USWS965A.docx

SUSAN HAMLINTHIS DOCUMENT DID NOT
DEPUTY ATTORNEY GENERALGO OUT DUE TO SETTLEMENT
IDAHO PUBLIC UTILITIES COMMISSIONOF ISSUES ON 3/06/97
472 WEST WASHINGTON STREET
PO BOX 83720
BOISE,  IDAHO  83720-0074
[phone]
Attorney for the Commission Staff
BEFORE  THE  IDAHO  PUBLIC  UTILITIES  COMMISSION

IN THE MATTER OF THE APPLICATION)
OF U S WEST COMMUNICATIONS, INC.)CASE  NO.  USW-S-96-5
FOR AUTHORITY TO INCREASE ITS)
RATES AND CHARGES FOR)STAFF'S PARTIAL RESPONSE   
REGULATED TITLE 61 SERVICES.)TO THE FOURTH PRODUCTION
)REQUEST OF U S WEST
________________________________)COMMUNICATIONS, INC.
The Staff of the Idaho Public Utilities Commission, by and through its attorney of record, Susan Hamlin, Deputy Attorney General, hereby responds to U S WEST Communications, Inc.’s Fourth Request for Production to the Idaho Public Utilities Commission Staff dated February 26, 1997.
REQUEST NO. 187:Kent Schneider
Please clarify Mr. Schneider's testimony.  Is it his testimony that after 1997              U S WEST will do no further restructurings in which reserves are established on the financial reporting books of account?
RESPONSE NO. 187:Kent Schneider
No.  However, the Company in its response to STF-     indicated that no further restructuring plans are currently being planned, but that could change.  Also, on page 105 of the Oregon PUC’s Opening Brief for USWC’s 1995 rate case UT 125, “USWC admitted in response to a data request that ‘[N]o further reengineering program, beyond the one currently underway, is currently being considered.’ ”  (See attached)
REQUEST NO. 188:Kent Schneider
Please clarify Mr. Schneider's testimony.  Is it his testimony that after 1997 U S WEST will do no further restructurings, regardless of whether reserves are established on the financial reporting books of account?
RESPONSE NO. 188:Kent Schneider
No.  See response to Request No. 187.
REQUEST NO. 189:Kent Schneider
Please clarify Mr. Schneider's testimony.  Is it his testimony that after 1997, USWC will do no further streamlining or consolidation of operations and laying off employees with severance pay?  If it is not, please reconcile the response to this request to Mr. Schneider's testimony that restructure expenses are one time and will not recur.
RESPONSE NO. 189:Kent Schneider
No.  However the Company will never consolidate 560 service centers into 26 centers, developing the data captors and retrieval systems to enable this consolidation to occur and train the new or remaining customer service personnel how to handle these new systems.  This was a unique event that was labeled by the Company as the “Restructuring Charge or as its related “Restructuring Plan” in its external financial statements from 1993 through 1996.
REQUEST NO. 190:Kent Schneider
Please clarify Mr. Schneider's testimony.  Is it his testimony that after 1997 USWC will cease or decrease expenditures for systems development?  If it is not, please reconcile the response to this request to Mr. Schneider's testimony that the portion of systems expenditures that are part of restructuring are one time and will not recur.
RESPONSE NO. 190:Kent Schneider
No.  How much the Company chooses to spend on reengineering and further systems development in the future has no direct relationship to a “Restructuring Plan” requiring a special “Restructuring Charge.”  In my surrebuttal testimony, I noted that the Restructuring Plan systems development costs were only about 25% of the total systems development costs incurred in 1995.  This is no way implies that systems development will cease.  As far as increasing or decreasing, as noted above, that is a management choice.
REQUEST NO. 191:Kent Schneider
Is it Mr. Schneider's testimony that after 1997 U S WEST will do no further restructurings of the scope, purpose, type, and magnitude as the current restructuring?
A.If the response is affirmative, please provide any analysis, documents, or other support Mr. Schneider relies upon for his testimony that there will be no future restructure of the scope, purpose, type and magnitude as the current restructure.
B.If Mr. Schneider relies solely upon his opinion or that of other commission staff or consultants, please identify whose opinion and list the specific facts that support the statement made in Mr. Schneider's testimony.
RESPONSE NO. 191:Kent Schneider
Yes.  Using “scope” to mean “intention or object,” “purpose” to mean “object or intention,” “type” to mean “one having qualities of another-model” and “magnitude” to mean “size” from Webster’s dictionary, and since the word “and” is used as the connective relationship of these words, I would have to say yes.
A.Using the definitions noted above, the scope, purpose and type of the 1993 Restructuring Plan cannot be repeated.  As noted in my response to Request No. 189, the Company can only eliminate 534 of 560 service centers once, since there are now only 26 left.  The purpose, scope and type of personnel reductions and systems development to accomplish the 1993 Restructuring Plan will therefore also not be repeated.  The magnitude/size of the expenditure on enhancing systems is exceeded each year as noted in my surrebuttal testimony.
B.This additional question was answered in A above.
REQUEST NO. 192:
Please provide any analysis by staff or its consultants intending to determine the ongoing scope, purpose, type, and magnitude of restructuring that is reflective of past restructurings and staff's expectation of future restructurings.
A.Please state how the ongoing scope, purpose, type, and magnitude is different from the current restructure plan.
B.If Staff or its consultants have not performed such an analysis, please state why.
RESPONSE NO. 192:
Request No 192 was answered as to why the 1993 Restructuring Plan is unique in Response 191.
REQUEST NO. 193:Kent Schneider
Please describe conceptually the restructures that USWC could engage in the future that are different in scope, purpose, type, and magnitude from the current restructuring.
RESPONSE NO. 193:Kent Schneider
As an example, as deregulation becomes a reality in all of the Company's service areas, the record keeping could be standardized for all service areas.  Also, the responsibilities of state PUC's would become minimal so that traditional rate cases would cease.  The need for the number of accountants, lawyers and individual state administrative liaisons would be greatly diminished.  At that point, the number of management personnel could be greatly reduced, and all of the remaining administrative personnel could be relocated to Denver, centralizing operations.
As another example, as systems are enhanced further, the reduction of the number of service centers could begin.  How few centers management would want would be the determining factor in the future.
REQUEST NO. 194:Kent Schneider
At page 35, Mr. Schneider states that "benefits should start being received soon after the test year, through 1997 and beyond.
A.Please clarify Mr. Schneider's testimony.  Is it his testimony that benefits started to be received in 1996?  If so, please identify and provide a copy of the evidence Mr. Schneider relies upon.
B.If the response to part A.  is that benefits did not start in 1996, is it Mr. Schneider's testimony that benefits start in 1997?  If so, please identify and provide a copy of the evidence Mr. Schneider relies upon for that conclusion.
C.If the response to part A and B is that benefits did not and will not start in either 1996 and 1997, please identify and provide a copy of the evidence Mr. Schneider relies upon that benefits will start after 1997.
D.In the event Mr. Schneider relies upon no documents, but rather relies upon his opinion or that of other staff or its consultants, please identify whose opinion and list the specific facts that support the statement made in Mr. Schneider's testimony.
RESPONSE NO. 194:Kent Schneider
Using numbers from the Company's annual financial statements, the Company's planned savings of $50,000 for each employee terminated and the assumption that personnel eliminated are eliminated on average in the middle of the year, with amounts in millions:
Expenses   Employee CostYearlyYearly Net
YearIncurredSavings Cumulative   NetCumulative
1994   272      55   217     217
1995   315    167   (19)     144
1996   175*    292 (117)      27
1997   174*    429 (255)    (228)
  936
In 1998 and beyond the expenses will be gone and the benefits would increase to $500 for each year.
*(The expenses for 1996 and 1997 are not to me so I split the expense reasonable equally between the two years.)
As this table reflects, economic benefits are received in each year, but benefits do not begin to exceed expenses on a cumulative basis until 1997, with theoretical benefits continuing from 1998 at $500.
The answer to this question with this table in no way should detract from direct or surrebuttal testimony that in 1995 service problems became severe enough that additional personnel were hired to improve service until the systems enhancements and training were more complete.  This table is provide as the theoretical basis to answer this question only.
REQUEST NO. 195:Kent Schneider
With respect to Mr. Schneider's testimony at page 35, please provide documents, referenced material, or other factual support he relies upon for "test year accounting" principles.  Please explain how "test year accounting" is different from "test year construction" principles, if there is a difference.
RESPONSE NO. 195:Kent Schneider
I do not know what “test year construction principles” mean.  Therefore there many be no difference.  However, “test year accounting” means to me that the test year is to include or exclude these items that prevent the actual recorded numbers in the test year from being a “typical” year for ratemaking purposes
REQUEST NO. 196:Kent Schneider
With respect to Mr. Schneider's testimony as it relates to restructure benefits, please explain why streamlining operations in 1994 with a resulting decrease of work force does not create an immediate benefit in 1994.  Please explain why a benefit is not created in the following year.
RESPONSE NO. 196:Kent Schneider
This question is answered in Request No. 194.
REQUEST NO. 197:Kent Schneider
With respect to Mr. Schneider's testimony at pages 26 and 34 about employee wages and "related costs."  Please identify what "related costs" are referred to.
RESPONSE NO. 197:Kent Schneider
I was referring to the employee related costs noted in the Company's annual financial statements that employee related costs include contract labor, benefits and payroll taxes as noted on page 16 of the Company's 1993 Annual Report.
REQUEST NO. 198:Kent Schneider
With regard to Mr. Schneider's testimony at pages 30 and 33, is it Staff's position that any evidence presented in testimony by the Company should not be given much weight until it is first audited and verified by Staff or by an external auditor?
RESPONSE NO. 198:Kent Schneider
No.  However, Mr. Inouye's graph presented certain perplexing interpretations that would need further study before allowing this graph to be accepted.  Examples include:  If cost of service per access line remains constant for so many years, why does the Company need rate relief?; doesn't this constant expense level indicate that all of management's reengineering efforts through 1995 have only offset the rate of inflation?; or does the allocation system in place rely too heavily on access lines by service area so that expenses track access line growth?
REQUEST NO. 199:Kent Schneider
With regard to USWC's Idaho financial results of operations for the years depicted in USW/38g, has staff had the information available and had the opportunity to audit the financial results?
RESPONSE NO. 199:Kent Schneider
No.  The information may have been available for these years but the Staff has not had the opportunity to audit the financial results, as best I can determine.
REQUEST NO. 200:Kent Schneider
With regard to Mr. Schneider's testimony at page 31 that the expenses of the 1991 employee restructure plan "ceased," please reconcile this testimony with Mr. Schneider's direct testimony on page 10 that the 1991 plan "overlapped" the 1993 plan.
RESPONSE NO. 200:Kent Schneider
The reserve amount remaining at year end 1993 was transferred to the 1993 Restructuring Charge reserve increasing the 1993 Restructuring Reserve from $880 million to $936 million.  The 1993 Restructuring Plan was altered to include an additional 1000 employees to be eliminated to reflect the carried forward efforts yet unfinished of the 1991 plan.  This carried forward reserve and the additional 1000 employees was what I meant is that the 1991 plan “overlapped” the 1993.  However, once the 1993 reserve was established, the 1991 plan was no longer discussed.  That was what I meant when I said the expenses of the 1991 plan “ceased”.
REQUEST NO. 201:Kent Schneider
With regard to Mr. Schneider's testimony at page 31 that the 1993 restructure plan is a unique event, please respond to the following:
A.Please provide a description and a copy of all evidence relied upon for the testimony that the 1993 restructure plan is unique and separate from on-going operations.
B.Please provide a description and a copy of all evidence relied upon for the testimony that the 1993 restructure plan is unique and separate from all prior restructure plans.
RESPONSE NO. 201:Kent Schneider
A.As mentioned in my direct and surrebuttal testimony the establishment of a special reserve in the Company financial statements for this plan would indicate that it is different from on-going operations.  The Company should have its 1993, 1994 and 1995 Annual Reports.
B.As mentioned in my answer to Response No. 191A, the Company will only reduce the number of its service centers from 560 to 26 once.  This constitutes a unique event different from any other restructuring effort.  This information is also contained in the Company's 1993, 1994 and 1995 Annual Reports.
REQUEST NO. 202:Kent Schneider
Please clarify Mr. Schneider's testimony on pages 26 and 27 that planned economic benefits could not have been achieved.  Is it his testimony that the benefits could not have been achieved because total work force increased in 1995, as opposed to being reduced?
A.Is there anything else in Mr. Schneider's testimony on pages 26 and 27 that Mr. Schneider believes proves that benefits could not have been achieved?
B.Does Mr. Schneider have any additional evidence not presented in his testimony that benefits could not have been achieved?
RESPONSE NO. 202:Kent Schneider
Please refer to the table in my response to Request No. 194.  The benefits achieved on an accumulated basis through 1995, ignoring the service problems and the rehires discussed in my surrebuttal testimony, shows that expenses incurred through 1995 were greater than benefits received on a cumulative basis.  To use 1995 as the test year when significant benefits will be received starting in 1997 and increasing in 1998 is not fair to the rate payers.  I believe this answers all the questions in this request.
REQUEST NO. 203:Kent Schneider
With regard to Mr. Schneider's testimony on page 26 that the 1993 plan was revised to include an additional 1,000 employee paid departures, please provide a description and a copy of any document or other factual support for this testimony.
A.Is it Mr. Schneider's testimony that the original 1993 plan has now been revised so that the target is now 11,000 employee reductions, i.e., the 10,000 referred in Mr. Schneider's direct testimony at page 10 plus the additional 1,000?
RESPONSE NO. 203:Kent Schneider
On page 34 of the Company's 1993 financial statements the original goal of 8000 employees for the 1993 plan was increased to 9000 employees to include the remainder of the 1991 plan.  This amount was later increased to 10,000 employees because 1000 employees refused to relocate and took paid separations instead.  This was noted from the 1995 Company financial statements.  The answer to A is “no”.  (See above)
REQUEST NO. 204:Kent Schneider
With regard to Mr. Schneider's testimony at pages 24 to 26 that staff has provided evidence that no benefits were achieved in 1995, please respond to the following:
A.Please identify specifically what in the 1993 Annual Report and 10-K is evidence that benefits in 1995 were not obtained.  For each thing identified, please explain how it is proof.
B.Please state how the delay of the original plan is evidence that no benefits were achieved in 1995.
C.Please state how the alleged addition of 1,000 employee departures is evidence that no benefits were achieved in 1995.
RESPONSE NO. 204:Kent Schneider
A.There is no evidence in the 1993 financial statements that benefits in 1995 were not obtained.  They only establish management's plan as to what the benefits are planned to be.
B.I should clarify my statement about no benefits.  The table in my response to Request No. 194 reflects that no cumulative net benefits were achieved.  As noted in my response to Request No. 194 that the table does not reflect the fact that so many employees were hired in 1995 that there was a net increase from 1994 to 1995.  Therefore this delay in the original plan is further evidence the net cumulative benefits did not exceed the expenses.  Therefore net cumulative benefit should be considered as a definition for the benefit I was referring to.
C.This is not evidence that no benefits were to be achieved.
REQUEST NO. 205:Kent Schneider
A.With regard to Mr. Schneider's testimony on page 23, please describe and provide a copy of the document or other factual support he relies upon for his testimony that restructure expenses for systems development are not the "on-going, evolutionary improvement" of USWC's computer systems.
B.If Mr. Schneider relies solely upon his opinion or that of other commission staff or consultants, please identify whose opinion and list the specific facts that support the statement made in Mr. Schneider's testimony.
RESPONSE NO. 205:Kent Schneider
A. and B.  Again, the Restructuring Plan was a special project as noted in my response to Request No. 201.  The comments on pages 22 and 23 of my rebuttal testimony are only to show the magnitude of the effect of the Restructuring Plan systems development costs to total systems development costs in the test year.
REQUEST NO. 206:Kent Schneider
A.With regard to Mr. Schneider's testimony on page 23, please describe and provide a copy of the document or other support he relies upon for the testimony that systems development designed to decrease "back-office" costs and increase employee productivity "has little or nothing to do" with the current restructuring.
B.If Mr. Schneider relies solely upon his opinion or that of other commission staff or consultants, please identify whose opinion and list the specific facts that support the statement made in Mr. Schneider's testimony.
RESPONSE NO. 206:Kent Schneider
A. and B.  See 205A above.
REQUEST NO. 207:Kent Schneider
A.Please provide any analysis, documents, or other factual support Mr. Schneider relies upon for his testimony that the restructure systems development is different in scope, purpose, type, and magnitude as compared to any prior or future restructuring.
B.If Mr. Schneider relies solely upon his opinion or that of other commission staff or consultants, please identify whose opinion and list the specific facts that support the statement made in Mr. Schneider's testimony.
RESPONSE NO. 207:Kent Schneider
A. and B.  See response to Request No. 192.
REQUEST NO. 208:Kent Schneider
A.Please provide any analysis, documents, or other factual support Mr. Schneider relies upon for his testimony that the restructure systems development is different in scope, purpose, type, and magnitude as compared to on-going systems development.
B.If Mr. Schneider relies solely upon his opinion or that of other commission staff or consultants, please identify whose opinion and list the specific facts that support the statement made in Mr. Schneider's testimony.
RESPONSE NO. 208:Kent Schneider
A. and B.  See response to Request No. 201.
REQUEST NO. 209:Kent Schneider
With regard to Mr. Schneider's testimony on page 22, please describe and provide a copy of the document or other factual support he relies upon for the testimony that 5,000 and 6,000 personnel cuts were accomplished in 1992 and 1993.
RESPONSE NO. 209:Kent Schneider
The Company needs to reread my surrebuttal testimony, page 22.  The 1991 Restructuring Plan was in effect in 1992 and 1993.  By the end of 1993, “5000 of the 6000" planned layoffs were accomplished.  See page A-24 of the 1991 financial statements of the Company and page 34 of the 1993 financial statements of the Company.
REQUEST NO. 210:Kent Schneider
A.With regard to Mr. Schneider's testimony on page 18, please clarify what information Mr. Schneider refers to on line 15.
B.If the information Mr. Schneider refers to on page 18, line 15, is anything other than Mr. Inouye's exhibits USW/38b through USW/38f, please provide a copy of all additional documents or other data.
RESPONSE NO. 210:Kent Schneider
A. and B.  Unfortunately, I do not have any specific references.  My information came from Business Week articles, Wall Street Journal articles, information provided at the NARUC training seminar I attended in Michigan, miscellaneous articles routed around the IPUC office, and information on the network at various sites.  I did not retain any of these articles but obtained a general understanding that related to the upcoming deregulation the incumbent LECs would have to become more sales oriented and much more cost efficient.  This agreed to what USW witness Inouye presented so my specific references were to his documents.
REQUEST NO. 211:Kent Schneider p. 7
Please provide a copy of the Oregon study referred to on line 17.
RESPONSE NO. 211:Kent Schneider p. 7
REQUEST NO. 212:Kent Schneider p. 7
Please provide the specific reference in the Irvine study where the determination was made that the fair rate was $12.50 per sq. ft. (lines 14-16).
RESPONSE NO. 212:Kent Schneider p. 7
REQUEST NO. 213:Kent Schneider p. 9, lines 9-13
Mr. Schneider states that he is not ignoring these critical components of lease comparability.  Please explain his rationale for determining that the 1801 lease is comparable to the lease shown in your Exhibit 111 for these two components:
A.Lease size
B.Lease Term
RESPONSE NO. 213:Kent Schneider p. 9, lines 9-13
REQUEST NO. 214:Kent Schneider p. 10, lines 6-9
Please provide the data shown on Exhibit 110 only for lease transactions over 1 million square feet.
RESPONSE NO. 214:Kent Schneider p. 10, lines 6-9
REQUEST NO. 215:Kent Schneider p. 10, lines 6-9
Please provide the data shown on Exhibit 110 only for transactions with lease terms of over 20 years.
RESPONSE NO. 215:Kent Schneider p. 10, lines 6-9
REQUEST NO. 216:Kent Schneider p. 10, lines 6-9
Please show the average size (square footage) of the transactions included in
Exhibit 110.
RESPONSE NO. 216:Kent Schneider p. 10, lines 6-9
REQUEST NO. 217:Kent Schneider p. 10, lines 6-9
Please show the average lease term (number of years) for the lease transactions shown on Exhibit 110.
RESPONSE NO. 217:Kent Schneider p. 10, lines 6-9
REQUEST NO. 218:Kent Schneider p. 3
Please provide the following:
A.A list of all jurisdictions of which you are aware that have allowed the pension asset to be included in rate base.
B.A list of all jurisdictions of which you are aware where 1)  the utility has requested inclusion of a pension asset in rate base and, 2)  the request has been denied.
C.A list of all jurisdictions of which you are aware in which a commission has ordered that a pension asset which has not been previously included in rate base be deducted from rate base.
D.Provide copies of all relevant portions of any orders listed in part "C" immediately above.
RESPONSE NO. 218:Kent Schneider p. 3
REQUEST NO. 219:Kent Schneider p. 5, lines 1-7
Please provide all facts, data, documents and evidence which support your statement that "overfunding" of pension accounts is due to "customer overpayments in the past."
RESPONSE NO. 219:Kent Schneider p. 5, lines 1-7
REQUEST NO. 220:Kent Schneider p. 5, lines 8-20 / Baldwin
A.Is it Staff's position that U S WEST's pension asset reflects the entire Idaho intrastate portion of the fund or does Staff understand an allocation between Title 61 and Title 62 has occurred?
B.If the Commission were (contrary to Staff's recommendation) to consider including a pension asset in Title 61 rate base, would Staff recommend that the intrastate asset level be apportioned between Title 61 and Title 62 in some way?  If so, please describe how the allocation should be done and what allocation factors should be used.
RESPONSE NO. 220:Kent Schneider p. 5, lines 8-20 / Baldwin
REQUEST NO. 221:Kent Schneider p. 6, liens 10-16
A.Were the ratepayers who allegedly funded the pension asset Title 61 ratepayers or did Title 62 ratepayers also contribute to pension funding expense?
B.Is Staff able to identify a specific product or service rate that contained the pension expense funding?  Please provide all documents which support your conclusion.
RESPONSE NO. 220:Kent Schneider p. 5, lines 8-20 / Baldwin
REQUEST NO. 221:Kent Schneider P. 6, liens 10-16
A.Were the ratepayers who allegedly funded the pension asset Title 61 ratepayers or did Title 62 ratepayers also contribute to pension funding expense?
B.Is Staff able to identify a specific product or service rate that contained the pension expense funding?  Please provide all documents which support your conclusion.
RESPONSE NO. 221:Kent Schneider P. 6, liens 10-16
REQUEST NO. 222:Kent Schneider
Please provide all calculations and back-up documentation to support the effect of Mr. Schneider's recommendation to change to a 20 year TBO amortization on 1)  intrastate Idaho expense for 1995 and 2)  Title 61 expense for the 1995 test year.
RESPONSE NO. 222:Kent Schneider
REQUEST NO. 223:Kent Schneider
A.Please provide the exact reference and page number in the "Statement of Financial Accounting Standards No. 106" to support Mr. Schneider's conclusion that INCREASING the TBC amortization period is allowed by SFAS 106 once an amortization period has been in use for several years.
B.Please provide all documentation and other evidence to support the conclusion that the TBO amortization period selected by U S WEST is not accurate.
C.Please provide all documentation and other evidence to support the conclusion the TBO amortization period selected by Staff is more accurate than U S WEST's selected period.
RESPONSE NO. 223:Kent Schneider
DATED at Boise, Idaho, this               day of March 1997.
______________________________
Susan Hamlin
Deputy Attorney General
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