20180330Columbine Telephone Company Response.pdf

Office of the SecretarvRECEIVED
MAR 3 0 20t8
IN THE MATTER OF THE INVESTIGATION INTO
THE IMPACT OF FEDERAL TAX CODE REVISIONS
ON UTILITY COSTS AND RATEMAKTNG
CASE NO. GNR-U-18.01 Boise. ldaho
INITIAL RESPONSE OF COLUMBINE
TELEPHONE COMPANY, INC.
Columbine Telephone Company, lnc. respectfully files its initial response to the
Commission's Notice of lnvestigation in the above matter, issued on January L7,2OL8 under
Order No. 33964, to investigate the impact of the new federal tax legislation on utility costs and
ratemaking.
The Tax Cuts and Jobs Act of 2Ot7 ("TCJA") was signed into law on or about December
corporate federal income tax rates from a maximum of 35% to 2L%. One of the results of this
rate reduction is a reduction in the deferred income tax expense recognized by the company,
with the difference to be recorded as a deferred regulatory liability. The Commission has
requested an accountingof thetax rate reduction and deferred income expense reduction in
order to determine if customer rates should be adjusted or subject to refund
Columbine has initiated its analysis of the rate reduction impact and preliminarily
provides the Commission with an illustration of the operational impact, attached as
Confidential Exhibit A (Columbine's Request for Confidentiality is filed herewith). Based on this
preliminary analysis, there is no financial benefit to Columbine as a result of the TCJA rate
reduction. Columbine, therefore, submits no change in rates or impact to state universal
service funding at this time is warranted. The Company cautions the Commission that the
illustration provided is only an estimate based on currently available numbers and which are
subject to change upon which are very likely to change as 2017 numbers are finalized
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22,2017; its effective date is January L,2OL8. A key component of the TCJA is the reduction of
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Columbine respectfully submits that a determination on customer rate changes or
reduction in state USF fund receipts at this time is premature absent a comprehensive review of
the impacts, given the complicated nature of the TCJA and for the reasons: (1) Columbine's
2017 audit process is not complete, the 2017 cost study process is just barely underway with
completion anticipated in July, and (3) its 2017 tax filing will occur at the earliest in July, but
could be as late as September. The completion of these actions are necessary in order to more
accurately determine the full impact of the TCJA on Company operations and its revenue
requirement. Columbine respectfully requests an extension to no earlier than October 3L, 20L8
in which to fully investigate and conduct the appropriate analysis with actual vs. estimated
figures. Further, Columbine submits that any rate change or support reduction is premature,
since the TCJA provisions are effective as of January L,2078, and have no bearing on2O!7
results. Columbine understands that the impact of the TCJA on its revenue requirement and
USF disbursement should be considered, so long as all of the relevant potential impacts are also
considered
The following is an example of just one element of the impact analysis Columbine will
undertake. While Columbine estimates the tax expense reduction to be approximately 567,000
(using year end 2017 estimated income), any actual benefit is dubious, at best. As a regulated
ruraltelecommunications provider, Columbine participates in the NECA pool and submits an
annual cost study to NECA for use in rate development and Universal Service Support
Filings. As a taxable entity, Columbine includes the calculated cost of income tax for the return
earned on regulated investment as part of the annualcost study and Federal CAF BLS support
filings. This income tax amount is calculated at the effective tax rate for C-
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corporations. Columbine also includes booked income tax expense in the support calculations
for Federal High Cost Loop Support (HCLS)
Because the effective tax rate for Columbine decreases from 34% to 27%, this
represents a38% reduction in thetax rate and will result in an annual reduction of interstate
revenues and CAF BLS support. ln addition, Columbine currently has a federal deferred tax
liability representing the difference between book and tax depreciation for plant assets as of
t2l3Ll76. As a result of the reduction in the tax rate, an adjustment will be made to reduce the
liability for deferred taxes which will result in a small offsetting increase in the annual interstate
revenues and CAF BLS support. The net impact to projected annual interstate revenues and
CAF BLS support for both of these changes is an annual reduction of 572,000 in 2018 and
569,000 in 2019.
The liability adjustment will also result in a 1-time credit entry on the income statement
as ol 2077 and will be included as a reduction in future tax expense in the annual Federal HCLS
filing, which will be used to set Columbine's 2019 HCLS support payments. This L-time credit
entry will reduce Columbine's 2OL9 annual HCLS support by 560,000. Therefore, as a result of
the reduction to the corporate tax rate, a corresponding reduction of interstate revenues and
Federal Universal Service Support is estimated at 572,000 for 2018 and S129,000 for 2019. The
resulting intrastate separations impact is an increase in Columbine's revenue requirement, and
pendingthe outcome of the Commission's state USF investigation, a potential increase in
customer rates.
Other elements of the TCJA provisions will also affect Columbine's analysis, such as
depreciation expense changes, deductible expense modifications and method changes,
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allowable third quarter 2Ot7 adjustments, to name a few. The challenge for the Company, and
for the Commission, is to consider all of these elements while factoring in the Company's
underlying obligation to the consumer, all the while remaining cognizant that the full impact is
an unknown value. As the Commission is aware and so stated in its Notice, using 2017 results
may be inappropriate and Columbine agrees that determining rates or USF support levels based
on those results is premature. Nevertheless, it has provided the requested information as a
baseline estimate
As a regulated telecommunications provider and a designated carrier of last resort, any
change in state USF receipts should be determined based on a consideration of all relevant data
and issues, and not solely on the TCJA tax rate change. Columbine further urges the
Commission to consider that any impacts to customer rates be determined on a full set of facts,
rather than a single factor. A base rate adjustment (i.e., request for proposed tariff pages)
under the Commission's Notice implies a complete ratemaking process, including a hearing per
ldaho statute (61-503), but which would necessarily vet the underlying elements, such as
revenue requirement and rate of return, and all relevant income expenses. This undertaking
would necessarily include an exchange-by-exchange analysis, since not all exchanges are
treated equally - some are more rural and a higher cost to serve - so to provide for an
equitable allocation, if any. While Columbine hesitates to suggest the scenario of conducting a
rate case, considering the time and expense involved in such an effort, given the high likelihood
that it is currently under earning against its revenue requirement set some 20+ years ago; this,
then, begs the question whether or not the unintended consequence of this investigation is
that a rate increase would indeed be indicated. Columbine has not provided proposed tariff
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schedules herewith because it is unable at this time, with the information available to it, to
determine the full impacts of the TCJA and in good faith present proposed rates that are
developed with a full set of facts
ln conclusion, Columbine respectfully represents that the information it provides to the
Commission with this filing is the best illustration of estimated TCJA impacts, based on currently
available data. Columbine remains ready to cooperate with the Commission in this proceeding
and respectfully requests the Commission grant its request for authorization to file
supplemental information at a later date in order to fully consider data relevant to this issue,
and in any event no earlier than October 31, 2078. This additionaltime will allow the Company,
the Commission and Commission staffto methodically and thoughtfully consider a best-case
solution for stakeholders: ensuring for customers quality, dependable service at just,
reasonable rates and ensuring for the Company a fair and reasonable return.
DATED this
n^*h I day of March, 2oL8.
-COLUMBINE TELEPHONE COMPANY, INC.
L^l
Legal & Regulatory Administrator
email: [e-mail]
phone: [phone]
Page 5 of 5
Michelle Motzkus
EXHIBIT A2017 Earnings Analysis for Tax Reform lmpacts
Columbine Telephone Company, lnc.
IPUC Case No. GNR-U-l8-01
CONFIDENTIAL
REDACTED
(Rule 67,
FOR
IPUC
PUBLIC INSPECTI)N PAgE 1 Of 3
RuLes of Procedure)
EXHIBIT A
2017 Earnings Analysis for Tax Reform lmpacts
Columbine Telephone Company, lnc.
]PUC Case No. GNR-U-18-01
CONFIDENTIAL
REDACTED
(Rul-e 57,
FOR
IPUC
PUBLIC INSPECTIoN PAgE2Of3
Ru-Zes of Procedure)
EXHIBIT A
2017 Earnings Analysis for Tax Reform lmpacts
Columbine Telephone Company, lnc.
IPUC Case No. GNR-U-18-01
CONFIDENTIAL
REDACTED
(Ruf e 57,
FOR
IPUC
PTJBLIC INSPECTI)N PAgE 3 Of 3
RuLes of Procedure)