BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION, Complainant, v. U S WEST COMMUNICATIONS, INC., Respondent. DOCKET NO. UT-970766 OBJECTIONS OF PUBLIC COUNSEL TO THE FIRST SUPPLEMENTAL ORDER ON PREHEARING CONFERENCE INTRODUCTION Public Counsel objects to the schedule set forth in the First Supplemental Order on Prehearing Conference ("Prehearing Order" or "Order"). The abbreviated schedule does not allow adequate time for Public Counsel to prepare its case and does not allow an opportunity for meaningful public examination of the filing made by USWest Communications Inc. ("USWC" or "Company".) The last USWC general rate case was "among the longest proceedings the Commission has heard in years." WUTC v. USWC, Docket No. UT-950200, Fifteenth Supplemental Order, ("1995 Rate Case") p. 8. The current rate case is scheduled to be the shortest. The difference in money, issues, and impact does not warrant such disparate consideration by interested parties and the Commission. USWC is seeking a revenue increase of approximately $70 Million. It also seeks to place most of the increase (about $54 million) on residential customers' basic rate by increasing it from $10.50 to $13.50, an increase of $3.00 or about 30%. Residential and all customers would also be impacted by the proposed increase in directory assistance rates. The schedule adopted restricts Public Counsel and other parties to only 8 weeks from the USWC filing (August 29, 1997) to the date our direct testimony is dueWe acknowledge that this is two weeks longer than the schedule originally proposed by the Bench, and we appreciate this move in the right direction, especially as it accommodates conflicts with other obligations of Public Counsel and other parties.. As of now the time is less than four weeks. This is simply inadequate time in which to conduct discovery, analyze the results, reach a conclusion, and prepare testimony. For instance, in the last USWC rate case, the time between the company's filing and the date for filing testimony by other parties was originally 23 weeks.Original dates were: tariffs and testimony filed Feb. 17, 1995; suspended Mar. 8; prehearing conference Apr. 6; other parties testimony due July 28; rebuttal by all parties due Sept. 25; cross-examination hearings Oct. 30 to Nov. 10, 1995 Briefs Dec. 8. 1995 Rate Case, Second Supplemental Order. A joint request by USWC, Staff and Public Counsel resulted in an order on July 12 to change the two filing dates to Aug. 11 and Oct. 3. There were several subsequent changes as well. Revenue Requirement Like most rate cases, this case can be divided into two major issues: revenue requirement and rate design. As demonstrated by Attachment A, declaration of Michael Brosch, the time allowed to Pubic Counsel is not adequate to allow an analysis of the revenue requirement issue. The Staff of the Commission ("Staff") needed about 6 months to conduct its informal accounting review of the company, even with the limit that the staff and company mostly agreed to only "update" the numbers from the last case decision. During that review, it was anticipated that Public Counsel would conduct its review following the Staff review. We have begun that review but cannot meaningfully carry it out in the time allotted. Among other issues to be addressed is whether or not limiting the case to an "update" of the previous numbers is an adequate or fair way to view the Company's revenue requirement. This filing is not simply an update.Our review already has revealed that this is not just an "update". Several new adjustments are proposed which were not addressed by the WUTC in the last case. Several adjustments ordered by the WUTC in the last case have apparently been eliminated. As noted by the Company, it and Staff are also proposing that the Company's incentive compensation now be recoverable, contrary to the Commission's conclusion in the last case. Simply "updating" the numbers from a test year that is more than two years old does not necessarily present a balanced view of the Company. Under any conditions, but especially in the recent telecommunications industry, events may well occur that require analysis of factors that were not present in the previous test year. Simply "updating" the numbers does not capture any of this analysis. See attached declaration of Michael Brosch. Simply updating numbers is not the way that any major rate case has been conducted by the Commission within the last 20 years to the best of our knowledge. Role of Staff We understand the revenue requirement now asserted by USWC to be the result of Commission staff's informal review and negotiation with the Company. However, the proposed testimony and exhibits of USWC's sole witness does not show how the $70 million was arrived at.At this point the materials provided do not appear to show which tracts were followed by Staff, nor what compromises may have been negotiated. The backup workpapers provided by USWC in response to data requests show a larger revenue need. At this point we are unsure of which adjustments result in the agreed Company and Staff position. There is also a potential misalignment of parties and filing times in this case. When, if at all, would staff present any evidence on revenue requirement? Since it has already negotiated this issue with the Company, will it present any evidence at all? If so, should it have been filed at the same time as the Company? If Staff files revenue requirement testimony at the same time as other parties, then we are compromised in our ability to respond to it. At present we are dealing with this anomaly by obtaining information from Staff informally. But the question remains whether or not Staff will be providing evidence on the record in support of the negotiated result and if so when Public Counsel will be allowed to review and respond to any Staff evidence. Rate Design Unlike revenue requirement, there is no assertion by USWC that its rate design proposal is "updating" numbers or concepts from the last case, nor could there be. The Company is specifically challenging the Commission's conclusions. For instance, it asserts that residential basic service is not covering its cost. e.g. Proposed direct testimony of T. Jensen, p. 2, line 12; p. 12 line 9 and 22. In the last case this Commission specifically found that residential service is not priced below cost and is not subsidized.It is ironic that for this new filing USWC is accepting the Commission's conclusions on revenue requirement, while continuing to challenge those findings in Court. Yet as to rate design and cost of service, USWC in this filing is challenging the Commission's conclusions, but has abandoned that challenge in Court. USWC chose not to brief cost of service and rate design in the State Supreme Court, and therefore has abandoned this issue on appeal. WUTC v. USWC, Docket No. UT-950200, Fifteenth Supplemental Order, see e.g. p. 10, 79, 89-90, 100. It would greatly aid Public Counsel, and all parties, if the Commission would delineate the scope of review it anticipates of rate design issues. For instance, does it expect to apply the same principles as it adopted in the last case? Does it specifically not want cost of service evidence? Upon what basis does the Commission expect to make rate spread and rate design decisions? USWC has not presented any cost date, nor has it made any of the prior record a part of the evidence it relies upon in this case. Thus USWC has not offered any factual basis to support claims as to costs. USWC has made allegations about costs and market conditions in support of its rate design proposal in this case, but has not provided even one cost study nor cost witness.See above regarding residential rates. Also see Jensen p. 14 line 7 for an assertion regarding the cost of directory assistance. Given that utilities often seek to put in additional material through their rebuttal cases, Public Counsel may attempt to discover now what that evidence might be. This takes time; time which is not provided in the current schedule. Pending Challenge to Last Case The previous rate case is currently on appeal by USWC to the State Supreme Court. Oral argument was presented in June 1997. The result of that Court's decision will have a large impact on the amount of money that USWC is entitled to charge its ratepayers and the amount of money that USWC must refund to its customers. It is extremely difficult to propose rate design for an asserted $70 million increase, when a $91 million decrease is also pending. The Commission should set a schedule in this case that allows the parties prior to filing testimony, the opportunity to analyze a Supreme Court decision, if one is issued by Dec. 31, 1997. USWC attempts to resolve the timing problem with this increase and the ordered decrease by (1) assuming in its case that the Court will reject all of USWC's appeal, and (2) not implementing the business local rate increase proposed in this docket. However, this does not really solve the problem. Rate spread is best accomplished when one is viewing all of the revenue requirement. Rather than bifurcating the issue so that an increase is considered separately from a decrease, the two should be viewed together when deciding how to increase or decrease various rate categories. If the Court issues a decision after the parties have presented their cases in this docket, but before the Commission decision is issued, will the Commission reopen this record to allow the opportunity to address both increases and decreases at the same time? Allocation of Time Even within the Bench constraint of having a decision by early January 1998, the schedule does not fairly allocate the time among the parties. USWC had many months to put together its case, including anticipating expected positions of other parties. We are allowed only 5 weeks from the prehearing conference to put together our case, but the Company is then given slightly under 5 weeks to prepare its rebuttal.Rebuttal testimony is supposed to only respond to testimony filed by other parties, not present new evidence that the Company could have presented in its original filing. Thus the scope of its review is much more limited than the review of the original filing. In addition, Public Counsel and other parties are only allowed 7 working days between rebuttal filing and the beginning of cross-examination hearing. Finally, the Commission is only allowing itself about 6 working days to consider the briefs of the parties, review the evidence, decide the issues, and prepare a written decision. While we obviously defer to the Commission on the time it needs to do its job, we are concerned that there be adequate time to fully consider the evidence and arguments of the parties prior to reaching a decision. Negotiations At the open meeting in which this filing was suspended, the Commission appeared to encourage the parties to try to settle this case. We are, as ever, open to attempting to do so. As almost all parties have observed at one time or another, settlement sometimes takes as much time for the parties as litigation. The schedule in this case does not allow adequate time to develop and present a public analysis of the issues. Under these circumstances, it is even harder to stop preparing for litigation in order to engage in settlement discussions. Thus, the schedule actually discourages rather than encourages settlement.The only way that settlement would be encouraged by a short schedule is if some of the parties essentially abandoned their interests in order to reach a quick settlement and "make the case go away." We are certain that this is not the Commission's intent not desire. Discovery In this case, as in most rate cases, virtually all of the relevant information is in the hands of the utility. For other parties to adequately prepare their cases, they must obtain data from the utility. A schedule in which the due dates are so short does not provide an incentive for the utility to be forthcoming in its responses to discovery. We understood the Company to commit to providing responses to the first set of Public Counsel data requests by the Friday or Monday following the prehearing conference, essentially splitting the difference between the originally anticipated 10 day response time and the agreed to 5 day response time ordered. Disputes regarding discovery will be brought by separate motion, however, in the context of considering a schedule, the Commission should be appraised of how it is going so far. For example objections were made to providing information regarding 1997 accounting information. This is a 1996 test year filing. As mentioned in the Affidavit of Michael Brosch, it is still necessary to examine out-of-period events to see if the in-period results should be adjusted to be representative of actual relationships between rate base, revenue and expenses. Responses Objections Others Total Fr. Sept. 19 -- -- -- Mon. Sept. 22 26 7 -- 33 Tue. Sept. 23 -- -- -- Wed. Sept. 24 12 1 1 14 Fr. Sept. 26 3 -- -- 3 Total 41 8 1 50 At a meeting Tuesday morning, September 23, we were assured by the Company that the remainder of the answers would be provided that day. Given all of the litigation it is in, USWC obviously has a lot to do in addition to opening its records to us for this case. Again, we are not at this time seeking any sanctions regarding discovery, simply a recognition that the schedule does not accommodate timely discovery and creates a situation where any delay is particularly disadvantageous to Public Counsel. Relief Sought Public Counsel respectfully requests that the Commission set a normal schedule in this case, a case in which the Company seeks to increase residential rates by about 30%. Such a schedule could provide for the next round of testimony to be filed in February 1998, allowing for a Supreme Court decision by the end of the year.We are mindful of the stipulation in the recent depreciation case and are prepared to explore a way to provide that revenue adjustment in some non-controversial rate design. In the alternative, Public Counsel asks that the Commission set the scope of the case to be commensurate with the time allowed. For instance, this could be accomplished by rejecting reconsideration of cost of service, rate spread and rate design decisions made in the last case. Public Counsel asks that the Commission either order that Staff will not file revenue requirement testimony, or else allow other parties an adequate opportunity to address that testimony. For instance, assuming the existing schedule, allow staff testimony to be filed by October 17, with other parties allowed to respond to it by the rebuttal filing deadline. If the Commission decides to conclude this case by the end of December, Public Counsel asks that the dates be changed to more fairly allocate the scarce time to parties who have not already had months to prepare their cases. For instance, change the date of Staff rate design testimony, and testimony of Public Counsel and all intervenors, to Monday, November 10; keep rebuttal on November 26 (that allows the Company over two weeks, but also compresses the time for other parties to respond to each other), and leave the rest of the schedule as is. A comparison of a normal schedule, the ordered schedule, and an alternative compressed schedule is on Attachment B. DATED: September 29, 1997 Respectfully submitted, CHRISTINE O. GREGOIRE Attorney General Robert F. Manifold Assistant Attorney General Public Counsel Section