COMMISSION In the Matter of the Pricing ) Proceeding for Interconnection, )DOCKET NO. UT-960369 Unbundled Elements, Transport and ) Termination, and Resale ) -----------------------------------) ) In the Matter of the Pricing ) Proceeding for Interconnection, )DOCKET NO. UT-960370 Unbundled Elements, Transport and ) Termination, and Resale for ) U S WEST COMMUNICATIONS, INC. ) -----------------------------------) ) In the Matter of the Pricing ) Proceeding for Interconnection, )DOCKET NO. UT-960371 Unbundled Elements, Transport and ) Termination, and Resale for ) VOLUME 11 GTE NORTHWEST INCORPORATED ) Pages 515 - 688 -----------------------------------) A hearing in the above matter was held at 11:15 a.m. on July 9, 1997, at 1300 South Evergreen Park Drive Southwest, Olympia, Washington before Chairman SHARON L. NELSON, Commissioners RICHARD HEMSTAD and WILLIAM R. GILLIS and Administrative Law Judge TERRENCE STAPLETON. Also present was the Commission's economic advisor DAVID GABEL. Cheryl Macconald, CSR Court Reporter The parties were present as follows: GTE NORTHWEST INCORPORATED by RICHARD E. POTTER, Associate General Counsel, 1800 41st Street, (5LE) Everett, Washington 98201 and JOHN WILLIAMS, MARK AUSTRIAN, and BRIAN FARLEY, Attorneys at Law, 3050 K Street NW, Suite 400, Washington D.C. SPRINT COMMUNICATIONS COMPANY, L.P., by CAROL MATCHETT, Attorney at Law, 1850 Gateway Drive, Seventh Floor, San Mateo, California 94404-2467. U S WEST COMMUNICATIONS, INC., by EDWARD SHAW and LISA ANDERL, Attorneys at Law, 1600 Bell Plaza, Room 3206, Seattle, Washington 98191 and JOHN M. DEVANEY, Attorney at Law, 607 14th Street NW, Suite 800, Washington, D.C. 20005-2011. AT&T COMMUNICATIONS, by DANIEL WAGGONER, Attorney at Law, 2600 Century Square, 1501 Fourth Avenue, Seattle, Washington 98101 and SUSAN D. PROCTOR, Attorney at Law, 1875 Lawrence Street, Suite 1575, Denver, Colorado, 80202. MCI COMMUNICATIONS and MCImetro, by BROOKS HARLOW, Attorney at Law, 4400 Two Union Square, 601 Union Street, Seattle, Washington 98101 and ROBERT W. NICHOLS, Attorney at Law, 2600 Broadway, Suite 200, Boulder, Colorado 80302. FRONTIER TELEMANAGEMENT and SHARED COMMUNICATION SERVICE, INC., by SARA SIEGLER MILLER, (via bridge), Attorney at Law, 2000 NE 42nd, Suite 154, Portland, Oregon 97213. UNITED TELEPHONE COMPANY OF THE NORTHWEST and SPRINT CORPORATION, by SETH LUBIN, General Counsel/Secretary, 902 Wasco Street, Hood River, Oregon 97031. WITA, by RICHARD A. FINNIGAN, Attorney at Law, 2405 Evergreen Park Drive SW, Suite B-1, Olympia, Washington 98501. TRACER, by ARTHUR A. BUTLER, Attorney at Law, 601 Union Street, Suite 5450, Seattle, Washington 98101-2327. APPEARANCES (Cont'd.) THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION STAFF, by GREGORY J. TRAUTMAN and SHANNON E. SMITH, Assistant Attorneys General, 1400 South Evergreen Park Drive Southwest, Olympia, Washington 98504-0128. FOR THE PUBLIC, ROBERT MANIFOLD, Assistant Attorney General, 900 Fourth Avenue, Suite 2000, Seattle, Washington 98164. TCG SEATTTLE, by GREGORY KOPTA, Attorney at Law, 2600 Century Square, 1501 Fourth Avenue, Seattle, Washington 98101. I N D E X PANELS: CROSS REDIRECT EXAM KLICK 519, 615 643 MERCER 525, 575 638 657 FASSETT 572, 623 633 CORNELL 581, 630 653 EXHIBITS: MARKED ADMITTED 10,11,12,13 687 16 THROUGH 28 687 42 687 43 634 687 44 640 687 45 640 687 P R O C E E D I N G S JUDGE STAPLETON: Let's be on the record, please. This is a continuation of the proceedings in docket No. UT-960369, 960370, 960371. Today's date is Wednesday, July 9, 1997. We are convened in Olympia, Washington before Commissioners Sharon L. Nelson, Richard Hemstad, William Gillis, and Administrative Law Judge Terrence Stapleton. When we recessed for the day yesterday Mr. Williams on behalf of GTE was crossing the assembled panel. Mr. Williams. MR. WILLIAMS: Thank you, Your Honor. CROSS-EXAMINATION BY MR. WILLIAMS: Q. When we stopped yesterday, Mr. Klick, I was asking you questions about your testimony in which you were distinguishing the input values for TICM as opposed to the input values for the Hatfield model, and I think we had gotten through to the discussion of the relative differences between the value for TICM for power investment, and that which is in the Hatfield model. Your testimony, reply testimony at pages 6 and 7, could you turn to that, please? A. I have it, Mr. Williams. Q. Could you explain what the power investment default value is all about? A. Which power investment default value are you asking? Q. The TICM power. A. As I understand it, as I say down at the bottom of page 7, the power investment at TICM includes all of the primary and backup power required to operate the building housing the 4ESS switches that AT&T uses along with the switch itself. Q. Now, is that different for an ILEC that a power backup system is not one that operates the entire building of the switch? A. I'm not sure what the ILEC would do. Q. Well, the basis of my question is that you were distinguishing between the TICM investment and the ILEC investment on the basis, I thought, that the power investment reflecting TICM includes all of the primary and backup power. The question is do you or do you not know whether that is different for the ILEC? A. Well, the premise of your question is wrong. I'm not comparing what TICM does with what the ILEC does. The point of this rebuttal testimony is to address Mr. Murphy's testimony that what's in TICM is somehow comparable to what's in the Hatfield model. Q. And you're drawing a distinction, you say right here, that the TICM model includes all of the primary and backup power required to operate the entire building housing the 4ESS switch and all equipment therein, not just the investment required to provide the power to operate the switch. My question is, are you saying that there is a difference in that regard between the power investment for the ILECs and the power investment for the long distance service provider? A. No. What I am saying is that it is my understanding that the power investment in the Hatfield model addresses the power required to operate the switch, not the power required to operate electrical functions in the building as well. Q. Don't ILECs incur the cost of having to provide backup power for the entire building? A. I would presume that there is backup power at least for the switch and some of the functions in the building. It may not provide backup power for all of the functions in the building. I would assume that ILECs do incur such cost. Q. And where is that in the Hatfield model? A. I'm not really certain. I believe we can ask Dr. Mercer that question. He's the expert on the Hatfield model but I believe there is a factor in the model that addresses that. Q. And where is that, Dr. Mercer? A. (By Mr. Mercer) It's one of the six categories included under the network operations category that we spent some time on yesterday. Q. And that is the network operations category that produced 50 percent under the Hatfield model; is that correct? A. (By Mr. Mercer) Yes. It's the category that we recognize quite substantial opportunity for power savings and as we go to fiberoptic systems and digital switching, and as what I gather was part of the subject of the proceeding this morning on electric restructuring the competition that's coming in the electric industry, cogeneration opportunities and the like. So, yes, that is a category that's very much amenable to reducing costs. Q. Now, back to you, Mr. Klick. Without getting into the precise investment required under TICM, which I believe is confidential -- Is that right? A. Yes. Q. -- would you agree with me that there is a range in the Hatfield model for power investment? A. Yes. Q. I won't state what the range is, but there is a range, is there not? A. That's correct. Q. And would you also agree with me that the power investment in the TICM model is ten times, over ten times, the power investment set forth in the Hatfield model? A. That's correct, and as we've discussed one of the reasons in my testimony why the fact that these are different is no big surprise, and we haven't discussed the other reason yet. Q. I'm going to get to it right now because what you say is that the power investment should be different because the AT&T network has generally the 4ESS switches and the ILEC networks do not; is that right? A. That's the essence of it, and of course they have these switches because what they're doing in terms of the fundamental business is somewhat different. Q. Right. And would you agree with me, Mr. Klick, that ILECs do have super 4ESS switches? A. I will agree that they have a few 4ESS, yes. Q. And so isn't it only fair that if you're going to do this range for power investment the range should come up on the maximum to what TICM is modeling for the 4ESS switches? A. Not necessarily, no. Q. You will have to tell me why, please. A. Well, what the power investment that we're modeling in Hatfield generally is relating to end office switching. It is my understanding that as a general -- it's my understanding that there are no 4ESS switches employed by local exchange carriers for end office switching, and to the extent they are employing 4ESS switches for tandem switching I would expect in addition that those would handle somewhat different traffic characteristics than the 4ESS switches employed by AT&T. My fundamental problem here with Mr. Murphy's analysis is twofold. He's trying to extrapolate from one type of switch to a type of switch not being used by ILECs for central office or end office switching, number one. Number two, he's included an apples and oranges in terms of what's in TICM versus what's in the Hatfield model, so I just don't see this kind of a comparison being at all helpful, useful, relevant. Q. Simple question. In your opinion, should the power investment -- the backup power investment, strike that. Should the power investment for a 4ESS switch in the ILEC's network be different and lower than the power investment for 4ESS switch in AT&T's network? A. It is my understanding that that would be the case, yes. CROSS-EXAMINATION BY MR. WILLIAMS: Q. Thank you. Dr. Mercer, am I correct in assuming that when you and your associates developed the Hatfield model you did not review the TICM model in structuring your model? A. (By Mr. Mercer) That is correct, yes. Q. Now, Dr. Mercer, I have a brief series of questions relating to the expense module within Hatfield model. Would you agree that with limited exception the expense module will apply the same ratio, ARMIS ratio, of expense to investment to Hatfield calculated investment in order to arrive at Hatfield calculated expenses? A. With limited exceptions that's correct. Q. I thought I said -- A. You did. I was agreeing with you. I know it's unusual. Q. All right. And therefore if a Hatfield investment is one half of an ARMIS reported investment, the Hatfield expense will be one half as well with limited exceptions? A. With those exceptions that's correct. Q. Now, would you turn for a moment, please, to Exhibit 18, which I believe should be in front of you. A. Of that pile