USW71598.docx

1 BOISE, IDAHO, WEDNESDAY, JULY 15, 1998, 10:00 A. M.
2
3
4 COMMISSIONER HANSEN: Good morning, ladies
5 and gentlemen. This hearing will be in order. This is
6 the time and place set by the Idaho Public Utilities
7 Commission for a hearing in Case No. USW-T-98-3, known
8 as in the matter of the investigation into the
9 methodology of determining U S WEST Communications'
10 increased cost of extended area service.
11 The purpose of this hearing will be to hear
12 the Staff and U S WEST's joint motion to adopt a
13 stipulation and settlement resolving all issues in this
14 case. We'll begin by taking the appearances of the
15 parties and we'll start with the Staff.
16 MS. COPSEY: Yes, Your Honor, it's Cheri C.
17 Copsey on behalf of Staff.
18 COMMISSIONER HANSEN: Thank you.
19 MS. HOBSON: Mary S. Hobson from the Stoel
20 Rives law firm representing U S WEST Communications.
21 COMMISSIONER HANSEN: Okay.
22 MR. CREAMER: Good morning,
23 Chairman Hansen, Mike Creamer, Givens, Pursley, on behalf
24 of intervenor Idaho Telephone Association.
25 COMMISSIONER HANSEN: Thank you. I believe
1
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 that is all we have here, then, today. Okay, well, to
2 begin with, we'll start today with the Staff and is the
3 Staff ready to present their case?
4 MS. COPSEY: Yes, Mr. Chairman. If it's
5 all right with the Commission, having been an old war
6 horse, I'm not used to sitting down and addressing the
7 Commission, is it appropriate for me to stand? It's a
8 much more comfortable position for me to be in.
9 COMMISSIONER HANSEN: I don't have any
10 problem with that in your oral presentation if you'd like
11 to stand.
12 MS. COPSEY: Thank you, Mr. Chairman.
13 Before putting Mr. Cusick on the stand on behalf of the
14 Staff, I want to make a few opening remarks as a
15 predicate to his testimony. I think it's important for
16 the Commission to be aware that unlike most settlements
17 that involve significant compromises between the parties,
18 the Staff here was looking to determine the cost to
19 U S WEST of providing EAS and we felt that because it
20 involved adopting a method that would be a
21 forward-looking method that it was important that this
22 method be based on reality and it be something that Staff
23 felt comfortable in supporting. In our opinion, it is
24 not simply a compromise, but we feel very comfortable
25 that it is based on real numbers and reality.
2
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 The Staff started with a number of criteria
2 that were important to it. First, Staff recognized that
3 U S WEST is different from the other telephone carriers
4 in that it has both Title 61 and Title 62 activities and
5 costs. The result of granting a petition for EAS that
6 affects U S WEST's customers results in a shift from
7 Title 62 costs to Title 61. Staff therefore approached
8 this difference from other EAS cost analyses that have
9 been previously adopted for totally Title 61 companies
10 and, therefore, we used different criteria for
11 determining U S WEST's costs for providing EAS, whether
12 it was a U S WEST to U S WEST exchange or a U S WEST and
13 independent exchange.
14 Staff recognized that in shifting from a
15 Title 62 to Title 61 regulatory activity there were
16 accompanying shifts and costs to U S WEST. Staff's goal
17 was to be as consistent as it could possibly be with the
18 Commission's existing decisions in various areas. For
19 example, on the cost allocations for non-traffic
20 sensitive costs, it was important to the Staff that we
21 maintain the cost allocations that had been previously
22 approved by the Commission and we have done so.
23 In addition, it was important to the Staff
24 that the recent rate case be -- that anything we did here
25 be totally consistent with the recent rate case that the
3
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 Commission had approved on how to create a proxy for the
2 62 to 61 shifts that will naturally occur. This method
3 that we have presented in this joint stipulation does
4 that because it uses the same basic method that was used
5 in the rate case for approximating those cost shifts and,
6 finally, this was most important to the Staff that we
7 rely in every way possible on real data and actually look
8 at what has been experienced by U S WEST in those earlier
9 EAS regional cases that were approved by the Commission,
10 because, unlike the independent cases, we have something
11 to look at to determine what effect there has really been
12 on U S WEST.
13 Wherever there was real data, Staff
14 reviewed that data and was satisfied in arriving at this
15 methodology. This case in Staff's opinion was different
16 from the earlier EAS cases because U S WEST had already
17 implemented these regional EAS's. For example, as part
18 of this methodology, there has been an assumption of a
19 three times stimulation factor. That was not -- that is
20 actually consistent with what this Commission has done in
21 the independent cases, but, more importantly, after
22 examining the data that has occurred in the regional
23 EAS's that were previously approved, it was consistent
24 with what has actually occurred for U S WEST.
25 In addition, U S WEST also had a database
4
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 that demonstrated what kind of dial around was actually
2 being experienced in U S WEST's territories. As a result
3 of reviewing that data, Staff feels very comfortable with
4 the 38 percent dial around that is adopted in this
5 particular method. In short, in Staff's opinion, this
6 settlement is one that it feels is fair, reasonable and
7 clearly in the public interest, and, therefore, we have
8 agreed to and stipulated to a formula for U S WEST to
9 U S WEST exchanges where EAS is actually approved that is
10 an 8.61 cents per toll minute that has been increased for
11 the 38 percent dial around. With respect to U S WEST and
12 independent exchanges, we have adopted an 8.18 cents per
13 toll minute times 38 percent.
14 In addition, I want to put on the record
15 now, and Mr. Cusick will testify to this and I assume
16 Mr. Souba is also available to do that, at the time that
17 we entered into this stipulation, it was assumed that in
18 every instance the EAS's that this Commission granted
19 would be mandatory EAS's and not subject to an optional
20 plan. After reviewing the Citizens proposed rebalancing
21 rate case in which they have several optional EAS's, we
22 want to make clear that there will be some adjustment not
23 to the formula that we've used but in determining what
24 the toll minutes are, those shifts that occur after
25 reviewing what occurs in the optional EAS, and so we are
5
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 in discussions on how that kind of shift will be adjusted
2 for in the Citizens case and we will make that part of
3 the Citizens rebalancing case.
4 Pursuant to the Commission rules, I want to
5 make it clear that all parties were given the opportunity
6 to participate in this settlement, we had a settlement
7 conference before settlement was reached. I think I can
8 represent to the Commission that no party has indicated
9 they have any problem with this settlement and, finally,
10 Staff joins U S WEST in requesting that the Commission
11 approve this stipulation and settlement and at this time
12 Staff would like to call Staff witness Mr. Cusick to the
13 stand to spread his testimony, his already prefiled
14 testimony, on the record and to also answer a few more
15 questions from me and to be available for Commission
16 questions if there are any.
17 Thank you.
18 COMMISSIONER HANSEN: Ms. Copsey, before we
19 have the witness come forth, let's see if there are any
20 questions from the Commission regarding your remarks.
21 MS. COPSEY: Thank you.
22 COMMISSIONER HANSEN: Are there any
23 questions? Okay, no questions.
24 Thank you. Then if you would like to
25 present your witness.
6
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 JOSEPH W. CUSICK,
2 produced as a witness at the instance of the Staff,
3 having been first duly sworn, was examined and testified
4 as follows:
5
6 DIRECT EXAMINATION
7
8 BY MS. COPSEY:
9 Q Mr. Cusick, could you please state your
10 name and address for the record?
11 A My name is Joseph W. Cusick. My business
12 address is 472 West Washington in Boise.
13 Q Have you prepared prefiled testimony in
14 this matter that has been filed with this joint motion?
15 A Yes, I have.
16 Q If I were to ask you the questions
17 contained in your original testimony, would your answers
18 be the same?
19 A Yes, they would.
20 Q Do you have any additions or corrections to
21 that testimony?
22 A No, I do not.
23 MS. COPSEY: Mr. Chairman, I would move
24 Mr. Cusick's testimony be spread on the record as if
25 read.
7
CSB REPORTING CUSICK (Di)
Wilder, Idaho 83676 Staff
1 COMMISSIONER HANSEN: Is there any
2 objection? Being none, so ordered.
3 (The following prefiled testimony of
4 Mr. Joseph Cusick is spread upon the record.)
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
8
CSB REPORTING CUSICK (Di)
Wilder, Idaho 83676 Staff
1 Q. Please state your name and business address.
2 A. My name is Joseph W. Cusick and my business
3 address is P.O. Box 83720, Boise, ID 83720-0074.
4 Q. By whom are you employed and in what
5 capacity?
6 A. I am employed by the Idaho Public Utilities
7 Commission as the Telecommunications Section Supervisor.
8 Q. Please describe your work experience and
9 educational background.
10 A. I am a retired employee of U S WEST
11 Communications. I began my career with New Jersey Bell
12 in 1964 as a draftsman. Following four years in the
13 US Navy, I worked as a Central Office Technician for
14 New Jersey Bell and U S WEST Communications. As a
15 Central Office Technician, I was responsible for repair
16 and maintenance of central office switching equipment.
17 In 1978, I joined the Regulatory Affairs
18 Department of U S WEST Communications in Idaho and worked
19 there until my retirement in 1990. While in Regulatory
20 Affairs I worked on a wide range of regulatory issues
21 including rate cases, EAS petitions, tariff filings,
22 pricing and cost analysis, and product and service
23 implementation.
24 In 1992, I joined the Idaho Public Utilities
25 Commission as a Telecommunications Analyst. Since
9
USW-T-98-3 CUSICK, J (Di) 1
6/26/98 Staff
1 joining the Commission I have submitted testimony in
2 numerous cases involving a wide range of issues. In 1996
3 I assumed the position of Telecommunication Section
4 Supervisor.
5 I graduated from Idaho State University in
6 1978 with a BBA in Finance and Management.
7 Q. What is the purpose of your testimony in
8 this case?
9 A. The purpose of my testimony is to support
10 the Stipulation and Settlement entered into between the
11 Commission Staff and U S WEST which resolves the issue of
12 cost compensation for U S WEST when it implements EAS.
13 Specifically, I will discuss how this settlement is in
14 the public interest, the use of the three times
15 stimulation factor, the dial around adder of 38%, and the
16 rate treatment in this case including the use of
17 remaining revenue sharing funds.
18 Q. Why do you believe this Stipulation and
19 Settlement is in the public interest?
20 A. Originally, this case had been scheduled for
21 technical hearings in September with discovery and
22 testimony taking place in the interim. During this time,
23 pending EAS cases were put on hold because it was not
24 possible for U S WEST to take a position in favor of or
25 in opposition to a particular case without knowing how it
10
USW-T-98-3 CUSICK, J (Di) 2
6/26/98 Staff
1 was to be compensated for implementation costs. In
2 addition, without knowing the cost of EAS and the
3 subsequent effect on the rates of U S WEST customers, it
4 is not possible for the Commission to make an informed
5 decision on the costs for providing EAS versus the
6 benefits to customers. This meant that customers
7 throughout the state who have been waiting years for
8 their EAS petitions to be considered would be delayed
9 even further.
10 If the Commission approves this Stipulation,
11 it would be free to begin processing these pending cases
12 thereby allowing resolution of these petitions in a more
13 timely manner.
14 In addition, any litigated case carries with
15 it uncertain results for the parties. While both
16 U S WEST and the Staff believe they made some
17 concessions, I believe the end result is one that is good
18 for the customers of U S WEST and fairly compensates the
19 Company for its costs.
20 Q. How was this agreement reached?
21 A. On April 10, U S WEST and the Staff filed a
22 Stipulation which proposed a schedule for a hearing and
23 related proceeding in this case. On April 14, in Order
24 No. 27465, the Commission adopted the Stipulation and
25 scheduled a technical hearing to begin September 15,
11
USW-T-98-3 CUSICK, J (Di) 3
6/26/98 Staff
1 1998. Soon after that Order, the Staff and the Company
2 began discussions in an attempt to resolve the
3 outstanding issues.
4 The Staff's goal in this process was to
5 establish a logical, practical, and easily implemented
6 procedure which used actual data where available and
7 incorporated the principles laid out by the Commission in
8 Case No. USW-S-96-5.
9 Q. What types of actual data were used in this
10 Stipulation?
11 A. Two of the areas where Staff required
12 actual data were the dial around factors and EAS call
13 stimulation. For dial around calling the Company was
14 able to provide calling data from its toll billing tapes
15 and calculate the dial around factor. Staff examined
16 this study and was satisfied with the results. Staff is
17 satisfied that thirty-eight percent (38%) represents what
18 U S WEST is currently experiencing.
19 For the stimulation factor the Company
20 provided traffic studies for the EAS regions which show
21 that the three times stimulation factor was accurate
22 based on actual experience.
23 Q. How are the rates to be implemented as a
24 result of this Stipulation?
25
12
USW-T-98-3 CUSICK, J (Di) 4
6/26/98 Staff
1 A. When an EAS route is approved, the cost of
2 that route will be calculated using the cost per toll
3 minute figure agreed to in the Stipulation, depending on
4 whether it is a U S WEST to U S WEST route or a U S WEST
5 to independent company route. For any U S WEST exchange
6 that is included in one of the EAS regions, the rates in
7 that exchange will go to the "in-region" rate and that
8 revenue will be an offset against the total cost of
9 implementing EAS. For those costs not covered by this
10 increase, the costs will be spread on a uniform increase
11 in the rates of all U S WEST customers in southern Idaho.
12 Q. How was the cost per toll minute derived?
13 A. Staff wanted to preserve the Commission's
14 previous decisions and, in particular, be consistent with
15 the Commission's rate case Orders. The method adopted
16 uses the same approach for adjusting for shifts in costs
17 that will occur if EAS is approved that this Commission
18 used in the rate case, USW-S-96-5. Staff examined the
19 underlying data establishing those costs. This
20 Stipulation does not change the previous Commission
21 decisions regarding U S WEST non-traffic sensitive cost
22 allocations.
23 Q. Will this include the capital costs of
24 implementing EAS?
25
13
USW-T-98-3 CUSICK, J (Di) 5
6/26/98 Staff
1 A. No. The capital costs of implementing EAS
2 will be paid for out of the existing revenue sharing
3 funds as previously ordered by the Commission.
4 Q. Does that conclude your testimony?
5 A. Yes, it does.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
14
USW-T-98-3 CUSICK, J (Di) 6
6/26/98 Staff
1 (The following proceedings were had in
2 open hearing.)
3 MS. COPSEY: I do have a few additional
4 questions for Mr. Cusick at this time.
5 COMMISSIONER HANSEN: Okay.
6
7 DIRECT EXAMINATION
8
9 BY MS. COPSEY: (Continued)
10 Q Mr. Cusick, you are still under oath. Have
11 you reviewed the pending and completed EAS cases and
12 calculated a rough estimate of what the overall cost for
13 EAS to U S WEST would be using this methodology that's in
14 the joint stipulation?
15 A Yes, I have.
16 Q What are the approximate total costs for
17 EAS for U S WEST if this Commission approves all the
18 pending and the previously approved EAS petitions?
19 A If all of them were approved, the total
20 cost to U S WEST would be 3.4 million. That's for
21 recurring costs, by the way, not the capital.
22 Q That's doesn't include the capital costs?
23 A That's correct.
24 Q And that's an approximate cost?
25 A Yes, it is.
15
CSB REPORTING CUSICK (Di)
Wilder, Idaho 83676 Staff
1 Q How would the cost affect U S WEST's
2 customers' monthly bills if all of the EAS's that have
3 been previously filed and those that are pending were
4 approved?
5 A If all were approved, there would be a
6 number of exchanges, five specifically, Mountain Home,
7 Glenns Ferry, Payette, New Plymouth, Weiser, the
8 customers in those exchanges would experience a $5.50
9 rate increase in their monthly rate. That would bring
10 them up to the in-region rate. The value of that would
11 be approximately $2 million, I believe, of that annual --
12 I'm sorry, 1.4 million, I believe, annual effect. That
13 would leave the rest of the requirement to be spread
14 through all U S WEST customers. That would represent an
15 approximately $.40 a month rate increase to all of the
16 remaining U S WEST customers.
17 Q Mr. Cusick, are you familiar with the
18 pending Citizens rate rebalancing case and the proposed
19 optional EAS plan?
20 A Yes, I am.
21 Q Does this method apply in that case as
22 well?
23 A The methodology does apply the same in
24 Citizens' as to these. Citizens' is somewhat more
25 difficult in doing an exact calculation at this point
16
CSB REPORTING CUSICK (Di)
Wilder, Idaho 83676 Staff
1 because Citizens is proposing some optional plans. This
2 particular settlement is based upon the relationship
3 between lost toll minutes and the subsequent cost of
4 EAS. With Citizens' plan being optional, we don't really
5 know how many lost toll minutes there are going to be, so
6 we are continuing to work on that problem, but other than
7 that, the methodology is the same as in this case.
8 Q By lost toll minutes, what you really mean
9 to say, isn't it, that there's a shift from toll minutes
10 to non-toll, they're not really truly lost?
11 A Yes.
12 Q Does that conclude your testimony?
13 A Yes, it does.
14 MS. COPSEY: Thank you. I have no further
15 questions.
16 COMMISSIONER HANSEN: Okay, let's see if we
17 have any other questions.
18 Ms. Hobson?
19 MS. HOBSON: No questions.
20 COMMISSIONER HANSEN: Mr. Creamer?
21 MR. CREAMER: No questions.
22 COMMISSIONER HANSEN: Let's see if we have
23 any from the Commission. I do have one question.
24
25
17
CSB REPORTING CUSICK (Di)
Wilder, Idaho 83676 Staff
1 EXAMINATION
2
3 BY COMMISSIONER HANSEN:
4 Q I'm just a little bit confused on, say,
5 like Silver Star customers, for an example, I believe
6 that rate for, say, residential customers is $24.10; is
7 that correct?
8 A That's correct.
9 Q So by approving this order, would that be
10 an additional $.35 increase for those people, so it would
11 really be 20 -- or you said a $.40, I'm sorry, would that
12 be an average, then, of $24.50, then? Would that be
13 included now if this was approved?
14 A No, it would not. The $.40 increase
15 applies only to U S WEST customers. These are only
16 U S WEST costs that we're dealing with now, not the
17 independents. We've resolved those with the 24.10 rate.
18 COMMISSIONER HANSEN: Okay, thank you. I
19 just wanted to clarify that.
20 Do we have any other questions from the
21 Commissioners? Commissioner Nelson.
22 COMMISSIONER NELSON: I might just ask one
23 question.
24
25
18
CSB REPORTING CUSICK (Com)
Wilder, Idaho 83676 Staff
1 EXAMINATION
2
3 BY COMMISSIONER NELSON:
4 Q Mr. Cusick, how do you see this $.40 a
5 month cost or increase in rates being implemented?
6 Phased in as EAS's are approved?
7 A Although we haven't resolved it completely,
8 I would recommend probably a two-phase approach. After
9 we settle up on, specifically I think the Mountain Home,
10 the U S WEST to U S WEST case that we have coming up
11 which is a large one, we'll have that one and Fremont
12 Telcom that we will hopefully have settled up certainly
13 by the end of the year, once that's settled up, then we
14 would do a phase-in at that point. You know what the
15 costs were up to that point and then I think any
16 remaining would be cases that were unresolved, that once
17 they were all done, then we would phase in the rest of
18 it, so I would envision a two-phase approach.
19 COMMISSIONER NELSON: Okay, thank you.
20 That was my only question.
21 COMMISSIONER HANSEN: Ms. Copsey, do you
22 have any redirect?
23 MS. COPSEY: I have no redirect.
24 COMMISSIONER HANSEN: Thank you very much.
25 (The witness left the stand.)
19
CSB REPORTING CUSICK (Com)
Wilder, Idaho 83676 Staff
1 COMMISSIONER HANSEN: Does that complete
2 your case, then?
3 MS. COPSEY: Yes, Your Honor. I do want to
4 just say that based on this testimony and the
5 stipulation, we again request that the Commission approve
6 this joint stipulation. We believe it's clearly in the
7 public's interest to resolve these issues and to allow
8 the Commission to move on so it can address the pending
9 petitions for EAS that many have been outstanding for
10 some time.
11 Thank you.
12 COMMISSIONER HANSEN: U S WEST, are you
13 ready to present your case?
14 MS. HOBSON: Thank you, Mr. Chairman, I am,
15 and with the Commission's permission, I will continue in
16 the time honored tradition of making myself comfortable
17 by sitting down.
18 COMMISSIONER HANSEN: That's fine.
19 MS. HOBSON: The Commission in this case
20 faces a unique regulatory problem and that is the
21 compensation of a company that is both an intraLATA toll
22 carrier and a local exchange company when a route is
23 converted from EAS to local traffic and when that company
24 has a split regulatory regime so that its intraLATA toll
25 operations are not subject to the Commission's rate
20
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 regulation.
2 This issue has been brewing essentially
3 since 1988 when the Telecommunications Act was passed or
4 perhaps '89 when it was implemented for U S WEST.
5 Initially, there were objections raised by other
6 interexchange carriers as to how the revenue sharing plan
7 operated to deal with these issues and since 1995 when
8 the revenue sharing plan came under review by the
9 Commission, the issue has been teed up directly between
10 U S WEST and Staff and the issue has surfaced several
11 times.
12 In my career, I've had the chance to write
13 comments on this issue several times. I've had the
14 opportunity to seek reconsideration a time or two, and
15 I've even provided the Commission with the rare
16 opportunity to read legal briefs citing cases on this
17 point. It's been a long road to get us to today.
18 As Ms. Copsey indicated, this stipulation,
19 which I think the Commission is well aware is the product
20 of many long months of negotiation, provides a means to
21 finally eliminate this problem and put it behind us.
22 Since Title 61 regulated rates are affected, U S WEST's
23 Title 61 customers' rates will be altered by application
24 of the stipulation. U S WEST and the Staff used the same
25 sorts of costs that are used to establish those rates in
21
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 the first place, that is, the Company's embedded costs,
2 and they used the same cost allocation methodologies that
3 were hammered out in the rate case. As a result, I think
4 that what you're seeing here is entirely consistent with
5 the methodology you used a year ago to establish the
6 Title 61 rates in southern Idaho.
7 The approach suggested here has several
8 advantages. First of all, as far as these things go,
9 it's relatively simple to apply, although in any given
10 EAS case, it will involve U S WEST representatives and
11 Staff representatives sitting down and hammering out
12 exactly what the minutes are and how they will be
13 affected. The formula itself can be applied
14 straightforwardly and we will know what a particular EAS
15 route is going to cost.
16 That is a terrific advantage for U S WEST
17 as it prepares to take a position on EAS cases because it
18 provides certainty for the Company. It also is a
19 terrific advantage, I think, for Staff and for this
20 Commission because you will be aware going in what the
21 effect is going to be on the U S WEST side when any given
22 EAS route is considered.
23 Having said all that, while the methodology
24 here, as Ms. Copsey said, was not reached by compromise,
25 this was not a situation where one party comes in and
22
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 says we want X and the other party says Y and you move
2 toward the middle, it was in fact the product, as she
3 said, of analyzing some very specific data and actual
4 experience on implementing EAS.
5 Nonetheless, U S WEST's toll business in
6 southern Idaho will be affected by any EAS that you
7 grant. Under this formula, U S WEST's total revenue
8 picture will not be made up. U S WEST will lose revenue
9 on most EAS routes when EAS's are adopted and in addition
10 to that, the formula itself recognizes a 38 percent dial
11 around. That is a number that suggests that on average
12 in southern Idaho, U S WEST on intraLATA calls is not
13 carrying 38 percent of the traffic. That means other
14 toll carriers are also impacted when you make the
15 decision to convert a route from EAS to local and those
16 companies, of course, are not being recognized under this
17 process.
18 What that means in my humble opinion is
19 that what the Commission needs to continue to focus on
20 when looking at EAS is the question of community of
21 interest. EAS makes sense if there's a community of
22 interest and under this formula, U S WEST will be made
23 whole for its continuing costs, but toll providers are
24 seeing their market in southern Idaho shrink, the
25 possible market, not just the competitive market.
23
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 With those remarks, then, we urge the
2 Commission to adopt the stipulation for its intended
3 purpose, which is to provide cost recovery for U S WEST
4 in those contexts when the Commission has determined
5 there is a community of interest and customers' needs
6 demand that EAS be granted and with that, Mr. Chairman,
7 we would call John Souba to the stand.
8 COMMISSIONER HANSEN: Okay, and before we
9 have the witness take the stand, let's just see if we
10 have any questions from the Commissioners in regard to
11 your statement. Do we have any questions?
12 COMMISSIONER NELSON: I don't. Thank you.
13 COMMISSIONER HANSEN: Being none, thank
14 you, and we'll now have the witness come forward.
15
16 JOHN F. SOUBA,
17 produced as a witness at the instance of U S WEST
18 Communications, having been first duly sworn, was
19 examined and testified as follows:
20
21 DIRECT EXAMINATION
22
23 BY MS. HOBSON:
24 Q Would you please state your name and spell
25 your last name for the record?
24
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST
1 A Yes. My name is John Souba. My last name
2 is spelled S-o-u-b-a.
3 Q Where are you employed and in what
4 capacity?
5 A I'm employed by U S WEST Communications as
6 a regulatory affairs manager here in Boise.
7 Q What is your business address?
8 A 999 Main.
9 Q In connection with your duties as a
10 regulatory manager, did you prepare and cause to have
11 filed with this Commission certain written testimony
12 consisting of 14 pages and dated June 29, 1998?
13 A Yes, I did.
14 Q Do you have any changes or corrections to
15 that testimony at this time?
16 A No, I do not.
17 Q Mr. Souba, if I were to ask you the
18 questions contained in your prefiled written testimony at
19 this time now that you have been sworn, would your
20 answers be the same?
21 A Yes, they would.
22 MS. HOBSON: With that, Mr. Chairman, we
23 would propose to spread Mr. Souba's testimony on the
24 record as if read.
25 COMMISSIONER HANSEN: Is there any
25
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST
1 objection?
2 MS. COPSEY: No, Your Honor.
3 COMMISSIONER HANSEN: Being none, so
4 ordered.
5 (The following prefiled testimony of
6 Mr. John Souba is spread upon the record.)
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST
1 Q PLEASE STATE YOUR NAME AND ADDRESS AND
2 POSITION WITH U S WEST COMMUNICATIONS.
3 A My name is John Souba. My business address
4 is 999 Main Street, Boise, Idaho. I am a staff manager
5 in the Idaho Regulatory Affairs Department.
6 Q PLEASE STATE YOUR BACKGROUND AND
7 QUALIFICATIONS.
8 A I earned a B.A. degree in History/Economics
9 from Dartmouth College in 1975. Since joining U S WEST
10 in 1979, I have held a variety of management positions in
11 the marketing organization dealing with major business
12 accounts. In February, 1988, I joined the Idaho
13 Regulatory Affairs Department. My responsibilities
14 involve a variety of areas including docket coordination,
15 certain tariff and catalog filing responsibilities,
16 response and witnessing in Extended Area Service (EAS)
17 petitions and coordination of discovery and interrogatory
18 responses, among other tasks.
19 Q HAVE YOU PREVIOUSLY TESTIFIED BEFORE THIS
20 COMMISSION?
21 A Yes, I have testified in several EAS cases
22 including Eden/Hazelton's petition to call Twin Falls in
23 1988, Albion's petition to call Burley in 1990, and the
24 recent cases involving the petitions of customers of
25 Silver Star, Teton and Fremont companies to join the
27
Souba, John F. - DI 1
Wilder, Idaho 83676 U S WEST
1 eastern Idaho EAS region. I also testified in U S WEST's
2 1996 southern Idaho general rate case.
3 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?
4 A The purpose of my testimony is to support
5 the Stipulation and Settlement entered between U S WEST
6 and the Commission Staff in this case. I will describe
7 the terms of the
8
9 /
10
11 /
12
13 /
14
15
16
17
18
19
20
21
22
23
24
25
28
Souba, John F. - DI 1A
Wilder, Idaho 83676 U S WEST
1 stipulated agreement, explain how the agreement is
2 expected to operate and identify the situations in which
3 it is expected to apply. I will also demonstrate why the
4 Stipulation and Settlement is reasonable and in the
5 public interest.
6 Q PLEASE EXPLAIN THE HISTORY WHICH LED UP THE
7 FILING OF THE STIPULATION AND SETTLEMENT IN THIS CASE.
8 A The Stipulation and Settlement arise out of
9 a need to identify and recover the costs of providing
10 extended area service (EAS) to U S WEST customers in
11 southern Idaho. The current wave of expansion of EAS in
12 Idaho has been in process for several years. In Case
13 No. USW-T-94-4 (Order No. 26672) the Commission ordered
14 the creation of three large EAS regions in southern Idaho
15 comprised of U S WEST exchanges. These regions centered
16 around the "hub" cities of Boise, Twin Falls and, for the
17 eastern Idaho region, Idaho Falls and Pocatello. Within
18 these EAS regions customers enjoy toll-free calling
19 between all of the communities included within each
20 region. Implementation of the EAS regions was completed
21 in May 1997. For the most part, these regions have been
22 very popular with customers.
23 With the creation of large EAS regions for its
24 southern Idaho customers, U S WEST and the Commission
25 began to see increased interest in EAS from customers of
29
Souba, John F. - DI 2
Wilder, Idaho 83676 U S WEST
1 independent telephone companies and from U S WEST
2 customers whose exchanges were not included in the
3 regions. Customers not only wanted to see local calling
4 areas expanded to encompass a nearby community or a "hub"
5 city, they wanted to be included in the newly created
6 U S WEST regional calling areas. Prior to the creation
7 of this docket, the Commission held hearings and granted
8 five requests for customers served by independents for
9 inclusion in the eastern Idaho region.
10
11 /
12
13 /
14
15 /
16
17
18
19
20
21
22
23
24
25
30
Souba, John F. - DI 2A
Wilder, Idaho 83676 U S WEST
1 Presently the Commission is processing several more
2 petitions from independent company customers for regional
3 calling. In addition, there are pending petitions from
4 U S WEST customers in some of the exchanges which were
5 not previously included in one the EAS regions.
6 Q EXPLAIN HOW THIS DOCKET RELATES TO THE EAS
7 HISTORY YOU HAVE JUST DESCRIBED.
8 A In those cases in which independent company
9 customers had requested inclusion in the U S WEST
10 regions, e.g., Case Nos. GNR-T-96-5, GNR-T-97-3 and
11 GNR-T-97-8, U S WEST filed testimony asserting that it
12 did not object to the expansion of the EAS regions so
13 long as the Commission found it to be in the public
14 interest and U S WEST was compensated for providing the
15 expanded service. In March of this year U S WEST and the
16 Commission Staff entered a stipulation which provided,
17 among other things, that a hearing should be held to
18 determine the costs to U S WEST of providing EAS in the
19 cases listed above and to develop a methodology to
20 determine U S WEST's costs of EAS in those and future EAS
21 cases. By Order No. 27450 the Commission adopted the
22 U S WEST/Staff stipulation and stated that it would
23 resolve all issues of cost compensation for U S WEST in
24 this new docket, USW-T-98-3.
25 Q HOW DOES THE STIPULATION AND SETTLEMENT
31
Souba, John F. - DI 3
Wilder, Idaho 83676 U S WEST
1 FILED IN THIS DOCKET RELATE TO THE "ISSUES OF COST
2 COMPENSATION" THAT THE COMMISSION STATED IT WOULD ADDRESS
3 IN THIS DOCKET?
4 A The Stipulation and Settlement is crafted
5 to resolve all of the cost issues relating to the
6 provision of EAS which were unresolved for U S WEST. The
7 Stipulation and Settlement has
8
9 /
10
11 /
12
13 /
14
15
16
17
18
19
20
21
22
23
24
25
32
Souba, John F. - DI 3A
Wilder, Idaho 83676 U S WEST
1 absolutely no impact on the Commission's authority and
2 responsibility to determine rate impacts occasioned by
3 the granting of EAS involving independent company
4 operations, however.
5 Q WHEN YOU DISCUSS "COSTS" IN THIS CONTEXT,
6 DO YOU REFER TO THE FORWARD-LOOKING INCREMENTAL COSTS
7 THAT ARE BEING USED IN NEGOTIATING INTERCONNECTION
8 AGREEMENTS UNDER THE FEDERAL TELECOMMUNICATIONS ACT OF
9 1996?
10 A No. The issue here is U S WEST's recovery
11 of EAS costs from its EAS customers. Since EAS is local
12 service, this area is under the Commission's Title 61
13 regulation. Accordingly, U S WEST and the Staff looked
14 at the Company's embedded costs and the cost shifts that
15 occur between the interstate and intrastate jurisdictions
16 and between Title 61 and Title 62 when routes are
17 converted from toll to local. It is these costs that are
18 used in developing the methodology for use in determining
19 the impact of EAS expansion on U S WEST's Title 61 rates.
20 Q WOULD ADOPTION OF THE STIPULATION AND
21 SETTLEMENT BY THE COMMISSION AFFECT THE COST ALLOCATION
22 DECISIONS REACHED IN THE U S WEST RATE CASE?
23 A No. The parties have specifically
24 stipulated that the allocations of costs, such as the
25 local loop allocation, are not affected this change. The
33
Souba, John F. - DI 4
Wilder, Idaho 83676 U S WEST
1 approach to allocation of costs in the Stipulation and
2 Settlement is consistent with orders entered by the
3 Commission in the rate case.
4 Q HOW DOES THE STIPULATION AND SETTLEMENT
5 PROPOSE TO RESOLVE THE COST ISSUES?
6
7 /
8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25
34
Souba, John F. - DI 4A
Wilder, Idaho 83676 U S WEST
1 A As a result of months of negotiations
2 between U S WEST and Staff, we were finally able to agree
3 upon a methodology that captures U S WEST's costs of
4 providing EAS between U S WEST exchanges and between a
5 U S WEST region and an independent company exchange. The
6 methodology, which is spelled out in paragraphs 1 and 2
7 of the stipulation, creates a separate per-minute cost
8 for each type of EAS expansion.
9 Q WOULD YOU EXPLAIN HOW THE PER-MINUTE COST
10 METHODOLOGY IS USED TO DETERMINE THE COST OF PROVIDING AN
11 EAS ROUTE?
12 A I would be happy to. The first step would
13 be to identify the number of toll minutes that are being
14 carried by U S WEST on the proposed EAS route or routes.
15 For example, in the case of a U S WEST exchange seeking
16 inclusion into the Boise region, U S WEST and Staff
17 would consult the confidential toll study for the period
18 August - November, 1997, that was provided to Staff on
19 February 2, 1998, to determine the number of toll minutes
20 (i.e., "minutes of use" or MOUs) being carried by
21 U S WEST between the petitioning exchange and each of the
22 U S WEST exchanges in the Boise region. This number is
23 then increased by 38% to reflect the calling that is
24 taking place between the exchanges but is being carried
25 by other toll providers on a "dial around" basis. Then
35
Souba, John F. - DI 5
Wilder, Idaho 83676 U S WEST
1 the total MOUs are multiplied by the cents-per-minute
2 number that is reflected in paragraph 1 of the
3 Stipulation and Settlement. Thus, the very contentious
4 issue of U S WEST's costs is resolved through this simple
5 methodology.
6 Q HOW WAS THE 38% DIAL AROUND FACTOR
7 DEVELOPED AND HOW WILL IT BE USED?
8
9 /
10
11 /
12
13 /
14
15
16
17
18
19
20
21
22
23
24
25
36
Souba, John F. - DI 5A
Wilder, Idaho 83676 U S WEST
1 A The 38% factor is taken from U S WEST
2 billing records which are used to record the actual
3 amount of dial around taking place on each route. These
4 records are kept for purposes of billing access charges
5 to toll carriers which are carrying dial around traffic.
6 For purposes of the Stipulation and Settlement, U S WEST
7 and the Staff took the dial around amounts on each of the
8 routes which have recently been converted or are expected
9 to be converted to EAS and averaged them to get the 38%
10 factor. We chose to develop a single dial around factor
11 for ease in calculating the costs on individual EAS
12 routes. By agreeing on the 38% we can build this into
13 the cents-per-minute formula and apply it to every route
14 instead of attempting to obtain the data for each route
15 as it is converted and performing a unique calculation.
16 Q WHY IS IT APPROPRIATE TO INCREASE THE MOU
17 BY A DIAL AROUND FACTOR WHEN DETERMINING U S WEST'S COSTS
18 FOR PROVIDING EAS?
19 A The costs that we are talking about here
20 are the costs associated with providing, operating and
21 maintaining the network facilities which make the call
22 possible whether it is billed as a toll or a local call.
23 Those same facilities are used by other toll carriers
24 when they carry calls which originate or terminate on the
25 U S WEST network. Thus, to accurately capture the amount
37
Souba, John F. - DI 6
Wilder, Idaho 83676 U S WEST
1 of use that the facilities are experiencing prior to
2 conversion to EAS, we must look at both the toll and the
3 dial around calling.
4 Q HOW WAS THE CENTS-PER-MINUTE AMOUNT
5 DEVELOPED?
6 A U S WEST and Staff used the information and
7 exhibits developed in the U S WEST rate case, USW-S-96-5,
8 as the basis for these numbers. In that case, the
9 Commission was called upon to identify the costs of
10 providing the EAS regions, because the case was based on
11 a test
12
13 /
14
15 /
16
17 /
18
19
20
21
22
23
24
25
38
Souba, John F. - DI 6A
Wilder, Idaho 83676 U S WEST
1 year, 1995, which occurred prior to the EAS regions being
2 created. Thus, U S WEST was required to present evidence
3 of the costs associated with this change from the test
4 period. The Commission, in turn, had to determine the
5 proper level of local service costs based on the fact
6 that the regional EAS had already been ordered to be
7 implemented. The development of EAS costs in the rate
8 case formed the basis of the cost recovery level in the
9 stipulated agreement with Staff and U S WEST presented
10 here. It is wholly consistent with the methodology used
11 in the U S WEST rate case.
12 Q HOW WERE THOSE COSTS CAPTURED AND PRESENTED
13 BY U S WEST IN THE RATE CASE?
14 A U S WEST presented its Title 61 costs based
15 on its Cost Accounting Allocation System (CAAS). The
16 Company provided two "runs" of the CAAS system, one with
17 the EAS regions and one without. The difference between
18 these two runs represented the shifts in the
19 interstate/intrastate separations process of associated
20 with shifting a certain number of toll minutes to local
21 and "stimulating" the local calling minutes to reflect
22 the changes in customer usage patterns that result when
23 the per-minute charge is removed for calling on certain
24 routes.
25 Q WHAT STIMULATION FACTOR WAS USED IN THE
39
Souba, John F. - DI 7
Wilder, Idaho 83676 U S WEST
1 CENTS-PER-MINUTE FACTORS PRESENTED IN THE STIPULATION AND
2 SETTLEMENT AND HOW WAS IT DETERMINED?
3 A The agreement assumes that the level of
4 calling will triple once an EAS route is converted from
5 toll to local. We call this a stimulation factor of
6 three times. Use of a three times factor reflects a
7 compromise with the Staff which was reached after
8 reviewing the actual
9
10 /
11
12 /
13
14 /
15
16
17
18
19
20
21
22
23
24
25
40
Souba, John F. - DI 7A
Wilder, Idaho 83676 U S WEST
1 call stimulation which followed creation of the current
2 EAS region. According to U S WEST's information, a
3 stimulation factor of three times is conservative.
4 Q HOW IS THE STIMULATION FACTOR USED IN THE
5 METHODOLOGY PRESENTED BY U S WEST AND STAFF IN THE
6 STIPULATION AND SETTLEMENT?
7 A The amount of stimulation agreed upon was
8 used in the development of the cents-per-minute numbers
9 reflected in paragraphs 1 and 2. In addition, it is used
10 by U S WEST in calculating the facilities that will be
11 needed to provide EAS should it be ordered on any given
12 route or group of routes.
13 Q DO THE PER-MINUTE FACTORS DEVELOPED IN THE
14 STIPULATION AND SETTLEMENT REFLECT ONLY THIS SHIFT IN THE
15 INTERSTATE/INTRASTATE SEPARATIONS PROCESS AND ITS IMPACT
16 ON EMBEDDED COSTS?
17 A No. Those are only a portion of the costs
18 which are shifted when a toll route is converted to
19 local. In addition there are shifts between Title 62 and
20 Title 61 which needed to be captured to fully compensate
21 U S WEST for the provision of expanded EAS. The
22 cent-per-minute factors that Staff and U S WEST offer
23 here reflect both of these shifts.
24 Q IS THE LEVEL OF COMPENSATION THAT U S WEST
25 WILL RECEIVE UNDER THE STIPULATION AND SETTLEMENT FOR
41
Souba, John F. - DI 8
Wilder, Idaho 83676 U S WEST
1 U S WEST TO U S WEST EAS EXPANSION REASONABLE, IN YOUR
2 OPINION?
3 A The level of compensation U S WEST will
4 receive is the product of very hard-fought negotiations
5 with Staff and represents a lot of "give and take" on
6 both sides. While U S WEST is willing to accept this
7 stipulated amount so that it can move forward, the
8 Company would have
9
10 /
11
12 /
13
14 /
15
16
17
18
19
20
21
22
23
24
25
42
Souba, John F. - DI 8A
Wilder, Idaho 83676 U S WEST
1 put on evidence of substantially higher cost levels had
2 we gone ahead to hearing. From the standpoint of the
3 U S WEST customers, however, the result is very
4 reasonable. With the toll to local conversion associated
5 with EAS, we can no longer look to the interstate and
6 Title 62 jurisdictions to cover costs of the stimulated
7 local calling. As a result, responsibility for
8 substantial amounts of costs shift from toll customers to
9 local customers. However, at the level of compensation
10 agreed here, U S WEST local customers will experience
11 only modest rate increases to cover the costs of bringing
12 many more communities into the southern Idaho EAS
13 regions. In addition, as I discuss in more detail below,
14 because of the rate design that U S WEST has agreed to,
15 the greater responsibility for paying the increased rates
16 falls to those U S WEST business and residence customers
17 who benefit most, i.e., the customers in U S WEST
18 exchanges which will be brought into to the EAS regions
19 for the first time.
20 Q WHAT IS THE RATE INCREASE THAT U S WEST
21 CUSTOMERS WILL EXPERIENCE AS A RESULT OF THIS STIPULATION
22 AND SETTLEMENT?
23 A That will all depend on how many EAS
24 petitions are granted by the Commission. For the EAS
25 routes that the Commission has already ordered in Case
43
Souba, John F. - DI 9
Wilder, Idaho 83676 U S WEST
1 Nos. GNR-T-96-6; GNR-T-97-3; GNR-T-97-8; GNR-T-96-5; and
2 GNR-T-97-7, U S WEST customers within the EAS regions
3 will experience an increase of less than 10 cents per
4 month. Of course, as the Commission approves more EAS
5 routes, the amount of the required rate change will
6 increase.
7 Q DID THE EAS COST CALCULATIONS DONE FOR THE
8 U S WEST RATE CASE REFLECT THE COSTS OF PROVIDING EAS
9 BETWEEN A U S WEST EXCHANGE AND AN EXCHANGE SERVED BY AN
10 INDEPENDENT COMPANY?
11
12 /
13
14 /
15
16 /
17
18
19
20
21
22
23
24
25
44
Souba, John F. - DI 9A
Wilder, Idaho 83676 U S WEST
1 A No they did not since U S WEST had not been
2 ordered to provide EAS under those circumstances at that
3 time.
4 Q HOW DID STAFF AND U S WEST IDENTIFY THOSE
5 COSTS FOR THIS PROCEEDING?
6 A The starting place was the work done to
7 reflect the U S WEST to U S WEST costs in the rate case.
8 In looking at the effect of adding independent exchanges
9 to the EAS regions, Staff agreed with U S WEST that many
10 of the costs incurred by U S WEST remain, even though the
11 call originates or terminates in an independent exchange.
12 This is because of the large geographic area contained
13 within the U S WEST EAS regions. The independent company
14 customer will be accessing a very large network of
15 U S WEST switches and cabling that will be used for
16 intercompany EAS calls. On a relative basis, whether the
17 call originates or terminates in an independent company
18 exchange, far more than half of the facilities provided
19 to complete the EAS call will be provided by U S WEST.
20 One additional factor that was taken into account
21 in agreeing to the Bell-independents-per minute rate was
22 that there are costs associated with providing the
23 ordered and proposed EAS routes which are not captured
24 simply by looking at the toll minutes (plus dial around)
25 on the routes which are converted. This is because of
45
Souba, John F. - DI 10
Wilder, Idaho 83676 U S WEST
1 the nature of the EAS regions which allow customers in
2 any exchange in the region to call any other exchange.
3 Thus, with the addition of multiple independent companies
4 to the EAS regions, customers in one independent company
5 will be able to call those in another on a local calling
6 basis. Although these calls do not involve any U S WEST
7 subscribers, because of the network arrangements that
8 will be put in place to
9
10 /
11
12 /
13
14 /
15
16
17
18
19
20
21
22
23
24
25
46
Souba, John F. - DI 10A
Wilder, Idaho 83676 U S WEST
1 accommodate the EAS conversions to bring independents
2 into the EAS regions, these calls will be routed over the
3 U S WEST network. These sorts of "indirect" costs, while
4 impossible to precisely identify, are reflected in the
5 level of compensation agreed between Staff and U S WEST
6 for EAS which involves calling between an independent
7 company exchange and a U S WEST region.
8 Q WHAT IS YOUR OPINION OF THE REASONABLENESS
9 OF THE LEVEL OF COMPENSATION PROVIDED FOR THE CONVERSION
10 OF U S WEST/INDEPENDENT COMPANY TOLL ROUTES PROVIDED
11 UNDER THE STIPULATION AND SETTLEMENT?
12 A Again, I think that it is fair from the
13 standpoint of U S WEST customers. The costs arrived at
14 fairly reflect the realistic use of U S WEST's facilities
15 which will now be used, almost exclusively, for the
16 provision of Title 61 local service. Given the relative
17 size of the networks needed to provide the EAS service on
18 the part of U S WEST, as opposed to the independent
19 companies, our customers are enjoying a good bargain.
20 The economies of scale of the U S WEST network mean that
21 our customers are paying rates which are substantially
22 lower than those paid by independent company customers
23 who enjoy the same size local calling area.
24 Q HAS A RATE DESIGN BEEN AGREED TO WHICH WILL
25 SPREAD U S WEST'S COSTS WHICH ARE IDENTIFIED BY THE
47
Souba, John F. - DI 11
Wilder, Idaho 83676 U S WEST
1 METHODOLOGY PROVIDED IN THE STIPULATION?
2 A Under the agreement, U S WEST has agreed
3 that the costs will be recovered through a uniform,
4 per-line increase to all Title 61 business and residence
5 customers within its EAS
6
7 /
8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25
48
Souba, John F. - DI 11A
Wilder, Idaho 83676 U S WEST
1 regions. We expect that the Commission will combine the
2 costs of several of the EAS cases in order to minimize
3 the number of rate changes that U S WEST customers will
4 experience.
5 To the extent that regional EAS is granted to
6 U S WEST customers who had not previously been included
7 in a EAS region, U S WEST will receive increased revenue
8 from these customers. This comes about as a result of a
9 rate group increase which moves these customers to the
10 same rate as all other U S WEST customers included in the
11 EAS regions. This increase is $5.50/month for
12 subscribers of flat-rated service.
13 U S WEST has agreed to offset the revenue
14 generated by the rate group increase against the revenue
15 required to cover EAS costs calculated under the
16 methodology provided in the Stipulation and Settlement.
17 Using the planning assumptions that U S WEST and Staff
18 utilized about the EAS routes that the Commission was
19 likely to grant over the next several months, the rate
20 group increase will offset over 40% of the costs of EAS
21 provision. This serves to substantially reduce the
22 burden for customers already in the EAS regions of
23 expanding the EAS regions.
24 Q DOES THE METHODOLOGY PROVIDED IN THE
25 STIPULATION COVER THE COSTS OF NEW FACILITIES THAT THE
49
Souba, John F. - DI 12
Wilder, Idaho 83676 U S WEST
1 COMPANY MAY BE REQUIRED TO INSTALL IN ORDER TO IMPLEMENT
2 EAS AND ACCOMMODATE THE INCREASE IN CALL VOLUMES THAT YOU
3 ANTICIPATE?
4 A No. The methodology is intended only to
5 cover the ongoing costs of EAS.
6 Q HOW WILL U S WEST RECOVER THE COSTS OF ANY
7 OF THESE NEW FACILITIES?
8
9 /
10
11 /
12
13 /
14
15
16
17
18
19
20
21
22
23
24
25
50
Souba, John F. - DI 12A
Wilder, Idaho 83676 U S WEST
1 A In the U S WEST rate case, the Commission
2 noted that there remained approximately $3.8 million in
3 Revenue Sharing funds that had not been expended. The
4 Commission also observed that it had received many
5 additional requests from customers in outlying exchanges
6 for inclusion in the EAS regions. As a result, the
7 Commission stated that it intended to retain the Revenue
8 Sharing funds for a time "in the event that they may be
9 needed to defray the cost of U S WEST implementing future
10 EAS petitions." Order No. 27100. U S WEST and Staff
11 have discussed a procedure under which the Company will
12 install the needed facilities and provide evidence to the
13 Staff of the associated costs following EAS
14 implementation. Once these costs have been reviewed by
15 the Staff, U S WEST will ask that the Commission release
16 retained Revenue Sharing funds in an amount sufficient to
17 offset the costs of implementing the new EAS routes. To
18 the extent that Revenue Sharing funds are provided by the
19 Commission under this approach, U S WEST will book a
20 fully offsetting entry in the depreciation reserve
21 account to prevent inclusion of any of these assets in
22 net rate base for ratemaking purposes.
23 Q WHAT IS YOUR OPINION OF THE IMPACT OF
24 ADOPTION OF THE PROPOSED STIPULATION AND SETTLEMENT ON
25 THE PUBLIC INTEREST?
51
Souba, John F. - DI 13
Wilder, Idaho 83676 U S WEST
1 A I am personally convinced that this
2 agreement serves the public interest. I have already
3 stated that I believe that the per-minute cost factors
4 stipulated in the agreement provide U S WEST with
5 adequate compensation. From the customers' point of
6 review, the Stipulation and Settlement assure that they
7 will be paying very reasonable rate increases to cover
8 the substantial costs of expanding EAS. The calculation
9 of costs provided in the Stipulation and Settlement is
10 based on, and consistent with, the methods and results
11 ordered by the Commission
12
13 /
14
15 /
16
17 /
18
19
20
21
22
23
24
25
52
Souba, John F. - DI 13A
Wilder, Idaho 83676 U S WEST
1 in the U S WEST rate case. As a result, customers can be
2 assured that their interests are well protected.
3 In addition, as the Commission well knows, there
4 is tremendous interest in EAS among some customer groups.
5 The problem with EAS is that often customers do not
6 understand that it adds costs. And even when customers
7 do understand they can't have "something for nothing," in
8 the past neither the Commission nor the companies
9 involved can tell customers exactly what it will cost.
10 This Stipulation and Settlement, if adopted, will enable
11 the Staff and the Company to easily calculate the impact
12 of any given EAS route on U S WEST customers. This
13 ability will allow the Staff and the Company to advise
14 the Commission of the potential rate impacts and allow
15 the Commission to provide this relevant information to
16 customers.
17 This stipulation will also enable the Commission
18 and any other affected companies to expeditiously respond
19 to EAS petitions from customers. Since U S WEST elected
20 to remove its Title 62 services from rate-of-return
21 regulation, the issue of how U S WEST will be compensated
22 when EAS is provided has been a contentious one. This
23 Stipulation and Settlement will put that controversy
24 behind us and allow the Commission to address EAS
25 expansion on the merits of the individual customer
53
Souba, John F. - DI 14
Wilder, Idaho 83676 U S WEST
1 petitions. In my opinion, that is a very big benefit to
2 the public and to the independent companies whose
3 exchange may wish to joint an EAS region.
4 Q DOES THIS CONCLUDE YOUR TESTIMONY?
5 A Yes it does.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
54
Souba, John F. - DI 14A
Wilder, Idaho 83676 U S WEST
1 (The following proceedings were had in
2 open hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MS. HOBSON: (Continued)
7 Q Mr. Souba, you did not have any exhibits in
8 connection with your testimony; is that correct?
9 A I do not.
10 Q You were present just a few minutes ago
11 when Mr. Cusick was testifying; is that correct?
12 A Yes, I was.
13 Q In your opinion, does the stipulation that
14 is being proposed here to this Commission cover the
15 Citizens Telecom EAS routes that are being proposed in
16 Citizens' rebalancing case?
17 A Yes, it certainly does. The issue is one
18 that can be resolved between the Company and the Staff.
19 What we have is a situation where the originating
20 U S WEST traffic for calls into Citizens' territory is
21 easy to identify, but because Citizens is offering
22 optional EAS, we're not exactly sure how many originating
23 minutes will come from Citizens to U S WEST exchanges,
24 but once those minutes are in fact identified, the
25 stipulation remains valid in terms of its methodologies.
55
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST
1 Q Does the issue of agreeing to the number of
2 minutes that will be converted on a Citizens route need
3 to be resolved in this docket?
4 A No, it does not. So long as the stipulated
5 terms of the agreement with the Company and Staff remain
6 valid, then it's merely a matter of the Company and the
7 Staff working through the calculation of those
8 originating Citizens minutes in each one of those EAS
9 cases so that they can then be applied against the
10 stipulated terms.
11 MS. HOBSON: Thank you, Mr. Souba. That's
12 all I have.
13 COMMISSIONER HANSEN: Let's see if we have
14 any questions.
15 Ms. Copsey?
16 MS. COPSEY: I have no questions.
17 COMMISSIONER HANSEN: Mr. Creamer?
18 MR. CREAMER: None.
19 COMMISSIONER HANSEN: Commissioner Nelson?
20 COMMISSIONER NELSON: I don't have any.
21 Thank you.
22 COMMISSIONER HANSEN: Commissioner Smith?
23 COMMISSIONER SMITH: Just a couple.
24
25
56
CSB REPORTING SOUBA (Di)
Wilder, Idaho 83676 U S WEST
1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q Mr. Souba, on page 7 of your testimony, you
5 talk about the stimulation factor that was used and the
6 fact that the agreement assumes a three times factor for
7 stimulation; is that correct?
8 A That is correct.
9 Q As I recall, the three times is what the
10 Commission has used in several of the independent company
11 cases where they were seeking EAS into a U S WEST region;
12 is that correct?
13 A I believe that is true.
14 Q I guess my intuition or maybe even
15 experience shows that when you have a case of a smaller
16 exchange seeking toll free calling into a larger,
17 sometimes much larger, area that the call volumes in the
18 smaller exchange you would expect to increase
19 dramatically because they really need to call the large
20 exchange and that's what we look at when we're giving
21 EAS, do you really think you see the same going back from
22 the large exchange to the small? I mean, intuitively, it
23 seems to me that the larger exchange is needed by the
24 smaller one because there's where the medical services,
25 that's where the government, that's where all the factors
57
CSB REPORTING SOUBA (Com)
Wilder, Idaho 83676 U S WEST
1 we look at in community of interest exist, that's why
2 they get EAS so they can make those calls, but it doesn't
3 seem to me that it goes the other way from the larger
4 exchange to the smaller.
5 A Well, first of all, over a number of years
6 of experience, what we have seen on a typical EAS case is
7 that there is a huge demand and a high community of
8 interest from the small exchange for calling into the
9 large exchange, but in terms of the actual traffic
10 carried between the two exchanges, it is typically fairly
11 close and as a result, when there is a three times
12 stimulation from the small exchange to the large
13 exchange, it's not unreasonable to expect that same
14 amount of traffic is going to be stimulated back into the
15 small exchange, and what we have found in actually doing
16 studies after the granting of the statewide EAS case
17 which established our three regions was in fact that the
18 three times stimulation was a conservative number in
19 certain exchanges, but as an overall average was just
20 slightly conservative.
21 Q So while perhaps from the large exchange
22 it's a much smaller percentage of calls, the actual
23 volume of calls itself is similar?
24 A Exactly.
25 Q My other question is about the capital
58
CSB REPORTING SOUBA (Com)
Wilder, Idaho 83676 U S WEST
1 costs that will be incurred by the Company in
2 implementing any EAS's the Commission might approve and
3 it's my recollection that we have saved some of the money
4 that was available from the last revenue sharing year to
5 cover those costs in the event that any EAS's were
6 approved.
7 A That is correct.
8 Q In your estimation, and I don't at this
9 moment in time recall even approximately how much money
10 there is there, do you have any sense of whether the --
11 if the Commission were to approve all the pending cases
12 how much of that money would we use?
13 A Well, subject to check, it's my
14 understanding that there would be somewhere in the area
15 of $4 million available of revenue sharing funds. Quite
16 frankly, the issue of estimating EAS costs is an
17 incredibly labor intensive one for U S WEST given the
18 size of our regions and the fact that those costs have to
19 be allocated among, in some cases, 25 different switches
20 when EAS is granted and so we have an engineering team
21 that is working on that. If I were to give you my
22 impression about what those costs would come out, my
23 impression at this time would be that those costs would
24 not eat up more than, say, one-half of those available
25 revenue sharing funds.
59
CSB REPORTING SOUBA (Com)
Wilder, Idaho 83676 U S WEST
1 Q Well, I was thinking probably not even a
2 half.
3 A It may not be. In the case of the Silver
4 Star and Teton cases, we identified no additional capital
5 dollars.
6 Q So then, of course, my question becomes
7 have you had any thoughts about what do you do with the
8 remainder? Does that fit in any way in Mr. Cusick's
9 phased-in approach for the revenue requirement or do you
10 see that entirely separate or have you even thought about
11 that?
12 A Well, I haven't given that a great deal of
13 thought; however, the Company is open to discussions with
14 the Staff in terms of utilizing revenue sharing left-over
15 funds to ameliorate certain rate increases perhaps at the
16 end of our EAS implementation. The biggest impact in
17 terms of U S WEST customers is going to come when we
18 implement the left-over Bell-to-Bell routes, meaning the
19 Mountain Home, Glenns Ferry, Payette, Weiser routes into
20 the Boise region, but without having a better handle on
21 exactly how many funds are going to be left over and,
22 frankly, we don't even know what those EAS implementation
23 costs are until several months following the
24 implementations, because we can estimate those costs, but
25 until we actually have all of the jobs that are closed
60
CSB REPORTING SOUBA (Com)
Wilder, Idaho 83676 U S WEST
1 and all of the costs associated with those posted, we
2 don't really know what those numbers are.
3 COMMISSIONER SMITH: Thank you. That's all
4 my questions.
5 COMMISSIONER HANSEN: Ms. Hobson, do you
6 have any redirect?
7 MS. HOBSON: No redirect.
8 COMMISSIONER HANSEN: Okay, thank you.
9 THE WITNESS: Thank you.
10 (The witness left the stand.)
11 COMMISSIONER HANSEN: Does that complete
12 your case?
13 MS. HOBSON: It does, Mr. Chairman. Thank
14 you.
15 COMMISSIONER HANSEN: Okay. Does any party
16 have any other business that needs to be brought before
17 the Commission, then, in this particular case?
18 MS. COPSEY: No, Your Honor.
19 COMMISSIONER HANSEN: Mr. Creamer?
20 MR. CREAMER: Mr. Chairman, on behalf the
21 ITA, I just wanted to say that Ms. Copsey's
22 representation is correct, that the ITA has no objection
23 to this stipulation and we're anxious to see these issues
24 resolved so that the other members of the ITA can proceed
25 with the cases that they have.
61
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 COMMISSIONER HANSEN: Thank you. Well,
2 this completes this hearing. The Commission will take
3 this under consideration and our decision will be
4 forthcoming, hopefully very soon, and with that, this
5 completes the hearing and our hearing will be adjourned.
6 MS. COPSEY: Thank you.
7 MS. HOBSON: Thank you.
8 (The Hearing adjourned at 10:35 a.m.)
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
62
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 investigation into
6 the methodology for determining U S WEST Communications,
7 Inc.'s cost of extended area service (EAS), commencing at
8 10:00 a.m., on Wednesday, July 15, 1998, at the
9 Commission Hearing Room, 472 West Washington, Boise,
10 Idaho, is a true and correct transcript of said
11 proceedings and the original thereof for the file of the
12 Commission.
13 Accuracy of all prefiled testimony as
14 originally submitted to the Reporter and incorporated
15 herein at the direction of the Commission is the sole
16 responsibility of the submitting parties.
17
18
19
20
CONSTANCE S. BUCY
21 Certified Shorthand Reporter #187
22
23
24
25
63
CSB REPORTING AUTHENTICATION
Wilder, Idaho 83676