ALJ/KAJ/abw DRAFT Item 2

11/21/2000

Decision PROPOSED DECISION OF ALJ JONES (Mailed 10/20/00)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Roseville Telephone Company (U 1015 C) to Review Extended Area Service Compensation and Establish Replacement Revenue Funding.

Application 99-08-043 (Filed August 20, 1999)

Mark Schreiber, Attorney at Law, Cooper, White & Cooper, L.L.P., for Roseville Telephone Company, applicant.

Sindy J. Yun, Attorney at Law, for the Office of Ratepayer Advocates, protestant.

Colleen O'Grady, Attorney at Law, for Pacific Bell Telephone Company, intervenor.

OPINION 2

1. SUMMARY 2

2. PROCEDURAL HISTORY 3

3. HISTORY OF EAS ARRANGEMENTS BETWEEN PACIFIC AND ROSEVILLE 6

4. THE SETTLEMENT TRANSITION AGREEMENT 8

5. SHOULD THE CURRENT EAS PAYMENT FROM PACIFIC TO ROSEVILLE BE DISCONTINUED? 8

5.1. Roseville's Position 8

5.2. Pacific's Position 9

5.3. ORA's Position 9

5.4. Discussion 10

6. SHOULD THE COMMISSION ADOPT REPLACEMENT FUNDING FOR THE EAS REVENUES ROSEVILLE RECEIVES FROM PACIFIC? 12

6.1. Roseville's Position 12

6.2. ORA's Position 17

6.3. Pacific's Position 25

6.4. Discussion 26

7. OVERVIEW OF PROPOSALS FOR ALTERNATIVE FUNDING SOURCE 27

7.1. Use of the CHCF-A as an Alternative Funding Source 27

7.1.1. Background 27

7.1.2. Roseville's Position 28

7.1.3. ORA's Position 33

7.1.4. Pacific's Position 36

7.1.5. Discussion 37

7.2. Use of the CHCF-B as an Alternative Funding Source 41

7.2.1. Background 41

7.2.2. Roseville's Position 42

7.2.3. ORA's Position 43

7.2.4. Discussion 44

7.3. Use of Funding Sources, Other than CHCF-A and CHCF-B 45

7.3.1. Roseville's Position 45

7.3.2. ORA's Position 46

7.3.3. Pacific's Position 49

7.3.4. Discussion 49

7.4. Temporary Replacement Revenues for Roseville 58

8. SHOULD PACIFIC REFUND THE $11.5 MILLION TO ITS RATEPAYERS? 62

8.1. ORA's Position 62

8.2. Pacific's Position 66

8.3. Discussion 71

9. COMMENTS ON PROPOSED DECISION 74

FINDINGS OF FACT 74

CONCLUSIONS OF LAW 76

ORDER 79

OPINION

1. Summary

In this decision, we authorize Pacific Bell (Pacific) to terminate its annual Extended Area Service (EAS)¹ payment of $11.5 million to Roseville Telephone Company (Roseville or RTC). We deny Roseville's proposal that the EAS revenue be recovered on a permanent basis from the California High Cost Fund-A (CHCF-A) or CHCF-B and order the assigned Administrative Law Judge (ALJ) to prepare an Order Instituting Investigation (OII) to review Roseville's revenue requirement to determine whether recovery of the $11.5 million should come from Roseville's shareholders or from its ratepayers in the form of rate increases, or a combination of the two.

We authorize replacement funding on an interim basis using the current reserve in the CHCF-B. Roseville will be eligible to receive the funding during the pendency of the OII to determine a permanent replacement mechanism for the EAS revenues that it currently receives from Pacific, as long as Roseville cooperates fully in the OII. This will protect the financial interests of Roseville and its ratepayers while the Commission conducts its OII and makes a final determination as to the proper method of revenue recovery.

We determine that Pacific is not required to refund the $11.5 million to its ratepayers, once it discontinues making its payments to Roseville.