Dockets UT-970545, UT-981074, UT-981559 and UT-981560 February 10, 1999 Page 1 Agenda: February 10, 1999 Item: Dockets: UT-970545, UT-981074, UT-981559 and UT-981560 Company: CenturyTel of Washington, Inc. d/b/a CenturyTel Staff: Tim Zawislak, Policy Research Specialist David Dittemore, Utilities Engineer Penny Hansen, Public Involvement Coordinator Glenn Blackmon, Assistant Director - Telecommunications Recommendation: 1. Grant CenturyTel of Washington an Extension in Dockets UT-970545 and UT-981074 for implementation of the Hunters to Colville, Hunters to Kettle Falls, and Chewelah to Kettle Falls routes, until December 31, 1999. 2. Permit the CenturyTel of Washington filings in Docket Numbers UT-981559 and UT-981560 to become effective February 12, 1999, with implementation of the new Extended Area Service (EAS) routes to occur on February 27, 1999, and June 19, 1999, as filed. Discussion: On December 11, 1998, CenturyTel of Washington, Inc. d/b/a CenturyTel (This company was formerly known as Telephone Utilities of Washington, Inc., d/b/a PTI Communications prior to the recent CenturyTel acquisition. (CenturyTel of Washington) filed proposed tariff revisions in Dockets UT-981559 and UT-981560 to its currently two separate local exchange tariffs (WN U-5 and WN U-1, respectively) in Washington state. The company filed these revisions to comply with the Extended Area Service (EAS) settlement agreement ordered Order Granting Petition for Waiver of Rule, dated September 17, 1998. during the Commission’s rulemaking proceeding in Dockets UT-970545 Docket UT-970545 is the Commission’s recent rulemaking which addresses minimum local calling areas. and UT-981074 Docket UT-981074 is WITA, et al.’s, petition for waiver of the old EAS rule.. The settlement agreement addressed several companies and several routes (many of which are intercompany routes requiring industry coordination). Some of CenturyTel of Washington’s routes involve U S WEST Communications, Inc. (U S WEST). Because U S WEST is also involved in other intercompany routes it has filed a separate tariff filing in Docket UT-981587 to accomplish all of its two-way obligations under the EAS settlement agreement, in one filing. Staff has prepared a separate memo to address the U S WEST tariff. CenturyTel of Cowiche, Inc. (also d/b/a CenturyTel) has also filed a separate tariff in Docket UT-981558, which is also addressed in a separate memo. This memo focuses only on the filings made by CenturyTel of Washington in UT-981559 and UT-981560. Staff’s review of CenturyTel of Washington’s proposal can be classified into six categories outlined below - these address 1) the routes proposed, 2) timing, 3) rate design (or impact on various customer groups), 4) cost support justification, 5) customer comments received, and 6) a conclusion. I. Routes Proposed: The proposed EAS routes All areas (exchanges) are served by CenturyTel, except those in bold which are served by U S WEST. and other information The implementation dates and rate increases that are in italics are items that deviate from the settlement agreement and initial customer notification, but have been changed in order to accommodate the requested extension waiver due to the current unavailability of facilities. related to EAS is provided in the following table: FROM EXCHANGE(S) TO EXCHANGE(S) DATE IMPLEMENTED TARIFF NUMBER RESIDENCE INCREASE Arletta, Fox Island, Gig Harbor, and Lake Bay Bremerton Port Orchard June 19, 1999 June 19, 1999 WN U-1 Optional Flat $10.00/month or Measured at $0.08/min. Carnation Snoqualmie Pass February 27, 1999 WN U-1 n/a Chewelah Hunters Kettle Falls February 27, 1999 December 31, 1999 WN U-1 n/a Humptulips Lake Quinalt February 27, 1999 WN U-5 $0.55/month Hunters Chewelah Colville Kettle Falls February 27, 1999 December 31, 1999 December 31, 1999 WN U-1 deferred $1.50/month Kettle Falls Chewelah Hunters December 31, 1999 December 31, 1999 WN U-1 n/a Lake Quinalt Aberdeen Humptulips February 27, 1999 February 27, 1999 WN U-5 $1.50/month North Bend Snoqualmie Pass February 27, 1999 WN U-1 n/a Snoqualmie Pass Bellevue Carnation Fall City Issaquah North Bend February 27, 1999 February 27, 1999 February 27, 1999 February 27, 1999 February 27, 1999 WN U-1 $3.50/month II. Timing: The proposed timing of CenturyTel of Washington’s filings is generally consistent with the terms of the settlement agreement, with the exception of the requested extension waiver regarding the Hunters to Colville and related cluster routes. On January 15, 1999, CenturyTel of Washington filed its petition for waiver based on the lack of facility availability through U S WEST’ s Colville central office. The facilities are required to keep the grade of service within satisfactory limits (ie. 1% blocking), as the level of traffic increases due to the removal of toll charges. Staff has recommended, and CenturyTel of Washington has agreed, that the rate increase applicable to Hunters be deferred until all of the Hunters routes listed above are implemented and completed. The company has provided replacement tariff sheets to accomplish this outcome concomitant with extension approval. It is expected that CenturyTel of Washington and U S WEST will be able to implement the deferred routes by no later than December 31, 1999. III. Rate Design (impacts on various customer groups): The table above gives an example of the impacts on residence customers in the areas which are receiving additional EAS as a result of these filings. The impacts on business customers are relatively similar (on an order of magnitude) retaining the current 2:1 business to residence ratio in most cases. In addition to the impacts on those customers who will be receiving EAS (shown in the table above) there are also impacts on some of the other CenturyTel of Washington customers who are not receiving any additional EAS. These increases primarily impact customers who are located in the areas previously served by U S WEST. In 1995 Telephone Utilities of Washington, Inc., d/b/a PTI Communications (now acquired by CenturyTel of Washington) acquired 27 rural exchanges from U S WEST. Since that time, CenturyTel of Washington has upgraded facilities in the network to improve service quality to these customers without any local rate increase offsets. As CenturyTel of Washington implements the EAS routes anticipated by the settlement agreement it will make additional investments in the network and will also experience a reduction in access charge revenue due to the transition of the traffic from a usage based toll service to a flat rated local service. Even after raising rates in the EAS-impacted exchanges to reasonable levels the company would still have experienced an overall revenue reduction, all other things being equal. However, the terms and conditions of the settlement agreement (and the Commission’s order) outlined that these new EAS routes be implemented on a revenue neutral basis. In order to keep rates reasonably comparable and equitable the company found it necessary to propose increases to some of the 27 acquired exchanges. Currently the acquired exchanges are priced well below the remainder of CenturyTel’s majority of customers For example, CenturyTel of Washington’s current Rate Group IV access line rates are $15.90 for Residence customers, and $31.80 for Business and Payphone Access Lines customers.. In fact, if the acquired exchanges were transitioned to CenturyTel of Washington’s rate structure (or if they were still under U S WEST ownership) they would likely be priced at even higher levels than those proposed in this filing. CenturyTel has proposed this transition step towards the goal of blending the acquired exchanges in with the rest of its operations, and staff concurs that this is an equitable and reasonable way to approach this issue. Generally, customers in the acquired exchanges of Ashford, Cathlamet, Curtis, Harrington, Lebam, Lind, Nespelem, Odessa, Pe Ell, Raymond, Ritzville, Royal City, South Bend, Sprague, Starbuck, Vader, Wilbur, and Wilson Creek, will experience the following rate increases: (however some will receive based on the migration to the more equitable and simple structure) Sample of Sample of Current Proposed Rates Rates Change Residence Single Party Flat $11.50 $12.25 $ 0.75 Business Single Party Flat 22.10 25.35 3.25 Payphone Access Lines 27.15 25.35 <1.80> IV. Cost Support Justification: CenturyTel of Washington has provided comprehensive confidential workpapers supporting its proposal and staff has reviewed the workpapers and additional data justifying the resulting rate increases. However, Staff has not performed an audit of the company’s earnings, per se, because of the settlement agreement’ s (and order’s) allowance for revenue neutral filings. Staff is comfortable that the company’s filing is designed to achieve revenue neutrality. The need for revenue neutrality stems from the fact that CenturyTel of Washington will incur additional investment in new facilities, and the lost access charge revenue associated with converting toll traffic to local (ie. EAS). This loss of toll related revenue and the increased need for additional capacity to handle stimulated (local) traffic volumes are costs that have been traditionally allowable for recovery as new EAS is implemented in order to achieve voluntary and mutually acceptable compliance. V. Customer Comments: Docket UT-981559 (CenturyTel of Washington Tariff WN U-5): The Commission has received two letters in favor of the expanded local calling between Lake Quinault and Aberdeen. The Commission has received six letters opposed to the rate increase in the areas not receiving any EAS. Customers believe that the rate increase proposed should be spread evenly between residential customers and business customers. Docket UT-981560 (CenturyTel of Washington Tariff WN U-1): The Commission has received eleven letters in favor and one opposed to the expanded local calling options between the Gig Harbor area (including Ollala) and the Bremerton/Port Orchard areas. The Commission has received three letters in favor of the expanded local calling area between Hunters, Kettle Falls, Chewelah, and Colville. VI. Conclusion: Staff supports CenturyTel of Washington’s new EAS routes and rate design filing because they comply with the settlement agreement and address situations where a strong community of interest has been demonstrated while keeping rates comparable and equitable across all of the company’s service territory. Therefore, Staff recommends that the Commission permit these filings and the waiver request.