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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Telecommunications Division

RESOLUTION T-16532

Public Programs Branch *

June 14, 2001

R E S O L U T I O N

RESOLUTION T-16532. CITIZENS TELECOMMUNICATIONS COMPANY OF CALIFORNIA, INC. REQUEST TO IMPLEMENT A TEMPORARY CALIFORNIA HIGH COST FUND-B CATCH-UP SURCREDIT IN COMPLIANCE WITH DECISION 98-09-039.

ADVICE LETTER 698 FILED ON APRIL 13, 2001.

SUPPLMENTS 698- A AND 698-B FILED ON MAY 18, 2001 AND MAY 25, 2001, RESPECTIVELY.

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SUMMARY

On April 13, 2001, Citizens Telecommunications Company of California, Inc. (Citizens) filed Advice Letter 698 in compliance with Ordering Paragraph (OP) 20 of Decision (D.) 98-09-039 that required Citizens to implement a catch-up surcredit for a 3-month period relating to the California High Cost Fund (CHCF-B) claims. In addition, Citizens filed two supplements incorporating changes to the determination of the correct billing base and the catch-up surcredit rate. This resolution approves a temporary three-month catch-up surcredit of 20.20% to offset Citizens' approved claims of $2.280 million for the time period from February 1997 to August 1998. The catch-up surcredit of 20.20% will apply to all intrastate services, except residential basic exchange service and certain other services, and will be effective July 1, 2001 through September 30, 2001. In addition, Citizens will track in a memorandum account all catch-up surcredit amounts applied to customer accounts during the July 1, 2001 through September 30, 2001 period. Any difference between the aggregate realized catch-up surcredit amount and the adopted surcredit amount will be trued-up by an Advice Letter within 60 days from September 30, 2001.

BACKGROUND

On March 12, 2001, the Director of Telecommunications Division (TD) requested Citizens to file an Advice Letter on or before April 16, 2001 to implement a catch-up surcredit for its approved CHCF-B claims for February 1997 through August 1998. The catch-up surcredit amount will be offset by the claims paid by the CHCF-B Administrative Committee (AC) in order to achieve revenue neutrality for Citizens.

To prevent Citizens and the other three LECs from receiving a windfall, the four carriers are required to reduce rates for all intrastate services, except for residential basic exchange services and certain other services, 2 by amounts equal to the CHCF-B fund draws. Residential basic exchange service is excluded because the CHCF-B program supports this service in high cost areas. In addition, if reducing the rates for residential basic service is allowed, the Commission stated, "this would widen, rather than narrow, the gap between the residential rates and their costs." 3

In D. 98-09-039, the Commission partially implemented the CHCF-B program through a self-funding mechanism since the trust account for CHCF-B was not established until October 1999. Under this partial implementation, Citizens 4 and the three other LECs offset their monthly draws from the CHCF-B program by a surcredit. 5 Besides this surcredit, Citizens (as well as the other LECs) is required to implement a catch-up surcredit pursuant to OP 20 of D.98-09-039. Specifically OP 20 of D.98-09-039 states:

NOTICE/PROTEST

The notice of Citizens' Advice Letter was published in the Commission Daily Calendar of April 20, 2001. Citizens mailed a copy of the Advice Letter to interested utilities and/or parties. On May 10, 2001, AT&T Corporation made a timely filed protest to the Advice Letter.

COMMENTS

A draft resolution, prepared by the TD staff, on the recommended catch-up surcredit was mailed on May 15, 2001, in accordance with Public Utilities Code Section 311 (g) to the parties of record in R.95-10-020/I.95-010-021 and to Pacific, Verizon, and Roseville. The TD staff received no comments on the draft resolution to date.

DISCUSSION

The TD recommends that the Commission adopt a temporary catch-up surcredit of 20.20% for Citizens for a 3-month period starting July 1, 2001 through September 30, 2001. The catch-up surcredit will be applied to all intrastate services provided by Citizens except residential basic and certain other services. The surcredit is based upon the CHCF-B claims of $2.280 million for the period from February 1997 through August 1998.

1. Adopting A Temporary Catch-Up Surcredit

The estimated catch-up surcredit rate of 20.20% is based upon the CHCF-B approved claims of $2.280 million for the period from February 1997 to August 1998 and three month total of monthly average of 12 months ending January 31, 2001 recorded billing base. The billing base adjusts out billings for residential basic service and certain other services, uncollectibles, and billing adjustments. Citizens filed supplements to reflect the inclusion of access revenue in the billing base and the associated access tariff sheets.

AT&T protested Citizens' Advice Letter. First, AT&T states that proposed billing base should be developed from year 1998 data, not the 12 months ending January 21, 2001. ATT argued that Citizens' proposed billing would result in some customers receiving far less than they paid into the fund. AT& T did not support its position with an appropriate study. The amount of catch-up surcredit received by customers will depend upon the types of telecommunications services and intrastate usage, not upon the amount of the CHCF-B surcharge paid by the customers in 1998. and services corresponding to the CHCF-B surcharges billed to the customers. We will adopt Citizens' proposed billing base.

The second issue protested by AT&T was Citizens' CHCF-B claims amount should include interest earned by the fund from February 1997 through August 1998 in calculating the surcredit. We will not include interest in calculating the surcredit since interest earned by the funds are already used to lower future CHCF-B surcharge rates for all intrastate ratepayers in California. In addition, the CHCF-B claims for Citizens have been approved by the CHCF-B Administrative Committee.

The catch-up surcredit rate of 20.20% will begin on the first day of the month and will be effective for three months, beginning July 1, 2001 and ending September 30, 2001. The estimated catch-up surcredit rate of 20.20% will be in addition to previously adopted provisional permanent surcredit rate of 3.07% adopted in Resolution T-16239, dated November 19, 1998. The total surcredit rate of 23.27% will apply to all intrastate services except residential basic service and certain other services.

Pursuant to OP 27 of D.98-09-039, Citizens is required to show the permanent and catch-up surcredits as a single line item on customers' bills. In addition, Citizens will explain the CHCF-B catch-up surcredits to their customers in the free form section of the customer bill.

We will adopt the recommended catch-up surcredit rate of 20.20% beginning on the first day of the month and ending three months later, or July 1, 2001 and ending September 30, 2001. The CHCF-B AC will distribute the catch-up amount in three equal monthly installments paid on the 15th day of each calendar month that the Citizens' catch-up surcredit is in effect.

2. Tracking the Temporary Catch-Up Surcredit

D.96-10-066 requires Citizens to establish a memorandum account to track the catch-up surcredit rate reductions. Citizens is required to establish a separate account, entitled "Accounts Payable End User Catch-Up Claim/Surcredit" to record all catch-up surcredits applied to customer accounts during the period July 1, 2001 through September 30, 2001 (inclusive).

3. True-Up of Temporary Catch-Up Surcredit

OP 25 of D.98-09-039 mandates a true up of Citizens' catch-up surcredit with the catch-up amount of $2.280 million adopted by the Commission. Citizens will be required to file an Advice Letter within 60 days from the end of its catch-up period, or no later than November 29, 2001. Any difference between the aggregate realized catch-up surcredit and the adopted catch-up surcredit will accrue interest starting on the first day from the end of the catch-up period, or November 30, 2001, to the starting date of the true-up, whether the true-up is a surcredit or surcharge amount. The true-up surcredit/surcharge amount accrues interest based on the average seven-day compound yield on taxable money market funds published in the Wall Street Journal each Thursday.

As part of its true-up Advice Letter filing, Citizens will provide workpapers, or make available documents at Citizens' office in Elk Grove, CA, supporting the surcredit/surcharge amount. Citizens should expect an audit sampling by the TD staff (or auditors operating under the direction of TD staff) to verify the true up surcredit/surcharge amount.

4. Resolution T-16440 Audit Requirements

Public Utilities Code 274 requires the Commission to conduct a compliance audit of program-related costs including CHCF-B claims. The approval of Citizens claims from February 1997 through December 1999, including the catch-up period from February 1997 through September 1998, by the CHCF-B AC was subject to this audit requirement. If an audit determines that Citizens' claims should be lower than the catch-up amount of $2.280 million, Citizens may be required by the CHCF-B AC to return the difference with interest to the CHCF-B fund. Interest is based on the average seven-day compound yield on taxable money market funds published in the Wall Street Journal each Thursday. If such action results in amounts being returned to the CHCF-B fund, Citizens may not seek recovery from the ratepayers or the CHCF-B fund for the difference.

FINDINGS

1. Citizens Telecommunications Company of California Inc.'s (Citizens') proposed surcredit amount of $2.280 million, as approved by the California High Cost Fund-B (CHCF-B) Administrative Committee (AC) for CHCF-B claims, is reasonable and should be adopted.

2. Citizens' proposed surcredit of 20.20% applicable to all intrastate services, except residential basic service and certain other services, over three months is reasonable and should be adopted.

3. AT&T protested the Citizens' Advice Letter on the proposed timing of its billing base and the non-use of interest earned by the fund during the time period from February 1997 through August 1998.

4. Any interest earned by the fund is used to offset future CHCF-B surcharge rates that are paid by all intrastate ratepayers.

5. Citizens' proposed billing base is adopted, as current Citizens' ratepayers, except residential basic service and certain other services, should benefit from the CHCF surcredit.

6. The surcredit amount will apply on the first day of the month, or July 1, 2001, and will apply for 3 months, or through September 30, 2001.

7. CHCF-B Administrative Committee will distribute the catch-up amount of $2.280 million, in three equal monthly installments to be paid on the 15th day of each calendar month that the Citizens' catch-up surcredit is in effect.

8. Citizens' proposed surcredit of 20.20% is in addition to the current 3.07% provisional permanent surcredit relating to the CHCF-B claims.

9. Citizens is required to show the permanent and catch-up surcredits as a single line item on customers' bills.

10. Citizens will explain the CHCF-B catch-up surcredit to their customers in the free form section of the customer bill.

11. Citizens will track the catch-up surcredit rate reduction by establishing a memorandum account, entitled Accounts Payable End-User Catch-Up Claim/Surcredit.

12. Citizens will file an Advice Letter within 60 days from the end of the catch-up period, or no later than November 29, 2001, to true-up the catch-up surcredit.

13. Citizens will include interest, based upon the average seven-day compound yield on taxable money market funds published in the Wall Street Journal, starting on the first day from the end of the catch-up period, or October 1, 2001, to the day of the start of the actual true-up, if any.

14. Any adjustments resulting from claims audits of CHCF-B claims from February 1997 through December 1999, including the catch-up period, will not be recoverable from the ratepayers or the CHCF-B fund.

THEREFORE, IT IS ORDERED that:

1. Citizens Telecommunications Company of California Inc.'s catch-up surcredit amount of $2.280 million and surcredit rate of 20.20%, as filed in Advice Letter 698 by Citizens Telecommunications Company of California Inc. (Citizens) on April 13, 2001, is adopted. The catch-up surcredit rate shall apply to billings for all intrastate services, except residential basic service, coin-sent paid calls, and contracts from July 1, 2001 through September 30, 2001. The catch-up surcredit of 20.20% is in addition to the current 3.07% provisional permanent surcredit relating to the CHCF-B claims.

2. The CHCF-B Administrative Committee shall distribute the catch-up amount of $2.280 million, in three equal monthly installments paid on the 15th day of each calendar month that Citizens' catch-up surcredit is in effect.

3. Citizens shall show the permanent and catch-up surcredits as a single line item on customers' bills and explain the CHCF-B catch-up surcredit to their customers in the free form section of the customer bill.

4. Citizens shall track the catch-up surcredit rate reduction by establishing a memorandum account, entitled Accounts Payable End-User Catch-Up Claim/Surcredit.

5. Citizens shall file an Advice Letter within 60 days from the end of the catch-up period, no later than November 29, 2001, to true-up catch-up surcredit.

6. Citizens shall include interest, based upon the average seven-day compound yield on taxable money market funds published in the Wall Street Journal, starting on the first day from the end of the catch-up period, or October 1, 2001, to the day of the start of the actual true-up, if any.

7. Any adjustments resulting from claims audits of CHCF-B claims from February 1997 through December 1999, including the catch-up period, shall not be recoverable from the ratepayers or the CHCF-B fund.

This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on June 14, 2001. The following Commissioners approved it:

Commissioner Carl W. Wood

necessarily absent did not participate.

1 The other three carriers are Pacific Bell (Pacific), Verizon California, Inc, and Roseville Telephone Company (Roseville).

2 Other services are coin-sent paid calling, debit card messages, one-way radio paging, COPT usage, contracts existing on or prior to 9/15/94, ULTS services, and directory advertising.

3 D.96-10-066, page 209.

4 Resolution T-16239, dated November 19, 1998 approved Citizens surcredit of 3.07% on provisional permanent basis.

5 Pacific Bell implemented permanent rate reductions as a result of D.98-07-033. D.98-07-033 allows Pacific Bell to "true-up" its rate reduction with its approved fund draws from the CHCF-B program.

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