DE 97-193 BELL ATLANTIC PETITION TO EXPAND THE NORTHWOOD (942) EXCHANGE Order Granting Opportunity to Poll Citizens O R D E R N O. 22,831 January 12, 1998 APPEARANCES: William A. Johnson for the Petitioners, Victor D. Del Vecchio, Esq. for New England Telephone & Telegraph Company; James A. Anderson, Esq. for the Office of the Consumer Advocate; and E. Barclay Jackson, Esq. for the Staff of the New Hampshire Public Utilities Commission. I. PROCEDURAL HISTORY On August 28, 1997, the New Hampshire Public Utilities Commission (Commission) received a petition from William A. Johnson and three co-petitioners (Petitioners) requesting expansion of the 942 local calling area, also known as Extended Area Services (EAS), to include Concord. On October 3, 1997, the Commission received a letter from Mr. Johnson detailing the anticipated rate increase caused by the proposed EAS expansion and including a petition signed by 149 Northwood residents supporting the expansion. On October 24, 1997, the Commission issued an Order of Notice scheduling a hearing for December 2, 1997. The Order of Notice indicated that EAS petitions are subject to a standard established by Order No. 22,204 issued June 18, 1996 which includes consideration of community of interest, the effect on telecommunications competition within New Hampshire, and consistency with state and federal law. On December 2, 1997, the Commission heard comments from members of the public, from the New England Telephone & Telegraph Company d/b/a Bell Atlantic and hereinafter referred to as Bell Atlantic, the Office of the Consumer Advocate (OCA) and the Staff of the Commission (Staff). The Commission accepted written comments until December 9, 1997. II. POSITIONS OF THE PARTIES AND STAFF A. Petitioners A number of Northwood residents submitted comments, both written and oral, in support of expanding the Northwood exchange to include Concord. In addition, the Commission received a number of letters from Northwood residents who did not attend the hearing. The primary argument put forth is that a community of interest exists between Northwood and Concord. The commenters supported their argument with information about the percentage of Northwood residents who work in Concord, the town's participation in the Capital Area Mutual Fire Compact, the use of Concord medical and educational facilities, inclusion in the Concord telephone directory, and the inability to call a business center without incurring a toll charge. In addition, representatives from the Board of Selectmen and the Northwood Chamber of Commerce indicated that expanding the local calling area would enhance the economic future of Northwood. The commenters also pointed to other towns, such as Deerfield, that are part of calling areas that have a community of interest that extends to noncontiguous municipalities. B. Bell Atlantic Bell Atlantic argued that expansion of Northwood's EAS to include Concord is unnecessary and inappropriate at this time. In support of its argument Bell Atlantic pointed out that Northwood currently has the ability to call, toll free, essential services such as schools, police, fire protection, local government offices, and medical services. Further expansion, according to Bell Atlantic, should occur as a result of market forces rather than regulatory decree, especially in light of the increasingly competitive toll market. Competition in the toll market could be harmed as a result of expanding EAS beyond the essential services test for community of interest which the Commission has relied on in recent EAS cases. Northwood's EAS currently includes Barrington, Deerfield, Epping, Epsom and Pittsfield. If the Commission approves Bell Atlantic's proposal to uniformly increase EAS for every exchange to home and contiguous exchanges, Northwood's EAS will add the towns of Durham and Center Barnstead. If the Commission decides nonetheless to expand the Northwood local calling area to include Concord, Bell Atlantic's witness testified, Northwood customers would move from their current rate group to a higher rate group. The monthly rates for unlimited residential calling will rise from $13.52 to $14.39 (calculated using Bell Atlantic's proposed rate group structure). Hence, the added expense for Northwood residents will be slight. The cost to Bell Atlantic, the company indicates, will include a $48,000 net lost toll revenue plus probable costs for increasing network capacity as a result of usage stimulation. Therefore, Bell Atlantic argues, any EAS expansion beyond "home and contiguous" should include a cost recovery mechanism for lost toll revenues and increased investment costs. Such a cost recovery mechanism, Bell Atlantic asserts, is consistent with the rate of return regulation under which Bell Atlantic operates in New Hampshire. One such cost recovery mechanism, used in the past, would impose a surcharge on Northwood customers over and above the rate group charge, to cover Bell Atlantic's anticipated toll revenue losses. Another would raise local rates for all New Hampshire customers. However, Bell Atlantic points out that a surcharge would not guarantee recovery of its losses because current customers are able to choose an alternate toll carrier. C. OCA The OCA voiced concern about the effect of Bell Atlantic's lost toll revenues on residential customers throughout New Hampshire. The OCA is against charging higher local rates to customers in Marlboro and Plaistow so that customers in Northwood can include Concord in its local calling area. In addition, the OCA raised a general concern that expanding EAS to non-contiguous exchanges could chill the newly competitive toll market. D. Staff Staff did not support expansion of Northwood's EAS because, it argued, enlarging the calling area would reduce significantly six of the potential toll markets and thus discourage competition. Staff cited to the Commission's three recent EAS decisions for the appropriate standard for allowing a poll of citizens on the question of expanding EAS. Staff argued that the Northwood circumstances do not meet the standard. In addition, Staff averred that the cost of expansion would be more than the increased rate group charges because of the impact on Bell Atlantic of lost toll revenues. III. COMMISSION ANALYSIS This petition is before us for analysis in light of our prior decisions regarding expansion of EAS, the Telecommunications Act of 1996 (TAct) and the actual changes in telecommunications markets in New Hampshire. Our Orders in DE 97-046, DR 97-038 and DR 97-075, recounted the lengthy EAS investigation, DE 94-001, in which we rejected imposition of a statewide change to EAS, finding instead that increased competition in the toll market as a result of intraLATA presubscription and other changes mandated by the TAct would effectively expand EAS by creative offerings of competing carriers. Order No. 20,107 (April 15, 1996). By Order No. 22,204, issued June 18, 1996, we also found that carriers and communities retained the right to petition for EAS expansion and articulated the standard for assessing an EAS petition. The standard applies a community of interest approach as defined in FCC Docket No. 96-45, In the Matter of Federal-State Joint Board on Universal Service, Report and Order, FCC 97-157, released May 8, 1997 and hereinafter referred to as the Universal Service Order. In the FCC's opinion, a calling area which reflects the community of interest is one which "allows subscribers to call hospitals, schools and other essential services without incurring a toll charge." Further elaborating on the issue of affordability, the FCC states in its Universal Service order that "...affordability is affected by the amount of toll charges a consumer incurs to contact essential service providers such as hospitals, schools, and government offices that are located outside of the consumers local calling area...". We use the FCC definitions to facilitate examination of the Northwood petition. From the comments made by customers in the Northwood exchange at the public hearing on December 2, 1997, the exchange does not encompass their community of interest. We are convinced that Concord is the community of interest for at least a sizeable group of residents of Northwood for the purposes of meeting their medical, educational, and business needs. We will therefore grant the petitioners' request that there be a poll of their fellow residents on the issue of expanding EAS one way from the 942 exchange to Concord. No ballot of Concord customers is necessary because expansion of the Concord EAS to include Northwood will not result in a rate group change. In order to reflect accurate costs of the proposed expansion, the poll of Northwood residents will not occur until after completion of our docket DR 97-180 considering Bell Atlantic's proposal to compress its rate group structure from 21 groups to 5. A hearing in that docket is scheduled for January 29, 1998. The question upon which residents will be polled will involve a rate increase limited to that caused by the change in rate group determined by the increased number of lines reachable without paying a surcharge. We do not find inclusion of surcharges for lost revenues to be appropriate at this time. As we stated in Order No. 22,675 in DR 97-046, given the advent of competition in the toll market the goal of revenue neutrality, that is, determining lost toll revenues, is very elusive. As in our decisions in DR 97-046, DR 97-075 and DE 97-038, in order to insure maximum effective participation, the polling ballot will be designed, distributed, and tabulated by the Commission. The ballot question shall include a statement of the increased rate necessitated by the expanded calling area. The poll shall be considered valid if ballots are returned by 25% or more of the customer base. The outcome of a conclusive vote will be determined by a simple majority of the returned ballots. As in the Danbury, Chester and Franklin proceedings, we consider the polling procedure used in this docket to be an experiment that will assist us in developing a generic approach to resolving these kinds of problems. Based upon the foregoing, it is hereby ORDERED, that a vote on the EAS issue shall be conducted as noted above for expansion of the Northwood exchange to include Concord based on the price of the rate group determined to be appropriate after the conclusion of DR 97-180; and it is FURTHER ORDERED, that Bell Atlantic shall provide the Commission with a list of Northwood exchange customers, names, addresses and telephone numbers, and to the extent technically possible, in mailing label or PC format after the conclusion of DR 97-180. By order of the Public Utilities Commission of New Hampshire this twelfth day of January, 1998. Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary