20180330Inland Telephone Response.pdf

INLAND TELEPHONE COMPANY
Corporate Offices
103 S. 2nd St.
P.O. Box 171
Roslyn, WA 98941
INLANDTELEPTIONE
Telephone: [phone]
Fax: [phone] ldaho Public Utilities Commission
Office of the SecretaryRECEIVED
MAR 3 0 20t8
March 30, 2018
Vla electronlc fillns to dlane. hrlnla n@puc. ldo,ho. g ot,
Boise,ldaho
Diane Hanian, Commission Secretaqr
Idaho Public Utilities Commission
472 W. Washington
P.O. Box 83720
Boise, ID 8372O-OO74
Re Case No. GNR-U-18-01
Notice of Investigation - Order No. 33964
Dear Ms. Hanian:
On January L7, 2018, the Idaho Public Utilities Commission (the
"Commission") issued a Notice of Investigation - 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 benefrts from the January L, 2018 tax rate
reduction to 2lo/o as a deferred regulatory liability; and (b) bV 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
2OL7, and the federal income tax components if the utility had been subject to the
2Ol7 Tax Act's revisions to the tax code, including the 2lo/o tax rate. In addition, each
utility's report must include proposed tariff schedules that show the revenue
requirement impacts from tlre 2017 Tax Act.
The attached worksheets are the response of Inland Telephone Company
(hereinafter "Inland"). Based upon conversations with Commission staff, Inland
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. Inland understands that the impact of the 2OI7 Tax Act on Inland's revenue
requirement and USF disbursement should be considered in the determination of
Inland's rates and USF disbursements, but Inland believes that the Commission
should consider all of the relevant potential impacts to Inland's revenue requirement
at the same time. Thus, while Inland is providing the calculations required by the
notice, Inland requests that the Commission take no action at this time with regard to
changing rates or adjusting USF distributions until all of Inland's financial
information is complete and the full impact of the changes in tJle tax rate can be
arrta)yzed, and Inland 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. Inland's revenue requirement was
established decades ago. Through Inland's counsel, Inland has asked the Commission
for a copy of the Inland's revenue requirement calculation prior to submitting this
required information, but did not receive such information. Because Inland has no
record of the tax rate used in connection with determining Inland's revenue
requirement, Inland cannot determine if a reduction in the corporate tax rate from
35% to 2lo/o lras any financial benefit as a deferred regulatory liability. Moreover,
without knowing Inland's authorized rate of return as set in Inland's last rate case, it
is not possible for Inland to evaluate whether or not Inland is over-earning or under-
earning with the change in the federal tax rate. Until all of the information can be
evaluated, Inland is opposed to the Commission adjusting rates or USF distributions
based solely upon the change in the federal tax rate.
Inland has not included proposed tariff schedules that show the revenue
requirement impacts from t}:e 2Ol7 Tax Act. As stated above, because Inland does not
know what tax rate was used in determining Inland's revenue requirement, Inland
cannot know the revenue requirement impacts from the 2OL7 Tax Act, and thus
cannot propose revised tariff schedules. In addition, the calculated impacts of the
2Ol7 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
2OI8 financial results. Inland will await the Commission's actions to determine if
Inland should file changes to rates and USF funding to recognize the impacts of the
2Ol7 Tax Act or if Inland desires to initiate a rate case to determine what, if any,
changes are required to be made to the rates charged by Inland.
Inland remains ready to cooperate with the Commission to provide updates to
the attached information as well as any additional supporting documentation. The
initial filing will be made via email to diane.hanian(Opuc.idaho.eov with a copy to
terri. [e-mail]; the original and seven (7) copies will follow via Federal
Express.
Sincerely
ames K. Brooks
Treasurer/Controller
Inland Telephone Company