20180330Rural Telephone Response.pdf

2018|{AR 30 Al{ l0: I 2
l:i.i :i FUi-l.lc
I I I ll-i'i iF S COi,lf,iiSSlON
March 30, 2018
Diane Hanian, Commission Secretary
ldaho Public Utilities Commission
472W. Washington
P.O. Box 83720
Boise, lD 83720-0074
Re:Case No. GNR-U-18-01
Notice of lnvestigation - Order No. 33964
Dear Ms. Hanian:
On January 17,2018, the ldaho Public Utilities Commission (the "Commission") issued a
Notice of lnvestigalion - 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 21Vo as a deferred regulatory liability; and (b) by Friday, l\4arch 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 lhe 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 attached worksheets are the response of Rural Telephone Gompany (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
,F
RURAL TELEtrOM
RTI"RECEIViD
Age W. Madlson Ave., Glenns Ferrg, lD 436e3
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 tirne 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 deterrnine 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. Cornpany's revenue
requirement was established decades ago. Company has asked the Commission for a copy of
the Company's revenue requirernent 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 frorn 35olo to 21% 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. 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 federaltax 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.
ldaho does not set local rates based on Company's costs, it sets the rates for qualifying
high-cost local exchange telephone oompanies 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 Federa!
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 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 allthe 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 2A17 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. !n 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.
Mark Martell
Rural Telephone Company
892 West Madison Ave.
Glenns Feny, lD 83623
/4(
Tolephone Company
1
Total ldaho
Operations
Subject To
Separations
Projected lntrastate
Allocation
Factor
Prcjected
lntrastate
Total
Projected
Tax Rerorm
lntrastate Total
FCC Account and
Description
OPERATING REVENUE DETAIL
53.243
1.719
47,660
206,500
(146,3O1)
609,1 32
3'12,960
539,284
io''
250
222,767
11,879
27.494
26.749
302.221
0.0@0olo
22.3215Yc
0.000001
0.00000t
0.00000t
0.0000o/o
24.34820/a
100.0000o/o
100.000001
100.000001
100.00000/6
0.000001
0.0000"1
0.000001
0.000001
0.000001
1 00,000001
'100.000001
100.000001
'100.0@0olo
0.000001
100.00000/.
io''
2fi
io't
250
384 384
222.767
11.879
222.767
11,879
76.200
539.284
27.494
26.749
302.221
76.200
539,284
27,494
26,749
302.221
-ACAM support (net of estimated HCLS)
-CAF ICC
-High Cost Lmp Support
5084 lntrastateAccess
-Switched (TS+NTS)
-Special
- STATE USF
5100 Toll -Message
-Private Line
-Settlement
5200 Misc. -Billing & Collection
-Oireclory Advertising
-Operating Rents
-Other Misc.
Local - Billed
EAS - Billed
Other - Billed
lnterstate Access
-SLC (End User)
-ARC
-Switched (TS+NTS)
-Special
-Settlements
5300 Less: Uncollectible Rev. G)
Total Revenues
292,127
8,013
168,865
1 03,535
58.1
58.
44.
44.1 29,089 1 29,089
4,659
98,1 90
45.751
4,659
98,190
45,751
909,375
181,447
0.000001
58.1472va
0.000001
1 05,506 1 05.506
181,447 10s,506 | |1 05,506
39,109
79,787
3,871
33't,526
3,O72
58.14720/.
15.00000t
0.000001
50.881'10/c
0.000001
65.56450/o
58.1472vt
0.000001
0.00000r
0.000001
46,394 46,394
581 58't
'19,899 19,899
217,363
1,786
2',t7,363
1,786
457,365 286,023 l*{286,023
61'10
20
Network Support Facilities
General Support Facililies
Central Office Switching
Operator Systems
Central Office Transmission
lnformation Orig./Term. Equip.
Cable & Wre 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
Ceniral Office Transmission
lnformalion Orig./Term. Equip.
Cable & Wre Facilities
Capital Leases
Leasehold lmprovements
lntangibles
Acquisition Adjustment
Total Depreciation & Amortization
Page 1 of3
Telephone Company
1
FCC Accountand
06scription
Total ldaho
Operations
Subject To
Separations
Prcjected lntrastate
Allocation
Factor
Projected
lntrastate
Total
Projected
Tax Reform
lntrastate Total
Marketing
Operator Seruices
Directory Publishing-Alpha.
Directory Publishing-Classifi ed
Directory Publishing-Foreign
Category'l - Local Business
Seruice Order Proc.-End User
-Service Order Proc.-Presubscription
Payment & Collection-End User
Billing lnquiry-End User
Service Order Proc.-CXR
Payment & Collection-CXR
Billing lnquiry-CXR
Coin Administration
Category 2 - Revenuo
Rev. Acctg.-L@al Mess. Proc.
Rev. Actg.-Other Bill & Coll.
-lnterstale End User
-Message Toll - lnterstate
-Message Toll - lntraslate
-Message Toll - Local
-Message Toll - EAS
Rev. Actg.-Carrier Access Billing
Category 3 - All Other Customer
B & C Amts Paid to LECS
Other Customer Seruice
Total Customcr Operations
Corporate Operations:
Executive & Planning
General & Administrative
Total Corporate Operations
Other Operating Expenses:
Contributions
Universal Service Fund
Lifeline Conneclion Assistance
Total Other
Property
Gross Receipts
PUC Fee
Franchise Fees
Other
Total General Taxes
Other Expenses:
lnterest Expense
Other
Total Other
33,919
522
4,257
6,795
2,265
6,795
6,795
8,797
183
'l,038
1.222
1,221
4,088
4,501
74.62000A
100.000001
54.1 3500t
0.000001
0.00000r
79.09500t
0.000001
69.1 564o/c
69.1s64vc
0.000001
0.000001
0.000001
0.000001
82.01 o/c
0.000001
0.0000o/c
100.000001
100.000001
0.000001
50.000001
0.000001
0.0000o/c
25,310
522
2,305
25,310
522
2,305
5,375 5,375
4,699
4,699
4,699
4,699
7,215 7,215
1,222
1,221
1,222
1,221
2,044 2,O44
82,398 54,612 4' I 54,612
1 19,028
358.1 79
53.5551 %
53.555't o/o
63.746
191 ,823
63,746
19'l ,823
477,207 255,56s I I 255,569
'l 1.194 53.55510/"
0.000001
0.000001
":"1 5,995
99,246 58.57.709 57,709
99,246 s7,709 I I 57,709
45.O29 60.98430t
0.000001
27,461 I 27,461
45,029 27,461 Wd 27,61
I
Total Operating Expenses 2,263,261 1,291,/t@ I 1,291,409
I
Net Operating lncome Before Taxes (47,003t (83,480)ta (83,480
Page 2 of 3
Reform lmpacts
1
Telephone Company
Total ldaho
Operations
Subject To
Separations
Projected I ntrastate
Allocation
Factor IProiected
lntrastate
Total
Projected
Tax Refom
lntrastate Total
FCC Account and
Description
(47,003)
45,029
(92,O32)
60.9843o/o
0.00000r
,lii,fiil
(83,480)
27.461
(1 10,9110)
(92,032
(6,074)
0.000001
(7,322)(7,3221
(85,958)
(30,085)
0.000001
0.000001
(21,760)""i"1
lncome Taxes (Calculated)
Net lncome Before SIT & FIT
Less Fixed Charges G)subtotal (lines 7-8)
Other SIT Base Add/Ded. (+-)
SIT Taxable lnc. (lines 9+-'10)
7230 S|T-Currenl (at 6.6010)
Other FIT Base Add/Ded. (+-)
FIT Taxable lnc. (lines 9-12+-13)
Gross FIT (at 35% ANO 21016)
7210P Claimed ITC G)
Surlax Elimination G)
7220 FIT-Current
n
(11,212)$
(1 34,540)
't2
Deferred Tax Liability Analysis:
Oeferred Regulatory Liability
Amortization period of Liability - Avg remaining lile of TPIS in years
Annual amortization of deferred regulatory liability
ItrE@I@
r@-@
I@
Allocation factors from the 201 6 cost study unless otheNise noted
Page 3 of 3