980518.docx

Q.Please state your name and business address.
A.My name is Carolee Hall and my business address is 472 West Washington Street, Boise, Idaho 83702.
Q.By whom are you employed and in what capacity?
A.I am a Telecommunications Analyst employed by the Idaho Public Utilities Commission.
Q.Please describe your work experience and educational background.
A.I have been employed with the Commission since April 1997.  I have completed a Regulatory Studies program offered through NARUC.
Before coming to work for the Commission, I worked as a Financial Manager for a competitive long distance provider.  In 1993, I graduated from Boise State University with a B.B.A. in Finance.
Q.Have you previously presented testimony before this Commission?
A.Yes, I have presented technical testimony on previous EAS cases.
Q.What is the purpose of your testimony?
A.I am filing testimony in support of the stipulation and settlement agreement reached by Fremont Telcom (Fremont or Company), the Commission Staff, and U S WEST Communications, Inc. (U S WEST).  The parties filed the Stipulation and Settlement Agreement in response to a petition from customers of Fremont Telcom requesting extended area service (EAS).  Fremont Telcom serves approximately 5,800 customers in Ashton, Island Park, Teton and St. Anthony area.  In June 1997, the Commission assigned Case No. GNR-T-97-14 to consider the reasonableness of establishing EAS routes between the communities in Fremont County and the communities in the U S WEST eastern Idaho EAS region.
Q.What towns or communities are the petitioners requesting to call in the U S WEST eastern Idaho EAS calling regions?
A.The Fremont customers are requesting inclusion into the U S WEST eastern Idaho local calling area approved by this Commission.  Towns included in this EAS calling area are:  American Falls, Bancroft, Blackfoot, Dayton, Downey, Firth, Franklin, Grace, Idaho Falls, Inkom, Lava Hot Springs, Lewisville-Menan, McCammon, Montpelier, Pocatello, Preston, Rexburg, Rigby, Ririe, Riverside, Roberts, Shelly, Soda Springs and Thatcher.
Q.Have there been other communities recently added to the eastern Idaho EAS region?
A.Yes.  Through other EAS petitions and the approval of those petitions by this Commission, the eastern Idaho calling region has expanded to include Arbon, Rockland, Paris, Irwin and Wayan.  Currently, the Commission is considering the inclusion of the Teton Telecom region that includes the communities of Driggs, Victor and Tetonia.
Q.What exchanges are included in Fremont Telcom’s service area?
A.The exchanges within Fremont’s service area are Ashton, Island Park, and St. Anthony, including a wire center in Teton.  The service area encompasses Fremont County and a small area in Madison County.
Q.What issues will you address within your testimony?
A.I will respond first to the community of interest factors as set forth in Commission Order No. 26311, which established guidelines to follow when evaluating EAS petitions.  I will then address the issues contained in the Stipulation.
COMMUNITY OF INTEREST STANDARDS
Q.What are the criteria that the Commission established for EAS as set forth in Order No. 26311?
A.According to the Order, calling volume and calling distribution are among many primary and secondary factors to be used when evaluating EAS calling areas.  To find whether a community of interest exists to support EAS, the primary factors, besides the calling data, are as follows:
1.geographic proximity (distance
between exchanges);
2.the presence of geographic or
other physical barriers
(mountains, rivers, valleys)
between exchanges;
3.county seat relationship (are both
exchanges in the same county);
4.the relationship to school
districts (do both exchanges share
the same school district);
5.the proximity to medical
facilities and services;
6.the willingness of customers to
pay increased rates.
Order No. 26311, page 9.
Q.Please explain calling volume and calling distribution.
A.Call volume is simply the average number of calls per line made each month from the home exchange to the requested exchange.  Call distribution shows how many lines had 0 calls, 1 call, 2 calls, 3 calls, etc.
Q.Were you able to do an analysis of calling volumes and calling distributions?
A.Fremont is a new company and has had its new switch operational since February 23, 1998.  The call data that the Company presented to Staff for analysis was derived from U S WEST.  As part of the purchase agreement between U S WEST and Fremont, U S WEST agreed to carry Fremont’s toll traffic until Fremont upgraded the switch.
Q.Did you look at the calling data provided to identify a community of interest?
A.Yes.  For the St. Anthony exchange, my analysis shows a community of interest for calling into Idaho Falls.  St. Anthony customers had 5.5 calls per month, per line to Idaho Falls.  It is important to note that St. Anthony already has EAS into Rexburg.
The Island Park data showed 8.2 calls per line, per month to Idaho Falls; 4.4 to Rexburg and 2.7 to Pocatello.  Anytime an Island Park customer makes a call outside the Island Park exchange, it is a toll call.  From Island Park to Ashton (approx. 27 miles), the call data showed 1.8 calls per line, per month and 2 calls per line, per month were made to St. Anthony (approx. 44 miles away).
Ashton call data showed a similar community of interest for calling into Idaho Falls, Pocatello and Rexburg with 4.5, 3.6 and 6.7 calls per line, per month, respectively.
Q.What did the calling distribution for Ashton suggest with respect to the monthly calls per line per month?
A.Ashton to Idaho Falls showed that 52% of the Fremont customers made no calls, while 26% made five or more calls each month.  Ashton to Rexburg showed that 44% of Fremont’s customers made no calls and 26% made five or more.  This clearly suggested a division that showed a community of interest for calling into the U S WEST region.
Q.What was the calling distribution for St. Anthony into Idaho Falls?
A.This distribution showed that 38% of St. Anthony customers made no calls to Idaho Falls, while 29% made five or more.
Q.Did you review any calling distributions for Island Park?
A.Yes, but the calling data used in the analysis is for April, May and June.  Island Park is a recreational area that caters to snowmobilers in the winter and summer activities after May.  The calling period that Fremont provided would be for an “off” time for the Island Park area.  However, for the calling route from Island Park to Idaho Falls, the calling data showed that on average 63% of the customers made no calls and 16% made five or more calls.  Island Park to Rexburg showed that 85% made no calls and 3% made five or more.  If the calling data had been for three months, during one of the peak seasons, I believe that the percentages would have been different.
Q.Based on the call data, what would your recommendation be for EAS into the eastern Idaho U S WEST region?
A.The data provided showed a reasonable interest in the Fremont exchanges for calling Idaho Falls, Rexburg, and Pocatello.  I recommend EAS calling for all three Fremont exchanges into the eastern Idaho region.  I especially support toll relief for the Island Park customers.
Q.Addressing the geographic proximity (distance between exchanges) and the presence of geographic or other physical barriers (mountains, rivers, valleys) as set out in Commission Order No. 26311, what were your findings?
A.St. Anthony, Teton and Ashton are all located within approximately a 27-mile wide area east of Rexburg.  Rexburg is in the U S WEST eastern Idaho EAS region.  U S WEST, Teton Telecom and Mud Lake Telephone Cooperative surround Fremont.
Q.Are the petitioners served by Fremont Telcom represented by the same county seat?
A.Yes, St. Anthony is the county seat for Fremont County.
Q.What are the school arrangements among the communities within Fremont County?
A.St. Anthony is a self-sufficient school district with grade schools, middle schools and a high school.  Students from Teton, Parker and Chester attend middle school and high school in St. Anthony.
Ashton also has all twelve grades.  Students from the Island Park area attend school in Ashton.
Q.Another factor established by the Commission for consideration when evaluating EAS is the proximity to medical facilities and services.  What did your analysis of this show?
A.Ambulance/EMT services are available in the Island Park/Macks Inn, Ashton and St. Anthony areas.  There are no hospitals in Fremont County, but there are some medical clinics.  If further medical or hospital care is needed, the people of Fremont County must seek medical care in Rexburg or Idaho Falls located in U S WEST’s eastern Idaho EAS region.
Q.Would you please explain that portion of Commission Order No. 26311 that refers to the willingness of customers to pay increased rates and how it relates to this EAS evaluation?
A.The willingness of customers to pay increased rates for expanded local calling is a very important item and has become a hotly debated issue in some recent EAS cases.  EAS is not a “free” calling plan.  The traditional EAS structure requires that all customers pay a reasonable amount for the opportunity to call a larger region.  The Stipulation looked at the costs associated with the extended area and distributed those costs over all the customers within the Fremont Telcom region.  The result is that each customer pays a portion for the extended calling area.
EAS COSTS
Q.What cost factors are evaluated when determining the feasibility of EAS for an independent telephone company?
A.Fremont, like the other independent Local Exchange Companies (LECs), is a Title 61 fully regulated company.  This Commission fully regulates the services offered by the Company and has an obligation to ensure that the Company has an opportunity to earn its authorized rate of return.  To the extent that the implementation of EAS creates an increase in costs or a loss of revenue, resulting in the Company earning below its authorized rate of return, the Commission has an obligation to allow the Company to increase rates to offset the increased costs or recapture lost revenues.
Q.What are the rates that Fremont proposed and Staff agreed to in the Settlement Agreement?
A.To recover its costs associated with EAS, Fremont proposed to increase monthly basic service rates for residential customers to $24.10 and $42.00 for business service.  To mitigate the increase in basic monthly rates we agreed upon two rate changes.
First, we agreed to eliminate the $1.59 monthly rural zone charge imposed on approximately 3,000 rural Fremont customers.
Second, we agreed to an optional calling plan called Measured Service for residential customers.  The proposed rates for Measured Service are $16.00 per month with 90 free minutes of local calling.  For every minute in excess of the 90 minutes, the rate is $.03 per minute.  From a practical standpoint, this means that a Measured Service customer may use up to six hours of local calling before reaching the $24.10 flat basic rate for unlimited calling.
Q.Has there been any settlement reached concerning vacation rates?
A.Yes, the Company and Staff agreed that the vacation rate would be at 50% of the local service rate for non-measured residential or business service.
Q.Do the low income customers have alternatives to the $24.10 or $16.00 monthly rate?
A.Yes.  The 1988 Idaho Legislature enacted the Idaho Telecommunications Assistance Program (ITAP), Idaho Code 56-901 et seq., for eligible low-income customers.  In March 1998, the Legislature amended the existing program so that qualified low-income customers could be provided a $10.50 per month credit toward their phone bills.  This will lower the monthly residential phone bill to $13.60 per month once they implement the program this summer.  The Department of Health and Welfare must promulgate new income-based eligibility standards to implement ITAP.
Besides the $10.50 credit for the flat $24.10 rate, customers may use this credit for Fremont’s measured service plan.  The measured service rate is $16.00 per month with 90 free minutes of local calling.  With the ITAP credit applied to the measured service rate, a customer’s monthly bill would be $5.50.
Q.Did Staff analyze the proposed rates?
A.Yes.  Staff analyzed the proposed rates and compared them with the costs associated with the expansion of facilities needed to carry out EAS and the revenue shortfalls.  Overall, Staff determined that Fremont’s proposed rates were reasonable for the customers and the Company alike.  The rates would generate enough revenue to offset the EAS costs, but not place the Company into an over-earning position.
Q.If Fremont were to experience an unforseen revenue shortfall with the implementation of EAS, what would the Company need to do to protect the customers from another rate increase?
A.Fremont should not experience a revenue shortfall because of EAS.  The Stipulation contemplates that Fremont may seek to recover a significant and unforseen revenue shortfall caused by a significant
buy-up of Measured Service, federal or state legislation or regulatory actions unrelated to this docket.  Revenue recovery, of course, would be subject to Commission approval.
Q.What is the Idaho USF and how does it relate to Fremont?
A.The Idaho USF is a high cost fund created to help companies in high cost areas maintain affordable phone rates.  Because Fremont is a new company and agreed to a rate freeze as part of the sale agreement, it has not been eligible for disbursements from the USF fund.
Q.Part of the Stipulation may allow Fremont disbursements from the Idaho USF, what explicitly is required of the Company for this to occur?
A.Staff has agreed that following an audit of the Company’s 1997 annual report or when the Company has 1998 financials available, whichever occurs first, Fremont may seek funding from the existing USF if necessary.  Although, the Commission has expressed reluctance in past orders that USF revenues be used to defray EAS costs, the parties agreed that Fremont may apply for up to $108,000 in annual revenues from the USF.  These revenues will increase the Company’s overall revenues, but will not reach the projected revenue requirement of the Company.
Q.Will the proposed rates increase again in the future?
A.The Stipulation states that a full test year be in place and audited by Staff before Fremont is eligible to come before the Commission and seek further rate relief, unless federal or state legislation or regulatory actions substantially reduce Fremont’s revenues not related to this case.
Q.What were other issues settled in the Stipulation and Agreement between Fremont and Staff?
A.The stipulation and settlement process grew out of the parties’ desire to efficiently and reasonably meet the growing demand for EAS from customers.  Fremont customers wanted EAS calling into the eastern Idaho calling region.  Other factors included in the settlement are a Stimulation Factor, Idaho USF Disbursement, Basic and Measured Service rates and implementation.
Q.What is the stimulation factor and how does it pertain to EAS?
A.A stimulation factor of “3 times” (3x) rate was found appropriate by the Commission in prior EAS cases.  This rate establishes how much calling volume will increase because of toll calling becoming toll-free calling.  An increase in calling volume often requires an increase in plant capacity to ease the increased calling volume.  I have applied the 3x stimulation factor in evaluating Fremont’s revenue requirement for EAS.
Q.Please recap your testimony in support of EAS.
A.I recommend that EAS into the eastern Idaho region be approved.  The proposed elimination of the monthly zone charges and the increase in rates for basic residential service to $24.10 and $42.00 for business customers is reasonable.  The Measured Service rate of $16.00 per month with 90 free minutes of local calling is an alternative option to the flat rate of $24.10.  The Measured Service plan includes a rate of $.03 per minute for those minutes in excess of 90 minutes.  The Measured Service plan is fair and gives the customer a choice.  I believe the Company is being sensitive to the customers within Fremont Telcom area and are attempting to meet their requests that they have voiced through the petition filings at the Commission.  I believe that agreeing to a capped USF draw, subject to an audit, is reasonable.
Q.Does this conclude your direct testimony in support of the Stipulation in this proceeding?
A.Yes, it does.