL: Now, Mr. Kelly, turning to
2 what's been identified and admitted as Exhibit 8, it
3 shows, I guess, over a several-year period a pretty hefty
4 increase in what has been labeled as "Stimulation," does
5 it not?
6 A Yes, it does.
7 Q All right, and isn't it true that there is
8 a new casino which has come on line in the town of
9 Bennett since these factors were measured for
10 stimulation?
11 A Not to my knowledge. I don't think Bennett
12 has, is eligible for a casino gambling.
13 Q Isn't Bennett near Cripple Creek?
14 A I think Cripple Creek is on the western
15 side of Denver. I'm not sure.
16 Q Okay. When we talk about stimulation,
17 doesn't the quantification of stimulation involve at
18 least two parts, and one part, as I look at Exhibits 6, 7
19 and 8, involves the normal growth in the number of
20 minutes of use, so one component would be growth in the
21 normal access minutes; would you agree with that?
22 A I guess I'm not following your question.
23 Q What I'm trying to get at is what are the
24 components involved in the calculation of stimulation as
25 portrayed in your Exhibits 6, 7 and 8?
34
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 A I guess I would define stimulation as just
2 the growth in the minutes on these routes as a result of
3 making calls which were once toll or long distance calls
4 free calls.
5 Q All right, and I guess that goes to the
6 second part of what at least I perceive as stimulation
7 and not that I'm testifying, so based on what you just
8 said, stimulation is the increase in calls once they are
9 converted from toll calls to local calls?
10 A Yes.
11 Q All right, and isn't there then also a
12 normal growth in the number of minutes of traffic that
13 normally is present in any exchange calculations of
14 revenue?
15 A There can be growth in minutes for other
16 reasons, yes, I'd agree with that. I don't know how you
17 would quantify it.
18 Q I guess, for instance, just looking at
19 Exhibit 8 which was the Bennett, the first year they
20 only, they experienced a 200 percent, 207 percent growth;
21 isn't that correct?
22 A That's correct.
23 Q All right, and then that next year,
24 wouldn't you assume some of that growth from 137,000
25 minutes to 174,000 minutes would have been the growth
35
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 that would have normally occurred even if EAS had never
2 been granted?
3 A One could assume that, but one could also
4 assume there would be less traffic as well.
5 Q Doesn't the company in this case assume a
6 revenue growth based on growth in traffic?
7 A In our filing for this, for these
8 communities, we did not assume any lost access growth,
9 no, we did not.
10 Q But you assumed a growth in access minutes,
11 did you not?
12 A No, we didn't. We just assumed a growth in
13 local minutes.
14 Q All right, turning to your page 2 of your
15 prefiled testimony, particularly on lines 9 through 13,
16 you indicate there that your analysis assumes
17 implementation of both two-way EAS routes between
18 U S WEST Idaho Falls and Pocatello calling areas. Isn't
19 it true that Idaho Falls and Pocatello are in a single
20 calling area?
21 A Yes.
22 Q You're not advocating simply EAS to those
23 two exchanges?
24 A No.
25 Q On page 3 of your testimony, you are
36
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 talking about on lines 5 through 9 what approach you used
2 to calculate your EAS cost analysis. Is it true that the
3 cost of service methodology that you initially used is
4 more expensive in terms of labor and time to construct on
5 your part as a consultant than using a revenue neutral
6 analysis?
7 A I don't know if I'd characterize it as more
8 expensive or less expensive.
9 Q Is it true that you used the cost of
10 service approach simply because you are in the process of
11 preparing the company's general rate case?
12 A I don't know if in the process is the right
13 word to use, but, yes, the company is planning on filing
14 a local rate increase, yes.
15 Q Now, on line 12 on that page, you struck
16 the date 1996. Can you tell us what test year you used
17 to prepare your cost of service study?
18 A We used a 12-month test period ending
19 August 31st, 1997.
20 Q All right. In your calculations of EAS
21 costs, which on page 4, line 19, total, I believe you
22 corrected it to, 157,565, does that include the cost of
23 your regulatory expenses in preparation of this case?
24 A Yes, it did.
25 Q And what cost did you utilize in factoring
37
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 in your expenses for this case?
2 A The same amount that the Staff used, the
3 $20,000.
4 Q Is that the same amount that the company
5 used for Mr. Hendershot's testimony?
6 A I'm not sure about that.
7 Q So you wouldn't have any reason to disagree
8 with me when I said your expenses were more than
9 Mr. Hendershot's?
10 A No, I would not.
11 Q If I could have you turn to your Exhibit 1,
12 and I guess for clarification purposes simply so I
13 understand, your Exhibits 1 and 2 as well as 3 were based
14 on a cost of service approach and your adjusted numbers
15 were based on a direct cost or revenue neutral approach;
16 is that correct?
17 A Yes.
18 Q All right, and is it fair for me to assume
19 that your Exhibits 1 and 2 are based on your cost of
20 service calculations?
21 A Yes, they are based utilizing that
22 methodology, yes.
23 Q If I could direct your attention to line 9
24 of Exhibit 1, it says as a description "Total 2001 Rate
25 Base." What does that description mean?
38
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 A That would be total, in the total -- in
2 column D, it would represent total company plant in
3 service.
4 Q In what year?
5 A As of 8/31/97.
6 Q All right; so the number 2001 isn't
7 referring to a test year of 2001, is it?
8 A No, no. That's the Part 32 account number
9 for that, for telephone plant.
10 Q Now, on page 5 and then in your
11 Exhibits 4A, 4B and 4C, and those last three exhibits I
12 just mentioned are all dated November 3rd, you have
13 presented the Commission with three rate design
14 alternatives to recover the EAS costs, have you not?
15 A Yes, that is what is represented in 4A, B
16 and C, that's correct.
17 Q And in particular, is it your testimony
18 that you urge the Commission to adopt your proposed rate
19 design shown in your Exhibit 4A dated November 3 which
20 has the residential and the business rates identical?
21 A Yes.
22 Q And that is your primary recommendation in
23 this case?
24 A Yes. We offered three alternatives, but
25 that would be the primary recommendation.
39
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 Q Well, under just this first alternative
2 which is represented in Exhibit 4A, would you agree with
3 me that in essence if the Commission were to implement
4 this EAS that business customers would receive the
5 benefits of EAS for free?
6 A That could be one way you'd characterize
7 it. Another way would be that they would receive it at
8 the same -- the price of their service would be identical
9 to the price of the service that the residents are
10 paying.
11 Q Isn't it true that the business rate would
12 actually drop $5.00, but the residential rate would
13 increase $2.51?
14 A Yes, under this rate rebalancing proposal,
15 that would be the result.
16 Q So then the proposed recovery that you're
17 recommending, residential customers would pay an
18 increased rate, yet business customers would pay a
19 decreased rate?
20 A Yes.
21 Q Now, knowing it's been some time since
22 you've been testifying before the Idaho Commission,
23 Mr. Kelly, do you see any problems that the company may
24 have with meeting its USF eligibility criteria if the
25 rates for business and residential were identical?
40
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 A I understand that they have to be, the
2 rates have to be, set at 125 percent of the statewide
3 average and I believe this 17.51 achieves that.
4 Q Well, let's talk about the statewide
5 average. When you said the 17.51 is the statewide
6 average, that is not the statewide average for business
7 rates, is it?
8 MR. WARD: Mr. Chairman,.
9 COMMISSIONER HANSEN: Mr. Ward.
10 MR. WARD: I'm going to object at this
11 point because Mr. Howell is leading into an area that
12 clearly calls for a legal conclusion and I'll tell you
13 what it is. Without pulling out my code, I can tell the
14 you that what the code says, in essence, is that the
15 rates, the threshold rates, shall be 125 percent or
16 greater of the statewide average local exchange rate.
17 The code does not reference business rates and local
18 rates, nor insist on a disparity between the two. Now,
19 Mr. Howell and I can argue about what that means, but
20 this witness really is not in a position to testify about
21 what that section of the code means.
22 COMMISSIONER HANSEN: Mr. Howell.
23 MR. HOWELL: Well, I guess I would simply
24 ask, then, the Commission take judicial notice of the
25 universal service statute and particularly Idaho Code
41
CSB REPORTING KELLY (X)
Wilder, Idaho 83676 Silver Star
1 62-610(3)(a) which states, "The telephone corporation's
2 average residence and business local exchange service
3 rates for one-party single line service are in excess of
4 125 percent of the weighted statewide average rates for
5 residential and business local exchange service rates."
6 Thank you, Mr. Kelly.
7 I have no further questions, Mr. Chairman.
8 COMMISSIONER HANSEN: Let's see if we have
9 any questions from the Commission. Commissioner Nelson.
10 COMMISSIONER NELSON: Thank you.
11
12 EXAMINATION
13
14 BY COMMISSIONER NELSON:
15 Q Mr. Kelly, have you had any experience in
16 prior EAS cases, perhaps in other states?
17 A I've never testified in an EAS case before.
18 Q In your Exhibits 6, 7 and 8, I'm curious
19 about the stimulation from, say, the fourth to the
20 seventh year, which if you look at Exhibit 8, the
21 stimulation is even more than in the first four years for
22 the last three. Can you provide any explanation why it
23 would keep growing like that?
24 A I think the primary reason is just Internet
25 usage. The '91, '92, '93 time frame, and this is just
42
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 from my personal experience, I was really not an Internet
2 user. Now you're seeing the continual growth of local
3 minutes in the last, especially in the last, three to
4 four years.
5 Q Do you know if these exhibits, if in the
6 preparation of these exhibits you took into account line
7 growth during that period?
8 A Well, yes, line growth would be taken into
9 account because we're just measuring the minutes on all
10 the lines in those communities.
11 Q Well, wouldn't you analyze that growth and
12 adjust it to a minutes per line rather than just show the
13 total?
14 A You could. I mean, that would be one
15 aspect of growth, but the communities we're discussing
16 are not experiencing much line growth. They're very
17 small rural communities and could be actually
18 experiencing population reductions.
19 Q So then would you say that these numbers do
20 not take line growth into account, it's just totals?
21 A They are based on a total minute on the
22 route, yes, not on a per line basis, that is correct.
23 Q Early in your testimony you said that you
24 had rerun the figures based on 200 percent stimulation
25 and you were within $1,000 of Ms. Hall's number. In
43
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 looking through the testimony myself, I don't see any
2 numbers that are within $1,000. Where are you within
3 $1,000, of what number?
4 A I believe Ms. Hall shows a 200 percent
5 stimulation $95,844 number.
6 Q Okay, I've got that number and so if you
7 run your numbers at 200 percent stimulation, you're close
8 to that number?
9 A Yes, and it might be explained on one of
10 her exhibits. Exhibit 104 shows approximately a $3,178
11 difference and $2,773 is related to the additional
12 equipment needed for the 400 percent stimulation.
13 Q Okay, and so --
14 A So when you subtract the two, it looks like
15 it's approximately $400 or so.
16 Q So if I compare her number of 95,000 to
17 your number of 157,000, the difference is the
18 stimulation?
19 A Yes, that is correct.
20 Q Does she include your fee in her $95,000
21 number, do you know?
22 A Yes, she does. It's on, I believe, line 5
23 on Exhibit 104.
24 Q And she amortizes that over three years?
25 A Yes.
44
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 Q How do you measure these minutes once
2 they're no longer toll?
3 A All minutes, I guess, are measured off the
4 switch in order to run the traffic studies and run the
5 Part 36 separations studies.
6 Q Is that right?
7 A Yes.
8 Q So then you have the total minutes and
9 subtract out the toll?
10 A Yeah, they're jurisdictionalized between
11 state access, interstate access and then local.
12 Q Okay, one other area I wanted to ask you
13 about, your numbers show about a $2.50 increase in order
14 to implement EAS and yet, Ms. Hall's number, which is the
15 one I used, it looks like there's a monthly cost to
16 implement this per customer of about $16.00; is that
17 correct?
18 A I believe those are two different numbers.
19 I think the number that we're recommending as a local
20 increase is to the statewide threshold. I think the
21 number that Ms. Hall cites is the total cost assuming
22 none of the monies are obtained from the Idaho universal
23 service fund.
24 Q Well, how did I do that? I took 500 lines
25 a month, 6,000 lines and the total cost, maybe I used
45
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 your $157,000, is that -- I don't know where I got the
2 number. Anyway, it looked to me like I had a monthly
3 cost on here of $16.00 a line. Would you say that's a
4 bad number?
5 A That might be an approximate number,
6 assuming none of the monies -- in our rate design
7 proposals, we only, we assumed that part of the monies
8 would be obtained through the Idaho high cost fund.
9 Q Part of it or most of it?
10 A Well, most of it.
11 Q Do you think that's fair?
12 A I guess is it fair? I mean, I think it is
13 fair that the calling area is expanded and that the
14 company needs to be made whole if they're going to expand
15 the calling areas.
16 Q Well, you know, as we travel these
17 hearings, we have, you'll see tonight --
18 A Okay.
19 Q -- we have a lot of folks who show up to
20 testify. Now, the last couple of hearings we've had,
21 we've had, oh, from 150 to 300 people show up and they
22 all want EAS, but they all want it based on the fact it's
23 only going to cost them $2.50 a month. If it was going
24 to cost them $16.00 a month, do you think they'd want it?
25 A I guess that would depend on each
46
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 individual's calling pattern.
2 Q Well, do you think it's fair that we
3 implement it and only charge the person receiving the
4 benefit $2.50 and the rest of the state picks up the
5 balance?
6 A I guess I think it would be fair if the
7 calling scopes for the smaller communities, and they were
8 paying a similar rate, they would have a similar calling
9 scope to the larger communities. I don't know if that
10 answers your question, but I guess their calling scope
11 now is currently much less than what someone in a larger
12 community pays.
13 Q My question is what do you think of this
14 system?
15 A The system whereby it would be recovered
16 from the high cost fund?
17 Q Uh-huh.
18 A I guess if the high cost fund is necessary
19 to equalize rates in urban and rural areas, I think
20 that's it's fair to the ratepayers in the rural and urban
21 areas.
22 COMMISSIONER NELSON: Okay, thank you.
23
24
25
47
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 EXAMINATION
2
3 BY COMMISSIONER HANSEN:
4 Q Mr. Kelly, I've just got one question. At
5 the public hearing that we had in Soda Springs, we had
6 individual after individual indicate that they'd be
7 willing to pay anywhere from 6 to $20.00 more a month and
8 yet, you're taking and picking the priority rate at
9 $2.00, a little over $2.50, for these people as an
10 increase. I guess I'm kind of curious of why if the
11 public voices support to pick up a greater share of EAS
12 why in your exhibits are you downplaying that to such a
13 small amount?
14 A Well, we offered three different proposals
15 for rate recovery. The reason we recommended, that I
16 recommended, No. 1 was primarily to eliminate the large
17 disparity between business and residential customers, and
18 in addition, it's also similar to the -- it's at the
19 threshold rate which is based upon an average statewide
20 rate, so it kind of makes, I guess puts everybody on an
21 equal basis.
22 I did offer two other proposals, one which
23 offers a same percentage increase to both the business
24 and residential customers and then a third alternative
25 which moves both of them up to the statewide business and
48
CSB REPORTING KELLY (Com)
Wilder, Idaho 83676 Silver Star
1 statewide residential rates.
2 Q You were at the hearing in Soda Springs,
3 weren't you?
4 A No, I was not.
5 Q Oh, you weren't there?
6 A No.
7 COMMISSIONER HANSEN: That's all I have.
8 Mr. Ward, do you have any redirect?
9 MR. WARD: Yes.
10
11 REDIRECT EXAMINATION
12
13 BY MR. WARD:
14 Q Mr. Kelly, do you have Ms. Hall's testimony
15 and exhibits in front of you?
16 A Yes, I do.
17 Q If you'd turn to Exhibit 104, let me see if
18 I can help bring in a little clarity to the matter
19 Ms. Hobson was asking you about. With Exhibit 104 --
20 first of all, to cut to the chase, isn't it true that
21 what you're saying is that in the original testimony, you
22 and the Staff used quite different cost analysis
23 approaches?
24 A Yes, that would be a true statement.
25 Q In an effort to get the numbers to mesh,
49
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 you essentially have adopted, for want of a better word,
2 the Staff's approach?
3 A Yes.
4 Q All right. Now, if we look at Exhibit 104,
5 there Ms. Hall has summarized the comparison between
6 consultant and Staff, there's no column heading, but if
7 you look at the second line, you'll see a column heading
8 called "Consultant" and I assume those are TCA's numbers
9 with adoption of the Staff approach?
10 A Yes, they're very close. I think there's
11 some minor discrepancies, but nothing worth arguing
12 about.
13 Q All right, and on the right-hand side is
14 the Staff that represents Ms. Hall's approach as you
15 understand it?
16 A Yes.
17 Q Now, if you look down at line 6, you'll see
18 totals and on the totals there, you'll see 99,022 for
19 consultant, do you see that number?
20 A Yes.
21 Q Now, if we were to add to your number and,
22 for that matter, Ms. Hall's numbers -- well, let's just
23 start with line 3. If you'll look at line 3, you see
24 that there is a number of 7,953 under consultant, do you
25 see that number?
50
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 A Yes.
2 Q Does that represent plant required, the
3 ongoing cost of plant required, at 400 percent
4 stimulation?
5 A Yes, it does.
6 Q And conversely, Ms. Hall's number, 5,180,
7 represents plant at 200 percent stimulation?
8 A Yes, I believe that's the difference there.
9 Q Now, if you go to -- so in that instance,
10 Ms. Hall did include the 400 percent stimulation cost in
11 your numbers; correct?
12 A I believe she did.
13 Q Now, if we go to line 4, there both numbers
14 are identical and is it your understanding they are at
15 200 percent stimulation?
16 A Yes.
17 Q And that's the interstate revenue shift as
18 we've called it?
19 A Yes, and that's the number she agreed with.
20 Q What would the number be under your column
21 for line 4 at 400 percent stimulation?
22 A That number would be 100,975.
23 Q And now if we add the numbers up in your
24 column, we should get something hopefully that matches
25 your 150 some thousand dollar number?
51
CSB REPORTING KELLY (Di)
Wilder, Idaho 83676 Silver Star
1 A Yes. Like I said, there's some slight
2 discrepancies, but, hopefully, you're going to be within
3 a couple thousand dollars.
4 Q Okay, and if we put a 400 percent
5 stimulation factor in effect and the change in numbers
6 for Ms. Hall's column on lines 3 and 4, she too would get
7 150 some thousand dollars or within a very few hundred
8 dollars of your number; is that correct?
9 A I believe so.
10 MR. WARD: Thank you. That's all I have.
11 COMMISSIONER HANSEN: Thank you for your
12 testimony.
13 (The witness left the stand.)
14 MR. WARD: We call Ron McCue to the stand.
15
16 RON B. McCUE,
17 produced as a witness at the instance of Silver Star
18 Telephone Company, having been first duly sworn, was
19 examined and testified as follows:
20
21 DIRECT EXAMINATION
22
23 BY MR. WARD:
24 Q Mr. McCue, would you please state your name
25 and address for the record?
52
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 A My name is Ron B. McCue and my address is
2 104101 Highway 89, Freedom, Wyoming.
3 Q By whom are you employed and in what
4 capacity?
5 A I am employed by Silver Star Telephone
6 Company and in the capacity as vice president.
7 Q Mr. McCue, in preparation for our hearings
8 today, did you cause prefiled testimony to be prepared?
9 A Yes, I did.
10 Q And do you have any corrections or changes
11 to that testimony?
12 A No, I do not.
13 Q If I were to ask you the questions
14 contained in that testimony today, would your answers be
15 as given?
16 A Yes, they would.
17 MR. WARD: Mr. Chairman, I'd move that
18 Mr. McCue's testimony be spread upon the record as if
19 read.
20 COMMISSIONER HANSEN: If there be no
21 objection, so ordered.
22 MR. WARD: He has no exhibits.
23 COMMISSIONER HANSEN: Okay.
24 MR. WARD: At least not yet.
25 (The following prefiled testimony of
Mr. Ron B. McCue is spread upon the record.)
53
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
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 Silver Star Telephone Company, Inc.,
5 hereinafter referred to as Silver Star, and the Vice
6 President of Teton Telecom. My business address is
7 104101 Highway 89, P.O. Box 226, Freedom, Wyoming 83120.
8 Q DOES EXHIBIT NUMBER 1 CORRECTLY SET FORTH
9 YOUR EDUCATIONAL AND OCCUPATIONAL BACKGROUND?
10 A Yes, it does.
11 Q HAVE YOU PROVIDED EXPERT TESTIMONY BEFORE?
12 A Yes, I have provided testimony during a
13 variety of telecommunications related hearings before
14 Commissions in Alaska, Montana, Colorado, North Dakota,
15 Idaho and Wyoming. In addition, I have appeared before
16 the Federal Communications Commission on issues such as
17 independent company networks and network reliability.
18 Last, I have appeared before legislative bodies of the
19 states of Wyoming, Alaska, and Montana, as well as
20 appearing before members of the United States Congress to
21 testify about telecommunications related matters.
22 Further, I have written or co-written seven articles on
23 telecommunications matters.
24 Q PLEASE STATE YOUR CURRENT RESPONSIBILITIES
25 FOR SILVER STAR TELEPHONE.
54
Case No. GNR-T-96-6 McCUE (DI) 1
November 3, 1997 Silver Star Telephone Company
1 A My duties currently include the general
2 guidance and supervision of the day to day activities of
3 a number of departments at Silver Star
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Case No. GNR-T-96-6 McCUE (DI) 1A
November 3, 1997 Silver Star Telephone Company
1 Communications and Teton Telecom. 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 years, it
13 has become eminently clear to me that the customers in
14 both the Irwin and Wayan areas are demanding an Extended
15 Area Service ("EAS") arrangement be implemented. My
16 testimony supports the wishes of the communities
17 involved, and offers the requisite documentation and/or
18 schedules to demonstrate that EAS can easily be
19 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. Jerry Rhinehart
56
Case No. GNR-T-96-6 McCUE (DI) 2
November 3, 1997 Silver Star Telephone Company
1 and Mr. George Clark, our Cost Consultants, of Tallon
2 Cheeseman & Associates.
3 Q WHY DO YOU BELIEVE THAT THE CUSTOMERS OF
4 SILVER STAR TELEPHONE IN THE IRWIN AND WAYAN EXCHANGES
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Case No. GNR-T-96-6 McCUE (DI) 2A
November 3, 1997 Silver Star Telephone Company
1 DESIRE EXTENDED AREA SERVICE?
2 A During my eight year tenure at Silver Star
3 Telephone I have had the opportunity to be in contact
4 with a considerable number of our customers. One of the
5 dominant issues in those conversations is the lack of EAS
6 service between the commercial areas and the county
7 seats. Customers have been emphatic about their desire
8 to eliminate the long distance calling between these
9 areas. The most dominant needs are because the junior
10 high, high school, doctors, dentists, county offices
11 bank, etc., are located in areas that require a toll
12 call. For customers to function in their day to day
13 lives, as well as communicate with many of their children
14 in school, this has been problematic to say the least.
15 Additionally, Silver Star conducts customer
16 satisfaction surveys on a routine basis. In these
17 surveys Silver Star asks for direct suggestions or
18 comments from the customers. To the best of my
19 knowledge, a survey has not been completed to date
20 without a number of comments about this EAS matter. In
21 my eight years, I have only heard from one person who
22 felt EAS should not be implemented. When you measure
23 that with the hundreds of comments in support of EAS, a
24 clear pattern seems to present itself.
25 Q BASED UPON YOUR EXPERIENCE IN THE INDUSTRY,
58
Case No. GNR-T-96-6 McCUE (DI) 3
November 3, 1997 Silver Star Telephone Company
1 AS WELL AS YOUR OPERATION IN OTHER STATES, DO YOU BELIEVE
2 THAT THERE ARE ANY GENERALLY ACCEPTED PARAMETERS FOR EAS
3 IMPLEMENTATION?
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Case No. GNR-T-96-6 McCUE (DI) 3A
November 3, 1997 Silver Star Telephone Company
1 A Yes, there has become something of a
2 de facto standard in the Rocky Mountain region by virtue
3 of U S WEST's position on this matter. I have generally
4 concurred in U S WEST's reasoning that the smaller
5 exchange should make an average of approximately six
6 calls per line per month to the larger exchange. As a
7 further criteria, at least 50% of the customers in the
8 smaller exchange need to make at least two calls per line
9 per month to the larger exchange.
10 Q HOW DOES THAT APPLY TO THE SILVER STAR
11 INFORMATION YOU HAVE PREPARED IN THIS CASE?
12 A In order to analyze this question
13 thoroughly, it is necessary to separate the response
14 between the Irwin and Wayan exchanges. Based upon my
15 analysis, the Silver Star Wayan customers make an average
16 number of six calls per line per month to the U S WEST
17 Soda Springs exchange. Further, it appears that 80% of
18 the customers make two or more calls per month to the
19 U S WEST Soda Springs exchange and 67% make six or more
20 calls to the U S WEST Soda Springs exchange per month. A
21 similar calling pattern emerges in the Wayan to Pocatello
22 calling data. However, the Wayan customers calling
23 volumes to the remainder of the towns in Eastern Idaho
24 drops sharply.
25 To address the Irwin exchange next, the Silver
60
Case No. GNR-T-96-6 McCUE (DI) 4
November 3, 1997 Silver Star Telephone Company
1 Star Irwin customers make an average number of nine calls
2 per line per month to the U S WEST Idaho Falls exchange.
3 Further, it appears that 90% of the customers make two or
4 more calls per month to the U S WEST Idaho Falls
5 exchange, and 82% make six or more calls to the U S
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Case No. GNR-T-96-6 McCUE (DI) 4A
November 3, 1997 Silver Star Telephone Company
1 WEST Idaho Falls exchange per month. Again, the calling
2 volumes drop sharply to the remainder of the towns in the
3 Eastern Idaho calling area.
4 Q DOES THIS ANALYSIS INCLUDE THE FREEDOM,
5 IDAHO EXCHANGE?
6 A No, because the Freedom, Idaho, exchange
7 represents a border anomaly that has historically been
8 under the jurisdiction of the Wyoming Commission, and it
9 currently has EAS service available in the Alpine and
10 Afton, Wyoming area. Any change of its EAS area in Idaho
11 would necessitate a change in the calling area of the
12 Alpine and Afton, Wyoming areas that would require
13 Wyoming and perhaps Federal approval.
14 Q WHAT PERIOD DID YOU USE TO ANALYZE THE
15 TRAFFIC FOR THIS CASE?
16 A The period that was utilized was
17 information that was prepared for October 1, 1995,
18 through November 1, 1996. The specific period used was
19 an actual sample of traffic from October 1, 1995 through
20 November 1, 1996. These months were chosen because they
21 represent typical months, as well as months that included
22 periods when the high school and junior high were in
23 session.
24 Q BASED UPON YOUR UNDERSTANDING OF THE
25 COMMUNITIES, DO YOU ADVOCATE ONE-WAY EAS FROM SILVER STAR
62
Case No. GNR-T-96-6 McCUE (DI) 5
November 3, 1997 Silver Star Telephone Company
1 TO THE U S WEST EXCHANGES, OR DO YOU ADVOCATE TWO-WAY
2 EAS?
3 A In my experience, one way EAS creates
4 customer confusion and a host
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Case No. GNR-T-96-6 McCUE (DI) 5A
November 3, 1997 Silver Star Telephone Company
1 of other problems. I strongly recommend two way EAS.
2 Q ARE THERE ADEQUATE FACILITIES IN PLACE TO
3 PROVIDE EAS?
4 A From Silver Star's perspective adequate
5 facilities do exist. Silver Star has analyzed the number
6 of trunks necessary to provide EAS, using its own
7 information as well as data provided by U S WEST.
8 Obviously, traffic will not remain static when calls are
9 toll free, and we want to be sure we have adequate
10 facilities turned up to accommodate the increase.
11 Therefore, based upon my best engineering judgment, I
12 have inflated the actual traffic by 400%. This would
13 call for 48 EAS circuits for Irwin and 24 for Wayan to be
14 established. Adequate facilities exist to provide these
15 circuits.
16 Q WHEN COULD IMPLEMENTATION BE ACCOMPLISHED
17 ON THE FIBER SYSTEM AS YOU HAVE RECOMMENDED?
18 A To the best of my knowledge, by January 1,
19 1998.
20 Q WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY.
21 A Yes, it is Silver Star's position, and my
22 personal recommendation, that EAS between the Eastern
23 Idaho exchanges, and the Irwin and Wayan exchanges of
24 Silver Star Telephone be implemented in the most
25 efficient and expeditious manner possible. Given the
64
Case No. GNR-T-96-6 McCUE (DI) 6
November 3, 1997 Silver Star Telephone Company
1 facilities available, the number of calls being placed,
2 and the cost estimates of the companies, it is clear to
3 me that the time has come to provide the customers of
4 Irwin and Wayan with the service they desire.
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Case No. GNR-T-96-6 McCUE (DI) 6A
November 3, 1997 Silver Star Telephone Company
1 Q DOES THIS CONCLUDE YOUR TESTIMONY?
2 A Yes, it does.
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Case No. GNR-T-96-6 McCUE (DI) 7
November 3, 1997 Silver Star Telephone Company
1 (The following proceedings were had in
2 open hearing.)
3 MR. WARD: Again, Mr. Chairman, I'd like to
4 ask just a few supplemental questions.
5
6 DIRECT EXAMINATION
7
8 BY MR. WARD: (Continued)
9 Q Mr. McCue, are you aware of Ms. Hall's
10 testimony to the effect that neither party has any
11 concrete evidence regarding stimulation?
12 A Yes, I am.
13 Q Did you attempt to review the stimulation
14 that has actually occurred in extended area service cases
15 with which you're personally familiar?
16 A Yes, I have.
17 Q And was there an extended area service case
18 involving Silver Star's Freedom exchange and the Afton
19 exchange of U S WEST in Wyoming in the recent past?
20 A Yes. A couple of years ago there was
21 involvement in the Freedom area with a consumer petition
22 to obtain extended area service from the Freedom/Alpine
23 and Freedom, Idaho areas into the Afton, Wyoming area.
24 Q And if you would look at the document
25 that's been premarked as Exhibit No. 9, let me ask you if
67
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 you can identify this document.
2 A Yes. This is an exhibit that I caused to
3 be prepared that analyzed the minutes of stimulation,
4 both originating and terminating, from the Freedom
5 Wyoming, Freedom, Idaho, and Alpine areas into the Afton
6 area, as well as the terminating minutes arriving back in
7 those exchanges from the Afton area. Any time we
8 implement extended area service, we segregate it on a
9 discrete trunk group basis; that is, that we measure EAS
10 separately from toll traffic or local traffic, as it
11 might be, by completely segregating that traffic on to
12 its own trunk group element so no other traffic can go
13 over those, then we apply a traffic measurement system
14 called source destination matrix to those to arrive at
15 that information.
16 Q All right; so would it be correct to say
17 that given that segregation of traffic you have a high
18 degree of confidence that you can identify the actual
19 minutes of use after EAS occurs?
20 A Very high degree of confidence in the
21 numbers that we've prepared based on the minutes that
22 we've captured.
23 Q All right. Now, let me back up just a
24 little bit and go to line 1 of this exhibit. Can you
25 tell me why the base minutes are listed only under total
68
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 two-way minutes?
2 A The base minutes were prepared using a rate
3 case analysis in May, June and July of 1995. At that
4 time we were not able to identify the actual minutes. We
5 took the grossed-up minutes given to us by U S WEST from
6 the Afton exchange terminating in Freedom and the
7 estimated toll minutes, intrastate toll minutes, arriving
8 from those three exchanges going towards Afton. When you
9 don't measure them, there's always the potential for
10 dial-around in situations like that, so the best you can
11 do is give a pretty close approximation.
12 Q All right, and so the base of 106,627 there
13 represents obviously two-way traffic between the
14 exchanges prior to EAS?
15 A That's correct.
16 Q All right. Now, without going through
17 these numbers in excruciating detail, first of all, let
18 me anticipate some questions you were asked and probably
19 will be asked by the Commissioners, these numbers don't
20 necessarily give you a per line growth figure, do they, I
21 mean they're total gross minutes of use?
22 A They're gross minutes actually measured on
23 those trunk groups irrespective of actual access line
24 growth in that exchange, in any of those exchanges.
25 Q So would it be fair to say that access line
69
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 growth could account for a very few percent a year of
2 this, two, three, four percent?
3 A Access line growth would account for some
4 stimulation factor in these numbers, absolutely.
5 Q But would it be significant compared to the
6 numbers we see here?
7 A Not at all.
8 Q All right. Now, let me ask you, just
9 looking at the gross numbers for combined totals, how
10 long did it take these two exchanges to reach the 400
11 percent growth figure?
12 A As the exhibit indicates from August of
13 1995 down to approximately line 19, which would be
14 January of 1997, some 14 or 15 months to reach the
15 400 percent stimulation factor and then moved beyond
16 after that.
17 Q Okay. Let me just -- can you describe just
18 very quickly for the record, I know the Commissioners are
19 probably familiar with it, what the features of the
20 Alpine/Freedom exchanges on the one hand and the Afton
21 exchange on the other are like?
22 A Yes, I could. Alpine and Freedom are what
23 I would consider typical rural remote exchanges. There's
24 not a lot of business in those areas. We had to reach
25 out to the Afton community for junior high, high school,
70
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 for groceries, for shopping areas, for medical, our
2 license plates. Our county seat area is in Afton. One
3 could largely say that most all commerce in that valley
4 is done to Afton.
5 Q Okay. Now, is there also some commercial
6 traffic that would -- would you expect there's some
7 community of interest between Freedom and Alpine and
8 Jackson?
9 A As one analyzes the local area, there's a
10 substantial area of interest from what I'll call the
11 northern part of Star Valley, the Alpine, Wyoming,
12 Alpine, Idaho, northern Freedom exchange, because most of
13 those people have either business ties in the Jackson
14 community or in fact work there and commute back and
15 forth and live in that area. I guess my analysis here is
16 intended to show the Afton and Freedom, the ones that I
17 can accurately identify knowing full well that there's
18 some community of interest calling missing.
19 Q All right, and given what you know about
20 the community of interest between those two sets of
21 exchanges and the sets of exchanges we're considering
22 here today, do you believe this would be a reasonably
23 accurate surrogate for the exchanges we're considering
24 today or higher or lower, do you have an opinion?
25 A I do have an opinion and I think while each
71
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 given community has its own merits, has its own inherent
2 community interests, its owns calling patterns, its own
3 public reactions to things, I think this is the best
4 analysis I could give you for Irwin and Wayan, Idaho,
5 again those people knowing the communities. Wayan, just
6 over 100 access lines, no real business community, has to
7 do everything through their schools, hospitals, groceries
8 in the Soda Springs area.
9 In addition, when you look at the Irwin,
10 Idaho area, again has one elementary school, does junior
11 high, high school, groceries, medical, county in the
12 Idaho Falls area. I would caution, however, that you've
13 got to remember we're talking about a 2,000 access line
14 calling area, Freedom/Alpine, into roughly a 3,000 access
15 line calling area. Where they tend not to be analogous
16 in my opinion is you must remember that we're talking
17 probably in excess of 100,000 access lines in the eastern
18 Idaho calling area that Wayan and Irwin would have access
19 to that are not reflected in these numbers.
20 Q All things being equal, would the greater
21 number of access lines in the eastern Idaho area suggest
22 to you that stimulation would be even greater?
23 A Based on about 21 years of experience in
24 the telephone industry, that's exactly what it would lead
25 me to believe.
72
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 Q Now, at one time were you also -- let me
2 strike that. Did Columbine Telephone Company at one time
3 own exchange properties in Colorado?
4 A Yes, Columbine Telephone Company, Inc.
5 operated in the San Luis Valley serving the areas of
6 Crestone and Mosca, Colorado.
7 Q If you would, Mr. McCue, would you look at
8 Exhibit 10 and tell me how this exhibit came to be
9 prepared?
10 A This exhibit was caused to be prepared by
11 me based on my experience with Columbine Telephone in the
12 San Luis Valley area for the Crestone and Mosca
13 exchanges. As Mr. Kelly had indicated, the Colorado
14 Commission had implemented a CICP, community of interest
15 calling plan, C-I-C-P. I was a participant in that
16 proceeding and process as it related to Columbine
17 Telephone.
18 Q All right, would you tell me, here we have
19 headings for column C and column E headed "Crestone" and
20 "Mosca," if I'm pronouncing that right, would you tell
21 me what those headings represent?
22 A Those represent traffic minutes for each of
23 those communities. As you can see on lines 21 and 23,
24 the Crestone exchange was, had EAS service placed into
25 effect for Mosca, Alamosa amd Saguache communities.
73
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 Mosca exchange had a different number of exchanges,
2 Crestone, Alamosa, Center and Monte Vista. Again with
3 the theory that you establish separate trunk group
4 routing to the communities that they have, we had to
5 measure the Crestone traffic different than the Mosca
6 traffic which really gave us a better analysis to peg
7 actual numbers.
8 Q If my memory of Colorado is correct, would
9 it be correct to assume that Alamosa is the larger
10 community there and can you tell us what size it is?
11 A Alamosa is the larger community.
12 Crestone -- the entire company was about 950 access
13 lines, Columbine Telephone. Rough numbers, about 490
14 were in Mosca and the residual were in Crestone, Crestone
15 being the smaller exchange, and Alamosa being the
16 commerce center, again medical, dental, grocery, and it's
17 a town of about 10,000 people, roughly.
18 Q And how long did it take those two
19 exchanges to get to 400 percent stimulation?
20 A Well, based on our December minutes, it
21 took from October of 1991, which is what the base line
22 minute count was taken from at the implementation date,
23 again October 1991, until sometime right around December
24 of 1992 for the Crestone exchange where it reached 401
25 percent, and roughly 382 percent, not quite 400 percent,
74
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 for the Mosca exchange.
2 Q Okay. Counting your Exhibits 9 and 10,
3 Mr. McCue, as well as the previously introduced exhibits,
4 we have six examples here, how long did it take, in these
5 examples, how long did it take for these communities to
6 get to 400 percent stimulation?
7 A Being a very rough approximation, anywhere
8 from 13 to 15 or 16 months.
9 Q In the fastest of them; is that right?
10 A Yeah.
11 Q Let me turn to another subject here. With
12 this kind of evidence in hand, you recall that Ms. Hall
13 has suggested that the equipment that you proposed, that
14 Silver Star proposes to install could be cut in half
15 because stimulation will be only 200 percent. In your
16 judgment, what would happen if you in fact installed half
17 as much equipment as you had projected?
18 A It would lead one to a very obvious
19 analysis that during the early months you would be fine,
20 at some point there'd be a cross-over and you'd have a
21 blockage at that point and then from there on your
22 blockage rate would continue to be much higher.
23 Q Regardless of what the Commission decides
24 about stimulation, would you in fact only install enough
25 equipment to handle 200 percent stimulation?
75
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 A Based on my professional experience, no, I
2 couldn't in good conscious do that based on two factors.
3 The first factor is I helped price out the equipment.
4 When you looked at the 400 percent stimulation, you got
5 approximately a 20 percent break on the purchase cost of
6 the equipment. When you couple that with the fact that
7 that traffic is coming, anybody that says it's going to
8 stop at 200 percent is inaccurate, it's going to continue
9 to grow, we have an obligation to our customers as a
10 public utility to meet and achieve a P1 grade of service,
11 a level of blockage that is an industry standard, we have
12 an obligation. Whether the Commission allows 200 percent
13 or some other number, we're obligated to meet that and I
14 would put it in.
15 Q Whether the Commission let's you recover
16 your costs or not?
17 A Yes, sir.
18 Q All right. Just to pick up on a couple of
19 other questions, loose ends, you have some familiarity
20 with the geography of Colorado, do you not?
21 A Yes, I do.
22 Q Is Bennett on the opposite side of Denver
23 from Cripple Creek?
24 A Yes, Bennett is on the eastern plains. If
25 one were to look, it would be directly east of Denver.
76
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 Cripple Creek is actually southwest of Denver in the
2 mountainous areas.
3 Q Okay, and lastly, would you clarify the
4 situation regarding Internet access in the Silver Star
5 exchanges?
6 A I'd be happy to. Internet service is under
7 one of my departments. It operates at my direction. In
8 the Wayan area, Silver Star began providing Internet
9 service just a couple of months ago because of the
10 facilities that are available. Internet service by
11 Silver Star is not currently offered in the Irwin
12 exchange and will not be until such time as services or
13 facilities are available and that is not in the immediate
14 foreseeable future.
15 Q If EAS is granted, is it true that the
16 residents of those exchanges will be able to reach
17 Internet providers or other Internet providers, including
18 America Online and the on-line services?
19 A Yes. I have received a number of comments
20 from citizens, particularly in the Irwin exchanges as one
21 might imagine, if we're not going to provide Internet
22 service, couldn't we at least help them get EAS so they
23 could get it from SRV Net or other providers in the
24 Pocatello, Blackfoot and Idaho Falls area.
25 Q Okay. One final loose end, Mr. McCue. As
77
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 Commissioner Hansen suggested, there have been a number
2 of public witnesses who have testified they'd be willing
3 to pay up to $20.00, perhaps, for extended area service.
4 What do you think will happen if there is a significant
5 disparity, and you can define significant however you
6 like, between the bottom line rate paid by U S WEST
7 customers, including any EAS surcharges, and those of
8 Silver Star, do you think the residents of Silver Star
9 will be content if there's a significant disparity in
10 those rates?
11 A No, I don't believe so. Again, in talking
12 to the consumers in the Wayan and Irwin areas, as one
13 starts looking at the analyses from the $2.00 bottom end,
14 roughly, up to the $16.00 range, as you migrate up that
15 scale, there becomes a varying degree of buy-in from the
16 consumers, and once you start passing that number where
17 the consumers believe U S WEST is at, there's a sharp
18 division. They object to having to pay more than
19 U S WEST because of the number of callers they have
20 access to.
21 MR. WARD: That's all I have.
22 Thank you, Mr. Chairman.
23 COMMISSIONER HANSEN: Okay, Mr. Ward, would
24 you like the exhibits marked on the record?
25 MR. WARD: Yes, thank you, Mr. Chairman.
78
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 Yes, I'd request that Exhibits 9 and 10 be marked for
2 identification.
3 COMMISSIONER HANSEN: If there be no
4 objection, so ordered.
5 (Silver Star Telephone Company Exhibit
6 Nos. 9 and 10 were marked for identification.)
7 COMMISSIONER HANSEN: Let's see if we have
8 questions.
9 MR. HOWELL: Mr. Chairman, just a
10 procedural matter, maybe Mr. McCue's testimony ought to
11 be spread on the record.
12 MR. WARD: If I omitted his testimony being
13 spread, I will do so now, Mr. Chairman.
14 COMMISSIONER HANSEN: If there be no
15 objection, so ordered.
16 Okay. Now, we'll see if we have any
17 questions. Ms. Hobson.
18 MS. HOBSON: Thank you.
19
20 CROSS-EXAMINATION
21
22 BY MS. HOBSON:
23 Q Mr. McCue, I want to talk to you real
24 briefly about Freedom. You indicated that's your home?
25 A I live in Thayne, I work in Freedom, that's
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 correct.
2 Q That's the home of your business, then?
3 A That's our corporate office, yes.
4 Q And it's in Wyoming, in the State of
5 Wyoming?
6 A Yes, it is.
7 Q Is there another community -- I'm sorry to
8 say I haven't spent as much time up here as I would like
9 to, is there another community that is known as Freedom,
10 Idaho?
11 A Ms. Hobson, you ought to come on down.
12 We're always welcome to host folks. Freedom is
13 separated, if I can use the term Freedom proper is
14 separated, by a state highway where the north lane of the
15 highway, northbound lane, is in Wyoming and the
16 southbound lane is in Idaho, appropriately cutting the
17 town of Freedom in half.
18 Q So you have, like, one mayor and one city
19 council and so on for Freedom?
20 A No.
21 Q No?
22 A No.
23 Q Do you have any mayors or city council?
24 A I'm sure there are a number of people that
25 have elected themselves mayor, but to the best of my
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 knowledge, there's no mayor or city council. Again, the
2 property identified on the Idaho State side is in Idaho
3 and taxed as such and the property in Wyoming is in
4 Wyoming and taxed as such. It is effectively one
5 community, however. I mean, it literally is across the
6 street.
7 Q Is there a separate exchange within your
8 company that is the Freedom exchange?
9 A There's two exchanges. Freedom, Wyoming is
10 (307) 883 and Freedom, Idaho, served off the same switch,
11 is (208) 873, both effectively given Wyoming rates
12 through a long-standing practice with the Idaho and
13 Wyoming commissions.
14 Q And do the Idaho Freedom customers have EAS
15 to Afton?
16 A They have EAS to Afton and to Alpine as a
17 result of prior orders by the Wyoming Commission, yes.
18 Q Is that an interLATA EAS or where is the
19 LATA boundary?
20 A That is interstate intraLATA, meaning that
21 they are in the Wyoming LATA.
22 Q So the Idaho customers are in a Wyoming
23 LATA?
24 A Yes, they are.
25 Q And Silver Star is not supportive of the
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 concept of giving the Freedom, Idaho customers EAS to the
2 eastern Idaho region; is that correct?
3 A We are not supportive of that for a couple
4 of reasons. One is that it orders the division of a
5 LATA. It becomes intraLATA service going both ways
6 across LATA boundaries. There's a diminimus impact to
7 those customers, I believe. While they are in Caribou
8 County, Idaho, those folks have hospital services,
9 schools, groceries and if we were put in a position of
10 granting EAS service to the Idaho area, we would feel
11 obligated to cut it off from the Wyoming area, thus
12 making it long distance to call across the street or into
13 Afton where their school and hospitals are and I don't
14 believe the community would like that.
15 MS. HOBSON: Thank you. That's all I have.
16 COMMISSIONER HANSEN: Mr. Howell.
17 MR. HOWELL: Thank you, Mr. Chairman.
18
19 CROSS-EXAMINATION
20
21 BY MR. HOWELL:
22 Q Mr. McCue, a couple of questions about
23 Exhibits 9 and 10. First, on Exhibit 9, can you identify
24 in the top of the page in column C, it says originating
25 minutes, what was the originating exchange?
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 A The originating minutes in that exchange
2 would be the Freedom exchange, I'm sorry, and the
3 terminating minutes would be from Afton back to Freedom.
4 Q Okay. In looking at line 11, which is at
5 least described as May 1996, is that a typo or how do you
6 account for what looks like a sudden drop in phone
7 service there?
8 A It's actually a typo. I realized that this
9 morning on the way over here. It's the wrong number and
10 I apologize.
11 Q So it doesn't represent some additional EAS
12 switchover or anything like that?
13 A It does not. It's simply an error on my
14 part.
15 Q And if we were to look under the
16 originating minutes, column C, from Freedom, basically
17 starting on line 4 which shows 116,000 minutes down to
18 October of '97, we only have an increase of about 80,000
19 originating minutes over that course of time, don't we?
20 A That's correct.
21 Q And yet, on the terminating side, there's a
22 tremendous amount of growth. Can you explain the
23 distinction between what appears to be a much smaller
24 growth in originating minutes and a much larger growth in
25 terminating minutes?
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 A Yes, I can. Again, if I can point out, the
2 106,627 base line, if one assumed a one-to-one ratio, you
3 could virtually divide that in half as to originating and
4 terminating for purposes of the initial case, so if you
5 were to do that, basically 53,000, assuming that would be
6 a correct way, 53,000 minutes for August of 1995 would be
7 the originating basis and just two months later in
8 October it jumped to 116, so that was a fairly
9 significant increase. I can directly attribute, I
10 believe, the terminating minute growth is to Silver Star
11 provides Internet service in the Afton exchange and for a
12 good portion of that time there were no other Internet
13 providers and, consequently, the Afton people are calling
14 into the Freedom exchange to access the Internet.
15 Q And does the company offer flat rate
16 service, Internet service?
17 A We offer a host of different costing
18 methodologies from an introductory level which has a time
19 charge to a flat rate charge, yes.
20 Q Then turning to Exhibit 10, when the
21 Colorado Public Utilities Commission adopted the
22 community of interest calling plans, were those plans
23 optional or mandatory for customers?
24 A They were mandatory.
25 Q Okay, and in the Colorado Commission's
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 docket, what stimulation factor did that Commission
2 adopt?
3 A That commission over my objections adopted
4 a 200 percent stimulation factor and, as you can see, it
5 was generally incorrect.
6 Q All right. On page 3 of your testimony,
7 you discuss about lines 15 through 18 about surveys that
8 the company periodically conducts. As a part of that
9 survey, do you ask customers what they'd be willing to
10 pay for additional EAS service?
11 A We do not.
12 Q Okay, and on page 4 of your testimony at
13 the top, you more or less discuss a de facto standard of
14 six calls per line per month being an indication of
15 community of interest. With that standard in mind, are
16 you advocating EAS to those exchanges that don't meet
17 that six calls per month standard?
18 A Yes, I am. As we analyzed this, I caused
19 to be prepared or prepared a number of different analyses
20 for the Irwin and the Wayan exchange looking at just that
21 kind of a criteria, what was the call stimulation, what
22 was the calling pattern to certain communities, if you
23 understand the geography of that area. For example, if
24 you looked at what I'll call the Pocatello calling area,
25 I use that very loosely to define everything from
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 Blackfoot south, would that be a number that would be
2 more palatable to the citizens. In the Irwin area, I
3 looked at what I would call the Idaho Falls calling area
4 and what we found, just a number that stuck in my mind,
5 for the Wayan customers, if you sort of analyzed the
6 traffic and took Montpelier, Paris, Preston, Grace,
7 Bancroft into it, they didn't meet it in all those cases,
8 but is there a community of interest there, for some
9 folks there is. Would you deduct it, it would make about
10 three cents a month difference. In my estimation, that
11 was a diminimus impact and didn't warrant consideration.
12 In fact, we looked at it, would our
13 customers be substantially disadvantaged versus the
14 U S WEST implemented calling area and we think they would
15 be and so we have asked for the entire calling area.
16 Q And then the basis, then, for recommending
17 the entire area, realizing there that are many exchanges
18 as you've just pointed out that have less than one call
19 per month, the basis is because it was cost diminimus?
20 A Yes, that's correct.
21 Q Earlier I was asking Mr. Kelly some
22 questions about the components of stimulation and I
23 believe earlier on your supplemental testimony you were
24 talking about growth rates. Do you remember in the sales
25 cases when Silver Star purchased exchanges from U S WEST
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CSB REPORTING McCUE (X)
Wilder, Idaho 83676 Silver Star
1 what line growth the company assumed in calculating its
2 forward-looking revenue?
3 A I don't remember the exact number. In
4 recent conversations with Mr. Allen Hoopes, I believe he
5 is prepared to discuss those. I don't have a personal
6 knowledge.
7 Q Nice hand-off.
8 MR. WARD: We'll see if it gets completed.
9 MR. HOWELL: It's kind of like the lateral,
10 isn't it?
11 All right, thank you, Mr. Chairman. I have
12 no further questions.
13 COMMISSIONER HANSEN: Commissioner Nelson.
14 COMMISSIONER NELSON: Thank you.
15
16 EXAMINATION
17
18 BY COMMISSIONER NELSON:
19 Q I had a question that came to me as just a
20 periphery issue here, but there's no question that a lot
21 of the stimulation is coming from Internet use. Whether
22 you go to EAS or not, use of the Internet is promoting
23 use of the telephone line, and this by itself is causing,
24 isn't it, quite a shift from interstate to intrastate
25 minutes?
87
CSB REPORTING McCUE (Com)
Wilder, Idaho 83676 Silver Star
1 A I think in almost any analysis I've done,
2 Commissioner, there is inherently in the earlier years
3 some Internet impact, although I'm not sure we could
4 identify what it was. Clearly, in the last two years
5 with just a skyrocketing effect of Internet, it is
6 causing a substantial shift in cost settlements from the
7 interstate to the state and local side, yes.
8 Q So just by itself this is affecting your
9 revenue and your revenue requirement?
10 A No question.
11 Q Well, isn't an awful lot of use of the
12 Internet actually interstate?
13 A It's an issue that's a near and dear one to
14 my heart because I'm an Internet user myself and I know a
15 lot of people who are and virtually all of the Internet
16 web sites that they're visiting or keying on are out of
17 state, so what gets tuned up and looks like a local
18 minute in my opinion is really an interstate minute.
19 Q Is there any way to address this issue to
20 get that turned around?
21 A There are, but none of them are easy,
22 Commissioner.
23 Q Well, this doesn't have a lot to do with
24 this case except for the stimulation, but it seems to me
25 like it is going to have a huge effect on every Idaho
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CSB REPORTING McCUE (Com)
Wilder, Idaho 83676 Silver Star
1 company, on every company.
2 A It has a huge effect and one of the areas
3 that I consider is what you can do, Commissioner, is each
4 Internet service provider and ISP has a router or a
5 mechanism and you know the number of minutes that your
6 customers are on line. Whether they are on a 9.95
7 10-hour or whether they're on a hypothetical 19.95
8 unlimited, as an ISP provider, you know the number of
9 minutes that that customer is on and you can gross those
10 up and if one even applied an allocation factor to them,
11 you'd get much closer than we are today. You could
12 either assume they're 100 percent interstate or you could
13 apply in inter/intrastate allocation factor to them and
14 allocate them on that way minimizing the impact on the
15 interstate cost shift.
16 Q Do you know if the FCC has been approached
17 with that issue?
18 A I know they've been approached on a number
19 of occasions with different methodologies and they are
20 undertaking, I believe, a docket to study that right
21 now.
22 COMMISSIONER NELSON: Okay, thank you.
23
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25
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CSB REPORTING McCUE (Com)
Wilder, Idaho 83676 Silver Star
1 EXAMINATION
2
3 BY COMMISSIONER HANSEN:
4 Q I've got a question. In Mr. Kelly's
5 Exhibit 4, he shows 26 business customers in Wayan.
6 A Yes, sir.
7 Q As they testified at that hearing and
8 they'd get up and say they had a business to sell dogs
9 and horses and cattle and whatever, I asked them if they
10 had a business phone and they said no.
11 A Yes.
12 Q And I guess I'd like to ask you the
13 question, I'm really curious where these 26 businesses
14 are in Wayan and I guess the real question is what
15 difference do you see in business service and residential
16 service in a small community such as that?
17 A If I can address it, Mr. Commissioner, in
18 two parts. The Wayan business customers are very
19 predominantly the large mines, being phone service at
20 Dravo, a contractor for Monsanto, Monsanto's own lines
21 there and phone service to another mine that we serve
22 called Rhone-Poulenc. I would wager a rough guess that
23 95 plus percent of those 26 lines are at those
24 locations. The other one would be Whitelock's Marina and
25 so the ones that I can recall off the top of my head are
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CSB REPORTING McCUE (Com)
Wilder, Idaho 83676 Silver Star
1 true store front-type businesses.
2 The second part of the question is a
3 philosophical determination by Mr. Hoopes and myself and
4 you see it referenced in option one. In our opinion,
5 there's two factors. In Silver Star's territory, in most
6 small independents areas, and certainly here in Driggs,
7 you don't have a lot of really big business. What you
8 have is a little mom and pop working out of the house
9 versus maybe my Aunt Mabel that lives down the street
10 that spends six hours a day on the phone just talking to
11 folks and as you start analyzing those, as most folks
12 know, for many years it was a value of service versus a
13 cost of service and the value of service analogy was that
14 businesses typically had a greater value on the use of
15 that line than did a residence and, therefore, businesses
16 were artificially set higher, the rates were set higher.
17 They effectively subsidized residential
18 service, but now as you come to these cottage industries
19 and you have a really hard time looking at the use of my
20 Aunt Mabel's phone versus a mom and pop cottage business
21 operating out of their home, it's hard to determine that
22 those look that much different in their usage of that
23 phone, and as competitive service comes for U S WEST and
24 for any of the independents, that's an area that
25 wholesalers and retailers are attacking competitive
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CSB REPORTING McCUE (Com)
Wilder, Idaho 83676 Silver Star
1 services. They are buying bulk resale -- bulk
2 residential service at an unbundled discount rate,
3 turning around and selling it to a business because they
4 have no determination of whether that's a business or
5 not, nor do they care, so when you look at ratemaking in
6 the future, it is my opinion, it's the opinion of the
7 management at Silver Star, we're going to have to start
8 making that business/residence rate diverge because the
9 use is the same.
10 Q Would you say, though, in your mind, would
11 you say that businesses require greater demand on your
12 services during the daylight hours than residential?
13 A I don't know as I could make that
14 statement. One could certainly look at it and measure
15 it. I think you certainly could used to make that
16 statement. I don't know if you could do that any more.
17 Q So really, you wouldn't say that had any
18 correlation, then, with the way they allocate toll rates
19 based on cheaper rates in the evening and weekends
20 because of the usage by, say, businesses during the day
21 and you're saying that wouldn't hold true, then?
22 A Not in a small urban area, Mr. Commissioner,
23 I don't believe so. You know, obviously, that theory was
24 set for large businesses in a highly urbanized or metro
25 area. I don't think that's true in a very rural area
92
CSB REPORTING McCUE (Com)
Wilder, Idaho 83676 Silver Star
1 like the ones we serve.
2 Q One last question, are you aware of what
3 U S WEST customers pay for EAS?
4 A Not specifically. Very generally I am, but
5 not specifically as to quote dollar and cents, no.
6 Q Would you, just with the knowledge you
7 have, would you think that it's higher than the $2.51 or
8 $3.51 proposed in Exhibit 4A?
9 A I believe it would be slightly higher.
10 COMMISSIONER HANSEN: Thank you. That's
11 all I have.
12 Mr. Ward, do you have any redirect?
13
14 REDIRECT EXAMINATION
15
16 BY MR. WARD:
17 Q Yes, I want to ask one other question
18 Commissioner Hansen asked in a slightly different way.
19 Let's assume that you have a farmer in this community
20 who, like most farmers, calls for parts, calls for
21 prices, calls for sales information, whether it be toll
22 or local makes no difference for my analogy, and he has
23 a, this farmer has a, residential line and you have a
24 small mom and pop store that calls for supplies and calls
25 for parts and occasionally calls for service, is it clear
93
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 to you which of those two is the true business customer
2 or whether there's any difference between the two?
3 A It's been my personal experience in this
4 area over the last four or five years that the line is
5 becoming so fine that it's almost indeterminable. We've
6 had a number of problems with, you know, the farm
7 advertising, the business advertising and who's causing
8 the use of the system. It's really difficult
9 operationally to say you are a business and therefore you
10 should pay more versus the farmer, that you're not a
11 business and you should pay less.
12 Q One follow-up, do you have some experience
13 of what happens to a small telephone company when it
14 tries to reclassify farmers as businesses?
15 A Unfortunately, yes.
16 Q Was it pleasant?
17 A It was not.
18 MR. WARD: Thank you. That's all I had.
19 COMMISSIONER HANSEN: Thank you for your
20 testimony.
21 THE WITNESS: Thank you.
22 COMMISSIONER HANSEN: I believe right now,
23 we've been at this for about an hour-and-a-half, I think
24 we'll take a ten-minute break and then come back.
25 (Recess.)
94
CSB REPORTING McCUE (Di)
Wilder, Idaho 83676 Silver Star
1 ALLEN R. HOOPES,
2 produced as a witness at the instance of Silver Star
3 Telephone Company, having been first duly sworn, was
4 examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. WARD:
9 Q Mr. Hoopes, would you state your name and
10 address for the record?
11 A Yes, Allen R. Hoopes, H-o-o-p-e-s,
12 104101 Highway 89, Freedom, Wyoming, 83120.
13 Q And, Mr. Hoopes, in preparation for this
14 hearing today, did you cause prefiled testimony to be
15 prepared?
16 A Yes, I did.
17 Q Do you have any changes or corrections to
18 that testimony?
19 A I do not.
20 Q If I were to ask you the questions
21 contained in that testimony today, would your answers be
22 the same?
23 A Yes, they would.
24 Q Mr. Hoopes, you had an exhibit tentatively
25 marked ARH-1, did you not?
95
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 A Yes, I did.
2 MR. WARD: Mr. Chairman, could we have that
3 marked Silver Star's Exhibit 11 for identification?
4 COMMISSIONER HANSEN: Okay, that will be
5 marked as Exhibit 11.
6 (Silver Star Telephone Company Exhibit
7 No. 11 was marked for identification.)
8 MR. WARD: And this time before asking a
9 couple of supplemental questions, I'd move that
10 Mr. Hoopes' testimony be spread on the record as if read
11 and Exhibit 11 identified.
12 COMMISSIONER HANSEN: If there be no
13 objection, so ordered.
14 (The following prefiled testimony of
15 Mr. Allen Hoopes is spread upon the record.)
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96
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 Q PLEASE STATE YOUR NAME, POSITION AND
2 CURRENT BUSINESS ADDRESS.
3 A My name is Allen R. Hoopes, my position
4 with Silver Star Telephone Company, Inc., hereinafter
5 referred to as Silver Star, is President/CEO. My
6 business address is 104101 Highway 89, P.O. Box 226,
7 Freedom, Wyoming 83120.
8 Q DOES EXHIBIT NUMBER 1 CORRECTLY SET FORTH
9 YOUR EDUCATIONAL AND OCCUPATIONAL BACKGROUND?
10 A Yes, it does.
11 Q WHAT IS THE PURPOSE OF YOUR APPEARANCE
12 BEFORE THIS COMMISSION TODAY?
13 A As President and CEO of Silver Star, I am
14 appearing to present testimony in support of two-way
15 Extended Area Service (EAS) between the Irwin/Wayan
16 exchanges and the Southeastern Idaho EAS calling areas of
17 U S WEST.
18 Q WOULD YOU PLEASE DESCRIBE YOUR ROLE IN THIS
19 FILING?
20 A I have participated with our consulting
21 firm, Tallon, Cheeseman & Associates, Silver Star's
22 staff, my Vice President, Mr. Ron McCue, and the Idaho
23 Public Utilities Commission Staff in reviewing, preparing
24 or causing to be prepared, the documents and schedules
25 that are a part of this filing.
97
Case No. GNR-T-96-6 HOOPES (DI) 1
October 31, 1997 Silver Star Telephone Company
1 Q WHY DO YOU FEEL AS A TELEPHONE COMPANY
2 MANAGER THAT TWO-WAY EAS SHOULD BE IMPLEMENTED IN THESE
3 AREAS?
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Case No. GNR-T-96-6 HOOPES (DI) 1A
October 31, 1997 Silver Star Telephone Company
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 both Irwin and Wayan for
7 several reasons. First, many of Irwin's and Wayan's
8 basic services are not located in these communities.
9 Basic services such as the hospital, high school and
10 junior high, county offices, library, and county
11 extension and social services are routinely called by
12 Irwin and Wayan residents at the price of a long distance
13 call. Secondly, over the years many customers have asked
14 for EAS and are continuing to indicate this is a service
15 they desire between the communities. Silver Star's
16 independent surveys have repeatedly indicated a strong
17 desire for this service. Third, during the past two
18 decades recreational and tourism activities have grown
19 bringing many citizens from the Idaho Falls area who own
20 property in the Swan Valley area. These individuals
21 often spend their weekends in Swan Valley and have a need
22 to communicate with family and work on a regular basis in
23 the Idaho Falls area. Fourth, in the Wayan area the work
24 force of the phosphate mining business has grown to
25 include many Wayan residents who work in the Soda Springs
99
Case No. GNR-T-96-6 HOOPES (DI) 2
October 31, 1997 Silver Star Telephone Company
1 mines or Soda Springs businesses on a daily basis and
2 have a need to be in touch with family and the elementary
3 school.
4 Q THE EAS PETITIONS IN THIS CASE ALSO
5 REQUESTED EAS FROM THE IDAHO PORTION OF SILVER STAR'S
6 FREEDOM
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100
Case No. GNR-T-96-6 HOOPES (DI) 2A
October 31, 1997 Silver Star Telephone Company
1 EXCHANGE TO THE SOUTHEASTERN REGION. WHAT IS YOUR
2 POSITION ON THAT REQUEST?
3 A I understand why the residents have made
4 that request, but Silver Star must oppose it. The
5 Freedom exchange serves customers in both Idaho and
6 Wyoming. It already has extended area service to Afton,
7 Wyoming that was implemented as a result of a Wyoming
8 Public Service Commission order. If Freedom also
9 received EAS to the southeastern Idaho region, the result
10 would be an administrative nightmare for both Silver Star
11 and U S WEST. Without going into great detail, an
12 interstate EAS route raises a host of issues, not the
13 least of which is the possibility of EAS arbitrage. As a
14 practical matter, the request is virtually impossible to
15 implement.
16 Q WHAT IS THE REVENUE IMPACT ON SILVER STAR
17 IF IT OFFERS TWO-WAY EAS?
18 A This filing for two-way EAS is designed to
19 be revenue neutral to Silver Star. When I say revenue
20 neutral, I mean that Silver Star will not lose any
21 revenue or receive any additional revenue from the
22 implementation of this service. EAS will result in lost
23 access charges and billing and collection charges for
24 calling to the various Southeastern Idaho exchanges, but
25 Silver Star proposes to recover an equivalent amount of
101
Case No. GNR-T-96-6 HOOPES (DI) 3
October 31, 1997 Silver Star Telephone Company
1 revenue by adjusting local rates and/or increasing its
2 disbursements from the Idaho USF.
3 I should also add that Silver Star is planning to
4 file a rate increase request within the next few weeks.
5 This request is not related to the EAS petitions, but is
6 simply an attempt to recover increased
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102
Case No. GNR-T-96-6 HOOPES (DI) 3A
October 31, 1997 Silver Star Telephone Company
1 costs Silver Star has experienced since its last rate
2 case. Silver Star's last rate case before this
3 Commission was implemented January 1, 1989.
4 Q IF SILVER STAR WILL NOT RECEIVE ANY
5 ADDITIONAL REVENUE FROM THIS FILING, THEN WHY IS TWO-WAY
6 EAS IMPORTANT TO SILVER STAR AS A COMPANY?
7 A The implementation of two-way EAS is
8 important to Silver Star because Silver Star feels it is
9 important to its customers. Communication services are
10 becoming increasingly more important to the average Idaho
11 citizen. Whatever services Silver Star's customers
12 require to meet their communications needs are important
13 to Silver Star. Also, as I stated earlier, Silver Star's
14 management feels that two-way EAS will be good for the
15 communities as a whole.
16 Q WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY.
17 A In summary, Silver Star feels that two-way
18 EAS should be implemented between Irwin and the Idaho
19 Falls/Pocatello U S WEST Southeastern Idaho calling
20 areas. EAS should also be implemented between the Wayan
21 exchange and the Pocatello/Idaho Falls U S WEST
22 Southeastern Idaho calling areas. If the Teton Telecom
23 customers are ultimately included in the U S WEST calling
24 area, Irwin and Wayan should also have EAS to those
25 areas. Silver Star feels that such implementation is
103
Case No. GNR-T-96-6 HOOPES (DI) 4
October 31, 1997 Silver Star Telephone Company
1 consistent with the public interest. Both the Irwin and
2 Wayan communities will benefit by having access to their
3 hospitals, high schools, county seats, and other
4 necessary social services without having to place a long
5 distance call.
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104
Case No. GNR-T-96-6 HOOPES (DI) 4A
October 31, 1997 Silver Star Telephone Company
1 Q DOES THIS CONCLUDE YOUR TESTIMONY?
2 A Yes, it does.
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105
Case No. GNR-T-96-6 HOOPES (DI) 5
October 31, 1997 Silver Star Telephone Company
1 (The following proceedings were had in
2 open hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MR. WARD: (Continued)
7 Q Mr. Hoopes, in the interest of moving right
8 along, I'm just going to cut right to the chase of the
9 principal issue we wanted to address through your
10 supplemental testimony. Are you aware that Ms. Hall has
11 suggested that one way to resolve the question about
12 stimulation would be to fix a stimulation rate for now,
13 so to speak, and then to do a true-up at the end of the
14 year?
15 A Yes.
16 Q Does that sound like a reasonable or
17 sensible proposal to you?
18 A It does not. It would put the company in a
19 constant position of having to recover their costs. If
20 there was retrospective ratemaking, we possibly could be
21 made whole, but the fact that all ratemaking is generally
22 prospective, we would always be behind in catching up
23 with the cost, plus in relationship to the cost, we would
24 have to hire consultants, attorneys, basically do a mini
25 rate case that would involve a lot of our time and I'm
106
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 sure it would involve Staff time and if it happened for
2 all of the independents, which a lot of them are involved
3 in EAS across the state, a lot of the other ITA members,
4 it would probably almost be a full-time job for a Staff
5 person at the Commission.
6 Q All right, thank you, you anticipated my
7 next question. You've looked at the exhibits prepared
8 regarding stimulation factors, have you not?
9 A Yes, I have.
10 Q And in a general way, they show significant
11 growth every year, don't they?
12 A Yes, they do.
13 Q So if we were going to start doing
14 true-ups, would we have to do it every year?
15 A Yes, we would, because the impact to not be
16 understood within just a single year or even two years,
17 it takes a few months to a number one to three years for
18 calling habits to change, and the other thing that is
19 changing calling habits, as has been brought out, there's
20 the advent of the Internet, there is telecommuting and
21 all these types of technological changes that are
22 changing people's calling habits, causing them to stay on
23 line longer and hold up trunks longer than they normally
24 would in a voice-type situation.
25 Q Okay, just very quickly, I don't want to go
107
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 into great detail, but is it possible that stimulation
2 would be higher than we used to see historically, say, 10
3 years ago, because of the presence of alternative
4 carriers and, if so, why would that, how would that
5 happen?
6 A It's definitely possible. You know, when
7 we analyzed the minutes in this case, we had a set number
8 of minutes that was based on U S WEST traffic and in the
9 Soda Springs hearing, there were several questions that
10 you asked of various individuals about who their carrier
11 was and several of them mentioned Excel being their
12 carrier. We know that there are a lot of minutes that we
13 are not capturing in this process. Now, when I say we're
14 not capturing them, we are capturing all of our access
15 minutes, but we don't know what portion of these
16 dial-around carriers are intrastate minutes. They give
17 us a PIU, a percentage of interstate usage, that is
18 98 percent interstate and two percent intra, but we
19 really know that it's probably 50 percent intra and
20 50 percent inter, so we're losing a lot of minutes in the
21 intrastate jurisdiction that we're not capturing in this
22 case.
23 Q Just so that point is clear, is the
24 interstate access charge significantly lower than the
25 intrastate?
108
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 A Yes, it is, very significantly.
2 Q All right, and conversely, once EAS is
3 granted, would those people obviously leave those
4 carriers for the new local traffic?
5 A Yes, they could not compete with a flat
6 rate calling area, so they would immediately leave those
7 carriers and we would be dumped those additional minutes
8 on our facility.
9 Q Okay. Now, I want to return back to the
10 true-ups for just one second. What is your understanding
11 about the time period we normally try to set rates for
12 when we adjust rates?
13 A I think typically we try to set them
14 between two to three years, somewhere in that area. We
15 try not to rate shock our customers every year and
16 basically with this true-up with the stimulation that
17 we're seeing, I would think that we would be changing
18 rates every year if we did the true-up route, but
19 generally, we try to do a two to three-year average rate.
20 Q And in fact, how long has it been since
21 Silver Star's last rate case?
22 A We have not had a rate increase since
23 January 1st of 1989.
24 Q Other than USF driven changes?
25 A Correct, other than USF driven changes.
109
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 MR. WARD: Thank you.
2 That's all I have, Mr. Chairman.
3 COMMISSIONER HANSEN: Okay, Ms. Hobson.
4 MS. HOBSON: No questions.
5 COMMISSIONER HANSEN: Mr. Howell.
6 MR. HOWELL: Thank you, Mr. Chairman.
7
8 CROSS-EXAMINATION
9
10 BY MR. HOWELL:
11 Q Mr. Hoopes, I had asked, I think, Mr. McCue
12 earlier if he remembered the access line growth that we
13 utilized in the sales case and I was wondering if you
14 know the answer to that.
15 A Is that the sales case with respect to
16 Teton, Mr. Howell?
17 Q It is.
18 A Okay, I've got that exhibit right in front
19 of me. Mr. Hendershot was so kind as to provide it for
20 me. What we forecast was because of pent-up demand here
21 in the valley, a 10 percent growth rate in residence for
22 approximately two years, that was '95 and '96, and a
23 business growth rate of 5 percent and an overall growth
24 rate of 7 percent for revenues, but the 10 percent was
25 only for the first two years and it was falling off to
110
CSB REPORTING HOOPES (X)
Wilder, Idaho 83676 Silver Star
1 5 percent in later years in the residential growth rate
2 and in overall business as low as 2.5 percent in later
3 years, so we figured there was quite a bit of pent-up
4 demand in early years.
5 Q Mr. Ward was asking you questions about the
6 dial-around and those kinds of or that line of
7 questioning, do you have an estimate or a guesstimate of
8 how many minutes are currently dial-around now?
9 A I have a guesstimate that it's somewhere
10 between, it could be as high as 50 percent, it might be
11 somewhere between 30 and 50 percent, I would say.
12 Q And the reason you don't know is because
13 you're having to accept the usage factors given to you by
14 other carriers?
15 A Correct. We're having to rely on the fact
16 that they say only two percent of their traffic is
17 intrastate.
18 Q And isn't one of the possible ways of
19 verifying traffic is for conceivably, I guess, the
20 Commission to perform PIU audits?
21 A That would be a possible way, yes. It
22 would probably be quite an undertaking, though,
23 especially getting those carriers to come clean.
24 MR. HOWELL: Oh, you know we have tons of
25 time. Well, Mr. Chairman, in the interest of time, I
111
CSB REPORTING HOOPES (X)
Wilder, Idaho 83676 Silver Star
1 think that concludes my cross.
2 COMMISSIONER HANSEN: Okay,
3 Commissioner Nelson.
4 COMMISSIONER NELSON: I just had one
5 question.
6
7 EXAMINATION
8
9 BY COMMISSIONER NELSON:
10 Q What actual growth rates are you
11 experiencing here?
12 A Here in Teton? We have achieved this year,
13 I think, right around 10 percent. A lot of that was
14 pent-up demand, so I think we did about between 200 and
15 300 additional customers.
16 Q You have 2,000 customers?
17 A We have 3,000 customers and we've achieved
18 right around between 200 and 300 line growth.
19 COMMISSIONER NELSON: Good. That's all I
20 had. Thanks.
21 COMMISSIONER HANSEN: Mr. Ward, do you have
22 any redirect?
23 MR. WARD: Just one.
24
25
112
CSB REPORTING HOOPES (Com)
Wilder, Idaho 83676 Silver Star
1 REDIRECT EXAMINATION
2
3 BY MR. WARD:
4 Q Mr. Hoopes, you're far nicer than I am, to
5 use a euphemism, is pent-up demand a euphemism for
6 primarily held orders when you took over?
7 A Yes.
8 MS. HOBSON: I object.
9 (The witness left the stand.)
10 MR. WARD: That concludes our case,
11 Mr. Chairman.
12 COMMISSIONER HANSEN: Ms. Hobson.
13 MS. HOBSON: Well, we were going to call a
14 witness, but now we're mad. U S WEST calls John Souba.
15
16
17
18
19
20
21
22
23
24
25
113
CSB REPORTING HOOPES (Di)
Wilder, Idaho 83676 Silver Star
1 JOHN F. SOUBA,
2 produced as a witness at the instance of U S WEST
3 Communications, Inc., having been first duly sworn, was
4 examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MS. HOBSON:
9 Q Mr. Souba, would you please state and spell
10 your last name for the record?
11 A Yes. My name is John Souba. The last name
12 is spelled S-o-u-b-a.
13 Q Where are you employed and in what
14 capacity?
15 A I'm employed by U S WEST Communications and
16 I'm a regulatory affairs manager for Idaho.
17 Q In connection with your duties as a
18 regulatory affairs manager, did you prepare and cause to
19 have filed with this Commission certain written
20 testimony?
21 A Yes, I did.
22 Q Would you identify that testimony for the
23 record?
24 A Yes. It was filed on October 31st and it
25 is for three case numbers in combination, GNR-T-96-6,
114
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST Communications
1 GNR-T-97-3 and GNR-T-97-8. It consisted of, let's see,
2 10 pages with no exhibits.
3 Q Do you have any corrections or changes to
4 make to that testimony at this time?
5 A No, I do not.
6 Q Mr. Souba, if I were to ask you the
7 questions that are contained in that prefiled written
8 testimony at this time, would your answers be the same?
9 A Yes, they would.
10 MS. HOBSON: I guess, with that, I ask that
11 Mr. Souba's testimony be spread upon the record of this
12 case and of the Teton case and tender the witness for
13 cross-examination.
14 COMMISSIONER HANSEN: If there be no
15 objections, it will be so ordered.
16 (The following prefiled testimony of
17 Mr. John Souba is spread upon the record.)
18
19
20
21
22
23
24
25
115
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST Communications
1 Q. PLEASE STATE YOUR NAME AND ADDRESS AND
2 POSITION WITH U S WEST COMMUNICATIONS.
3 A. My name is John Souba. My business address
4 is 999 Main Street, Boise, Idaho. I am a staff manager
5 in the Idaho Regulatory Affairs Department.
6 Q. PLEASE STATE YOUR BACKGROUND AND
7 QUALIFICATIONS.
8 A. I earned a B.A. degree in History/Economics
9 from Dartmouth College in 1975. Since joining U S WEST
10 in 1979, I have held a variety of management positions in
11 the Marketing organization dealing with major business
12 accounts. In February, 1988, I joined the Idaho
13 Regulatory Affairs Department. My responsibilities
14 involve a variety of areas including docket coordination,
15 certain tariff and catalog filing responsibilities,
16 response and witnessing in Extended Area Service (EAS)
17 petitions and coordination of discovery and interrogatory
18 responses, among other tasks.
19 Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE THIS
20 COMMISSION?
21 A. Yes, I have testified in two EAS cases
22 involving Eden/Hazelton's petition to call Twin Falls in
23 1988 and in Albion's petition to call Burley in 1990. I
24 also testified in U S WEST's 1996 southern Idaho general
25 rate case.
116
JOHN F. SOUBA, DI 1
U S WEST Communications, Inc.
1 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
2 A. My testimony will discuss U S WEST's
3 positions regarding EAS expansion in southern Idaho as
4 that expansion is related to the three cases captioned in
5 this consolidated docket. I will describe traffic
6 patterns between the petitioning communities and
7 U S WEST's eastern Idaho EAS region including annual
8 revenue estimates. I will provide recommendations for
9 how EAS expansion should be viewed in light of the
10 establishment of the three new EAS regions in 1997 which
11 surround Boise, Twin Falls and the Pocatello/Idaho Falls
12 areas. Also included in this testimony is a discussion
13 of and suggestions for dealing with the backlog of
14 pending EAS petitions in the state involving U S WEST
15 exchanges.
16
17 /
18
19 /
20
21 /
22
23
24
25
117
JOHN F. SOUBA, DI 1A
U S WEST Communications, Inc.
1 Q. PLEASE DESCRIBE THE HISTORY OF THIS CASE.
2 A. On May 9, 1997 the IPUC received an EAS
3 petition from the residents of Teton County with over 500
4 signatures asking for their inclusion in U S WEST's
5 eastern Idaho EAS region. Similarly, in 1996 the
6 residents of the "Greater Swan Valley" communities of
7 Swan Valley, Irwin and Palisades petitioned the
8 Commission for toll free calling to Idaho Falls, Ririe,
9 Victor and Driggs. Finally, the telephone subscribers in
10 the Gray's Lake, Wayan and Freedom, Wyoming areas
11 petitioned to be included in the U S WEST eastern EAS
12 region. In Order 27150, the IPUC found it appropriate
13 and reasonable to consolidate these three petitioning
14 efforts due to the proximity and similarity of the
15 requested EAS extensions. U S WEST agrees that the
16 consolidation limits the expense and time required to
17 decide the merits of these petitions.
18 Q. PLEASE REVIEW WHICH TELEPHONE COMPANY
19 SERVES THE LOCAL COMMUNITIES INVOLVED IN THESE PETITIONS.
20 A. Of course. The Wayan, Gray's Lake,
21 Freedom, Swan Valley, Palisades and Irwin communities are
22 served by Silver Star Telephone Company (Silver Star)
23 while Victor, Driggs, Tetonia and Felt are served by
24 Columbine Telephone Company doing business as Teton
25 Telecom (Teton). U S WEST Communications, Inc.
118
JOHN F. SOUBA, DI 2
U S WEST Communications, Inc.
1 (U S WEST) is the local service provider for the
2 communities of Ririe and Idaho Falls and, of course, the
3 balance of the exchanges which currently make up the
4 eastern Idaho EAS region.
5 Q. WHAT COMMUNITIES ARE INCLUDED IN THE IDAHO
6 EASTERN EAS REGION OR LOCAL CALLING AREA?
7 A. The eastern Idaho EAS region includes the
8 communities of American Falls, Bancroft, Blackfoot,
9 Dayton, Downey, Firth, Franklin, Grace, Idaho Falls,
10 Inkom, Lava Hot Springs, Lewisville, McCammon, Menan,
11 Montpelier, Pocatello, Preston, Rexburg, Rigby, Ririe,
12 Riverside, Roberts, Shelley, Soda Springs, and Thatcher.
13 All calling between these exchanges was converted to
14 local, seven-digit dialing at the time of implementation
15 of the eastern Idaho EAS region on May 23, 1997.
16
17 /
18
19 /
20
21 /
22
23
24
25
119
JOHN F. SOUBA, DI 2A
U S WEST Communications, Inc.
1 Q. WHAT IS U S WEST'S POSITION REGARDING
2 REQUESTS FOR EAS TO ONE OR MORE COMMUNITIES WITHIN ONE OF
3 THESE NEW LOCAL CALLING REGIONS?
4 A. U S WEST believes that if the Commission
5 determines that there is a community of interest between
6 the exchanges which are named in the petitions and the
7 public interest is served by granting expanded local
8 calling, the approval should extend to the whole region.
9 U S WEST further recommends that only two-way EAS be
10 considered.
11 Q. DOES THE COMPANY BELIEVE THE COMMISSION
12 SHOULD GRANT LESS THAN REGION WIDE ACCESS IF IT DEEMS
13 EXPANDED LOCAL CALLING IS APPROPRIATE?
14 A. No, for two reasons. One, if the
15 Commission were to grant EAS only to a portion of a
16 region, it would invite EAS arbitrage. The Commission
17 has had to deal with this problem before as it decided
18 EAS bridging services are unlawful and ordered U S WEST
19 to issue tariffs prohibiting this practice.
20 Second, it is my opinion that it is just
21 human nature for petitioning customers to feel that if
22 their request for any community within the region meets
23 the Commissions standards for EAS, they should have the
24 "whole thing" like the rest of the communities in the
25 region. Otherwise they are likely to feel they are being
120
JOHN F. SOUBA, DI 3
U S WEST Communications, Inc.
1 disadvantaged. Many pending petitions were initiated
2 before the new regions were established, such as the
3 "Greater Swan Valley" area request, and many communities
4 adjacent to the new regions are just being exposed to the
5 new calling patterns. Some of the newer petitions, like
6 the other two in this docket, are indeed mentioning that
7 they really want to be included in the entire region. I
8 suspect as knowledge of the new regions spreads
9 communities will request nothing less than region-wide
10 membership.
11 Q. WON'T A REGION-WIDE APPROACH POTENTIALLY
12 COST MORE?
13
14 /
15
16 /
17
18 /
19
20
21
22
23
24
25
121
JOHN F. SOUBA, DI 3A
U S WEST Communications, Inc.
1 A. Yes. However, since it was appropriate
2 public policy to create a region-wide approach, it does
3 not seem inconsistent to apply the same policy for new
4 requests for EAS. It may prove out to cost less in the
5 long term if a single network design and response is
6 established at the initial request versus going back to
7 address additional community requests until all
8 communities within the regions feel they have local
9 calling parity.
10 Q. WOULD YOU PLEASE SUMMARIZE THE TRAFFIC
11 PATTERNS FROM CALLS ORIGINATING IN THE U S WEST EXCHANGES
12 TO THE EXCHANGES SERVED BY SILVER STAR AND TETON,
13 STARTING WITH THE TETON EXCHANGES OF DRIGGS, TETONIA AND
14 VICTOR?
15 A. Yes. Pursuant to Staff's request, U S WEST
16 prepared a toll study for its originating traffic which
17 was based upon four months calling data from May-August
18 1997. This study reveals that U S WEST customers in the
19 region spend approximately $175,000 per year calling
20 Driggs, Victor and Tetonia. In addition, the Driggs,
21 Victor and Tetonia lines generate another $225,0001 of
22 toll for calling into the eastern EAS region. The sum of
23 these figures represents an estimate of U S WEST's
24 current revenue stream for these toll routes.
25 The calling data reveals that, on average, the
122
JOHN F. SOUBA, DI 4
U S WEST Communications, Inc.
1 vast majority of U S WEST customers in the eastern Idaho
2 local calling region make fewer than 2 calls per month to
3 the three Teton exchanges. The data also reveals that
4 the largest concentration of calls from U S WEST
5 exchanges to Teton appears to be from Idaho Falls and
6 Rexburg. Well over ninety percent of the calls from
7 U S WEST's eastern Idaho EAS region to Teton originate in
8 the just the three communities of Idaho Falls, Rexburg
9 and Rigby. However, in none of the study months did even
10 10% of the lines in any of these three U S WEST exchanges
11 call the Driggs area.
12
13 /
14
15 /
16
17 /
18
19
20
21
22
23
1 U S WEST estimated the originating toll from Driggs,
24 Victor and Tetonia using a toll study prepared for a
previous case which annualizes three months of toll data
25 from 1995.
123
JOHN F. SOUBA, DI 4A
U S WEST Communications, Inc.
1 Q. IN YOUR OPINION DOES THIS DATA INDICATE
2 THAT A COMMUNITY OF INTEREST EXISTS BETWEEN THE EASTERN
3 IDAHO REGION AND DRIGGS?
4 A. I would say that it appears only a
5 relatively small number of U S WEST customers call the
6 Driggs area each month, and therefore, it is likely there
7 is not a high level of interest among U S WEST customers
8 in adding the Driggs area to the eastern Idaho EAS
9 region. It should be noted, however, that the calling
10 patterns could be significantly different when viewed
11 from the perspective of the petitioning communities into
12 the larger communities served by U S WEST.
13 In fact, when establishing the eastern Idaho EAS
14 region, U S WEST observed that calling volumes were
15 significantly lower from its "hub" exchanges of Boise,
16 Twin Falls, and Pocatello/Idaho Falls going out to the
17 smaller "spoke" communities which surround them in the
18 EAS region. Further, the Commission has made it clear
19 that calling data should not be used in isolation to
20 determine a community of interest. I expect the
21 Commission Staff to more fully analyze other factors such
22 as those mentioned in Case No. GNR-T-93-13 Order No.
23 26311, where the Commission set criteria to be reviewed
24 when evaluating EAS and provide the parties with an
25 analysis of these factors along with its recommendation.
124
JOHN F. SOUBA, DI 5
U S WEST Communications, Inc.
1 Q. TURNING TO THE SILVER STAR EXCHANGES OF
2 IRWIN AND WAYAN, PLEASE SUMMARIZE THE TRAFFIC PATTERNS
3 FROM CALLS TO AND FROM THE EASTERN IDAHO EAS REGION.
4 A. All right. A similar four month period,
5 from April-July 1997 was used to review calling from the
6 EAS region into Irwin and Wayan. This study found that
7 U S WEST customers are spending approximately $60,000 per
8 year calling Irwin and Wayan. U S WEST also stands to
9 lose the toll revenue from Irwin and Wayan's calling into
10 the region which amounts to another $70,000 per year.
11 There was insignificant calling on a percentage
12 basis from any individual U S WEST exchange to Wayan or
13 Irwin. Highest call volumes into Irwin came from Idaho
14 Falls while highest call volumes into Wayan were from
15 Soda Springs. As with the Driggs area, it is
16
17 /
18
19 /
20
21 /
22
23
24
25
125
JOHN F. SOUBA, DI 5A
U S WEST Communications, Inc.
1 unlikely that a significant number of U S WEST customers
2 would greatly benefit from Wayan and Irwin joining the
3 EAS region. The corollary would mean that the price tag
4 to pay for adding the small exchanges would also be quite
5 small.
6 Q. IF THE COMMISSION DECIDES TO GRANT EAS TO
7 THE PETITIONING EXCHANGES AND PART OR ALL OF THE EASTERN
8 IDAHO REGION, WHAT ARRANGEMENTS EXIST BETWEEN U S WEST,
9 TETON AND SILVER STAR FOR THE EXCHANGE OF LOCAL TRAFFIC?
10 A. At the present time, U S WEST does not have
11 a local interconnection agreement with either Teton or
12 Silver Star. I understand, however, that the necessary
13 negotiation process has begun to put such an agreement in
14 place that will provide compensation for the companies
15 for carrying and terminating the traffic originating from
16 the other local carriers.
17 Q. WILL THE NEGOTIATION OF SUCH AN AGREEMENT
18 DELAY IMPLEMENTATION OF EAS IF THE COMMISSION ORDERS IT
19 IN THIS CASE?
20 A. I am hopeful it will not. If the
21 Commission enters an order in this case granting any of
22 the EAS petitions, there will be a period during which
23 the companies prepare their networks to accommodate the
24 traffic. If that is not sufficient time to complete the
25 negotiation process, the companies may be able to work
126
JOHN F. SOUBA, DI 6
U S WEST Communications, Inc.
1 out a short term interim arrangement. However, since I
2 am not involved in the negotiation process, I am not
3 prepared to suggest how and on what terms that might be
4 accomplished.
5 Q. SHOULD THE COMMISSION DECIDE THAT EAS
6 EXPANSION IS APPROPRIATE HOW DO YOU PROPOSE U S WEST BE
7 COMPENSATED FOR ITS CAPITAL EXPENSES ASSOCIATED WITH
8 IMPLEMENTING ANY OF THE NEW EAS ROUTES?
9 A. In Case No. USW-S-96-4 the Commission
10 adopted a stipulation between U S WEST and Staff which
11 called for using available revenue sharing funds to
12 compensate
13
14 /
15
16 /
17
18 /
19
20
21
22
23
24
25
127
JOHN F. SOUBA, DI 6A
U S WEST Communications, Inc.
1 the Company for any capital expenditures required to
2 implement the new EAS routes. The Company believes this
3 arrangement could be appropriate for dealing with pending
4 EAS cases since at this time additional revenue sharing
5 dollars are still available.
6 Q. HOW SHOULD THE COMMISSION DEAL WITH
7 U S WEST'S LOST TOLL REVENUE?
8 A. In cases such as this one where some of the
9 exchanges impacted by the proposed EAS are served by
10 another local exchange company, the Commission needs to
11 consider the net effect on U S WEST's revenues.
12 In this case U S WEST pays Teton and Silver
13 Star access charges which may or may not exceed U S WEST
14 toll revenues for the calls originating within
15 Teton/Silver Star territory and terminating within
16 U S WEST local exchange communities. I propose that if
17 the Commission grants EAS, U S WEST would net the
18 difference between the access charges it pays them and
19 its toll revenues. If the toll revenues exceed the
20 access charges then U S WEST should be allowed to recover
21 the net revenue loss in rates to its customers through
22 adjustment to its "in-region" local service rates. If
23 access charges exceed toll revenues then U S WEST's
24 customers could enjoy an expense reduction which could
25 serve to offset rate increases occasioned by the
128
JOHN F. SOUBA, DI 7
U S WEST Communications, Inc.
1 Commission granting of other EAS petitions affecting the
2 U S WEST regions.
3 Q. ARE YOU AWARE OF ANY OTHER LOST TOLL
4 REVENUE STREAMS THAT WOULD RESULT FROM THE EXPANSION OF
5 INDEPENDENT COMPANY EXCHANGES JOINING ONE OF THE EXISTING
6 U S WEST EAS REGIONS?
7 A. Yes. Any toll which exists between
8 independent company exchanges who join a region, for
9 which U S WEST is the contract carrier, would also be
10 lost upon these exchanges joining an EAS region. For
11 instance, were the Commission to grant entry to the
12 eastern Idaho region to Paris, Idaho and to Aberdeen,
13 Idaho, the toll, calling between these two exchanges, if
14 any, would need to be added to U S WEST's lost toll
15 compensation. The timing as to when each exchange was
16 added to the region would determine the value of the
17
18 /
19
20 /
21
22 /
23
24
25
129
JOHN F. SOUBA, DI 7A
U S WEST Communications, Inc.
1 toll revenue which has been eliminated between the two
2 exchanges. This is one more advantage to reviewing
3 U S WEST's total toll losses on an annual basis as will
4 be discussed more fully later in this testimony.
5 Q. HOW WOULD YOU PROPOSE THE COMMISSION HANDLE
6 THESE SMALL RATE IMPACTS ASSOCIATED WITH PROCESSING EAS
7 PETITIONS?
8 A. U S WEST does not wish to see "deaveraging"
9 the "in-region" price for its local service between the
10 three EAS regions. We recommend, therefore, that the
11 Commission adopt procedures to handle EAS petitions
12 affecting all of southern Idaho in an annual process.
13 Once the year's impact of EAS changes is known, the
14 individual effects of each order (i.e. revenue loss or
15 expense reduction) could be netted and one annual rate
16 change would then be ordered for all "in-region" U S WEST
17 customers. I will discuss this annual process further a
18 bit later in this testimony.
19 Q. DO YOU HAVE A RECOMMENDATION FOR
20 COMPENSATION FOR THE OTHER LOCAL EXCHANGE COMPANY'S LOSS
21 OF ACCESS REVENUES?
22 A. Yes. It would seem fair to me that local
23 exchange rates should be the first to increase to reflect
24 added value created by the expanded local calling area.
25 Additional funding, if necessary, may require further
130
JOHN F. SOUBA, DI 8
U S WEST Communications, Inc.
1 scrutiny by the Commission and appropriate rate design or
2 support.
3 Q. DO YOU HAVE OTHER RECOMMENDATIONS REGARDING
4 THE BACKLOG OF PENDING EAS CASES?
5 A. Yes. In Case Nos. GNR-T-93-7 and
6 GNR-T-93-11 the Company recommended a process where the
7 Commission would group the pending petitions by the local
8 telephone company serving the petitioners and schedule
9 hearings accordingly.
10 The hearings scheduled since the combined
11 case mentioned above appear to follow this methodology.
12 The Company appreciates the Commission's efforts to
13 continue to
14
15 /
16
17 /
18
19 /
20
21
22
23
24
25
131
JOHN F. SOUBA, DI 8A
U S WEST Communications, Inc.
1 combine as many petitions as practical and set hearings
2 accordingly. This approach should save the parties time
3 and resources and allows the Commission to better
4 evaluate the total financial impact of all pending
5 petitions for each of the small rural telephone companies
6 before rendering its decision.
7 The Company believes it would also be
8 helpful to establish Commission rules or practices which
9 set a time frame annually for filing EAS petitions and a
10 maximum time for dealing with each year's petitions.
11 Q. WHAT DO YOU MEAN BY YOUR SUGGESTION OF
12 COMPANY-SPECIFIC CASES?
13 A. I recommend that petitions be grouped
14 according to the local exchange company which serves the
15 petitioners and consolidated into a single annual docket
16 and hearing schedule. The companies and Staff could
17 establish a single set of traffic data and networking
18 analysis rather than working each petition separately.
19 This more global view of the impacts on a company could
20 be helpful in determining long term economic impacts and
21 appropriate rate design while providing all of the
22 affected companies and the Commission economies of scale
23 with their limited resources.
24 Many of the pending petitions involve
25 smaller independent companies which may benefit from
132
JOHN F. SOUBA, DI 9
U S WEST Communications, Inc.
1 addressing the whole mix of petitions with a single
2 economic remedy and assist in their long-term planning.
3 Customers may feel they are being treated more fairly if
4 all pending petitions within their local exchange company
5 were addressed at approximately the same time. Further,
6 as I have already suggested, to the extent U S WEST
7 in-region customers will be affected by EAS changes, the
8 net impact could be calculated on an annual basis and new
9 rates implemented.
10 Q. YOU MENTION AN ANNUAL REVIEW. HOW WOULD
11 YOU PROPOSE THIS BE ACCOMPLISHED?
12 A. EAS petitions would be accepted during a
13 predetermined time period each year, combined by company
14 or region, and then docketed. Petitions filed after this
15 predetermined period would be held for docketing the next
16 year. I believe something
17
18 /
19
20 /
21
22 /
23
24
25
133
JOHN F. SOUBA, DI 9A
U S WEST Communications, Inc.
1 similar to this could work for Idaho as long as the
2 public was given sufficient notice. It might also be
3 helpful for the Commission to establish a set of rules or
4 guidelines to provide guidance for all parties interested
5 in EAS proceedings.
6 Q. WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY?
7 A. Yes. The Company has reviewed the calling
8 volumes from its eastern Idaho local calling area to the
9 communities served by Teton and Silver Star. It found
10 only a small percentage of U S WEST customers in an
11 average month place calls to these communities. However,
12 the Company is cognizant of this Commission's directive
13 to look at other factors in determining if an appropriate
14 community of interest exists to grant EAS. If after
15 reviewing these factors the Commission determines
16 expanded local calling is appropriate for these
17 communities, the Company recommends they be granted EAS
18 to the entire eastern Idaho local calling area.
19 The Company also recommends that it be
20 compensated for any loss of revenues and capital
21 expenditures in a manner similar to that approved by the
22 Commission when it approved the establishment of the
23 three new regional local calling areas within U S WEST's
24 southern Idaho territory.
25 The Company further recommends that the
134
JOHN F. SOUBA, DI 10
U S WEST Communications, Inc.
1 Commission consider combining the pending EAS petitions
2 by originating company groupings and establish a single
3 annual case for each of these groups of petitions.
4 Q. DOES THIS CONCLUDE YOUR TESTIMONY?
5 A. Yes, it does.
6
7 /
8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25
135
JOHN F. SOUBA, DI 10A
U S WEST Communications, Inc.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER HANSEN: Okay, we'll see if we
4 have any questions.
5 Mr. Howell.
6 MR. HOWELL: Thank you, Mr. Chairman.
7
8 CROSS-EXAMINATION
9
10 BY MR. HOWELL:
11 Q Mr. Souba, do you believe there is a
12 community of interest if there is less than one call per
13 line per month?
14 A That's an interesting question. For the
15 calling between an exchange that is calling another
16 exchange and only has one call per line per month, there
17 is probably not a significant community of interest, but
18 if that calling is from a very large exchange, there may
19 well be reciprocal calling from a smaller exchange to
20 that exchange that is greater than the one call per line
21 per month and so there may be community of interest
22 between the two exchanges, it's simply not represented by
23 the small calling from the large exchange to the small
24 exchange.
25 Q Were you present when Mr. McCue testified
136
CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 earlier today?
2 A Yes, I was.
3 Q And if I can paraphrase his testimony, he
4 testified that the reason the company Silver Star was
5 willing to implement EAS even to those exchanges with
6 less than one call per month was because the costs were
7 diminimus. Do you agree with that observation?
8 A Well, I think there's two issues involved
9 there and, yes, I basically do agree. First of all, the
10 small additional cost to add additional exchanges is so
11 small that the issue of parity becomes even more
12 important and if you're going to have a set of exchanges
13 as large as we currently have for the eastern Idaho
14 region, U S WEST would not support picking off certain
15 exchanges to be given to an outside exchange today. We
16 would prefer that EAS remain two way and that EAS be
17 granted to the entire EAS region.
18 Q Knowing that you worked long and hard on
19 the recently completed U S WEST rate case, can you tell
20 the Commissioners and those members present of the public
21 today what the EAS differential was in the recently
22 completed rate case?
23 A Yes, I can give you two numbers. When the
24 EAS case was originally completed, the EAS differential
25 was $3.62. In the recently concluded rate case, the
137
CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 Commission determined that for exchanges that are not in
2 an EAS region, their rate should be $5.50 less than the
3 rate of those exchanges within an EAS region.
4 Q So is it true that the $5.50 represents the
5 cost of EAS or the EAS surcharge?
6 A Well, in essence, that is the design of the
7 rates for those exchanges within and without, so, yes, it
8 is.
9 Q All right. Have you or the company
10 calculated the capital expenditures necessary to
11 implement the EAS requests in these cases?
12 A No, we have not.
13 Q Do you have any idea when EAS could be
14 implemented once the Commission approves it if it were to
15 approve the EAS requests?
16 A Yes. U S WEST because we have over 20
17 exchanges that would need to be reviewed for potential
18 modifications and growth additions has a significant
19 engineering job ahead of it to grant additional EAS
20 exchanges and so the company requests from the point of
21 the granting of the order by the Commission 120 days.
22 Q When the company as part of the rate case
23 calculated the EAS costs in the rate case, what
24 stimulation factor did the company use?
25 MS. HOBSON: I'm going to object. I don't
138
CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 believe that there was any such calculation made in the
2 rate case and I don't believe there's any foundation laid
3 for this witness to be prepared to answer that question.
4 COMMISSIONER HANSEN: Mr. Howell.
5 MR. HOWELL: Well, Mr. Chairman, I think
6 the question, if the witness doesn't know the answer, he
7 can simply say that. Whether he knew it or not, I don't
8 know. That's the source of the question and the
9 foundation is that we are currently engaged in
10 determining what is the appropriate stimulation factor to
11 use. We have heard evidence presented by the
12 applicants. This company, U S WEST, just recently
13 completed a very large and massive EAS and I'm interested
14 in determining whether this witness even knows what
15 stimulation was used on behalf of the company in that
16 case.
17 MS. HOBSON: May I respond just by way of
18 clarification? If your question -- if counsel's question
19 relates to the question of the stimulation factor used by
20 the company in its EAS case, I think the question is
21 properly posed. I believe the question was for purposes
22 of calculating its rate case calculation, which I
23 perceive to be two very different questions.
24 COMMISSIONER HANSEN: Mr. Howell, do you
25 have a problem then rewording the question?
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CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 MR. HOWELL: I would reformulate my
2 question to ask the witness whether he knows what
3 stimulation was used in the company's EAS case.
4 THE WITNESS: Yes, I do.
5 Q BY MR. HOWELL: And what stimulation was
6 used?
7 A It was a 2x factor.
8 Q On page 7 of your direct testimony,
9 Mr. Souba, you discuss that some of the routes involved
10 would be possibly what is in the industry called as a
11 toll loser; in other words, the company actually pays
12 more access charges than it receives toll revenue for.
13 Do you know which routes involved in the cases that are
14 currently before us would be toll losers?
15 A In the cases that we're dealing with in my
16 testimony, none of them are toll losers. U S WEST would
17 have a revenue requirement from the netting of our
18 current toll revenues versus our loss of access expense.
19 Q And in your testimony, again, on page 7 and
20 over on page 8, you talk about the company's desire to be
21 compensated for its lost toll. Isn't it a fact that the
22 Commission has priorly stated in orders that it's not
23 appropriate to allow the company to recover its lost toll
24 revenue?
25 MS. HOBSON: Object. I think it calls for
140
CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 a legal conclusion.
2 COMMISSIONER HANSEN: Mr. Howell.
3 MR. HOWELL: I'm asking the witness whether
4 he simply knows whether a prior Commission order contains
5 such an observation or a directive.
6 COMMISSIONER HANSEN: I'm going to allow
7 the question.
8 THE WITNESS: I don't remember the exact
9 case, but I have read a reference in a Commission order
10 relative to compensation of U S WEST for lost toll;
11 however, I don't believe that in this current round of
12 EAS cases, which is to say those EAS cases following the
13 generic statewide docket, that that determination has
14 been made.
15 MR. HOWELL: And I guess rather than hide
16 the ball, I guess I would ask the Commission to take
17 notice of its own Order 26311 which contains that
18 requirement, and if the Commission is interested, I'd be
19 happy to read that part of the Order into the record.
20 COMMISSIONER HANSEN: We can take notice.
21 MR. HOWELL: Mr. Chairman, I have nothing
22 else.
23 COMMISSIONER HANSEN: Okay, Mr. Ward.
24 COMMISSIONER NELSON: I have a question
25 before we go to Mr. Ward. Oh, excuse me. I'm out of
141
CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 order.
2
3 CROSS-EXAMINATION
4
5 BY MR. WARD:
6 Q Mr. Souba, you referenced the U S WEST use
7 of a 200 percent stimulation factor in the EAS case. Was
8 that for a cost of EAS determination?
9 A It was the actual engineering estimate that
10 was utilized to build the EAS networks associated with
11 each of the grants of the three regions.
12 Q Okay, and some of these EAS routes
13 obviously had routes between more substantial communities
14 than we're dealing with here in terms of access lines?
15 A Correct.
16 Q And in fact, even with the 200 percent --
17 well, let me ask you about the engineering that was the
18 ultimate question I wanted to get to. If they engineer
19 for 200 percent, does that mean the engineers install
20 enough capacity to serve 200 percent additional traffic
21 or do they install something more?
22 A That depends on the individual route and
23 the amount of equipment that happens to exist. On a
24 fiber route, you may well have a multiplexor that has
25 availability of, say, 20 trunks and we may feel like we
142
CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 only need 18, in that case, they would not have added any
2 equipment. If we had 20 trunks available and we felt we
3 needed 30, they would have put in a shelf that may well
4 have capacity for another 30, so it comes in multiples.
5 Q Right; so, in essence, to the extent there
6 was any blockage probabilities identified by the
7 engineers, would it be safe to assume that they would put
8 in some fail-safe capacity in addition to the 200
9 percent?
10 A Yes.
11 Q Now, refresh my memory of when these EAS
12 areas were implemented, approximately, if you can.
13 A I certainly can. The Twin Falls region was
14 cut in February, the Boise area was cut in April and the
15 eastern Idaho region was cut at the end of May.
16 Q All in this year?
17 A Correct.
18 Q Being 1997? And with the 200 percent plus
19 whatever it may have been capacity installed, has
20 U S WEST experienced any indication of unacceptable
21 blocking or increased blocking on any of these routes?
22 A Yes, they have.
23 Q And do you know in general what sort of
24 routes they would be?
25 A The one in particular that I was involved
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CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 in preventing a crisis, if you will, was the Idaho Falls
2 to Rexburg route.
3 Q Oh, a quick question about the surcharges.
4 Am I correct that the existing U S WEST rate as of the
5 last rate case characterized as base rate plus surcharge
6 or local rate, however you want to characterize it, is
7 $16.99 for residential?
8 A For those exchanges within an EAS region
9 which represents about 80 percent of our lines, yes.
10 Q So anybody in the eastern Idaho EAS is
11 paying 16.99 if they're a residential customer?
12 A A flat rated residential customer is paying
13 16.99.
14 Q What's the business customer paying?
15 A Thirty-two dollars.
16 MR. WARD: Okay, thank you. That's all I
17 have.
18 THE WITNESS: Incidentally, excuse me, just
19 to clarify, that will not go into effect until the 27th
20 of this month, so that is what was ordered.
21 MR. WARD: Thank you.
22 COMMISSIONER HANSEN: And I know
23 Commissioner Nelson has a question.
24 COMMISSIONER NELSON: Thank you.
25
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CSB REPORTING SOUBA (X)
Wilder, Idaho 83676 U S WEST Communications
1 EXAMINATION
2
3 BY COMMISSIONER NELSON:
4 Q I was wondering if you know if U S WEST has
5 looked at what the actual stimulation has been or is it
6 too soon?
7 A We actually from a network point of view
8 monitor the network and when we find significant
9 blockages we fix them, but there is not necessarily an
10 exact measuring of each route on an ongoing basis. It's
11 a matter of validating the alarms that go off when we're
12 not meeting our particular standards and criteria.
13 Q What's the talk around the water cooler?
14 A I think we did pretty well, but you have to
15 keep in mind with the size of these areas, there's
16 obviously not going to be 2x traffic between a place like
17 a Montpelier and the northern part of the eastern Idaho
18 region, so all in all, I think we did pretty well.
19 Incidentally, that was an aggressive schedule as well.
20 Q That does raise another question I had and
21 I didn't write it down and that is you're talking about
22 addressing these, needing 120 days to address these EAS
23 routes. The increased calling that you would expect in
24 your larger exchanges would be much smaller as a factor
25 or a percentage than what you would expect from the
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CSB REPORTING SOUBA (Com)
Wilder, Idaho 83676 U S WEST Communications
1 smaller Silver Star exchanges, wouldn't it, less of a
2 problem in other words?
3 A I'm not sure it's less of a problem because
4 the same amount of calling that they're going to be
5 sending us by and large we're going to be sending them.
6 Now, as a percentage of our overall traffic, it's much
7 smaller, but that doesn't mean that we don't have to deal
8 with those routes, engineer the routes, order the
9 hardware, install it and then turn it up. Just the
10 translations issues of dealing with 25 offices are
11 incredibly complex.
12 COMMISSIONER NELSON: Okay, thank you.
13 That's all I have.
14 COMMISSIONER HANSEN: Ms. Hobson, do you
15 have any redirect?
16 MS. HOBSON: Just very briefly to kind of
17 fill in the gaps here on the discussion of stimulation.
18
19 REDIRECT EXAMINATION
20
21 BY MS. HOBSON:
22 Q Did U S WEST use stimulation as any part of
23 its revenue requirement calculation in implementing EAS
24 apart from the capital cost necessary for new equipment?
25 A No.
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CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST Communications
1 Q So U S WEST isn't attempting to capture or
2 was not attempting to capture this interstate/intrastate
3 shift of revenue recovery that the independents are?
4 A Absolutely not.
5 MS. HOBSON: Thank you. That's all I have.
6 COMMISSIONER HANSEN: Thank you for your
7 testimony.
8 (The witness left the stand.)
9 MS. HOBSON: U S WEST rests.
10 COMMISSIONER HANSEN: Okay, thank you.
11 We'll now go to Mr. Howell.
12 MR. HOWELL: Thank you, Mr. Chairman. The
13 Staff would call Carolee Hall.
14 MR. WARD: Mr. Chairman, if I may,
15 Mr. Kelly has a flight tonight which he would like to
16 make. I'd like to have him excused if the parties would
17 be willing.
18 COMMISSIONER HANSEN: Is there any
19 objection? Hearing none, so granted.
20 MR. WARD: Thank you, Mr. Chairman.
21 (Pause in proceedings.)
22 COMMISSIONER HANSEN: Okay, we're ready,
23 Mr. Howell.
24
25
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Wilder, Idaho 83676 U S WEST Communications
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 Could you state your name and spell your
10 last for the record, please?
11 A Carolee Hall, H-a-l-l.
12 Q And who 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 did you have cause to prepare or
17 prefile testimony in Cases GNR-T-96-6 and GNR-T-97-3
18 dated November 14th, 1997?
19 A Yes, I did.
20 Q Did you also cause to be prepared Exhibits
21 No. 101 through 105?
22 A Yes, I did.
23 Q Do you have any changes to your testimony
24 or exhibits?
25 A Yes, I do. On page 10, line 13, we need to
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CSB REPORTING HALL (Di)
Wilder, Idaho 83676 Staff
1 strike "from the federal and."
2 Q Hang on, let everybody get there. On
3 line 13, page 10, strike the words what now?
4 A "From the federal and," and on line 14, we
5 need to strike "or both" and put a period after the paren
6 "USFs," right paren.
7 Q Keep going.
8 A Page 11, line 11 should read "12-month
9 period." Page 21, line 6 should be "102 lines." Line 18
10 should be "415 lines."
11 Q And does that conclude your changes to your
12 testimony or exhibits?
13 A Yes, it does.
14 Q If I were to ask you the questions set out
15 in your prefiled testimony, would your answers be the
16 same as set out there?
17 A Yes, they would.
18 MR. HOWELL: With that, Mr. Chairman, I
19 would move that we spread Ms. Hall's testimony upon the
20 record as if read and mark for identification purposes
21 Exhibits 101 through 105.
22 COMMISSIONER HANSEN: Okay, Exhibits 101
23 through 105 will be marked and with no objections, it
24 will be spread upon the record. So ordered.
25 (The following prefiled testimony of
Ms. Carolee Hall is spread upon the record.)
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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 as a Telecommunications Analyst.
9 Q. Please describe your work experience and
10 educational background.
11 A. I have been with the Commission since April
12 1997. I recently completed a Regulatory Studies program
13 offered through NARUC.
14 Before coming to work for the Commission, I
15 worked as a Financial Manager for a competitive long
16 distance provider. I graduated from Boise State
17 University in 1993 with a B.B.A. in Finance.
18 Q. What is the purpose of your testimony in
19 this case?
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 Silver Star Telephone Company, Inc. (Silver Star). The
24 communities within Silver Stars serving area include Swan
25 Valley, Irwin, Freedom, Grays Lake and Wayan.
150
GNR-T-96-6/GNR-T-97-3 HALL (Di) 1
11/14/97 Staff
1 Generally, petitioners have requested to be included in
2 U S WEST Communications, Inc.'s (U S WEST) eastern Idaho
3 EAS calling regions.
4 I will briefly address another petition
5 received from the Irwin and Swan Valley communities
6 requesting EAS calling into Columbine Telephone Company
7 d/b/a Teton Telecom Communications' (Teton) region as
8 well. Teton Telecom is an affiliated company of Silver
9 Star and is located in Teton County; Staff Exhibit
10 No. 101 shows the proximity of the two exchanges. The
11 Teton Telecom communities being requested are Driggs,
12 Victor and Tetonia. I will respond to the community of
13 interest factors as set forth in Commission Order No.
14 26311, which are used to evaluate EAS petitions. In
15 addition, I will examine the costs and lost revenues
16 associated with the implementation of EAS. I will also
17 recap calling data obtained from Silver Star through
18 Staff's production requests.
19 Q. What towns and communities are included in
20 the U S WEST eastern Idaho EAS region the petitioners are
21 requesting?
22 A. The Silver Star customers are requesting to
23 be included in the eastern Idaho regional calling area
24 approved by this Commission for U S WEST. This calling
25 area includes: American Falls, Bancroft, Blackfoot,
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11/14/97 Staff
1 Dayton, Downey, Firth, Franklin, Grace, Idaho Falls,
2 Inkom, Lava Hot Springs, Lewisville-Menan, McCammon,
3 Montpelier, Pocatello, Preston, Rexburg, Rigby, Ririe,
4 Riverside, Roberts, Shelley, Soda Springs and Thatcher.
5 COMMUNITY OF INTEREST STANDARDS
6 Q. What are the criteria that the Commission
7 established for EAS as set forth in Order No. 26311?
8 A. According to the Order, calling volume and
9 calling distribution are among many primary and secondary
10 factors to be used when evaluating EAS calling areas. To
11 determine whether a community of interest exists to
12 support EAS, the primary factors, in addition to the
13 calling data are as follows:
14 1. geographic proximity (distance
between exchanges);
15 2. the presence of geographic or
other physical barriers
16 (mountains, rivers, valleys)
between exchanges;
17 3. county seat relationship (are
both exchanges in the same
18 county);
4. the relationship to school
19 district (do both exchanges
share the same school
20 district);
5. the proximity to medical
21 facilities and services;
6. the willingness of customers to
22 pay increased rates.
23 Order No. 26311, page 9.
24
25 Q. Please explain calling volume and calling
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11/14/97 Staff
1 distribution.
2 A. Call volume is simply the average number of
3 calls per line made each month from the home exchange to
4 the requested exchange. Call distribution shows how many
5 lines had 1 call, 2 calls, 3 calls, etc.
6 SILVER STAR PETITIONS INTO THE U S WEST REGION
7 Q. What did the calling data reveal in your
8 analysis?
9 A. The calling data that Silver Star provided
10 in its response to my first production request was for
11 twelve months from November 1995 to October 1996
12 combined.
13 Staff Exhibit No. 102, shows annual
14 distributions of toll calling by Wayan and Irwin
15 customers into U S WEST exchanges. This exhibit also
16 shows average monthly call volumes into each U S WEST
17 exchange and the total of all exchanges. Both Silver
18 Star exchanges had a monthly average of about 12 calls
19 per line to the U S WEST region, with over 80% of those
20 calls going into just three nearby, larger exchanges.
21 There are 102 lines in the Wayan exchange.
22 The primary exchanges that Wayan customers called were
23 Soda Springs (52% of annual calls) and Pocatello (20.9%
24 of their annual calls), followed by Idaho Falls (8.5%).
25 The distribution of the calls from Irwin's
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GNR-T-96-6/GNR-T-97-3 HALL (Di) 4
11/14/97 Staff
1 415 lines showed a strong interest in calling Idaho Falls
2 with 74.3% of their annual calls going into that exchange
3 followed by significant calling to Rigby (7.3%) and Ririe
4 (6.5%). See Staff Exhibit No. 102.
5 Q. What is the geographic proximity (distance
6 between exchanges) and the presence of geographic or
7 other physical barriers (mountains, rivers, valleys)
8 between exchanges?
9 A. As part of my investigation, I visited this
10 area in October 1997, I found that Irwin and Swan Valley
11 are three miles apart on Highway 26 and are approximately
12 30 miles east of Ririe. Ririe is roughly 15 miles
13 northeast of Idaho Falls. Wayan is south of Irwin and
14 Swan Valley. However, to get to Wayan from Swan Valley
15 requires traveling 26 miles around Palisades Reservoir to
16 Alpine, Wyoming. From Alpine I traveled south through
17 Wyoming approximately 17 miles on Highway 89 to Freedom,
18 Wyoming and then west, back into Idaho on Highway 34 for
19 20 miles. In the middle of this loop is the Caribou
20 mountain range, Palisades Reservoir and Grays Lake. See
21 Staff Exhibit No. 103.
22 Q. How many exchanges does Silver Star have
23 within the petitioners' calling area?
24 A. There are two exchanges within Silver Star's
25 service area. One exchange is located in Irwin and the
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GNR-T-96-6/GNR-T-97-3 HALL (Di) 5
11/14/97 Staff
1 second exchange is in Wayan; Staff Exhibit No. 101 shows
2 the location of these towns in the exchanges.
3 Q. Do the petitioners served by Silver Star
4 all share the same county seat?
5 A. No, they do not. The customers who live in
6 Wayan and Freedom are located in the Wayan exchange,
7 which is in Caribou and Bonneville Counties. The county
8 seat for Caribou County is Soda Springs, which is in the
9 southern portion of the U S WEST eastern EAS region,
10 while the county seat for Bonneville County is Idaho
11 Falls, which is in the northern portion of the region.
12 The Silver Star customers who live in Irwin and Swan
13 Valley are in the Irwin exchange, in Bonneville County.
14 Q. Do the students of Irwin and Wayan attend
15 schools in different school districts?
16 A. Yes, the school districts are not only in
17 different counties, but two other counties entered the
18 equation. Wayan and Swan Valley each have grade schools.
19 However, secondary education students in Wayan are bused
20 to Soda Springs in Caribou County. The secondary
21 education students of Irwin and Swan Valley attend school
22 in Ririe, which is in Jefferson County. There are two
23 students from Irwin that attend school in Driggs, Idaho
24 in Teton County. Both Jefferson and Caribou counties are
25 in the U S WEST calling region. Teton County is the
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1 Driggs exchange owned by Teton Telecom. In the statewide
2 study, I found 16 students from Swan Valley/Irwin at
3 Idaho Falls High School. (Ririe High School did not
4 respond to my survey.) With the secondary schools being
5 in different local exchanges (Teton and U S WEST),
6 calling between these areas are toll calls. This may be
7 a hindrance to education. It could certainly be an
8 expense for parents with teenagers attending any social
9 functions.
10 Q. What did your analysis show with respect to
11 the proximity to medical facilities and services for the
12 residents of Irwin and Wayan?
13 A. Based on the differing counties and the
14 geographic location of the towns within the exchanges,
15 there are two observations. The people in Wayan have
16 limited choices for hospital and medical facilities.
17 Those facilities are in Soda Springs where, according to
18 the 1992 County Profiles of Idaho, there is one hospital
19 with 27 beds. Soda Springs is 34 miles south of Wayan.
20 See Staff Exhibit No. 103. Another option for Wayan
21 residents would be to travel to Afton, Wyoming where
22 there is a hospital as well. Calls to either of these
23 choices results in a toll call.
24 Irwin and Swan Valley residents have two
25 options as well. They could travel 50 miles to Idaho
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1 Falls in Bonneville County or go to Driggs, Idaho.
2 Driggs is, as mentioned, in Teton County approximately 15
3 miles northeast of Swan Valley. To get to Driggs the
4 Swan Valley/Irwin residents must travel over Pine Creek
5 Pass, which is located between the two communities. See
6 Staff Exhibit No. 103. Bonneville County has one
7 hospital with 286 beds. Teton County has one hospital
8 with 13 beds.
9 As for doctors and medical centers, the
10 situation would be the same. There are no medical
11 facilities or doctors in Wayan, Swan Valley or Irwin.
12 Q. What is the sixth factor for analyzing EAS
13 requests?
14 A. The sixth factor is the willingness of
15 customers to pay increased rates for expanded local
16 calling. Throughout the petitioners' letters was a
17 commonality of low or fixed income levels within the
18 area. EAS for any region is not without its cost. I was
19 concerned that the residents in these small communities
20 may not be able to afford EAS. However, when weighed
21 against their long distance phone bills and the public
22 testimony and supporting letters, this may not be a
23 problem.
24 Q. Please recap the previous community of
25 interest factors discussed?
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1 A. The community of interest standards support
2 the granting of EAS to some of the requested exchanges.
3 The calling data suggests that many customers do make a
4 significant number of toll calls, even without
5 considering the number of calls that may be carried by
6 companies other than U S WEST. Based on the location of
7 the communities in relationship to schools, county seats,
8 medical facilities, grocery stores, banks etc., there is
9 supporting data that would warrant EAS. The petitioners
10 have a choice to drive, at a minimum, 35 miles or make
11 long distance phone calls to carry on daily activities.
12 EAS COSTS
13 Q. What costs are associated in providing EAS?
14 A. There are essentially two types of costs
15 involved with providing any EAS. They are the actual
16 costs incurred to implement EAS and the revenue lost to
17 the telephone companies providing the service. Comments
18 received in Case No. GNR-T-93-13, which investigated the
19 provision of EAS in Idaho, identified some of the costs
20 that might be incurred: "lost" revenue, including
21 foregone revenue associated with toll, FX, and toll
22 access, and expenses directly applicable to EAS
23 expansion.
24 Q. Are there particular cost issues for small
25 rural carriers?
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1 A. Yes. When a small LEC toll route is
2 converted to EAS, there are two significant impacts.
3 First, toll access charges previously paid to the LEC are
4 discontinued. Second, when toll calls become local EAS
5 calls, local calling usage usually increases. This
6 causes a shift in overall traffic usage from the
7 interstate jurisdiction to the intrastate jurisdiction.
8 This shift affects the small companies more dramatically
9 because federal high-cost recovery mechanisms are
10 disproportionately weighted to the interstate
11 jurisdiction. Consequently, the reduction in revenue
12 from these two sources must be recovered from an
13 increase in local rates, or state Universal Service Funds
14 (USFs).
15 Q. Do you know how much this interstate
16 compensation loss will be?
17 A. According to Silver Star's consultant, Kevin
18 Kelly, with Telecommunications Consultants, TCA, Inc.
19 (TCA) there will be an annual revenue loss of $43,948.
20 This amount is calculated using a 200% stimulation
21 factor. Initially TCA estimated this revenue loss to be
22 more than twice this amount. TCA has done some
23 recalculating and I would now agree with this 200%
24 calculation, however it seems high.
25 Q. What type of revenue would Silver Star
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1 "lose" because of EAS?
2 A. Silver Star will lose its originating access
3 revenues and billing and collection revenues. Silver
4 Star will also incur an additional revenue requirement
5 associated with the capitalization of the new plant
6 required to implement expanded local calling.
7 Q. How did you calculate lost access revenues?
8 A. I used Silver Star's Exhibit Nos. 1 and 2
9 submitted in response to Staff's Production Request Nos.
10 1 and 2, which showed direct-dialed calling data for the
11 12-month period from November 1, 1995 through October 31,
12 1996. The call data was for calling from the Irwin and
13 Wayan exchanges into the U S WEST and Teton exchanges.
14 It showed call frequency for peak and off-peak access
15 minutes. After determining the access minutes, I used
16 Silver Star's tariffed access rates weighted to reflect
17 the 40% off-peak calling discount. I multiplied the
18 minutes by the appropriate rate to arrive at the "Annual
19 Projected Lost Access Revenue". The last two columns of
20 Staff Exhibit No. 102, page 2, reflect this calculation.
21 Q. Were there any access revenue losses
22 presented by Mr. Kelly for Silver Star?
23 A. Yes, however there have been numerous
24 changes to this data. After I received one of the "final
25 numbers" from Mr. Kelly, there was still a discrepancy
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1 between the total number of minutes. The data provided
2 to me by Silver Star showed 209,401 peak originating and
3 78,437 off-peak originating access minutes. When
4 compared with the data used by Mr. Kelly in his
5 calculation, there was a disparity of 2,909 minutes
6 combined. When applying the tariffed peak/off-peak
7 access rate to these numbers, the net difference was
8 $124.00 per year in originating access revenue. After
9 discussing this discrepancy with Mr. Kelly, he felt that
10 it was insignificant and appropriate to use Staff's
11 calculations. Staff Exhibit No. 105, line 1, shows the
12 agreed upon annual lost access revenue of $12,193.
13 Q. Will Silver Star lose terminating access
14 revenues?
15 A. Silver Star will lose some terminating
16 revenue as a result of toll calls being converted to
17 local calls. To accurately determine this amount, Mr.
18 Kelly and I agreed that a Terminating/Originating (T/O)
19 ratio would be appropriate to use. By using a 1:1 ratio,
20 there is an assumption that originating and terminating
21 minutes will be equal. After analyzing the call data
22 provided to Staff by Silver Star this ratio was very
23 close to accurate. With this ratio in place, the lost
24 terminating access revenue for peak and off-peak will
25 total $12,193 annually. See Staff Exhibit No. 105,
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1 line 2.
2 Q. You mentioned that Silver Star will also
3 lose billing and collection (B&C) revenues. Were you
4 able to compute this revenue loss?
5 A. Yes, however there is still a discrepancy
6 between Staff's calculations and Mr. Kelly's. One of the
7 discrepancies is that Mr. Kelly was not given the same
8 data provided to Staff. After numerous discussions with
9 Silver Star and Mr. Kelly, the gap has narrowed. I have
10 calculated an annual revenue loss of $15,663 and Mr.
11 Clark, of TCA, has recalculated the total messages
12 (received November 13, 1997) and now shows a loss of
13 $15,820. The difference is $157 as shown in Staff
14 Exhibit No. 104, line 2. I believe that the $15,663 is
15 more accurate, since it was calculated using actual
16 calling data. Therefore, I have used it in my
17 calculation of Silver Star's lost B&C revenue.
18 Q. Will Silver Star need to upgrade any
19 equipment or facilities to implement EAS?
20 A. Yes, but the Company provided two sets of
21 costs. The first set was presented to me by Silver Star
22 in its September 30, 1997 response to Staff's First
23 Production Request. Silver Star indicated that it would
24 need to add 24 trunk cards to the Irwin exchange and 20
25 to Wayan. These numbers are based on a 200% stimulation
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1 factor (the estimated increase of local phone calls once
2 the former toll charges are removed). Silver Star also
3 indicated that it would take 100 hours of labor at $40
4 per hour to install these cards for each exchange. The
5 total labor cost was $8,000, and the total equipment cost
6 was $13,832, for a total investment of $21,832. This is
7 the amount I used for calculating the annual revenue
8 requirement associated with Plant Investment. See Staff
9 Exhibit No. 105, lines 11-17.
10 On October 22, 1997, I received Silver
11 Star's response to my second production request. In this
12 later response Silver Star increased its stimulation
13 factor to 400%. This change resulted in an increase of
14 48 trunk cards for Irwin at an investment of $14,000 and
15 40 trunk cards for Wayan, which resulted in an increased
16 investment of $13,664. The labor to install twice as
17 many cards remained constant at $8,000 for both
18 exchanges. The total investment for the second set of
19 submitted numbers was $27,664. This is the amount that
20 Mr. Kelly used in his calculation for plant investment.
21 Q. You mentioned that initially the Company
22 used a 200% stimulation factor that Staff had found to be
23 reasonable, and then increased it to 400%. Did Mr. Kelly
24 explain why a 400% stimulation factor is more reasonable
25 than the original factor submitted to Staff?
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1 A. No, he did not.
2 Q. Could you please explain these percentages
3 and what impact it would have with EAS?
4 A. A stimulation factor is the anticipated
5 increase in calling volume as a result of toll calling
6 becoming local calls and, thus toll free. A 200%
7 stimulation factor means that the number of calls, over a
8 given route, are estimated to double in volume. This
9 factor is important when calculating lost revenue and
10 cost of plant needed to carry the increased number of
11 calls. The ultimate result of this factor is the cost to
12 the customer and the Company. I believe that a 200%
13 stimulation factor is reasonable and is used throughout
14 my calculations.
15 The Company has presented no evidence to
16 support its assumption that calling will increase by
17 400%. Likewise, I have no concrete evidence that calling
18 will double. It is my understanding that call
19 stimulation varies between communities and can't be known
20 with certainty before the fact. I recommend therefore,
21 that whether the Commission accepts the Company's
22 assumption of 400% or the Staff assumption of 200%, the
23 Company be required to report actual stimulation
24 experienced during the first year of EAS to the
25 Commission and that rates be adjusted accordingly to
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1 compensate for the EAS costs.
2 Q. Other than the stimulation factor, what
3 other differences are there between your revenue
4 requirement associated with plant and the Company's?
5 A. I calculated the annual revenue requirement
6 associated with plant will be $5,180, Staff Exhibit
7 No. 105, lines 11-17, reflect this calculation. Mr.
8 Kelly's annual revenue requirement total was $7,953
9 (which reflects the 400% stimulation factor). Mr. Kelly
10 used a depreciation rate of 12.5% for an annual
11 depreciation amount of $3,458. His 9.75% overall rate of
12 return equaled $2,697. He used a combined income tax
13 rate of 40%, which calculated to $1,798. See Staff
14 Exhibit No. 104, line 3.
15 According to Commission Order No. 22237,
16 Silver Star's rates were set in 1989. These rates were
17 set using 13% for the cost of equity, a gross-up factor
18 of 1.558105 for taxes, cost of debt of 5.51% and a
19 depreciation rate of 5.5%. These rates equate to an
20 overall rate of return of 9.222%. The investment
21 required for implementing this EAS is not that
22 significant and Staff has agreed with Mr. Kelly's 12.5%
23 depreciation rate. The 12.5% depreciation rate was
24 approved for booking purposes in GNR-T-97-1, Order No.
25 26788. Therefore, Staff has accepted this rate for the
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1 EAS calculation. The remaining depreciation rates, cost
2 of capital and gross-up factor will be evaluated and
3 adjusted if necessary in Silver Star's rate case. The
4 total revenue requirement associated with the additional
5 plant investment is $5,180 using the ordered rates
6 previously discussed and adjusting the depreciation rate
7 to 12.5%. See Staff Exhibit No. 105, lines 11-17.
8 Q. Are there any other costs associated with
9 this EAS filing?
10 A. Yes. While I was never provided any work
11 papers associated with any of the calculations received
12 from TCA, according to Mr. Kelly's memo received on
13 November 5, 1997, there is a charge of $20,000 for the
14 consultant's expense associated with this EAS filing.
15 These expenses were part of a larger number that I
16 requested Mr. Kelly itemize so that actual costs could be
17 determined. I have amortized these expenses over three
18 years for an annual expense of $6,667 per year but Staff
19 will review the reasonableness of these expenses in the
20 rate case. See Staff Exhibit No. 105, line 7.
21 Q. We have covered a large amount of
22 information, could you please review your calculations
23 for the cost of EAS?
24 A. Yes. I have calculated the lost access
25 revenues, lost billing and collection revenues, the shift
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1 in federal service revenues as a result of toll calling
2 becoming toll free calling, and the revenue requirement
3 associated with plant investment. I have totaled these
4 numbers to compile an annual cost for EAS calling into
5 the eastern Idaho U S WEST region. The annual cost to
6 Silver Star for implementing EAS will be $95,844. When
7 divided by the total lines within the exchange, the
8 monthly cost of EAS will be $16.00. Staff Exhibit No.
9 104, lines 6-8, reflect this calculation.
10 Q. How does your calculations compare to the
11 Company's proposed revenue requirement?
12 A. As indicated in my Exhibit No. 104, line 6,
13 my revenue calculations are $3,178 less than the
14 Company's based upon my 200% stimulation factor.
15 RATE DESIGN TO RECOVER EAST COSTS
16 Q. Having concluded that EAS is warranted and
17 the costs of EAS, how should these costs be recovered?
18 A. I propose two alternatives for the
19 Commission's consideration and also address the Company's
20 proposed rate design for EAS recovery. My first
21 alternative is to increase basic exchange rates up to
22 125% of the statewide average (USF threshold).
23 Currently, Irwin residential customers are paying $15.00
24 per month and business customers are paying $22.50 per
25 month. The Wayan residential customers are paying $14.00
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1 per month and business customers are paying the same as
2 the Irwin business customers ($22.50). Adjusting the
3 basic rates up to the USF threshold of $17.51 for
4 residential customers results in an increase of $2.51 for
5 Irwin residential service and $3.51 for Wayan residents.
6 When adjusting business rates to $36.57 for business
7 customers, this increase results in a monthly increase of
8 $14.01. These increases will produce additional revenue
9 of $32,188, thereby reducing the additional annual
10 revenue requirement associated with EAS to $63,656. See
11 Staff Exhibit No. 105, line 8. Silver Star is currently
12 collecting Idaho USF funds, and to comply with Idaho Code
13 Section 62-610 it would need to make this adjustment to
14 maintain eligibility for USF disbursements.
15 Q. What is your second alternative?
16 A. My second alternative is based upon what
17 Silver Star customers are receiving as an EAS "benefit."
18 Silver Star customers will be receiving EAS into the
19 entire eastern Idaho U S WEST region as well as Teton
20 Telecom. It would be reasonable for the Commission to
21 consider charging more for EAS than the recommended $2.51
22 for Irwin residential customers and $3.51 for the Wayan
23 residential customers. This increase will raise
24 residential rates just to the USF threshold. By
25 increasing the monthly residential rate an additional
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1 $3.49, the net increase for residential service would be
2 $6.00 for Irwin and $7.00 for Wayan. Increasing rates by
3 this additional amount would decrease the annual USF draw
4 by $16,584 resulting in annual USF support of $47,071.
5 With the additional $3.49 increase, the
6 total residential rate would be $21.00. Once the effect
7 of the new U S WEST rate is factored into the USF
8 calculation, this $21.00 rate will be near the
9 anticipated USF statewide threshold level. With this
10 increase, residential rates will be stable for some time.
11 Residents will be able to call into a much larger region
12 and experience a significant reduction in their toll
13 bills as a result. It is reasonable to expect them to
14 pay more for EAS before the remainder is drawn from the
15 Universal Service Fund. This is also in conformance with
16 the public testimony to date that customers are willing
17 to pay $5 to $10 more for EAS. Under my second
18 alternative, I do not propose that business rates
19 increase because these customers will already be
20 experiencing a significant increase of $14.01 per month.
21 Such an increase will increase their monthly rates to the
22 current USF threshold of $36.57 per month and decrease
23 the business-residential rate differential ("gap").
24 Q. Did you analyze the calling data based on
25 the separate county seats and look at splitting the
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1 eastern region into two regions?
2 A. Yes, I looked at the calling data that
3 clearly reflected a division in calling patterns based on
4 the separate counties involved. The calling frequency
5 for the customers of Wayan was predominately into the
6 Soda Springs and Pocatello areas. Of the 102 lines in
7 the Wayan exchange, 52% of their annual toll calls were
8 to Soda Springs and 21% to Pocatello. These percentages
9 equate to 6.335 calls per line, per month into Soda
10 Springs and 2.5 into Pocatello. Montpelier and Grace
11 were the other two towns for which at least one call per
12 line, per month were made. Calls to the other
13 communities within the U S WEST eastern Idaho region show
14 less than one call per month, per Wayan line. See Staff
15 Exhibit No. 102.
16 Idaho Falls was the predominate called
17 exchange for the customers in the Irwin exchange. Irwin
18 has 415 lines. Irwin customers had 74% of their annual
19 toll calls going into Idaho Falls, which equates to nine
20 calls per line, per month. The remaining calling data
21 showed less than one call per line, per month was made.
22 See Staff Exhibit No. 102.
23 For a cross comparison, I looked at
24 customers in the Wayan area calling Idaho Falls and the
25 Irwin customers calling Soda Springs. From the Wayan
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1 exchange, 8.5% of their annual calls went to Idaho Falls
2 and the percentage of annual calls for the customers from
3 Irwin calling Soda Springs was only 1.5% annually. This
4 clearly showed a division in the community of interest
5 for EAS.
6 One consideration was to recommend that the
7 customers of Irwin and Swan Valley have EAS into Idaho
8 Falls or the "northern" tier of the U S WEST eastern
9 Idaho region and Wayan customers have the "southern" tier
10 into Soda Springs, Pocatello and the surrounding area.
11 Q. What was the cost distribution for two EAS
12 routes for the two exchanges?
13 A. By dividing the plant investment between
14 exchanges and the minutes for lost access revenues and
15 the lost billing and collection, it was definitely not an
16 equitable division. After the Wayan customers basic
17 rates increased to the USF threshold, there was still a
18 monthly deficit of $21.96 per customer. Irwin had a
19 deficit of $4.64 per customer per month after increasing
20 basic rates to the USF threshold. When comparing the
21 significant disparity of these deficits, combining the
22 exchanges for a monthly net deficit of $11 seemed more
23 reasonable as shown in Staff Exhibit No. 105, line 10.
24 Based on the disparity between the
25 exchanges, I discounted the division of the EAS region
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1 all together. In order for optional calling plans to be
2 a consideration, Silver Star would need to do a break-
3 even analysis to price various plans such that it would
4 be an equitable proposal for all customers that would
5 want them.
6 Q. In Mr. Kelly's Exhibit No. 4A, he proposed
7 to set business and residential rates at the residential
8 USF threshold rate of $17.51, what is your feeling about
9 this proposal?
10 A. I do not see how making business and
11 residential rates equal could possibly be a fair and
12 reasonable option. This proposal has never been proposed
13 or accepted previously. I question whether Silver Star
14 would still be eligible to receive state Universal
15 Service funds. To be eligible for state USF funding, a
16 company must set its business rates at a level that
17 equals 125% of the weighted statewide monthly rate. That
18 monthly business statewide average rate is $36.57. Thus,
19 Silver Star would not meet the business rate eligibility
20 threshold.
21 In addition, prior to the recent U S WEST
22 rate case there was approximately a 2.5 ratio between
23 business and residential rates. Since the rate case that
24 ratio has been established to be 1.88. While the
25 Commission has narrowed the gap, there is apparently not
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1 sufficient justification to eliminate it completely.
2 Based on the "gap" established by this Commission, I
3 would reject this Company option.
4 Q. In Exhibit No. 4B of Mr. Kelly's testimony,
5 he proposes that residential and business rates be set at
6 the current respective USF thresholds of $17.51 and
7 $36.57. Could you please comment?
8 A. By increasing the monthly business and
9 residential rates to the USF threshold, it will reduce
10 the amount that Silver Star will need to draw from the
11 Idaho USF fund as a result of implementing this EAS. It
12 will also keep Silver Star in compliance with Idaho Code
13 Section 62-610, which stipulates that local rates be set
14 at a threshold level in order for a local exchange company
15 to qualify for USF disbursements. In the recent U S WEST
16 rate case, the residential rate was set at $16.99 and
17 business rates were set at $32.00. When these rates are
18 factored into the USF calculations, the statewide USF
19 threshold rates will increase. Increasing basic rates to
20 the USF threshold helps decrease the draw on the USF
21 fund.
22 Q In Mr. Kelly's Exhibit No. 4C, he proposes
23 to increase residential and business rates by a "uniform
24 percentage" to avoid "exacerbation of the business
25 residential rate gap." Could you please address this
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1 option?
2 A. In this option, Mr. Kelly proposes
3 increasing residential rates to $17.51 and business rates
4 to $28.27. I do not believe this approach would meet the
5 USF eligibility criteria. Idaho Code 62-610 requires
6 that,
7 . . . the telephone corporation's
average residence and business
8 local exchange service rates....are
in excess of 125% of the weighted
9 statewide average rates for
residence and business local
10 exchange service rates for one-
party single line service
11 respectively....
12
13 The result of this option would increase both business
14 and residential rates; however, it would not comply with
15 Idaho Code Section 62-610.
16 The "gap" would be somewhat eliminated, but
17 as previously mentioned, this gap has been set at 1.88.
18 If residential rates were increased to $17.51, then
19 business rates would need to be increased to $32.92 when
20 the 1.88% gap was applied. This is well above the
21 business USF threshold. The Commission has decreased the
22 gap between business and residential rates, but they have
23 not eliminated it as yet. Though the methodology of this
24 option is interesting, I would reject it based on the USF
25 threshold levels for business and residential service.
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1 Q. Were any adjustments made to the access
2 rates?
3 A. Not for calculating the lost access revenues.
4 The rates were held at the current tariffed rate and
5 adjusted for the 40% off-peak calling discount. However,
6 Silver Star will need to adjust its access rates to the
7 new USF level of $.060851 to maintain its eligibility for
8 USF draws.
9 GREATER SWAN VALLEY PETITIONS FOR EAS INTO TETON TELECOM
10 Q. In your introduction you mentioned another
11 EAS area that the Swan Valley and Irwin customers were
12 requesting, would you please address that issue?
13 A. In August 1996 a notice of petition was
14 issued by this Commission. In this petition the residents
15 of Swan Valley, Irwin and Palisades requested EAS not only
16 into the Idaho Falls area, but into the towns of Victor
17 and Driggs. Driggs is in Teton County and is served by
18 Columbine Telephone Company, Inc. d/b/a Teton Telecom
19 (Teton). Teton Telecom is an affiliated company of
20 Silver Star.
21 Q. Have you looked at the calling data or done
22 any analysis on this?
23 A. Yes, I studied it along with this entire EAS
24 analysis. The calculated EAS cost to the customer
25 included calling into the Driggs exchange along with the
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1 entire U S WEST region.
2 Q. Why would you consider this a viable EAS
3 request?
4 A. As noted in my testimony prior, Driggs is
5 another source for medical facilities for the residents in
6 the greater Swan Valley area. There are 499 lines in the
7 Irwin and Wayan exchanges. There were 293.5 calls per
8 month from Irwin to Driggs. Driggs also offers stores, an
9 implement dealer, banking facilities and other amenities
10 that are located closer to the residents of the greater
11 Swan Valley than driving 50 miles into Idaho Falls.
12 Q. Would you please summarize your
13 recommendation?
14 A. I believe that the location of the Irwin and
15 Wayan exchanges in relationship to county seats, schools,
16 medical facilities, etc., clearly reflects a need for EAS.
17 While there is not a significant amount of calling data
18 that would conclusively support a large demand for EAS,
19 there is still a need for toll relief. There are three
20 recommendations I would present for consideration by the
21 Commission with respect to calling routes. First, I would
22 recommend toll-free calling between Wayan and Irwin.
23 Second, I would recommend two-way EAS for Irwin and Wayan
24 into U S WEST's eastern Idaho region. Third, I believe a
25 two-way EAS route between Silver Star and Teton Telecom
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1 would warrant consideration as well.
2 Next, I presented two options for the
3 Commission to consider with respect to rates. My first
4 option would be that Silver Star increase its basic rates
5 to the USF threshold of $17.51 for residential rates and
6 $36.57 for business rates. Silver Star will need to
7 increase its access rates to $.060851 per minute to
8 maintain its eligibility for USF draws. With this option
9 implemented, the revenue required for EAS would be
10 reduced, thereby reducing the draw on the Universal
11 Service Fund. I have discussed a rate case with Mr. Clark
12 of TCA, and he is aware that Silver Star will be filing
13 soon for this. At that time, the cost of capital and any
14 additional revenue requirement can be evaluated. Staff
15 believes the EAS case and rate case should be separated at
16 this time. The second rate option would be to increase
17 local residential rates by $6.00 for Irwin and $7.00 for
18 Wayan. All business rates would increase by $14.01.
19 Q. Which option would you recommend?
20 A. Precedents has always set basic and access
21 rates at the USF threshold. With all of the EAS cases
22 currently being reviewed by the Commission, I feel that we
23 should evaluate the total rates and how much USF
24 disbursements offset these EAS costs. The second option
25 would set residential rates such that another increase
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1 would not occur for some time and it would help defray the
2 amount of USF funding that would be required to compensate
3 Silver Star for implementing this EAS region. I recommend
4 option 2.
5 Q. Was there any other testimony filed for
6 this case?
7 A. Yes, U S WEST filed testimony in support of
8 granting EAS to the entire eastern Idaho calling region.
9 Q. Does this conclude your direct testimony in
10 this proceeding?
11 A. Yes, it does.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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1 (The following proceedings were had in
2 open hearing.)
3 MR. HOWELL: And this witness is available
4 for cross.
5 COMMISSIONER HANSEN: Okay, we'll start
6 with you, Ms. Hobson.
7 MS. HOBSON: Thank you.
8
9 CROSS-EXAMINATION
10
11 BY MS. HOBSON:
12 Q Ms. Hall, am I correct that your testimony,
13 in your testimony you do not take a position on
14 U S WEST's recovery of revenues in connection with this
15 EAS route?
16 A No, we do not. Staff has discussed this
17 and we feel that with the EAS implementation and the
18 cases that we have pending that should be addressed at a
19 later date when we can all sit down and take note of what
20 it's costing and what the actual cost revenue is that
21 U S WEST is requesting.
22 Q And is it also correct that you do not cite
23 anywhere in your testimony any prior Commission order on
24 the subject of what U S WEST's recovery should be?
25 A No, I do not.
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1 Q Is it also correct that you do not take a
2 position in your testimony with regard to whether or not
3 Freedom, Idaho customers should be granted EAS?
4 A No, I do not.
5 MS. HOBSON: Thank you. That's all I have.
6 COMMISSIONER HANSEN: Okay, Mr. Ward.
7 MR. WARD: Yes, just a couple of
8 housekeeping matters.
9
10 CROSS-EXAMINATION
11
12 BY MR. WARD:
13 Q Ms. Hall, if you would look at page 25,
14 line 19 of your testimony, there you say business rates
15 would need to be increased to 32.92 when the 1.88 percent
16 gap was applied and then you say this is well above the
17 business USF threshold and yet, if I turn over to page 23
18 of your testimony, I see what I take to be the business
19 USF threshold at line 18 stated as 36.57, do you see
20 that?
21 A That would be -- yes, I do see that.
22 Q Is that incongruous in some fashion? I
23 don't want to necessarily resolve it if you have to think
24 it through.
25 A I believe that the 36.57, 36.57 is 125
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Wilder, Idaho 83676 Staff
1 percent of the statewide average, the weighted statewide
2 average.
3 Q If that's the case, it would not be
4 correct, would it, to say that 32.92 is well above the
5 business USF threshold?
6 A That is correct.
7 Q I'm going to ask you just generally, I know
8 you don't keep hours the way we do, but how much time
9 have you spent on this case, this EAS case, the
10 collective cases between Teton and Silver Star?
11 Guesstimate if you can.
12 A Quite a few. My last time sheet was 102
13 hours and these are the two cases that I worked on for
14 that entire time.
15 Q Okay. Notwithstanding the fact that we
16 might do our best to expedite proceedings, if we were to
17 have annual true-ups of stimulation driven revenue
18 requirements hereafter, don't you think it would be fair
19 to say that you or some other Staff member would have
20 some pretty significant time invested in each of those
21 cases?
22 A Well, I think, hopefully, we'd be able to
23 get accurate data the first time out. The data has
24 changed significantly and numerous times and I think if
25 we could track calling data, we'd be able to maybe reduce
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Wilder, Idaho 83676 Staff
1 that time factor if we had correct data.
2 Q You're confident we're going to have better
3 data a year from now?
4 A We can hope.
5 Q Just so it's clear on the record, measuring
6 traffic in any regulatory scenario involving
7 telecommunications companies is a difficult matter any
8 more these days, is it not, because of multiple carriers,
9 multiple routes, et cetera?
10 A Yes.
11 Q On page 20, line 9, you state there, "With
12 this increase, residential rates will be stable for some
13 time." Do you think there is a public interest in having
14 stability of rates over some reasonable number of years?
15 A Yes, I do.
16 Q Okay.
17 A And the reason I said that was this is an
18 alternative option to a calling plan increasing the
19 rates. It also goes on to state that after the U S WEST
20 rate case, rates are calculated into the USF threshold.
21 That level will eventually increase, so Silver Star would
22 not have to increase rates twice.
23 Q Or at least not as much, the adjustment
24 would be minor?
25 A Right.
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Wilder, Idaho 83676 Staff
1 MR. WARD: All right, the rest are minor.
2 That's all I have. I will have a couple of questions on
3 the other case.
4 COMMISSIONER HANSEN: Commissioner Nelson.
5 COMMISSIONER NELSON: I don't think I have
6 any questions. No, I think I really asked my questions
7 of Mr. Kelly where there were differences in the
8 testimony and so thank you.
9 COMMISSIONER HANSEN: Mr. Howell, do you
10 have any redirect?
11 MR. HOWELL: No redirect.
12 COMMISSIONER HANSEN: Thank you for your
13 testimony.
14 THE WITNESS: Thank you
15 (The witness left the stand.)
16 COMMISSIONER HANSEN: Does that complete
17 your case?
18 MR. HOWELL: Mr. Chairman, this completes
19 the Staff's presentation in the 96-6 and 97-3 cases.
20 Ms. Hall has prepared prefiled testimony in the 97-8
21 case, but we have not taken the company's testimony, so
22 with that, I would move that our exhibits be admitted.
23 COMMISSIONER HANSEN: If there's no
24 objections, it will be so ordered.
25 MR. WARD: No objection.
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1 (Staff Exhibit Nos. 101 - 105 were
2 admitted into evidence.)
3 COMMISSIONER HANSEN: Okay, this brings us
4 to the end of this technical hearing and we will recess
5 this particular case until tomorrow at 10:00 a.m. in Swan
6 Valley where we will have a public hearing.
7 MR. WARD: Mr. Chairman, before you bring
8 down the gavel, I'm not sure if I moved the introduction
9 of our exhibits which I believe are numbered 1 through
10 11.
11 COMMISSIONER HANSEN: Okay; so --
12 MR. WARD: And I would like to so move that
13 our exhibits be admitted into evidence.
14 COMMISSIONER HANSEN: If there be no
15 objections, the exhibits will be admitted. So ordered.
16 (Silver Star Telephone Company Exhibit
17 Nos. 9 - 11 were admitted into evidence.)
18 COMMISSIONER HANSEN: Okay, let's go at
19 ease, then, for just a moment.
20 (The Hearing adjourned at 5:00 p.m.)
21
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Wilder, Idaho 83676
1 AUTHENTICATION
2
3
4 This is to certify that the foregoing
5 proceedings held in the matter of the petition from
6 residents of Swan Valley, Irwin and Palisades requesting
7 extended area service (EAS) to all of Bonneville County,
8 and the towns of Ririe, Victor and Driggs, and in the
9 matter of the petition from residents of Gray's Lake,
10 Wayan and Freedom requesting inclusion in the U S WEST
11 Communications eastern Idaho region, commencing at
12 2:30 p.m., on Tuesday, November 18, 1997, at the Teton
13 West Motor Inn Conference Room, 476 North Main, Driggs,
14 Idaho, is a true and correct transcript of said
15 proceedings and the original thereof for the file of the
16 Commission.
17 Accuracy of all prefiled testimony as
18 originally submitted to the Reporter and incorporated
19 herein at the direction of the Commission is the sole
20 responsibility of the submitting parties.
21
22
23
24 CONSTANCE S. BUCY
Certified Shorthand Reporter #187
25
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Wilder, Idaho 83676