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Ratepayers Won't Pay For U S WEST's Gains 
From Failure To Replace Switches

 
February 3, 1999 (1999-008)
 
Contacts: Ron Eachus, Chairman, 503 378-6611; Roger Hamilton, Commissioner 503 378-6611; Joan H. Smith, Commissioner, 503 378-6611; Ron Karten, Public Information Officer, 503 378-8962
 
Salem, Ore. – The Oregon Public Utility Commission (OPUC) has adopted accounting procedures to assure ratepayers will not pay for U S WEST’s failure to replace old analog switches even though rates were based upon their planned replacement with newer digital switching technology.
 
According to Commission staff, U S WEST has been getting $14 million in over-recovery of expenses because depreciation in rates assumed replacement of the switches.
 
"U S WEST keeps saying they can’t make enough money to invest more in Oregon, but here we provided them the revenues to install new switches and they still didn’t do it," Commission Chairman Ron Eachus said. "We needed to make sure ratepayers are made whole in the future."
 
Current rates include increased depreciation expense based upon U S WEST’s plans to replace its remaining 13 analog switches with newer digital switches between 1996 and 2000. However, even though all the switches have been fully depreciated, only two were replaced.
 
The company and the Commission adopted a memorandum of understanding under which the excess depreciation would be used to offset any company depreciation reserve deficiencies in the future.
 
U S WEST is the only telephone company in Oregon still using analog switching technology. Switches in some Portland exchanges as well as Medford, Oregon City, Corvallis, Klamath Falls, Roseburg, Springfield, Albany and Grants Pass will remain analog. Instead of replacing them with new digital switches, U S WEST said it will upgrade their capacity with the addition of smaller switches.
 
"Depreciation is supposed to provide funds for modernization, not a windfall for U S WEST shareholders," said Commissioner Roger Hamilton.
 
Commissioners noted that U S WEST’s failure to replace the switches contradicts the company’s claim that it should be deregulated because regulation wasn’t providing enough revenues to invest in rural Oregon.
 
 
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