BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION


In the Matter of the Pricing proceeding for Interconnection, Unbundled 
Elements, Transport and Termination, and Resale
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In the Matter of the Pricing Proceeding for Interconnection, Unbundled 
Elements, Transport and Termination, and Resale for U S WEST COMMUNICATIONS, 
INC.
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In the matter of the Pricing Proceeding for Interconnection, Unbundled 
Elements, Transport and Termination, and Resale for GTE NORTHWEST INCORPORATED	)
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		DOCKET NO.  UT-960369
		
		DOCKET NO.  UT-960370
		
		DOCKET NO.  UT-960371
		
		
		U S WEST’S PETITION FOR RECONSIDERATION OF THE TENTH SUPPLEMENTAL ORDER

 U S WEST Communications, Inc. (U S WEST) hereby files this motion for 
reconsideration of the Tenth Supplemental Order entered in this matter on July 
23, 1998. 
Deferred Taxes/Depreciation
 U S WEST respectfully requests that the Commission reconsider and reverse its 
decision to consider a modification to the Hatfield model to account for 
deferred taxes.  First, U S WEST submits that no party complied with the 
Commission’s directive in the Ninth and Tenth Supplemental Orders to provide 
modifications to the model algorithms to account for the investment tax 
credit.  The model sponsors were given over two months to do so.  Thus, whether 
a correction can properly be made to the model is not supported on this record, 
and the model should be used as is. 
 Second, if the Commission determines nonetheless to attempt to correct 
Hatfield for deferred taxes, the Commission should also correct for Hatfield’s 
incorrect use of straight line depreciation.  
 The Tenth Supplemental Order in this case rejected the use of Equal Life Group 
(ELG) depreciation methods in determining costs in the Hatfield model.  The 
Order cited the Ninth Supplemental Order, and stated that U S WEST provided no 
“citation to its assertion that the Commission has adopted ELG depreciation for 
use in economic cost studies”.  It is U S WEST’s firm belief that based on the 
evidence in this record, and the prior orders in this cost docket, the 
Commission cannot come to any other conclusion than that ELG depreciation 
methods have been adopted by this Commission for use in economic cost studies.  
In fact, the use of some other method than ELG depreciation rates contradicts 
the orders and testimony in this case.  
 In the Eighth Supplemental Order the Commission stated:
In depreciation proceedings in Docket Nos. UT-940926 (GTE) and UT-951425 (U S 
WEST), we considered the degree to which depreciation rates should be modified 
to reflect regulatory and market changes-----The rates adopted in those 
proceedings reflect our understanding of the capital lives of the assets.” 
(Paragraph 217).

 As further justification for the use of the service lives adopted in Docket 
No. UT-951425 the Commission cited its order in the 1995 U S WEST rate case in 
which the Commission found “that the authorized depreciation rates are proper 
for cost study use and that they sufficiently reflect U S WEST’s costs that 
they may be used in an accurate cost study and for rate making purposes.”  
Paragraph 215 of the Eighth Supplemental Order in this Docket.  
 Thus, the sole basis the Commission gave for adopting the prescribed 
depreciation lives and salvage values was the assumption that the depreciation 
rates prescribed for U S WEST in Docket No. UT-951425 were also appropriate for 
determining economic costs for elements and services.  However, this conclusion 
is in direct conflict with the Commission’s position regarding the use of ELG 
depreciation methods.
 In Docket No. UT-951425 the Commission established the lives and salvage 
values that U S WEST should use in determining its depreciation rates.  The 
rates were then calculated using the methods prescribed in Docket No. 
UT-940641, which include the use of Equal Life Group depreciation methods for 
all new plant placed in service beginning in 1995.  As stated by the 
Commission:  
The Company is authorized to adopt ELG on a going-forward basis, starting with 
plant of 1995 vintage.

 Thus, it is clear that the authorized depreciation rates for all plant placed 
in service after 1994 included the use of ELG depreciation methods.
 This docket was established to determine the cost of providing network 
elements.  The Commission has concluded that a forward looking, rather than an 
embedded, analysis should be used.  The costs to be analyzed include the future 
cost of constructing the facilities required to allow CLECs to offer their 
services.  Both the Commission prescribed depreciation rates and the rates 
proposed by U S WEST include the use of the ELG method for calculating 
depreciation rates for all vintages of plant placed in service subsequent to 
1994.  There can be no argument that future construction costs would be 
incurred after 1995, which is the year that U S WEST was allowed to adopt ELG 
on a going forward basis.  No party to this proceeding presented any evidence 
that ELG rates are inappropriate for calculating the future cost of installing 
plant.  ELG based depreciation rates are the only rates that were proposed 
during the docket and therefore are the only rates that this Commission should 
adopt in its order.
 Any Commission decision to modify the Hatfield model to include deferred taxes 
compounds the impact of rejecting ELG.  Deferred taxes are calculated based on 
the difference between the book depreciation and the tax depreciation.  In 
almost all instances tax depreciation exceeds book depreciation.  This 
difference results in taxable income that is lower than book income, reducing 
the actual taxes paid.  This tax benefit or deferral reduces the amount of 
funds a company must acquire from the financial markets.  Consumers benefit 
through lower prices since these funds are treated as cost free financing in 
the development of costs and prices.  The bigger the difference between the 
book depreciation established by this Commission and the tax depreciation set 
by the FCC, the bigger the savings in both costs and prices charged by the 
ILEC.  
 If this Commission adopts vintage group depreciation for use in developing 
forward looking costs, the amount of projected deferred taxes is larger than 
would occur if ELG depreciation rates were used.  Increasing the deferred taxes 
reduces the level of costs produced by the models.  This puts the Company in 
the position of being penalized twice for something that will not occur.  Since 
all future plant placements will be depreciated using ELG, the projected costs 
will not only understate the actual depreciation expenses the company will 
incur, but will also overstate the benefits the company and its customers will 
receive from the deferred tax accruals.  U S WEST would never be able to 
achieve such projected costs, due to the fact that costs have been reduced 
twice for a depreciation method that is no longer being used for new plant 
placements.  Neither the depreciation levels nor the deferred tax benefits 
reflected in the costs could never be achieved.  
 As U S WEST pointed out in its comments to the Ninth Supplemental order, 
correcting the Hatfield model to reflect both authorized ELG depreciation rates 
and deferred taxes would have a minimal result on the Hatfield outputs.  
Conversely, correcting just for deferred taxes would have a grossly overstated 
impact on the model results, including overstating the benefits of those 
deferred taxes.  Accordingly, U S WEST petitions the Commission to either 
reconsider and reverse its decision to consider a modification to the Hatfield 
Model to account for deferred taxes, or, in the alternative, recognize the 
offsetting effect that ELG depreciation rates would have on the calculation.
 Respectfully submitted this 18th day of August, 1998.

      U S WEST Communications, Inc.

      By:_______________________________
       Lisa A. Anderl, WSBA No. 13236