ORDER NO. 98-333

ENTERED AUG 07 1998

This is an electronic copy. Appendices and footnotes 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 13 petitions for Extended Area Service (EAS). These petitions, which involve 37 local telephone exchanges around the state, represent all those EAS petitions that had successfully completed Phase I (Community of Interest Determination) by August 6, 1997.

The Commission also reviews in this order the proposed rate filings for two dockets affecting the Portland EAS Region, Molalla (UM 661) and Scappoose (UM 847). The 1997 Legislative Assembly mandated the inclusion of the Molalla and Scappoose telephone exchanges in SB 4 and HB 3228, respectively. These two petitions affect the 26 local telephone exchanges comprising the Portland EAS Region, and involve eight local exchange companies. Because the legislature required implementation of the interexchange service by November 1998, these two petitions were processed with the other 13 down-state petitions addressed above.

All 15 petitions have now completed Phase II (Tariff Analysis), in which the Commission reviewed the proposed tariffs filed by the 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 3, 1998.

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

FINDINGS OF FACT AND CONCLUSIONS

PHASE I -- COMMUNITY OF INTEREST

DOWN-STATE EAS

In this consolidated investigation, customers of 13 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.

Five EAS petitions included in this consolidated proceeding, Prospect (UM 789), Haines (UM 817), Powers (UM 818), Sprague River (UM 824), and North Umpqua (UM 832), initially failed the objective community of interest criteria. At the request of the petitioning exchanges, the Commission 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 all interexchange routes contained in those five petitions.

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

DOWN-STATE EAS AND PORTLAND REGION

Upon successful completion of Phase I, the 13 down-state petitions were grouped together for a Phase II Tariff Analysis. The two Portland EAS Region dockets, Molalla (UM 661) and Scappoose (UM 847), were also consolidated for Phase II processing. A total of 13 LECs provide service to the 65 telephone exchanges affected by this investigation. The companies are: Beaver Creek Cooperative Telephone Company (Beaver Creek), Canby Telephone Association (Canby), Cascade Utilities (Cascade), Clear Creek Mutual Telephone Company (Clear Creek), GTE Northwest Incorporated (GTE), Malheur Bell (Malheur), Midvale Telephone Exchange (Midvale), Molalla Telephone Company (Molalla), Mt. Angel Telephone (Mt. Angel), North-State Telephone Company (North-State), CenturyTel, United Telephone Company of the Northwest (United), 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 April, May, and June 1998, an ALJ held 13 public comment hearings at various locations around the state. At each hearing, Staff member Lance Ball or Celeste Hari 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 N. The stipulated EAS rates for each of the 13 LECs are set out in Appendices O through AA.

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 13 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 13 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 13 LECs comply with Criterion 2. All 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. Molalla plans to increase its rate from $0.03 per minute to $0.07 per minute. Mt. Angel plans to increase its rate of $0.05 per minute to $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 13 LECs comply with Criterion 3. Each carrier currently provides a combination of flat rate local exchange service and measured rate EAS. The LECs will make this combination available in all exchanges that are scheduled to receive new EAS.

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

The stipulated rates for all 13 LECs comply with Criterion 4. Each of the LECs has developed a company-wide matrix of EAS rates which satisfies Criterion 4.

Beaver Creek and GTE propose to charge for expanded EAS based on their existing rate matrices. Canby, Cascade, Clear Creek, Malheur, Molalla, Mt. Angel, CenturyTel, United, and USWC propose to make minor modifications to their respective EAS matrix to accommodate new routes. The remaining two companies, Midvale and North-State, are proposing EAS rates for the first time.

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

The stipulated rates for all 13 LECs comply with Criterion 5. All of these companies provide a flat option that incorporates all EAS 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 13 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 13 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 11 LECs comply with Criterion 8. Two LECs, GTE and Midvale, are willing to forego revenue recovery to avoid rate shock to customers that would occur under full traffic sensitive cost recovery.

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 11 LECs comply with Criterion 9. Three of those LECs, Molalla, North-State, and CenturyTel, propose to increase local exchange rates as a part of this proceeding to help recover revenue shortfalls from EAS expansions.

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 combined. In other words, the flat EAS rate should not be greater than the local exchange rate.

The flat EAS rates proposed by Canby and Molalla exceed this 50 percent rule. Under Canby’s revised flat rates, residential customers pay $11.20, while business customers pay $16.80. Canby’s local exchange rates are $10.80 for residential and $16.20 for business. Similarly, Molalla’s proposed residential EAS flat rate is $14.50 versus a local exchange rate of $12.61. The company also proposes a business EAS flat rate of $20.00, versus a local exchange rate of $17.45. The reason both companies are increasing their respective flat EAS rates is due to the addition of Molalla and Scappoose to the Portland EAS region through legislative mandate.

The Commission has limited jurisdiction over both companies, which are cooperative telephone companies. Accordingly, the Commission adopts Staff’s recommendation to make an exception to the 50 percent guideline for Canby and Molalla.

Criterion 10: EAS tariff proposals should be revenue neutral.

The stipulated rates for all 13 LECs substantially comply with Criterion 10. 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. Deviations from revenue neutrality are either very small or the result of a LEC’s decision to accept a net revenue loss.

Resolution -- Phase II

The Commission concludes that the EAS routes should be implemented as proposed. The stipulated rates for all 13 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 options for a six-month period following implementation of EAS on October 3, 1998, 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 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 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 selecting either flat or measured EAS for the applicable interexchange routes. In order to help facilitate EAS implementation, local phone companies should provide 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. In other words, customers who have flat EAS at the time of conversion should be defaulted to flat rate EAS, while customers who have measured EAS at the time of conversion should be defaulted to measured EAS.

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 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 petitions should be granted.

ORDER

IT IS ORDERED that:

1. The 13 down-state petitions for Extended Area Service between the specified interexchange routes listed in Appendix A are granted. The rates proposed for the two Portland EAS dockets, Molalla (UM 661) and Scappoose (UM 847), are approved.

2. The stipulations entered between Staff and the 13 local exchange telephone companies, set forth in Appendices B through N, are approved.

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

4. For exchanges that have pre-existing EAS, customers who do not select an EAS option shall be defaulted to the type of EAS 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 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 DOWN-STATE EAS CASES

AND

COMMUNITY OF INTEREST DETERMINATIONS

Appendices B - AA are not available electronically.