ORDER NO. 97-439

ENTERED NOV 14 1997

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

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 851

DISPOSITION: NO COMMUNITY OF INTEREST FOUND; PETITION DISMISSED

On April 27, 1997, the customers of the Monument Telephone Exchange (petitioners) petitioned the Commission for Extended Area Service (EAS) to the Long Creek, Mount Vernon, and John Day telephone exchanges. The Commission docketed the request as UM 851 for investigation. A map of the exchanges is attached to the order as Appendix A.

On July 8, 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 July 28, 1997, Michael Grant, an Administrative Law Judge (ALJ) issued a proposed order adopting staff’s findings and recommending that the Monument petition for EAS to the Long Creek, 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 Monument exchange and the three exchanges for which EAS service is sought.

On October 15, 1997, the Administrative Law Judge held a hearing on this matter in Monument, Oregon. Notice of the hearing was served on all parties and was published twice in The Blue Mountain Eagle newspaper. Approximately 40 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

The Monument, Long Creek, Mount Vernon, and John Day telephone exchanges lie in Grant County in North Central Oregon. The Monument, Long Creek, and John Day exchanges are served by Pacific Telecom, Inc. (PTI), and consist of approximately 263, 323, and 2,146 customers, respectively. The Mount Vernon exchange is served by Oregon Telephone Corporation (OTC) and consists of approximately 612 customers.

Geography and Demography

Grant County is a large rural county that covers 4,528 square miles and has a population of about 8,100 people. About one-third of its residents live in Canyon City, the county seat, (pop. 705) and the adjoining city of John Day (pop. 1,940). The remaining residents are dispersed throughout the county among six incorporated cities, including Monument, Long Creek, and Mt. Vernon, and four unincorporated towns.

The city of Monument (pop. 185) lies about 57 miles northwest of Canyon City/John Day along State Highway 402. The city and surrounding area that comprise the Monument telephone exchange is a rural agricultural and logging community with little centralized business. It has but two small grocery stores, a tavern, a café, and a mechanic shop. The area also lacks employment opportunities. Aside from independent logging and agriculture activities, jobs are limited to the local school district, forest service, and electric company. Some local residents run part-time businesses from their homes.

Due to the lack of local services and employment opportunities, Monument exchange residents depend heavily on other communities to meet their basic needs. Long Creek, located some 18 miles east in the Long Creek exchange, is the nearest city to Monument. That city, however, also is a small rural community (pop. 240) with limited commercial and business services. Mount Vernon (pop. 645) lies about 48 miles southeast of Monument and offers additional services such as a motel, full service gas station, and a laundromat. However, like Long Creek, Mt. Vernon can not support the professional and commercial facilities to meet the needs of the Monument exchange residents.

Due to the limited services offered in Monument, Long Creek, and Mt. Vernon, almost all Monument exchange residents rely on John Day and Canyon City for professional and commercial services. These two cities, located within the John Day telephone exchange, offer a significant variety of commercial goods and professional services, as well as employment opportunities.

Schools

Residents of the Monument exchange are served by the Monument School District, which offers educational services for children from kindergarten through 12^th grade. The Monument school district engages in cooperative programs with Long Creek School District in which students travel between exchanges to share facilities and instructional staff. Many children in the Monument exchanges compete in sports activities that require communications with residents of the Long Creek exchange.

In addition, the Grant County Educational Service District, located in Canyon City, serves the Monument and Long Creek School Districts.

Government and Jurisdictional Issues

Residents of the Monument, Long Creek, Mt. Vernon, and John Day telephone exchanges are all served by county government services located in the John Day/Canyon City area. These include offices for the John Day County Sheriff, District and Circuit Court, Justice of the Peace, Children Services Division, Adult and Family Services, Senior Services Division, Employment Division, Department of Motor Vehicles, Highway Department, and the District Attorney.

Medical and Dental Services

The city of Monument offers limited medical and no dental services to local residents. A Physician Assistant provides primary medical care one day a week at the Senior Center in Monument. Local residents, however, must call the John Day exchange to make an appointment.

The Long Creek and Mount Vernon exchanges offer minimal medical and dental services. Consequently, residents of Monument, Long Creek and Mt. Vernon seek basic and specialized medical and dental care in John Day and Canyon City, where a relatively large number of dentists and physicians practice. The county hospital is also located in the John Day exchange.

Emergency Services

The cities of Monument and Long Creek each have a local EMT and Ambulance Service. Each city also has a volunteer fire department. Each office is independent, although they work under mutual assistance agreements that are frequently utilized.

Employment and Commuting Patterns

The cities of Monument and Long Creek offer limited employment opportunities. The county’s economic base is heavily dependent on timber, and has declined with the losses in that industry. As a result, Grant County often leads the state in unemployment.

Most residents who are employed are engaged in independent farming and logging activities. Some run part-time businesses from their homes, or commute to John Day and Canyon City for work.

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—which 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 proposed Monument/Long Creek interexchange route failed to meet two of the three objective criteria. While the two exchanges are contiguous, a maximum average of only 2.77 toll calls per access line per month were placed between the exchanges and an average of only 31.25 percent of the Monument exchange customers made at least two calls to the Long Creek exchange.

The proposed Monument/Mount Vernon interexchange route also failed to meet two of the three objective criteria. The two exchanges are not contiguous, a maximum average of only 1.02 toll calls per access line per month were placed between the exchanges and an average of only 18.31 percent of the Monument exchange customers made at least two calls to the Mount Vernon exchange.

The proposed Monument/John Day interexchange route met two of the three objective criteria. A maximum average of 5.93 toll calls per access line per month was placed between the exchanges and 63.11 percent of Monument exchange customers made at least two calls to the John Day exchange. However, the two exchanges are not contiguous.

Demographic Showing Determination

Approximately 40 residents of the Monument exchange attended the demographic hearing and presented information in an attempt to show a community of interest between Monument and the other exchanges. All witnesses showed a strong desire for the proposed EAS. They presented evidence demonstrating a very heavy reliance on the John Day/Canyon City area. Nearly all business, commercial, medical, and governmental services that are used by Monument exchange customers are located in the John Day exchange.

Petitioners, however, were unable to present strong evidence to demonstrate a community of interest between Monument and Long Creek and Monument and Mount Vernon. Those testifying acknowledged that Long Creek and Mount Vernon were also small towns with almost no businesses available to provide jobs, goods, or services for their own residents, let alone those who live in Monument. There are some connections between the communities 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 Monument, Long Creek, and Mount Vernon. As indicated above, all three exchanges are dependent upon the John Day exchange, not each other.

The obvious problem facing the Monument petitioners is that the Monument exchange is not contiguous with the John Day exchange. This is the same problem that arose in the recent petition by the Long Creek customers for EAS to John Day. See Docket UM 741. In that case, we reiterated our long-standing policy against granting EAS between noncontiguous exchanges. We noted that granting these "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. See Order No. 97-301.

For these reasons, we reaffirmed our decision to approve EAS only between contiguous telephone exchanges. See Order No. 97-301 at 7. We consider exchanges to be contiguous 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 also Order Nos. 95-324 at 5 and 96-229 at 5.

We recognize that the application of that policy here forces us to deny the petition for EAS between the Monument and John Day exchanges. We are sympathetic to the needs of customers of the 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 the Monument exchange and many other outlying communities must make long distance calls to providers of many essential goods and services. We do not believe that granting "leap frog" EAS is a viable solution to these problems due to other policy considerations as described above. Nonetheless, 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 Monument exchange and the Long Creek 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 Monument telephone exchange have failed to establish a community of interest with the Long Creek, Mount Vernon, and John Day exchanges.

2. The petition for EAS between the Monument exchange and the Long Creek, 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.