DE 97-180
BELL ATLANTIC
Rate Reduction Proposal
Order Approving Rate Group Consolidation and EAS Expansion
O R D E R N O. 22,861
March 9, 1998
APPEARANCES: Victor D. Del Vecchio, Esq., for Bell
Atlantic; Devine, Millimet & Branch by Frederick J. Coolbroth,
Esq., for Granite State Telephone, et al.; James A. Sanborn for
Union Telephone Company; John Lightbody, Esq., for the TDS
Companies; William Homeyer for the Office of the Consumer
Advocate; and, Barclay Jackson, Esq., for the Staff of the New
Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On October 31, 1997, New England Telephone and
Telegraph Company d/b/a Bell Atlantic-New Hampshire (Bell
Atlantic) filed with the New Hampshire Public Utilities
Commission (Commission) a proposal to reduce its revenues by
$26,120,000. The revenue reduction proposal evolved from
discussions with the Commission Staff (Staff) regarding Staff's
determination that Bell Atlantic's recent financial performance
had put the company in a position of overearning.
Bell Atlantic's proposal includes three components:
(1) various rate design adjustments to reduce rates and
installation charges and to enhance the existing Call Around 603
Plan; (2) consolidating the 21 existing rate groups into five
rate groups while expanding Extended Area Service (EAS) to
include all contiguous exchanges as part of each exchange's local
calling area (an EAS plan often referred to as Home and
Contiguous); and, (3) offering schools and libraries either a new
flat-rate business line or a 56kb Frame Relay circuit with no
installation or monthly charge until the year 2000. The first
and third components of the proposal are proceeding. The second
component of the proposal is the subject of this order.
On January 29, 1998, pursuant to an Order of Notice
issued on January 2, 1998, the Commission held a public hearing
to consider the proposed consolidation of Rate Groups and
expansion of EAS to the Home and Contiguous plan. At the
hearing, the Commission granted intervenor status to Granite
State Telephone, Inc., Merrimack County Telephone Company,
Contoocook Valley Telephone Company, Inc., Wilton Telephone
Company, Inc., Hollis Telephone Company, Inc., Dunbarton
Telephone Company, Inc., Northland Telephone Company of Maine,
Inc., Bretton Woods Telephone Company, Inc., Dixville Telephone
Company, Sprint Communications Company, L.P., Union Telephone
Company, Chichester Telephone Company, Kearsarge Telephone
Company, and Meriden Telephone Company. Sprint did not actively
participate in this docket; the other intervenors are all
independent telephone companies (ICOs) which are incumbent local
exchange carriers. The Office of the Consumer Advocate (OCA)
appeared on behalf of residential customers as a statutorily
mandated party.
At the hearing, the Commission heard comments from Bell
Atlantic, the ICOs, members of the public, the OCA and Staff.
On February 5, 1998, Chichester Telephone Company,
Kearsarge Telephone Company, and Meriden Telephone Company (which
are three subsidiaries of the parent corporation TDS Telecom and
hereinafter referred to collectively as TDS) submitted a
Supplemental Offer of Proof regarding the effects of one-way and
two-way EAS expansion by Bell Atlantic. On February 9, 1998,
Bell Atlantic objected to Commission consideration of TDS's
Supplemental Offer of Proof.
II. HISTORY OF EAS IN NEW HAMPSHIRE
EAS was introduced in the 1950's, before which only the
home exchange was considered local and all other calls were toll
calls. The home exchanges dictated the engineering of the
network of Central Offices which governs the manner in which
telecommunications services are deployed in New Hampshire. Over
the next three decades, EAS grew by request to include those
towns with which the people in the home exchange had a community
of interest at the time of the request. If the cost of
increasing the number of lines a customer could reach by a local
call was not offset by savings associated with eliminating
long-distance operators for those calls, the cost was recovered
by the increased rate paid by the customer as a result of being
placed in a new rate group and, if necessary, a rate increase to
the general body of ratepayers. As the exchange network evolved
to service customers more efficiently, it created the problem of
multiple exchanges within the same town, which was ameliorated by
the introduction of Municipal Calling Service (MCS).
With the regulatory move toward cost-based rates,
recovery of the costs of changes to EAS in the 1980's was
accomplished through surcharges imposed upon the beneficiaries of
the changes, i.e. those customers receiving increased local
calling capabilities. In 1994 the Commission placed a moratorium
on EAS changes while it investigated how a statewide EAS revision
might be accomplished. The Commission concluded, in Order No.
22,107, Re Preliminary Investigation into Local Calling Areas, 81
NH PUC 288 (1996) that no statewide revision of EAS would correct
all inequities and that the competitive forces contemplated by
the Telecommunications Act of 1996 (the TAct) would best correct
the situation.
Subsequently, by Order No. 22,204 Re Investigation into
Extended Area Service, 81 NH 480 (1996), the Commission clarified
Order No. 22,107 to state that it did not intend to foreclose
consideration of individual petitions for EAS expansion. Since
then, the Commission has heard several such petitions, evaluating
them pursuant to the standards enumerated in the Federal
Communications Commission's Order on Universal Service, in CC
Docket No. 96-45, In the Matter of Federal State Joint Board on
Universal Service, Order No. FCC 97-157, released May 8, 1997.
III. COMMENTS OF THE PARTIES, STAFF, AND PUBLIC
A. Bell Atlantic
Bell Atlantic initially proposed to implement two-way
EAS between all home and contiguous Bell Atlantic exchanges and
one-way EAS between Bell Atlantic and the ICOs' exchanges.
However, as a result of discussions with the ICOs, Bell Atlantic
indicated at the hearing that two-way EAS between Bell Atlantic
and ICO exchanges would be reasonable. Therefore, Bell Atlantic
indicated its willingness to delay implementation of the EAS
proposal until such time as the Commission completes the
necessary deliberations on ICO EAS expansion.
Bell Atlantic supported its proposal by noting the
Commission's preference for a uniform, statewide EAS policy
creating equitable calling areas, as discussed in Commission
Order No. 22,107. According to Bell Atlantic, its proposal will
accomplish that goal while maintaining the competitive
marketplace mandated by the TAct.
Because Bell Atlantic's proposal is made in response to
Commission concerns about overearnings, Bell Atlantic will not
raise basic rates to implement the EAS expansion. Rates will
change as a result of rate group changes which occur because the
number of lines customers can reach will increase. However,
under Bell Atlantic's proposal, the rate group increases are
minimized as a result of the rate group consolidation proposed in
conjunction with the EAS proposal. Bell Atlantic proposes to
consolidate its existing 21 rate groups into five. Rates for
each of the five consolidated groups will be the lowest rate of
the several which were consolidated into that particular rate
group. For example, the customers in current groups 6 through 9,
when consolidated into new rate group 2, will all be charged the
rate currently imposed on current group 6. Hence, the customers
in current groups 7 through 9 will all experience a rate
decrease. There will, of course, be some rate increases as a
result of rate group changes. For instance, a customer in
current group 7 may, by virtue of the addition of contiguous
exchanges, find himself moved to current rate group 11, a higher
priced rate group. Nevertheless, under Bell Atlantic's proposal,
no increases will occur to any exchange that does not receive an
increased calling area.
In addition to the benefit to the state of uniform,
equitable, and easily understood EAS, Bell Atlantic argues that
the need for MCS, while still present, will be greatly
diminished, thus decreasing the problems of incorrect billing.
Bell Atlantic asserts that the Commission should permit
no further expansion of EAS beyond Home and Contiguous. The
marketplace, according to Bell Atlantic, can provide additional
EAS through alternate rate plans such as off-peak pricing, route
selection, etc.; to do otherwise would remove the uniformity
brought by this proposal. Furthermore, Bell Atlantic argued that
noncontiguous EAS expansion cannot be accomplished with adequate
cost recovery because of the competitive forces now at work which
preclude the quid pro quo trade-off of local revenues and toll
revenues.
B. ICOs
1. Granite State Telephone, Inc., Contoocook Valley Telephone
Company, Inc., Wilton Telephone Company, Inc., Hollis
Telephone Company, Inc., Dunbarton Telephone Company,
Inc., Merrimack County Telephone Company, Northland
Telephone Company of Maine, Inc., Bretton Woods
Telephone Company, Inc., and Dixville Telephone
Company (collectively, the Independents)
The Independents argue that their customers in
exchanges contiguous to Bell Atlantic exchanges will experience
an EAS imbalance unless the Commission authorizes an equal EAS
expansion for territories served by carriers other than Bell
Atlantic. Their customers will perceive the Independents as
providing less than adequate service. In addition, the imbalance
will encourage selective calling, e.g. agreements among customers
to avoid toll charges, which will cause traffic shifts affecting
the Independents' revenues. Therefore, the Independents
recommend that the Commission order statewide, two-way, Home and
Contiguous EAS. The rate impact on customers of the Independents
will be different than that on Bell Atlantic customers, however,
because the Independents require revenue neutrality since basic
rates must increase to cover the cost of expanding EAS without an
overearnings situation. The Independents request that technical
discussions with Commission Staff proceed promptly to determine
the necessary rate adjustments to achieve revenue neutrality.
Any disagreement regarding the appropriate rate adjustment, the
Independents aver, should be brought before the Commission for
adjudication.
2. Union Telephone Company (Union)
Union does not object to Bell Atlantic's EAS expansion
but urges the Commission to implement, concurrently, Home and
Contiguous EAS in Union's and all ICO territories. Union argues
that one-way EAS into Union territory will distort traffic
patterns and inhibit economic growth in non-Bell Atlantic
territory. Union will experience revenue losses from the traffic
diversions and also from reduced interstate settlements. Union
also pointed out that the goal of uniform EAS cannot be met by
implementing an EAS policy only in Bell Atlantic's territory.
Union argued that implementation of expanded EAS in ICO
territories need not delay implementation of Bell Atlantic's
proposal. Bell Atlantic must complete complex planning and
translations before initiating the expansion. During that time,
according to Union, the ICOs can complete the efforts necessary
to gain Commission approval of ICO EAS expansion. Should ICO EAS
expansion take more time, and thus delay implementation of Bell
Atlantic EAS expansion, Union suggests that implementation
proceed in piecemeal fashion, rather than as a flash-cut. In
that way, according to Union, the appearance of inequity will be
minimized.
3. Chichester Telephone Company, Kearsarge Telephone
Company, Meriden Telephone Company (collectively, TDS)
TDS requests home and contiguous EAS expansion in its
territories concurrent with Bell Atlantic. To that end, TDS
agreed with the Independents and Union that technical sessions
with the Commission Staff should commence as soon as possible to
address the revenue issues. In its Supplemental Offer of Proof,
filed after the hearing, TDS provided information demonstrating
current rates and access lines, a calculation of the additional
cost per access line resulting from Bell Atlantic's proposal, and
a calculation of the rate necessary for implementation of two-way
EAS within its territories. In particular, TDS notes that
Meriden Telephone Company's customers will experience a
significant rate increase. TDS's filing suggested that one
possibility to alleviate the revenue impact is to require Bell
Atlantic to bear all the increased TDS costs of EAS expansion.
C. OCA
The OCA took no position regarding the Bell Atlantic
proposal.
D. Members of the Public
Members of the public provided comments on Bell
Atlantic's proposal, both as testimony at the hearing and as
letters sent to the Executive Director. Both the New Hampshire
Business and Industry Association (BIA), a trade association, and
the North Country Council, a regional commission for economic
development, support the Bell Atlantic proposal. The BIA
recommended the proposal as a balance between the desire to
extend local calling areas and the desire to stimulate investment
in telecommunications infrastructure in New Hampshire. The North
Country Council is in favor of the proposal, in particular
because it provides major benefits to two isolated sub-regions:
the Colebrook area and the Lincoln-Woodstock area.
E. Commission Staff
The Staff supports uniform two-way Home and Contiguous
EAS and consolidating Bell Atlantic's 21 rate groups into five.
However, Staff proposed that the Commission set a date certain at
which time two-way Home and Contiguous EAS can be implemented in
a flash-cut manner. If any of the ICOs are not able, on the date
certain, to implement two-way home and contiguous EAS, then Staff
recommends that Bell Atlantic proceed, along with whichever ICOs
are prepared. Staff argued that such a procedure would provide
an incentive for the ICOs to proceed quickly while not making
Bell Atlantic's revenue reductions contingent on ICO actions.
IV. COMMISSION ANALYSIS
We have reviewed the record in this proceeding and
considered the recommendations of all parties and Staff. We find
that a reduction in Bell Atlantic's revenues is reasonable and in
the public interest. Bell Atlantic can achieve a significant
reduction in revenue under the proposal presented here, while
creating equitable EAS within Bell Atlantic territory. We
believe that as the era of telecommunications competition further
unfolds and choices proliferate, New Hampshire customers will
benefit from clear, easily understood, reasonably equitable EAS.
Consistent with the objectives we expressed in DRM 94-001, Order
No. 22,107, uniform, equitable EAS is in the public good where it
can be achieved (1) without increasing monthly rates for
customers who receive no benefit from the EAS change and (2)
without hindering the federally mandated objective of a
competitive telecommunications market. Because the proposal
meets those requirements, we will order Bell Atlantic to
implement its proposal for Home and Contiguous EAS in accord with
our discussion below.
We are not convinced by Bell Atlantic's arguments that
no proposal for further expansion of EAS should ever be
considered. While we do expect the marketplace to provide
consumers with choices, we will not foreclose the regulatory
avenue of change at this time of transition.
We find that consolidating Bell Atlantic's rate groups
serves the public interest. First, administering fewer rate
groups is more efficient for Bell Atlantic. Second, rate groups
with a larger population range means that customers will be
shifted from one rate group to another less frequently and
therefore experience fewer rate changes. Third, consolidating
the rate groups' rates downward to the lowest rate within the new
group, as proposed, will reduce the rates of the largest number
of customers.
Given the testimony in support of two-way Home and
Contiguous EAS by the Independents, Union, TDS, the members of
the public, and Staff, as well as our prior investigations in DRM
94-001, we will also order the ICOs to proceed with the studies
necessary to implement statewide, two-way Home and Contiguous EAS
as soon as possible. We direct the ICOs to hold technical
discussions with Staff regarding rate impacts and with Bell
Atlantic regarding EAS implementation before submitting
proposals. Thereafter, the Commission will hold hearings to
review the rate impacts of the proposals concerning two-way Home
and Contiguous EAS in the ICO territories.
With regard to rate impacts, we make no judgment at
this time as to how revenue neutrality will be achieved for the
ICOs. TDS's proposal that Bell Atlantic absorb all of an ICO's
costs of implementing two-way Home and Contiguous EAS is
unacceptable. Bell Atlantic is neither the causative agent nor
the beneficiary of an ICO's implementation of EAS expansion.
Rate impact and recovery issues will be decided individually for
each carrier and we will consider all factors when making a
decision, including possible overearnings. Furthermore, we
recognize that factors of which we are currently unaware may
appear in the course of the technical discussions with ICOs,
which may bring into question whether any particular carrier,
other than Dixville Telephone Company, should be exempt from the
two-way Home and Contiguous EAS requirement.
We prefer a single date for implementing statewide
two-way EAS over a piecemeal, multi-date implementation. The
single date, flash-cut change would insure a unified approach to
educating customers about the change, resulting in the least
confusion. We utilized this approach effectively when
implementing intraLATA presubscription. At the time of the
hearing, however, Bell Atlantic was unable to declare a definite
date upon which it will be capable of technically implementing
Home and Contiguous EAS. As a result, we will reserve our
judgement as to whether a flash-cut implementation is possible
until after we hear from Bell Atlantic regarding a proposed
implementation date and after the necessary technical discussions
have occurred. At that time we can weigh the benefits of a
flash-cut implementation against the benefits of reducing Bell
Atlantic's revenues as soon as possible.
We note that the revenue reductions actually obtained
from effecting Bell Atlantic's proposal may not take Bell
Atlantic out of an overearnings situation. We will monitor Bell
Atlantic's earnings and, should the overearnings continue, we
will investigate and order further reductions as necessary.
Based upon the foregoing, it is hereby
ORDERED, that two-way Home and Contiguous EAS shall be
implemented in Bell Atlantic's territory; and it is
FURTHER ORDERED, that Bell Atlantic's current rate
groups shall be consolidated into the five rate groups proposed;
and it is
FURTHER ORDERED, that Bell Atlantic, no later than
March 20, 1998, shall inform the Commission of the earliest date
by which conversion to two-way Home and Contiguous EAS can be
implemented throughout Bell Atlantic territory; and it is
FURTHER ORDERED, that the ICOs, Staff, and the OCA
shall hold technical discussions regarding the appropriate rate
changes necessary, if any, to implement two-way Home and
Contiguous EAS within the ICO territories; and it is
FURTHER ORDERED, that an additional hearing shall be
held to review the rate impacts proposed to implement two-way
Home and Contiguous EAS in the ICO territories.
By order of the Public Utilities Commission of New
Hampshire this ninth day of March, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary