20180330Direct Communiations Response.pdf

DIREGT a
.Lrano Puiiltc utrtities CommisSiOn
"'r+' r''i*[r, i1rf *o - - -"
MAR 3 0 20t8
Since 1954
COMMUNICATIONS
Big-city technology. Smalllown values.
P.O.Box269.150SMain,Rockland, ldaho8327'1 .18002454329.208-548-2345. Directcom.com
March 30,2018
Diane Hanian, Commission Secretary
ldaho Public Utilities Commission
472W . Washington
P.O. Box 83720
Boise, lD 83720-0074
Case No. GNR-U-18-01
Notice of lnvestigation - Order No. 33964
Dear [Vs. Hanian:
On January 17, 2018, 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 to 21o/o 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 2017 Tax Act'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.
Re
Rockland
The attached worksheets are the response of Direct Communications
Rockland (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 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 35% to 21% has any financial benefit as
a deferred regulatory liability. lVloreover, 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. Until 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 carriers, such as Company, are regulated public utilities like electricity,
gas, and water, the regulated telecommunications industry in ldaho is different
from other public utilities.
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. Company's rate is currently $25.76 for
residential service and $40.54 for business service. This local rate is
substantially greater than the benchmark local rate established in the Federal
Commun ications Commission's USF/I CC Transformation Order dated November
18, 2011, below which Company would receive dollar for dollar reductions in
federal High Cost 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
until the 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 staff. 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 Tax Act. As stated above, because
Company does not know what tax rate was used in determining Company's
revenue requirement, Company cannot know the revenue requirement impacts
from the 2017 Tax Act, 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 Iax
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.
Sincerely,
nager
p208.548.2345
f 208.s48.9911
e [e-mail]
www rectCom,cam
Communlcations - Rockland
lmpacts
FCC Account and
Descrlption
Total ldaho
Operations
Subject To
Separations
Projected lntrastate
Allocation
Factor
Projected
lntrastate
Total
Projected
Tax Reform
lntrastate TotalOPERATING REVENUE DETAIL
284,741
39,059
1 ,667
77.094
3,689
140,906
646,868
1,524,421
1,001 ,082
626,748
13,930
49,833
202,40'l
45,120
23,968
0.0000%
0.80250k
0.00009,"
0.0000%
0.00000/"
0.0000%
0.0000"/"
1 00.0000%
100.0000%
100.0000%
100.0000%
0.00000/"
0.0000%
0.00007;
21.29570h
0.00009;
1 00.00000/o
100.0000%
1 00.0000%
'100.0000%
0.00000/o
100.0000%
30 30
355355
626,748 626,748
284,741
39,059
284,741
39,059
4s,120
23,968
1 3,930
49,833
202,401
'13,930
49,833
202,401
45,120
23,968
-ACAM support (net of estimated HCLS)
-cAF tcc
-High Cost Loop Support
lntrastate Access
-Switched (TS+NTS)
-Special
. StAtE USF
Toll -Message
-Private Line
-Settlement
Misc. -Billing & Collection
-Directory Advertising
-Operating Rents
-Other Misc.
Less: Uncollectible Rev. G)
Revenues
1
Locai - Billed
EAS - Billed
Other - Billed
lnterstate Access
-SLC (End User)
-ARC
-Switched (TS+NTS)
-Special
-Settlements
526,622
14,766
91,348
5',1,'l?7
11
44.151 232,509 232,509
44.151
7,640
47,262
22,573
7,640
47,262
22,573
51
51
297,179
0.0000%
51.7386%
0.00000/"
'153,756
297,179 153,7s6 J I 153,756
293,492
99,793
213,957
721,664
51.738670
1 5.0000%
0.0000%
53.5546%
0.000096
53.51 1 5%
0.0000%
0.0000%
0.0000%
0.0000%
386,173
1 14,584
151 ,849
1 4,969
't14,5U
386,173
151 ,849
'14,969
1,328,906 667,57s | |667,57s
10 Network Support Facilities
General Support Facilities
Central Office Switching
Operator Systems
Central Office Transmission
lnformation Orig./Term. Equip.
Cable & Wire Facilities
Total Plant Specific
10
12
Plant Nonspecific Operations
Provisioning
Network Operations
Access Paid to LECS
Total Plant Nonspecific
Depreciation & Amortization
General Support Facilities
Central Offlce Switching
Operator Systems
Central Office Transmission
lnformation Orig./Term. Equip.
Cable & Wire Facilities
Capital Leases
Leasehold lmprovements
lntangibles
Acquisition Adjustment
Total Depreciation & Amortization
Page 1 of 3
913,254
,r, ira I
7
Communications - Rockland
Earnings for
FCC Account and
Description
Total ldaho
Operations
Subject To
Separations
Projected lntrastale
Allocation
Factor il
Projected
lntrastate
Total
Proiected
Tax Reform
lntrastate Total
11,889
'13,745
8?,377
2
tbs
1 9,230
39,704
29,423
7,356
30,041
37,110
58.8938%
1 00.000096
0.000096
82.2706%
0.0000%
69.2971%
69.2851 %
0.0000%
49.9983%
50.0000%
0.0000%
0.0000%
0.0000%
78.1065%
0.0000%
0.0000%
0.0000%
0.0000%
0.000070
0.0000%
0.0000%
50.0000%5,945 5,945
1 5,821 15,821
48,515
2
205
48,51 5
2
205
20,389
5,097
1 5,020
1 8,55s
20,389
5,097
15,020
1 8,555
271,140 129,548 I I 1 29,548
365,455
579,276
48.01 09%
48.0109%
'175,458
278,116
175,458
278,116
944,731 4s3,574 | |4s3,s74
1 1,381 48.01 097
0.0000%
0.0000%
5,464 5,464
il
Category 1 -Local Business
Seruice Order Proc.-End User
-Seruice Order Proc.-Presubscription
Payment & Collection-End User
Billing lnquiry-End User
Seruice Order Proc--CXR
Payment & Collection-CXR
Billing lnquiry-CXR
Coin Administration
Category 3 - All Other Customer
B & C Amts Paid to LECS
Other Customer Seruice
Category 2 - Revenue
0
Expenses
Operator Seruices
Total Customer Operations
Rev. Acctg.-Local Mess. Proc.
Rev. Acctg.-Other Bill & Coll.
-lnterstate End User
-Message Toll - lnterstate
-Message Toll - lntrastate
-Message Toll - Local
-Message Toll - EAS
Rev. Acctg.-Carrier Access Billing
Customer Operations
Marketing
Directory Publishing-Alpha.
Directory Publishing-Classifi ed
Directory Publishing-Foreign
Corporate Operations:
Executive & Planninq
General & Administrative
Total Corporate Operalions
Other Operatlng Expenses:
Contribulions
Universal Service Fund
Lifeline Connection Assistance
Total Other
Properly
Gross Receipts
PUC Fee
Franchise Fees
Other
Total Gen€ral Taxes
Other Expenses:
lnterest Expense
Other
Total Other
60,572 51 31,339 at aao
60,572 31,339 | |31,339
37,1't1 51.7106%
0.0000"/"
19,190
37,1 I 1 19,190 | |1 9,1 90
1,925,288 I I
ll
1,92s,288tt
Net Operatinq lncome Before Taxes 757,253 (639,1 04(63e,104)l I
Page 2 of 3
r'r'l
I
3,924,274
Oirect Communications . Rockland
FCC Account and
Description
Total ldaho
Operations
Subject To
Separations
Projected lntrastate
Allocation
Factor
Pro.iected
lntrastate
Total lt
Proiected
Tax Reform
lntrastate Total
7200 lncome Taxes (Calculated)
Net lncome Before SIT & FIT
Less Fixed Charges C)
Subtotal (lines 74)
Other SIT Base Add/Ded. (+-)
SIT Taxable lnc. (lines 9+-1 0)
7230 S|T-Current (at 6.6%)
Other FIT Base Add/Ded. (+-)
FIT Taxable lnc. (lines 9-12+-13)
Gross FIT (at 35% AND 21%)
7210P Claimed ITC C)
Surtax Elimination C)
7220 F|T-Current 1 5-1 6-l
757,253
37,111
720,142
s1.71 06%
0.0000o/o
:firit[l
(639,104)
1 9,1 90
(6s8,294)
720,142 (6s8,294)l I (6s8,294
47,529
0.0000%
(43 447)l rl (43,447]-
672,612 (614,846)l I (61 4,846)
235,414
0.0000%
0.0000%
o,r,lr.,[:.1 (1 29,1 1 8)
Deferred Tax Liability:
Change in Deferred Tax Liability
Amortization period of Liability - Avg remaining life of TPIS in years
Annual amortization of deferred regulalory liability
(771,771)
10
(77,1771
Note:
Allocation factors from the 2016 cost study unless otheruise noted
Page 3 of 3