BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION


THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION,

 Complainant,

v.

U S WEST COMMUNICATIONS, INC.,

 Respondent.	)
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		Docket No.  UT-950200
		
		U S WEST Communications, Inc.’s January 23, 1998 Reply Comments 

 On January 16, 1998, U S WEST Communications, Inc. (U S WEST) filed comments 
with the Commission regarding the method of calculating and effecting refunds 
and the interest rate to be used.  Comments were also filed by Commission Staff 
(Staff), Public Counsel, AT&T, TRACER, and MCI.  U S WEST files these reply 
comments as permitted by the Commission’s January 7, 1998 letter to the 
parties.  U S WEST would like to reply to the suggestion that the rates charged 
from May 2, 1996 through the present which were subject to the stay were 
“unfair” (Public Counsel) or constituted overpayments by the customers (Staff). 
U S WEST will also reply to the comments of various parties that the proper 
interest rate is the 12% rate on judgments.
 First, U S WEST would like to correct two errors contained in its initial 
comments.  On page 9, the MTS refund credit is stated as $65.7 million.  This 
is actually the access charge credit amount which was picked up in error.  The 
actual MTS number is $55.5 million as shown in the attachment to the initial 
comments.  Line 9, and footnote 11 should be corrected to reflect $53 million 
without interest, and $55.5 million with interest at the customer deposit 
rate.  On page 11, the PBX and DSS trunks credits incorrectly state that 
interest is to be added. In fact, interest at the customer deposit rate is 
already included in those numbers.  Lines 11 and 12, and footnote 15, should be 
corrected accordingly.
Refund of Rates
 U S WEST would like to take this opportunity to address the suggestion by the 
parties that all of the rates charged which were subject to the stay of 
effectiveness of the Commission’s Order were somehow excessive, or unfair or 
unreasonable.  In making this determination, U S WEST believes that it is 
important to consider the three dockets involved over the past three years, 
UT-950200, UT-970766 and UT-951425.  
 While the Commission established rates in UT-950200 which it believed would be 
fair, just, reasonable and sufficient during the effective period, i.e., 1996, 
it has now been determined by the Commission that during 1996 U S WEST was 
actually underearning by $23 million. This figure in reality is $10 million 
higher, or $33 million, because of the fourth quarter revenue annualization 
adjustment, which of course does not reflect revenues actually earned in 1996.  
This conclusion is established and supported in Docket No. UT-970766 which used 
1996 as a test period and which, assuming that the Commission’s rates in 
UT-950200 had been implemented, shows a revenue shortfall of $23 million.  U S 
WEST should have been permitted to collect in rates an additional $23 million 
during 1996, 1997, and during January of 1998.  This shortfall amounts to a 
total of $40 million over the 21 month period.  
 Furthermore, U S WEST has booked and incurred actual depreciation expenses of 
an additional $36 million during 1997 as established in Docket UT-951425.  
Although those expenses were incurred and booked for 1997, U S WEST has not had 
rates in effect to recover those expenses during any month of 1997 or during 
the first month of 1998.  Additionally, even though the Commission ordered the 
booking of the depreciation expense effective January 1, 1997, the reality of 
the situation is that this particular expense was due to the 1996 depreciation 
represcription process which should have been completed in March, 1996.  Had 
the Commission Staff reached agreement at the three-way represcription meeting 
in March, the additional depreciation expense arguably could have and would 
have been booked as of January 1, 1996.  
 In Docket UT-970766, U S WEST filed evidence that demonstrated that the 
Commission ordered net reduction in U S WEST revenues of $91.5 million had 
grown to $96.7 million.  The evidence showed that the rate reductions were $5.6 
million greater than that calculated by the Commission in Docket UT-950200.  On 
January 14, 1998, U S WEST filed the last of the monthly data required for 
calculation of the refund.  1997 monthly data indicates the reductions have now 
grown to $117.4 million or by another $5 million for a net increased reduction 
of $10.6 million.
 U S WEST brings this discussion up to point out that during all of 1996 and 
1997, U S WEST was experiencing an annual  revenue shortfall of $58.8 million 
as determined in UT-970766.  This, of course, raises the issue of whether under 
those circumstances it is necessary or desirable to issue bill credits or 
checks totaling more than $124 million annually for the period in question.  U 
S WEST submits that the Commission should seriously consider an offset to the 
depreciation reserve, as suggested by U S WEST, as an appropriate method of 
addressing the liability in light of the circumstances presented.  U S WEST has 
set forth its proposal for offsetting the depreciation reserve deficiency in 
its January 16 comments and will not repeat that proposal here.  However, such 
a result would certainly be appropriate and within the Commission’s discretion 
in light of the totality of the circumstances presented by these three 
dockets.  
Method of Refunds
 Only Public Counsel suggests that U S WEST should identify each individual 
customer who would be eligible for a refund and issue a check directly to the 
customer.  U S WEST reiterates its earlier position that such a methodology 
would be administratively burdensome (both to U S WEST and many of its 
customers) and wasteful of resources.  Customers should, in accordance with 
Staff’s suggestion, be issued a bill credit rather than a check, for the 
reasons set forth in Staff’s and U S WEST’s comments.  U S WEST concurs with 
Staff’s suggestion that U S WEST should make reasonable efforts to identify 
customers who have left the company, and should issue checks to those 
customers, U S WEST will do so for both business and toll customers. A certain 
portion of the liability must be held back, and a pool created out of which 
these refunds can be paid.  
 Public Counsel’s suggestion of issuing checks completely begs the question of 
customers who have unpaid balances.  Clearly, it would be inequitable, and bad 
business practice, to issue checks to customers who otherwise have past due or 
unpaid final accounts.  Bill credits address this issue, without disadvantaging 
either the customer or the company.
 The access charge credit and reduction in rates should, as stated earlier, be 
flowed through to the benefit of U S WEST’s Washington ratepayers.  The IXCs in 
this case have promised that benefit to their in-state customers.  The 
Commission recognized the difficulty of monitoring and enforcing such a 
promise, and conditioned implementation of the phased-in reductions in this 
case on fulfillment of that promise.  However, the phase-in period is over as 
of May, 1998 and the Commission has lost that enforcement tool.  Thus, to avoid 
future debate about the extent of windfall gains to the IXCs, and to ensure 
that the benefit of the present and prior reductions reach the Washington 
ratepayers, U S WEST reiterates that it should be permitted to simply credit 
its toll users by the appropriate amount to implement the previously-ordered 
access charge reductions now in the form of a credit.  The Commission should 
continue to monitor intrastate IXC toll rates on a going-forward basis, to 
ensure that the newly implemented rate reductions are flowed through beginning 
in February, 1998.  
Interest Rates
 All of the parties propose that the Commission apply the 12% interest rate on 
judgments to the liability in this case.  Staff recognizes that other interest 
rates which might be used in the calculation are the rate of return (9.367%) or 
the rate on customer deposits, which is what U S WEST advocates.  The 
difference between calculating the interest rate at 12% or using the rate on 
customer deposits is approximately $10 million.  
 U S WEST respectfully submits that the use of the 12% rate is unwarranted in 
this proceeding.  The amount owing is not a judgment of the court, but rather 
represents revenues collected pursuant to rates which had previously (prior to 
April of 1996) been approved by the Commission.  The difference between the 
collected rates and the now-authorized rates simply represents the difference 
between two Commission-ordered rates.  If this liability were a court judgment, 
U S WEST submits that that would have been clear to Judge Lasnik when he first 
granted the stay, and he could have established the rate then and there.  He 
did not do so, expressing uncertainty as to the proper rate to be applied and 
indicating it would be established later.  Certainly, if the stay represented a 
judgment as to any amounts to be later refunded, Judge Lasnik would have called 
it a judgment and ordered the 12% rate.  
 U S WEST believes that the Commission should decide that the rate on customer 
deposits is the proper rate, as in U-82-19 and U-89-2698F/U-89-3245P.  Staff 
attempts to distinguish U-82-19, but it is a distinction without a difference.  
In both this case and the prior case, the refund liability accrued solely 
because the court stayed implementation of the order.  The interest rate in 
each instance should be the same.
 Finally, U S WEST submits that the additional $10 million in interest 
calculated by Staff would be of significantly greater benefit to Washington 
ratepayers if it is available to U S WEST for investment in and improvements to 
the network.  Distribution of this money to ratepayers, by increasing their 
credit or refund a few dollars or cents each does not appreciably benefit 
ratepayers individually or as a whole, to the same extent that network 
improvements would.  Furthermore, it bears re-emphasis that U S WEST is not 
attempting to avoid paying interest, only to establish the appropriate rate.  
Given the current low rates on savings accounts and other short term debt, U S 
WEST believes that the customer deposit rate fairly compensates customers who 
are entitled to the credits and interest.

 DATED this 23rd day of January, 1998.

      U S WEST Communications, Inc. 



            
      LISA A. ANDERL, WSBA No. 13236