Introduction
 This brief is submitted by the Public Counsel Section (Public Counsel) of the 
Office of the Attorney General of the State of Washington.  Pursuant to the 
agreement of all parties and the bench, we have addressed selected issues from 
the agreed brief outline.
 There are two predominant issues of public interest and impact.  The 
Commission needs to appropriate resale rates so that the bold experiment in 
fostering local telephone competition has a chance to succeed.  If the rates 
are too high, competition will be deterred. If the rates are too low, incumbent 
local telephone companies might not recover their legitimate costs and service 
quality might further degrade.  In either instance uneconomic investments may 
be made.  Getting it just right is a daunting but necessary task.  This phase 
of determining a proper cost model and inputs is critical to the task of 
setting proper prices in phase two of this case.
 The second issue concerns the potential for confusion over the relationship 
between and among three similar but critically different costs (and prices):  
(1) flat rate local exchange service, especially residential; (2) wholesale 
provision of the same service; and (3) the unbundled network element called the 
local loop.  The first two are services; in each instance one of many that are 
sold over the local loop.  The last is the loop itself, a facility. The company 
which rents the loop facility can and will provide many services over the loop. 
Therefore one would expect the cost of the entire loop to be greater than the 
cost of any one service provided over the loop, e.g. local residential service. 
Of course the wholesale cost of local service is less than the retail cost.  
These concepts are discussed at greater length in section II.A. (Goals of the 
Proceeding) and Section XI. (Other Issues).

Brief of Public Counsel - Page 1

 I.  LEGAL PARAMETERS AND ISSUES
 A. FEDERAL LAW
 This Commission has jurisdiction over intrastate services.  An important 
general principle set forth in the Federal Telecommunications Act     Federal 
Telecommunications Act of 1934 (as amended) (TA96). is that the states have 
jurisdiction over the intrastate telecommunications services, whereas the FCC 
has jurisdiction over the interstate telecommunications services.  The U.S. 
Court of Appeals for the Eighth Circuit (St. Louis) has recently overturned 
major portions of the FCC's Interconnection Order, primarily because the FCC 
failed to properly recognize these jurisdictional boundaries, which have not 
been eliminated by the TA96.  The AT&T and GTE avoided cost models in this 
proceeding improperly use unseparated costs, i.e. both state and interstate 
costs.  Interstate costs cannot be properly considered when setting intrastate 
rates.
 The separations procedures established in the FCC-State Joint Board 
proceedings are the mandatory procedures to separate costs between the 
interstate and intrastate jurisdictions. Section 410(c) of the Communications 
Act of 1934 (as amended) mandates that jurisdictional separations be addressed 
in an FCC-State Joint Board proceeding.  The separations procedures resulting 
from Joint Board proceedings are incorporated in Part 36 of the FCC's Rules.  
The separations procedures established in those Joint Board proceedings are 
therefore the mandatory procedures that must be used to separate the costs 
between the interstate and intrastate jurisdictions. (Dunkel Ex. C-153, p. 55)  
The modifications contained in TA96 did not eliminate separations.  The Eighth 
Circuit Court order overturning portions of the FCC Interconnection Order 
specifically stated that "Telecommunications ratemaking traditionally has been 
capable of being separated into its interstate and intrastate components."  
 Section 254(k) of the TA96 specifically requires,
The Commission, with respect to interstate services, and the States, with 
respect to intrastate services, shall establish any necessary cost allocation 
rules, accounting safeguards, and guidelines to ensure that services included 
in the definition of universal service bear no more than a reasonable share of 
the joint and common costs of facilities used to provide those services. 
(emphasis added)  

These services include residential basic exchange service.  (Appendix I, FCC 
Universal Service Order)  The WUTC, and most commissions, have historically 
rejected telephone companies' attempts to recover 100% of the loop facility 
costs from residential basic exchange service.  This Commission should be aware 
that attempting to recover all of those facility costs from residential basic 
exchange service now would be not only poor policy but also in direct violation 
of the TA96.  
 The wholesale rate should be set in accordance with the key requirements of 
TA96. Section 252(d)(3) states: 

A State commission shall determine wholesale rates on the basis of retail rates 
charged to subscribers for the telecommunications service requested, excluding 
the portion thereof attributable to any marketing, billing, collection and 
other costs that will be avoided by the local exchange carrier.

USWC's claim that the wholesale rates for residential basic service should not 
be discounted because it is already below cost (Reynolds Ex. 114, p. 36), is 
wrong for two reasons:  (a) residential basic service is not below cost as this 
Commission recently properly found (Fifteenth Supplemental Order of the 
Commission, Docket UT-950200, pages 90 and 100); and (b) this requirement of 
TA96 does not include any consideration of the relationship of the retail 
prices to the total cost of the service.  Instead, the wholesale rate is based 
upon the price of the retail rate less avoided costs.
 Mr. Reynolds for USWC claims "The Federal Telecommunications Act requires 
'actual fill' factors in TELRIC cost studies."  (Reynolds Ex. 114, p. 22, line 
21)  This is not true.  The TA96 makes no mention of actual fill or TELRIC.  
Even the FCC's interpretation of TA96 does not require the use of "actual 
fill."  (Dunkel Ex. C-153, pp. 10-11)  On Ex. 114, p. 23, line 12, Mr. Reynolds 
makes a claim that a certain other requirement is contained in TA96, but it is 
not.  (Dunkel Ex. C-153, p. 11, lines 10-13)  This Commission should be 
skeptical of any USWC claims that a certain requirement is in TA96, until 
specifically verified.
 B. WASHINGTON LAW (NOT ADDRESSED)

    II. COST METHODOLOGY:  PRINCIPLES
 A. WHAT SHOULD THE GOAL(S) BE OF THE PROCEEDING?
 In this phase the Commission should select one model and specify as many 
inputs and other factors as possible.
 One of the major goals of Public Counsel in this proceeding is to not allow 
misinterpretations to develop which could ultimately be reflected in improper 
residential basic service rates.  To avoid misinterpretation, it is important 
to understand the relationship between the unbundled network element loop rate, 
residential basic local service (1FR) rate, and residential wholesale rate.  
 The unbundled loop service essentially rents the loop facility to the CLEC.  
The CLEC can use that facility to provide a family of services including local, 
toll, switched access, vertical services, etc.  The CLEC will not have to 
recover all of what it pays for the unbundled loop facility from just basic 
exchange service, but instead can spread the recovery of that charge over all 
of the CLEC services that share that facility.  Therefore, a CLEC's 1FR rate, 
or toll rates by themselves, may each be less than what the CLEC pays for the 
unbundled loop.
 Likewise, it is reasonable to expect that the ILECs 1FR rate would be less 
than the unbundled loop rate, because 1FR is only one of the services that USWC 
provides over the loop facility, whereas the unbundled loop rate is effectively 
renting that entire loop for all purposes.  Likewise, the ILECs wholesale 1FR 
rate may be significantly lower than that ILEC's unbundled loop rate for the 
same reason.  An ILEC providing wholesale 1FR service also receives switched 
access revenues for all traffic that originates and terminates on the same loop 
that is used to provide the wholesale 1FR service.  The ILEC also receives 
revenue for  enhanced services provided over that same loop.  (These revenues 
may be discounted by the wholesale discount percent.)  
 In short, the intrastate unbundled network element rate is the only revenue an 
ILEC will receive to cover the intrastate portion of the unbundled loop 
facility, but 1FR or wholesale 1FR is not the only revenue the ILEC will 
receive towards the cost of the loop used to provide those services, since that 
same loop can also be used to provide other services.  A simple test is:  if 
the service in question is the only intrastate service that can utilize that 
facility, then that service should support 100% of the intrastate costs of that 
facility.  However, if that service is not the only intrastate service that can 
share that facility, then that service generally should not support the full 
intrastate cost of that facility.  (Dunkel Ex. 155, pp. 4-5)  See also 
discussion in Section XI, Other Issues, at p. 48.
 B. HOW WILL THE COST MODELS BE USED?

 The preferred cost model together with specified inputs should form the basis 
for setting prices.
 C. WHAT CRITERIA SHOULD THE COMMISSION FOLLOW IN EXAMINING COST MODELS?

 The Commission, in Docket No. UT-950200, has already adopted the appropriate 
criteria to be used in incremental cost models, and Public Counsel recommends 
continuing. The Commission adopted criteria include (a) the Commission approved 
cost of money should be used; (b) the Commission prescribed depreciation rates 
should be used; (c) the cost of the additional pairs should be matched with the 
additional line services for which they are installed; (d) the costs should be 
the economic costs of providing the service.     ¶250(1), FCC Report and Order, 
FCC 97-157, released May 8, 1997.  In referring to the forward looking model 
for universal service, the FCC has reached a similar conclusion: "The 
technology assumed in the cost study or model must be the least-cost, 
most-efficient, and reasonable technology for providing the supported services 
that is currently being deployed."; (e) the costs should be the reasonable and 
accurate cost of providing the service; and (f) The models should utilize 
publicly available data when reasonable.  (Fifteenth Supplemental Order, Docket 
No. UT-950200, pages 82, 83 85-86 and 88-89; also see Dunkel Ex. C-153, pp. 3) 
Public Counsel believes an additional criteria is that a study should be 
applicable to all large telephone companies in Washington.  (Dunkel Ex. C-153, 
p. 4)
 Public Counsel does not believe it is in the public interest to establish 
unbundled network element rates that are significantly higher or lower than 
indicated by the appropriate costs including overhead.  This point will be the 
subject of phase 2 of this docket.
 D. TELRIC AND ITS DEFINITION (NOT ADDRESSED)
 E. COMMON COSTS TO THEIR DEFINITION (NOT ADDRESSED)
 F. ACTUAL OR EMBEDDED COSTS AND THEIR UTILITY (NOT ADDRESSED)

 III. COST MODELS
 A. DESCRIPTION (NOT ADDRESSED)
 B. DOES THE MODEL SATISFY THE CRITERIA IN II.C.?
 The Hatfield model best satisfies this criteria.  (Dunkel Ex. C-153, p. 5 and 
Ex. C-154, Schedule WWD-1)  A discussion of how each of the specific models 
meet each criteria are included in the following sections of this Brief.  
 C. NETWORK ARCHITECTURE ISSUES (NOT ADDRESSED)

 IV.  OTHER MODELS AND INPUT ISSUES
 A. WHAT INPUTS SHOULD THE COMMISSION CONSIDER WHEN EXAMINING OR RUNNING MODELS?

  1. WHAT METHODOLOGY WAS USED TO DETERMINE PLATFORM/ALGORITHMS AND INPUTS? 
(NOT ADDRESSED)

  2. CAN THE INPUTS TO THE MODELS BE VALIDATED? (NOT ADDRESSED)

  3. HOW SHOULD THE COMMISSION ANALYZE OR SET INPUTS FOR MODELS? (NOT ADDRESSED)

  4. CAN THE MODELS BE RUN (0R MODIFIED) BY PARTIES OTHER THAN THE MODEL 
SPONSORS?


 Major input items are user adjustable in both the Hatfield and BCPM models. 
However, they are not in the USWC model.  USWC has not even properly rerun 
models using the Commission or arbitrator specified values.  In this 
proceeding, Mr. Reynolds filed what he called a "prescribed" study which he 
claimed was rerun by USWC using the "current authorized 1993 depreciation 
rates."  However, even in that so-called "prescribed" run, USWC did not use the 
Commission approved depreciation rates, and instead used depreciation rates of 
USWC's own creation.  (Dunkel Ex. C-153, p. 7)  USWC presented a run of its 
model that it claimed used the distribution fill factors "ordered" by the 
arbitrator. Yet careful examination shows that USWC in fact did not adjust the 
distribution fill factor to the arbitrator ordered figures.  (Dunkel Ex. C-153, 
p. 9 and Schedule WWD-2; Ex. C-154, Schedules WWD-3 and WWD-4)  The major 
inputs to the USWC model cannot be modified by other parties.  These examples 
show that one cannot rely upon USWC for modified runs.   5. ARE THE MODEL 
ALGORITHMS AND DATA INPUTS OPEN?  ARE THEY CORRECT?


 The USWC and GTE models are proprietary.  The Hatfield and BCPM models are not 
proprietary.  The WUTC has properly stated its preference for public models 
when reasonable.  (Page 86, Fifteenth Supplemental Order, Docket No. UT-950200; 
Dunkel Ex. C-153, p. 12.)  The problem caused by the use of proprietary cost 
studies was clearly demonstrated in this proceeding.  USWC witness Mr. Reynolds 
drew extensive comparisons between what USWC had done in its cost studies in 
the prior proceeding compared to what it did in Docket No. UT-950200.  However, 
when Public Counsel sought USWC's permission to refer, as proprietary 
information, in this proceeding to the proprietary information from those very 
same USWC cost studies from the prior proceeding, USWC denied us that 
permission.  (Dunkel Ex. C-153, p. 13 and Schedule WWD-6)  When proprietary 
studies are used, USWC can make whatever claim it wants to pertaining to its 
proprietary studies in other cases, but the other parties are gagged, and 
cannot point out any misrepresentation to the Commission.  (Dunkel Ex. C-153, 
p. 13; Tr. 2212)
 B. HOW SHOULD THE COMMISSION DECIDE THE REASONABLENESS OF PRICE, QUANTITY AND 
OTHER INPUTS?

 The practical answers to these questions is that it is not practical for this 
Commission to validate and examine in detail all of the algorithms and inputs 
used in the model.  Each model contains literally thousands of such items.  
Therefore, a practical way to evaluate the model is to evaluate a few of the 
items, and use the results of that analysis to gain insight into how similar 
the judgements of the model authors are to the judgements of the Commission.  
This analysis indicates that the Hatfield model is the preferable model.  The 
default cost of capital, capital structure, depreciation lives, and fill factor 
used in the Hatfield model are closer to the Commission ordered values than 
either the BCPM or USWC models. (Dunkel Ex. C-153, p. 5; Ex. C-154, Schedule 
WWD-1)
 C. INVESTMENT
 1. STRUCTURE SHARING
 At the conclusion of the case, the USWC model was the only model that did not 
recognize that poles are shared by more than one utility.  The Hatfield and 
BCPM models assume sharing of poles by utilities in their default models.  The 
model GTE originally provided in this proceeding did not assume pole sharing 
(GTE response to Public Counsel Request 2) but during the proceeding, GTE 
revised its model to incorporate sharing of poles among utilities.  (Tucek Ex. 
C-65, p. 35; Dunkel Ex. C-153, pp. 16-18)
 Participants acknowledge that the utilities do share poles in those areas 
where they have aerial facilities, and this is expected to occur on a forward 
looking basis as well. (Harris, Ex. 112, p. 13; Tucek, Ex. C-65, p. 35) USWC 
assumed they would have to support the full cost of all poles used because of 
USWC's hypothetical assumed replacement of their entire network over a very 
short time frame that would be simply too short for them to negotiate sharing 
of support facilities.  (Harris Ex. 113, p. 18)  USWC also inflated the cost of 
their inputs to their study based upon hypothetical "supply shortages" caused 
by the hypothetical replacement of USWC's entire network over a very short time 
frame.  (Harris Ex. 112. p. 18; also see Dunkel Ex. C-153, pp. 15-18)  A proper 
model should assume sharing of poles among utilities since that is what 
actually occurs, and is expected continue to occur on a forward looking basis.  
In a related issue, input costs that represent a hypothetical "supply shortage" 
should not be used.
 2. STRUCTURE MIX (i.e., aerial v. buried) (NOT ADDRESSED)
 3. PLACEMENT COSTS INCLUDING TRENCHING, BORING, POLES, MANHOLES, AND CONDUIT
 USWC's unbundled loop cost was significantly increased by USWC's assumption 
that it would incur the cost of installing 82% of the loops in "difficult" 
trenching conditions, i.e. after surface obstructions such as paved streets, 
driveways, sidewalks, etc. were in place. This assumption greatly increased the 
cost because it is much more expensive to cut through, repair, and bore under 
existing pavement and other obstructions than it is to install facilities 
before those surface obstructions are in place.  (Dunkel Ex. C-153, p. 19; 
Reynolds Ex. 114, p.12)
 USWC's prior model assumed a more realistic figure of 20% of the lines being 
installed in "difficult" areas where surface obstructions already were in 
place.  (Tr. 1786)
The Company changed the ratio for existing vs. growth lines from the 20% 
included in the old models to 82%.  (Reynolds Ex. 114, p. 12, l. 30-33)

A USWC witness admits that installing the buried facilities after the surface 
obstructions are in place "rarely occurs."
This type of construction rarely occurs but is very similar to what TELRIC 
attempts to estimate. (Harris, Ex. 113, page 17, lines 16-20)

USWC admits that,
About 80% of them are built in undeveloped areas where the growth is occurring 
in most states, and about 20% are being added in neighborhoods that are already 
developed.  (Tr. 1773-1774)  

 The claim of Mr. Harris in the above quotation that the TELRIC requires this 
unreasonable assumption is incorrect.  The FCC is the regulatory agency that 
developed the term TELRIC.  The FCC has specifically required that in the 
forward looking incremental cost studies, 
The technology assumed in the cost study or model must be the least-cost, 
most-efficient, and reasonable technology...     ¶250(1), FCC Report and Order, 
FCC 97-157, Universal Service Order, released May 8, 1997.
The FCC did not ask the companies to assume the inefficient provision of 
service, but instead the FCC asked the companies to assume the exact opposite 
in their incremental cost studies.  On any basis, including a forward looking 
basis, the Company is not expected to install anywhere near 82% of its 
facilities in areas after the surface obstructions are in place. (Tr. 1774)
 The cost studies should use a realistic assumption as to the percent of loops 
that will be installed in already developed areas.  Public Counsel suggests the 
use of the 20% assumption that USWC used in prior studies. 
 4. DROPS  (NOT ADDRESSED)
 5. FILL FACTORS
 Both GTE and USWC greatly inflated the costs in their unbundled loop cost 
model by the way they calculated the adjustment for fill factors.  In the past, 
residential customers normally had about one line per household in service.  
However, the number of lines per household has been rapidly growing.  (Ex. 
C-127)  In fact, GTE expects to have 1.5 lines per household by the year 2000.  
(Tr. 1841 and 2285)  In the past, the industry standard was to install an 
average of two pairs per living unit.  (Tr. 2281)  Prior to      , USWC's 
policy was to install an average of     pairs per living unit.  (Dunkel Ex. 
C-153, p. 21)  However, in its most recent study, USWC has increased the costs 
to reflect three pairs per living unit, as is reasonable in a forward looking 
study based upon the forward looking growth of lines per household in service.  
(Tr. 1836)  However, the problem is that although USWC used the forward looking 
lines per household in determining how many pairs to include in the cost, they 
did not use that forward looking pairs per household in determining how many 
services would be supporting that three pair per household cost.  Instead of 
using the forward looking lines per household, USWC used what amounts to a 
"backward" looking lines per household.  Specifically, USWC spread the three 
lines per household cost over only        lines per household.  When other USWC 
adjustments were included, USWC ultimately used only one working pair per 
living unit.  (Dunkel Ex. C-154, Schedule 3, page 3, line 6; also see "Units" 
and "Working in Unit Results"; Tr. 2282)  
 Using less than five percent additional lines is in fact backward looking 
because by 1996,       of residential customers had additional lines with the 
projection through 1998 being       of customers having additional lines.  (Ex. 
C-127)  As previously discussed, the projections beyond there are in the area 
of 1.5 lines per household.  USWC admitted that the lines per household over 
which it recovered the costs was not forward looking, and in fact if current 
data was used, the result would be to spread the costs over more lines than 
USWC did.  (Tr. 1864-1865)  This would result in a calculation of lower costs.
 Mr. Reynolds claimed that TA96 required the use of "actual fill."  (Reynolds 
Ex. 114, p. 22, line 31)  In fact, TA96 makes no mention of actual fill.  The 
FCC required "reasonable projection of the total actual usage of the element" 
should be used.  (Dunkel Ex. C-153, pp. 10-11; ¶682 FCC Interconnection Order; 
CC Docket No. 96-98, adopted August 1, 1996.)
 Another inaccuracy introduced by USWC is in what USWC calls its "ordered" run. 
It claimed it had used the distribution fill factor that the arbitrator had 
ordered, but in fact USWC did not do so.  (Dunkel Ex. C-153, pp. 8-10 and 
Schedules WWD-3 and WWD-4; Dunkel Ex. C-152, Schedule WWD-2)  In another 
meaningless argument, USWC criticized Mr. Dunkel for having more lines in the 
distribution portion of the loop than in the feeder, but the standard design in 
USWC's model also had more lines in the distribution than in the feeder.  (Tr. 
1863; Tr. 1839; Buckley Ex. 120, pp. 10-11)
 An additional problem pertaining to unbundled loops is if the CLECs are 
required to pay for three unbundled loop facilities in order to obtain the use 
of one of those facilities, that means USWC will retain the use of two paid for 
loop facilities.  USWC could use these two CLEC paid for loops to compete 
against the CLEC to provide services to other customers in that area.  (Dunkel 
Ex. C-153, p. 28; Tr. 2286-2287)  Such a result is clearly anti-competitive, 
and would put the CLECs at a great disadvantage.  The CLECs would be 
effectively forced to subsidize their competitor.
 An additional problem is caused by the fact that although USWC includes some 
of the cost of the second line in the first line service, USWC does not provide 
a lower rate for the second line.  Therefore, if a customer or a CLEC wants one 
line of service, they have to pay for three distribution pairs; if they want 
two lines of service, they have to pay for six distribution pairs, etc. (Tr. 
2244 and 2247)
 In cross, some parties tried to determine the relationship between the TSLRIC 
and embedded cost, but the fact is that it is difficult to demonstrate what 
that relationship is since some of the effects over time are increases to the 
costs and others are decreases.  For example, if a pair that will ultimately 
provide an additional line of service is idle for several years, that costs the 
company lost revenue.  However, when it does go in service, it is priced as if 
it is a new cable, but in reality, that service may be provided with a ten year 
old cable which may have required a lower investment when installed ten years 
ago than it would cost to install a new one today.  In short, it is very 
difficult to relate embedded costs to TSLRIC. (Tr. 2294-2295; Tr. 2243)  
 GTE's handling of the cost of spare capacity is one of the major errors in 
GTE's study.  If 25 active and 25 spare pairs in a new aerial facility were 
needed down a given road, a rational person would build one row of poles down 
that road and put a 50 pair cable on it.  Providing 25 spare pairs in this way 
costs about five percent more than building a similar facility with only a 25 
pair cable on it to serve only the active pairs. (Tr. 2271) Therefore, the 
reasonable additional cost of adding the spare pairs is about a five percent 
premium over no spares.  However, that is not how GTE handles the spare costs 
in its cost studies.  Instead, in this example GTE would first calculate the 
cost of a 25 pair cable down the road supported by a row of poles.  For a     
fill factor, GTE then divides this cost by .55, which effectively assumes the 
cost of one 25 pair cable on a row of poles, plus 82% of the cost of a second 
row of poles down that same road, and     of the cost of a second 25 pair cable 
down that same road.  GTE's effective assumption that when building new aerial 
facilities, they would build two different rows of poles and cables down the 
same road is unreasonable, and results in a cost premium of approximately     
for the spares, whereas a realistic new construction cost premium is five 
percent.  (Tr. 1103-1104 and 2270-2272 and Ex. C-153, p. 28 and Footnote 65)  
For the GTE study, the Commission should reject this unreasonable assumption as 
to how spare capacity would be provided and instead adopt a more reasonable 
assumption that in new construction, the spare capacity would be constructed in 
the same cable, and supported by the same row of poles which also provides the 
active pairs.  (Tr. 2270-2272)
 There are two possible solutions to the fill factor issue.  
The first solution is to price the unbundled loops at objective fill, as the 
Commission has ordered in the past for incremental cost studies.  (Dunkel Ex. 
C-153, p. 24-27; Fifteenth Supplemental Order of the WUTC, Docket No. 
UT-950200, April, 1996, p. 88)  The Commission in the past quite properly 
ordered that the costs of additional pairs be matched with the additional line 
services, and not be recovered in the cost of the first line.  (Fifteenth 
Supplemental Order of the WUTC, Docket No. UT-950200, April, 1996, pp. 88-89)  
The objective fill is 85%.  (Tr. 699-700)
 If the Commission for some reason wishes to change from using the objective 
fill, then a forward looking analysis should consistently be used.  For 
example, the forward looking cost of three pairs per living unit will be 
recovered over forward looking revenues from at least 1.5 lines in service per 
living unit, not the backward looking one line per living unit that USWC used.  
(Tr. 2282) This correction alone makes a big difference in the answer.  (For 
example if the cost is $15 for the facilities that include the forward looking 
three pairs per living unit, that would be $15 per service if improperly 
divided by only one service per living unit on a forward looking basis, but 
that cost would be $10 per service if divided by the forward looking 1.5 lines 
in service per living unit. 
 6. CABLE SIZING, LENGTHS AND FIBER/COPPER BREAK POINTS (NOT ADDRESSED)

  7. INCLUSION OF SPECIAL ACCESS, "ABOVE DS-0" LOOPS (NOT ADDRESSED)

  8. LOADING COILS (NOT ADDRESSED)

  9. INTEGRATED/UNIVERSAL DIGITAL CARRIER (NOT ADDRESSED)

  10. HOST/REMOTE SWITCHES (NOT ADDRESSED)


 D. CAPITAL FACTORS, INCLUDING COST OF CAPITAL AND DEPRECIATION


The WUTC has properly found that for forward looking cost studies,
The last authorized rate of return provides a reasonable measure of the cost of 
money for this purpose and will be accepted as an appropriate principle.     
Fifteenth Supplemental Order, Docket No. UT-950200, page 88.

The Commission has determined that for regulatory purposes, cost studies should 
use the depreciation rates prescribed by the Commission.     IBID, Page 87.

These standards should be retained.  The WUTC determines these factors after 
considering the inputs of all parties.  The only alternative would be to allow 
each party to select whatever cost of money and depreciation rates it wishes to 
use in each case, or to have a full blown cost of money and depreciation case 
included in the determination of every cost study, which is not efficient nor 
reasonable.  The most recent Commission approved values should be used.  The 
WUTC's conclusion is the same as the FCC.  In a recent order, pertaining to 
proper incremental cost studies, the FCC stated,
The rate of return must be either the authorized federal rate of return on 
interstate services, currently 11.25 percent, or the state's prescribed rate of 
return for intrastate services.  (¶250(4) FCC Universal Service Order)

Since what we are addressing in this case are intrastate services, the FCC's 
recommendation is the same as the WUTC's recommendation.  
 On depreciation, the USWC and BCPM models do not even meet the FCC's lower 
standards.  In that same order, the FCC also found that,
Economic lives and future net salvage percentages used in calculating 
depreciation expense must be within the FCC-authorized range.  (¶250(5) FCC 
Universal Service Order)

Many of the so-called "economic" lives that USWC proposes and the lives used in 
the BCPM do not even meet this FCC interstate guideline.  For example, BCPM 
uses a 14 year projected average service life for buried cable.  The USWC model 
uses a    year average service life.  (Dunkel Ex. C-153, p. 34)  The FCC 
prescribed depreciation range for buried cable metallic is 20 to 26 years.FCC 
Further Order Inviting Comments, CC Docket No. 92-296, FCC 94-256, Appendix, 
adopted October 7, 1994.  The ranges proposed by the FCC on this Appendix were 
later adopted by the FCC, and are now the effective r