1999 Minnesota Statutes

     237.62 General rate proceeding; joint costs; 
  noncompetitive services. 

    Subdivision 1.    Financial requirements.  (a) This 
 subdivision governs a proceeding initiated under section 237.075 
 or 237.081 to change the rates for noncompetitive services.  
 Subdivision 1a governs a proceeding under section 237.075 or 
 237.081 to change the rates for noncompetitive services and for 
 services subject to emerging competition.  The company shall 
 elect that rate changes be made in accordance with either this 
 subdivision or subdivision 1a, and that election is binding on 
 the commission in all respects.  

    (b) A company electing to use this subdivision may 
 demonstrate the revenue requirement for its noncompetitive 
 services by providing: 

    (1) revenues, expenses, and embedded investments directly 
 related to the provision of the noncompetitive services; 

    (2) a reasonable portion of the net income generated 
 jointly or arising from jointly competitive and noncompetitive 
 services, and net income received by a telephone company as a 
 result of the sale of telephone number listings, charges and 
 advertising for use in white pages, yellow pages, other 
 directory and other related services, must be treated as arising 
 jointly from competitive and noncompetitive services; and 

    (3) a reasonable portion of the company's total joint and 
 common costs to be attributable to the provision of the 
 noncompetitive services. 

    (c) For purposes of this subdivision, when a telephone 
 company uses an investment to provide competitive services to 
 end-user customers and another company provides a competing 
 service that requires, in part, the use of a similar investment 
 to provide the telephone company's noncompetitive services or 
 service elements, the telephone company shall treat both 
 investments and related costs as though they are providing 
 noncompetitive services and shall attribute revenues to the 
 noncompetitive category using the rates for the noncompetitive 
 service or service elements multiplied by the appropriate 
 current volumes for the telephone company's competitive service 
 instead of determining the investment, associated expenses, and 
 common and joint costs under paragraph (b), clauses (1) and (3) 
 to determine the revenue requirement for the noncompetitive 
 category. 

    (d) A telephone company that receives annual revenues from 
 Minnesota intrastate services of less than $100,000,000 may 
 demonstrate the revenue requirement for its noncompetitive 
 services by removing from the telephone company's total 
 revenues, expenses, and embedded investments the revenues, 
 expenses, and embedded investments of: 

    (1) interstate services, determined using: 

    (i) the specific jurisdictional separations procedures 
 adopted by the Federal Communications Commission, if the 
 telephone company is an actual cost company for interstate 
 services; or 

    (ii) applicable jurisdictional separations principles, if 
 the telephone company is an average schedule company for 
 interstate services; and 

    (2) competitive intrastate services, determined as follows: 

    (i) revenues must be directly assigned based on the related 
 services; 

    (ii) revenues from services with both competitive and 
 noncompetitive elements must be assigned first to noncompetitive 
 elements based on tariffs, with the remainder assigned to 
 competitive elements; 

    (iii) expenses must be directly assigned to either 
 competitive or noncompetitive services when possible, based on 
 the origin of those expenses; 

    (iv) joint expenses, which are those that cannot be 
 directly assigned to any single competitive or noncompetitive 
 service, must be allocated using a cost causal methodology in 
 accordance with the following hierarchy: 

    (A) whenever practicable, the allocation of expenses must 
 be based on a measurable assignment method; then 

    (B) other expenses, to the extent practicable, must be 
 allocated by employing surrogate measures; and then 

    (C) any remaining joint expenses must be allocated to 
 competitive services based on the ratio of related direct and 
 joint expenses assigned to the competitive services to total 
 related direct and joint expenses; 

    (v) expenses that are common to all services must be 
 allocated based on the ratio of all direct and joint expenses of 
 competitive and noncompetitive services; and 

    (vi) embedded investments must be assigned and allocated 
 using a hierarchy comparable to the hierarchy used for the 
 assignment and allocation of expenses. 

    (e) A telephone company shall also treat the net income 
 from the sale of telephone number listings, charges, and 
 advertising for use in the white pages directory, yellow pages 
 directory, other directories, and other related services as 
 provided in paragraph (b), clause (2). 

    (f) Unless otherwise ordered by the commission, a telephone 
 company may omit the determination and removal of the revenues, 
 expenses, and embedded investments related to competitive 
 services that: 

    (1) generate, in the aggregate, annual revenues less than 
 $50,000; or 

    (2) individually generate annual revenues less than 
 one-tenth of one percent of the company's annual gross revenues 
 for the test-year period. 

 However, the telephone company shall not omit determination 
 based on clauses (1) and (2). 

    Subd. 1a.    Alternative method.  (a) A telephone 
 company electing to use this subdivision shall demonstrate the 
 combined revenue requirement for its noncompetitive services and 
 services subject to emerging competition in accordance with 
 paragraphs (b) to (d). 

    (b) The telephone company shall use the procedures 
 prescribed by subdivision 1 to allocate and remove the cost of 
 providing services that are subject to effective competition, 
 except that those procedures do not apply to central 
 office-based dial switching systems that, by January 1, 1984, 
 have been approved by the commission as obsolete and that are 
 not available to new customers. 

    (c) Except as provided in paragraph (d), a combined revenue 
 requirement for noncompetitive services and services subject to 
 emerging competition must be determined under section 237.075.  
 Once the revenue requirement has been established, the 
 commission shall determine the telephone company's rates for 
 services subject to emerging competition and noncompetitive 
 services so that the revenue requirement can be met.  The 
 telephone company shall provide an embedded direct cost and an 
 incremental cost study for each service subject to emerging 
 competition that generates annual revenues in excess of the 
 greater of one-tenth of one percent or $100,000 of the company's 
 annual gross revenues for the test-year period.  An embedded 
 direct cost is the sum of current expenses and a return of and a 
 return on the current net book investment directly incurred to 
 provide a service. 

    (d) On the date that a telephone company becomes subject to 
 this section under section 237.58, the company shall begin an 
 accounting of rate changes for services generally offered before 
 January 1, 1988, that are subject to emerging competition.  If 
 the net effect of those rate changes is a lower revenue amount 
 than would have been realized had the rates remained unchanged, 
 the combined revenue requirement established under paragraph (c) 
 must be reduced by an amount equal to the difference in 
 revenues.  The commission shall, as part of these proceedings, 
 permit the telephone company to increase the prices for services 
 subject to emerging competition to recover the revenue 
 reduction.  To determine whether a rate change has resulted in 
 lower or higher revenues from a service subject to emerging 
 competition, the rate in effect when the accounting requirement 
 prescribed by this paragraph became effective must be subtracted 
 from the rate in effect on the date the rate proceeding is 
 commenced.  For services priced on an individual basis, the 
 change in rates must be calculated by subtracting the average 
 revenue per unit for the service on the date the accounting 
 requirements of this paragraph became effective from the average 
 revenue per unit for the service in the test year used in the 
 rate case.  The difference for both individually priced and 
 nonindividually priced services must be multiplied by the number 
 of units sold in the test year used in the rate case.  A rate 
 change resulting from a pass-through of cost increases or 
 decreases, approved or reallocated by a government entity, must 
 be excluded from the revenue calculations under this paragraph. 

    Subd. 2.    Cross-subsidization.  A telephone company 
 may not subsidize its competitive services from its 
 noncompetitive services through allocations of costs, 
 cost-sharing agreements, or other means, direct or indirect.  
 When an investment is for both noncompetitive and competitive 
 services, the company shall demonstrate that its proposed 
 methods of cost recovery between competitive and noncompetitive 
 services are reasonable.  If the commission determines that the 
 methods chosen by the company are not reasonable, the commission 
 may order changes in the methods used and make necessary 
 adjustments in rates being charged to reflect the changes. 

    Subd. 3.    Additional information.  The commission may 
 require a telephone company to provide information regarding the 
 revenues, expenses, investments, and costs for all of its 
 services.  

    HIST: 1987 c 340 s 6; 1989 c 74 s 15-17; 1994 c 534 art 1 s 11