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To: Editors, News Directors |
Date: N |
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For: Immediate Release |
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Staff Testimony Filed in Qwest’s Bid to Change its Price Cap Plan
Staff: Supports Some Modifications |
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PHOENIX – Staff from the Arizona Corporation Commission filed testimony in Qwest Corporation’s bid to revise its Price Cap Plan. Qwest Corporation provides telephone and other services to approximately customers throughout Arizona serving approximately 2.1 million access lines.
Staff’s testimony represents the views of ten separate witnesses – six staff members and four outside telecommunications industry experts. Assistant Utilities Division Director Elijah Abinah summarizes the testimony of the staff and expert witness and recommends continuation of the current Price Cap Plan with certain modifications intended to protect consumers. Specifically, his testimony states:
In its filing to renew its Price Cap Plan, Qwest proposed substantial modifications to the Plan’s terms and conditions. Staff is not opposed to many of the proposed modifications, as long as additional safeguards are adopted and put in place by the Commission.
The Commission staff is proposing additional safeguards and detailed criteria Qwest would have to meet before obtaining increased pricing flexibility.
To help familiarize you with key issues in this case, the Commission has prepared the following Question & Answer document.
What has transpired up to this point? Qwest filed a proposal to make certain changes to its current Price Cap Plan. The original Price Cap Plan was approved by the Arizona Corporation Commission in March 2001.
The case was assigned to an administrative law judge. Formal participants or parties in this proceeding include: the Residential Utility Consumer Office (RUCO), MCI, Cox Telecom Arizona, the United States Department of Defense, the Arizona Utility Investors Association (AUIA) and others. Collectively, these groups are called “intervenors” and have been granted the legal status to file testimony and cross-examine witnesses during the case.
Staff, intervenors and Qwest have participated in a “discovery period” during which specific documents that are relevant to the case are requested.
Commission staff members and four outside experts with experience in the competitive telecommunications marketplace have conducted an analysis of the structure and policy implications of Qwest’s proposal.
What is the procedural significance of staff’s testimony? Staff’s testimony represents the first response to Qwest’s price cap plan. It also represents the first opportunity to see what Staff’s litigation position will be as we progress toward the February 10, 2005 hearing. (Note: Hearing dates can change if the judge deems it appropriate.)
Will the Commission make a decision at the February hearing? No. The hearing will be presided over by an administrative law judge. She will hear testimony from each of the parties, ask questions and listen to the cross-examination of the expert witnesses. The process is comparable to a judge presiding over a court case. After the hearing and any briefing cycle that the judge requests, she will review the transcripts and testimony and draft a Recommended Opinion and Order (ROO). The Commissioners make the final decision at a future, public Open Meeting.
Will the Commissioners attend the hearing? Schedules permitting, the Commissioners are expected to attend all or portions of the hearings.
What were the primary focus areas/issues for Staff’s testimony? Staff’s testimony focuses on several key issues: · Qwest’s testimony indicating that a significant revenue deficiency exists and rates should be adjusted to recover part of this deficiency; · Qwest’s proposal to initiate new competitive zones within which it would have additional pricing flexibility; · Qwest’s proposal to eliminate the one free directory assistance call that customers currently are allowed; · Qwest’s proposal to increase the amount of money Arizona telephone customers pay into the Arizona Universal Service Fund to allow Qwest or other telecommunications providers to draw $64 million from this fund on an annual basis; · Adjustments to access charges contained in Basket 2 (wholesale services) and the Basket 3 (competitive services) revenue cap; · Deregulation of certain services.
Revenue Deficiency: Qwest claimed a $318 million annual revenue deficiency and asked to recover a portion of this through the Arizona Universal Service Fund, miscellaneous revenue increases and additional pricing flexibility. Staff’s evaluation found only a $3.5 million revenue deficiency after making various adjustments to the facts and figures supplied by Qwest. The largest decrease was for depreciation which reflects adjustments to the depreciation rates for various plant accounts.
Staff witness William Dunkel testifies that the depreciation rates set in 2000 reflected an ambitious network modernization program through which Qwest’s predecessor, US West, intended to replace much of its copper network with fiberoptics. The project never happened and Qwest has no plans to move forward on such a large scale modernization program. As a result of adjusting the depreciation schedule, the revenue requirement was reduced significantly.
Staff makes adjustments to both accumulated depreciation and the depreciation levels to better reflect the network and hardware in place today. Other non-depreciation adjustments were also necessary, resulting in Staff’s conclusion that Qwest’s revenue deficiency is only $3.5 million.
The benefit to consumers is no increase to basic rate levels under Staff’s proposal. Staff believes rates do not have to go up $318 million, the full amount of the deficiency identified by Qwest.
Competitive Zones: The designation of special Competitive Zones would allow Qwest more pricing flexibility if competition within a specific geographic area justified this designation. Staff sees merit in such a proposal. The benefit to consumers is that Qwest would be able to lower prices to compete more effectively in areas where competition is proven to exist.
Staff’s recommendation proposes detailed criteria that must be evaluated before an area could be declared competitive. Staff does not approve any specific competitive zones but proposes a framework for evaluation. Qwest would have to apply to the Commission and go through an objective evaluation of the state of the market before the Commission would allow this additional pricing flexibility. The geographic area for competitive zone designation would likely be determined by zip code if Staff’s proposal is adopted.
Arizona Administrative Code R14-2-1108(B) outlines the criteria supported by Staff. B. The petition for competitive classification shall set forth the conditions within the relevant market that demonstrate that the telecommunications service is competitive, providing, at a minimum, the following information: 1. A description of the general economic conditions that exist which make the relevant market for the service one that is competitive; 2. The number of alternative providers of the service; 3. The estimated market share held by each alternative provider of the service; 4. The names and addresses of any alternative providers of the service that are also affiliates of the telecommunications company, as defined in R14-2-801; 5. The ability of alternative providers to make functionally equivalent or substitute services readily available at competitive rates, terms, and conditions; and 6. Other indicators of market power, which may include growth and shifts in market share, ease of entry and exit, and any affiliation between and among alternative providers of the services.
Directory Assistance: Qwest proposed to eliminate the free directory assistance call that customers get each month. Staff disagrees, believing that customers are entitled to and accustomed to the one free directory assistance allowance.
Arizona Universal Service Fund (AUSF): The Arizona Universal Service Fund comes from a line item charge that appears on all telephone bills. It is used to help offset the costs of providing telecommunications service in rural areas. Qwest wanted to adjust the amount consumers currently pay into the AUSF so customers statewide would contribute an additional $64 million into this fund. Under its proposal, Qwest and other providers would then be able to tap into that fund to draw out $64 million in new revenue.
Staff witness Tom Regan concluded that Qwest did not meet the criteria to draw from this fund under current rules. Regardless of the rules, Regan testifies that this sort of funding would not be fair and economically justified. Regan’s cost/revenue analysis revealed that Qwest revenues in rural zones 2 and 3 exceeded costs by a comfortable margin on an aggregate basis.
There is no consumer benefit to be achieved through Qwest’s proposal at this time and Staff believes it should be denied.
Basket 1 Adjustments: Basket 1 refers to a category of services that are non-competitive and essential, such as a basic service line. The price for basic services will not increase if Staff’s plan prevails.
Basket 2 Adjustments: Basket 2 refers to a category of services that Qwest provides to other telecommunications companies on a wholesale basis. They are charges that other phone companies pay to use Qwest’s network. Staff is proposing a reduction in intrastate switched access charges of $8.9 million. This reduction would bring Qwest’s fee more in line with the federally-set interstate switched access charges.
Basket 3 Adjustments: Basket 3 refers to a group of services that consumers can obtain elsewhere and have already been determined to be competitive. Qwest would be allowed to adjust competitive service pricing to increase revenues from this category of services by $10.7 million if Staff’s position prevails.
Deregulation: Two categories of services were found to be sufficiently competitive on a widespread basis and, therefore, Staff supports deregulation. Staff is supporting the deregulation of voice mail services. Aside from relying on answering machines, commercial and residential customers can choose from a host of third-party voice mail service providers.
Staff also supports the deregulation of billing and collection services. Qwest currently provides billing services to some long distance customers. The long distance provider would pay a fee to Qwest for printing and mailing one consolidated bill. Commission staff believes that there are many alternatives to long distance providers for these services. Staff recommends deregulation so Qwest and the long distance companies can negotiate the fees for these wholesale services. Will rates go up if Staff’s position prevails? Staff is proposing that the basic service rate level remains the same for the three year term of the plan. The basic service line rate would not change. Rates for some of the services that are already deemed competitive – services that customers can obtain elsewhere like toll-free 800 service lines, voice messaging and Internet services – could be raised. Overall annualized revenue from competitive services could increase by $10.7 million if the Staff’s plan prevails.
I don’t understand the distinction between what the staff believes and what the role of the Commissioners is. Doesn’t the staff of the Commission work under the direction of the Commissioners? Staff does work under the direction of the Commissioners; however, where there are contested cases – cases with two or more opposing parties – the Commissioners have the role of judges. In such cases, the staff has its role as advocates of certain policy, ratemaking or regulatory positions. Therefore, the Commissioners have to restrict the way they influence the staff’s action in contested cases so that in their role as judges, they don’t unfairly impact the process. There are barriers – rules of conduct – to prevent cases from being decided before all the facts are gathered and a 360-degree review of the case is complete.
What happens next? This is still quite early in the process. Currently, Qwest is scheduled to file rebuttal testimony in response to testimony from the Commission staff and intervenors on December 20, 2004. There will also be opportunities for a final round of testimony from Qwest, Staff and the intervenors prior to the February 10, 2005 hearing. You can view the procedural orders and other important documents, including Staff’s testimony online at http://www.cc.state.az.us.
I’m not a party or intervenor. Is there a way I can comment on the case? Public Comment by Mail If you cannot attend the hearing, the Commission encourages the timely submission of written comments. Submit comments to the Docket Control Center and they will be distributed to all registered parties or intervenors. Be sure to reference the docket numbers to ensure that your comments are properly catalogued and referenced.
Arizona
Corporation Commission
Docket Numbers: T-01051B-03-0454 and T-00000D-00-0672
Electronic Public Comment You may also comment through the Commission’s “Can We Help You” page on the Utilities Division website. Be sure to include the docket number listed above. For instructions on filing electronic public comment, click on http://www.cc.state.az.us/utility/cons/index.htm.
When might the Commission rule on this case? As stated above, this is still early in the process. The schedule could change for a variety of reasons. Based on the current procedural schedule , it is possible that the Commissioners could rule on this case in the first or second quarter of 2005. |
