BEFORE THE WASINGTON UTILITIES AND TRANSPORTATION COMMISSION WASHINGTON UTILITIES AND ) U S WEST COMMUNMICATIONS TRANSPORTATION COMMISSION ) ) REQUEST FOR COMMENTS RE: ) JUNE 26, 1998 DOCKET NO. UT-970545 ) COMMENTS ) ) ) PROPOSED RULE TO DEFINE A ) MINIMUM LOCAL CALLING AREA ) At the Washington Utilities and Transportation Commission=s Open Meeting on May 27, 1998, the Commission Staff presented their revised draft rulemaking in Docket No. UT-907545. In its presentation, the Staff discussed the intent of the rule and recommended that the Commission direct the Secretary to file a notice of proposed rulemaking (CR-102), along with a small business economic impact statement (SBEIS), defining the minimum local calling area to be provided by local exchange companies as an element of basic telephone service, and withdraw the previously-filed CR-102 in this docket from consideration. The commission directed the staff to issue the proposed rule for further comments and possible adoption by filing the notice of rulemaking with the Code Reviser. On June 3, 1998, Carole Washburn, Secretary, issued a letter to all interested persons regarding the status of the Minimum Local Calling Area Rule. This letter provided information regarding the status of the revised proposed rule and invited written comments to be filed no later than June 26, 1998. INTRODUCTION U S WEST Communication, Inc. (U S WEST) appreciates the opportunity to provide additional comments regarding the Revised Proposed Minimum Calling Area Rule. While the criteria for the minimum local calling area rule have improved and are more workable than previous drafts, U S WEST continues to believe that the rule, as currently drafted, does not solve the problem of inadequate local calling as perceived by Washington customers. The rule requires that at least one of the listed exchanges would be included in each local calling area. Requiring companies to include at least one of the exchanges as outlined in Section 2, does not solve the problems raised by concerned customers regarding expanded local call area requirements. These customers are seeking toll free calling to areas that do not appear on the list of exchanges outlined in Section 2. If applied, the revised proposed rule minimum local calling standards would create about 40 new U S WEST AEAS@ routes including the reciprocal routes with other local exchange companies. The cost of implementation of these routes would be approximately $5 million. This amount includes the decrease of toll and access revenues. The rule, as currently drafted, fails to address the recovery of decreased toll revenue. The commission cannot lawfully pass a rule that has the effect of reducing toll and access revenues without ensuring that such reductions are concurrently recovered through an increase to other rates, through a revenue neutral filing. Local long distance revenue contributes to low basic exchange service rates. Any toll revenue loss associated with this rule must be recovered concurrently with implementation of the new calling areas created by the rule. U S WEST has presented it position on this legal issue in the Access Charge reform, Docket. No. UT-970325. In that proceeding, U S WEST asked the Commission to delay their Notice of Proposed Rulemaking until the language contained in the proposed rule could be revised so that it does not effect a rate reduction for those companies through a rulemaking proceeding. The fact that the rule does not authorize a Arevenue neutral@ filing for companies such as U S WEST and others, is a clear violation of the company=s procedural due process rights and is in excess of the Commission=s statutory authority to adopt rules. U S WEST believes that an individual adjudication is necessary in order to determine whether a company ought to have its rates reduced without an offsetting rate increase. While U S WEST supports the concept of expanding local calling areas it continues to object to the Commission=s proposed rule as it is now written. As stated above, this rule fails to properly address the financial impact that the proposed rule implementation would have on the incumbent local exchange companies (LECs). Other areas of concern with the proposed rulemaking include Internet usage, timelines for filing, and the $.25 rate cap that has been set for the larger companies. The Commission=s May 27, 1998 Open Meeting Memorandum said that while it is true that Internet usage will be stimulated along with costs and network requirements, that the impact of Internet usage is too new to assess accurately. U S WEST has a substantial amount of information and experience relating to the impact of Internet usage and has shared such information with the Commission on a regular basis. For the past two years, U S WEST has been experiencing continuing difficulty with local trunking capacity in its Silverdale exchange. In 1997, U S WEST spent $21 million to add additional interoffice facilities in Washington and expects to spend an additional $30 million in 1998 due to increased Internet usage. The proposed rule will exacerbate that situation by establishing routes that will remove the natural barrier created by the old EAS rule, which in turn will stimulate even greater Internet usage and even more network congestion. U S WEST specifically objects to language contained in Section 3, Section 6, Section 7, and Section 8 in the proposed rule. Following are U S WEST=s specific comments. PROPOSED RULE LANGUAGE IN WAC 480-120-045 Section 3 Section 3 of the proposed rule requires companies to, as much as reasonably possible, conform to existing county and school district boundaries. Though this may be a reasonable request, it is unworkable and, impossible to achieve in the scheduled timeline of this proposed rule. Nor has any analysis been conducted to determine if such an approach compliments of contradicts the proposed rule language. Calling areas currently follow defined exchange boundaries that have been in place, without significant change, since telephone service was first provided to the area. Often times exchange boundaries do follow county boundaries but they are also known to follow rivers and other natural boundaries. Telephone facilities are built based on individual wire centers within each exchange. To move those facilities to another exchange=s wire center, in order to conform to county or school district boundaries, would be confusing to customers and would require significant and very expensive changes to the telephone infrastructure in Washington. Since facilities are designed to individual wire centers, a telephone number change would be required if a customer=s outside plant facilities were moved to a different exchange. For these the language relating to existing county and school district boundaries, should be removed from Section 2, until further anaylsis and cost estimates can be provided. Section 6 Section 6 of the Revised Proposed Rule is unreasonable. It requires companies to file their schedule of routes within 90 days of the effective date of this rule with final implementation to occur within 10 months. Considerable planning and resources will be required to implement a project as large as this. A more reasonable approach would be to require companies to file a preliminary schedule within 60 days of the effective date of the rule and allow 120 days to study the routes and file an final implementation schedule. The proposed rule does allow the companies to file for a waver of the rule if an extension of time is necessary. The time required to implement this proposed rule will, in most cases, make these waiver requests necessary from every company. One solution would be to broaden the schedule and allow more time for filing and implementation. This would eliminate the need for the companies and the commission staff to deal with an unreasonable number of waiver requests.. Section 7 (a) As previously stated, U S WEST cannot support the following proposed rule language: AProjected costs and decreased revenues resulting from implementation of WAC 480-120-045 shall be calculated as the net of all cost and revenue changes for access and local service and engineering and plant expense and investment.@ The commission fails to address recovery of decreased toll revenue. U S WEST cannot support a rule that will not allow such recovery. Incumbent local exchange companies rely upon this revenue source to fund capital requirements and to maintain universal service support. Local long distance revenue contribute to low basic exchange service rates Any toll revenue decrease associated with this rule must be recovered concurrently with implementation of the new calling areas created by the rule, otherwise the rule is unlawful. Section 7 (b) Section 7 (b) states that any local exchange company may seek a concurrent increase in rates to recover in whole or in part the projected costs and decreased revenues resulting from implementation of this section. The commission shall approve the increase if it is supported by the compliance filing required under subsection (6) of this section and is in the public interest. U S WEST is not clear what is intended by the language Aif it is supported by the compliance filing required under Section (6).@ Does that mean the schedule set forth or does it include additional criteria? The Apublic interest@ criterion is very broad. USWC cannot support any rule language that does not guarantee concurrent recovery of decreased revenues and increased costs. Decreased revenues include Access and Toll; cost includes all network expense and capital requirements. Section 8 Section 8 allows for any increase in rates as a result of this rule to be recovered by AIncreasing local rates of all customers of the company by no more that $.25 per customer per month, unless the company demonstrates in a general rate filing that a larger increase is in the public interest.@ In the case of a local exchange company that is a small business as defined by chapter 19.85 RCW the limit on local rate increases for all customers in (b) of this subsection shall be $3.50 per customer per month. The cap on the increase to local rates is reasonable as long as LECs can reasonably recover all revenues decreased as a result of this rule from other regulated services. USWC cannot support a cap that differs between small LECs and large LECs such as suggested in (8)(b) & (c). The routes that will be encompassed by this rule are primarily rural routes and as such their demographics do not really differ dependent upon serving company. The cap should be set at $3.50, or more, for all companies regardless of size. The Commission should not be concerned about improper use of a cap since Companies will only be allowed to recover cost and decreased revenues incurred. In the case of U S WEST or another large LEC that may only be $.25. For other companies, $.25 may not be adequate and $3.50 may not be adequate. What is essential is that the rule must allow LECs to recover costs and all decreased revenues including toll. As stated above, a cap may be reasonable, however, only one cap is appropriate. CONCLUSION U S WEST appreciates the opportunity to participate in this proceeding. However, as stated above, the rule language must be updated and revised to include a longer time frame for implementing the routes, as well as provide provisions for the recovery of all associated network costs and revenue decreases including decreased toll revenues. U S WEST, which is still regulated under rate of return regulation, only five months ago completed a rate case wherein the Commission established a revenue requirement based, at least in part, on existing toll revenue. Any rate reduction, without an offsetting rate increase, would in effect be an amendment to the Commission=s establishing U S WEST=s revenue requirement in Docket No. UT-970755. As noted above, such an activity pursuant to a rulemaking is simply impermissible.