20180330Fremont Telcom Response.pdf

Btackfoot
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Bv email and mail (1 oriqinal: 7 copies) to:
MonSecretary Boise,ldaho
ldaho Public Utilities Commission
472W. Washington
P.O. Box 83720
Boise, lD 83720-0074
E-mail: [e-mail],qov (cc'd: [e-mail])
Re Case No. GNR-U-18-01
Notice of lnvestigation - Order No. 33964
Dear [tls. 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, [/arch 30,2018, file a reportwith 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 21oh lax
rate. ln addition, each utility's report must include proposed tariff schedules that show the
revenue requirement impacts from the 2017 Tax Act.
The attached worksheets are the response of Fremont Telcom Co. dba
Blackfoot (hereinafter "Company"). Based upon conversations with Commission staff,
March 30,2018
122i North Russell St I Mrssoula, MT 59808
ldaho Pubt&fl9tififl6$06ft dnSffi oot.com
Office of the SecretarvRECEIVED
MAR 3 0 20t8
0Rl"'t' t A I
e Blackfoot 1221 North Russett St. I Missouta, MT 59808
866-541-5000 | Btackfoot.comConnect to more
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
Blackfoot 1221 North Russett St. I Missouta, MT 59808
866-541-5000 | Blackfoot.comConnect to more
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. That rate is currently $27.28 for residential 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
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
e Blackfoot 1221 North Russett St. I Missouta, MT 59808
866-541-5000 | Btackfoot.comConnect to more
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 federaltax 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 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,
t
Btackfoot 1221 North Russett St. I Missouta, MT 59808
866-541-5000 | Btackfoot.comConnect to more
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.
Sincerely,
$dtr,tJ
t\/. Neilson
Fremont Telcom Co. dba Blackfoot
VP - General Counsel
406-541-5556
a ne i I so n @ b I a ckfoot. com
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