CHCF-A Support

The Commission, in D.01-02-018, approved Settlement Transition Agreements (STAs) between Pacific Bell and the small Local Exchange Carriers (small LECs). Monies that Pacific Bell paid the small LECs through toll and access pool settlements were replaced by authorized draws from the CHCF-A. The CHCF-A itself was originally established by D.85-06-115 as a means of subsidizing reasonable basic exchange rates for the customers of small LECs that adopted Pacific's statewide average toll, toll private line, and access charges (settlement pools). D.01-02-018 required the small LECs' replacement funding for the STAs be subject to the same rules that apply to current draws from the CHCF-A, namely, basic residential rates need to be at least 150% of AT&T urban rate as necessary, and both the means test and the waterfall provisions should apply.

Cal-Ore's calculation of total company results of operations at present rates (Appendix A; Column A) shows that Cal-Ore would earn an estimated $674,325 in Net Operating Revenues and a total company rate of return of a 8.65% (Appendix A; Column A).

CD's calculation of total company results of operations at present rates shows that Cal-Ore would earn an estimated $1,301,790 in Net Operating Revenues and a total company rate of return of a 17.60% (Appendix A; Column B), prior to any CHCF-A adjustment.

For the test year 2009, CD's computation of Cal-Ore's CHCF-A support $489,682 , based on CD's projected revenues (including rate design), expenses, rate base and overall rate of return of 10%.

Federal USF

In this GRC filing, Cal-Ore proposed that it would receive $1,055,245 in Universal Service Fund (USF) funding for test year 2009. On October 8, 2008, CD received 2009 USF funding amount information from the National Exchange Carrier Association, Inc. (NECA) for all the small rural local exchange carriers in California. According to the NECA data, Cal-Ore will receive $1,489,197 in USF funding in 2009. This amount is a substantial increase of $433,952 from the amount Cal-Ore originally proposed. The increased USF funding amount of $433,952 will be made up by an equal decrease in Cal-Ore's 2009 CHCF-A funding amount.

CD recommends that Cal-Ore provide notice to all its customers of all increases and changes to its rates and charges within 7 days of the adoption of this resolution.

Comments

In accordance with P.U. Code Section 311 (g), CD mailed copies of this original draft Resolution (DR) on November 18, 2008 to Cal-Ore and other interested parties.

On December 4, 2008, the law firm of Cooper, White and Cooper LLP (Cooper) filed timely comments, on behalf of Cal-Ore, to CD in response to the DR. In its comments Cooper raised the following issues:

The Commission Should Not Reduce Test Year Employee Benefits Related to the Retirement Program

In its comments, Cal-Ore asserts that CD's determination of a 34% benefit to salaries ratio, as mentioned in the DR, is unsupported and is in part based on a comparison with the benefit level received by Commission staff. Cal-Ore's level of benefits to total wages and salaries appears to be high. Cal-Ore provided a list of salaries/wages and benefits for 2007 which showed its level of benefits to total wages and salaries to be excessive. For test year 2009, the ratio of benefits to total wages and salaries is 52.43%. Cal-Ore provided a list of salaries/wages and benefits for 2007. CD believes a benefit to salary ratio of 42% is more reasonable as explained below.

CD staff surveyed regulated small water companies ranging from 2000-10,000 customers filing rate cases with the Commission. CD found their average benefit to salary ratio was 33%¹¹. Further, CD staff studied the latest available data from the U.S. Bureau of Labor Statistics (BLS), dated December 10, 2008¹² and found that BLS included paid leaves in its benefit calculations. The benefits to wages and salaries ratio for all civilian workers was 43.42% and 40.86% for civilian service workers which were derived from the data in Table 2. Cal-Ore has a non-unionized work force and the BLS data derived from Table 5 suggest a benefit to wage and salary ratio of 38.56% for non-union workers. Analyzing the data in Table 6 for the Trade, Transportation, and utilities sector yields a benefit to wage and salary ratio of 41.34%. Table 7 shows data for the Pacific region (which includes California) and indicates a benefit to wage and salary ratio of 41.98% for the Pacific region. Cal-Ore serves rural communities and the data from Table 7 for Non-metropolitan areas yields a benefit to wage and salary ratio of 41.15%. For all small private companies with 1-49 employees (such as Cal-Ore) total benefits to salaries and wages was 33.99% obtained from the data in Table 8.

In response to the data analyzed above, CD concludes that the proposed benefit to wage and salary ratio of 42% is conservative, yet reasonable. Thus, CD recommends a benefit to salary ratio of 42% for Cal-Ore.

In its comments, Cal-Ore is concerned that it will not be able to attract a pool of qualified labor, if its benefits are not competitive. CD does not however agree that this issue will affect Cal-Ore's operations, or its ability to attract a workforce. Cal-Ore's benefit offerings after adjustment are competitive with those of similarly situated utilities, and no data was provided to show that the benefits would be uncompetitive.

The Commission Should Not Increase Basic Service Rates at This Time

In its comments Cal-Ore argues that the magnitude of the 20% increase to basic service proposed in the DR is not required. Cal-Ore further argues that the basic rate should be reexamined in connection with its 2009 CHCF-A filing, or that any increase to the basic rate be phased in over two or three years, with offsetting increases in CHCF-A draws to replace revenues.

The Commission's CHCF-A rules currently require that small LECs' residential service rates be at least 150% of AT&T's urban rate, and it is for this reason that CD is recommending increasing Cal-Ore's residential basic rate. The required adherence to this "150% mechanism" is evidenced by the Commission's adoption of previous GRC resolutions in which the small LEC's local residential rates were increased to at least 150% of AT&T's (Pacific Bell's or SBC's) rates. This 150% mechanism was adopted by the Commission in Decision (D.) 91-09-042; Appendix.

The recent B-fund decision (D.) 08-09-042 in footnote number 29 reaffirms the requirement that companies who wish to receive CHCF-A support must first be at 150% of the AT&T rate. The footnote states as follows, "CHCF-A guidelines require a small LEC's CHCF-A requirement to first be met by increases in its local exchange rates up to, but not to exceed, 150% of comparable California urban rates. After this rate limit has been met, the small LECs can then apply for CHCF-A funding if they make regular GRC filings."

Further, in Ordering Paragraph 3 of the original Decision 88-07-022, that established HCF (High Cost Fund; now called CHCF-A) and the 150% requirement, states, "Recover the remaining settlement effects from the intrastate High Cost Fund if the revised basic local rates do not fully recover the settlement effects but the 1-party residence flat rate has reached the 150% threshold level"

Additionally, Resolution T-13038 further affirms in Finding of Fact Paragraph 5 that, "To be eligible for intrastate HCF, D.88-07-022 requires the LECs to propose a rate design that will increase or decrease basic exchange access line service rates by a uniform percentage while maintaining the 150% threshold level of comparable California urban rates presently measured by Pacific's 1-R flat rate of $8.35 per month."

It is clear from a review of Commission Decisions and the precedent set by countless GRC resolutions that Cal-Ore' basic residential rate must be at the 150% level for Cal-Ore to continue to be eligible to receive CHCF-A funding.

Cal-Ore further argues that an elasticity factor should also be applied to any basic rate increase ordered as well. In the draft resolution, CD has adjusted revenues for the custom calling and access services and charges which have been increased by 25% or more, in response to Cal-Ore' expressed concerns. However, CD does not agree that basic residential service is subject to the same elasticity factors as custom calling and access services. Furthermore, CD has not received any data from Cal-Ore that demonstrates its conclusion that the rate increase will result in lost access line revenues.

Given that AT&T has increased pricing flexibility under URF, we will be reviewing in the immediate future whether to continue linking the company's Basic Residential rate to 150% of AT&T's Basic Residential rates as a condition for the company to receive CHCF-A support.  We recognize that the changed circumstances may support reconsideration of this practice and we will also consider whether any changes we make should be reflected on a prospective basis for the company's rates. 

Proposed Rate Base Changes Should Not Be Made

Cal-Ore's comments that CD Staff states that Cal-Ore should be upgrading its existing copper plant with more copper rather than fiber and that there is no demand for high speed, high technology services by Cal-Ore's customers. Cal-Ore states," ...replacing copper with more copper will, in the long run, be more expensive than utilizing fiber as Cal-Ore proposes. Utilizing fiber will save money on future maintenance, customer service, and operations." CD contends that the issue is not whether copper or fiber are appropriate for replacement but that the facilities do not need to be replaced in whole at this time.

CD agrees with Cal-Ore that its primary need is to provide basic phone service, and would add that Cal-Ore also needs to provide DSL broadband service, in the cities of Dorris and Tulelake. It currently provides these services over copper facilities. No complaints from Cal-Ore's customers have been brought to the attention of CD about poor basic phone or DSL service. All of the customers in the cities of Dorris and Tulelake are close enough to the central offices to be able to receive DSL service on (existing) copper plant.

DR's Method for Computing Uncollectibles Is Not Consistent with the Methodology Employed to Compute Expenses and Should be Revised

Cal-Ore asserts that the method utilized in the draft resolution for computing uncollectibles is not consistent with the methodology used to compute other expenses categories as it does not include recorded data from 2007.  CD agreed with Cal-Ore's assertion and therefore requested Cal-Ore to provide CD with 2007 recorded uncollectible data.  In response CD has modified its calculation to include 5-year (2003, 2004, 2005, 2006, and 2007) average uncollectibles to arrive at an uncollectible rate of 0.78% for local service revenue, and 9.74% for intrastate access revenue.  CD used these new percentages to derive its 2009 test year uncollectible estimates for proposed rate.  (There is no change for intrastate access revenue in present and proposed rates.)

The DR Should be Revised to Upcoming NECA Separations Methodology Changes

The procedure for changes such as these is as follows. In each succeeding year, each rural carrier shall file with the Commission an advice letter incorporating the net settlement effects upon such company of regulatory changes ordered by the Commission or the FCC. These advice letter filings will include all other regulatory changes of industry wide effect such as changes in separations and accounting methodology, EAS settlement revenues and the effects of other Commission decisions which increase or decrease settlement revenues or cost assignments.

CD finds Cal-Ore's proposal to adjust NECA separations methodologies for test year 2009 reasonable, pending FCC approval. Cal-Ore will be able to incorporate these changes in their next California High Cost Fund-A filing.

Effective Date and Customer Notice

Cal-Ore comments that the adoption of this resolution on January 29, 2009 will not allow a 30-day notice to its customers. CD has recommended that the 30-day notice requirement be waived and that Cal-Ore send notice, within 7 days of adoption of this resolution, to all customers regarding the increases and changes to its rates and charges. Additionally, CD recommends that Cal-Ore file a Tier 2 advice letter supplement, within 7 days of the adoption of this Resolution, with a revision to its tariff schedules, for all the increases and changes to its rates and charges as proposed in this resolution and as discussed in the Revenue Section of this resolution. The effective date for all changes contained in Cal-Ore's AL supplement will be February 1, 2009.

Computational Revenue Errors

Cal-Ore indicated that the Revenue Section of the DR contains several apparent computational errors that may require correcting.  CD reviewed its calculations and has revised its computations in Uncollectibles and Local Network Services using information provided by Cal-Ore.  CD has reviewed its calculations and adjustments in the remaining DR and has found no further computational errors.

Computational Rate Base Errors

Cal-Ore comments that CD's proposed plant disallowances are $285,742 greater than what was indicated in the October meeting. CD is unable to find the discrepancy that Cal-Ore notes. CD provided its workpapers to Cal-Ore to examine this potential discrepancy further and found no errors.

Cal-Ore's Correction to Its Vacation Benefits

In response to discussion with CD related to Cal-Ore's vacation benefits, Cal Ore performed further analysis of the annual vacation accrual for all its current employees.  Cal-Ore found that its employees accrue 15.87 days of vacation a year on average, not the 21 days referenced in their AL filing.  CD therefore accepts Cal-Ore's vacation expense estimate as submitted.

To reflect CD's reply to Cal-Ore's comments, all dollar, numerical and percentage figures in this Resolution have been revised, where applicable.

Findings

1. Cal-Ore Telephone Company (Cal-Ore) filed its 2009 test year General Rate Case (GRC) by Advice Letter (AL) No. 320 on December 27, 2007.

2. Cal-Ore requests the following for test year 2009:

· The tariff changes as described in the "Revenue" section of this resolution;

· An intrastate rate of return (ROR) of 10.00%, the same return granted to it in its last GRC filing in 2003;

· Total intrastate operating revenue of $3,933,685;

· Total intrastate operating expenses of $3,418,080;

· Total intrastate rate base amount of $5,156,058; and

· A California High Cost Fund-A (CHCF- A) draw of $1,461,446.

3. The Communications Division (CD) recommends the following for Cal-Ore for test year 2009:

· The tariff changes as described in the "Revenue" section of this resolution;

· An intrastate Rate of Return (ROR) of 10.00%;

· Total intrastate operating revenue of $3,604,658 ;

· Total intrastate operating expenses of $3,113,571 ;

· Total intrastate rate base amount of $4,910,875 ;

· A California High Cost Fund-A (CHCF- A) draw of $489,682 ;

4. The Commission finds CD's recommendation to approve CD's and Cal-Ore's proposed tariff changes, as outlined in the "Revenue" section of this resolution, to be reasonable. The proposed tariff changes include an increase to the Flat Residential Service Rate per D.08-09-042 as corrected by D.08-10-040, California Lifeline Rate per General Order 153, and the change for business Directory Assistance (DA) allowance from 2 to 0, and residential DA allowance from 5 to 1.

5. The Commission finds that the differences in Cal-Ore's and CD's estimates result from the use of different assumptions for estimating revenues, expenses, and rate base.

6. The Commission finds CD's methodology to estimate revenues to be reasonable. Therefore the Commission adopts CD's recommended test year 2009 intrastate revenues as shown in Appendix C; Column E.

7. The Commission finds CD's ratemaking adjustments to each of the expense accounts, and CD's use of inflation factors to adjust the labor and non-labor 2008 expenses for test year 2009 to be reasonable. Therefore, the Commission adopts CD's recommended test year 2009 intrastate expenses contained in Appendix C; Column E.

8. The Commission finds CD's methodology in estimating Cal-Ore's Telephone plant in service and other rate base items reasonable. CD's recommended plant and other rate base items for the 2009 test year are shown in Appendix C; Column E.

9. The Commission finds an overall intrastate rate of return of 10.00% for Cal-Ore for test year 2009, to be reasonable.

10. The Commission finds CD's recommended $489,682 in CHCF-A support for Cal-Ore for test year 2009, to be reasonable. The $489,682 CHCF-A support is based on the Commission's adoption of CD's Intrastate Results of Operations for Cal-Ore for test year 2009.

11. The Commission finds Cal-Ore's and CD's requests for rate increases in the amount of $168,145 (which are due to increases in basic rates, some optional services and non-recurring charges, to bring Cal-Ore's prices more in line with other companies in the telephone industry) to be reasonable.

12. The Commission finds CD's application of a benefit to salary ratio of 42% for ratemaking purposes to be reasonable.

13. The Commission finds CD's recommendation that the Commission waive the 30-day notice period required under G.O. 96-B and to allow Cal-Ore to file a Tier 2 Advice Letter supplement revision to its tariff schedules for all increases and changes to its rates and charges as contained in this resolution, to be reasonable.

14. The Commission finds CD's recommendation that Cal-Ore provide notice of all increases and changes to its rates and charges to all its customers within 7 days of the adoption of this resolution, to be reasonable.

15. Commission approval is based on the specifics of this Advice Letter and does not establish a precedent for the contents of any future filings.

THEREFORE, IT IS ORDERED that:

1. The revised intrastate revenues, expenses, and rate base amounts for test year 2009 identified in Appendix C; Column E are adopted for Cal-Ore Telephone Company.

2. All the tariff changes listed in the Revenue Section of this Resolution are adopted.

3. Cal-Ore shall provide a notice to all customers, within 7 days after the adoption of this resolution, notifying them of the increases and changes to all Cal-Ore's rates and charges as contained in this resolution.

4. Cal-Ore shall file a Tier 2 Advice Letter supplement revision to its tariff schedules for all increases and changes to its rates and charges, as contained in this resolution, within 7 days of adoption of this resolution. The effective date of all increases and changes shall be February 1, 2009. To the extent the carrier can not implement the adopted rate changes in their February billings, the carrier may implement a surcharge to recover the differential between the Commission adopted rates and those charged by the carrier.  The carrier must collect the differential before the conclusion of 2009.

5. The overall intrastate rate of return (ROR) of 10.00% is adopted for Cal-Ore for test year 2009.

6. Cal-Ore's California High Cost Fund-A (CHCF-A) draw for 2009 shall be $489,682 .

This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on January 29, 2009. The following Commissioners approved it:

/s/ Paul Clanon

PAUL CLANON Executive Director

MICHAEL R. PEEVEY President

DIAN M. GRUENEICH

JOHN A. BOHN

RACHELLE B. CHONG

TIMOTHY ALAN SIMON

Commissioners

APPENDIX A

CAL-ORE TELEPHONE COMPANY

TOTAL COMPANY RESULTS OF OPERATIONS

PRESENT RATES TEST YEAR 2009

					UTILITY EXCEED STAFF
					($)	(%)
			CAL-ORE	CD	AMOUNT	DIFF.
			(A)	(B)	(C)	(D)
OPERATING REVENUES:
	1	Local Network Services	734,132	734,132	-	0.00%
	2	Local Service - CHCF - A	1,230,905	1,230,905	-
	3	Interstate USF	1,055,245	1,489,197	(433,952)	-29.14%
	4	Network Access Services:
	5	Intrastate	464,161	534,204	(70,043)	-13.11%
	6	Interstate	3,229,702	3,229,702	-	0.00%
	7	Miscellaneous	382,362	382,362	-	0.00%
	8	Less: Uncollectible Revenue	(86,824)	(57,758)	(29,066)	50.32%
	9	Total Oper. Revenue	7,009,683	7,542,744	(533,061)	-7.07%
OPERATING EXPENSES:
	10	Plant Specific	1,234,950	1,284,561	(49,611)	-3.86%
	11	Plant Non-Specific (less depr.)	201,065	218,233	(17,168)	-7.87%
	12	Customer Operations	258,118	199,922	58,196	29.11%
	13	Corporate Operations	2,335,424	2,190,693	144,731	6.61%
	14	Subtotal	4,029,557	3,893,409	136,148	3.50%
	15	Depreciation & Amortization	1,762,056	1,388,368	373,688	26.92%
	16	Other Taxes	97,289	97,289	-	0.00%
	17	State Income Taxes	99,077	191,269	(92,192)	-48.20%
	18	Federal Income Taxes	347,379	670,619	(323,240)	-48.20%
	19	Total Oper. Expense	6,335,358	6,240,954	94,404	1.51%
	20	Net Revenues	674,325	1,301,790	(627,465)	-48.20%
AVERAGE RATE BASE:
	21	Telephone Plant-in-Service	28,556,248	27,835,721	720,527	2.59%
	22	Tel. Plant Under Construct.	119,937	116,910	3,027	2.59%
	23	Material & Supplies	126,351	111,621	14,730	13.20%
	24	Working Cash	425,563	411,507	14,056	3.42%
	25	Less: Deprec. Res.	(20,494,336)	(20,259,104)	(235,232)	1.16%
	26	Def. Taxes	(936,367)	(820,263)	(116,104)	14.15%
	27	Customer Deposit	-	-	-	0.00%
	28	Total Rate Base	7,797,396	7,396,392	401,004	5.42%
	29	Rate of Return	8.65%	17.60%

APPENDIX B

CAL-ORE TELEPHONE COMPANY

TOTAL COMPANY RESULTS OF OPERATIONS

AT PRESENT RATES TEST YEAR 2009

				CAL-ORE			CD
			TOTAL			TOTAL
		APPENDIX B	COMPANY	INTERSTATE	INTRASTATE	COMPANY	INTERSTATE	INTRASTATE
			(A)	(B)	(C)	(D)	(E)	(F)
OPERATING REVENUES:
	1	Local Network Services	734,132		734,132	734,132		734,132
	2	Local Service - CHCF - A	1,230,905		1,230,905	1,230,905		1,230,905
	3	Interstate USF	1,055,245		1,055,245	1,489,197		1,489,197
	4	Network Access Services:
	5	Intrastate	464,161		464,161	534,204		534,204
	6	Interstate	3,229,702	3,229,702	-	3,229,702	3,229,702	-
	7	Miscellaneous	382,362	120,061	262,301	382,362	120,061	262,301
	8	Less: Uncollectible Revenue	(86,824)		(86,824)	(57,758)		(57,758)
	9	Total Oper. Revenue	7,009,683	3,349,763	3,659,920	7,542,744	3,349,763	4,192,981
OPERATING EXPENSES:
	10	Plant Specific	1,234,950	620,562	614,388	1,284,561	645,492	639,069
	11	Plant Non-Specific (less depr.)	201,065	102,813	98,252	218,233	111,583	106,650
	12	Customer Operations	258,118	112,173	145,945	199,922	86,886	113,036
	13	Corporate Operations	2,335,424	1,204,845	1,130,579	2,190,693	1,130,179	1,060,514
	14	Subtotal	4,029,557	2,040,394	1,989,163	3,893,409	1,974,139	1,919,270
	15	Depreciation & Amortization	1,762,056	732,310	1,029,746	1,388,368	577,006	811,362
	16	Other Taxes	97,289	39,490	57,799	97,289	39,490	57,799
	17	State Income Taxes	99,077	47,521	51,556	191,269	67,107	124,162
	18	Federal Income Taxes	347,379	166,616	180,763	670,619	235,287	435,332
	19	Total Oper. Expense	6,335,358	3,026,331	3,309,028	6,240,954	2,893,029	3,347,925
	20	Net Revenues	674,325	323,432	350,892	1,301,790	456,734	845,056
AVERAGE RATE BASE:
	21	Telephone Plant-in-Service	28,556,248	11,590,981	16,965,267	27,835,721	11,298,519	16,537,202
	22	Tel. Plant Under Construct.	119,937	48,682	71,255	116,910	47,454	69,456
	23	Material & Supplies	126,351	38,790	87,561	111,621	34,268	77,353
	24	Working Cash	425,563	213,207	212,356	411,507	206,165	205,342
	25	Less: Deprec. Res.	(20,494,336)	(8,865,850)	(11,628,486)	(20,259,104)	(8,764,088)	(11,495,016)
	26	Def. Taxes	(936,367)	(384,472)	(551,895)	(820,263)	(336,800)	(483,463)
	27	Customer Deposit	-	-		-
	28	Total Rate Base	7,797,396	2,641,338	5,156,058	7,396,392	2,485,517	4,910,875
	29	Rate of Return	8.65%	12.25%	6.81%	17.60%	18.38%	17.21%

APPENDIX C

CAL-ORE TELEPHONE COMPANY

TOTAL COMPANY RESULTS OF OPERATIONS

AT PROPOSED RATES TEST YEAR 2009

					UTILITY EXCEED STAFF
			CAL-ORE	CD	AMOUNT	PERCENTAGE
			PROPOSED	PROPOSED	DIFFERENCE	DIFFERENCE	ADOPTED
OPERATING REVENUES:			(A)	(B)	( C)=(A)-(B)	(D)	(E)
	1	Local Network Services*	780,086	888,234	(108,148)	-12.18%	888,234
	2	Local Service - CHCF - A	1,461,446	489,682	971,764	198.45%	489,682
	3	Interstate USF	1,055,245	1,489,197	(433,952)	-29.14%	1,489,197
	4	Network Access Services:			-		-
	5	Intrastate	464,161	534,204	(70,043)	-13.11%	534,204
	6	Interstate	-	-	-		-
	7	Miscellaneous	262,301	262,301	-	0.00%	262,301
	8	Less: Uncollectible Revenue**	(89,554)	(58,960)	(30,594)	51.89%	(58,960)
	9	Total Oper. Revenue	3,933,685	3,604,658	329,027	9.13%	3,604,658
OPERATING EXPENSES:
	10	Plant Specific	614,388	639,069	(24,681)	-3.86%	639,069
	11	Plant Non-Specific (less depr.)	98,252	106,650	(8,398)	-7.87%	106,650
	12	Customer Operations	145,945	113,036	32,909	29.11%	113,036
	13	Corporate Operations	1,130,579	1,060,514	70,064	6.61%	1,060,514
	14	Subtotal	1,989,163	1,919,270	69,893	3.64%	1,919,270
	15	Depreciation & Amortization	1,029,746	811,362	218,383	26.92%	811,362
	16	Other Taxes	57,799	57,799	-	0.00%	57,799
	17	State Income Taxes	75,757	72,154	3,602	4.99%	72,154
	18	Federal Income Taxes	265,615	252,985	12,630	4.99%	252,985
	19	Total Oper. Expense	3,418,080	3,113,571	304,509	9.78%	3,113,571
	20	Net Revenues	515,605	491,088	24,518	4.99%	491,088
AVERAGE RATE BASE:							-
	21	Telephone Plant-in-Service	16,965,267	16,537,202	428,065	2.59%	16,537,202
	22	Tel. Plant Under Construction	71,255	69,456	1,798	2.59%	69,456
	23	Material & Supplies	87,561	77,353	10,208	13.20%	77,353
	24	Working Cash	212,356	205,342	7,014	3.42%	205,342
	25	Less: Deprec. Res.	(11,628,486)	(11,495,016)	(133,471)	1.16%	(11,495,016)
	26	Def. Taxes	(551,895)	(483,463)	(68,432)	14.15%	(483,463)
	27	Customer Deposit	-	-	-
	28	Total Rate Base	5,156,058	4,910,875	245,183	4.99%	4,910,875
	29	Rate of Return	10.00%	10.00%			10.00%

APPENDIX D

CAL-ORE TELEPHONE COMPANY

NET-TO-GROSS MULTIPLIER

TEST YEAR 2009

1	Gross revenue		1.00000
2	Uncollectible		0.00000
3	Net Revenues		1.00000
4	State Income Tax (Tax Rate times Ln. 3)	8.84%	0.08840
5	Federal Taxable Income (Ln. 3 less Ln. 4)		0.91160
6	Federal Income Tax (Tax Rate times Ln. 5)	34.00%	0.30994
7	Net Income (Ln. 5 less Ln. 6)		0.60166
8	Net-To-Gross Multiplier (Ln.1 divided by Ln. 7)		1.66207
	Intrastate Revenue Requirement
9	Adopted State Rate Base		4,910,875
10	Net Revenues adopted at 10.00% (Ln. 9 times 10%)		491,088
11	Net Revenue In Test Year 2009 At Present Rates		845,056
12	Change in Net Revenues (Ln. 10 less Ln. 11)		(353,970)
13	GROSS REVENUE CHANGE REQUIRED (Ln. 12 times Ln. 8)		(588,323)
	CHCF-A SUPPORT		-
14	2009 CHCF-A SUPPORT AT PRESENT RATES		1,230,905
15	2009 CHCF-A SUPPORT ESTIMATED (Ln. 14 add Ln. 13)		642,582
16	PROPOSED NET RATE INCREASE*		152,900
17	2009 CHCF-A ADOPTED (Ln 15 minus Ln 16)		489,682

(END OF ATTACHMENT 1)

¹¹ Kenwood GRC filing Test Year 2009 at 35%, Alco Annual Report 2007 at 48%, East Pasadena Annual Report 2007 at 24%, Fruitridge Annual Report 2007 at 25%, Penngrove Annual Report 2007 at 32%.

¹² http://www.bls.gov/news.release/ecec.nr0.htm.