PUC7799R.docx

1 BOISE, IDAHO, WEDNESDAY, JULY 7, 1999, 9:30 A. M.
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4 COMMISSIONER SMITH: Good morning, ladies
5 and gentlemen. This is the time and place set for a
6 technical hearing in Idaho Public Utilities Commission
7 Case No. GNR-T-97-9 and Case No. GNR-T-98-18. These are
8 petitions of customers of Rural Telephone Company for EAS
9 or extended area calling amongst various exchanges.
10 First, we'll get the appearances of the
11 parties. On behalf of the Staff.
12 MR. COPSEY: Yes, Madam Chairman. My name
13 is Cheri C. Copsey, I'm a Deputy Attorney General, and I
14 represent the Staff of the Public Utilities Commission.
15 COMMISSIONER SMITH: Thank you, and
16 Mr. Ward.
17 MR. WARD: Conley Ward of the firm Givens
18 and Pursley for Rural Telephone Company.
19 COMMISSIONER SMITH: Ms. Hobson.
20 MS. HOBSON: Mary S. Hobson from Stoel
21 Rives representing U S WEST Communications.
22 COMMISSIONER SMITH: Okay, I believe that
23 those are all the parties to this case that the Chair is
24 aware of. This is our second hearing. I believe we had
25 a public hearing earlier this year, but at that time did
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CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 not have the technical data that we hope will be
2 available to the Commission today to assist us.
3 Do the parties have a preferred order of
4 appearance? Mr. Ward.
5 MR. WARD: I guess we'd probably just as
6 soon go first.
7 COMMISSIONER SMITH: Okay, please proceed,
8 unless there are preliminary matters that we need to take
9 up.
10 MR. WARD: None that I'm aware of.
11 COMMISSIONER SMITH: All right.
12 MR. WARD: We call Ray Hendershot to the
13 stand.
14
15 RAYMOND A. HENDERSHOT,
16 produced as a witness at the instance of the Rural
17 Telephone Company, having been first duly sworn, was
18 examined and testified as follows:
19
20 DIRECT EXAMINATION
21
22 BY MR. WARD:
23 Q Mr. Hendershot, would you please state your
24 name and address for the record?
25 A Raymond Hendershot. I work for the firm of
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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Rural Telephone
1 GVNW. The address is 2270 LaMontana Way, Colorado
2 Springs, Colorado.
3 Q Mr. Hendershot, in preparation for this
4 proceeding, did you prepare prefiled testimony consisting
5 of nine pages?
6 A Yes, I did.
7 Q And did you also prepare Exhibits 1 through
8 4?
9 A Yes, I did.
10 Q Do you have any corrections or changes to
11 your testimony or exhibits?
12 A Not that I'm aware of.
13 Q With regard to the testimony, if I asked
14 you the questions contained therein today, would your
15 answers be as given?
16 A Yes, they would.
17 MR. WARD: Thank you. Madam Chair, I'd
18 request that Mr. Hendershot's testimony be spread on the
19 record as if read and that his Exhibits 1 through 4 be
20 marked for identification.
21 COMMISSIONER SMITH: If there's no
22 objection, it is so ordered.
23 (The following prefiled testimony of
24 Mr. Raymond Hendershot is spread upon the record.)
25
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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Rural Telephone
1 Q PLEASE STATE YOUR NAME AND BUSINESS
2 ADDRESS.
3 A My name is Raymond A. Hendershot. My
4 business address is 2270 LaMontana Way, P.O. Box 25969,
5 Colorado Springs, Colorado 80936.
6 Q BY WHOM ARE YOU EMPLOYED AND IN WHAT
7 CAPACITY?
8 A I am a Vice President for GVNW
9 Inc./Management ("GVNW").
10 Q PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND
11 AND WORK EXPERIENCE.
12 A I graduated from Brigham Young University
13 with a Bachelor's Degree in Accounting in 1972 and a
14 Master's Degree in Accounting in 1973. I received a CPA
15 Certificate from the State of Texas. Upon graduation, I
16 was employed by General Telephone and Electronics ("GTE")
17 where I served in a variety of positions within the
18 financial area of the company. In 1985, I joined GVNW.
19 GVNW provides a wide variety of management services
20 within the communications industry. My primary areas of
21 responsibility include the development of rates and
22 tariffs, preparation of toll cost separation studies and
23 depreciation rate studies, consulting on acquisitions and
24 sales of telephone properties, and providing various
25 other management services. I was promoted to my present
61
R. Hendershot.Di 1
Rural Telephone Company
1 position in July 1994.
2 Q HAVE YOU PREVIOUSLY TESTIFIED BEFORE ANY
3 REGULATORY COMMISSION?
4 A Yes. I have provided testimony on
5 telecommunications issues before the Idaho Public
6 Utilities Commission ("Commission") on numerous
7 occasions. I have also testified in various telephone
8 company filings and generic regulatory proceedings before
9 the Arizona Corporation Commission, the
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R. Hendershot.Di 1A
Rural Telephone Company
1 Wisconsin Public Service Commission, and the Utah Public
2 Service Commission.
3 Q FOR WHOM ARE YOU APPEARING IN THIS
4 PROCEEDING?
5 A I am appearing on behalf of Rural Telephone
6 Company ("Rural" or "Company") in this case.
7 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?
8 A My testimony explains the cost of providing
9 EAS and the current financial impact to the Company
10 should it be required to provide such service. My
11 testimony includes a discussion and exhibits regarding
12 Rural's current financial condition. It also includes
13 the calculation of a pro forma revenue requirement for
14 the Company.
15 Q PLEASE DESCRIBE THE METHODOLOGY USED IN
16 CALCULATING RURAL'S COST OF PROVIDING EAS.
17 A I have prepared Exhibits 1 through 4 which
18 comprise a simple set of calculations following the
19 pattern typically used by commercial local exchange
20 companies when filing with the Commission for rate
21 increases. The first step is to list 1997 booked plant
22 balances, expenses and revenues and then make pro forma
23 changes to these amounts. The resulting numbers reflect
24 balances as of the end of 1997. Revenues and expenses
25 are calculated, adjusted for pro forma changes, and then
63
R. Hendershot.Di 2
Rural Telephone Company
1 separated between jurisdictions using the methodology
2 adopted by the Federal Communications Commission. A cost
3 of capital for the Company then is developed to determine
4 the appropriate earnings level for intrastate investment.
5 This rate of return is applied to the intrastate rate
6 base to
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R. Hendershot.Di 2A
Rural Telephone Company
1 determine a return in rate base. The estimated net
2 income from the end of period financial statement then is
3 subtracted from the return to determine a return
4 deficiency. The resulting shortfall is grossed up for
5 uncollectible accounts and taxes.
6 Q PLEASE DESCRIBE EXHIBIT NO. 1.
7 A Exhibit 1 identifies the year end 1997
8 plant and reserve balances and any adjustment made to
9 those plant balances. In this case there are two sets of
10 adjustments. The first series of adjustments appear in
11 Column D. These adjustments simply add to plant in
12 service the plant under construction at year end 1997.
13 This plant is now in service. The second series of
14 adjustments appear in Column E. These adjustments
15 represent the additional capital cost that will be
16 incurred to provide EAS. The rest of the exhibit
17 provides a jurisdictional separation of rate base that I
18 assume is self explanatory.
19 Q CAN YOU PROVIDE ADDITIONAL DETAIL ABOUT THE
20 ESTIMATED CAPITAL COSTS OF PROVIDING EAS THAT ARE
21 INCLUDED IN COLUMN E?
22 A Yes. The $25,000 entry on Line 1 of Column
23 E represents the cost of a necessary software upgrade to
24 the company's billing system. The $25,000 entry on Line
25 2 is for software upgrades to the switches in each of the
65
R. Hendershot.Di 3
Rural Telephone Company
1 four affected exchanges. The $175,000 figure on Line 4
2 is for the electronics to serve ten additional T-1s to
3 handle the additional calling volumes. By far the
4 largest portion of the costs appears on Line 6, which
5 shows an entry of
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R. Hendershot.Di 3A
Rural Telephone Company
1 $871,000 for new fiber interconnections with U S WEST
2 which are also necessary to handle the expected increase
3 in traffic.
4 Q DOES RURAL HAVE DETAILED ENGINEERING BACKUP
5 FOR THESE COSTS?
6 A No. Detailed engineering is a relatively
7 expensive undertaking for a small company, and Rural is
8 naturally reluctant to incur these costs before the
9 Commission decides whether to grant EAS in this case.
10 However, I believe these estimates are quite reliable
11 even though final engineering has not been performed. My
12 experience is that small rural telephone companies can
13 accurately estimate such costs using manufacturer's price
14 lists and quotes and managements intimate experience with
15 similar construction costs and the type of terrain that
16 will be encountered. Consequently, I am confident these
17 costs estimate are reliable for the purpose of this case.
18 Q PLEASE DESCRIBE THE SECOND PAGE OF EXHIBIT
19 NO. 1.
20 A This is simply a statement of year 1997
21 accumulated depreciation. There are no pro forma
22 adjustments.
23 Q PLEASE DESCRIBE EXHIBIT 2, ENTITLED
24 "COMPARATIVE INCOME STATEMENT."
25 A This schedule calculates the Company's net
67
R. Hendershot.Di 4
Rural Telephone Company
1 income after income taxes. Lines 1 through 9 identify
2 the Company's 1997 revenues. Lines 11 through 20
3 identify the 1997 booked expenses. Columns B through E
4 contain proforma adjustments for some accounts. Columns
5 G and H separate the revenues and expenses between the
6 interstate and state jurisdictions.
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R. Hendershot.Di 4A
Rural Telephone Company
1 Q PLEASE EXPLAIN THE PRO FORMA ADJUSTMENTS
2 CONTAINED IN EXHIBIT NO. 2.
3 A The most significant adjustments appear in
4 Columns B and C of the exhibit. Line 1, Column C shows
5 the annual increase in local exchange revenue ($55,926)
6 that will be generated by increasing local rates to
7 $24.00 per month for residential customers and $42.10 for
8 business customers. Line 2, Column B indicates that the
9 company will lose $129,918 in annual revenues due to the
10 shifting of costs from the interstate to the state
11 jurisdiction as a result of EAS.
12 Q HOW DOES THIS SHIFTING OF COSTS AFFECT THE
13 COMPANY?
14 A When intrastate toll routes are converted
15 to EAS, the local usage increases significantly. The
16 result is that costs shift from the interstate to the
17 state jurisdiction causing interstate settlement revenue
18 to decrease while the intrastate revenue requirement
19 increases. The $129,918 figure incorporates the
20 anticipated reduction in interstate settlement revenue
21 that will occur because of this shift. For purposes of
22 this estimate I have used the 3x stimulation factor the
23 Commission has adopted in prior cases, even though I am
24 convinced this estimate is too low in this case.
25 Q PLEASE RETURN TO YOUR EXPLANATION OF THE
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R. Hendershot.Di 5
Rural Telephone Company
1 PRO FORMA ADJUSTMENTS ON EXHIBIT NO. 2.
2 A Lines 3 and 7 of Column C show reductions
3 of $25,113 in intrastate access charges and $6,558 in
4 billing and collection revenues, respectively. The
5 $25,113 figure is simply the foregone access charge
6 revenue attributable
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R. Hendershot.Di 5A
Rural Telephone Company
1 to the routes which will be converted to EAS. The $6,558
2 number is lost billing and collection revenue from calls
3 on the same routes.
4 Q WHAT IS REPRESENTED BY THE $8,431 ENTRY ON
5 LINE 7 OF COLUMN C?
6 A As Mr. Martell pointed out in his
7 testimony, calls between Rural's exchanges are now toll
8 calls, and these calls generate revenue for Rural.
9 Including these exchanges in the Treasure Valley EAS area
10 will automatically terminate the existing toll revenue
11 from these routes. Thus, the pro forma adjustment to
12 reflect this loss of revenue.
13 Q WOULD YOU PLEASE EXPLAIN THE ADJUSTMENT
14 TO 1997 EXPENSES SHOWN ON LINE 15, COLUMN E OF EXHIBIT
15 NO. 2.
16 A This entry shows an increase of $30,000 in
17 corporate operations expenses for the cost of presenting
18 this case. This is based on a two year amortization of a
19 $60,000 total cost. This is a higher total cost than we
20 have estimated in past years, but it reflects the reality
21 that these cases have essentially become full blown EAS
22 and rate cases that have imposed enormous costs in some
23 of the prior cases.
24 Q ARE THERE ANY OTHER ADJUSTMENTS IN EXHIBIT
25 NO. 2 THAT REQUIRE EXPLANATION?
71
R. Hendershot.Di 6
Rural Telephone Company
1 A No. The other adjustments are very minor,
2 and they are explained in the footnotes.
3 Q WOULD YOU PLEASE IDENTIFY EXHIBIT NO. 3 AND
4 EXPLAIN ITS SIGNIFICANCE?
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R. Hendershot.Di 6A
Rural Telephone Company
1 A Exhibit 3 calculates the cost of capital
2 for Rural. The result is a weighted cost of capital
3 which is utilized in determining the allowable return for
4 the Company.
5 Q PLEASE EXPLAIN THE COMPONENTS OF THE
6 WEIGHTED COST OF CAPITAL.
7 A The cost of debt calculation is very
8 straight forward. The principal balance for each of
9 Rural's debt instruments is identified as of year end
10 1997. A capital ratio is calculated for each of these
11 loans. This ratio then is multiplied by the interest
12 rates of the debt instruments to produce the weighted
13 cost component for debt. Estimating the cost of equity,
14 on the other hand, involves a more subjective judgment.
15 In this case, Rural proposes a 13.50% return on equity.
16 Q HOW DID YOU ARRIVE AT A 13.50 PERCENT
17 EQUITY COST?
18 A I considered the rate of return authorized
19 for similar companies in the state and used those rates
20 of return as a guideline. In particular, I relied
21 heavily on the Commission's acceptance of a stipulation
22 in the Rockland EAS case that implied a 13.50% return on
23 equity. I also considered the recent USW rate case,
24 where USW estimated its cost of equity at 12.5% to 13.1%.
25 Rural faces a significantly greater business and
73
R. Hendershot.Di 7
Rural Telephone Company
1 financial risk than USW, therefore its return on equity
2 should be greater.
3 Q WHAT IS YOUR BASIS FOR THIS CONCLUSION?
4 A Rural Telephone's Idaho service territory
5 has to be one of the most sparsely populated, and one of
6 the highest cost to serve, in the continental United
7 States. In addition, the company is highly leveraged and
8 very
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R. Hendershot.Di 7A
Rural Telephone Company
1 dependent on RUS hardship loans. All these factors argue
2 for a cost of equity that is even higher than most of the
3 other small Idaho independent telephone company.
4 Q DID YOU CONDUCT A FORMAL COST OF CAPITAL
5 STUDY TO ESTIMATE RURAL'S COST OF EQUITY?
6 A No. Formal cost of capital studies are not
7 warranted in small telephone company cases. They cannot
8 be performed with an acceptable degree of accuracy and
9 their cost simply cannot be justified by the results
10 obtained. First, there is not enough public data to
11 conduct a comparable earnings test or discounted case
12 flow ("DCF") analysis. Second, even if the information
13 were available, it would not be reliable as small company
14 earnings are so volatile. Finally, the cost of such a
15 study could not be justified. A qualified cost of
16 capital expert typically charges at least $20,000 to
17 appear in a proceeding. Yet a 100 basis point variation
18 in Rural's cost of equity produces only a $4,700 variance
19 in the pre-tax return on rate base. In short, there is
20 not enough money involved to justify gathering the
21 detailed cost of capital information normally required
22 for larger utilities.
23 Q PLEASE DESCRIBE YOUR NEXT EXHIBIT.
24 A Exhibit No. 4 is a calculation of Rural's
25 revenue deficiency prior to any rate adjustments. On
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R. Hendershot.Di 8
Rural Telephone Company
1 Line 1, this exhibit starts with the Idaho portion of the
2 total Company rate base as calculated in Exhibit No. 1.
3 This intrastate rate base then is multiplied by the cost
4 of capital calculated in Exhibit No. 3. The resulting
5 revenue (line 3) is the pre-tax return the
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R. Hendershot.Di 8A
Rural Telephone Company
1 Company should realize, given its identified cost of
2 capital. The net utility income or revenues identified
3 on Exhibit No. 2 (line 9 minus line 21 equals Exhibit
4 No. 4, line 4) is a negative value. Since it is
5 negative, no reduction is made to the return deficiency
6 (line 3 equals line 5). The resulting revenue deficiency
7 then is grossed up for uncollectible accounts and taxes
8 (line 6). The final revenue deficiency of $410,551
9 appears on line 7. This is the amount Rural must be
10 allowed to recover through increased Idaho USF revenues.
11 Q DOES RURAL HAVE ANY OTHER MEANS TO MEET
12 THIS INCREASED REVENUE REQUIREMENT?
13 A Not without raising local exchange rates or
14 access charges to absurdly high levels.
15 Q DO YOU HAVE ANYTHING ELSE TO ADD?
16 A This testimony is being prepared before the
17 Staff audit of Rural has been finalized. It is
18 reasonable to assume this audit will propose a number of
19 adjustments, some of which will be accepted by the
20 company, and some of which will be hotly contested. At
21 this point, however, I have no means of evaluating the
22 staff audit and any adjustments it may produce, so these
23 issues will have to be addressed on rebuttal.
24 Q DOES THAT CONCLUDE YOUR TESTIMONY?
25 A Yes, it does.
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R. Hendershot.Di 9
Rural Telephone Company
1 (The following proceedings were had in
2 open hearing.)
3 MR. WARD: And I have just a couple of
4 supplemental questions for Mr. Hendershot.
5
6 DIRECT EXAMINATION
7
8 BY MR. WARD: (Continued)
9 Q Mr. Hendershot, in his supplemental
10 testimony, Mr. Hart walks through the calculation of the
11 revenue requirement if EAS were to be granted and
12 essentially accepts your recommendations. What's the
13 basis for the remaining difference between the Staff's
14 calculation and your original calculation of the revenue
15 requirement?
16 A Basically, we were able to find an
17 alternative route that was cheaper in providing the
18 additional facilities and that's the primary difference.
19 Q Okay, and so I take it that the capital
20 cost originally estimated is considerably less with this
21 cheaper route?
22 A Yes.
23 Q There's one other item in which the Staff
24 and the Company still disagree and that has to do with
25 the cost of billing software. Do you have any response
78
CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Rural Telephone
1 to Mr. Hart's position on that matter?
2 A We're not opposed to the elimination of the
3 software cost as long as we don't have to provide
4 measured service to the customers.
5 Q I think you're going to have to speak up
6 generally.
7 A Okay.
8 Q Is that because the billing software was
9 primarily or the additional billing software cost was
10 primarily designed to implement measured service as the
11 Company envisioned it would be required?
12 A Yes.
13 MR. WARD: Okay. That's all I have. Thank
14 you. Mr. Hendershot is available for cross-examination.
15 COMMISSIONER SMITH: Thank you, Mr. Ward.
16 Ms. Hobson, do you have questions for
17 Mr. Hendershot?
18 MS. HOBSON: No questions.
19 COMMISSIONER SMITH: Ms. Copsey, do you
20 have questions?
21 MR. COPSEY: No questions.
22 COMMISSIONER SMITH: Do we have questions
23 from the Commission?
24 COMMISSIONER HANSEN: I have one.
25 COMMISSIONER SMITH: Commissioner Hansen.
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CSB REPORTING HENDERSHOT (Di)
Wilder, Idaho 83676 Rural Telephone
1 EXAMINATION
2
3 BY COMMISSIONER HANSEN:
4 Q Mr. Hendershot, I was looking at
5 Mr. Hart's supplemental testimony on page 9. Do you have
6 a copy of that?
7 A I do.
8 Q At the top of that page, he's answering a
9 question there and he states that the total annual
10 revenue requirement is estimated to be slightly less than
11 $280,000 or approximately $56.00 per line per month for
12 the 414 customers, and as Mr. Ward mentioned this morning
13 that you may have had a change in the calculations with
14 the Staff, do you agree with this number and, if not,
15 what are you saying this number should be?
16 A Okay, we basically agree with that number
17 for two reasons: One is the lower capital cost because
18 of an alternative route for connection with U S WEST, and
19 second of all, that does not include the billing software
20 cost which we would not include as long as we don't have
21 to provide measured service.
22 Q Now, do you see, then, of the $280,000
23 revenue requirement, what percentage of that do you see
24 being picked up by the Universal Service Fund?
25 A You're probably talking about -- you mean
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CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Rural Telephone
1 picked up by the USF?
2 Q Idaho USF fund.
3 A You're probably talking about 80 percent,
4 approximately.
5 Q So would you -- just a rough estimate,
6 then, that would be about 200 and probably 20-$25,000
7 that would need to be supplemented out of the Idaho
8 Universal Service Fund?
9 A Yes.
10 Q If my numbers are correct, and I had this
11 given to me, right now Rural Telephone Company receives
12 $221,927, this is from June of '97 through May of '98,
13 from the Idaho Universal Service Funding, so basically
14 approving that, if this number is correct, we would be
15 doubling the support out of the Universal Service Fund
16 for Rural Telephone if this is granted; is that correct?
17 A That is correct.
18 Q The total Universal Service Fund right
19 shows that it's 1,746,000, so we would -- would you agree
20 we'd need to increase this closer to $2 million, then, to
21 cover this additional cost? I mean, to come up with
22 another 225,000 if we add that to the current payout of
23 1,746,000, it would be close to the 2 million?
24 A Yes.
25 Q And out of that 2 million, then, over
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CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Rural Telephone
1 400,000 would be going to Rural Telephone Company which
2 would be close to a fifth of the total, would you agree?
3 A Yes.
4 Q Do you think that there has to be a limit
5 on the amount of subsidy that is allowed per line for
6 Universal Service Funding?
7 A I do not.
8 Q So if it really cost 3 or $400 a line to
9 provide service to 50 or 60 people in the community, you
10 think the state should fund that?
11 A That's correct, because that's the way the
12 federal is today. It doesn't take into consideration how
13 much the limit is. It just takes into consideration the
14 cost of the service and what the customer is going to
15 have out there the way the current USF is.
16 Q But on that funding, isn't it tied to basic
17 service?
18 A On the federal USF? It is not, but the
19 state is, yes.
20 Q So this could be debatable whether
21 expanding the EAS is basic service or whether it's an
22 added luxury; right?
23 A You could argue that, but you have to keep
24 in mind that some of the facilities are already near
25 exhaustion and would have to be replaced, so the Company
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CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Rural Telephone
1 would have to come in for a rate case sometime in the
2 near future because they're going to have to put these
3 facilities in eventually.
4 COMMISSIONER HANSEN: Thank you. That's
5 all I have.
6 COMMISSIONER SMITH: Questions?
7 COMMISSIONER KJELLANDER: Just one.
8 COMMISSIONER SMITH: Commissioner
9 Kjellander.
10
11 EXAMINATION
12
13 BY COMMISSIONER KJELLANDER:
14 Q Mr. Hendershot, you just mentioned that the
15 facilities are near exhaustion, what are your foreseeable
16 growth patterns in the area that we're talking about here
17 as far as new customers, more lines, what's the need?
18 A One of the things that the Company needs to
19 look at is an alternative route out, because of the
20 current facilities, if anything happens, a line is cut or
21 anything, those communities are isolated. The traffic
22 has continued to grow slowly. There have been additional
23 customers. Those things would result in eventually the
24 existing facilities being exhausted. Customers out there
25 are looking for Internet. There are some Internet
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CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Rural Telephone
1 customers out there just like in any other communities.
2 Q A follow-up, if I could. Approximately how
3 many new lines per year are you being requested to
4 provide service for?
5 A I'm going to leave that question to Jim.
6 COMMISSIONER KJELLANDER: Okay, thank you.
7 COMMISSIONER SMITH: Mr. Ward, do you have
8 any redirect?
9 MR. WARD: No. Thank you.
10 COMMISSIONER SMITH: Thank you for your
11 help, Mr. Hendershot.
12 THE WITNESS: Thank you.
13 (The witness left the stand.)
14 MR. WARD: We call Jim Martell to the
15 stand.
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CSB REPORTING HENDERSHOT (Com)
Wilder, Idaho 83676 Rural Telephone
1 JAMES R. MARTELL,
2 produced as a witness at the instance of the Rural
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. Martell, would you state your name and
10 address for the record?
11 A My name is James R. Martell and I'm at 704
12 West Madison, Glenns Ferry, Idaho.
13 Q By whom are you employed and in what
14 capacity?
15 A I'm the president and CEO of Rural
16 Telephone Company.
17 Q In preparation for the proceeding today,
18 did you prepare direct testimony consisting of four
19 pages?
20 A Yes.
21 Q And did you also --
22 Madam Chair, with the Chair's permission,
23 I'm going to do the rebuttal as well.
24 Q BY MR. WARD: Did you also prepare rebuttal
25 testimony of an additional four pages?
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CSB REPORTING MARTELL (Di)
Wilder, Idaho 83676 Rural Telephone
1 A Yes.
2 Q Do you have any corrections or changes to
3 that testimony?
4 A No.
5 Q If I asked you the questions contained in
6 your direct and rebuttal testimony today, would your
7 answers be the same?
8 A Yes.
9 MR. WARD: With that, I'd request the
10 direct and rebuttal testimony of James Martell be spread
11 on the record as if read.
12 COMMISSIONER SMITH: If there is no
13 objection, it is so ordered.
14 (The following prefiled direct and
15 rebuttal testimony of Mr. James Martell is spread upon
16 the record.)
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CSB REPORTING MARTELL (Di)
Wilder, Idaho 83676 Rural Telephone
1 Q PLEASE STATE YOUR NAME, POSITION AND
2 CURRENT BUSINESS ADDRESS.
3 A My name is James R. Martell, and I am the
4 President of Rural Telephone Company. My business
5 address is Rural Telephone Company, 704 W. Madison
6 Avenue, P. O. Box 969, Glenns Ferry, ID 83623.
7 Q HOW LONG HAVE YOU SERVED AS THE PRESIDENT
8 OF RURAL TELEPHONE COMPANY?
9 A I purchased Rural Telephone and became its
10 president in 1986.
11 Q HAVE YOU PREVIOUSLY TESTIFIED BEFORE THIS
12 COMMISSION?
13 A Yes, on a number of occasions.
14 Q WHAT IS THE PURPOSE OF YOUR APPEARANCE
15 BEFORE THIS COMMISSION TODAY?
16 A As President and CEO of Rural Telephone, I
17 am appearing to present testimony in support of two-way
18 Extended Area Service (EAS) between the Boise River and
19 Tipanuk exchanges and U S WEST's Treasure Valley EAS
20 calling area.
21 Q PLEASE DESCRIBE THE BOISE RIVER AND TIPANUK
22 EXCHANGES?
23 A There are actually four exchanges at issue
24 in this case: Boise River, Prairie, Atlanta, and
25 Tipanuk. The first three, which we refer to collectively
87
MARTELL (Di) 1
Rural Telephone Company
1 as the Boise River exchanges, are located in mountainous
2 areas along the South Fork and Middle Fork of the Boise.
3 Tipanuk is located along Interstate 84, approximately 10
4 miles north of Mountain
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MARTELL (Di) 1A
Rural Telephone Company
1 Home.
2 Q WHY DO YOU FEEL TWO-WAY EAS SHOULD BE
3 IMPLEMENTED IN THESE AREAS?
4 A There is a significant community of
5 interest between Rural Telephone's Tipanuk and Boise
6 River exchanges and U S WEST's Mountain Home and Boise
7 exchanges. These Rural Telephone exchanges are located
8 in very sparsely populated areas, and there are little or
9 no basic services in these communities. The hospital,
10 high school and junior high, county offices, library, and
11 county extension and social services are a toll call for
12 Tipanuk and Boise River residents. In addition, many of
13 the residents of these exchanges commute to work in
14 Mountain Home or Boise, and it is often inconvenient for
15 them to call their homes or their children's schools
16 because of the toll charges. Finally, the explosive
17 growth of the internet is also a factor because most of
18 the residents of these communities cannot reach their
19 internet provider of choice without a toll call.
20 Q DO YOU BELIEVE RURAL TELEPHONE'S CUSTOMERS
21 SUPPORT EAS AT THE PROPOSED RATES?
22 A The customers will, of course, speak for
23 themselves at the public hearing, but I believe there
24 will be substantial support for EAS even though it means
25 an increase in basic local exchange rates. Under the
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MARTELL (Di) 2
Rural Telephone Company
1 current pricing regime, these exchanges do not even have
2 EAS to each other, so any call outside the exchange is a
3 toll call. The Commission will not be surprised to learn
4 that many customers have asked for EAS in the past, and
5 they are continuing to indicate this is a service they
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MARTELL (Di) 2A
Rural Telephone Company
1 desire.
2 Q IS EAS ALSO DESIRABLE FROM THE COMPANY'S
3 POINT OF VIEW?
4 A Yes it is, as long as Rural Telephone can
5 recover the cost of the service on a revenue neutral
6 basis. The Commission's EAS initiative has essentially
7 established a new service standard for southern Idaho,
8 and Rural Telephone has to meet this standard if it
9 wishes to maintain its reputation for first class
10 telephone service. In addition, there are a number of
11 practical difficulties that will arise if Rural
12 Telephone's exchanges remain an island in the midst of a
13 much larger toll free EAS area.
14 Q WHAT IS THE REVENUE IMPACT ON RURAL
15 TELEPHONE IF IT OFFERS TWO-WAY EAS?
16 A EAS will result in lost access charges and
17 billing and collection charges for calling to the various
18 Southwestern Idaho exchanges, but Rural Telephone
19 proposes to recover an equivalent amount of revenue by
20 adjusting local rates and/or increasing its disbursements
21 from the Idaho USF. As a result, implementation of
22 two-way EAS will be revenue neutral to Rural Telephone.
23 Mr. Hendershot will provide the company's calculation of
24 the additional Idaho USF distributions Rural Telephone
25 will need to maintain revenue neutrality.
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MARTELL (Di) 3
Rural Telephone Company
1 Q ARE THERE ADEQUATE FACILITIES IN PLACE TO
2 PROVIDE EAS?
3 A No. To handle the additional traffic
4 associated with EAS Rural Telephone will be required to
5 upgrade its equipment in all four
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MARTELL (Di) 3A
Rural Telephone Company
1 exchanges. We will need ten new T-1s, 26 miles of fiber
2 cable from Prairie to Boise River and 16 miles from Boise
3 River to the US WEST interconnection point, software
4 upgrades in all four switches, and an upgrade to our
5 billing computer. The total cost of these added
6 facilities will be approximately $1,096,000.
7 Q HOW SOON CAN EAS BE IMPLEMENTED?
8 A In the case of the Boise River exchanges,
9 construction of the necessary facilities will take 12 to
10 18 months. The Tipanuk exchange can probably be cut over
11 to EAS more quickly.
12 Q WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY.
13 A Rural Telephone believes two-way EAS should
14 be implemented between its Boise River and Tipanuk
15 exchanges and the U S WEST Southwestern Idaho calling
16 areas. EAS implementation is consistent with the public
17 interest, and the residents of these communities will
18 greatly benefit by having access to their hospitals, high
19 schools, county seats, and other necessary social
20 services without having to place a long distance call.
21 Q DOES THIS CONCLUDE YOUR TESTIMONY?
22 A Yes, it does.
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MARTELL (Di) 4
Rural Telephone Company
1 Q PLEASE STATE YOUR NAME, POSITION AND
2 CURRENT BUSINESS ADDRESS.
3 A My name is James R. Martell, and I am the
4 President of Rural Telephone Company. My business
5 address is Rural Telephone Company, 704 W. Madison
6 Avenue, P. O. Box 969, Glenns Ferry, ID 83623.
7 Q HAVE YOU PREVIOUSLY FILED DIRECT TESTIMONY
8 IN THIS CASE?
9 A Yes.
10 Q WHAT IS THE PURPOSE OF YOUR APPEARANCE
11 BEFORE THIS COMMISSION TODAY?
12 A As President and CEO of Rural Telephone, I
13 am responding to Mr. Wayne Hart's testimony of May 7,
14 1999 on behalf of the Staff.
15 Q DO YOU DISAGREE WITH MR. HART'S TESTIMONY?
16 A I have no quarrel with his analysis of the
17 facts, but I disagree with the policy decisions he
18 recommends.
19 Q WHAT IS THE BASIS FOR YOUR DISAGREEMENT?
20 A Mr. Hart concludes that EAS should not be
21 granted for these exchanges because the cost is too high
22 for the residents to pay and the Staff is unwilling to
23 use the state USF to fund a portion of the EAS costs. I
24 agree with his conclusion that Rural's customers cannot
25 pay the full cost of EAS on their own, but I strongly
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Rural Telephone Company
1 disagree with the suggestion that partial funding of EAS
2 is not an appropriate use of the state USF.
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J Martell.Reb 1A
Rural Telephone Company
1 Q PLEASE EXPLAIN YOUR REASONING?
2 A For as long as I have been in the telephone
3 business, we have had a policy that high quality
4 telephone service should be available in rural areas at
5 roughly comparable prices to urban telephone service.
6 Rural Telephone Company, as its name implies, was created
7 to provide telephone service in high cost, remote areas
8 that the larger companies were not interested in serving.
9 Rural offered, and continues to offer, many advantages in
10 serving these areas. We are rural specialists, and we
11 work cheaper than the larger companies. In addition,
12 Rural has enjoyed access to low cost Rural Utilities
13 Services (formerly REA) loans. But even with these
14 advantages, Rural could not provide affordable telephone
15 service in many of its exchanges without the financial
16 assistance provided by federal and state universal
17 service funds. The same thing is true for many of the
18 other small telephone companies that serve high cost,
19 sparsely populated areas.
20 Q DO THE LARGER TELEPHONE COMPANIES ALSO
21 RECEIVE UNIVERSAL SERVICE FUND SUPPORT?
22 A I am not an expert on this matter, but my
23 understanding is that U S WEST receives some federal USF
24 support, but not state USF funds. However, the large
25 companies have their own internal form of rural subsidies
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J Martell.Reb 2
Rural Telephone Company
1 in the form of rate averaging. Customers in U S WEST's
2 low cost urban areas pay a slightly higher rate than
3 actual costs in order to partially underwrite the cost of
4 affordable service in more rural exchanges.
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J Martell.Reb 2A
Rural Telephone Company
1 Q WHAT DOES THIS HAVE TO DO WITH THE PRESENT
2 CASE?
3 A During the past two years, the Commission
4 has granted a number of EAS petitions that have created
5 very large calling areas for most U S WEST customers.
6 The customers in the rural exchanges that received the
7 most benefit from EAS have paid for some of the
8 conversion costs in the form of increased rates, but
9 U S WEST customers in the urban areas have also paid a
10 relatively small increase as well. I don't understand
11 why this form of subsidy for EAS is acceptable, but a
12 small increase in the state USF for the same purpose is
13 objectionable.
14 Q ISN'T THE U S WEST INTERNAL SUBSIDY
15 DIFFERENT FROM A SUBSIDY PAID TO AN INDEPENDENT COMPANY
16 LIKE RURAL?
17 A I don't think so. Our Tipanuk exchange
18 illustrates this point perfectly. There is no doubt in
19 my mind that, if Rural had not provided service to
20 Tipanuk, U S WEST would ultimately have been forced to do
21 so because of our universal service policy. Had that
22 been the case, Tipanuk would have automatically been
23 included in the expanded Boise calling area along with
24 all the other high costs pockets of U S WEST customers.
25 Q BUT THE TIPANUK RESIDENTS AT LEAST HAVE
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J Martell.Reb 3
Rural Telephone Company
1 PHONE SERVICE. ISN'T THIS ALL THAT THE UNIVERSAL SERVICE
2 POLICY REQUIRES?
3 A No. The 1996 federal Act mandates rural
4 telephone service that is reasonably comparable in price
5 and quality to urban areas. How can it be reasonably
6 comparable service when Tipanuk sits in the middle of a
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J Martell.Reb 3A
Rural Telephone Company
1 toll free area stretching from Glenns Ferry to Weiser,
2 but the Tipanuk residents can only call approximately 75
3 access lines without a toll call?
4 Q ARE THE OTHER RURAL EXCHANGES IN A SIMILAR
5 SITUATION?
6 A I would prefer to see EAS granted for all
7 the exchanges, but I will admit that Atlanta and Boise
8 River are somewhat unique. Boise River has a very high
9 percentage of vacation homes, and Atlanta is very remote.
10 I can understand the argument that they should be treated
11 differently. But Tipanuk and Prairie are no different
12 than other rural communities that have routinely been
13 granted EAS.
14 According to the Staff, the total EAS cost for
15 these two exchanges would be $131,244, part of which can
16 be funded by raising rates to the $24 and $42 level used
17 in other cases. The rest of the costs should be funded
18 by the state USF. In my view, this is the only
19 reasonable and fair result.
20 Q DOES THIS CONCLUDE YOUR TESTIMONY?
21 A Yes, it does.
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J Martell.Reb 4
Rural 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. Martell, we might as well pick up
8 immediately with Commissioner Kjellander's question,
9 could you tell us what the growth rates are in these four
10 exchanges, approximately, for the last few years?
11 A Approximately between seven and ten
12 percent. It all depends on which exchange.
13 Q Which are the fastest growing?
14 A The Boise River has been the fastest and it
15 looks like it will be a little bit more than that in the
16 near future because there's been quite a bit of
17 subdivision development, golf course proposed and things
18 like that.
19 MR. WARD: Okay, thank you. That's all I
20 have. Mr. Martell is available for cross.
21 COMMISSIONER SMITH: Ms. Hobson, do you
22 have questions?
23 MS. HOBSON: No questions.
24 COMMISSIONER SMITH: Ms. Copsey.
25 MR. COPSEY: I just have a few questions.
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CSB REPORTING MARTELL (Di)
Wilder, Idaho 83676 Rural Telephone
1 CROSS-EXAMINATION
2
3 BY MR. COPSEY:
4 Q In the Boise River area, you said that's
5 the fastest growing, are those basically vacation owners?
6 A They were, but it's changing now. It's
7 more people that are retired, but still want to have a
8 business in their homes.
9 Q If EAS is granted to the Boise River
10 customers and the rates go up to 24.10 or higher for
11 those Boise River customers, has Rural calculated the
12 impact this may have on revenues given the fact that the
13 majority of the customers are vacation owners?
14 A Yes, we have.
15 Q What was the result?
16 A I don't have it here with me. I think Ray
17 does.
18 Q Mr. Hendershot has --
19 A Ray? Oh, we didn't? I don't have that,
20 no.
21 Q Do you remember if it was significant?
22 A No.
23 Q Do you expect a large drop-off if the rates
24 go up to 24.10 or higher?
25 A On the revenue?
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CSB REPORTING MARTELL (X)
Wilder, Idaho 83676 Rural Telephone
1 Q Yes.
2 A Well, yes, some. I mean, it's bound to. I
3 mean, right now everything from Boise River out is a toll
4 charge and with the EAS to the communities of Mountain
5 Home and Boise the revenue will go down.
6 Q I guess my question really goes to whether
7 Boise River customers who are vacation homeowners, will
8 they decline to have telephone service as an alternative
9 to going to 24.10 or higher?
10 A I can't tell you that. I don't know.
11 Q Rural is also proposing a vacation rate in
12 a new tariff filing. Has Rural calculated the effect of
13 offering a vacation rate to Boise River customers that it
14 may have on Rural's revenue?
15 A I don't know.
16 Q You indicated in your rebuttal testimony
17 that it may not make sense to offer EAS to Boise River
18 customers and to Atlanta customers, that there may be
19 some basis for denying EAS to those customers, in part,
20 according to your testimony, because a majority of those
21 customers are vacation homeowners and in Atlanta they are
22 very far removed from Boise and Mountain Home. Would you
23 agree that if USF is used to subsidize EAS to Rural
24 customers that it would make sense to deny EAS to Boise
25 River customers because most of them are vacation owners?
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CSB REPORTING MARTELL (X)
Wilder, Idaho 83676 Rural Telephone
1 A No, I don't think we should deny EAS to
2 Atlanta.
3 Q To Atlanta?
4 A Or Boise River.
5 MR. COPSEY: I have no further questions.
6 COMMISSIONER SMITH: Do we have questions
7 from the Commission? Commissioner Hansen.
8
9 EXAMINATION
10
11 BY COMMISSIONER HANSEN:
12 Q Mr. Martell, if the Commission was to
13 approve this and establish the rates at 24.10 and $42.00
14 where right now those rates are considerably lower and I
15 know the Staff did some surveys, do you think the people
16 would be supportive of paying the $24.00, a residential
17 person, in some of these locations for this service?
18 A Yes, I think the 24.10, I think the
19 customers would accept that.
20 COMMISSIONER HANSEN: That's all I have.
21 COMMISSIONER SMITH: Commissioner
22 Kjellander.
23 COMMISSIONER KJELLANDER: Just one
24 question.
25
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CSB REPORTING MARTELL (Com)
Wilder, Idaho 83676 Rural Telephone
1 EXAMINATION
2
3 BY COMMISSIONER KJELLANDER:
4 Q Mr. Martell, earlier we heard from another
5 witness from your Company about the telephone lines
6 reaching exhaustion. Could you fill me in on how close
7 you are to exhaustion, how many lines you have left, how
8 many years you project that it will take before you reach
9 that point?
10 A The toll facility right now from the Boise
11 River, which is our biggest exchange, goes 26 miles to
12 the Prairie exchange and then it goes microwave up to
13 Deer Point and then down here to Boise with a 12-pair
14 cable and it is full at this point. For us to add any
15 more T1's, we have to do something. Also, this cable
16 goes through forestry property along a Forest Service
17 road. They log, they cut it every year two to three
18 times and when they do that, it puts everybody out of
19 service, so our proposal is to take a fiber and run it 15
20 miles up to Highway 20 so that we have some redundancy.
21 If the cable is cut between the two exchanges, nobody
22 goes out of service and we will split the facilities;
23 some will go to microwave, some will go on the fiber so
24 that we always have our customers in service.
25 Q So as a follow-up, then, if I were to ask
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CSB REPORTING MARTELL (Com)
Wilder, Idaho 83676 Rural Telephone
1 for a line today in that service area, you'd tell me that
2 there was no capacity; is that what I'm hearing you
3 saying?
4 A No, this is just the toll facilities out
5 from the Boise River area, not local. This is a toll
6 line. It carries the long distance out. It's only a
7 12-pair cable.
8
9 EXAMINATION
10
11 BY COMMISSIONER SMITH:
12 Q Well, Mr. Martell, I have to talk about
13 Tipanuk. Unfortunately, I have a clear recollection of
14 when Tipanuk was created, so on page 3 of your rebuttal
15 testimony, you make an assertion that if Rural had not
16 provided service to Tipanuk, U S WEST would ultimately
17 have been forced to do so. What's your recollection of
18 how that happened?
19 A Well, at the time the customers came to us
20 and asked me if I would consider putting service into
21 Tipanuk. They said it was quoted to them that it would
22 cost them about 14,000 per person, and I did some
23 calculations and we went and had a meeting with the REA
24 and they said this would qualify for a loan, so at that
25 time we went to U S WEST and asked them if they would
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CSB REPORTING MARTELL (Com)
Wilder, Idaho 83676 Rural Telephone
1 give this territory up and they did and so we got a loan
2 from REA and put the service in to the customers, but the
3 customers at that time all swore they would not come back
4 and ask for free calling to Mountain Home.
5 Q Well, that's wonderful because your
6 recollection and mine are identical and that is that the
7 customers traded paying hookup costs and line extension
8 costs to U S WEST for local calling into Mountain Home.
9 A Also, it has doubled and the new customers
10 don't remember.
11 COMMISSIONER SMITH: Well, and I understand
12 that, but it is, I guess, comforting to me to know that I
13 at least remember it correctly and I remember
14 Commissioner Swisher swearing that these people would be
15 back asking for EAS, at least to Mountain Home. I don't
16 think he even dreamed they would want Boise. That's all
17 I have.
18 Do you have redirect, Mr. Ward?
19 MR. WARD: Well, I can't resist the bait.
20
21 REDIRECT EXAMINATION
22
23 BY MR. WARD:
24 Q There was one other difference -- do you
25 remember what year that was, by the way, the Tipanuk
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CSB REPORTING MARTELL (Di)
Wilder, Idaho 83676 Rural Telephone
1 installation? Late '80s?
2 A I think it was in '85.
3 Q Okay. There was one other difference,
4 then, in that Mountain Home didn't have EAS to Boise then
5 either, did it?
6 A That's correct.
7 MR. WARD: Nor Glenns Ferry. That's all I
8 have.
9 COMMISSIONER SMITH: Thank you,
10 Mr. Martell.
11 (The witness left the stand.)
12 COMMISSIONER SMITH: Ms. Hobson, would you
13 like to go next?
14 MS. HOBSON: U S WEST calls John Souba.
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CSB REPORTING MARTELL (Di)
Wilder, Idaho 83676 Rural Telephone
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 Would you please state your name for the
10 record?
11 A Yes, my name is John Souba.
12 Q Can you spell that last name, please?
13 A S-o-u-b-a.
14 Q Where are you employed and in what
15 capacity?
16 A I'm employed by U S WEST Communications
17 here in Boise. I'm a staff manager in the regulatory
18 affairs department.
19 Q What is your business address?
20 A 999 Main.
21 Q In your capacity with U S WEST in
22 regulatory management, did you prepare certain testimony
23 dated January 19, 1999, direct testimony consisting of
24 eight pages?
25 A I did.
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CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST Communications
1 Q Did you have any exhibits in connection
2 with that testimony?
3 A I did not.
4 Q At this point, Mr. Souba, do you have any
5 corrections, additions or changes to that direct
6 testimony?
7 A No, I do not.
8 MS. HOBSON: Madam Chairman, I would move
9 that Mr. Souba's testimony -- oh, excuse me.
10 Q BY MS. HOBSON: Before I ask you that,
11 Mr. Souba, now that you have been sworn, if I were to ask
12 you the questions contained in that testimony, would your
13 answers be the same?
14 A Yes, they would.
15 MS. HOBSON: Madam Chairman, I would now
16 move that that testimony be spread upon the record as if
17 read.
18 COMMISSIONER SMITH: If there is no
19 objection, the direct testimony of Mr. Souba will be
20 spread upon the record as if read.
21 (The following prefiled direct
22 testimony of Mr. John Souba is spread upon the record.)
23
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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 F. Souba. My business
4 address is 999 Main Street, Boise, Idaho. I am a staff
5 manager 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 regulatory proceedings
17 including Extended Area Service (EAS) petitions and
18 coordination of discovery and interrogatory responses,
19 among other tasks.
20 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
21 A. My testimony will discuss U S WEST's
22 positions regarding EAS expansion in southern Idaho. I
23 will describe the traffic patterns between the U S WEST
24 Treasure Valley EAS region and the petitioning exchanges
25 from Rural Telephone Company. Although they have been
111
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U S WEST Communications
1 consolidated for hearing, I will separately address
2 Rural's Tipanuk and Boise River exchanges. I will
3 provide recommendations for how EAS expansion should be
4 viewed in light of the establishment of the three new EAS
5 regions across southern Idaho. I will reaffirm the
6 establishment of a cost recovery formula for U S WEST
7 operations as enacted in Order No. 27633. Finally, I
8 will present U S WEST's opinion as to whether the public
9 interest would be served by granting EAS for the
10 communities served by Rural Telephone in this docket.
11 Q. PLEASE DESCRIBE THE HISTORY OF THIS CASE.
12 A. As I previously commented, this case
13 combines two dockets which involve Rural's Tipanuk and
14 Boise River exchanges who have petitioned to join the
15 Treasure Valley EAS Region which is currently made up of
16 only exchanges served by U S WEST. The Tipanuk petition
17 dates from April, 1997 when approximately 27 customers
18 requested EAS to Mountain Home and to
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Souba, John F. - Di 1A
U S WEST Communications
1 the entire Treasure Valley extended service area. The
2 Boise River petition dates from August, 1997 when the
3 Commission received a petition with 113 from customers in
4 that exchange who also requested EAS to Mountain Home and
5 to the entire Treasure Valley extended service area.
6 On December 10, 1998 the Commission issued it
7 Notice of Hearing which established a calendar for the
8 filing of testimony and public hearing. This direct
9 testimony is filed in response to that Notice.
10 Q. WHAT COMMUNITIES ARE CURRENTLY INCLUDED IN
11 THE TREASURE VALLEY EAS OR LOCAL CALLING AREA?
12 A. The Treasure Valley EAS Region includes
13 local calling between the communities of Boise, Caldwell,
14 Emmett, Idaho City, Kuna, Melba, Meridian, Middleton,
15 Nampa and Star. This EAS region will expand to include
16 Payette, Weiser, New Plymouth, Mountain Home and Glenns
17 Ferry on April 29, 1999 in compliance with Order 27774
18 and Order 27790.
19 Q. WHAT IS U S WEST'S POSITION REGARDING
20 REQUESTS FOR EAS TO ONE OF THE NEW LOCAL CALLING REGIONS?
21 A. U S WEST believes that if the Commission
22 determines there is a community of interest between the
23 exchanges which are named in the petition and the public
24 interest is served by granting expanded local calling as
25 requested, the approval should extend to, in this case,
113
Souba, John F. - Di 2
U S WEST Communications
1 the whole Treasure Valley EAS Region. U S WEST further
2 recommends that only two-way EAS be considered. This is
3 consistent with the approach the Commission took and,
4 ultimately, approved with its initial creation of the EAS
5 regions. In addition, inclusion of local calling
6 throughout the existing EAS region would be more readily
7 understandable to all subscribers and would create and
8 maintain equity among the affected exchanges.
9 Q. DOES THE COMPANY BELIEVE THE COMMISSION
10 SHOULD GRANT LESS THAN REGION-WIDE ACCESS IF IT DEEMS
11 EXPANDED LOCAL CALLING IS APPROPRIATE?
12 A. No, for two reasons. One, the customers
13 here have requested the whole region and it is my opinion
14 that it is just human nature for petitioning customers to
15 feel that if their request
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Souba, John F. - Di 2A
U S WEST Communications
1 for any community within the region meets the
2 Commission's standards for EAS, they should have the
3 "whole thing" like the rest of the communities in the
4 region. Otherwise customers are likely to feel they are
5 being disadvantaged.
6 Second, if the Commission were to grant EAS only
7 to a portion of a region, it would invite EAS arbitrage.
8 The Commission has had to deal with this problem before
9 when it decided EAS bridging services are unlawful and
10 ordered U S WEST to issue tariffs prohibiting this
11 practice.
12 Q. WON'T A REGION-WIDE APPROACH POTENTIALLY
13 COST MORE?
14 A. Possibly. However, since it was
15 appropriate public policy to create a region-wide
16 approach, it does not seem inconsistent to apply the same
17 policy for new requests for EAS. On the other hand,
18 granting region-wide EAS may prove to cost less in the
19 long term if a single network design can be implemented
20 in response to the initial request. Follow-up
21 proceedings to implement additional community requests
22 for EAS and/or expanding a partial grant of EAS to
23 include the whole region would be extremely costly and
24 time-consuming for the affected companies and the
25 Commission.
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1 Q. WHAT CALLING DATA WERE YOU ABLE TO REVIEW
2 REGARDING TRAFFIC BETWEEN TIPANUK AND MOUNTAIN HOME AND
3 BETWEEN TIPANUK AND THE TREASURE VALLEY EAS REGION?
4 A. I was only able to review the U S WEST-
5 originated toll calling from Mountain Home and the
6 balance of the Treasure Valley EAS Region exchanges for
7 calling into Tipanuk. I believe the Commission Staff
8 witness, Mr. Hart, will be able to cite additional
9 calling data which reflects the originating traffic from
10 Tipanuk.
11 My review of the U S WEST-originated toll calling,
12 from August 1997 through November 1997, shows
13 approximately 17,000 toll calls and 78,000 minutes of
14 calling from the entire Treasure Valley Region to the
15 Tipanuk exchange. The vast majority of this calling, 83%
16 of the messages and 81% of the minutes, were for calling
17 from two exchanges, Boise and Mountain Home, to Tipanuk.
18
19 /
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21 /
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Souba, John F. - Di 3A
U S WEST Communications
1 If historic trends are any indication, the traffic
2 from Tipanuk to the region will be equal to or, more
3 likely, somewhat greater than the traffic which I have
4 identified. Mr. Hart, I believe, may have additional
5 data in this regard to cite in his testimony.
6 Q. WHAT CALLING DATA WERE YOU ABLE TO REVIEW
7 REGARDING TRAFFIC BETWEEN THE BOISE RIVER EXCHANGE AND
8 MOUNTAIN HOME AND BETWEEN THE BOISE RIVER EXCHANGE AND
9 THE TREASURE VALLEY EAS REGION?
10 A. After again reviewing the U S WEST-
11 originated toll calling into the Boise River exchange, I
12 found, from the same source material, approximately
13 29,000 calls and 136,000 minutes of calling to the Boise
14 River exchange. Once again the majority of the calling
15 came from U S WEST's Boise and Mountain Home exchanges.
16 Q. IN YOUR OPINION DOES THE DATA AVAILABLE
17 INDICATE THAT A COMMUNITY OF INTEREST EXISTS BETWEEN THE
18 TREASURE VALLEY EAS REGION AND THE PETITIONING
19 COMMUNITIES?
20 A. It appears that only a small percentage of
21 U S WEST customers call the petitioning Rural Telephone
22 communities each month. Therefore, it is likely there
23 is not a high level of interest among U S WEST customers
24 in adding the petitioning communities to the Treasure
25 Valley EAS Region. It should be noted, however, that the
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1 calling patterns could be significantly different when
2 viewed from the perspective of the petitioning
3 communities into the larger communities served by
4 U S WEST. U S WEST observed that calling volumes were
5 significantly lower from its "hub" exchanges of Boise,
6 Twin Falls, Pocatello and Idaho Falls going out to the
7 smaller "spoke" communities which surround them in an EAS
8 region. Further, the Commission has made it clear that
9 calling data should not be used in isolation to determine
10 whether a community of interest exists. I expect the
11 Commission Staff will analyze other factors such as those
12 mentioned in Case No. GNR-T-93-13 Order No. 26311 and
13 apply them to this case. In that EAS statewide review
14 docket, the Commission identified criteria to be reviewed
15 when
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22
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U S WEST Communications
1 evaluating EAS and provided the parties with an analysis
2 of these factors along with its recommendation.
3 Q. HAS THE COMMISSION ESTABLISHED A CALLING
4 VOLUME THRESHOLD FOR GRANTING EAS IN IDAHO?
5 A. No, it has not established a specific
6 calling threshold which qualifies an exchange for
7 expanded local calling. However, in docket GNR-T-93-13,
8 mentioned previously, the Commission received testimony
9 from intervening parties as to what minimum call volumes
10 they felt justified the granting of EAS.
11 U S WEST and MCI recommended 6 calls per line per
12 month from the petitioning exchange, AT&T recommended 8
13 calls while the ITA and Century recommended 5 calls per
14 subscriber line. Since the establishment of the EAS
15 regions in 1997, the Commission has granted EAS petitions
16 with a variety of call volumes which ranged to as low as
17 4.7 calls per line per month from Paris into the Eastern
18 Idaho EAS Region.
19 Q. SINCE THE CALLING FROM U S WEST EXCHANGES
20 INTO TIPANUK AND BOISE RIVER EXCHANGES IS MINIMAL, DOES
21 U S WEST RECOMMEND THAT THE PETITIONS BE DENIED?
22 A. Not at all. The Commission is charged with
23 making the difficult decision on whether or not granting
24 EAS is in the public interest. From a geographic
25 position the Tipanuk exchange is an obvious candidate
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1 since it is sandwiched between the Boise exchange and the
2 Mountain Home exchanges who are both regional members, or
3 will be in the case of Mountain Home. But the decision
4 to grant EAS has serious ramifications for the serving
5 independent company financial operations which makes
6 their customers' willingness to pay higher local exchange
7 rates a crucial factor.
8 In a nutshell, U S WEST is prepared to include
9 these petitioning exchanges within the Treasure Valley
10 EAS Region if the Commission finds it is in the public
11 interest.
12
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15 /
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17 /
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19
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21
22
23
24
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Souba, John F. - Di 5A
U S WEST Communications
1 Q. SHOULD THE COMMISSION DECIDE THAT EAS
2 EXPANSION IS APPROPRIATE, HOW DO YOU PROPOSE U S WEST BE
3 COMPENSATED FOR ITS CAPITAL EXPENSES ASSOCIATED WITH
4 IMPLEMENTING ANY NEW EAS?
5 A. In Case No. USW-S-96-4, the Commission
6 adopted a stipulation between U S WEST and Staff which
7 called for using available revenue sharing funds to
8 compensate the Company for any capital expenditures
9 required to implement the new EAS routes. The Company
10 believes this arrangement is also appropriate for dealing
11 with pending EAS cases since at this time additional
12 revenue sharing dollars are still available.
13 Q. HAVE U S WEST AND THE COMMISSION
14 ESTABLISHED A METHOD FOR RECOVERY OF U S WEST COSTS
15 ASSOCIATED WITH GRANTING ADDITIONAL EAS REQUESTS?
16 A. Yes. The Commission Staff and U S WEST
17 have entered in to a Stipulation and Settlement regarding
18 what methodology should be used to calculate compensation
19 to U S WEST for its cost of providing EAS in pending and
20 future cases. In its Order No. 27633 issued on July 17,
21 1998, the Commission approved the Settlement and
22 Stipulation resolving the long-standing issue of
23 compensation for U S WEST for its costs in providing EAS.
24 Q. COULD YOU SUMMARIZE THE COMPENSATION
25 METHODOLOGY SET FORTH IN THE STIPULATION AND ADOPTED IN
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1 ORDER 27633?
2 A. Yes. Compensation to U S WEST for the
3 costs of providing EAS for a U S WEST exchange to another
4 U S WEST exchange(s) is established at $.0861 per toll
5 minute. Compensation to U S WEST for the cost of
6 providing EAS between an independent telephone company
7 exchange and a U S WEST EAS region is established at
8 $.0818 per toll minute. These costs reflect a
9 stimulation factor of three times (3x) for calculating
10 anticipated EAS traffic, and toll minutes are adjusted to
11 reflect a dial around at a rate of 38%. Costs are to be
12 recovered through a uniform increase to business and
13 residential local exchange rates for customers within the
14 U S WEST EAS regions. In the event the Commission orders
15 inclusion of a new U S WEST exchange in a U S WEST EAS
16 region, rates in the affected exchange will be moved to
17 the EAS
18
19 /
20
21 /
22
23 /
24
25
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U S WEST Communications
1 region rates ordered in Case No. USW-S-96-5 with any
2 increase in revenue caused by the change offset against
3 the costs of EAS as previously set forth.
4 Q. IN THE EVENT THE COMMISSION DECIDES TO
5 GRANT EAS TO THE PETITIONING EXCHANGES FOR PART OR ALL OF
6 THE TREASURE VALLEY EAS REGION, SHOULD THIS METHODOLOGY
7 BE UTILIZED TO COMPENSATE U S WEST FOR ITS COSTS
8 ASSOCIATED WITH PROVIDING EAS?
9 A. Yes, it should.
10 Q. DO YOU HAVE AN ESTIMATE OF COSTS FOR
11 PROVIDING EAS BETWEEN THE PETITIONING EXCHANGES AND THE
12 U S WEST EXCHANGES WITHIN THE TREASURE VALLEY LOCAL
13 CALLING AREA?
14 A. Yes, but I can only provide an estimate.
15 I stated earlier that I have reviewed calling data which
16 only reflects the U S WEST-originated toll calling into
17 Tipanuk and Boise River exchanges. If I simply double
18 the U S WEST-originated traffic I can roughly approximate
19 the total toll minutes which would be entered into the
20 recovery formula for U S WEST.
21 Using the formula just described, for Tipanuk this
22 results in a total of 155,500 minutes X 1.38 = 214,590
23 compensable minutes X $0.0818 = $17,550 annual recovery.
24 For Boise River exchange this results in a total
25 of 272,000 minutes X 1.38 = 375,360 compensable minutes X
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Souba, John F. - Di 7
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1 $0.0818 = $30,704 annual recovery.
2 The total cost recovery estimate for both
3 exchanges to join the Treasure Valley EAS Region would
4 amount to $50,000 annual recovery.
5 Q. DO YOU HAVE AN ESTIMATE OF WHAT THIS
6 EXPANSION OF THE TREASURE VALLEY EAS REGION WOULD COST
7 U S WEST CUSTOMERS ON A MONTHLY BASIS?
8 A. Yes. I estimate there to be approximately
9 390,000 U S WEST access lines currently in an EAS region
10 that would eventually share in the recovery of future EAS
11 expansion costs. That would mean the price for each of
12 these access lines would increase approximately $0.01 per
13 month to include both Tipanuk and Boise River in the
14 Treasure Valley EAS region.
15
16 /
17
18 /
19
20 /
21
22
23
24
25
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Souba, John F. - Di 7A
U S WEST Communications
1 Q. WHEN WOULD U S WEST BE PREPARED TO
2 IMPLEMENT EAS IF THE COMMISSION WERE TO DETERMINE IT IS
3 IN THE PUBLIC INTEREST?
4 A. The Company is already involved in
5 implementing inclusion of five U S WEST exchanges in the
6 region and is preparing for inclusion of the Citizens'
7 exchanges of Horseshoe Bend, Garden Valley and Sweet. If
8 an early order is received in this case it could be
9 possible to include the Rural exchanges in the April 29,
10 1999 cut date for the five U S WEST exchanges. This can
11 only be determined following receipt of the Commission
12 order and engineering review of the state of the
13 facilities which would require expansion from converting
14 toll calling to local.
15 Q. WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY?
16 A. Yes. U S WEST has reviewed the calling
17 volumes from its Treasure Valley local calling area to
18 the Rural exchanges. It found few calls per month per
19 access line by U S WEST customers to these communities.
20 However, the Company is cognizant of this Commission's
21 directive to look at other factors in determining if an
22 appropriate community of interest exists to grant EAS.
23 If after reviewing these factors the Commission
24 determines expanded local calling is appropriate for
25 these communities, the Company recommends these customers
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1 be granted EAS.
2 The Company also recommends that it be compensated
3 for any loss of revenues and capital expenditures per the
4 conditions spelled out in Order No. 27633.
5 Q. DOES THIS CONCLUDE YOUR TESTIMONY?
6 A. Yes it does.
7
8 /
9
10 /
11
12 /
13
14
15
16
17
18
19
20
21
22
23
24
25
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Souba, John F. - Di 8A
U S WEST Communications
1 (The following proceedings were had in
2 open hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MS. HOBSON: (Continued)
7 Q Further, Mr. Souba, did you prepare
8 additional rebuttal testimony dated May 28, 1999,
9 consisting of three pages or two pages, I guess?
10 A Yes, I did.
11 Q Do you have any additions, corrections or
12 changes to that testimony?
13 A No, I do not.
14 Q And again, Mr. Souba, if I were to ask you
15 the questions contained in that testimony today now that
16 you have been sworn, would your answers be the same?
17 A Yes, they would.
18 MS. HOBSON: Madam Chair, I would then move
19 that Mr. Souba's rebuttal testimony be spread upon the
20 record as if read.
21 COMMISSIONER SMITH: If there is no
22 objection, it is so ordered.
23 (The following prefiled rebuttal
24 testimony of Mr. John Souba is spread upon the record.)
25
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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 F. Souba. My business
4 address is 999 Main Street, Boise, Idaho. I am a staff
5 manager in the Idaho Regulatory Affairs Department.
6 Q. ARE YOU THE SAME JOHN SOUBA WHO PREVIOUSLY
7 SUBMITTED DIRECT TESTIMONY IN THIS CASE?
8 A. Yes, I am.
9 Q. WHAT IS THE PURPOSE OF YOUR SUPPLEMENTAL
10 TESTIMONY?
11 A. I wish to update my previous testimony
12 regarding U S WEST's cost recovery calculations which
13 were inadvertently understated due to my lack of
14 inclusion of toll minutes from two Rural Telephone
15 exchanges.
16 Q. PLEASE EXPLAIN.
17 A. My previous calculation of toll minutes
18 which would be eliminated in this case assumed that only
19 Tipanuk and Boise River exchanges were to be considered
20 for EAS expansion. I now understand that Prairie and
21 Atlanta are also under consideration for inclusion in
22 U S WEST's Treasure Valley EAS Region.
23 Q. HOW DID THIS CHANGE YOUR COST RECOVERY
24 CALCULATIONS?
25
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Souba, John F. - Reb 1
U S WEST Communications
1 A. The number of U S WEST originating minutes
2 is raised from 213,750 to 297,500. If I assume that
3 Rural originated traffic is equal to the U S WEST
4 originated traffic, the annual recovery amount due to
5 U S WEST would be approximately $69,000. Prior to
6 inclusion of Prairie and Atlanta, the estimated recovery
7 amount was $50,000.
8 Q. HOW MUCH WOULD THIS RAISE THE MONTHLY RATE
9 FOR U S WEST CUSTOMERS?
10 A. The rate for residence and business lines
11 within the three U S WEST EAS regions would be raised
12 between $0.01 and $0.02 per month. This assumes that all
13 four Rural exchanges would have two-way EAS to all
14 current exchanges within the Treasure Valley EAS Region.
15 Q. STAFF WITNESS HART HAS SUGGESTED THAT
16 PARTIAL EAS GRANTS MIGHT BE APPROPRIATE FOR CERTAIN RURAL
17 EXCHANGES, DO YOU AGREE?
18 A. As I stated in my direct testimony,
19 U S WEST prefers that any new exchanges should join the
20 entire EAS region rather than receiving partial grants of
21 toll free calling. Partial grants could be considered
22 "half a loaf" by the petitioners, they are confusing and
23 they invite EAS arbitrage.
24 Q. DOES THIS CONCLUDE YOUR SUPPLEMENTAL
25 TESTIMONY?
A. Yes, it does.
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U S WEST Communications
1 (The following proceedings were had in
2 open hearing.)
3 MS. HOBSON: Mr. Souba is available for
4 cross-examination.
5 COMMISSIONER SMITH: Mr. Ward, do you have
6 any questions?
7 MR. WARD: No questions. Thank you.
8 COMMISSIONER SMITH: Ms. Copsey.
9 MR. COPSEY: No questions.
10 COMMISSIONER SMITH: From the Commission?
11 COMMISSIONER KJELLANDER: No questions.
12 COMMISSIONER SMITH: Nor I. All right, you
13 got off easy today. There can't be redirect. Thank
14 you.
15 THE WITNESS: My pleasure.
16 COMMISSIONER SMITH: We'll get you next
17 time.
18 THE WITNESS: I'm sure.
19 (The witness left the stand.)
20 COMMISSIONER SMITH: Ms. Copsey.
21 MR. COPSEY: Yes, I would like to call
22 Mr. Hart, please, to the stand.
23
24
25
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CSB REPORTING SOUBA
Wilder, Idaho 83676 U S WEST Communications
1 WAYNE HART,
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 MR. COPSEY: Although it's normally my
7 practice to stand up since I'm this old attorney, I'm
8 going to try it sitting down and see if it works just as
9 well.
10
11 DIRECT EXAMINATION
12
13 BY MR. COPSEY:
14 Q Mr. Hart, can you please state your name,
15 position and current business address for the record?
16 A My name is Wayne Hart. I'm a
17 telecommunications analyst with the Idaho Public
18 Utilities Commission. Our address is 472 West Washington
19 here in Boise.
20 Q Are you the technical analyst in this case?
21 A Yes.
22 Q Mr. Hart, in preparation for your
23 appearance today, did you cause to prefile direct
24 testimony dated February 9th, 1999, consisting of 30
25 pages?
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 A Yes.
2 Q Did you also cause to be filed prefiled
3 supplemental testimony dated May 7th, 1999, consisting of
4 19 pages with the Commission?
5 A Yes.
6 Q Did that direct and supplemental testimony
7 include Exhibit Nos. 101 through 103 which were filed
8 with that testimony?
9 A Yes.
10 Q Were those exhibits and direct testimony
11 prepared by you or under your direction and control?
12 A Yes.
13 Q Do you have any corrections to your
14 testimony, either set?
15 A Yes, I do. In my supplemental testimony on
16 the bottom of page 15, continuing to the top of page 16,
17 I made an error in my calculation of the revenues
18 U S WEST would be entitled to recover and that was based
19 on the formulas in the settlement stipulation. I
20 estimated that amount to be 100,000 and it should be
21 68,000, plus a little bit more. This resulted in my
22 calculation of a monthly amount per customer also being
23 wrong. I estimated it at approximately two cents per
24 customer and it's going to be less than that. The actual
25 amount would be closer to one cent per customer per
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 month. I believe these corrected amounts are in
2 agreement with the amounts contained in U S WEST witness
3 Souba's testimony.
4 Q Thank you. If I were to ask you the same
5 questions that are found in the testimony in both your
6 prefiled direct and your prefiled supplemental testimony,
7 would your answers be the same as given in that testimony
8 as corrected today?
9 A Yes.
10 MR. COPSEY: Madam Chair, I would move that
11 Mr. Hart's direct and supplemental testimony be spread
12 upon the record as if read and Exhibits 101 through 103
13 be admitted.
14 COMMISSIONER SMITH: If there is no
15 objection, that is so ordered.
16 (Staff Exhibit Nos. 101 - 103 were
17 admitted into evidence.)
18 (The following prefiled direct and
19 supplemental testimony of Mr. Wayne Hart is spread upon
20 the record.)
21
22
23
24
25
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 Q. Please state your name and address.
2 A. My name is Wayne Hart. My business address
3 is 472 West Washington, Boise, Idaho.
4 Q. By whom are you employed, and in what
5 capacity?
6 A. I am employed by the Idaho Public Utilities
7 Commission (IPUC; Commission) as a Telecommunications
8 Analyst in the Telecommunications Section.
9 Q. What is your educational background?
10 A. I received a Master's Degree in Bacteriology
11 from the University of Wisconsin in Madison, Wisconsin,
12 and a Bachelor's Degree in Biological Sciences from
13 Indiana University in Bloomington, Indiana.
14 Q. Please outline your experience that is
15 relevant to your testimony?
16 A. I served as a Utilities Compliance
17 Investigator from May of 1994 through March of 1997, and
18 handled nearly 2500 complaints, comments and inquiries,
19 with over 1500 of those involving telecommunications
20 issues. I served on the Staff team that performed a
21 service quality audit of U S WEST in 1995 and 1996 for
22 Case No. USW-S-95-4. I joined the Telecommunications
23 Staff in March of 1997 and have been assigned a wide
24 variety of issues, including: rate cases, EAS, payphones,
25 numbering, line extensions, and general telephone issues.
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02/09/99 Staff
1 Q. Have you previously testified before this
2 Commission?
3 A. Yes. I presented testimony in Idaho Power's
4 general rate case (IPC-E-94-5) in 1995, in the recent
5 U S WEST rate case (USW-S-96-5), GTE's rate rebalancing
6 (GTE-T-98-2), the Homedale/Wilder/Parma EAS case
7 (GNR-T-93-13), and the Payette/Weiser/Mountain Home EAS
8 case (USW-S-96-6 and USW-T-97-6) and other proceedings.
9 Q. What is the purpose of your testimony?
10 A. The purpose of my testimony is to address
11 the petitions received by the Commission requesting
12 extended area service (EAS) from the customers in the
13 Tipanuk, Boise River, Prairie and Atlanta exchanges
14 served by Rural Telephone Company (Rural) to Mountain
15 Home and all of the communities in the Treasure Valley
16 EAS region of U S WEST Communications, Inc. (U S WEST).
17 The Commission assigned Case No. GNR-T-97-9 to consider
18 the reasonableness of establishing EAS routes between the
19 communities of Tipanuk and the communities of Mountain
20 Home and the Treasure Valley EAS region. Subsequently,
21 petitions from customers in the Boise River and Prairie
22 exchanges were assigned to Case No. GNR-T-98-18.
23 Recently, petitions from customers in the Atlanta
24 exchange were assigned to GNR-T-98-18.
25 I will respond to the community of interest
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02/09/99 Staff
1 factors as set forth in Commission Order No. 26311, which
2 established guidelines and factors to be followed when
3 evaluating EAS petitions. In addition, I will examine the
4 costs and lost revenues associated with the
5 implementation of EAS.
6 Q. Would you describe the Rural exchanges
7 involved in these petitions?
8 A. These exchanges, Tipanuk, Prairie, Boise
9 River and Atlanta, like all of Rural's exchanges, are
10 clear examples of the high-cost, rural exchanges that are
11 frequently mentioned in discussions regarding universal
12 service and subsidies. These are all sparsely populated
13 and expensive to serve areas. Prairie, Boise River and
14 Atlanta are all located in northern Elmore County in
15 fairly rugged and mountainous terrain. According to
16 Census data, 80% of the occupied buildings are used as
17 vacation or seasonal homes. Tipanuk is located in the
18 desert between Mountain Home and Boise. While it would
19 not be considered prime recreational property, the lots
20 are large, more like small farms or ranches.
21 Rural is recognized as being willing to
22 serve the difficult and expensive-to-serve areas that
23 other companies, especially the larger ones, shy away
24 from. Rural agreed to provide service to these areas
25 after the customers were turned away by U S WEST.
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02/09/99 Staff
1 Telephone service in these exchanges is
2 highly subsidized. On a per-line basis, Rural receives
3 more support from the Universal Service Fund than all but
4 one other Idaho telephone company. On this same basis,
5 it would probably compare similarly when it comes to
6 federal support as well. The level of subsidy is a
7 direct indication of the high cost of providing service
8 in these remote areas.
9 Q. What towns or communities are included in
10 the U S WEST Treasure Valley EAS region requested by the
11 petitioners?
12 A. At the time most of these petitions were
13 received, the Treasure Valley local calling area approved
14 by this Commission included Boise, Caldwell, Eagle,
15 Emmett, Idaho City, Kuna, Melba, Meridian, Middleton,
16 Nampa and Star (hereinafter referred to as original
17 Treasure Valley region). In Orders Nos. 27774 and 27790,
18 the Commission approved toll free calling between these
19 communities and the communities of Payette, Weiser, New
20 Plymouth, Mountain Home and Glenns Ferry. As nearly all
21 of these petitions specifically mentioned Mountain Home
22 and Glenns Ferry, yet none specifically mention Payette,
23 Weiser or New Plymouth, Staff includes all of the
24 communities in the original Treasure Valley region plus
25 the Mountain Home and Glenns Ferry exchanges in its
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02/09/99 Staff
1 analysis. This area will be referred to as the requested
2 region.
3 COMMUNITY OF INTEREST STANDARDS
4 Q. What are the criteria that the Commission
5 established for EAS as set forth in Order No. 26311?
6 A. According to the Order, calling volume and
7 calling distribution are among many primary and secondary
8 factors to be used when evaluating EAS calling areas. To
9 determine whether a community of interest exists to
10 support EAS, the primary factors in addition to the
11 calling data, are as follows:
12 1. geographic proximity (distance
between exchanges);
13 2. the presence of geographic or
other physical barriers
14 (mountains, rivers, valleys)
between exchanges;
15 3. county seat relationship (are
both exchanges in the same
16 county);
4. the relationship to school
17 districts (do both exchanges
share the same school
18 district);
5. the proximity to medical
19 facilities and services;
6. the willingness of customers
20 to pay increased rates.
21 Order No. 26311, page 9.
22 Q. Addressing the geographic proximity
23 (distance between exchanges) and the presence of
24 geographic or other physical barriers (mountains, rivers,
25 valleys) as set out in Commission Order No. 26311, what
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02/09/99 Staff
1 were your findings?
2 A. All of the Rural exchanges lie within Elmore
3 County, as do the U S WEST exchanges of Mountain Home and
4 Glenns Ferry. The other exchanges in the requested
5 region lie in Ada, Canyon, Boise and Gem Counties. The
6 Tipanuk exchange is situated between and borders both the
7 Mountain Home and Boise exchanges. However, it is much
8 closer to the community of Mountain Home. Most Tipanuk
9 residents live within 10 miles of downtown Mountain Home,
10 with downtown Boise approximately 30 or more miles away.
11 It lies in an area considered desert by most, and is
12 separated from both communities by additional desert
13 land. The other 3 exchanges lie in northern Elmore
14 County. Prairie and Boise River lie along the South Fork
15 of the Boise River, with Atlanta along the Middle Fork of
16 the Boise River. The Prairie exchange includes the
17 community of Prairie and the ranches and recreational
18 property in the foothills to the north of the South Fork.
19 It probably has a higher percentage of year-round
20 residents than either Boise River or Atlanta. The Boise
21 River exchange includes the area around the Anderson
22 Ranch reservoir, the communities of Pine and
23 Featherville, and a number of recreational home sites
24 along the South Fork of the Boise River. The Atlanta
25 exchange serves the remote mountain community of Atlanta,
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1 which is located near the headwaters of the Middle Fork
2 of the Boise River on the edge of the Sawtooth
3 Wilderness.
4 Q. Where is the county seat of Elmore County?
5 A. The county seat is Mountain Home, which is
6 currently a toll call from all of these exchanges.
7 Q. Are any government services available with
8 a local call to Rural customers.
9 A. All government services are a long distance
10 call away, unless the agency provides a toll free number.
11 There are no state or federal agency offices located in
12 any of these exchanges.
13 Q. Do the area students attend schools outside
14 of the Rural exchange?
15 A. Yes. They are all technically located
16 within the Elmore County School system. Atlanta, Prairie
17 and Pine have elementary schools for grades K-8, but the
18 only high school is in Mountain Home. High school
19 students typically live with families in Mountain Home,
20 or make similar arrangements, as no transportation is
21 provided from Prairie, Pine, Featherville or Atlanta to
22 Mountain Home. Some students in the Boise River exchange
23 choose to go to Fairfield for high school. Similarly,
24 some Atlanta students choose the new Idaho City high
25 school. Students from Tipanuk are bused to Mountain Home
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1 for all grades.
2 Q. Do Rural customers in these exchanges have
3 access to medical facilities and services with a local
4 call?
5 A. No, there are no doctors, dentists or
6 medical facilities located in any of these communities.
7 This was a point raised by the petitioners, who indicated
8 that no medical services were available with a local
9 call. Atlanta Residents must travel to the medical
10 clinic in Idaho City, or to facilities in Boise.
11 Customers in the other exchanges must travel to Mountain
12 Home, Boise or Twin Falls.
13 Q. Are other business facilities available
14 locally.
15 A. Tipanuk has no local retail businesses. A
16 few tourism-centered businesses exist in each of the
17 other exchanges which can provide emergency or
18 convenience shopping, but for most residents of the area
19 virtually all regular or speciality shopping is done in
20 the larger communities of Mountain Home, Boise or Twin
21 Falls.
22 Q. Do Rural customers in these exchanges have
23 higher than average toll bills?
24 A. I believe so. According to information
25 from the 1998 USF Administrator's report, the statewide
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1 average revenue per line for intrastate toll calls is
2 just over $11. Based upon the billed revenue per line
3 data provided by the Company, Prairie customers paid over
4 twice that amount just for calls to exchanges within the
5 requested region, not including calls to locations
6 outside the requested region. Tipanuk customers paid
7 more than one and a half times the statewide average for
8 calls within the requested region, while Boise River and
9 Atlanta customers paid about the same for calls within
10 the region as the typical customer paid for all in-state
11 calls.
12 Q. Do customers in any of these communities
13 have access to the Internet through a local call?
14 A. No.
15 Q. Please explain calling volume and calling
16 distribution.
17 A. Call volume is simply the average number of
18 calls per line made each month from the home exchange to
19 the requested exchange. Call distribution shows how many
20 lines had 1 call, 2 calls, 3 calls, etc.
21 Q. Have you reviewed the testimony of Rural's
22 witnesses, James Martell and Raymond Hendershot?
23 A. Yes, I have. I compared the limited results
24 of the analysis of the calling data that was contained in
25 Company witness Hendershot's testimony to that of my own
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1 analysis.
2 Q. Do you agree with the conclusions he has
3 drawn from those results?
4 A. Only partially. I believe the calling data
5 supports a conclusion that a community of interest exists
6 between Rural's Tipanuk, Prairie and Boise River
7 exchanges and U S WEST's Mountain Home exchange, and
8 probably between the Atlanta and the Boise exchange, but
9 that is not necessarily the case for the other routes in
10 the requested region.
11 Q. What did your analysis indicate for the
12 Tipanuk to Mountain Home route?
13 A. An average of nearly 24 calls per line per
14 month were placed from Tipanuk to the Mountain Home
15 exchange. This is approximately 4 times the 6 calls per
16 line level recommended by some of the parties in the
17 Commission's generic EAS Case No. GNR-T-93-13. That is a
18 very significant level of calling. In addition, 78% of
19 the Tipanuk customers made an average of 2 or more calls
20 to the Mountain Home exchange per month, with the
21 majority of the customers placing 10 or more calls per
22 month. This level of call distribution is the highest I
23 have found in the cases in which I have testified, and is
24 a significant indicator of a strong community of
25 interest.
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1 Q. What about Tipanuk to the other cities in
2 the requested Region?
3 A. The volume to the requested region as a
4 whole is 37.5 calls per line per month, with over 60% of
5 that total going to Mountain Home, over 30% to Boise, and
6 the remaining communities in the region receiving less
7 than 10% of the calls. I cannot determine a call
8 distribution to the region as a whole or any other
9 combination of exchanges, from the data provided by the
10 Company. That calculation is only possible for specific
11 routes. A reasonable case could be made for a community
12 of interest between Tipanuk and Boise, with a calling
13 volume of more than 11 calls per line per month, and just
14 over 60% of the customers placing two or more calls per
15 month. However, with only one fourth of the customers
16 placing 10 or more calls per month, the distribution is
17 not nearly as strong as the 55% of the customers placing
18 10 or more calls to Mountain Home. With all of the
19 remaining communities sharing 10% of the total volume of
20 calls, the community of interest to the rest of the
21 region is extremely weak.
22 Q. What were the similar results for Prairie
23 to Mountain Home?
24 A. An average of more than 18 calls per line
25 per month were place from the Prairie exchange to the
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1 Mountain Home exchange. Prairie's calling volume is
2 clearly indicative of a community of interest. Over two
3 thirds of the Prairie customers place 2 or more calls per
4 month to Mountain Home.
5 Q. How about the rest of the region?
6 A. Prairie customers place an average of 37
7 calls to the entire requested region, with over half of
8 that to Mountain Home. The calling volume to Boise from
9 Prairie was an average of 6 calls per line per month,
10 barely meeting the suggested threshold. Call
11 distribution to Boise from Prairie was weak, with 57% of
12 the customers placing 2 or fewer calls. As is often the
13 case, 17% of the customers placed over 70% of all of the
14 calls to Boise. Calling to the other communities in the
15 requested region accounted for approximately one third of
16 the total calling from Prairie customers, and was
17 dispersed, as would be expected, according to the size of
18 the called exchange.
19 Q. What does the calling data indicate for
20 Boise River to Mountain Home?
21 A. An average of nearly 7 calls per line per
22 month were placed from the Boise River exchange to the
23 Mountain Home exchange. This call volume is within the
24 range cited as evidence of a community of interest in
25 previous cases before this Commission but never accepted
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1 by the Commission. Call distribution was not as strong,
2 but more than a third of the Boise River customers placed
3 2 or more calls to Mountain Home.
4 Q. How does Boise River fare to the rest of the
5 region?
6 A. Boise River customers placed only 13.3 calls
7 per month to all of the exchanges in the requested
8 region. With more than half of those to Mountain Home,
9 the rest of the region received just over the 6 call
10 threshold. The Boise exchange received an average of
11 more than 4 calls per line, leaving all the remaining
12 exchanges with less than 2 calls per line. As one might
13 expect in an area with so many vacation homes, call
14 distribution was especially weak in the Boise River
15 exchange. Nearly 40% of the customers made no calls to
16 Boise in the average month, and more than 60% of the
17 customers made two or fewer calls to Boise each month.
18 Q. Do the calling levels for Atlanta to Boise
19 indicate a community of interest?
20 A. They are very similar to those for Boise
21 River to Mountain Home, with nearly 8 calls per line per
22 month from Atlanta to Boise, and 55% of the customers
23 placing 2 or more calls per month to Boise. Both of
24 these numbers are above the threshold levels we like to
25 see when analyzing an EAS route.
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1 Q. What about Atlanta to Mountain Home?
2 A. There are significant geological separations
3 between these communities and this is mirrored in the
4 calling data. The calling volume was significantly less
5 than one call per line per month, and less than 10% of
6 the lines placed 2 or more calls to Mountain Home per
7 month.
8 Q. Does Atlanta have a community of interest
9 with any of the other communities in the requested
10 region?
11 A. Because of the geographic link to Idaho
12 City, I specifically looked at the calling data for that
13 route. The calling volumes are only 2 calls per line per
14 month, with more than 70% of the lines not placing any
15 calls at all. This data, along with the other community
16 of interest factors, falls far short of establishing a
17 community of interest.
18 Q. Please recap the community of interest
19 factors you have discussed.
20 A. Tipanuk, Prairie and Boise River definitely
21 share a strong community of interest with Mountain Home.
22 This is the hub city that provides most of the services
23 these customers need for routine living: banks, grocery
24 supermarkets, car dealers and repairs, medical and dental
25 care, drug stores, variety stores, restaurants, etc.
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1 Boise serves a similar role for the Atlanta customers.
2 This link is especially strong for Tipanuk and Prairie,
3 which do not have as many vacation or second home
4 residents. Residents of these exchanges rely on
5 businesses located in the exchanges in Mountain Home for
6 most economic transactions, and they share churches and
7 other civic organizations with those in Mountain Home. A
8 typical customer in these exchanges incurs a higher than
9 average toll bill, primarily because they make long
10 distance calls to people and businesses in Mountain Home
11 for services and activities that most Idaho residents can
12 make with a toll free call.
13 Tipanuk and perhaps Prairie share weak
14 communities of interest with Boise. EAS over these
15 routes should only be approved if an overwhelming
16 majority of customers are willing to bear the increased
17 costs of such EAS. The community of interest to the
18 remaining exchanges within the requested region from any
19 of the 4 exchanges is not sufficient to justify an EAS.
20 EAS COSTS
21 Q. What costs are associated with providing
22 EAS?
23 A. There are 2 types of costs for providing
24 EAS. One is the actual costs incurred to carry out EAS
25 and the other is the shift of cost responsibility from
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1 toll traffic to non-toll traffic. This not only includes
2 revenues a company currently receives from customers and
3 other carriers, but also includes decreases in federal
4 payments a company may receive due to a shift in overall
5 traffic usage from the interstate to intrastate
6 jurisdiction.
7 Q. Do you agree with the actual costs
8 identified by Rural's witnesses Martell and Hendershot?
9 A. No. These exchanges do not have that many
10 customers and the calling volumes that can reasonably be
11 expected, even at a 3x stimulation factor, after EAS is
12 granted should not require the facilities identified by
13 Mr. Martell and Mr. Hendershot. The level of upgrade
14 proposed by the Company is certainly questionable if the
15 Commission accepts Staff's recommendation to approve only
16 a portion of the requested routes. If Staff's base
17 recommendation is adopted by the Commission, the total
18 increase in minutes at a 3x stimulation factor will be
19 under 35,000 minutes per month. While I recognize that
20 this does not consider concurrent and/or peak usage, for
21 comparison a single, analog, copper pair can carry over
22 43,000 minutes per month. We are talking about very
23 limited usage.
24 For Tipanuk, Rural has a 25-pair cable to
25 the meet point with U S WEST, where it is met by U S
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1 WEST's 11-pair cable. U S WEST's cable is less than half
2 the size of Rural's cable. Therefore, the maximum that
3 Rural's cable can be used at now is 44% of capacity.
4 With fewer than 70 customers in the Tipanuk exchange, it
5 is probably well below that level. It should not need
6 upgrading.
7 The microwave facilities that carry traffic
8 between the other 3 exchanges and the microwave tower at
9 Deer Point should be capable of carrying the additional
10 calling volume, although they may need some
11 reconfiguration or additional cards or facilities of some
12 type to carry the additional traffic. While a fiber
13 optic cable connection between the Boise River and
14 Prairie office, and between the Prairie office and U S
15 WEST may be very beneficial to Rural's system and may
16 require expenses the Company should incur, it is not
17 necessary for the EAS, and the costs associated with
18 these fiber extensions should not be included in the
19 costs of EAS.
20 The costs of the new billing software are
21 also questionable. Staff does not believe there is
22 anything special about an EAS that would require new
23 billing software. There will be changes in monthly
24 rates, and the Company will no longer bill for some of
25 the toll it previously billed for, but the existing
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1 billing software should be able to accommodate such
2 changes. Changes to the billing program should be
3 considered normal costs of doing business and not special
4 costs associated with the EAS.
5 The costs of software upgrades for the
6 switches may be an appropriate cost, but the level
7 reported may be higher than necessary, especially if EAS
8 is approved on fewer than requested routes.
9 Q. Do you have cost estimates for the facility
10 upgrades you propose?
11 A. Yes. They are identified in Staff Exhibit
12 No. 101. However, these are very rough estimates. The
13 Company's responses to Staff's Production Request failed
14 to specifically identify what facilities are currently
15 being used to carry traffic over the routes that are the
16 subject of this case, nor did they provide any
17 information regarding the capacity of those facilities.
18 Therefore, Staff's estimate of what facilities upgrades
19 will be necessary is somewhat speculative. As the
20 Company's response to Staff's Production Request did not
21 identify any facility upgrades, it also did not identify
22 any costs for such upgrades. The workpapers provided to
23 Staff's request for support for the costs identified in
24 Mr. Hendershot's testimony failed to provide the level of
25 detail that would enable Staff to prepare reasonably
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1 accurate estimates for the facility upgrades Staff
2 believes may be neccessary.
3 Q. What about lost access or toll revenues?
4 A. As Rural does not carry the toll, they would
5 not incur lost toll revenue. However, they would lose
6 the access revenues they receive from the companies that
7 do carry the toll. Based upon the access minutes
8 identified in the calling data provided to Staff, the
9 total access revenues the Company would have received for
10 calling over all of the routes in the requested region,
11 including billing and collection revenue, would be less
12 than $15,000 per year. This is less than half of the
13 amount identified by the Company's witnesses.
14 Q. Do you agree with the $129,918 per year
15 impact projected by Rural witness Hendershot for the
16 shift in usage from interstate to intrastate?
17 A. Mr. Hendershot did not provide documentation
18 as to how this number was derived. However, given the
19 difference in our projections of lost access revenues,
20 I find this number to also be highly questionable. For
21 the purposes of my calculations, I simply used a number
22 that was 44% of the value used by Mr. Hendershot, as that
23 was the percentage difference in our projections of lost
24 access revenues. My estimate of the cost of the
25 interstate shift was only $57,680 for an EAS over all of
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1 the routes in the requested region. For analyzing the
2 costs for EAS covering only a portion of the routes, I
3 adjusted my figure by the proportion of access minutes in
4 the proposed routes to the total number of access minutes
5 in the requested region.
6 Q. Do you agree with the estimate of costs for
7 EAS over the routes between Rural's own exchanges?
8 A. As these routes were not identified in any
9 of the petitions, I did not request and therefore did not
10 have, any information to use to verify this estimate.
11 However, that estimate is more than half the total I
12 estimated for lost access revenues for calling to the
13 entire requested region, which make it seem particularly
14 high.
15 Q. Are there other cost estimates in the
16 Company's testimony which cause you concern.
17 A. Yes. The estimate of $60,000 for the
18 consultant fees for this EAS case is exorbitant. It is
19 considerably higher than Staff has accepted for similar
20 cases. Staff also objects to the presumption that this
21 case will be as involved as a rate case. I have utilized
22 an additional cost for consultant fees of $30,000
23 amortized over 3 years or $10,000 annually.
24 Q. What figures are included in the annual cost
25 for depreciation and rate of return?
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1 A. Depreciation and return are based on
2 estimated facility upgrades of $75,000. Depreciation is
3 calculated at a rate of 12% for the categories upgraded
4 resulting in an annual depreciation cost of $9,000. The
5 rate of return is calculated using a return on equity of
6 12% and a gross-up factor of 1.6469 resulting in a return
7 of $5,897. Terri Carlock, Audit Section Supervisor
8 calculated these figures for use in this testimony. The
9 final revenue requirement will be based on the actual
10 routes and upgrades approved by the Commission in these
11 proceedings.
12 Q. Do you agree with witnesses Martell and
13 Hendershot, that the Company should receive increased
14 funding from the Universal Service Fund in order to
15 recover some of the costs of implement EAS?
16 A. No. This Commission has historically
17 refused to increase a company's eligibility for USF
18 funding for the specific purpose of recovering EAS costs.
19 Staff supports that position.
20 Q What is the total of the financial impacts,
21 based upon the changes you recommend if EAS were to be
22 granted over all the routes in the requested region.
23 A. The total impact, if the expansion can be
24 accommodated without significant upgrades to facilities
25 would be just $100,000 over per year, or more than $17
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1 per customer per month.
2 Q. Do you think the majority of Rural's
3 customers in these exchanges would want EAS to the entire
4 requested region if it were to cost an additional $20 per
5 month.
6 A. No. Especially in the Boise River and
7 Atlanta exchanges where the majority of the customers are
8 owners of recreational property, many of whom only occupy
9 their homes during a portion of the year. The calling
10 data provided by the Company indicated that the majority
11 of customers in these 2 exchanges do not make sufficient
12 calls to these exchanges to make this increase an
13 economically rational choice. Even for the Tipanuk and
14 Prairie exchanges this increase is near the average in
15 billed toll for these routes. This typically indicates
16 the majority of customers would pay more under this plan
17 than they do currently.
18 Some of the petitions submitted in this case
19 included a way for customers to indicate how much they
20 would be willing to pay for EAS. However, none of the
21 petitions even included an estimate as high as $20 per
22 month.
23 Q. Do you recommend any alternatives to EAS to
24 all the routes in the requested region?
25 A. Yes. My base recommendation is to provide
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1 EAS over the routes between Tipanuk, Prairie and Boise
2 River and Mountain Home, and the route between Atlanta
3 and Boise. These routes had the most significant levels
4 of community of interest. Approving these routes would
5 provide the customers of these rural exchanges with toll
6 free access to the majority of their routine needs,
7 schools, medical care, common shopping needs, etc., yet
8 avoid the costs associated with toll free access to the
9 entire requested region.
10 Q. What would be the costs associated with such
11 an alternative?
12 A. I estimate the total annual costs of this
13 alternative to be approximately $53,000.
14 Q. How do you propose raising this revenue?
15 A. The Company will be required to raise all of
16 its rates to the 125% threshold in order to maintain
17 eligibility for USF funding. This will increase
18 residential rates to approximately $19.14, and business
19 rates to $38.22. This will increase the Company's
20 revenues by nearly $42,000. The balance could be funded
21 through an EAS adder to the 484 lines in these 4
22 exchanges. At a total cost of $53,000, the EAS adder
23 would be under $2.00 per month per line. This would
24 result in residential rates of approximately $21/month
25 and business rates of approximately $40/month.
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1 Q. If Staff's assumption that EAS over these
2 routes can be accomplished without significant facility
3 upgrades is incorrect, and the costly upgrades identified
4 by the Company are determined to be necessary, would
5 Staff's recommendation change?
6 A. Certainly. With so few customers in these
7 exchanges, minor increases in costs result in significant
8 increases in the monthly charges to each customer. If
9 EAS can not be provided without the facilities identified
10 in the Company's testimony, then Staff would recommend
11 that EAS not be provided.
12 Q. Are there other options you could recommend?
13 A. Yes. Although not as strong as the
14 community of interest to Mountain Home, Tipanuk, and to a
15 lesser extent, Prairie, both have some community of
16 interest ties to Boise. If, after the costs of EAS over
17 these routes are known, the customers of these exchanges
18 still express a willingness to pay for EAS over these
19 routes, Staff would support mandatory EAS for these 2
20 routes as well.
21 Q. What do you estimate the costs of EAS for
22 these routes to be?
23 A. I project an incremental monthly cost for
24 EAS over both the Tipanuk to Boise and Prairie to Boise
25 routes of approximately $8.00 per line in the Tipanuk and
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1 Prairie exchanges, again assuming no significant facility
2 upgrades would be required. If Tipanuk-Boise were
3 considered alone, the incremental monthly cost would be
4 approximately $10.00/line in the Tipanuk exchange. For
5 Prairie alone, the monthly increase would be
6 approximately $6.00 per line in the Prairie exchange.
7 Q. Has Staff integrated a review of the
8 Company's earnings into its recommendations?
9 A. No. Staff has simply identified the
10 increased costs directly related to implementing EAS over
11 the proposed routes and identified rate changes to
12 recover those specific costs. A review of the Company's
13 earnings is currently underway. If the Commission
14 determines more EAS routes are warranted and/or large EAS
15 costs are necessary, the earnings level from the audit
16 should be considered before the Company's eligibility
17 payments from USF funds is increased.
18 Q. Have you considered any optional calling
19 plans?
20 A. No, although optional calling plans may be
21 the most appropriate choice, especially for the Boise
22 River and Atlanta exchanges, I did not have sufficient
23 data to consider such options. A measured optional plan,
24 one with a low measured rate per minute, might be
25 especially appropriate given the Company's concerns about
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1 the impact of Internet usage over EAS routes. Staff
2 shares this concern. A plan that discourages unlimited
3 usage, such as a per minute charge, with or without a
4 base level of usage, may be most appropriate for all 4 of
5 these Rural exchanges, as none of them currently have a
6 local dial up access point of presence for the Internet.
7 Q. Does Staff recommend a measured service rate
8 for these exchanges?
9 A. No. With the high level of vacation homes
10 in these exchanges, Staff believes the subscription level
11 for any measured option would be high enough to have
12 serious impacts on revenues. Staff believes the
13 revisions to the ITSAP credits should be sufficient to
14 address universal service concerns. If the Commission
15 believes a lower cost option should be made available to
16 these customers, Staff recommends that in lieu of a
17 measured rate option coupled with a mandatory EAS, the
18 Company consider an optional calling plan. The impacts
19 of a measured rate in exchanges with such a high number
20 of vacation homes is probably similar to that of an
21 optional calling plan, yet optional calling plans provide
22 every customer with options to obtain better control over
23 their phone costs.
24 Q. Is Staff's recommendation for EAS for the
25 Tipanuk customers consistent with the concerns expressed
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1 by Commissioners when it approved the creation of the
2 Tipanuk exchange?
3 A. No. The original 22 customers desired
4 service from Rural rather than U S WEST in order to avoid
5 the higher, one-time fees that U S WEST would have
6 imposed had it provided them with service. U S WEST
7 raised concerns at that time, that it would not be fair
8 to U S WEST's customers for Tipanuk customers to avoid
9 paying U S WEST's costs by obtaining basic service from
10 Rural, and subsequently ask the Commission for EAS to get
11 the Mountain Home calling area. While the Commission
12 Order approving Rural's Application to serve the area
13 includes language that indicated the Commission could not
14 prejudge a petition it had not yet received, members of
15 the Commission cautioned the Tipanuk customers not to
16 submit such a petition.
17 Q. What has changed since that time to make
18 your recommendation appropriate?
19 A. It has been 13 years since Commission
20 members cautioned the 22 Tipanuk customers not to request
21 EAS. There are now almost 3 times that number of
22 customers in the Tipanuk exchange. Even if every one of
23 the original customers were still customers today, they
24 would be outnumbered, 2 to 1, by customers that did not
25 hear that caution.
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1 Q. Did Staff review any other testimony in
2 this case?
3 A. U S WEST witness John Souba also filed
4 testimony in this case. He indicated U S WEST does not
5 object to the granting of EAS for these routes if it is
6 granted to the entire requested region and if U S WEST is
7 compensated according to the procedures in Order
8 No. 27633 for its costs in implementing EAS, which he
9 estimated to be approximately 1 cent per line per month
10 for the Boise River and Tipanuk exchanges. His analysis
11 did not include the Prairie or Atlanta routes.
12 Q. Does Staff agree with Mr. Souba's
13 calculation?
14 A. As Mr. Souba pointed out, Staff had calling
15 data for a different period than U S WEST and therefore
16 direct comparisons are not possible. However,
17 Mr. Souba's estimates appear to be in the same general
18 range as Staff's.
19 Q. Does Staff agree with U S WEST's position
20 that EAS be granted to the entire region?
21 A. No. As a result of Commission Order
22 No. 27789, as clarified in Order No. 27826, approving
23 Citizens Optional calling plans, the region is not the
24 same for all customers. For some, it includes Payette,
25 New Plymouth and Weiser, for some, it does not. Some
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1 customers in the region identified by Mr. Souba will be
2 able to call toll free to the Citizens exchanges of
3 Parma, Homedale, Wilder and Marsing, while others will
4 not. Some will be able to call toll free to Garden
5 Valley, Horseshoe Bend and Sweet, while others will not.
6 Staff recognizes that customers may perceive one
7 exchanges's local calling area as preferred to that of
8 another, but does not consider that to be sufficient
9 reason to force some customers to pay more for toll free
10 calling they seldom would use.
11 Staff also believes U S WEST now has the
12 tools it needs to control EAS arbitrage, should it occur.
13 Q. Could you please summarize your testimony?
14 A. Staff finds that a community of interest
15 does exist between the Rural exchanges of Tipanuk,
16 Prairie and Boise River and the U S WEST exchange of
17 Mountain Home. A community of interest also exists
18 between the exchanges of Boise and Atlanta. To a much
19 lesser extent, a community of interest also exists
20 between the Rural exchanges of Tipanuk and Prairie and
21 the Boise exchange. The community of interest between
22 the remaining exchanges in the requested region is too
23 weak to justify the cost of EAS over those routes. Staff
24 disagrees with the Company's estimate of costs to
25 implement EAS over all the routes in the requested
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1 region, particularly in regards to the need for the
2 extensive upgrading of facilities identified by Rural.
3 Staff estimated the incremental cost of providing EAS
4 over all the routes in the requested region to be
5 approximately $20 per line per month, a cost that it
6 believes customers would be unwilling to incur. Staff
7 recommends EAS over the routes between Mountain Home and
8 Tipanuk, Prairie and Boise River, and between Boise and
9 Atlanta, if EAS can be implemented over these routes
10 without significant facility upgrades. Staff projects
11 EAS over these routes can be accomplished without
12 increasing Rural's revenues from the USF fund, by raising
13 Rural's rates to the 125% of Statewide average threshold,
14 and an EAS adder of approximately $4 per line for these
15 four exchanges. In addition, Staff would support EAS
16 over the Tipanuk-Boise and Prairie-Boise routes, if the
17 majority of customers in the Tipanuk and Prairie
18 exchanges are willing to pay the additional $9 per line
19 per month Staff estimates EAS over these routes would
20 cost.
21 Q. Does this conclude your direct testimony in
22 this proceeding?
23 A. Yes, it does.
24
25
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1 Q. Please state your name and address.
2 A. My name is Wayne Hart. My business address
3 is 472 West Washington, Boise, Idaho.
4 Q. Are you the same Wayne Hart that submitted
5 testimony in this case on February 5, 1999?
6 A. Yes, I am.
7 Q. What is the purpose of your supplemental
8 testimony?
9 A. My original testimony was based upon an
10 assumption that limited EAS would be possible without
11 significant upgrades to the facilities used by Rural and
12 U S WEST to transport the traffic. The Company has
13 presented Staff with sufficient evidence to refute that
14 assumption. That evidence was supported by the comments
15 of numerous Rural customers at the February 16th hearing
16 in Mountain Home, who claimed they frequently experienced
17 difficulty in placing calls with the current facilities.
18 It is clear that with the increased volume of calling
19 that would be expected with EAS, additional facilities
20 will be needed.
21 Q. Are there other concerns about your original
22 testimony?
23 A. Yes. Although I assumed that this would be
24 a two-way EAS, my calculations only included the revenue
25 impacts of one-way traffic. As I had adjusted the
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1 revenue impacts identified by the Company to reflect my
2 erroneous traffic results, my error was compounded when I
3 underestimated the revenue impacts to Rural for each of
4 the options identified in my original testimony. The
5 combined impact of the additional costs for new
6 facilities and the revenue impacts of two-way traffic
7 result in significantly higher costs for all of the EAS
8 options.
9 Q. Do you have information from a survey of
10 Rural customers to present?
11 A. Yes. With the significant changes in cost
12 information that occurred after the public hearing, Staff
13 conducted a written survey of all of Rural's customers to
14 help identify the customer's willingness to pay the
15 relatively high cost we identified for EAS over these
16 routes. In addition, we wanted to obtain more precise
17 information about the extent of the community of interest
18 between the specific communities on the requested routes.
19 Rural provided Staff with address labels for all
20 customers in these four exchanges, and the responses were
21 returned directly to the Commission offices. The
22 questions identified costs at the levels included in this
23 supplemental testimony, and asked if the customers would
24 support EAS at those costs.
25 Q. Has Staff conducted an audit of Rural's
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1 earnings?
2 A. Yes, according to Terri Carlock, Commission
3 Audit Section Supervisor, the Company is not
4 over-earning. Therefore, Staff has prepared its EAS
5 calculations to provide revenue neutral results. The
6 Company is not expected to realize any overall financial
7 gain or loss at the compensation levels identified in
8 Staff's analysis.
9 Q. What facilities does Staff believe will be
10 required if EAS is implemented over these routes?
11 A. In Tipanuk, Rural currently uses an eleven
12 pair copper cable for carrying toll traffic. That cable
13 is currently at exhaust. U S WEST has indicated that at
14 today's prices, it is not economical to install anything
15 less than fiber optic cable. Staff finds this conclusion
16 to be reasonable. Therefore, Rural would need to install
17 a fiber optic cable to its meet point with U S WEST.
18 Rural estimated the costs of such a cable installation at
19 approximately $150,000. Staff found this estimate to be
20 reasonable.
21 Q. Rural has suggested that it connect directly
22 to the U S WEST central office in Mountain Home. Is this
23 a reasonable proposal?
24 A. While it may make sense from Rural's
25 standpoint, I don't think there is a significant
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1 advantage from the customers viewpoint to justify the
2 added expense of the additional distance from the typical
3 meet point to the central office. If the Company chooses
4 to place cable all the way to the U S WEST central
5 office, instead of the typical meet point location, Staff
6 would recommend the additional expense be borne solely by
7 the stockholders and disallowed from rate base or EAS
8 expense calculations.
9 Q. What facilities are required for the other
10 routes?
11 A. Atlanta calls are currently routed by
12 microwave to Prairie, and then by microwave to Deer
13 Point. Boise River exchange calls are routed to Prairie
14 via a cable that is nearing exhaust. Both Prairie and
15 Boise River calls are then routed by microwave to Deer
16 Point. While the microwave facilities could be upgraded
17 to accommodate the increased volume of calling, the cable
18 route between Prairie and Pine will not be able to
19 accommodate the increased calling expected if EAS were
20 granted, and will need to be upgraded or replaced. Rural
21 has proposed a fiber optic cable be installed from Pine
22 to a meet point with U S WEST along Highway 20. This
23 option provides an alternate route for call routing,
24 precludes the need for significant expansion of microwave
25 facilities, and is expected to be a lower cost than
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1 upgrading the cable between Pine and Prairie, and then
2 upgrading the microwave facilities. Rural estimated the
3 cost of this fiber upgrade at approximately $320,000.
4 Staff found that cost to be reasonable.
5 Q. If the current trunking facilities are at
6 or near capacity, with customers already complaining of
7 difficulty in placing calls, are these expenses solely
8 due to EAS, or would they have been required regardless
9 of the decisions about EAS, and, therefore, considered a
10 normal business expense?
11 A. A legitimate argument can be made that these
12 facilities would need to be upgraded in the near future,
13 regardless of the EAS decision. The types of upgrades
14 identified by the Company are also logical choices for
15 dealing with the capacity problem that is now beginning
16 to manifest itself. Rural may be able to delay dealing
17 with these capacity issues for a while, but not for long.
18 Depending upon the rate of growth, that may be 1 to 2
19 years, or as long as ten years. At most, a decision to
20 implement EAS would simply cause these facilities to be
21 constructed sooner rather than later. Staff believes
22 these upgrades would probably be considered prudent if
23 completed today, independent from a decision on EAS.
24 Therefore, Staff could support considering the
25 expenditures for these capital expansions as either EAS
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1 cost that should be addressed in the EAS fee increases,
2 or as a normal cost of providing service. As Rural is a
3 recipient of funding from Idaho's Universal Service Fund
4 (USF), the cost of this upgrade would most likely be born
5 by the USF.
6 Q. Are there other capital costs associated
7 with EAS over these routes?
8 A. The Company indicated it would need
9 approximately $25,000 to upgrade switch software and
10 another $10,000 for upgrades to billing software to
11 accommodate EAS. Staff does not support the inclusion of
12 the costs of the billing software upgrade as part of the
13 costs of EAS. Billing software is upgraded often when
14 new features are added or other changes occur. These are
15 ongoing expenses that should be built into the general
16 rates, rather than included as a strictly EAS cost.
17 Staff accepts the cost of the switch software upgrade at
18 $25,000.
19 Q. Has Staff revised its estimate of the
20 access revenues the Company would no longer receive if
21 these routes were converted to non-toll routes?
22 A. Yes, Staff reviewed the data provided by
23 Company witness Hendershot to support his calculations
24 and finds his original estimate of approximately $30,000
25 per year to be reasonable.
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1 Q. Did Staff review the Company's estimate of
2 lost toll for calling between the Rural exchanges?
3 A. No. The petitions from the customers did
4 not request EAS over these routes, so Staff did not
5 request any data to verify the Company's estimate for
6 lost toll revenues. However, Staff agrees that if EAS is
7 granted to the entire Treasure Valley region, EAS between
8 these exchanges should also be considered. If EAS is
9 only granted to a portion of the region, Staff believes
10 EAS between the Rural exchanges should not be
11 automatically granted, but considered independently.
12 Staff would then expect a demonstration of a community of
13 interest to be appropriate before EAS were approved for
14 the intra-company routes.
15 Q. Would Staff support compensation at the
16 levels identified by the Company?
17 A. Probably. The latest review of Rural's
18 earnings included this toll revenue, so it must be
19 replaced if the Company is to maintain its authorized
20 rate of return on its investment. However, it is Staff's
21 understanding that Rural is not currently carrying this
22 toll. We understand this toll is now being carried by a
23 separate subsidiary of Rural that is regulated in
24 accordance with Title 62's economically deregulated
25 provisions, rather than the fully regulated provisions of
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1 Title 61. If that is the case, Staff believes that this
2 issue deserves a more thorough examination to make sure
3 that both the expenses and revenues of carrying this toll
4 were transferred to the Title 62 company. If
5 compensation for this toll is found to be an appropriate
6 EAS expense, it should only be for the net loss of
7 revenues.
8 Q. Has Staff revised its estimate of the loss
9 of federal support revenues due to the increase in
10 intrastate calling expected if EAS is approved?
11 A. Yes. Staff accepts Company witness
12 Hendershot's estimate of a decrease of approximately
13 $130,000 per year in Rural's federal support as a result
14 of the increase in intrastate calling that is expected if
15 toll were no longer charged for calls over these routes.
16 Q. Are there any other costs Staff included in
17 its analysis?
18 A. Yes. The Company requested $60,000 in
19 compensation for the legal and consulting costs it
20 expected to incur to present this case, amortized over
21 two years. Staff does not anticipate additional costs at
22 that level, and suggests a three year amortization as
23 more appropriate. Staff assumed a total case cost of
24 $30,000, amortized over three years, or $10,000 per year.
25 Q. What is the annualized total of the costs
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1 Staff estimates Rural will incur if EAS is granted to the
2 entire region?
3 A. The total annual revenue requirement is
4 estimated to be slightly less than $280,000 per year.
5 Staff estimates a total of 414 customers in these four
6 exchanges, which results in a cost of nearly $56 per line
7 per month. My calculations are identified on Staff
8 Exhibit No. 102.
9 Q. What would be the impact of removing the
10 capital costs of the fiber optic upgrades from the costs
11 assigned to this EAS?
12 A. The total revenue requirement associated
13 with the cost assigned to the EAS drops by nearly
14 $100,000 per year, to just over $190,000, or
15 approximately $37 per line per month. Staff would
16 anticipate that Rural would then request an increase in
17 USF distributions of approximately $100,000 per year to
18 cover the cost of the facility upgrades.
19 Q. Your original testimony included an option
20 of a single large city for each exchange, Mountain Home
21 for Tipanuk, Prairie and Boise River, and Boise for
22 Atlanta. Did you recalculate the revenue requirement of
23 this limited option?
24 A. Yes. The revenue requirement of providing
25 EAS to and from Mountain Home from the Tipanuk, Boise
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1 River and Prairie customers, and to and from Boise from
2 the Atlanta exchange was estimated to be just under
3 $200,000. The per line requirement would be under $40
4 per line per month. These costs must be considered
5 "ballpark" as my method for calculating the decrease in
6 federal support revenues is not that precise.
7 Q. How did you calculate the impact upon
8 federal support revenues?
9 A. I am using a standard ratio of the access
10 minutes for the included routes to the total access
11 minutes for all routes in the entire region to adjust the
12 revenue impact identified by Mr. Hendershot for the whole
13 region. The procedures for calculating the support
14 payments are extremely complex, and simple ratio
15 calculations such as mine should only be used for a rough
16 approximation of the actual impacts.
17 Q. Did you look at an option that included
18 just the Tipanuk and/or Prairie exchanges?
19 A. Yes, I included the cost of the fiber optic
20 line for Tipanuk, but no additional capital for the
21 Prairie exchange. I estimate the total revenue
22 requirement of EAS to the Region for both exchanges would
23 be just over $130,000 per year, or slightly more than $90
24 per line per month.
25 Q. What did you find the revenue requirement
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1 would be if only Tipanuk were granted EAS to the region?
2 A. The annual revenue requirement for EAS to
3 and from the region from Tipanuk would amount to just
4 under $100,000. With only 70 lines, that results in a
5 monthly increase of nearly $120 per line per month.
6 Q. Did you analyze the annual revenue
7 requirement for Tipanuk to just Boise or Mountain Home?
8 A. If EAS were granted to both Boise and
9 Mountain Home from Tipanuk, but not the rest of the
10 region, the annual revenue requirement would be over $100
11 per line per month. For Tipanuk to just Boise, the
12 annual revenue requirement would be nearly $70 per month
13 per line. The annual revenue requirement for just
14 Mountain Home would be slightly higher than Boise.
15 Q. Were the results similar for Prairie?
16 A. Yes. Although the total annual revenue
17 requirement for EAS to the region, at $45,000, is lower
18 because EAS for Prairie alone would not require
19 significant capital expenditures, with only 50 lines in
20 the exchange, the cost per customer is still prohibitive,
21 at approximately $75 per line per month.
22 Q. Do you believe customers would be willing to
23 pay this much for EAS?
24 A. No. Staff conducted a written survey of all
25 rural customers in each of these four exchanges and asked
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1 whether they would support EAS to the region if the
2 increase in basic monthly rates would be $57 per line per
3 month. Only 12% indicated they would support EAS to the
4 region at this rate.
5 Q. Did you inquire about EAS to just Mountain
6 Home or Boise?
7 A. Yes, the survey asked Tipanuk, Prairie and
8 Boise River customers if they would support EAS to
9 Mountain Home at an increase in basic monthly rates of
10 $40. Atlanta customers were asked the same question for
11 Boise only. Only 3% of the respondents would support
12 this option at that rate.
13 Q. Were the results for any of the exchanges
14 different than all four combined?
15 A. Somewhat. Although the majority of
16 customers in all four exchanges would not support EAS at
17 these rates, the percentage that would support it varied
18 considerably. Prairie customers had the highest level of
19 support for EAS to the region, at over 40% of those
20 responding. Tipanuk had 25% supporting EAS to the
21 region, while Atlanta and Boise River both had less than
22 10% supporting EAS to the region at these rates. This
23 level of support for EAS at such high cost supports
24 Staff's conclusions that Tipanuk and Prairie both share a
25 strong community of interest with both Mountain Home and
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1 the Region. It also supports the conclusion that the
2 community of interest between the region and the Atlanta
3 and Boise River exchanges is marginal at best.
4 Q. Were there other results from the survey
5 that the Commission might consider relevant?
6 A. Yes. The survey included a question about
7 whether the customer would continue their service if
8 basic rates were increased $57 per month. Only 20%
9 indicated they would continue their phone service. Many
10 of the respondents indicated that cellular service was
11 available at rates considerably lower than this.
12 Q. Rural will need to adjust its rates to the
13 USF threshold rate or higher at the conclusion of this
14 case, whether EAS is granted or not. Do the survey
15 responses suggest some customers may discontinue their
16 service at the USF threshold rates?
17 A. Yes. A number of respondents, especially
18 those who indicated they were part time residents
19 (vacation or recreational property), indicated they would
20 discontinue service with any increase in the monthly
21 cost. The comments frequently contained statements that
22 because this was not a primary residence, telephone
23 service was an "option" or "luxury" they only purchased
24 because of the low cost. Some of them may not consider
25 the threshold rates to be low cost.
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1 Q. Did you inquire about whether the residence
2 at which customers received their service from Rural was
3 their primary residence or a vacation or recreational
4 property?
5 A. Yes. Only 51% of the respondents claim to
6 be full time residents. This ranged from a high of 91%
7 of the Tipanuk respondents to a low of 39% for the Boise
8 River respondents. 75% of the Prairie residents and 66%
9 of the Atlanta respondents indicated they were full time
10 residents.
11 Q. Rural has proposed a vacation rate at half
12 of the regular rate. What do the results of the survey
13 indicate about such a rate?
14 A. With nearly half of the respondents
15 indicating they were part year residents, a vacation rate
16 would have a potential for significant revenue impacts.
17 As Rural is a USF recipient, this impact would be upon
18 the USF, and supported by all ratepayers in the state.
19 Staff does not believe the ratepayers of the rest of
20 Idaho should see an increase in their USF surcharge to
21 support EAS for vacation homes.
22 Q. Your original testimony indicated Staff did
23 not support a measured rate option for Rural's customers.
24 Has Staff changed this recommendation?
25 A. No. With so many part time residents, Staff
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1 believes a measured rate would have an even greater
2 financial impact than a vacation rate. Many of the
3 recreational property owners use their facilities year
4 round, but not every weekend. A measured rate would be
5 optimal for them, as they are not there to use the phone
6 often enough to exceed the measured limits. However, in
7 order to qualify for a vacation rate, the phone would
8 actually be disconnected and not available for those
9 occasional weekends. This would diminish the appeal for
10 this option.
11 Q. Did some of the respondents indicate an
12 objection to EAS?
13 A. Yes. A significant number of the comments
14 on the survey forms indicated they would not support any
15 increase in their basic rates for EAS as they did not
16 make many calls to the region. Many of the Boise River
17 exchange respondents indicated their ties were with the
18 Magic Valley, rather than the Treasure Valley.
19 Q. Has Staff calculated the impact of granting
20 EAS to the region on U S WEST customer's rates?
21 A. Yes. Using the formula approved by this
22 Commission in Order No. 27633, Staff's calculations
23 indicate U S WEST would be entitled to compensation of
24 slightly less than $100,000 if EAS were granted to the
25 entire region. This would increase the rates of all
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1 U S WEST-South customers by nearly 2 cents per month.
2 Q. Staff recommended denial of the petition in
3 its original testimony. Has this changed?
4 A. No. Although a strong community of
5 interest does exist for at least two of the exchanges,
6 the costs of EAS are just too high.
7 Q. The Company proposed using revenues from
8 Idaho's Universal Service Fund (USF) to keep the costs
9 similar to those in other regional EAS cases. Does Staff
10 recommend using USF funds for this purpose?
11 A. Previous Commission decisions have resulted
12 in more than 95% of the telephone customers in Southern
13 Idaho having access to either a metropolitan region or a
14 large city that includes most of the businesses and
15 services customers use on a frequent basis. A strong
16 argument can be made that such access is now universal,
17 and should be included in what universal service support
18 will cover.
19 Q. What would the increase in Rural's USF
20 support be if EAS to the region were approved with USF
21 compensation?
22 A If basic local rates were raised to the same
23 levels used in other similar cases, $24.10 for
24 residential rates and $42 for business rates, and
25 assuming no other adjustments were required, this would
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1 raise approximately $72,000 per year. With the total
2 annual revenue requirement of EAS to the region estimated
3 at approximately $272,000, Rural's support from the USF
4 fund would increase by about $200,000 per year, if EAS to
5 the entire region were approved. If EAS to a single
6 large city, rather than an entire region were granted,
7 the USF draw would be reduced to approximately $120,000.
8 Q. This might encourage other companies to also
9 seek such support. Has Staff looked at the total impact
10 that might be expected if USF funds were used to mitigate
11 the costs of EAS?
12 A. Yes. Staff does not have sufficient
13 information to make an accurate estimate of the total
14 impact such a decision might have on USF requirements,
15 but using the averages from previous cases, Staff was
16 able to estimate the total annual impact on the USF for
17 all remaining exchanges not currently in a regional EAS
18 would be roughly $750,000. Again, this is a very rough
19 estimate, based on averages that cover some very broad
20 ranges. My calculations are summarized in Staff Exhibit
21 No. 103.
22 Q. Which utilities were included in this
23 analysis?
24 A. Council, Cambridge, CenturyTel of the Gem
25 State, Midvale, TDS (Troy & Potlatch), Rural, Sawtooth
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1 and Inland.
2 Q. What were the data sources and basic
3 assumptions used in this analysis?
4 A. Staff used data from the 1998 USF
5 Administrator's Report, as well as previously provided
6 data for Troy, CenturyTel of the Gem State and Rural.
7 Unless actual calling data were available, Staff used an
8 assumption that 90% of a company's access revenues would
9 be lost. This assumption was based upon the statements
10 of Conley Ward, representing the Idaho Telephone
11 Association members in Case No. USW-S-96-6, in which
12 Mr. Ward claimed that this would be the impact on his
13 members if Payette and Weiser were added to the Treasure
14 Valley region.
15 Q. Were there other assumptions?
16 A. Yes. This assumes that the loss of federal
17 support due to increased intrastate calling would be $100
18 per line. This is an average number based upon previous
19 cases in which the revenue impact varied from a low of
20 $12 per line to as much as $257 per line.
21 Q. Does this include any costs for facility
22 expansions?
23 A. No.
24 Q. What rates were used in this analysis?
25 A. The rates used in previous regional EAS
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1 cases, $24.10 for residential customers and $42 for
2 business customers.
3 Q. Did Staff consider any options besides
4 granting EAS to an entire region?
5 A. Yes. While this analysis required even more
6 assumptions than the analysis for a region as a whole,
7 Staff estimated that EAS to a nearby city large enough to
8 have most of the facilities required for daily routines,
9 doctors, dentists, banks, supermarkets, auto and farm
10 equipment parts and services, etc., (i.e. Payette,
11 McCall, Ketchum, Mountain Home, Lewiston) rather than the
12 entire region, would reduce the increase in USF
13 requirements by approximately half, or to less than
14 $400,000 per year.
15 Q. Does this conclude your supplemental
16 testimony in this proceeding?
17 A. Yes, it does.
18
19
20
21
22
23
24
25
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1 (The following proceedings were had in
2 open hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MR. COPSEY: (Continued)
7 Q Have you read the testimony filed by
8 Mr. Martell, Mr. Hendershot and John Souba in these
9 cases?
10 A I have.
11 Q Have you listened to the testimony that was
12 given in the hearing today?
13 A I have.
14 Q Do your calculations accept all the
15 assumptions made by Mr. Hendershot in his testimony?
16 A We used a different method in determining
17 our revenue calculations, so they don't accept all of the
18 assumptions. We basically came to the same conclusion in
19 the end result, but we didn't make a revenue projection
20 for the Company as a whole and didn't use those
21 assumptions.
22 Q Thank you. Is it the Staff's understanding
23 that the Commission's current policy is that USF should
24 not be used to subsidize EAS?
25 A Yes, it is.
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1 Q And your testimony was based on that
2 policy?
3 A Yes, it was.
4 Q As a matter of policy, does the Staff
5 oppose the use of USF to subsidize EAS?
6 A Staff doesn't really set its own policies,
7 but we could develop the support for either policy.
8 Q If the Commission were to change that
9 policy and allow USF to subsidize EAS in whole or in
10 part, would you support EAS for the Tipanuk or do you
11 believe that there is support for EAS for the Tipanuk
12 exchange into Mountain Home?
13 A Yes. Using the community of interest
14 factors that the Commission identified in Order 26311,
15 there's a strong community of interest between Mountain
16 Home and Tipanuk. The Tipanuk customers must make a toll
17 call to access the very basic functions; schools, county
18 seats, basic medical and dental facilities, churches,
19 businesses. These are activities that most Idahoans can
20 reach with a local call and I think a strong case can be
21 made that it's in the public interest to make these kinds
22 of calls toll free.
23 Q Likewise, if the Commission were to change
24 the current policy and allow USF to subsidize EAS in
25 whole or in part, can a case be made to grant EAS for the
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1 Tipanuk exchange to Boise?
2 A A case can be made for USF-supported EAS to
3 Boise, but it's not as strong as the case into Mountain
4 Home. The calling volumes are significant, the community
5 of interest is significant, but a lot of the services
6 that are available in Boise are also available in
7 Mountain Home, so the compelling public interest would
8 not be as strong.
9 Q If the Commission were to also change --
10 likewise, if they were to change the policy and allow USF
11 to subsidize EAS in whole or in part, could you support
12 EAS for the Tipanuk exchange to the Treasure Valley EAS
13 region, the whole region?
14 A No.
15 Q Why not?
16 A I don't believe the community of interest
17 between Tipanuk and the rest of the region is strong
18 enough to justify USF-supported EAS. The strongest
19 argument for providing it to the entire region is that it
20 would make it consistent with what other exchanges have
21 and I think the Commission has a long history of allowing
22 different calling areas, most recently in Order 27789, in
23 which portions of the U S WEST calling area, this Boise
24 region, were granted calling into the Citizens exchanges
25 and other portions of this region were not. Citizens
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1 also has differing calling regions.
2 Q If the Commission were to grant EAS to
3 Tipanuk customers and allow USF to subsidize those calls
4 into Mountain Home, what rate would you recommend?
5 A I'd recommend that the rate be set somewhat
6 higher than the current USF threshold rate, which is
7 expected to be close to $21.00 for residential service
8 after the upcoming adjustments. This is to recognize
9 that an additional service and extended calling area is
10 being supported by USF funding that's not supported in
11 other areas being served by USF recipients. I believe
12 the rates used in other recent EAS cases, the 24.10 for
13 residential, 42.00 for business, is in the right ball
14 park and that would be reasonable.
15 Q If the Commission were to grant EAS to
16 Tipanuk customers for both Boise and Mountain Home and
17 use USF to subsidize those calls, what rate would you
18 recommend?
19 A I think it's appropriate to ask the
20 customers to share in the additional cost of access to
21 Boise in addition to Mountain Home rather than having the
22 entire cost of the additional exchange covered by USF.
23 I'd recommend residential service to be about $3.00
24 higher than the 24.10 rate to account for the increased
25 value that the customers would receive from toll free
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 access to Boise, with business service increased
2 proportionately. This would result in rates of
3 approximately $27.00 and $47.00.
4 Q If the Commission were to change again its
5 policy and allow USF to subsidize EAS in whole or in
6 part, can a case be made to grant EAS for the Prairie
7 exchange to Mountain Home?
8 A Yes, I believe a strong case can also be
9 made for USF-supported EAS between Prairie and Mountain
10 Home. The same reasons that apply to Tipanuk also apply
11 to Prairie.
12 Q Likewise, could that same case be made in
13 order to support EAS for the Prairie exchange to Boise?
14 A Yes. A case can be made for USF-supported
15 EAS between Prairie and Boise, but again, it's not as
16 strong as between Prairie and Mountain Home.
17 Q Likewise, if the Commission were to change
18 its policy, could you find support for EAS for the
19 Prairie exchange to the Treasure Valley EAS region?
20 A Not to the entire region.
21 Q Why not?
22 A I just don't think the community of
23 interest is strong enough to justify USF support for an
24 EAS.
25 Q Finally, with respect to Prairie customers,
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 if the Commission were to grant EAS to Prairie customers
2 to call toll free to Mountain Home and use USF to
3 subsidize those calls, what rate would be reasonable?
4 A Again, I think it needs to be above the USF
5 threshold rate and the 24.10 and 42 rate is about right.
6 Q Likewise, if they were to grant EAS to
7 Prairie customers to call toll free to Boise and Mountain
8 Home, what rate would be reasonable?
9 A Again, I think it needs to be higher if
10 there's two exchanges and the 27/47 rate is what I would
11 recommend.
12 Q If the Commission were to change its policy
13 and allow USF to subsidize EAS in whole or in part, would
14 you support EAS for the Atlanta exchange to Boise?
15 A Yes. Although the community of interest is
16 not as strong as Tipanuk and Prairie share with Mountain
17 Home, it's still relatively high. Boise is where Atlanta
18 goes for most of their basic services.
19 Q Likewise, if the Commission were to allow
20 USF to subsidize EAS, can a case be made to grant EAS for
21 the Atlanta exchange to Mountain Home?
22 A No. The community of interest between
23 Atlanta and Mountain Home was fairly marginal. There's
24 just too many mountain ranges between those two
25 communities.
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 Q What if they were to change the policy and
2 allow USF to support it, would you find support for EAS
3 for the Atlanta exchange to the Treasure Valley EAS
4 region?
5 A Not for the entire region.
6 Q For the same reasons that you stated above?
7 A Yes.
8 Q If they were to grant EAS to Atlanta
9 customers to call toll free to Boise and use USF to
10 subsidize those funds, what rate would you find
11 reasonable?
12 A I'd recommend the 24.10 and 42 rate.
13 Q Okay. What would your recommendation be if
14 it were to grant EAS to Boise and Mountain Home and use
15 USF to subsidize those calls?
16 A I wouldn't recommend granting that, but if
17 the Commission chose to do so, I would recommend a rate
18 that was higher than the 24.10 rate so the 27/47 rate.
19 Q For the same reasons that you've indicated
20 before?
21 A Yes.
22 Q If the Commission were to allow USF to
23 subsidize EAS for the Boise River exchange, would you
24 find there is support for the Boise River exchange to
25 Mountain Home?
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 A There is support. It's weaker than for
2 Prairie or for Tipanuk and a little bit weaker than
3 Atlanta to Boise. Mountain Home is the exchange that
4 most of these residents do call for most of their basic
5 services and, therefore, there is a community of interest
6 there and I think the public interest would be served if
7 they had access to those basic services.
8 There are a significant number of the
9 customers who live in the eastern side of that exchange
10 which extends all the way over through Camas County and
11 into Blaine County, those customers are more aligned with
12 the Magic Valley and really wouldn't recognize as many of
13 the benefits as those that are in actual Pine or
14 Featherville. In addition, many of them are only
15 part-year residents and they may not continue service if
16 the rates become too high.
17 Q If the Commission were to change its policy
18 allowing USF to subsidize EAS, can a case be made to
19 grant EAS for the Boise River exchange to Boise?
20 A I don't believe it can. I don't think the
21 community of interest is strong enough between those
22 exchanges.
23 Q Same question with respect to granting
24 Boise River exchange customers into the Treasure Valley
25 EAS.
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 A I would not support EAS to the entire
2 region.
3 Q For the same reasons you've indicated with
4 respect to all the other exchanges?
5 A Yes.
6 Q If the Commission were to grant EAS to
7 Boise River customers to call toll free to Mountain Home
8 and use USF, what rate do you think would be reasonable?
9 A I think the 24.10 and 42 rate would be
10 reasonable.
11 Q Same question with respect to Boise River
12 customers calling toll free to Boise and Mountain Home.
13 A If they get more than one exchange, I think
14 it needs to be higher and the 27/47 rate.
15 Q Should Rural implement a measured rate if
16 EAS is granted?
17 A I don't believe so. I might support a
18 measured rate for Tipanuk and Prairie because most of the
19 customers in those exchanges are year-round residents and
20 possibly the same for Atlanta, but Boise River, in
21 particular, has an extremely high percentage of part-time
22 residents. I think that if we were to grant a measured
23 rate, it would be an extremely high participation rate
24 and that the revenue impact of that measured rate would
25 just be too significant.
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CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 Q In your opinion, do vacation rates proposed
2 by Rural's tariff advice produce the same concerns?
3 A They do and I don't think that the purpose
4 of the USF was to provide a discount for vacation
5 homeowners.
6 MR. COPSEY: I have no other questions.
7 COMMISSIONER SMITH: Thank you,
8 Ms. Copsey.
9 Ms. Hobson, do you have questions?
10 MS. HOBSON: I do.
11
12 CROSS-EXAMINATION
13
14 BY MS. HOBSON:
15 Q Mr. Hart, I understood you to be saying
16 that you did not think that there was significant or an
17 appropriate level of community of interest between
18 various Rural exchanges and the Boise region as opposed
19 to any individual cities within the region; is that your
20 testimony?
21 A Yes.
22 Q And your basis for that is what? Calling
23 volumes to other exchanges within the region?
24 A Calling volumes would be a significant part
25 of that. The other would be which basic services do they
192
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 access that wouldn't be available in the individual
2 community.
3 Q And I take it that you are relying on the
4 Order issued in the Citizens case. I think you said it
5 was Order 27789 for the proposition that it is
6 appropriate to carve out individual cities within EAS
7 regions; is that correct?
8 A I believe -- I can't remember if that's the
9 Order I quoted, but yes.
10 Q Well, on the assumption that we are talking
11 about the same, it's the Citizens Order?
12 A Yes.
13 Q Isn't it true that in the Citizens case the
14 telephone company in question, that is, Citizens, had
15 made specific proposals to the Commission carving out
16 individual cities as opposed to seeking EAS to the
17 region?
18 A That's probably true.
19 Q And are you aware that in the Citizens
20 cases U S WEST objected to the Citizens position?
21 A That wouldn't surprise me.
22 Q Mr. Hart, apart from the Citizens cases,
23 are you aware of any other EAS cases in which this
24 Commission has looked at calling volumes and community of
25 interest beyond for the petitioning exchanges into all of
193
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 the exchanges within the region in order to grant EAS to
2 a region?
3 A I'm not sure that -- I think there's
4 another example, but I'm not sure which one it would be.
5 Q Isn't it true, that, for example, the
6 customers in Rockland were not asked to demonstrate a
7 community of interest to each exchange in the eastern
8 Idaho region in order to be able to obtain calling to
9 that region?
10 A That's true, but I don't believe USF was
11 being used to support that EAS.
12 Q Isn't it true, however, that Rockland is a
13 strong, is strongly dependent upon the USF to provide the
14 services it provides to the customers in Rockland?
15 A Yes, it is.
16 Q Mr. Hart, I'm curious, I have not
17 previously seen any prefiled testimony in this case
18 suggesting that a higher local rate would be appropriate
19 if EAS were granted to the regions. What is your
20 justification for saying that a $27.00 local exchange
21 rate should be appropriate, for example, for Tipanuk
22 customers, but Rockland customers were okay at 24.10?
23 A I think we're looking at a different animal
24 when we're talking about USF-supported EAS and I think
25 that the customers in this case can be expected to bear a
194
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 higher burden, percentage of the cost, than those that
2 are not being supported by the USF.
3 Q Staff conducted some sort of a survey, did
4 it not, of customers of these exchanges?
5 A Yes, we did.
6 Q Did you specifically ask about a $27.00
7 residential rate to customers in that survey?
8 A No, we did not.
9 MS. HOBSON: Thank you. That's all the
10 questions I have.
11 COMMISSIONER SMITH: Thank you,
12 Ms. Hobson.
13 Mr. Ward?
14 MR. WARD: Thank you. I have a few
15 questions.
16
17 CROSS-EXAMINATION
18
19 BY MR. WARD:
20 Q Mr. Hart, some of them are pretty obvious,
21 but did you spend any time visiting the exchanges in
22 question in this case?
23 A I've been to all of these exchanges
24 previously.
25 Q Okay. Let's take -- in order to leave out
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CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 Tipanuk's peculiar history for the moment, let's take
2 Prairie, for instance, have you visited that exchange?
3 A Yes, I have.
4 Q And would it be fair to say that as near as
5 one can tell from driving around up there that it's a
6 fairly typical rural Idaho area?
7 A I don't know if I'd say it's fairly
8 typical, but it --
9 Q All right, let me put it this way: Would
10 you agree that from all appearances it appears to be a
11 farming/ranching/logging community?
12 A Yes.
13 Q Generally inhabited by working people?
14 A Yes.
15 Q Now, if you were to go straight south of
16 there or north of Glenns Ferry toward Bennett Mountain,
17 would you see the same sort of community as Prairie, if
18 you know?
19 A I'm not familiar with your references, but
20 if you're referring to Pine and Featherville area or --
21 Q No, no. Go south of there into the
22 U S WEST territory, either into the eastern Mountain Home
23 exchange or the northern Glenns Ferry exchange.
24 A Okay.
25 Q Would you expect to find the same sort of
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CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 community you find in Prairie, roughly?
2 A I would expect that. I'm not sure I've
3 ever been in that area, but that's what I would expect.
4 Q Well, how about south of Mountain Home down
5 along the river towards Bruneau Sand Dunes area, have you
6 been in that area?
7 A Yeah, and it would be similar.
8 Q And that's a farming and ranching
9 community, too, isn't it?
10 A Yes.
11 Q And wouldn't all of those areas if they
12 fall within the U S WEST serving territory have EAS to
13 the Boise, entire Boise, region?
14 A Yes, they would.
15 Q Would you expect their community of
16 interest with any particular town within the Boise region
17 to be any different than Prairie's or significantly
18 different than Prairie's?
19 A Not really.
20 Q With or without EAS, do you think the
21 current U S WEST residential rate of roughly $17.00 is
22 fully compensatory for providing service to communities
23 as isolated as ones we've just been discussing?
24 A It's an average rate, so, no, it would not
25 be.
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CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 Q And, again, with or without EAS, how is it
2 that U S WEST can provide that service for $17.00 in
3 these rural areas?
4 A Because it's supported by those in the more
5 urban and dense areas.
6 Q Okay, and you see that, I take it, as
7 significantly different than the urban, than the more
8 urban, and dense areas supporting the cost of service for
9 an independent company through the state Universal
10 Service Fund?
11 A I do.
12 Q And what is your basis for that difference?
13 A It's a different company. It's a different
14 mode of support. One is being done through a basic rate
15 averaging, the functioning of the market to some extent
16 in terms of one company chose to go into those areas.
17 The other is an explicit legislated level of support.
18 Q But assume I was a resident of Boise or the
19 Boise exchange, do I have any reason to care if I have to
20 cough up an additional penny on my bill to support an
21 upgrade of service of any kind in rural areas whether
22 it's done through the Universal Service Fund or whether
23 that penny goes to U S WEST through the process of rate
24 averaging?
25 A I doubt if the average rate owner
198
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 understands the difference or would care.
2 Q Let's talk a little bit about the costs.
3 You estimate the costs at roughly $280,000 for EAS for
4 all four exchanges to the Boise region; correct?
5 A Correct.
6 Q I'd like you to break that down with me.
7 If I read your testimony right, first of all, you agree
8 there's about $130,000 in the interstate shift; correct?
9 A I believe that's correct.
10 Q And then I think we have roughly $40,000
11 for lost access charges, lost B & C, lost other revenues
12 as a result of the conversion to EAS. Does that sound
13 about right?
14 A I'm sorry, what --
15 Q I had 40,000.
16 A And what were those items for?
17 Q Lost access charges, lost B & C and there's
18 another component that escapes me at the moment.
19 A The intrarural toll?
20 Q Thank you. Does that sound about right?
21 A About 40,000, yes.
22 Q Okay, I get 170,000 there. We know there's
23 about $10,000 for case expenses, EAS case expenses, so if
24 I add those three up, I get $180,000. Is the remaining
25 $100,000, roughly, attributable to the capital
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CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 investments?
2 A Approximately, yes.
3 Q All right. Now, let's work backwards.
4 Taking the $40,000 in access, B & C and lost toll
5 revenue, plus the $10,000 of EAS case expenses, would an
6 increase to $24.00 and $42.00 cover those costs?
7 A The 40,000?
8 Q Yes, the 40,000 and throw in the 10,000 for
9 the EAS case expenses, too.
10 A I believe that the increase to 24.10 would
11 be around 72,000, so, yes, that would exceed the 50,000.
12 Q Okay; so that leaves us with two components
13 that -- well, it leaves us with those components
14 recovered through the rate increase with something left
15 over and two components yet to recover. One is the
16 $100,000 in capital improvements. Now, in your
17 testimony, you point out -- you state that the Staff
18 basically agrees that these capital improvements will
19 probably have to be made within the relatively near
20 future with or without EAS; isn't that true?
21 A That's true.
22 Q So to the extent the Universal Service Fund
23 might support those capital improvements, it's no
24 different than any other capital improvement a USF
25 recipient might make and then seek an increased USF draw
200
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 for; isn't that true?
2 A Well, if you were to do it and seek it
3 through the rate case, a portion of it would be
4 attributed to the federal expenses and not recovered
5 through the state.
6 Q Fair enough. The remaining component I
7 wanted to talk about is the $130,000 in interstate
8 shift. Now, you characterize the state USF as a
9 subsidy. Is the federal USF as well as NECA, some NECA
10 cost support mechanisms, are they also subsidies?
11 A I believe that would be an accurate term.
12 Q So to the extent that 130,000 shifts out of
13 the federal USF to the state USF, it's not really
14 increasing the total subsidization of Rural, is it?
15 A It doesn't increase the total
16 subsidization. It certainly increases the percentage
17 that Idaho customers are expected to bear.
18 Q Certainly, but one way or another some
19 group of customers is paying that $130,000 subsidy now
20 and another group if there's an interstate shift will pay
21 it later?
22 A That's correct.
23 Q Now, with regard to the cost itself, do you
24 have any objection to the one to two percent -- one- to
25 two-cent increase for U S WEST to recover its cost if EAS
201
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 is granted here?
2 A That would be the amount that was agreed to
3 in the Staff stipulation.
4 Q So that's acceptable to Staff and it's just
5 and reasonable?
6 A Yes.
7 Q Now, are you familiar -- how familiar are
8 you with the state Universal Service Fund and, A, its
9 funding level and its disbursement level?
10 A Medium.
11 Q Well, let me lead a little, then. Are you
12 aware that the state Universal Service Fund disburses, I
13 think Commissioner Hansen used this figure earlier,
14 roughly $1.7 million a year?
15 A Yes.
16 Q And you know, don't you, that that source
17 of funding is funded by both a surcharge on local rates
18 as well as a surcharge on toll rates, intrastate toll --
19 A Yes.
20 Q -- is that correct? Now, let me represent
21 to you that each one cent of surcharge on local rates
22 raises something just under $100,000 a year. Do you have
23 that figure in mind?
24 A Okay, I have that figure in mind.
25 Q And do you know what the current surcharge
202
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 is on local rates?
2 A Not off the top of my head.
3 Q Okay, let me suggest seven cents.
4 A I'd accept that.
5 Q Okay. Now, if we assume that roughly
6 70 some thousand dollars of Rural's $280,000 in
7 additional revenue requirement will be recovered by the
8 increase in rates to $24.00 and $42.00 as you've just
9 testified, that leaves about $200,000 additional to be
10 raised, does it not?
11 A It does.
12 Q And even if we didn't increase the toll
13 surcharge, if I'm correct that each penny raises
14 something under, just under, $100,000 a year, doesn't
15 that imply that we would need about a two-cent increase
16 for everyone to cover the cost of this EAS?
17 A Based on your assumptions, I'd come up with
18 the same answer.
19 Q And that's assuming toll doesn't contribute
20 at all.
21 A Correct.
22 Q Now, also you prepared an estimate of total
23 EAS costs if the remaining foreseeable EAS cases were
24 granted and this appears in your Exhibit No. 103; is that
25 correct?
203
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 A I believe it is.
2 Q Looking down there, I want to make sure I
3 understand, you listed all the -- are these all pending
4 cases, do you recall, or did you look at -- well, let me
5 suggest to you --
6 A Oregon-Idaho is not pending and neither is
7 Sawtooth or Inland.
8 Q Right; so basically you looked at all of
9 the communities you could conceive of that would be, that
10 either have requested EAS or are likely to do so?
11 A That was the intent.
12 Q And if I look down at the bottom right
13 hand, in the next to last column, I see the figure of
14 $737,732, do you see that figure?
15 A I do.
16 Q Am I correct in the assumption that this is
17 the entirety of the remaining USF funding that would be
18 required if all of these EAS cases were granted and all
19 rates were increased to $24.00 and $42.00?
20 A That's my best estimate of what that would
21 be given the uncertainties of interstate shift.
22 Q Right, I understand that and in fairness, I
23 also understand your testimony to say that does not
24 include capital investment which could in some cases be
25 significant, obviously.
204
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 A Correct.
2 Q But on order of magnitude, that's your best
3 reasonable guess as to what we're talking about?
4 A Yes.
5 Q Now -- and by the way, that includes the
6 Rural cost, does it not?
7 A Yes, it does.
8 Q Now, looking that over in comparison to the
9 $1.7 million that we're currently disbursing, what does
10 that look like in terms of a percentage increase,
11 roughly?
12 A Fifty percent increase.
13 Q Yet, on the other hand, if in fact a
14 one-cent surcharge raises on the order of $90,000 for
15 each cent, what would it take, then, in the way of a
16 total surcharge to fund all those remaining EAS cases,
17 including the one we're considering today?
18 A At 90,000, it would be about eight cents.
19 Q Okay. Do you know, by the way, what -- did
20 you see the recent Commission Order on the Farmers
21 Telephone EAS case?
22 A I have seen that Order.
23 Q Do you recall what U S WEST's additional
24 costs just for that EAS were?
25 A I think it was around seven cents.
205
CSB REPORTING HART (X)
Wilder, Idaho 83676 Staff
1 MR. WARD: Thank you. That's all I have.
2 COMMISSIONER SMITH: Thank you, Mr. Ward.
3 Do we have questions from the Commission?
4 Commissioner Hansen.
5
6 EXAMINATION
7
8 BY COMMISSIONER HANSEN:
9 Q Mr. Hart, on page 15 of your supplemental
10 on lines 13 through 16, you talk about a survey and
11 comments that you received from individuals indicating
12 they would not support any increase in their basic rates
13 for EAS as they did not make calls to the region. Could
14 you give me an idea of what percentage that might have
15 been?
16 A I would -- I didn't calculate that, but
17 just based on my recollections of having gone through and
18 read all of them, I would say between five and ten
19 percent.
20 Q Did you get the impression that there may
21 be, then, five or ten percent that would discontinue
22 their service if it was raised to the 24.00 and $42.00
23 rate?
24 A I think that's in the ball park.
25 COMMISSIONER HANSEN: Thank you. That's
206
CSB REPORTING HART (Com)
Wilder, Idaho 83676 Staff
1 all I have.
2 COMMISSIONER SMITH: Commissioner
3 Kjellander.
4 COMMISSIONER KJELLANDER: Thank you. I
5 think I just have one.
6
7 EXAMINATION
8
9 BY COMMISSIONER KJELLANDER:
10 Q Mr. Hart, in your testimony, you suggested
11 that perhaps EAS could be granted or might be warranted
12 from some of those communities to Mountain Home only and
13 as I recall from some of the things I've read that that
14 can bring up a concern about what's referred to as EAS
15 arbitrage. Do you see that as a possibility and a real
16 concern if only Mountain Home is granted?
17 A I really don't think it's a significant
18 concern given the small number of customers that are in
19 the Rural exchanges. It would take -- it's not a huge
20 investment, but it does take an investment to set up an
21 arbitrage system and I'm not sure that they would, anyone
22 would go to the trouble and expense of doing that. In
23 addition, the Company has prohibitions in their tariffs
24 against arbitrage and I think that it can be dealt with.
25 COMMISSIONER KJELLANDER: Thank you.
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CSB REPORTING HART (Com)
Wilder, Idaho 83676 Staff
1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q Mr. Hart, when Commissioner Hansen
5 questioned you about your testimony on page 15 of your
6 supplemental, I guess the question arose in my mind,
7 these customers who indicated they don't support an
8 increase in their basic rates, are they the customers
9 that are using these toll facilities that are basically
10 at exhaust?
11 A Yes, they would be.
12 Q So do you see any way around an increase
13 for them whether or not they get the EAS?
14 A I think that the -- there would be an
15 increase for them. I mean, they're going to have to go
16 up to the threshold which is a significant increase
17 anyway and then if the Company goes through the --
18 enhances the facilities, they're going to have another
19 increase on top of that, so, no, they're going to see an
20 increase.
21 COMMISSIONER SMITH: Okay, thank you.
22 Do you have redirect, Ms. Copsey?
23 MR. COPSEY: I only have one or two
24 questions.
25
208
CSB REPORTING HART (Com)
Wilder, Idaho 83676 Staff
1 REDIRECT EXAMINATION
2
3 BY MR. COPSEY:
4 Q Mr. Hart, I want to ask you whether prior
5 to your testimony today had you actually looked at the
6 amount of surcharge that would be required on USF in
7 order to fund any of these EASes, the actual surcharge?
8 A No.
9 Q So all your responses to Mr. Ward's
10 questions are based on his statement of what those
11 surcharges would be; is that correct?
12 A Correct.
13 MR. COPSEY: Thank you. I have no more
14 questions.
15 COMMISSIONER SMITH: Okay, thank you for
16 your help.
17 (The witness left the stand.)
18 COMMISSIONER SMITH: Ms. Copsey, does that
19 conclude your case?
20 MR. COPSEY: Yes, it does.
21 COMMISSIONER SMITH: It appears we've
22 reached the end of the witnesses. Are there any further
23 matters to come before the Commission or any closing
24 statements that you wish to make? No? No one wants to
25 file any briefs or do any other work?
209
CSB REPORTING HART (Di)
Wilder, Idaho 83676 Staff
1 Then we thank you all for your time and
2 efforts in this matter. The Commission will now consider
3 this case to be fully submitted. We'll deliberate and
4 issue an opinion as quickly as possible. Thank you.
5 MR. WARD: Thank you.
6 (All exhibits previously marked for
7 identification were admitted into evidence.)
8 (The Hearing adjourned at 10:35 a.m.)
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CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 AUTHENTICATION
2
3
4 This is to certify that the foregoing
5 proceedings held in the matter of the petition of
6 customers of the Rural Telephone Company to join the
7 Treasure Valley extended service calling area and the
8 petition of customers of the Rural Telephone Company
9 Boise River exchange to join the U S WEST Mountain Home
10 exchange and/or the Treasure Valley extended service
11 calling area, commencing at 9:30 a.m., on Wednesday,
12 July 7, 1999, at the Commission Hearing Room, 472 West
13 Washington, Boise, Idaho, is a true and correct
14 transcript of said proceedings and the original thereof
15 for the file of the Commission.
16 Accuracy of all prefiled testimony as
17 originally submitted to the Reporter and incorporated
18 herein at the direction of the Commission is the sole
19 responsibility of the submitting parties.
20
21
22
23
CONSTANCE S. BUCY
24 Certified Shorthand Reporter #187
25
211
CSB REPORTING AUTHENTICATION
Wilder, Idaho 83676