COMMISSION THE WASHINGTON UTILITIES AND ) TRANSPORTATION COMMISSION ) ) Complainant, ) ) vs. ) DOCKET NO. UT-970766 ) U S WEST COMMUNICATIONS, INC. ) VOLUME 2 ) Respondent. ) Pages 59 - 138 ------------------------------) A pre-hearing conference in the above matter was held on October 14, 1997 at 8:00 a.m. to 9:30 a.m. and reconvened at 4:00 p.m., at 1300 South Evergreen Park Drive Southwest, Olympia, Washington, before Administrative Law Judge C. ROBERT WALLIS. The parties were present as follows: U S WEST COMMUNICATIONS, INC., (via bridge) by LISA A. ANDERL, Corporate Counsel, 1600 Seventh Avenue, Room 3206, Seattle, Washington 98191. THE PUBLIC, (via bridge) by SIMON FFITCH and ROBERT F. MANIFOLD, Assistant Attorney General, 900 Fourth Avenue, Suite 2000, Seattle, Washington 98164. ALSO PRESENT: (via bridge) RONALD ROSEMAN - AARP MACKIE RAYMOND - Consultant MICHAEL BROSCH - Consultant MCI COMMUNICATIONS, (via bridge) by CLYDE H. MACIVER, Attorney at Law, 601 Union Street, Suite 4400, Seattle, Washington 98101. THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION STAFF, by GREGORY J. TRAUTMAN, Assistant Attorney General, 1400 South Evergreen Park Drive Southwest, P.O. Box 40128, Olympia, Washington 98504. Kathryn T. Wilson, CCR Court Reporter P R O C E E D I N G S JUDGE WALLIS: Let's be on the record, please. This is a pre-hearing conference in the matter of Docket No. UT-970766, WUTC versus U S WEST. This conference is being held at Olympia, Washington on Tuesday, October 14, 1997 pursuant to due and proper notice to all interested persons. My name is Robert Wallis and with me in the hearing room, I believe, returning momentarily will be Terry Stapleton. We are the presiding Administrative Law Judges on the proceeding. I'd like to ask for appearances beginning with the Company and then public counsel. MS. ANDERL: Lisa Anderl via teleconference bridge on behalf of U S West. JUDGE WALLIS: That will be sufficient, unless your address has changed. MR. MANIFOLD: Robert Manifold, assistant attorney general for public counsel. MR. FFITCH: Simon ffitch, assistant attorney general for public counsel. MR. MANIFOLD: Also let the record reflect we have both of our consultants on the telephone call as well. They may or may not be participating depending on how the issues fall out. JUDGE WALLIS: For Commission staff? MR. TRAUTMAN: Greg Trautman, assistant attorney general. JUDGE WALLIS: And I understand that AARP is present as well. MR. ROSEMAN: That's correct. Ronald Roseman representing AARP. JUDGE WALLIS: Are there any other appearances to be made? Let the record show that there are none. We will note for the record that Ms. Matchett representing Sprint had been involved in pre-hearing discussions and has decided not to participate further in the pre-hearing conference. There are a couple of matters that brought this on to the Commission involving discovery, and because this was initiated by a request from U S West, I'm going to ask U S West to make an opening statement and then a response, and if necessary, counter-statement by public counsel. Then we'll ask for other comments and then we'll proceed from there. So I'm going to ask Ms. Anderl to begin. MS. ANDERL: Thank you, your Honor. We did request the presiding officers to enter an order both limiting and defining the scope of proper discovery in this case, and we would also like to ask at this point that you consider setting a discovery cut-off date during this proceeding also. U S West has received numerous discovery requests from public counsel through both of public counsel's consultants, and as you may be able to tell from the documents that we sent to you, many of those requests have many, many sub-parts and have become extremely burdensome to U S West to respond to, particularly given the limited scope of this proceeding and the five-day turnaround. I think that we defined what we thought the scope of the proceedings should be both in our requests to you and also in the document that we submitted at 5:00 yesterday. Is everyone still there? JUDGE WALLIS: Did someone join the bridge line? MR. MACIVER: This is Clyde MacIver. I just joined in. JUDGE WALLIS: Whom are you representing? MR. MACIVER: MCI. JUDGE WALLIS: We'll count that as your appearance and let Ms. Anderl continue with her statement. MS. ANDERL: In any event, as I was saying, the basis for our request for an order limiting discovery has been fairly clearly set forth both in the document that we submitted last week, the document that we submitted yesterday, and also in the objection that I've made to public counsel. We provided you with a copy of those objections, and I think that those pretty clearly set forth the areas where we feel the data requests are either requesting irrelevant material, material which is beyond the scope of this proceeding, or requests which are unduly burdensome, particularly given the turn-around time on discovery and the limited scope of this proceeding. I won't repeat what I said in those documents, but would just ask you to consider those in determining our requests here. U S West's filing in this matter is really very simple, and it is a make-hold filing. It assumes an additional 36 million dollars of revenue that has already been approved by the Commission in the depreciation docket, and the only issue as to those dollars is the appropriate rate design in which to recover that dollar amount. The filing does not assume any new adjustments from UT-950200. The only difference in terms of calculating the appropriate result of operations between 950200 and this docket is that there are different test periods, and in some cases, U S West was not able to include the same out-of-period adjustments simply because there were different periods involved. In one or two unlimited cases that proposed adjustments which U S West accepted but the adjustments were not proposed by U S West, U S West's original filing in this matter was just exactly a make-hold filing from 950200, and as the Commission correctly characterized that in its supplemental order, the premise here is, assuming everything the Commission ordered in 950200, U S West is still entitled to this release. The filing is based on the '96 test year, and as such, we have objected to a number of data requests for information from 1997. U S West's obligation in this docket is to establish the term provisions are fair, just, reasonable and sufficient and that the rates produced there from are fair, just, reasonable, and sufficient. It is essentially a burden of proof issue in some ways, and it may be worthwhile to look at what U S West's burden is in terms of whether public counsel's data requests are appropriately linked to the subject of this case. U S West has to establish by a preponderance of the evidence that it is fair, just, and reasonable to spread the 36-million-dollar depreciation revenue requirement as proposed and that there is an additional 34 million dollars, which it is also -- in additional revenue requirements, that it is also fair, just, and reasonable. The question here is not are there other proposals which are also fair, just, and reasonable. That may be. Does that mean that the Commission has to find all those solutions and test them all? We think not. However, we think that's what public counsel seems to be driving toward, particularly with their rate design data request. Can public counsel go on a fishing expedition like that, such as reflected in questions 192 through 200? We don't think so, even if that information were relevant. As we get into those data requests, if public counsel wants to discuss them specifically, we think that incredibly burdensome and impossible to produce in the time allowed. The proper discovery should be limited to the scope of this filing, and that is the filing as presented by U S West. In other words, proper discovery can explore whether the adjustment in revenue and expenses presented by U S West are consistent with the make-hold concept and consistent with the order in 950200. Proper discovery can explore whether there should be an additional 10 million dollars in the team and merit pay and incentive plans. We think there's been a lot of discovery on that. We've been responsive to that discovery. We've not objected to that. And then finally, proper discovery can explore whether the proposed rate spread is fair, just and reasonable. As such, we think that the data requests which request the '97 data are wholly irrelevant, and the rate design questions are merely an attempt to litigate a full-blown rate case, in many cases of requesting data far beyond the scope of that which was requested and produced even in 950200. U S West has been responsive in this docket even to questions which we didn't think were particularly relevant and which, for example, Nos. 89 and 111, you know, issues such as rate of return or cost of debt, I believe. I don't have them right in front of me, but now public counsel has withdrawn those. We've substantially answered those and only objected as they pertained to 1997 data. That doesn't do us much good when the requests are withdrawn after they've been propounded and answered. We think that the data requests, particularly with regard to the rate design issues, have been significantly burdensome. As I understand from Mr. Manifold's filing here today or yesterday, public counsel is willing to live without a lot of those answers. I think that that highlights the need for an order limiting discovery because in the Company, and I myself personally have already spent dozens of hours going through the requests, formulating objections, figuring out which ones we thought were relevant and which ones we could respond to having conferences with public counsel in order to resolve these informally, and then appearing here today when that didn't work out. I think under the circumstances presented and in a little bit of scope of filing and the data requests already propounded warrant an order defining and limiting the scope of the case and discovery in this matter. That concludes my remarks. Thank you. JUDGE WALLIS: Mr. Manifold? MR. MANIFOLD: First of all, you haven't had a chance to read the documents that we submitted. JUDGE WALLIS: Yes. Obviously, we have not had the opportunity to go through them individually with the individual items, but we have read the documents. MR. MANIFOLD: I think there are two aspects to the things that we can approach this morning. One is the general philosophical or overview issue that the Company raises, which is, what is this case about? As to that one, I am unaware of any order by the Commission limiting the issues in this case, and in its most recent order, the Commission refers to the Company's filing as a make-hold filing, which we understand it to be as modified by the Company having picked and chosen among which things it wanted to use or not use from the last case. However, that does not preclude the scope of other parties review of this case because of the time restrictions that are -- the schedule in this case we have necessarily limited our view to a very narrow one, particularly on revenue requirement. The narrowing of -- I don't know that it's necessary to force the issue today as to whether this is limited by Commission order to a quote "make-hold" closed quote, and if so, exactly what that means to resolve the issues that are before us today. Even if the Company's case, by its own statement, is limited to a quote "make-hold" on revenue requirements, I don't believe it can -- it has. I don't think it can legitimately claim that its rate design proposal is anything like a make-hold or perhaps even if that concept makes sense in a rate design context. I think that we will need to review the specific data requests in order to work through the issues today. And I think it's important to separate, as I did in mine, the revenue requirement versus the rate design issues. On the revenue requirement, we are willing to live without '97 data for a number of items if and only if the order of the case is that no one else will be relying upon that data either. As explained in the filing we made last night, the Company has provided Staff with '97 data. The Company does reference '97 data in its own testimony regarding service quality in the fees, and yet in response to our data requests for '97 data on service quality results objects, even though that's one of the issues involved in the incentive compensation issue, which counsel said they had been answering, but which is not what is born out by the record when you look at data request No. 210 and 220, which are ones that are mentioned in my letter. There are some revenue requirement items where we need '97 data to determine whether or not the '96 test year amounts are typical or appropriate. That is not an unusual matter to do in a rate-making context. In fact, it's quite normal. For instance, in the last rate case, the Company's response to our data request No. 95 -- which was very similar to our data request No. 2 in this matter asking for the MR-4 information which includes the revenue information -- they provided in their response their revenue information for the years '93 and '94 and ongoing through '95 up to the date of the response. The test year in that case ended in '94. Obviously, they're not bound by what they did or did not object to it in a prior proceeding, but I cite that as an example of what is normally done to determine whether or not test period data are typical and appropriate. There doesn't seem to be any dispute about providing information from periods prior to the test year. I don't know why on these, particularly on these limited ones, there should be a dispute about which ones to provide information on after the test period either, and I'd like to emphasize that Staff did ask for -- or whether or not Staff asked for, the Company provided '97 data to Staff, and one of the data requests we're seeking Staff asked for the '97 data up to the date of its request. We're asking for the same data from then until now. Obviously, time has moved on. One of the other data requests that I'd like to speak to specifically on revenue requirements is data request No. 2 which is discussed in my letter at the bottom of the first page. That request seeks data which is specifically needed to make an adjustment that was contested in the last case and in which the Commission accepted the position of public counsel in its witness Mr. Brosch, who is the same witness we have here, on how to do an end-of-period revenue adjustment, and the specifics of that are detailed there, but basically, Mr. Brosch in the last case used the last month of the test period plus the two subsequent months and took an average of those three months to get an end-of-period representative revenue impact. We're seeking the data here to do exactly the same thing. Nothing could be more, quote, "in the box" or quote, "make-hold" then to have the same data to make the same adjustment as in the last case, yet the Company has refused that information. Regarding rate design, as I said earlier, there can be no contention if there is a make-hold filing on rate design. If there were a make-hold filing, it would probably be something like increase the amounts that were previously reduced in the previous case. I guess that would be the ultimate make-hold filing. We're not limited in our discovery to simply things that are brought up in the Company's testimony. As the Commission specifically noted in its notice of the pre-hearing conference and as was verified on the record at the pre-hearing conference, at issue in this case in the rate design area are all of the tariffs of the Company. Just because the Company has chosen to propose increasing certain tariffs and not increase other tariffs doesn't mean that any other parties are limited to those same tariffs. All of our data requests in the rate design area have sought to get information which we can use to test, sort out, analyze alternative rate designs. At this point -- with our testimony due a week from Friday, which is about eight business days from now -- the reason we are willing to not pursue many of the rate design data requests is because if we got the information now, we simply wouldn't be able to use it. U S West has delayed this sufficiently such that the information is of no practical useful purpose to us at this late date. So we have narrowed our rate design items to those which we urgently need and which we can fruitfully use in the few remaining days before our testimony is due. Finally, I believe the last page of the submission I sent in has a matrix that we prepared yesterday, or that we've been keeping as we go, and what it shows is basically that discovery is not working in this case. The Company -- and I want to be clear here. I don't need to impute bad intent to the Company in this regard. Whether or not that's the case, I know the Company is busy on a lot of other litigation and has a lot of other things to do. They did commit to respond within five days in this case and that was the order of the case. As you can see from the matrix, they're not doing very well at accomplishing that. Even as to items which are not objected to, we rarely received them within the time frame required, and a large number are still outstanding. Notice on the matrix that we stopped at basically on the ones that were due yesterday when we prepared -- the day wasn't over so we didn't include generally the ones that were due yesterday. I take that back. I guess not answered are on there and we didn't receive any late yesterday so that is accurate. There are others that are due tomorrow and the next day, and at the rate that they have been produced, we simply aren't getting the information that is necessary for us to analyze the Company's data and build our case. JUDGE WALLIS: Does that conclude your remarks? MR. MANIFOLD: Yes. JUDGE WALLIS: Mr. Roseman, do you agree with the comments that have been made? MR. ROSEMAN: Yes, I do. I guess that I'd just amplify AARP's interest is primarily in rate design issues. We intervened in this case because we thought that was the issue that was clearly before the Commission as to how the already agreed-to revenues were being distributed among the various customers. Mr. Manifold has indicated we are cosponsoring the rate design limit. We never had any indication that this issue would be removed from the table or limited from discovery or from us and public counsel putting up our recommendation of how, of which customers, this revenue should come from. The Company's outright refusing to address these issues certainly is the very reason the AARP intervened in this case and does that without any prior notice that we knew about from the Commission that this issue was to be limited. JUDGE WALLIS: Does that conclude your comments? MR. ROSEMAN: Yes, it does. JUDGE WALLIS: Mr. Trautman? MR. TRAUTMAN: Staff has no comments. JUDGE WALLIS: Ms. Anderl? MS. ANDERL: Yes, your Honor? JUDGE WALLIS: Why would the Company withhold the '97 data and yet supply '95 and '94 data? Is that not inconsistent? MS. ANDERL: I think it is not inconsistent. We don't feel that 1997 data is relevant to the issues presented in this docket, which is the 1996 test year. We have provided information for the years prior because those are complete calendar years is one of reasons, and it is data which is already compiled and out there. The reports are complete, and to the extent that public counsel wants to compare 1996 data against other periods to do a check of reasonableness or establish some sort of a baseline, we think that the prior periods allow them to do that. 1997 is not complete, and I don't believe that the data is always representative, given that it's not a full calendar year. We have not provided nor relied on, except in some limited issues of service quality, 1997 data, and I think that if there are one or two out there where we have provided 1997 data to Staff or we have relied on 1997 data, if there are such circumstances that public counsel can point to and we objected to the data requests, we may need to withdraw that objection and provide the data. I'm not saying we did a perfect job of finding all of those, but we're not relying on it and we don't think it pertains. Public counsel talks about the storm damage adjustment when Mr. Manifold discusses data request No. 21. We did not propose that adjustment. Staff asked for that data, and we did provide it. If we didn't think it was pertinent, we would not have provided it or relied upon it for our own purposes in presenting the adjustment. The right to use fees, all of the other areas where public counsel wants information in order to make normalization adjustments don't need 1997 to do it because we don't need a normalization adjustment. Normalization adjustment is not consistent with UT-950200 and saying through to make-hold filing, we're not proposing one, except to the extent that we negotiated something with Staff, which I believe in those cases, Staff may have relied on 1997 data as a basis to negotiate the ultimate agreed-to number, which I think in almost all cases was something less than what we had originally come in and asked for. With regard to the 1997 data that public counsel thinks is most important, which is the C-1 adjustment, the adjustment that Mr. Brosch made in 950200, U S West understood that adjustment to be an annualization adjustment, a revenue annualization, and it wasn't that it was important to use data that was outside the test period so much as it was important to use data that helped complete the calendar year. That is how the Company's interpretation of the order in 950200 and that adjustment was explained to me. As such, we did not feel that 1996 data was important to that since the 1996 test year in this docket is a full calendar year different from 950200 where we had most of '93 and part of '94 or the other way around. Anyway, it was a split calendar year as a test period, and we understand that the protest periods data was simply in order to look at a calendar year rather than because it was post test period. That's the general basis for why we don't think '97 data is relevant. JUDGE WALLIS: If Mr. Manifold's matrix is an accurate reflex of circumstances, why is U S West having so much difficulty in meeting the commitment that it made to have responses within five days? MS. ANDERL: I don't believe Mr. Manifold's matrix is accurate, but since I'm not in my office and I didn't get it until 6:00 this morning, I don't have a way to check that and verify that. I think it's unfair to characterize any data requests 2 through 52 as received late since Mr. Manifold agreed with me that he would make every effort to respond within the five days, but since they had been propounded prior to or on the same date as the five-day turnaround was ordered that we would be allowed additional time to respond to those. I cannot say that we have been late on every single one of the other ones as Mr. Manifold accuses us of. I have been negotiating with him on an ongoing basis. We have found a lot of these requests to be objectionable, and we have attempted to resolve the dispute informally. I would have to check my records in order to tell you whether I thought that this was an entirely accurate matrix. I doubt that there has been any purposeful misrepresentation on it. I cannot say whether it's true or not. The data requests have been voluminous. They have been coming in on a virtually daily basis in sets of 20 or 30 or more with multiple parts. As I said, it has simply been a lot of data to respond to, and a five business day turnaround was perhaps optimistic when I agreed to that, particularly if this matrix is substantially accurate. It takes us at least a day to get the data requests out to the respondents. It has taken more than a day or two for these respondents to provide us with answers, and then the answers have to go through a review and approval process and get sent out to Mr. Manifold. We've had some issues -- what has compounded this is public counsel has asked frequently for data which they already have. That doesn't make it any easier for us to answer the questions. It's still time to be providing public counsel with all of the binders, all of the data requests that we've provided to Staff. A lot of our answers in this docket have been, "See the stuff you already have." But it nonetheless takes up time to do that. I guess that's where we're at on it, and if we have not with any consistency been able to meet the five-day turnaround, that is the reason why. MR. MANIFOLD: Your Honor, may I respond briefly? JUDGE WALLIS: Let me interject that I'm going to ask all participants to tone down the language and recognize that we are not in an accusatory stage here. What we want to do is find out what's going on, and we want to have matters presented in a factual rather than an emotional manner. Mr. Manifold? MR. MANIFOLD: I'm advised by my assistant who has reviewed these that he's not aware of any data response by U S West which has referenced material already in our possession. We certainly attempt to not ask for things which we already have because that wastes our time as well as the Company's. We've done our best to put this matrix together accurately, and I would submit that it is, at least in large substance, accurate. The one part where there is potential for -- it was difficult to categorize things was where something was -- where it was a late answer, that was fairly easy. Where it was not answered, that was fairly easy. There were some items in which a portion of the answer was not provided and a portion was objected to or a portion was answered and a portion was objected to, and we've tried to add those extra categories to capture those. But the overwhelming picture, however any details might be, is that we're simply not getting the answers within the time frame, and as to that first set of the 2 to 52, some of them weren't even within the 10-day time frame, let alone making the commitment I understood the Company to make to have it to us on that Friday or Monday, which we would have accepted them all on Monday. We'll accept them whenever we get them, but Monday would have still been timely in my view. MS. ANDERL: Your Honor, may I speak? I apologize if I sound a little wound up, and I would ask that the record reflect that I did not mean to sound accusatory or in any way use language inappropriate to the proceedings. I simply was attempting, I guess -- and did get somewhat emotional about it -- to reflect that this has been a significant amount of work for U S West and that there has not been any bad faith in these late responses. I will tell you that as to data requests 155 through 189, those were held up because one of the approvers was out of the office, and Mr. Manifold should be getting most of those today. We apologize for the lateness of those. JUDGE WALLIS: With the apparent delay in data responses, is it appropriate to hold to the schedule that's been established? MR. MANIFOLD: Not in our view. We weren't sure if that was an issue to be discussed this morning or not, and so we didn't press that specifically. We certainly will not be able to file, based on what we know now -- well, we don't know what we're going to get today and tomorrow, but we don't just produce final testimony the day before it's due. Both consultants are supposed to have drafts of their testimony to me this Friday or Monday, and they're simply not in a position to do that based on the information they have now or that we reasonably expect by then. At an appropriate time, I would certainly seek a two-week delay when our testimony is due. MR. BROSCH: This is Mike Brosch. I would like to add to that just briefly if I may. JUDGE WALLIS: Mr. Brosch, I understand that you're interested in making a comment, but my comfort level is higher if we just confine this to comments by counsel at this point. MR. BROSCH: In that case, could we go off-line for a moment while I consult with him? JUDGE WALLIS: I'm going to make a suggestion here in a moment, but I'm going to ask some questions or at least one question first and that is to U S West, and by asking this question, I do not mean to signal any decision that has been made or has not been made but just to get an outside indication of time frame, and the question is, if the Commission were to uphold all of the public counsel requests, what is the time by which those requests that you have already received would be delivered, the responses would be delivered to public counsel? MS. ANDERL: Well, your Honor, let me look through this and let me tell you that with regard for the 1997 data, if we're ordered to provide all of it, there are a lot of requests that ask for 1997 data, and we would have to go back through each one of those. I'm not too sure what the time to pull 1997 specific data for each of those is. Probably most of those could probably be answered within the week. I am not too positive about that. I think that some of the other questions, say 104 and 105 that pub