Word Document

STATE OF CALIFORNIA Gray Davis, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

August 8, 2000

To: Service List of R.95-01-020/I.95-01-021

Attached is a draft Resolution T-16440 which is on the Commission Agenda of September 7, 2000. This resolution may also be available to you from the Commission's web-site at www.cpuc.ca.gov

This resolution is to approve GTE Service Corporation's (GTESC's) proposal to resolve outstanding compliance issues relating to the California High Cost Fund-B (CHCF-B) claims for the period from February 1997 through October 1999 for GTE California (GTEC) and GTE-Contel (Contel). This resolution adopts GTESC's proposal to reduce future CHCF-B claims in year 2001 by $1.351 million in order to have the CHCF-B claims of $145.983 million approve for February 1997 through October 1999 for both GTEC and Contel.

This draft resolution will be on the agenda of the Commission's September 7, 2000 meeting which is to be held 30 days from the above mailing date. The Commission may vote on the resolution, or it may postpone a vote until later. When the Commission votes on a draft resolution, it may adopt all or part of it as written, amend, or modify it, or set it aside and prepare a different resolution. Only when the Commission acts does the resolution become binding on the parties.

Opening and reply comments may be submitted on this draft resolution. Opening comments are due on or before August 23, 2000 (which is 15 days from the date of this mailing) and reply comments are due on or before August 28, 2000. Both opening and reply comments should be served to all parties of the service list of R.95-01-020/I.95-01-021 attached to the resolution and to Telecommunications Division, Attn: Hassan Mirza, California Public Utilities Commission, 505 Van Ness Avenue, San Francisco, CA 94102.

The submission date for opening and reply comments is the date the comments are received by the Telecommunications Division. Both opening and reply comments shall be limited to five (5) pages in length and shall include a subject index listing the recommended changes to the draft resolution, a table of authorities, and an appendix setting forth the proposed findings and ordering paragraphs. Opening comments shall focus on factual, legal, or technical errors in the draft resolution and reply comments should address issues set forth in the opening comments, if any, by parties.

Sincerely,

David M. Shantz, Program Manager

Public Programs Branch, Telecommunications Division

Enclosures for the Parties of Record in R. 95-01-020/I.95-01-021 (Draft Resolution)

C-

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Telecommunications Division RESOLUTION T-16440

Public Program Branch September 7, 2000

DRAFT

R E S O L U T I O N

RESOLUTION T-16440. GTE CALIFORNIA & GTE-CONTEL.

GTE SERVICE CORPORATION REQUESTS APPROVAL OF CALIFORNIA HIGH COST FUND-B (CHCF-B) EXPENSES FOR GTE CALIFORNIA AND GTE-CONTEL FROM FEBRUARY 1997 THROUGH OCTOBER 1999

BY LETTER REQUEST, DATED MARCH 3, 2000 TO THE TELECOMMUNICATIONS DIVISION/CALIFORNIA HIGH COST FUND-B ADMINISTRATIVE COMMITTEE.

_________________________________________________________

SUMMARY

On March 3, 2000, GTE Service Corporation (GTESC), on behalf of GTE California (GTEC) and GTE-Contel (Contel), submitted a letter to the Telecommunications Division, requesting Commission approval of a proposal to resolve several outstanding compliance issues relating to CHCF-B claims for the period from February 1997 through October 1999. This resolution adopts GTESC's proposal to reduce future CHCF-B claims in year 2001 by $1.351 million to resolve certain compliance issues with the claim process for GTEC & Contel. This reduction will result in benefits accruing to the ratepayers as GTEC and Contel will now be able to proceed with their rate reductions to offset their approved claims from the CHCF-B Administrative Committee (AC) of $145.633 million for the time period from February 1997 through October 1999.

BACKGROUND

GTESC has filed at least twice with the Telecommunications Division (TD) the CHCF-B claims for GTEC and Contel for the time period from February 1997 through October 1999. TD reviewed these claims on behalf of the CHCF-B AC. During this review process, GTESC pointed out to TD that GTESC's processes for filing CHCF-B claims were not fully compliant with Commission rules.

GTESC's March 3, 2000 letter, on behalf of GTEC and Contel, requests approval of a proposal to resolve compliance issues relating to the CHCF-B claims for both affiliates for the time period from February 1997 through October 1999. For future claims, GTESC intends to be in compliance with Commission rules relating to CHCF-B claims for both affiliates.

1. Decision 96-10-066

In Decision (D) 96-10-066, the Commission established the CHCF-B program to provide universal service subsidy support in the high cost areas of the service territories of Pacific Bell (Pacific), GTE California, Inc. (GTEC), GTE Contel of California (GTE-Contel),1 Roseville Telephone Company (Roseville), Citizens Telecommunications Company of California (Citizens), and new carriers that become Carriers of Last Resort (COLR). By establishing CHCF-B program, the Commission is ensuring the continued availability of residential telephone basic service at affordable rates, especially in the high cost areas. The CHCF-B program will explicitly subsidize only one residential line per household. One possible outcome of the CHCF-B program is to reduce any disparity in residential basic telephone rates between urban and rural areas. Further, the CHCF-B program enables these carriers to reduce their rates for those services that implicitly subsidize residential service in high cost areas.

Pacific, GTEC, GTE-Contel, Citizens, and Roseville have been providing services in high cost areas in their respective service areas. The CHCF-B program is funded by an All End User Surcharge on intrastate billings. D.96-10-066 established a 2.87% surcharge rate that was intended to initially raise $352.8 million per year to fund the CHCF-B program. Further, these five utilities and other carriers have been collecting CHCF-B surcharge revenues from their end-users since the start of the program in February 1997.

To prevent the five carriers from recovering the implicit subsidy as well as the funds from the CHCF-B program, Pacific, GTEC, GTE-Contel, Citizens, and Roseville are required to reduce rates for all services, except for residential basic exchange services and contracts, by amounts equal to the CHCF-B fund draws. The residential basic exchange services were excluded because the CHCF-B program supports these services in high cost areas. In addition, if reducing the rates for residential basic services were allowed, the Commission stated "this would widen, rather than narrow, the gap between the residential rates and their costs." 2

2. Decision 98-09-39

In D. 98-09-039, the Commission partially implemented the CHCF-B through a self-funding mechanism since the trust account for CHCF-B was not established until October 1999. Under this partial implementation, Pacific, GTEC, GTE-Contel, Roseville, and Citizens offset their permanent rate reductions by monthly draws from the CHCF-B surcharge revenues they collected since February 1997. The permanent rate reduction for these carriers, except for Pacific, is a surcredit that is based upon filed CHCF-B claims for the 12-month period ending July 31, 1998. The AC approved none of these 12-month claims for each carrier, and therefore these permanent rate reductions have been approved on a provisional basis.3 Pacific has implemented a permanent

rate reduction in accordance with D.98-07-033.4

Besides the permanent rate reduction for Pacific and provisional permanent surcredits for GTEC, GTE-Contel, Roseville, and Citizens, these carriers will also implement catch-up surcredits after approval of their CHCF-B claims. The approved claims will be for the time periods from February 1997 through May 1998 for Pacific and from February 1997 through August 1998 for all other carriers. The catch-up surcredits will be for three months duration, and will flow to all intrastate services, except residential basic service5 and contracts.

3. Resolution T-16018

In Resolution T-16018, dated April 23, 1997, the Commission established procedures for certifying the residential primary line for the purposes of CHCF-B program. The Commission established two customer self-certification processes for the program. The first process applies to existing residential basic telephone services. The other process applies to new service requests for residential basic service from the five carriers. In addition, this resolution requires that resellers should identify the status of resold lines to their facilities-based carriers. Finally, the carriers are required to retain self-certification documents for 36 months and that such documents should be available, upon request, to the Commission.6

4. GTE Service Corporation Letter Request

On March 3, 2000, GTESC submitted a proposal with the TD relating to compliance issues with the claims for the CHCF-B for the time periods from February 1997 through October 1999. In this letter, GTESC acknowledges that certain internal processes were inconsistent with rules adopted in Resolution T-16018 relating to three compliance issues. These three compliance issues are as follows:

In this letter, GTESC acknowledged that deficiencies in the processes were inadvertent; however, the company indicated that corrective actions have been taken to comply with these three issues. Further, the company implemented enhanced processes and procedures designed to assure compliance with Commission rules starting November 1, 1999.

GTESC requests that a one-time adjustment of $1.351 million be the consequence associated with the non-compliance of Resolution T-16018 if the Commission approves claims of $145.742 million, as filed for the time period from February 1997 through October 1999 and displayed on Column B of Attachment A of this resolution. The company recommends this approach for two reasons:

The one-time adjustment of $1.351 million will be netted as a reduction in future CHCF-B claims in the year 2001. Therefore, GTESC requests approval of CHCF-B claims as currently filed in the amount of $145.742 million for both GTEC and Contel and a $1.351 million adjustment for non-compliance of Commission rules.

NOTICE/PROTESTS

Notice of the GTE Service Corporation's Letter Request was first published in the Commission Daily Calendar of June 14, 2000. No protest to this Letter Request has been received.

DISCUSSION

The Telecommunications Division recommends that the Commission adopt the proposal by GTESC to reduce future CHCF-B claims by $1.351 million as the consequence associated with the non-compliance of Resolution T-16018. The company will not seek recovery of this $1.351 million from the CHCF-B program, as GTE shareholders' income will be reduce by this amount in year 2001. Further, the $1.351 million amount will not reduce the benefits flowing to the ratepayers. This proposal ensures that the rate reductions envisioned by D.96-10-066 for all intrastate services, other than residential basic services and contracts, in the form of the catch-up surcredit and rate rebalancing, would be realized at the level of CHCF-B claims. Therefore, the CHCF-B claim amounts of $145.633 million, as conditionally approved by the CHCF-B AC, for both GTEC and Contel for the time period from February 1997 through October 1999, is adopted.

1. Adopting GTE Service Corporation Proposal For CHCF-B Claims

GTESC proposes to reduce future CHCF-B claims by $1.351 million in order to flow through the maximum possible benefits of claim amounts to the catch-up surcredit and other rate reductions to ratepayers. Column D of Attachment A of this resolution displays claim amounts of $145.633 million for both GTEC and Contel for the time period from February 1997 through October 1999.

The alternative to GTESC's proposal is to approve only claims that are in compliance with Commission Resolution T-16018, Commission decisions, and supported with appropriate documents. The alternative to GTESC's proposal is displayed on Column F of Attachment A of this resolution for claim amounts for both GTEC and Contel for the time period from February 1997 through October 1999. If this alternative is adopted by the Commission, then the claim amounts are reduced by $15.712 million, as shown on Column H of Attachment A of this resolution, for the time period from February 1997 through October 1999. The net effect is to lower the catch-up surcredit by $3.441 million for all intrastate services, other than residential basic services and contracts. In addition, these same services will not have rate reductions of $12.270 million for total claim reduction amounts of $15.712 million. The benefits in the form of surcredits and rate reductions will not be realized by these ratepayers as envisioned by the Commission decisions unless the Commission adopts GTESC's proposal.

We believe that GTEC and Contel ratepayers should benefit from the implementation of the CHCF-B. These ratepayers should not be penalized because GTESC inadvertently omitted steps in their processes for complying with Commission rules. We expect GTEC and Contel to be in compliance for all future claims starting with the month of November 1999 and thereafter.

2. Adopted CHCF-B Claims From February 1997 to October 1999

Column D of Attachment A of this resolution sets forth the adopted claim amounts for both GTEC and Contel for the time period from February 1997 through October 1999. The adopted claim amounts of $145.633 million are lower by $109,456 than proposed by GTESC for both companies. The minor difference of $109,456 is based on the difference in the embedded base for historical primary line in service before November 1, 1997. The CHCF-B AC has approved this claim amount of $145.633 million on the condition that the Commission approves GTESC's proposal for non-compliance issues relating to the CHCF-B program.

1 At the issuance of D. 96-10-066, GTE California and GTE Contel were not merged as a single company. Therefore, each company was designated separately to receive subsidy from the CHCF-B program.

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

3 Resolution T- 16237, dated November 19, 1998 approved Roseville's permanent rate reduction on a provisional basis. Resolution T-16238, dated November 19, 1998, approved GTE California's (including GTE-Contel's) permanent rate reduction on a provisional basis. Resolution T-16239, dated November 19, 1998, approved Citizens' permanent rate reduction on a provisional basis. D.98-09-039, dated September 3, 1998, allows adjustments, if necessary, of the permanent rate reduction upon the resolution of the claims by the AC.

4 Decision No 98-07-033 requires Pacific to "true-up" its rate reduction with its approved draws from the CHCF-B program.

5 As noted in D. 96-10-066, residential basic service ratepayers receive benefits in the form of subsidy supports in high cost areas.

6 In Resolution T-16365, the Commission adopted the requirement that all records relating to the CHCF-B claims shall be retained by carriers of last resorts 36 months after the filings of their last amended claims.

7 GTE Service's March 3, 2000 Letter, pages 1 & 2.

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