20180330Cambridge Telephone Response.pdf

RtrfEIVEO
CambnidgeTelephone
IfilS HAR.30 AH t0: 09March 30,2018
Diane Hanian, Commission Secretary
ldaho Public Utilities Commission
472W. Washington
P.O. Box 83720
Boise, \D83720-0074
Re:Case No. GNR-U-18-01
Notice of lnvestigation - Order No. 33964
Dear Ms. Hanian:
On January 17,2A18, the ldaho Public Utilities Commission (the "Commission") issued a
Notice of lnvestigation - Order No. 33964 ("Notice") to investigate the impact of the new federal
tax legislation ("2017 Tax Act") on utility costs and ratemaking. Pursuant to the Notice, each rate-
regulated utility must (a) immediately account for the financial benefits from the January 1,2018
tax rate reduction lo 21% as a deferred regulatory liability; and (b) by Friday, March 30, 2018, file
a report with the Commission identifying and quantifying all tax changes individually. The report
must disclose the federal income tax components for the year 2017, and the federal income tax
components if the utility had been subject to the 20'17 TaxAct's revisions to the tax code, including
the 21o/o tax rate. ln addition, each utility's report must include proposed tariff schedules that show
the revenue requirement impacts from the 2017 Tax Act.
The altached worksheets are the response of Cambridge Telephone Company
(hereinafter "Company"). Based upon conversations with Commission staff, Company
understands the Commission intends to either adjust rates or adjust Universal Service Fund
("USF') distribution amounts based on the single issue of the change in tax rates, Company
understands that the impact of the 2017 Tax Act on Company's revenue requirement and USF
disbursement should be considered in the determination of the Company's rates and USF
disbursements, but Company believes that the Commission should consider all of the relevant
j:j/1,i_irj i_ij#t i
I I i li l'ili: ;r r.)ilf,il,{l ni.rSS
P.O.Box BB . Cambnidge,lD 8361O . I2OBJ 257-3314
potential impacts to Company's revenue requirement at the same time. Thus, while the Company
is providing the calculations required by the notice, the Company requests that the Commission
take no action at this time with regard to changing rates or adjusting USF distributions until all of
the Company's financial information is complete and the full impact of the changes in the tax rate
can be analyzed, and the Company can fully state its case as to whether rates or USF distribution
amounts should be adjusted.
As the Commission is aware, public utilities ratemaking requires that all income and
expenses be evaluated to determine a company's revenue requirement. Typically, only after the
revenue requirement has been determined will rates be adjusted. Changes in expenses, such as
a reduction (or increase) in the federal income taxes, would need to be evaluated against a
company's revenue requirement and associated authorized rate of return. Company's revenue
requirement was established decades ago. Company has asked the Commission for a copy of
the Company's revenue requirement calculation prior to submitting this required information, but
did not receive such information. Because Company has no record of the tax rate used in
connection with determining Company's revenue requirement, Company cannot determine if a
reduction in the corporate tax rate from 35olo to 21o/o has any financial benefit as a deferred
regulatory liability. Moreover, without knowing Company's authorized rate of return as set in
Company's last rate case, it is not possible for Company to evaluate whether or not Company is
over-earning or under-earning with the change in the federal tax rate. Unti! all of the information
can be evaluated, Company is opposed to the Commission adjusting rates or USF distributions
based solely upon the change in the federal tax rate.
Another factor to consider is that while rate of return incumbent local exchange caniers,
such as Company, are regulated public utilities like electricity, gas, and water, the regulated
telecommunications industry in ldaho is different from other public utilities.
P.O.Box 88. Cambnidge,lD 8361O. tzoAl P.57-3,314
ldaho does not set local rates based on Company's costs, it sets the rates for qualifying
high-cost local exchange telephone companies at 125o/o of the statewide weighted average rate.
That rate is currently $27.28 for residentia! service and$47.22 for business service. This local
rate is substantially greater than the benchmark local rate established in the Federal
Communications Commission's USF/ICC Transformation Orderdated November 18, 201'1, below
which Company would receive dollar for dollar reductions in federal High Gost Loop Support.
These rates for telecommunication service were not set based on actual costs, including a gross
up for federal income tax, and should not be reduced based solely on the reduction in the federal
tax rate. Also, with the current uncertainty of the future of the ldaho Universal Service Fund, it
would seem imprudent to make any changes to the distribution levels untilthe Commission has
finalized its findings in Case Number GNR-T-17-05 Review of ldaho Universal Service.
ln addition, Company does not believe that the Commission has authority to reduce
Company's USF funding based solely upon Order No. 33965. "No order altering a telephone
company's funding from the USF will be issued without notice that USF funding is at issue and
appropriate opportunity to be heard in person or in writing.' IDAPA 31.46.01.106.04(d). Order
No. 33965 made no mention of changes to any telephone company's USF funding. Company did
not know that a reduction in USF funding was at issue until a later conversation with Commission
statf. Based upon what the Company is required to provide to the Commission, Company has
not been given an appropriate opportunity to be heard. The Commission is apparently going to
make a change in USF funding based upon an estimated numerical calculation, using 2017 data
that is not fully subject to the federal tax reform, without taking into consideration all the other
issues that go into setting ratepayer rates and USF funding levels.
Company has not included proposed tariff schedules that show the revenue requirement
impacts from the 2017 TaxAct. As stated above, because Company does not know what tax rate
was used in determining Company's revenue requirement, Company cannot know the revenue
P.O. Box BB . Cambnidge,lD 8351O . teoAl 257.3e14
requirement impacts from the 2017 TaxAct, and thus cannot propose revised tariff schedules. ln
addition, the calculated impacts of the 2017 Tax Act in the attached schedule are only estimates
based on 2017 financial results, rather than the actual impacts that are more appropriately
measured against 2018 financial results. Any proposed reduction in rates may cause Company
to run afoul of minimum rates required to be charged in order to be eligible for state or federal
USF funding. Company will await the Commission's actions to determine if Company should file
changes to rates and USF funding to recognize the impacts of the 2017 Tax Act or if Company
desires to initiate a rate case to determine what, if any, changes are required to be made to the
rates charged by Company.
Company remains ready to cooperate with the Commission to provide updates to the
attached information as they become available.
--<
Richard A. Wiggins
President
Cambridge Telephone Company
P.O.Box 88 . Cambnidge,lD 8361O . IPOBI ?-57-3314
I
bridge Telephone Company
FCC Accountand
Description
Total ldaho
Operations
Subject To
Separation3
Projected lntrastate
Allocation
Factor
Projected
lntragtate
Total
Projected
Tax Reform
lntrastate Total
530,073
172,581
51.714
(4,714)
499,364
323,580
1 ,411 ,071
376,242
456,040
36,634
141,602
1 38,190
387
6,083
8,216
0.0000o/o
5.0000o/o
0.0000o/o
0.0000"/o
0.0000o/o
0.0000o/o
3.50470/a
100.0000"1
100.00000/"
100.00000t
'100.000001
0.00000/"
0.0000%
0.0000%
32.32480/.
100.000001
100.00000t
0.000001
61.76',t80/o
100.000002
100.0000o/o
0.0000o/o
51.714 51 ,714
530,073 530,073
(2,911 (2,e't1
1 3,186
456,040
36,634
141,602
1 38,1 90
'13,186
456,040
36,634
't41,602
138,190
't25
6,083
8,216
125
6,083
8,216
-ACAM support (net of estimated HCLS)
-CAF ICC
-High Cost Loop Support
100 Toll -Message
Revenues
'l
lntrastate Access
-Switched (TS+NTS)
-Special
- State USF
-Private Line
-Settlement
Misc. -Billing & Collection
-Directory Adverlising
-Operating Rents
-Other Misc.
Less: Uncollectible Rev. (-)
Local - Billed
EAS - Billed
Other - Billed
lnterstate Access
-SLC (End User)
-ARC
-Switched (TS+NTS)
-Special
-Settlements
218
322,264
47,0U
202,857
100,945
64.278'l
64.2781
129,872129,872
30,252
130,393
40,681
30,252
1 30,393
40,681
E91,725 487,56s 487,565
159,416
0.00000t
64.27410/.
0.000002
102,470'102,470
I 59,416 102,470102,470 4
444.O94
232,'t42
253,332
'1,347
64.2781%o
85.00000t
0.000001
42.7',t56Y0
0.00000t
71.5330%
0.000001
0.00000t
0.0000"1
0.000001
162,837
145
99,'161
317,674
162,837
1 ,145
99,'l6 t
.,17,;74
930,91 5 580,8175EO,E17 I
00-6400 Plant Specific Operations
1 10 Network Support Facilities12O General Support Facilities0 Central Office Switching
Operator Systems
Central Office Transmission
lnformation Orig./Term. Equip.
Cable & Wire Facilities
Total Plant Specific
Plant Nonspecific Operations
Provisioning
Network Operations
Access Paid to LECS
Total Plant Nonspecific
Depreciation & Amortization
General Support Facilities
Central Office Switching
Operator Syslems
Central Office Transmission
lnformation Orig./Term. Equip.
Cable & Wire Facilities
Capital Leases
Leasehold lmprovements
lntangibles
Acquisition Adjustment
Total Depreciation & Amortization
Page 1 of3
Projected for Tax Reform lmpacts
Telephone Company
FCC Accountand
Description
Totel ldeho
Operationg
SubJect To
Separation8
Projected lntrastate
Allocation
Factor
Projected
lntrastate
Total
Proj6cted
Tax Reform
lntrastate Total
Operations
10 Marketing
Operator Services
Directory Publishing-Alpha.
Directory Publishing-Classilied
Directory Publishing-Foreign
Category 1 - Local Bu3iness
Service Order Proc.-End User
-Service Order Proc.-Presubscriplion
Payment & Collection-End User
Billing lnquiry-End User
Service Order Proc.-CXR
Payment & Collection-CXR
Billing lnquiry-CXR
Coin Administration
Category 2 - Revenue
Rev. Acctg.-Local Mess. Proc.
Rev. Acctg.-Other Bill & Coll.
-lnterslate End User
-Message Toll - lnterstate
-Message Toll - lntrastate
-Message Toll - Local
-Message Toll - EAS
Rev. Acclg.-Canier Access Billing
Category 3 - All Other Customer
B & C Amts Paid to LECS
Other Cuslomer Service
Total Customer Operations
Corporate Operations:
Executive & Planning
Total Corporate Operations
Other Operating Expenses:
Contributions
Universal Service Fund
Lifeline Connection Assistance
Total Other
Property
Gross Receipts
PUC Fee
Franchise Fees
Other
Total General Taxes
Other Expenses:
lnterest Expense
Other
Total Other
't 0.405
8,730
30,059
10,020
30,059
30,059
3,417
3,144
17 ,814
20,s57
20,957
21,959
10,672
53.2707%
0.00007o
67.86200/o
0.0000%
0.0000%
79.09550/o
0.00007o
72.7778./,
72.77',took
0.0000o/o
0.0000%
0.0000o/o
0.0000%
72.9916%
0.0000%
0.0000%
100.0000o/o
100.0000%
100.0000%
50.0000%
0.00007o
0.0000o/o
5,543 5,543
5,924 5,924
23,775 23,775
21
21
,uru
,8-74
21,876
21,874
2,494 2,494
20,957
20,957
20,957
20,957
10,980 10,980
218,252 134,3E1 14|134,38 1
370,467
520,438
52.5541o/o
52.5541o/o
194,696
273,5't2
194,696
273.512
890,905 468,207 | |468,207
27,558 52.5541o/a
0-0000%
0.0000o/o
14,483 14,483
28,320 64.2781 18,204 18,204
0
30,609 18,204 Wl 18,204
71,931
496
63.8068%
63.8068%
45,897 45,897
316316
72,127 16,213 4 16,2',t3I
Total Operating Expenses 3,221,E07 1,E52,339 I 1,652,339
I
Net Operating lncome Before Taxes 925,256 (473,3E7)I 1473,367
Page 2 of 3
Projected Earnings
mbridge Telephone Company
FCC Accountand
Description
Total ldaho
Operations
Subject To
Separations
Projected lntrastate
Allocation
Factor
Projected
lntrastate
Tota I I Projected
Tax Reform
lntrastate Total
lncome Taxes (Calculated)
Net lncome Before SIT & FIT
Less Fixed Charges (-)
Subtotal (lines 7-8)
Other SIT Base Add/Ded. (+-)
SIT Taxable lnc. (lines 9+-10)
7230 S|T-Current (at 6.6%)
Other FIT Base Add/Ded. (+-)
FIT Tarable lnc. (lines 9-l2+-l3)
Gross FIT (at 35% AND 21%)
72'l0P Claimed ITC (-)
Surtax Elimination C)7220 FlTCurrent 1
tax
Deferred Regulatory Liability:
Estimated Change in Defened Tax Liability - Regulatory Liability
Estimated Amortization Period of Regulatory Liability
Annual amortizalion of deferred regulatory liakility
925,256
71 ,931
853,325
63.8068o/o
0.0000%
::fi,ifi1
(473,387)
45,897
(519,284)
853,325 (5r9,284)l (51 9,284)
56.3'! 9
0.0000%
(34,273)l (34,2731
797,006 (485,011)!(4E5,011
278.952
0.0000%
0 0000%
,,*,1"'l (1 01 ,852)
('t't8,251
$(23,650)
Note:
Allocation factors from the 2016 cost study unless otheMise noted
Page 3 of 3