ORDER NO. 97-301

ENTERED AUG 06 1997

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

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 841

DISPOSITION: NO COMMUNITY OF INTEREST FOUND; PETITION DISMISSED

On February 20, 1997, the customers of the Long Creek Telephone Exchange (petitioners) petitioned the Commission for Extended Area Service (EAS) to the Monument, Mount Vernon, and John Day telephone exchanges. The Commission docketed the request as UM 841 for investigation. A map of the exchanges is attached to the order as Appendix A.

On June 4, 1997, the Commission’s Staff (Staff ) filed testimony in this proceeding for the Phase I Community of Interest Determination. Based on a review of geographic and telephone usage information, staff concluded that the requested interexchange routes did not satisfy the objective community of interest criteria set forth in Order Nos. 89-815 and 92-1136. Staff’s testimony is summarized in Appendix B.

On June 17, 1997, Michael Grant, an Administrative Law Judge (ALJ) issued a proposed order adopting staff’s findings and recommending that the Long Creek petition for EAS to the Monument, Mount Vernon, and John Day exchanges be dismissed. Petitioners subsequently requested an opportunity to establish, through demographic, economic, financial, or other evidence, that a community of interest exists between the Long Creek exchange and the three exchanges for which EAS service is sought.

On July 15, 1997, Allen Scott, an Administrative Law Judge, held a hearing on this matter in Long Creek, Oregon. Notice of the hearing was served on all parties and was published twice in The Blue Mountain Eagle newspaper. Approximately 15 people attended the hearing in support of the petition.

Based on the evidence submitted in this matter, the Commission makes the following:

FINDINGS OF FACT

Geography and Demography

The Long Creek, Monument, Mount Vernon, and John Day telephone exchanges lie in Grant County in North Central Oregon. The Long Creek, Monument, and John Day exchanges are served by Pacific Telecom, Inc. (PTI), and consist of approximately 306, 262, and 2,145 customers, respectively. The Mount Vernon exchange is served by Oregon Telephone Corporation (OTC) and consists of approximately 612 customers.

The Long Creek exchange serves a rural agricultural and logging community with little centralized business. Long Creek itself contains about 255 residents. It has a gas station, post office, motel, two cafes, and two grocery stores. The exchange also contains several remote small communities with little in the way of services. Because the area offers limited professional and commercial services, many exchange residents seek essential goods and services in neighboring communities.

The Monument exchange lies to the west of the Long Creek exchange. The city of Monument is located approximately 18 miles west of Long Creek. It is also a small rural city (population 185) that offers few commercial services. The Mount Vernon exchange lies south of the Long Creek exchange. The city of Mount Vernon is approximately 30 miles south of Long Creek. Its population is approximately 645. It has a motel, gas stations, laundromat, and grocery stores. It has little else in the way of professional and commercial services.

The John Day exchange lies to the south of the Long Creek exchange. It has no common border with the Long Creek exchange, but is separated from it by the Mount Vernon exchange. The cities of John Day and Canyon City are about 36 miles southeast of Long Creek. John Day has 1,940 residents and Canyon City, the county seat, has about 700. These two cities offer a significant variety of commercial goods and services, including banking, insurance, tax preparation, and other commercial and retail services. Residents of the Long Creek exchange rely almost exclusively on the John Day/Canyon City area to obtain essential services to meet their needs.

Schools

Long Creek has a public school offering kindergarten through 12^th grade services. The Long Creek school district engages in cooperative programs with John Day schools and Monument schools in which students travel to the other area to share facilities and instructional staff. Many children in the Long Creek exchange and the other exchanges compete in sports activities that require communications with schools in the exchanges involved in this case.

In addition, the Long Creek schools are involved in a program called Geographic Information Services which requires frequent communication between Long Creek and Monument.

Government and Jurisdictional Issues

Customers of all the exchanges involved in this matter live within Grant County and are served by county government services located in the John Day/Canyon City area.

Medical and Dental Services

Long Creek has no medical services. Monument and Mount Vernon also have minimal medical and dental services. All these exchanges seek basic and specialized medical and dental care in John Day.

Emergency Services

Long Creek has a fire department. It occasionally seeks aid from fire departments in John Day, Monument, and Mount Vernon, and supplies services to them when needed. Most other emergency services are obtained from the John Day area.

Employment and Commuting Patterns

Many people in Long Creek commute to John Day for work on a daily basis. There are relatively few jobs in Long Creek itself.

OPINION

Commission Policy

The demand for EAS in Oregon is growing substantially. In many parts of the state, local telephone exchange boundaries no longer bear any relation to actual communities. Improved transportation, communications, and the general growth of cities and towns have expanded the boundaries of what local citizens view as their community. Many customers in suburban and rural areas desire toll-free calling to population centers.

The conversion of long distance traffic to EAS, however, creates new problems. Telephone companies may face significant loss of long-distance revenue, placing upward pressure on basic service rates. The conversion to EAS also shifts costs from high-volume to low-volume telephone users, creating a potential for inequity. Due to those reasons we must first find that a "community of interest" exists between the petitioning exchange and requested exchanges to justify EAS conversion.

Applicable Law

The Commission has established two methods by which a petitioning exchange can establish a community of interest. The first is an objective criteria test—based on readily available geographic and telephone usage information—that requires a petitioning exchange to show:

1. Contiguous exchange boundaries - The telephone exchanges must share a common boundary;

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

3. Minimum call distribution - More than 50 percent of customers in the petitioning exchange must make at least two toll calls per month to the target exchange(s).

All three criteria must be met to pass the objective criteria test.

The second method, which is available to those exchanges that fail either or both the minimum calling volume or minimum calling distribution criteria, is the demographic showing test. Under that test, a hearing is held to give the petitioning exchange the opportunity to demonstrate a community of interest by reference to eleven factors:

(1) geographic and demographic information; (2) location of schools; (3) governmental and jurisdictional issues; (4) emergency services; (5) social services; (6) medical and dental providers; (7) employment and commuting patterns; (8) business and commercial dependence or interdependence; (9) transportation patterns; (10) the results of the objective criteria test; and (11) other factors deemed relevant by the Commission.

The record need not contain evidence on each factor so long as we can conclude that the record as a whole establishes sufficient interdependence or dependence between the exchanges.

Objective Criteria Determination

In this case, PTI and OTC provided calling pattern data for the four exchanges involved in this proceeding. The Long Creek-Monument interexchange route failed to meet two of the three objective criteria. While the two exchanges are contiguous, a maximum average of only 2.67 toll calls per access line per month was placed between the exchanges and an average of only 27.52 percent of the Long Creek exchange customers made at least two calls to the Monument exchange.

The Long Creek-Mount Vernon interexchange route also failed to meet two of the three objective criteria. While the two exchanges are contiguous, a maximum average of only 1.57 toll calls per access line per month was placed between the exchanges and an average of only 19.51 percent of the Long Creek exchange customers made at least two calls to the Mount Vernon exchange.

The Long Creek-John Day interexchange route met two of the three objective criteria. A maximum average of 6.54 toll calls per access line per month was placed between the exchanges and over 56 percent of Long Creek exchange customers made at least two calls to the John Day exchange. However, the two exchanges are not contiguous.

Demographic Showing Determination

The residents of the Long Creek area who attended the hearing presented information in an attempt to show a community of interest between Long Creek and the other exchanges. All witnesses showed a strong desire for the proposed EAS.

The testimony demonstrated a very heavy reliance by Long Creek customers on the John Day/Canyon City area. Nearly all business, commercial, medical, and governmental services that are used by Long Creek customers are in the John Day area.

The evidence relating to a community of interest between Long Creek and Monument and Long Creek and Mount Vernon is, however, very slight. Those testifying acknowledged that neither Monument nor Mount Vernon contains much in the way of services used by people in the Long Creek exchange. There are some connections relating to educational facilities and emergency services, but these connections are not significant enough to warrant a finding that there is a community of interest between Long Creek and Monument or between Long Creek and Mount Vernon.

The problem before us is that the Long Creek exchange and the John Day exchange are not contiguous. That is that they do not touch nor are they connected by another exchange (in this case the Mount Vernon exchange), with which Long Creek has a community of interest.

This Commission has previously stated its reluctance to grant EAS between noncontiguous exchanges. In Order No. 90-1556 the Commission held:

If granted, "leap frog" EAS arrangements would give rise to unlimited and chaotic EAS expansion, a condition the Commission has already determined to avoid. Order No. 89-815 at 33. The Commission will not grant any EAS request that leap frogs any of the exchanges.

We recently reaffirmed that policy in Order Nos. 95-324 and 96-229. After consideration of that issue, we concluded that as a general rule we will not grant EAS between noncontiguous EAS exchanges. As stated above, so called "leap frog" EAS arrangements would give rise to unlimited and chaotic EAS expansion. Such arrangements, if allowed, would also cause customer confusion as to long distance calling areas by creating a situation where a call to a neighboring exchange would be more expensive than a call to a more distant one. Accordingly, to assure the integrity of the EAS process, and to allow an orderly and rational expansion of EAS routes, we will only approve EAS between contiguous telephone exchanges. We consider exchanges to be contiguous only if they either share a common exchange boundary or if they are connected to one another indirectly by one or more intervening exchanges. In the latter instance, the exchanges must be connected by an unbroken sequence of exchange boundaries, and there must be a community of interest between each intervening pair of exchanges. See Order Nos. 95-324 at 5 and 96-229 at 5.

In this case, the Long Creek and John Day telephone exchanges are not contiguous. The Mount Vernon exchange lies between these two exchanges. We find that petitioners failed to establish a community of interest with that intervening exchange. We also find that petitioners have failed to establish good cause to make an exception to our rule for prohibiting "leap frog" EAS. We are sympathetic to the needs of customers of rural exchanges, especially those who must rely on distant population centers to meet many of their basic needs. Due to an unfortunate combination of geography, local economics, and other factors, residents of Long Creek and many other outlying communities must make long distance calls to providers of many essential goods and services. Although we do not believe that granting "leap frog" EAS is a viable solution to these problems due to other policy considerations as described above, we are determined to continue our efforts to further examine and pursue policies to lower the cost of rural customers’ access to essential services in the public-switched network.

Conclusion

The Commission concludes that the demographic and other evidence presented in this matter does not make a sufficiently strong showing to establish that a community of interest exists between the Long Creek exchange and the Monument and Mount Vernon exchanges. Furthermore, no good cause exists to make a "leap frog" EAS arrangement to the John Day exchange. Accordingly, the petition for EAS should be dismissed.

ORDER

IT IS ORDERED that:

1. The petitioners served by the Long Creek telephone exchange have failed to establish a community of interest with the Monument, Mount Vernon, and John Day exchanges.

2. The petition for EAS between the Long Creek exchange and the Monument, Mount Vernon, and John Day exchanges is dismissed.

Made, entered, and effective_____________________________.

A party may request rehearing or reconsideration of this order within 60 days from the date of service pursuant to ORS 756.561. A party may appeal this order pursuant to ORS 756.580.