D. History of the CHCF - A
The CHCF-A was originally adopted by the Commission in Decision (D.) 85-06-115 as a means of subsidizing reasonable basic exchange rates for the customers of smaller LECs that concurred in statewide average toll, private line, and access rates. The small LECs are typically higher cost than Pacific so rates set at Pacific's levels are insufficient to generate the small LECs' revenue requirement. The rationale provided for the introduction of the CHCF-A was to provide customers of smaller independent LECs with the systemwide rate averaging benefits afforded to Pacific's rural customers by virtue of Pacific having the same rates systemwide.
The CHCF-A rules currently in effect require the small LECs to comply with a means test and waterfall provision if they request funding from the CHCF-A. The means test ensures that draws from the fund do not result in intrastate rates of return in excess of those authorized by the Commission. The waterfall provision provides LECs with the incentive to file a GRC while funding levels are still high. Appendix A to D.91-09-042 describes the waterfall as follows:
The issuance of a Commission decision in a general rate proceeding of an independent company will have the effect of a "fresh start" for that company under the HCF [High Cost Fund] plan. Specifically, the phase-down of funding shall be reinitiated effective January 1 following the utility's first subsequent annual October advice letter filing after resolution or decision is rendered in the utility's general rate review proceeding. The phase-down cycle under this reinitiation will be six years: three years at 100% funding level following by three succeeding years at 80%, 50% and 0% respectively, if a local exchange company has not initiated a general rate review proceeding by December 31st of the previous year."
The last GRC for the small LECs was in 1997, starting the six-year phase down cycle. According to that cycle, the small LECs receive 100% of their required funding levels in 1998, 1999, and 2000, 80% for 2001, 50% for 2002, and 0% for 2003.
