ORDER NO. 98-162

ENTERED APR 20 1998

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 900

Background. The Commission enters this order under the authority granted it by ORS 756.515(4). Beaver Creek Cooperative Telephone Company (Beaver Creek) is a cooperative telephone company. By letter dated March 10, 1998, Beaver Creek informed the Commission that it had revised the following sheets of its Access Tariff:

Revised Sheet(s)	Replace Sheet(s)
Seventh Revised Sheet No. 10	Sixth Revised Sheet No. 10
Seventh Revised Sheet No. 93	Sixth Revised Sheet No. 93
Fifth Revised Sheet No. 168	Fourth Revised Sheet No. 168

This filing revised the Intrastate Access Tariff to reflect switched access rates based on 1998 cost and demand and the fully phased in UM 384 rates. The rate changes proposed will increase Beaver Creek’s switched access revenues by $33,172. Beaver Creek requested that the revised tariff sheets be made effective April 23, 1998.

By letter dated March 20, 1998, Beaver Creek informed the Commission that its tariff revisions were filed merely to inform the Commission, not to solicit its approval. The Beaver Creek Board of Directors had approved the changes to be effective April 23, 1998. Staff had indicated that its review would take until some time in May, but Beaver Creek saw no reason to delay implementation of its proposed rates, since Beaver Creek is not a member of the Oregon Exchange Carrier Association (OECA) and since the access rates are based on Beaver Creek’s separated cost only (part 36/69) and approved by Beaver Creek’s Board of Directors.

Beaver Creek’s letter dated March 30, 1998, refers to a conversation with Staff. Staff had scheduled the tariff for consideration at a Commission public meeting. Beaver Creek stressed that the filing was for informational purposes and should be removed from the public meeting agenda. Staff responded that it considered the filing to be an official filing, and asked Beaver Creek to withdraw its filing. Beaver Creek withdrew the filing by letter received March 31, 1998.

On April 2, 1998, Phil Nyegaard, Administrator of the Commission’s Telecommunications Division, sent Beaver Creek a letter discussing Beaver Creek’s 1998 access charge rates. According to Mr. Nyegaard, Beaver Creek believes that the Commission lacks authority to approve Beaver Creek’s access charge rates. Beaver Creek concedes that the Commission has the authority to establish through services but argues that it has no authority to set the rates for through services. In regard to access charges, Beaver Creek believes the Commission has authority over pooling arrangements and the joint rates charged by the pooling members. Since Beaver Creek is not a participating company in the Oregon Customer Access Fund (OCAF) pool, the company asserts that only its Board has the authority to approve the access charge rates. Beaver Creek disagrees with the recent Commission Order No. 98-060 in dockets AR 330 and AR 331. It disagrees specifically with the finding on page 4, that the Commission has jurisdiction over rates for through services as well as over joint rates.

The April 2, 1998, letter informed Beaver Creek of Staff’s conclusion, after discussions with counsel, that if Beaver Creek implements revised intrastate switched access rates on April 23, 1998, without prior Commission approval, it will be in violation of Order No. 93-1133 (UM 384). This order adopted the current Oregon Customer Access Plan (OCAP), which has been extended to December 31, 1998. Part I.D. of the OCAP states: "All Oregon LECs shall be subject to the provisions of this Plan and shall maintain approved individual or joint switched access tariffs on file with the OPUC." The letter states that Beaver Creek will also be in violation of Order No. 98-060 (AR 330 and AR 331). Accordingly, the Commission can seek an injunction against Beaver Creek to stop the billing of unapproved rates.

Staff sent courtesy copies of its April 2, 1998, letter to all intrastate access customers of Beaver Creek, advising them to pay the currently approved rates contained in Beaver Creek’s access tariff rather than the rates Beaver Creek will begin billing on April 23, 1998. Staff noted that this advice would change only when Beaver Creek receives Commission approval of new rates or when the Commission receives a definitive court ruling that it has no authority over Beaver Creek’s access charge rates.

In a conversation with Staff on April 10, 1998, Beaver Creek Chief Executive Officer Tom Linstrom informed Staff that its letter will not prevent Beaver Creek from charging the unapproved access rates effective April 23. Beaver Creek also told Staff that if the toll carriers do not pay the new rates, Beaver Creek will make itself whole by withholding some of the money Beaver Creek pays the carriers (Beaver Creek bills on behalf of the carriers). Beaver Creek also plans to charge interest on unpaid balances.

By letter dated April 9, 1998, the Commission informed Beaver Creek that Staff had not yet received Beaver Creek’s Annual Report Form O for 1997. Order No. 98-060 made it clear that Beaver Creek was to file the report by April 1, 1998. The letter asked Beaver Creek to inform the Commission in writing if it plans not to file, so Staff can be certain that Beaver Creek’s failure to file its Form O was not a misunderstanding.

The same letter noted that Beaver Creek had marked its Rural Utilities Service (RUS) Annual Report Form 479 as confidential. The Commission has determined that the RUS report 479 is not confidential, because it can be obtained on request from RUS through the Freedom of Information Act. Staff therefore crossed out the confidential markings Beaver Creek added to its report and informed Beaver Creek that its counsel did not read ORS 192.502(3) to require the Commission to keep the document secret.

Discussion. Cooperative telephone companies are not subject to full rate regulation by the Commission. However, the Commission does have jurisdiction over some cooperative rates. The dispute in the present matter centers on whether the Commission has jurisdiction over the access rates a cooperative charges.

Toll and Access Charges: Background. The typical long distance service is a combination of two separate services known as toll and access. The long distance call between two local exchanges consists of an access charge for the originating local exchange carrier (LEC), a toll charge for the long distance carrier, and an access charge for the terminating LEC. The residential or business customer pays one charge to the long distance carrier. The long distance carrier pays the access charges to the LEC for the use of the LEC’s facilities to complete the call.

In Oregon, incumbent LECs (ILECs) develop access charges according to rules established in the Oregon Customer Access Plan (OCAP). The plan was developed by the telecommunications carriers and approved by the Commission in 1989. Under the plan, ILECs may pool their costs and develop average access charge rates or develop their own company specific access charge rates. The Commission approved the pool, called the Oregon Customer Access Fund (OCAF), as the best way to promote competition and ensure affordable toll rates throughout Oregon. The formula for determining the charges is established by the Federal Communications Commission and adopted by the Commission.

Under the pooling concept, low cost ILECs pay into the pool and high cost ILECs draw from the pool. The revenues to fund the pool are collected through a statewide average per minute charge on all intrastate toll calls. The charge, called the OCAF rate, is calculated by dividing the total residual revenue requirement by the total number of intrastate terminating access minutes on incumbent and competitive LEC networks. All LECs, including ILECs not participating in the pool and competitive LECs (CLECs), must charge the OCAF rate to long distance carriers and remit the money to the OCAF pool.

Five of the thirty-three Oregon ILECs do not participate in the pool. The nonparticipating ILECs generally have costs that are lower than the statewide average (i.e., Malheur) or are primary toll carriers who are prohibited from participating in the pool (i.e., U S WEST, GTE, and United/Sprint). The only nonparticipating carrier with costs greater than the statewide average is Beaver Creek.

The nonparticipating ILECs receive compensation for originating and terminating long distance calls to and from their customers by imposing company specific access charges on the long distance carriers. The Commission approves ILEC access charge rates. These access charges range from $0.04 for U S WEST to $0.07 for Beaver Creek.

Legal Basis for Regulating Cooperatives’ Access Charges. The extent of Commission jurisdiction over cooperatives was the subject of discussion in a recent rulemaking order (Order No. 98-060, AR 330 and 331). In that case, the Commission considered the statutory basis for our jurisdiction over cooperatives’ rates, its limits, and its consequences. We adopted rules based on ORS 759.220 and 759.225. ORS 759.220 provides as follows, in relevant part:

(1) A telecommunications utility may establish reasonable through service and joint rates and classifications with other telecommunications utilities. Telecommunications utilities establishing joint rates shall establish just and reasonable regulations and practices in connection therewith and just, reasonable and equitable divisions thereof, as between the public utilities participating therein which shall not unduly prefer or prejudice any of the participating telecommunications utilities and every unjust and unreasonable rate, classification, regulation, practice and division is prohibited.

The commission may, and shall, wherever deemed by the commission to be necessary or desirable in the public interest, after full hearing upon complaint, or upon the commission’s own initiative without complaint, establish through service, classifications and joint rates, the divisions of such rates and the terms and conditions under which such through service shall be rendered.

ORS 759.225 applies 759.220 to cooperatives:

Notwithstanding any other provision of law, ORS 759.220 applies to any unincorporated association or cooperative corporation providing intrastate telecommunications service.

Definition of Through Services. In Order No. 98-060 (AR 330 and 331), we adopted the following definition of through services under ORS 759.220:

"Through service" means an Oregon intrastate telecommunications service the provision of which involves the facilities, equipment or services of two or more telecommunications utilities and/or cooperatives. Examples of "through services" may include, but are not limited to, intrastate toll/access service, extended area service, and E 9-1-1 service. Whether a service is a "through service" is determined on a case-by-case basis.

Under our definition, therefore, intrastate toll/access service is a through service when it involves a local telephone provider (which may be a cooperative) and a toll service provider.

Beaver Creek disagreed with our interpretation of through services. It argued that, under ORS 759.220, through services and joint rates are independent concepts and that the Commission has jurisdiction over a cooperative’s rates only where there are joint rates (that is, a common rate charged by two or more telecommunications utilities or cooperatives for a single service, the revenues from which are pooled and divided among the participants on some equitable basis), not where there are merely through services. Beaver Creek asserted that the Commission’s jurisdiction over through services is limited to the terms and conditions of that service, which does not include rates. It also argued that the Commission’s rate jurisdiction over through services involving cooperatives extends only to situations in which a cooperative takes a share of pooled revenues.

We concluded that:

The plain wording of ORS 759.220 and 759.225 provides the Commission with the authority to regulate rates for through services involving cooperatives. ORS 759.220 and ORS 759.225 give the Commission regulatory authority over cooperatives with respect to through services, including the authority to ensure that rates for through services are "just and reasonable." Absent rate regulation we could not fulfill that legislative mandate. We also have power to regulate the terms and conditions of through services. One of those terms and conditions of service is the rate for the service. We read the statute to establish a specific jurisdiction over joint rates and a more general jurisdiction, including jurisdiction over rates, for through services.

Policy Basis for Reviewing Cooperatives’ Access Charges. One of the effects of using access charges to compensate ILECs for the use of their networks is that the cost structure of the ILECs has an impact on all Oregon customers who make long distance calls. The effect is obvious for companies participating in the pool. These companies are entitled to withdraw amounts from the pool based on their costs. The LECs contributing to the pool must increase their access charges to ensure that the high cost companies recover sufficient amounts to cover their expenses. The Commission must review the revenue requirements of the pooling companies to ensure that overall access charges are fair and reasonable.

Some of the cooperatives, including Beaver Creek, argue that the Commission should not review their access charges if they do not withdraw funds from the OCAF pool. These companies point out that their access charge rates have such a small impact on the overall access charge and that it wastes Commission and cooperative resources to submit the cost documentation necessary for the review of the companies’ access charges. For example, the cooperatives argue that every cooperative would have to double its access charges to have a one cent impact on the access charges paid by the toll carriers.

This argument misses the point. Commission policy is not based solely on the need to keep rates as low as possible, but is also aimed at ensuring public confidence in the integrity of the program. This check is important because it is the long distance carriers’ customers who ultimately bear the responsibility for paying the cooperative carriers’ access charges. These customers have no effective way of determining whether the cooperative carriers’ access charges are reasonable. Moreover, excessive access charges for some toll routes would increase pressure for deaveraged toll rates, requests for abandonment of high cost toll routes, and loss of competitive choice for end user customers.

The Commission has reason for its concerns. In the past, we have discovered cooperative carriers including certain excessive costs and cross subsidization from regulation to nonregulated operations. The cooperative carriers’ argument about the small impact that they have on overall access charges is correct. However, that small impact makes the potential for abuse more attractive to a company that wants to take advantage of the system.

Some cooperative carriers point out that they are governed by their members and that Commission oversight is unnecessary. They argue that federal and state accounting rules allow only a portion of the expenses incurred by a nonparticipating company to be reflected in access charges. They argue that their customers would take offense at improper increases in rates and would require the company to reduce its expenses.

History does not support these conclusions. The Commission’s experience is that some of the companies abusing the access system have been cooperative carriers. Membership oversight has not prevented these improper charges. In fact, on average only 30 percent of the cooperative companies’ revenue requirements are borne by their customers. The remaining portion is borne by access charges, the OCAF pool, or federal subsidies. Under these circumstances, customer concern with the rate impacts of management decisions is dulled considerably.

The Commission’s policies on toll and access services provided by cooperative telephone companies are intended to limit regulation to those areas where regulation is necessary. In the area of toll and access, the Commission focuses on the ability of a cooperative to impose excessive costs on all Oregon intrastate toll customers.

Filing Form O. This requirement was also a subject of dispute in Order No. 98-060. Beaver Creek argued that the Commission has no jurisdiction to require filing of the reports.

We found that we have jurisdiction to require the Form O and Form I reports from cooperatives as part of our rate jurisdiction over through services. We noted that it may not always be apparent that a cooperative’s financial dealings require oversight. Filing the forms required by the proposed rule allows the Commission to protect the public in the case of through services.

Conclusion. Beaver Creek has argued its position on Commission jurisdiction before the Commission and its position has been rejected. The Commission has determined that it has jurisdiction over Beaver Creek’s access rates and over the Form O filing requirements.

In seeking to implement unapproved access rates and in failing to file Form O, therefore, Beaver Creek is in violation of Commission Order No. 98-060 and the rules promulgated thereunder. Beaver Creek’s implementation of unapproved access rates also puts it in violation of Order No. 93-1133 (UM 384).

The Commission will not hesitate to take Beaver Creek to court in the event Beaver Creek tries to impose unauthorized access rates. As Mr. Nyegaard’s letter points out, we could seek a court injunction to prevent Beaver Creek’s imposition of the rates. We could also seek monetary forfeitures under ORS 756.990(2), which provides:

(2) Except where a penalty is otherwise provided by law, any public utility, telecommunications utility or other person subject to the jurisdiction of the Public Utility Commission shall forfeit a sum of not less than $100 nor more than $10,000 for each time that the person:

(a) Violates any statute administered by the commission;

(b) Does any act prohibited, or fails to perform any duty enjoined upon the person;

(c) Fails to obey any lawful requirement or order made by the commission; or

(d) Fails to obey any judgment or decree made by any court upon the application of the commission.

Beaver Creek should be aware that each time it assesses unauthorized rates against a different company, it commits a new violation.

ORDER

IT IS ORDERED that:

1. Beaver Creek shall not put access charge increases into effect without Commission approval of those rates.
2. If Beaver Creek seeks to impose unauthorized rates, it must keep records of the charges it collects under the unauthorized tariff for the purpose of refunding the money so collected. Refunds are subject to interest at 11.1 percent, the OCAP pool rate of return (see Order No. 93-1133, Attachment at 10: 1994 OCAP Pt. IV).
3. Beaver Creek shall not withhold money due to intrastate access carriers to make itself whole.
4. If Beaver Creek does withhold money due to intrastate access carriers to make itself whole, it must keep records of the withholding for the purpose of refunding the money so collected. Refunds are subject to interest at 11.1 percent, the OCAP pool rate of return (see Order No. 93-1133, Attachment at 10: 1994 OCAP Pt. IV).
5. Beaver Creek shall not charge interest to intrastate access carriers who do not pay Beaver Creek’s unapproved access charge rates.
6. If Beaver Creek does charge interest to intrastate access carriers who do not pay Beaver Creek’s unapproved access charge rates, it must keep records of any interest received for the purpose of refunding the money so collected. Refunds are subject to interest at 11.1 percent, the OCAP pool rate of return (see Order No. 93-1133, Attachment at 10: 1994 OCAP Pt. IV).
7. Beaver Creek’s intrastate access customers are not required to pay the unapproved increase in access rates.

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 in 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(2). A party may appeal this order to a court pursuant to applicable law.

In the alternative, a party may ask the Commission for a hearing on an order entered under ORS 756.515(4). The party must file a request within 15 days after the date of service of the order as provided by ORS 756.515(5).