ORDER NO. 98-484

ENTERED NOV 20 1998

This is an electronic copy.  Appendices not included.

UM 905

 DISPOSITION: STIPULATION ADOPTED

On June 30, 1998, United Telephone Company of the Northwest (United) filed an application with the Commission for an order approving changes to its depreciation rates. A prehearing conference was held in this matter on September 22, 1998. At the conference, the parties stated their intention to work toward settlement of all issues and to present the Commission with a stipulation to that effect.

United originally requested that annual depreciation expense be increased by $363,000, as compared to the expense level authorized in Order No. 95-566. That figure reflects depreciation expense increases in 11 accounts, decreases, in 12 accounts, and no change to three accounts.

On November 13, 1998, counsel for United and counsel for Commission Staff submitted a stipulation resolving all issues in the docket. The stipulation is attached to this order as Attachment A and incorporated herein by reference. Staff submitted testimony supporting the stipulation.

Staff reviewed United’s depreciation study in detail, analyzing the life and salvage factors proposed by the company. Staff compared the company’s projections to the historical data and the company’s plans provided with the United study. Staff also compared United’s projections with industry trends and Federal Communications Commission (FCC) guidelines for similar assets.

Staff disagreed with the company’s projections in several areas and presented its findings to United via a settlement letter dated October 13, 1998. Staff’s initial settlement offer was for an overall decrease in depreciation accruals of $96,000. Staff proposed changes to four of United’s accounts, as set out below.

Account 2124, General Computers: Staff recommended distinguishing between investments in personal computers and investments in mainframe computers, amortizing the personal computer investment over a two-year period and the mainframe investment based on the remaining life of the mainframe investment.

Account 2232, Circuit Equipment: Staff proposed a projection life of ten years as opposed the United’s proposed 9.6 years, in recognition of the decreasing percentage of investments in this account that represents the shorter-lived analog circuit equipment.

Account 2421.1, Aerial Cable Metallic: Staff proposed a higher net salvage than the company study proposed. The most recent ten years of United data show that the cost of removal is falling, and Staff argued that net salvage should be increased to reflect the downward removal cost trend.

Account 2422.1, Underground Cable Metallic: Staff proposed a 20-year projection. Data are lacking on the life expectancy of underground copper cable. Consistent with the industry study of total copper replacement, Staff proposed that the life of copper underground cable should be near the life of the other two copper cable accounts, or about 20 years.

The parties convened for a settlement conference on October 21, 1998, and were able to reach agreement on life and salvage projections for each plant account with only minor changes to Staff’s initial settlement proposal.

United presented data to show that the life projections for the mainframe investment were the same as for the personal computer asset group and that the two-year amortization should apply to both subaccounts. United also proposed that Staff’s estimate of net salvage of circuit equipment be narrowed to the most recent three years of experience to reflect the rapid changes in market conditions for electronic equipment.

Staff reviewed the additional documentation provided by United and company plans presented in response to data requests, and agreed that the proposed adjustments to the settlement proposal are reasonable and within the parameters of the depreciation process. Staff included the settlement conference adjustment in its recommendations and now recommends that United’s annual depreciation expenses be reduced by $19,000. The final depreciation rates are shown in the bold column headed "Agreement 1/1/98 RL Rate (%)" on Exhibit 1, included in this order as the last page of Attachment A and incorporated herein by reference.

To simplify the accounting process and to avoid different accounting for state and federal jurisdictions, United proposed that the effective date of the change in state depreciation rates coincide with the change in federal accounting procedures authorized by FCC Order 97-188. United placed the FCC accounting procedures in effect on January 1, 1998. FCC Order 97-188 increases the minimum capital investment level for general use assets to investments greater than $2,000. The stipulation includes this proposal.

The January 1, 1998, effective date will require the company to alter its normal three-year or 36-month depreciation cycle approved in Order No. 95-566 to 30 months. To accomplish this and to remain consistent with the 36-month amortization of digital switching approved in that prior order, the amortization period for digital switching equipment under the stipulation is allowed to proceed for six months into 1998. United agrees to book digital switching equipment depreciation expense at the amortization rate of $42,977 per month for six months starting January 1998 and conclude this amortization with the June 1998 depreciation accounting entries.

United also requested that a 20 percent depreciation rate be authorized for implementation at the end of the amortization of the existing general purpose computer account. The effective date of the 20 percent depreciation rate for Account 2124, General Purpose Computers, will be January 1, 2000. This process ensures that the company has Commission approved depreciation rates for all investments for the full three-year period 1998 to 2001. The stipulation includes this provision.

The Commission has reviewed the stipulation, the supporting testimony, and the exhibits submitted with the testimony. We find the stipulation reasonable and fair to both the company and its customers. The stipulation should be adopted.

IT IS ORDERED that the stipulation between United Telephone Company of the Northwest and Commission Staff, appended to this order as Attachment A and incorporated herein by reference, is adopted.

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.