PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Telecommunications Division RESOLUTION T-16479
Market Structure Branch January 18, 2001
R E S O L U T I O N
RESOLUTION T-16479. CITIZENS TELECOMMUNICATIONS COMPANY OF CALIFORNIA, INC. (U-1024-C). ORDER APPLYING THE ADOPTED PRICE CAP MECHANISM IN COMPLIANCE WITH DECISIONS 89-10-031, 94-06-011, 94-09-065, 95-11-024, 96-12-054 AND 98-10-026 THROUGH ADJUSTMENTS TO SURCHARGES/ SURCREDITS TO BE EFFECTIVE FEBRUARY 1, 2001.
BY ADVICE LETTER NO. 672 FILED OCTOBER 2, 2000.
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SUMMARY
This resolution authorizes Citizens Telecommunications Company of California, Inc. (CTC-California) to increase its annual revenue by $1,051,498 effective February 1, 2001. This increase implements CTC-California's 2001 annual price cap index filing in Advice Letter (AL) Number (No) 672, as adjusted by supplemental work papers. The adopted revenue adjustments and surcharge (surcredit) changes are shown in Appendices A and B attached to this resolution. The revisions to CTC-California's price floors to reflect the changes in the inflation factor are adopted as filed and are effective February 1, 2001.
Advice Letter 672, as adjusted by supplemental work papers requested an increase in revenue of $1,051,498 over the 1996 base-year. This increase included an ongoing Z-factor adjustment for an increase of $1,404,412 for Universal Service Fund payments, an ongoing payphone deregulation reduction of $186,051, and an ongoing reduction in Other Billing and Collection (OB&C) in the amount of $166,863.
No protests were filed regarding CTC-California's 2001 price cap AL 672.
BACKGROUND
New Regulatory Framework (NRF)
In Decision (D.) 96-12-054, we adopted an incentive-based NRF for CTC-California based on the NRF adopted for GTEC California Incorporated (GTEC) and Pacific Bell (Pacific). Ordering Paragraph (O.P.) 2 of D.96-12-054, grants CTC-California's petition for modification of D.95-11-024. In revised O.P.6 of D.96-12-054 we ordered that:
"Regulation of Citizens operations shall follow the principles of the new regulatory framework (NRF) established in D.89-10-031 (33 CPUC2d 43), D.94-06-011 (55 CPUC2d 1), and D.94-09-065 (56 CPUC2d 117) subject to the following differences. CTC-California shall file monitoring reports specified in Appendix D. Earnings between the benchmark and ceiling rates of return shall be shared equally between shareholders and ratepayers, with earnings above the ceiling rate of return returned to ratepayers. The "x" factor in the NRF formula for CTC-California shall be 4.0%, with the gross domestic product price index minus X portion of the formula suspended."
In D.89-10-031, we originally adopted an incentive-based regulatory framework for Pacific and GTEC. In that decision, we stated:
This new regulatory framework is centered on a price cap indexing mechanism with sharing of excess earning above a benchmark rate of return level...
Following a startup revenue adjustment [D.89-12-048] prices for the utilities' basic monopoly services and rate caps for flexibly priced services will be indexed annually according to the Gross National Product Price Index (GNP-PI) inflation index reduced by a productivity adjustment of 4.5%
The indexing formula also allows for rate adjustments for a limited category of exogenous factors whose effects will not be reflected in the economy wide GNP-PI [since replaced with the GDP-PI]. While all such costs cannot be foreseen completely, we recognize that the following factors may be reflected in rates as exogenous factors [called Z-factors]: changes in federal and state tax laws to the extent that they affect the local exchange carriers disproportionately, mandated jurisdictional separations changes, and changes to intraLATA toll pooling arrangements or accounting procedures adopted by this Commission.
However, we did not authorize Z-factor treatment for all unforeseen or exogenous factors. In D.89-10-031, the Commission also stated that:
" . . .normal costs of doing business (including costs of complying with existing regulatory requirements) or general economic conditions would be excluded as Z factor items."
Since D.89-10-031, we have subsequently issued several decisions modifying the NRF program. In D.93-09-038, for instance, we ordered GTEC to replace the GNP-PI with the Gross Domestic Product Price Index (GDP-PI) commencing with GTEC's 1994 price cap filing. The Commission, through D.94-06-011, likewise ordered Pacific to replace the GNP-PI commencing with Pacific's 1995 price cap filing. In D.94-09-065, we authorized Pacific and GTEC to implement the 1995 price cap rate adjustments through the billing surcharge/surcredit mechanism. Ordering Paragraph 1 of D.95-11-024 requires CTC-California to "file revised tariffs consistent with this decision, the revenue requirement and revenues in Appendix C (surcharges/surcredits), and the rates in Appendix E.."
Most recently, the Commission initiated a proceeding, Rulemaking (R.) 98-03-040, to conduct the third triennial review of NRF applicable to Pacific Bell and GTEC. As a result of this proceeding, in D.98-10-026, the Commission modified some of the elements of the NRF for Pacific Bell and GTEC. Regarding issues germane to the annual price cap filing, this decision continued the suspension of the inflation (I) minus productivity stretch (X) portion of the price adjustment formula. It phases out existing Z factor adjustments; and continues the streamlined advice letter consideration of a very limited set of exogenous costs by a new, limited exogenous (LE) factor mechanism. It continues residential rate caps just as all rate caps and floors are continued, subject to change by future Commission decision.
R. 98-03-040 did not include Citizens or Roseville, because at that time the issues for Pacific Bell and GTEC were considered by the Commission to be sufficiently different due to the maturity of Pacific Bell's and GTEC's NRF programs. CTC-California filed for a review of its NRF in docket (A.) 99-03-027 that addresses issues related to annual price cap filings, as well as other matters. In D. 00-03-040 the Commission approved a settlement agreement (settlement) between CTC-California and the Commissions Office of Ratepayer Advocates (ORA) regarding revisions to CTC's New Regulatory Framework (NRF). Under the settlement, reporting requirements are modified, the Service Quality Assurance Mechanism (SQAM) and depreciation filings are eliminated, three on-going Z-Factors are kept while all others are eliminated, and suspension of the inflation-minus-productivity (I-X") based price indexing formula is continued.
CTC-California's Price Cap Filing
CTC-California's 2001 price cap filing consists of proposed revenue adjustments (reductions in parentheses) for:
1. Price Cap Index, This portion of the formula was suspended by D.96-12-054.
2. Interstate High Cost Fund Adjustment, $1.404 million. An ongoing Z factor adjustment to reflect the difference between the final USF expense payments to be received from the National Exchange Carrier Association (NECA) applicable to 1996 and the expected USF expense payments to be received from NECA applicable to 2001.
3. Payphone Deregulation, ($.186) million. An ongoing Z-factor adjustment to reflect the impact of payphone deregulation.
4. Other Billing and Collection, ($.167) million. An ongoing Z-factor adjustment to reflect the impact of the transfer of the common line, traffic sensitive and special access charges.
The proposed revenue changes to become effective February 1, 2001 are summarized in the following table:
2001 Price Cap Revenue
Price Cap Impact (without Z-factors) |
$ 0 |
Z-factors: ongoing revenue impact |
|
Interstate High Cost Fund |
$1,404,412 |
Impact of OB&C order |
($166,863) |
Payphone Deregulation Adjustment |
($186,051) |
Subtotal |
$1,051498 |
Z-factors: one-time revenue impact |
$0 |
Net Z-factor adjustment |
$ 1,051,498 |
Total Price Cap Impact with Z-factors $ 1,051,498
For the purpose of adjusting its price floors, CTC-California proposes a GDP-PI factor of 2.04%, which reflects the adjusted rate of inflation between the second quarters of 1999 and 2000. In its supplemental workpapers, CTC-California based its GDP-PI Implicit Price Deflator data obtained from the U.S. Department of Commerce, Bureau of Economic Analysis.
NOTICE/PROTESTS
CTC-California published a copy of Advice Letter No. 672 on October 2, 2000, which appeared in the Commission's Daily Calendar on October 18, 2000.
No protests were filed regarding CTC-California's Advice Letter 672 and the issues contained therein.
DISCUSSION
I. Interstate High Cost Fund
CTC-California's AL 672, adjusted by supplemental work papers to reflect a recovery period of eleven months effective February 1, 2001, instead of the original twelve months period effective January 1, 2001 included a $1.404 million Z-factor adjustment to reflect reduced recovery from the Interstate High Cost Fund. The Interstate High Cost Fund is administered by the National Exchange Carrier Association (NECA) and is intended to preserve universal service by providing offsetting support to the cost of the local loop in high cost areas.
Applying the Interstate High Cost Fund (IHCF) adjustment to local exchange services only is consistent with our previous treatment of high cost fund adjustments. In 1995, we approved a similar adjustment for GTEC and in 1996, we approved CTC-California's request for Z-factor treatment of reduced recovery from the interstate high cost fund. In both instances, the adjustments were applied to local exchange services only.
As discussed in the CTC-California 1999 price cap ruling,, Resolution T-16259, and again in the 2000 price cap ruling,Resolution T-16377, there can be a difference between the actual amount of receipts from NECA and the estimated NECA receipts used to derive the remaining USF amount to be recovered from California ratepayers. An overstatement of USF receipts based upon NECA estimates could result in an over-collection by CTC-California, resulting in an overpayment by CTC-California's ratepayers. Just as CTC-California is entitled to differences between actual NECA receipts and the USF amount adopted in its 1996 general ratecase, it is equally responsible for ensuring that any overcollections are appropriately corrected in its price cap filings. Following is an explanation of the NECA procedures for true-ups under the NECA settlement cycle No. 2.1.
2.1 Data Types
Each month participants in the NECA pools submit estimates of their revenues and expenses. As actual data becomes known, companies adjust their data to reflect their actual revenues and costs. For this reason, the common line and traffic sensitive pools operate with a 24 month "open window" in which the exchange carrier can revisit prior months to adjust data. Depending on whether they are reporting current estimated or true-up actual data, exchange carriers can make three types of data entry during a current month cycle: data month estimate, data month adjustment, or retroactive adjustment.
In accordance with the above NECA "true-up" provisions, and as instructed in these prior two price cap Resolutions T-16259 and T-16377, we expected CTC-California to submit true-up adjustments in subsequent price cap filings via a Z-factor adjustment. The first of such true up adjustments was required in its 2000 price cap filing. Although sufficient time has elapsed to have this information included in subsequent filing, we have not seen any true-up adjustments made to 2001 price cap. Accordingly, we will make no true-up adjustments at this time and we will adopt CTC-California's proposed $1.404 million Z-factor adjustment. However, staring in the year 2002 price cap filing, CTC-California is required on a going forward basis to submit true-up adjustments, in accordance with NECA "true-up" provisions discussed in this resolution.
II. Payphone Deregulation
In AL No. 672, CTC-California requests an ongoing Z-factor adjustment of ($186,051) to reflect the impact of payphone deregulation.
In its First Report and Order, FCC 96-388, the Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, and in the subsequent Order on Reconsideration, FCC 96-439, the FCC ordered the deregulation of all payphone equipment and the removal of interstate and intrastate payphone subsidies. In relevant part, FCC Order 96-388 specifies that:
We require, pursuant to the mandate of Section 276(b)(1)(B), incumbent LECs to remove from their intrastate rates any charges that recover the costs of payphones.
Payphones were deregulated on April 15, 1997 and CTC-California therefore correctly began to include payphone deregulation adjustments first in 1998 price cap and has since been an annual adjustment. In A. 99-03-027 CTC California requested no change in its basic NRF structure, and requested that the Commission not make any changes in the criteria for exogenous items (Z-factor) recoverable by CTC-California in the NRF. In D. 00-03-040 the Commission allowed CTC-California to continue seeking ongoing adjustments for Payphone deregulation in the amount of ($186,051). CTC-California begins with its 1996 base-year revenue requirements and makes annual adjustments for all ongoing and one-time exogenous events. Each year the company starts with a clean slate. In contrast, the other large LEC's reflect changes to their price cap on a year to year basis. TD has verified that the two approaches produce the same numerical results. The ongoing adjustment of ($186,051) requested by CTC-California reflects twelve months of revenue.
We find CTC-California's proposed ($186,051) Z-factor adjustment for payphone deregulation reasonable and will therefore adopt it.
III. Other Billing and Collection (OB&C)
CTC-California requests an ongoing Z-factor adjustment of ($166,863) to reflect the impact of the FCC's OB&C order 80-286. CTC-California made annual adjustments to their 1996 base-year revenue requirement for all ongoing and one-time exogenous events. We find reasonable, and therefore adopt CTC-California's ($166,863) proposed Z-factor adjustment for OB&C.
