ORDER NO. 97-268

ENTERED JUL 17 1997

This is an electronic copy. Appendices may not be included.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

Extended Area Service Dockets

DISPOSITION: EAS TARIFFS APPROVED;

EAS PETITIONS GRANTED.

SUMMARY

In this order, the Commission grants 16 petitions for Extended Area Service (EAS). The petitions, which involve 30 local telephone exchanges around the state, represent all those EAS petitions that had successfully completed Phase I (Community of Interest Determination) by August 8, 1996. Each petition has now completed Phase II (Tariff Analysis), in which the Commission reviewed the proposed tariffs filed by the nine 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 4, 1997.

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

FINDINGS OF FACT AND CONCLUSIONS

PHASE I -- COMMUNITY OF INTEREST

In this consolidated investigation, customers of 16 local telephone exchanges filed petitions 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. Michael Grant, an Administrative Law Judge (ALJ) for the Commission, 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 exchange 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 four of the interexchange routes listed in Appendix A satisfied 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 ALJ rulings or Commission orders. A list of ALJ rulings and Commission orders, which are incorporated by reference, is contained in Appendix A.

Four EAS interexchange routes included in this consolidated proceeding, Ash Valley/Reedsport (UM 737), Camp Sherman/Bend (UM 744), Jewell/Seaside and Jewell/Astoria (UM 766), initially failed the objective community of interest criteria. At the request of the petitioning exchanges, ALJ Grant 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 four interexchange routes.

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. Nine LECs provide service to the 30 telephone exchanges affected by this investigation. The companies are: Cascade Utilities (Cascade), Citizens Telecommunications Company of Oregon (Citizens), Gervais Telephone Company (Gervais), GTE Northwest Incorporated (GTE), Oregon Telephone Company (Oregon Tel), People’s Telephone Company (People’s), Pioneer Telephone Cooperative (Pioneer), PTI Communications (PTI), and U S WEST Communications, Inc. (USWC).

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 May and June 1997, ALJ Grant held nine public comment hearings at various locations around the state. At each hearing, Staff member Lance Ball or David Booth made an informational presentation explaining the rate criteria and the tariff analysis in these dockets. Staff also prepared and distributed a handout explaining the companies’ proposed EAS rates. Representatives of the local telephone companies also appeared.

The hearings were well attended and testimony was received from members of the public. The great majority of those testifying felt the proposed rates were reasonable and supported EAS implementation. Those speaking in support of the proposals typically viewed the proposed rates as providing them with a desirable and affordable alternative to the large toll charges previously incurred for calling within their community of interest. A small number of opponents of the EAS proposals also spoke at some of the hearings. Such opposition was voiced by customers from "receiving" exchanges who had experienced little need to call the petitioning exchange and did not anticipate future need to do so. These customers felt strongly that any increase in their EAS rate was a charge for a service which they would not use.

Stipulations

Staff reviewed the telephone companies’ proposed tariffs and, after conducting discovery and the exchange of information, entered into a stipulation with each company. No party filed an objection to the stipulations, which are set forth in Appendices B through J. The stipulated EAS rates for each of the nine LECs are set out in Appendices K through S.

Rate Design Criteria

In the generic EAS docket, UM 189, the Commission adopted ten rate design criteria for EAS conversion. The stipulated rates for all nine LECs meet those criteria by containing the following features:

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

The stipulated EAS rates for all nine LECs comply with Criterion 1. Each LEC has 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 but one of the LECs comply with Criterion 2. Cascade will not be able to offer measured EAS service to customers of the Ash Valley exchange until the company upgrades its central office equipment. Until measured service is offered to Ash Valley customers, Cascade proposes to charge a flat rate that is 75 percent of the company’s flat rate charged between Ash Valley and Reedsport. All other carriers have an existing measured rate option and propose to make the option available in each exchange that is scheduled to receive new EAS.

Two LECs propose to increase their current measured EAS rates. Gervais plans to increase its rate from $0.05 per minute to $0.08 per minute. People’s plans to increase its rate of $0.0556 for initial minutes and $0.0442 for additional minutes to a uniform rate of $0.08 per minute. The new rates are consistent with measured rates charged by 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 but one LEC comply with Criterion 3. As indicated above, Cascade is unable to offer a measured rate until certain central office modifications are completed. Once measured EAS is introduced in Ash Valley, however, customers will be able to enjoy the full range of service choices contemplated by Commission policies.

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

The stipulated rates comply with Criterion 4. Each of the nine LECs have developed a company-wide matrix of EAS rates which satisfies Criterion 4.

USWC and PTI propose to make minor modifications to their respective EAS matrix to accommodate new routes. USWC proposes to increase its current matrix in EAS Rate Band B by 13 cents for residential customers ($1.35 to $1.48) and 14 cents for business customers ($2.05 to $2.19). This reprice will affect 17 USWC exchanges.

PTI proposes to increase EAS rates for EAS Rate Band A from $2.00 per month to $3.25 per month for residential customers, and from $3.00 to $4.75 for business customers. This reprice will affect 11 PTI exchanges: Burns, John Day, Heppner, Ione, Lexington, Maupin, North Harney, South Harney, Pine Grove, Tygh Valley, and Wamic.

PTI and Oregon Tel also propose to increase their respective rates for local exchange service. PTI proposes to increase its rates by $0.30 per month for residential one-party, residential four-party, business one-party, and Digitrex exchange access lines. Oregon Tel plans to increase its local exchange rates by $3.00 in the Mt. Vernon, Dayville, and Prairie City exchanges. Oregon Tel’s proposed increase is further discussed under Criterion 9.

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

The stipulated rates for all nine LECs comply with Criterion 5. All of these companies provide a flat option that incorporates all EAS service available to the customer.

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

The stipulated rates for all nine LECs comply with Criterion 6. All of these companies charge a higher flat EAS rate to their business customers.

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

The stipulated rates for all nine LECs comply with Criterion 7. All of these companies charge the same measured EAS rate to both residential and business customers.

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

The stipulated rates for all nine 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 new EAS routes must be made up first from company-wide EAS rates, then from company-wide local exchange rates.

The stipulated rates for six LECs (Cascade, Citizens, GTE, Pioneer, PTI, and USWC) comply with Criterion 9. Three LECs (Gervais, Oregon Tel, and People’s) do not comply with Criterion 9.

In Order No. 91-1140, the Commission adopted a 50 percent guideline in determining the monthly flat rate for EAS. Under that guideline, the flat EAS rate should not exceed 50 percent of the total intrastate charge for flat rate local exchange and flat rate EAS service combined. In other words, the flat EAS rate should not be greater than the local exchange rate.

The flat EAS rates proposed by Gervais and People’s exceed this 50 percent rule. Both companies intend to recover lost toll revenues through high EAS rates only, rather than recovering the losses through a balance of EAS rates and local exchange rates. The Commission, however, has limited jurisdiction over both companies and cannot enforce the rate balance requirement. Gervais is a cooperative telephone company that falls outside the Commission’s regulatory authority in this regard. People’s is a small telephone company exempt under ORS 759.040. Staff has discussed this policy violation with both companies and their consultants. Unfortunately, Staff’s protests have not moved either company to adopt and follow the Commission’s 50 percent rule.

The flat EAS rates proposed by Oregon Tel satisfies the 50 percent rule. However, its proposal to recover EAS costs from Mt. Vernon, Dayville, and Prairie City customers only—rather than from all of its local exchange customers—violates other Commission policies set forth in Order No. 91-1140. Because EAS costs are determined on a company-wide basis, the Commission contemplates local exchange telephone companies recovering EAS costs from all of its local exchange subscribers, not just from those in exchanges undergoing EAS expansion.

Like Peoples, Oregon Tel is a small telephone company exempt under ORS 759.040. Consequently, the company is not required to comply with certain Commission guidelines, such as the requirement to propose company-wide local rate increase to help balance the recovery of EAS expansion between EAS rates and local exchange rates. The Commission hopes that Oregon Tel will consider adopting company-wide rates in future EAS expansion dockets.

Criterion 10: EAS tariff proposals should be revenue neutral.

The stipulated rates for all nine LECs comply with Criterion 10. Deviations from revenue neutrality are either very small or the result of an LEC’s 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 nine LECs satisfy the rate design criteria for EAS conversion and are just and reasonable. Accordingly, the Commission adopts the stipulated rates and other provisions included in the stipulations between 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 that 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 4, 1997, 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 should include:

a. A simple, non technical 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 under measured service that 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 the "default service." Customers should be informed of the type and cost of the EAS service they will receive if they take no action.

It is important to note 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

Except as noted above, 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 pre-existing 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 pre-existing 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 should be defaulted to flat rate EAS service, while customers who have measured EAS service at the time of conversion should 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 these requests reflect a significant demand for EAS. Calling pattern data or demographic evidence establish 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 16 petitions should be granted.

ORDER

IT IS ORDERED that:

1. The 16 petitions for Extended Area Service between the specified interexchange routes listed in Appendix A are granted.

2. For Cascade Utilities:

a. Advice No. 116, issued October 28, 1996, is allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

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

3. For Citizens Telecommunications Company of Oregon:

a. Advice No. OR-96-04, issued November 20, 1996, is allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and Citizens is approved (Appendix C).

4. For Gervais Telephone Company:

a. Advice No. 15, filed on October 30, 1996, is allowed. The tariff shall go in effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and Citizens is approved (Appendix D).

5. For GTE Northwest Incorporated:

a. Advice No. 584, filed on October 29, 1996, is allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and GTE is approved (Appendix E).

6. For Oregon Telephone Company:

a. Advice No. 49, issued October 31, 1996, as amended by Advice No. 49, supplement 1, issued March 4, 1997, is allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and Oregon Tel is approved (Appendix F).

7. For People’s Telephone Company:

a. Advice No. 33, filed on October 29, 1996, is allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and People’s is approved (Appendix G).

8. For Pioneer Telephone Cooperative:

a. Advice No. 45, filed on October 31, 1996, as supplemented on November 25, 1996, and Advice No. 46, filed on November 25, 1996, are allowed. The tariffs shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and Pioneer is approved (Appendix H).

9. For PTI Communications:

a. Advice No. 170, Supplement 1, filed on February 20, 1997, is allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and PTI is approved. (Appendix I).

10. For U S WEST Communications:

a. Tariff Transmittal No. 96-049-PL, filed on October 31, 1996, and Supplement 1 to that transmittal, filed on February 27, 1997, are allowed. The tariff shall go into effect on the implementation date of October 4, 1997.

b. The stipulation entered into between Staff and USWC is approved. (Appendix J).

11. The local exchange companies shall, at a minimum, provide their customers with notification of new EAS service as described above.

12. For exchanges that have pre-existing EAS, customers who do not select an EAS option shall be defaulted to the type of EAS service they have at the time of conversion. For exchanges that do not have pre-existing 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 their customers in advance of the default policy.

Made, entered, and effective __________________________.

A party may request rehearing or reconsideration of this order pursuant 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 in OAR 860-14-095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-13-070(2)(a). A party may appeal this order to a court pursuant to ORS 756.580.

PHASE II CONSOLIDATED CASES

AND

COMMUNITY OF INTEREST DETERMINATIONS