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Separations 101

Separations 101. Rural Task Force Meeting March 3, 1999 Bob Schoonmaker. What is Separations?. Process for “separating” investments, expenses, and revenues between the interstate and state jurisdictions Similar process may be used to separate state toll and local jurisdictions.

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Separations 101

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  1. Separations 101 Rural Task Force Meeting March 3, 1999 Bob Schoonmaker ©GVNW Consulting Inc.

  2. What is Separations? • Process for “separating” investments, expenses, and revenues between the interstate and state jurisdictions • Similar process may be used to separate state toll and local jurisdictions GVNW Consulting, Inc.

  3. Financial Rules Relationships Financial Records Subject to Separations Access Elements Separated Results Non-Regul.Acctg. Inter- state CCL Local Switch Local Transport State Special Access Part 69 Part 36 Part 32 Part 64 GVNW Consulting, Inc.

  4. General Principles • Assignment to jurisdiction based either on: • Direct assignment • “Actual use” giving consideration to: • relative occupancy or • relative time measurements GVNW Consulting, Inc.

  5. Overall Framework • Revenue Requirement • Amount necessary to cover operating expenses and taxes, as well as generate an adequate return on the rate base • Equals Operating expenses and taxes + Return on rate base + Income taxes on return GVNW Consulting, Inc.

  6. Overall Framework • Plant Investments • Plant Specific Expenses • Other Expenses • Revenues GVNW Consulting, Inc.

  7. Plant Accounts • The first step in the separations process is the assignment of plant to categories. The basis for making this assignment is : • Identifying the plant • Calculate the cost of the plant • Determine its use • The second step is to allocate the cost of the plant in each category into separate jurisdictions by direct assignment or application of prescribed factors GVNW Consulting, Inc.

  8. Central Office Equipment • COE - Operators - Category 1 • COE - Switching • Tandem Switching - Category 2 • Local Switching - Category 3 • COE Transmission - Category 4 • Exchange - Category 4.1 • Interexchange - Category 4.2 • Host / Remote - Category 4.3 GVNW Consulting, Inc.

  9. COE Transmission • Exchange - Category 4.1 • Wideband - Category 4.11 • Exchange Trunk - Category 4.12 • Other - Category 4.13 • Interexchange - Category 4.2 • Furnished to Others - Category 4.21 • Wideband - Category 4.22 • Joint - Category 4.23 • Connecting Company - Category 4.24 • Host / Remote - Category 4.3 GVNW Consulting, Inc.

  10. Cable & Wire Facilities (C&WF) • Cable & wire Facilities • Exchange Line - Category 1 • Wideband & Exchange Trunk - CAT. 2 • Interexchange - Category 3 • Host / Remote - Category 4 GVNW Consulting, Inc.

  11. C&WF Detail • Exchange Line - Category 1 • Intrastate Private Line - Category 1.1 • Interstate Private Line - Category 1.2 • Joint Message - Category 1.3 • Wideband & Exchange Trunk - Category 2 GVNW Consulting, Inc.

  12. C&WF Detail • Interexchange - Category 3 • Furnished to Others - Category 3.21 • Wideband - Category 3.22 • Joint - Category 3.23 • Host / Remote - Category 4 GVNW Consulting, Inc.

  13. Allocation - COE Switching • Local Switching - Category 3 • Dial Equipment Minutes of Use (DEM) • Weighting Factor for companies under 50,000 lines • 0 - 10,000 - 3x • 10,001 - 20,000 - 2.5x • 20,001 - 50,000 - 2x • Weighting amount frozen at 1996 level • Maximum of 85% for ER and RA toll GVNW Consulting, Inc.

  14. Allocation - Subscriber Plant • Exchange Plant (or Subscriber Plant) • COE Transmission - Category 4.13 • C&WF Category 1.3 • Basic Allocation Factor (the factor formerly known as SPF) • 25% Interstate • Balance on state specific rules GVNW Consulting, Inc.

  15. Allocation - Interoffice Plant • Interexchange Plant • COE Transmission - Category 4.23 • Conversation Minutes (CM) • C&WF - Category 3.23 • Conversation Minute Kilometers (CMKM or CMM) GVNW Consulting, Inc.

  16. Allocation - Host/Remote • Host / Remote Plant • COE Transmission - Category 4.3 • C&WF - Category 4 • Minute of Use Kilometers (MOUKM or MOUM) GVNW Consulting, Inc.

  17. Alloc.-General Support Facilities • Class A companies • Allocation based on Big Three expenses (Plant Specific expenses, Network Operations Exp (6530) and Customer Operations Expense GVNW Consulting, Inc.

  18. Alloc.-General Support Facilities • Class B companies • ‘The costs of the general support facilities... are apportioned among the operations on the basis of the separation of the costs of Central Office equipment, Information Origination/Termination equipment, and Cable and Wire Facilities, combined” 36.112(b) (sometimes called Big 3 investment) GVNW Consulting, Inc.

  19. Traffic Studies • Traffic Studies measure the “relative”or “actual” use of the telephone network. • Usage data is collected over given periods of time and used to develop apportionment factors. • Apportionment factors are applied to categorized costs in the separations process. GVNW Consulting, Inc.

  20. OUTGOING TOLL ORIGINATING INCOMING TOLL OUTGOING LOCAL EAS TERMINATING INCOMING LOCAL EAS TRAFFIC STUDY OVERVIEWTypes of Data Collected Minutes of Use Study Office Measurements LINES TRUNKS Usage & Peg Counts = from the switching Entity Conversation Minutes & Messages= from accounting data GVNW Consulting, Inc.

  21. Traffic Observation Study Minutes of Use Study - • Develops Holding Times by jurisdiction. • Toll Minutes of Use per originating message. • Local Minutes of Use per peg count. GVNW Consulting, Inc.

  22. Annual Traffic Study Develops annualized Minutes of Use - • Toll Minutes of Use are developed from billed access minutes. • Local Holding Times multiplied by the annual peg counts. • Resulting minutes are then used to develop Dial Equipment Minutes of Use factors and ultimately various types of traffic factors. GVNW Consulting, Inc.

  23. Impact of Internet Usage Test Telephone Company Statistics • Access Line Count = 1,825 • Internet access via a local to local call to 56 Kbps facilities • Annual 2 way Internet minutes of use = 5,917,866 • Annual Internet calls = 117,165 • Internet local network 2 way holding time = 50.50882 • Internet access holding time = 25.25441 GVNW Consulting, Inc.

  24. INTERNET IMPACT EXAMPLE Test Telephone Company Impact on Unweighted DEM Factors Without With Jurisdiction Internet Internet Difference Interstate 0.18650 0.15351 -0.03299 Intrastate 0.29312 0.24129 -0.05183 Local 0.52038 0.60520 0.08482 GVNW Consulting, Inc.

  25. INTERNET IMPACT EXAMPLE Test Telephone Company Impact on Weighted DEM Factors Without With Jurisdiction Internet Internet Difference Interstate 0.55950 0.46053 -0.09897 Intrastate 0.29050 0.38947 0.09897 Local 0.15000 0.15000 0.00000 GVNW Consulting, Inc.

  26. Plant Specific Expenses • 6110 Network Support • 6120 General Support • 6210 COE - Switching • 6220 COE - Operator Systems • 6230 COE - Transmission • 6310 Information Origination/Termination • 6410 Cable & Wire Facilities Part 36 apportionment based on related investment, GVNW Consulting, Inc.

  27. Plant Non-Specific Expenses AccountPart 36 Apportionment • 6510 Provisioning Account 2001 TPIS • 6530 Network Operations Combined Separation of COE, IOT, C&WF (Big 3) • 6540 Access Expense Directly Assigned • 6560 Depreciation Follows Primary Plant Account or Category GVNW Consulting, Inc.

  28. Customer Operations Expenses • 6610 Marketing - Allocated based on current billing, excluding billing for others • 6620 Operator Services - Based on weighted standard work seconds • 6620 Directory Listings - Classified assigned to exchange, foreign is assigned based on geographic locations, alpha is apportioned on Subscriber Line Usage Factor (SLU) GVNW Consulting, Inc.

  29. Customer Operations - Local Business Office Expenses Work Function Analysis Part 36 Apportionment • EU Service Order Proc. Contact Studies • EU Payment & Collect Billed Revenues (customer) • EU Bill Inquiry Contact Studies • IX Service Order Proc. Contact Studies • IX Payment & Collect Billed Revenues (CXR) • IX Billing Inquiry Contact Studies GVNW Consulting, Inc.

  30. Customer Operations - Revenue Accounting Expenses • Customer Billing FunctionPart 36 Apportionment • Message Processing Billed Message Count • CABS Expense 50/50 State and Interstate GVNW Consulting, Inc.

  31. Corporate Operations Expenses Corporate Part 36 Apportionment • 6710 Executive Big 3 Expenses • 6720 General and Administrative Big 3 Expenses What is included in the “Big 3 Expense” Factor • Plant Specific - Accounts 6210-6410 • Plant Non-Specific - Account 6530 • Customer Operations - Accounts 6610-6620 GVNW Consulting, Inc.

  32. Part 69 - Access Elements • Similar Process • Allocation of Jurisdiction to Access Elements • Carrier Common Line • Local Switching • Local Transport • Special Access • Billing and Collecting GVNW Consulting, Inc.

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