ORDER NO. 96-180

ENTERED JUL 16, 1996

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 288

UM 681

UM 682

UM 683

UM 684

UM 686

UM 709

UM 717

UM 735

UM 746

UM 747

UM 748

UM 757

UM 758

UM 759

UM 761

UM 763

DISPOSITION: EAS TARIFFS APPROVED; EAS PETITIONS GRANTED

SUMMARY

In this order, the Commission grants 17 petitions for Extended Area Service (EAS). The petitions, which involve 31 local telephone exchanges around the state, represent all those EAS petitions that successfully completed Phase I (community of interest determination) by August 1, 1995. Each petition has now completed Phase II (tariff analysis), in which the Commission reviewed the proposed tariffs filed by the eight telephone companies serving the affected exchanges. The tariffs have been approved, subject to the terms of this order. With approval of these petitions, toll-free calling at EAS rates will be available for the interexchange routes at issue in this proceeding on October 5, 1996.

Based on the record in these dockets, the Commission makes the following:

FINDINGS OF FACT AND CONCLUSIONS

PHASE I - COMMUNITY OF INTEREST

In this consolidated investigation, petitions were filed on behalf of customers of 17 local telephone exchanges requesting EAS to neighboring telephone exchanges. Following a review of petition signatures, the Commission docketed each petition for investigation. A list of the dockets, including an identification of the petitioning exchange and target exchange(s), is contained in Appendix A. Administrative Law Judges Michael Grant and Allen Scott presided over the consolidated proceeding.

Pursuant to established procedures for EAS dockets, each petition entered a Phase I community of interest determination. Local exchange companies (LECs) serving the affected exchanges provided calling pattern data to the Commission Staff (Staff). Staff reviewed the data to determine whether the individual petitioning exchanges met the Commission’s objective community of interest criteria.

Applicable Law

In Order Nos. 89-815 and 92-1136, the Commission adopted the following objective community of interest criteria for EAS cases:

1. Contiguous boundaries--a petitioning exchange must have a common boundary with the target exchange.

2. Minimum calling volume--there must be an average of four toll calls per access line per month between the contiguous exchanges.

3. Minimum calling distribution--more than 50 percent of customers in the petitioning exchanges must make at least two toll calls per month to the contiguous exchange.

In adopting these criteria, the Commission recognized that calling pattern data may not always reflect the existence of a community of interest. Accordingly, if the objective calling pattern criteria are not met, petitioning exchanges were given the opportunity to establish a community of interest through demographic, economic, financial, or other evidence to support a need and usefulness for EAS.

Findings

Based on a review of calling data provided by the LECs, Staff determined that all but three of the interexchange routes listed in Appendix A satisfy the Commission’s objective community of interest criteria. The Commission adopts Staff’s findings, which are contained in testimony filed in each docket and summarized in Hearings Officers’ Rulings or Commission orders. A list of Administrative Law Judge’s Rulings and Commission orders, which are incorporated by reference, is contained in Appendix A.

Three EAS interexchange routes included in this consolidated proceeding, Prineville/Redmond (UM 735), Elkton/Oakland/Sutherlin (UM 686); and Yachats/Newport (UM 747), initially failed the objective community of interest criteria. At the request of the petitioning exchanges, an Administrative Law Judge conducted evidentiary hearings to allow the petitioners the opportunity to establish that a community of interest exists by means of demographic and other information. Following a review of the evidence submitted at those hearings, the Commission concluded that a community of interest does exist for those three interexchange routes. The Commission’s conclusions are contained in the orders listed in Appendix A.

Resolution - Phase I

Based on the record developed in these proceedings, the Commission concludes that each of the interexchange routes listed in Appendix A has satisfied the community of interest requirement.

PHASE II - TARIFF ANALYSIS

Upon successful completion of Phase I, the petitions were grouped together for a Phase II tariff analysis. Eight LECs provide service to the 31 telephone exchanges affected by this investigation. The companies are: Cascade Utilities, Inc. (Cascade); GTE Northwest, Inc. (GTE); Monroe Telephone Company (Monroe); Pioneer Telephone Cooperative (Pioneer); Scio Mutual Telephone Association (Scio); Telephone Utilities of Oregon, Inc., dba PTI Communications (PTI); United Telephone Company of the Northwest (United); and U S WEST Communications, Inc. (U S WEST).

Customer Notification and Public Hearings

At the Commission’s direction, the LECs filed proposed tariffs for the EAS routes. The companies also notified their customers of the proposed rates and the dates of public hearings. During April and May 1996, Administrative Law Judge Allen Scott held 10 public comment hearings at various locations around the state. At each hearing, Staff Members Lance Ball or David Booth made an informational presentation explaining the rate criteria and the tariff analysis in these dockets. The Commission Staff also prepared and distributed a handout explaining the companies’ proposed EAS rates. Representatives of the local telephone companies also appeared.

Attendance at the hearings ranged from approximately 15 to 20 to well over 100. Nearly all those expressing their views believe that the proposed rates are reasonable and supported implementation of the EAS. Those speaking in support of the proposals generally view the proposed rates as a desirable and affordable alternative to large toll charges that they now incur for calling within their community of interest. Only a few people expressed some concern that the rates might be too high or that they would not benefit from the proposed EAS.

Stipulations

Staff reviewed the LECs proposed tariffs and, after conducting discovery and exchange of information, entered into a stipulation with each company. No one filed an objection to the stipulations, which are set forth in Appendices B through I. Stipulated EAS rates for each of the eight LECs are set out in Appendix J.

Rate Design Criteria

In the generic EAS docket, UM 189, the Commission adopted 10 rate design criteria for EAS conversion. The following is a description of how the stipulated rates conform to those criteria:

EAS Criterion 1: Flat EAS rates must be available for all EAS routes.

The stipulated rates for all eight LECs comply with Criterion 1. Each of the LECs has made a flat rate available for all EAS routes existing and proposed.

Criterion 2. A measured rate option must be available for all EAS routes.

The stipulated rates for all eight LECs comply with Criterion 2. Each of the LECs currently provides a measured option for EAS service and proposes to make the option available in each exchange that is scheduled to receive new EAS in October 1996.

Four LECs have proposed to change their measured EAS rates. United proposes to decrease its measured EAS rate 2 cents per minute from 8 cents per minute to 6 cents per minute. Scio proposes to increase its rate 4.1 cents per minute from 3.9 cents per minute to 8 cents per minute. Monroe proposes to increase its measured rate 3 cents per minute from 5 cents per minute to 8 cents per minute. GTE proposes to combine its current Zones 1 and 2 measured EAS rates into one combined rate. GTE now has two measured rate zones. In Zone 1, the present rate is 7.5 cents per minute for the initial minute and 3 cents per minute for subsequent minutes. In Zone 2, the present rate is 12 cents per minute for the initial minute and 6 cents per minute for subsequent minutes. GTE proposes no change in its Zone 1 initial minute rate of 7.5 cents per minute. It proposes to increase the present Zone 1 subsequent minute rate 1 cent per minute to a level of 4 cents per minute. GTE proposes to eliminate the distinction between Zone 1 and Zone 2. All measured rate EAS will thus be charged at Zone 1 rates.

All of the measured EAS rates proposed by the eight companies are consistent with measured rates charged by the other LECs and Commission guidelines.

Criterion 3: A combination of flat local exchange service and measured EAS must be offered.

The stipulated rates for all eight LECs comply with Criterion 3. Each of these LECs currently provides a combination of flat rate local exchange service and measured rate EAS. This combination will be available in all exchanges which are scheduled to receive new EAS in October 1996.

Criterion 4: Flat EAS rates should be asymmetrical between exchanges to reflect differences in the number of subscriber lines.

The stipulated rates for all eight LECs comply with Criterion 4. Each of these LECs has an existing company-wide matrix of EAS rates which satisfies Criterion 4.

Four companies (GTE, Pioneer, PTI, and United) propose to charge for expanded EAS service based on their existing rate matrices. U S WEST and Cascade propose to make modifications to their EAS rate matrices to accommodate new routes. Scio and Monroe are increasing their EAS rates, as a package, to accommodate new EAS routes to Salem and Eugene/Springfield and Junction City, respectively.

Criterion 5: One flat rate option should incorporate all EAS service available to the customer.

The stipulated rates for all eight LECs comply with Criterion 5. Each of these LECs provides a flat rate option which incorporates all EAS routes available to customers in each exchange.

Criterion 6: Flat EAS rates must include a residential/business differential under which business customers pay a higher flat rate.

Rates for all eight LECs comply with Criterion 6. Each of these LECs charges a higher flat EAS rate per line to its business customers. Seven of the LECs propose to retain the business to residential rate ratios in their current tariffs. Cascade is proposing a uniform 2 to 1 differential between business and residential EAS rates.

Criterion 7: Measured EAS rates must be the same for business and residential customers.

The stipulated rates for all eight LECs comply with Criterion 7. Each of these LECs charges the same measured EAS rate to both residential and business customers.

Criterion 8: EAS rates must recover the cost of switching and transport, and make a contribution to common overhead and the cost of the local loop.

The stipulated rates for all eight LECs comply with Criterion 8. The proposed EAS revenues recover traffic-sensitive costs and provide a contribution to the cost of the local loop.

Criterion 9: Revenue shortfalls due to the new EAS routes must be made up first from company-wide EAS rates, then from company-wide local exchange rates.

The stipulated rates for the eight LECs comply with Criterion 9. Seven of the LECs do not propose to increase local exchange rates as a part of this proceeding. PTI, however, proposes to increase local exchange rates.

The Commission has established in Order No. 91-1140 that the flat EAS rate should not be greater than 50 percent of the total intrastate charge for flat rate local exchange service and flat rate EAS combined. In other words, the flat EAS rate should not be greater than the local exchange rate. For PTI, the required cost recovery for EAS is $288,560. Without violating the guidelines set out above, PTI could generate only $151,949 in additional EAS revenues from increased EAS rates. Consequently, PTI proposes to recover the remaining EAS costs from an increase in local exchange rates.

Stipulated rates for five of the eight LECs are within the Commission’s 50 percent guideline set out above. Cascade, Monroe, and Scio are not within that guideline. Cascade’s proposed residential EAS flat rate in the rate band for 50,000+ access lines ($10 residential) exceeds its residential local exchange rate for the Cascade and Corbett exchanges ($7.90 residential). The company’s proposed EAS business flat rate of $20 brings Cascade into compliance with the 50 percent guideline. Cascade’s local exchange business rate is $22.50. For both the Estacada and Corbett exchanges, Cascade’s local exchange rate for residential service is relatively low. As long as Cascade continues to charge a relatively low residential local exchange rate in Estacada and Corbett, it will be difficult for it to meet the 50 percent guideline. Moreover, meeting the 50 percent guideline is made more difficult by the statutory exemption from local exchange rate regulation for Cascade and other LECs with under 15,000 lines. Staff recommends that the Commission make an exception to the 50 percent guideline for Cascade’s revised EAS rate matrix for the Estacada and Corbett exchanges.

Monroe exceeds the 50 percent standard also. Monroe’s proposed residential EAS flat rate is $11.89. Its local exchange access rate is $11.44 per month. Its proposed business EAS flat rate is $17.53, higher than its present business local exchange access rate of $16.63. The relatively high proposed EAS flat rate is necessary to make the company revenue neutral after implementing the EAS routes to Eugene-Springfield and Junction City. The problem stems from a combination of large toll revenue losses and a small customer base.

Scio’s proposed residential and business EAS flat rates of $11.65 and $17.11 are higher than their local exchange access rates of $11.50 for residential and $13.75 for a business. The problem results from a large toll revenue loss and a small customer base.

The Commission adopts Staff’s recommendations to make an exception to the guideline for Cascade’s Estacada and Corbett exchanges and for Monroe and Scio. Some of the deviations from the 50 percent guideline are very small. Second, it would not be in the public interest to deny customers an EAS expansion under the circumstances. Third, the statutory exemption from local exchange rate regulation for Monroe and Scio makes conformance to the 50 percent guideline difficult.

Criterion 10: EAS tariff proposals should be revenue neutral.

The stipulated rates for all eight LECs comply with Criterion 10. Deviations from absolute revenue neutrality are either very small or the result of a LEC decision to accept a net revenue loss. Under Criterion 10, the additional EAS revenues proposed should equal the sum of the cost shift attributed to the EAS conversion plus any additional costs for EAS.

Resolution - Phase II

 

The Commission concludes that the EAS routes should be implemented as proposed. The stipulated rates for all eight LECs satisfy the rate design criteria for EAS conversion and are just and reasonable or, as we noted above, justify an exception for minor deviations. Accordingly, the Commission adopts the stipulated rates and other provisions included in the stipulations between the Staff and the LECs, subject to the terms of this order.

ADDITIONAL ISSUES

Customer Notification

Customer notification is a critical part of any EAS implementation. Customers have the right to receive adequate information in an understandable format so they can make informed decisions. The minimum requirements adopted by the Commission in Order No. 91-1140 accomplish that goal. The Commission will require the LECs to comply with those requirements, under which the companies shall, at a minimum, provide their customers the following:

1. Customers shall be permitted to change EAS service options for a six-month period following implementation of EAS on October 5, 1996, without incurring a fee for the change in service.

2. A brochure with complete information about the companies’ EAS options and the rates for each shall be mailed to each customer prior to the date of implementation of service and once more 90 days after the EAS conversion.

3. The brochure shall include:

a. A simple nontechnical explanation of how to calculate which option is to the customer’s advantage, including a statement of the "break even" point, i.e., the number of minutes of EAS calling beyond which the bill for measured service would exceed the company’s flat rate.

 

b. A description of at least two methods for choosing the best option:

(1) Changing service and comparing bills; and

(2) Keeping a log and estimating minutes of use. A sample log and worksheet should be included.

 

c. The brochure shall notify the customer that service can be changed at no charge for six months from implementation.

 

d. The phone number of the company office which can provide customers with additional assistance or information.

 

e. A map depicting existing EAS exchanges and new exchanges for which EAS will become available.

 

f. An explanation of "default service." Customers should be informed of the type and cost of EAS service they will receive if they take no action.

 

It is important to note, however, that the foregoing notification requirements do not apply to exchanges where EAS rates change, but no new EAS service is implemented. For such exchanges, the LECs should follow ordinary procedures for notifying customers of rate changes. The LECs are strongly encouraged, however, to provide basic EAS information in these exchanges as well.

Default Service

Customers receiving new EAS will have the option of receiving either flat or measured EAS service for the applicable interexchange routes. In order to help facilitate EAS implementation, local phone companies should determine a "default service" in the event that a customer fails to choose one of the EAS options.

The Commission declines to mandate any particular type of default service for those exchanges that have no preexisting EAS. Rather, the Commission concludes that the LECs may choose any approach, provided that the companies inform their customers in advance regarding the default service. However, for exchanges with preexisting EAS, the Commission concludes that customers should be defaulted according to their current EAS service. In other words, customers who have flat EAS service at the time of conversion shall be defaulted to flat EAS service, while customers who have measured EAS service at the time of conversion shall be defaulted to measured EAS service.

CONCLUSIONS

Based on the record developed in these dockets, the Commission concludes that the proposed EAS routes identified in Appendix A are in the public interest. The public comment and testimony on those requests reflect a significant demand for EAS. Calling pattern data or demographic evidence establishes that there is a community of interest between the affected exchanges. The proposed EAS rates are reasonable and in compliance with the Commission’s rate design criteria for EAS conversion. All 17 petitions should be granted.

ORDER

IT IS ORDERED that:

1. The 17 petitions for extended area service between the specified interexchange routes listed in Appendix A are granted.

2. For Cascade Utilities, Inc.:

 

a. Advice No. 114, filed October 16,1995, and revised by Supplement 1, dated February 13, 1996, is allowed. The tariffs shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between Staff and Cascade is accepted (Appendix B).

 

3. For GTE Northwest, Inc.:

 

a. GTE’s Advice No. 550, Supplement A, as filed on March 1, 1996, is allowed. The tariff shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between Staff and GTE is accepted (Appendix C).

 

4. For Monroe Telephone Company:

 

a. Advice No. 35, filed October 12, 1995 and revised by Supplement 1, dated March 18, 1996, is allowed. The tariff shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between Staff and Monroe is accepted (Appendix D).

 

5. For Pioneer Telephone Cooperative:

 

a. Advice No. 44, filed October 16, 1995, is allowed. The tariff shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between Staff and Pioneer is accepted (Appendix E).

 

6. For Scio Mutual Telephone Association:

 

a. Advice 53, Supplement 1, dated February 19, 1996, is allowed. The tariff shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between Staff and Scio is accepted (Appendix F).

 

7. For Telephone Utilities of Oregon, Inc., dba PTI Communications:

 

a. Advice No. 162, Supplement 1, dated February 22, 1996, is allowed. The tariff shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between the Staff and PTI is accepted

(Appendix G).

 

8. For United Telephone Company of the Northwest:

 

a. Advice No. 437, dated October 13, 1995, is allowed. The tariff shall go into effect on the implementation date of October 5, 1996.

 

b. The stipulation entered into between Staff and United is accepted (Appendix H).

 

9. For U S WEST Communications, Inc.:

 

a. Price List Transmittal 95-033-PL, dated October 16, 1995, as modified by Supplement 1, dated March 18, 1996, is allowed. The transmittal shall go into effect on the implementation date of October 5, 1996.

 

b. The Stipulation entered into between Staff and U S WEST is accepted (Appendix I).

 

10. The local exchange companies shall, at a minimum, provide their customers with notification of new EAS service as follows:

 

1. Customers shall be permitted to change EAS service options for a six-month period following implementation of EAS on October 5, 1996, without incurring a fee for the change in service.

 

2. A brochure with complete information about the company’s EAS options and the rates for each shall be mailed to each customer prior to the date of implementation of service and once more 90 days after the EAS conversion.

 

3. The brochure shall include:

 

a. A simple, nontechnical explanation of how to calculate which option is to the customer’s advantage, including a statement of the "break-even" point, i.e., the number of minutes of EAS calling beyond which the bill for measured service would exceed the company’s flat rate.

 

b. A description of at least two methods for choosing the best option: (1) Changing service and comparing bills; (2) Keeping a log and estimating minutes of use. A sample log and worksheet should be included.

 

c. The brochure shall notify the customers that service can be changed at no charge for six months from implementation.

 

d. The phone number of the company office which can provide customers with additional assistance or information.

 

e. A map depicting EAS exchanges and new exchanges for which EAS will become available.

 

f. An explanation of the "default service." Customers should be informed of the type and cost of the EAS service they will receive if they take no action.

 

11. For exchanges that have preexisting EAS, customers who do not select an EAS option shall be defaulted to the type of EAS service that they have at the time of conversion. For exchanges that do not have preexisting EAS, the local exchange companies may choose either flat or measured EAS service as the default service, or default customers to the type of service that corresponds to the customer’s local exchange service, provided that they notify the customers in advance of the default policy.

Made, entered, and effective_____________________________.

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements of OAR 860-014-0095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-013-0070. A party may appeal this order to a court pursuant to ORS 756.580.