1.1                          A bill for an act 
  1.2             relating to telecommunications; establishing 
  1.3             depreciation range system for telephone companies; 
  1.4             amending Minnesota Statutes 1998, sections 237.075, 
  1.5             subdivision 6; 237.22; and 237.773, subdivision 5; 
  1.6             proposing coding for new law in Minnesota Statutes, 
  1.7             chapter 237; repealing Minnesota Rules, parts 
  1.8             7810.7000; 7810.7100; 7810.7200; 7810.7300; 7810.7400; 
  1.9             7810.7500; 7810.7600; 7810.7700; 7810.7800; 7810.7900; 
  1.10            and 7810.8000. 
  1.11  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.12     Section 1.  Minnesota Statutes 1998, section 237.075, 
  1.13  subdivision 6, is amended to read: 
  1.14     Subd. 6.  [FACTORS CONSIDERED, GENERALLY.] The commission, 
  1.15  in the exercise of its powers under this chapter to determine 
  1.16  just and reasonable rates for telephone companies, shall give 
  1.17  due consideration to the public need for adequate, efficient, 
  1.18  and reasonable service and to the need of the telephone company 
  1.19  for revenue sufficient to enable it to meet the cost of 
  1.20  furnishing the service, including adequate provision under 
  1.21  section 237.22 for depreciation of its telephone company 
  1.22  property used and useful in rendering service to the public, and 
  1.23  to earn a fair and reasonable return upon the investment in the 
  1.24  property.  In determining the rate base upon which the telephone 
  1.25  company is to be allowed to earn a fair rate of return, the 
  1.26  commission shall give due consideration to evidence of the cost 
  1.27  of the property when first devoted to public use, to prudent 
  1.28  acquisition cost to the telephone company, less appropriate 
  2.1   depreciation on each, to construction work in progress, to 
  2.2   offsets in the nature of capital provided by sources other than 
  2.3   the investors, and to other expenses of a capital nature.  To 
  2.4   the extent that construction work in progress is included in the 
  2.5   rate base, the income used in determining the actual return on 
  2.6   the telephone company property may include an allowance for 
  2.7   funds used during construction.  For purposes of determining 
  2.8   rate base, the commission shall consider the original cost of 
  2.9   telephone company property included in the base and shall make 
  2.10  no allowance for its estimated current replacement value. 
  2.11     Sec. 2.  Minnesota Statutes 1998, section 237.22, is 
  2.12  amended to read: 
  2.13     237.22 [DEPRECIATION; AMORTIZATION.] 
  2.14     Subdivision 1.  [GENERAL REQUIREMENT.] The commission shall 
  2.15  fix proper and adequate just and reasonable rates and methods of 
  2.16  depreciation and amortization with respect to the property of 
  2.17  each telephone company property and every.  Each telephone 
  2.18  company shall conform its depreciation accounts for property 
  2.19  used in whole or in part to provide noncompetitive services to 
  2.20  the rates and methods fixed by the commission pursuant to this 
  2.21  section. 
  2.22     Subd. 2.  [BASIS OF CHARGES FOR DEPRECIATION 
  2.23  SCHEDULE.] Each facilities-based local telephone company filing 
  2.24  a telephone jurisdictional annual report to the department of 
  2.25  public service shall complete a schedule showing the basis of 
  2.26  charges for depreciation.  This schedule must include the 
  2.27  following information: 
  2.28     (1) account number and title of each plant account or 
  2.29  subaccount; 
  2.30     (2) beginning-of-year plant and reserve balances in dollar 
  2.31  amounts; 
  2.32     (3) average service life or remaining life in years used to 
  2.33  depreciate the account or subaccount, identifying each service 
  2.34  life with the designations "ASL" for average service life or 
  2.35  "RL" for remaining life; 
  2.36     (4) net salvage value as a percentage of account or 
  3.1   subaccount investment; 
  3.2      (5) beginning-of-year depreciation reserve percentage, a 
  3.3   percentage calculated by dividing the beginning-of-year reserve 
  3.4   balance by the beginning-of-year plant balance; 
  3.5      (6) depreciation rate percentage, a percentage calculated 
  3.6   depending on whether the average service life or the remaining 
  3.7   life method is used, as follows: 
  3.8      (i) with the average service life method, the depreciation 
  3.9   rate is calculated by subtracting any net salvage percentage 
  3.10  from 100 percent and dividing that percentage by the average 
  3.11  service life; or 
  3.12     (ii) with the remaining life method, the depreciation rate 
  3.13  is calculated by subtracting any net salvage percentage and the 
  3.14  depreciation reserve; and 
  3.15     (7) ratio of depreciation charges to the average account or 
  3.16  subaccount plant balance percentage, a ratio calculated by 
  3.17  dividing the actual booked depreciation accrual by the average 
  3.18  of the beginning-of-year and the end-of-year plant balances and 
  3.19  entering the effective average depreciation rate. 
  3.20     Subd. 3.  [GUIDELINES ESTABLISHING CLASSES OF FIXED 
  3.21  CAPITAL.] (a) The commission shall create by order guidelines 
  3.22  establishing classes of fixed capital assets that telephone 
  3.23  companies use for public telephone services, and an overall 
  3.24  composite range of annual depreciation rates for all classes of 
  3.25  fixed capital assets. 
  3.26     (b) The commission shall review the guidelines annually. 
  3.27     Subd. 4.  [DEPRECIATION RATES.] Each telephone company has 
  3.28  the prime responsibility for proposing the depreciation rates 
  3.29  and methods that will be used.  The commission shall certify by 
  3.30  order to the telephone company the depreciation rates and 
  3.31  methods it considers reasonable and proper.  Any allocation or 
  3.32  adjustment of the depreciation reserve requires specific 
  3.33  justification and certification by the commission. 
  3.34     Subd. 5.  [CLASS A OR B TELEPHONE COMPANY.] Class A and 
  3.35  class B telephone companies, as classified by the Federal 
  3.36  Communications Commission according to the uniform system of 
  4.1   accounts, shall maintain continuing property records.  These 
  4.2   class A and class B telephone companies shall maintain accounts 
  4.3   covering the classes of depreciable telephone plant in 
  4.4   accordance with the uniform system of accounts for class A and 
  4.5   class B telephone utilities. 
  4.6      Subd. 6.  [CLASS C TELEPHONE COMPANY.] Class C telephone 
  4.7   companies, as classified by the Federal Communications 
  4.8   Commission according to the uniform system of accounts, shall 
  4.9   maintain accounts covering the classes of depreciable telephone 
  4.10  plant in accordance with the uniform system of accounts for 
  4.11  class C telephone utilities. 
  4.12     Subd. 7.  [CLASS D TELEPHONE COMPANY.] Class D telephone 
  4.13  companies, as classified by the Federal Communications 
  4.14  Commission according to the uniform system of accounts, shall 
  4.15  maintain accounts covering the classes of depreciable telephone 
  4.16  plant in accordance with the uniform system of accounts for 
  4.17  class D telephone utilities. 
  4.18     Subd. 8.  [RETENTION OF ACCOUNTS AND RECORDS FOR 
  4.19  DEPRECIATION STUDIES.] All telephone companies shall retain data 
  4.20  in sufficient detail to conduct depreciation-certification 
  4.21  studies for the purpose of determining depreciation accruals and 
  4.22  reserves by depreciable telephone plant account.  Depreciable 
  4.23  plant accounts are those specified by the Federal Communications 
  4.24  Commission for the class to which a telephone company belongs. 
  4.25     All telephone companies shall maintain, and have available 
  4.26  for inspection by the commission upon request, adequate accounts 
  4.27  and records related to depreciation practices. 
  4.28     Subd. 9.  [REVIEW OF DEPRECIATION RATES.] All telephone 
  4.29  companies shall review their depreciation rates annually to 
  4.30  determine if they are still generally appropriate.  Depreciable 
  4.31  plant accounts are those specified by the Federal Communications 
  4.32  Commission's uniform system of accounts for the class to which a 
  4.33  telephone company belongs. 
  4.34     Subd. 10.  [OPTION TO FOLLOW RULES FOR LARGER CLASS.] Any 
  4.35  telephone company may at its option follow the depreciation 
  4.36  rules prescribed for a larger class of telephone companies.  
  5.1      A petition for depreciation certification may be submitted 
  5.2   by the telephone company or requested by the commission because 
  5.3   of unusual circumstances. 
  5.4      Sec. 3.  [237.221] [PRESCRIBED METHODS FOR DEPRECIATION 
  5.5   CALCULATION.] 
  5.6      Subdivision 1.  [STRAIGHT-LINE METHOD.] Telephone companies 
  5.7   shall employ the straight-line method for calculating 
  5.8   depreciation accruals.  Any exceptions to these methods require 
  5.9   specific justification and certification by the commission.  No 
  5.10  specific methods are prescribed by the commission in estimating 
  5.11  service lives and salvage values.  The methods selected by each 
  5.12  telephone company will be reviewed for appropriateness by the 
  5.13  department staff as part of the company's certification filing. 
  5.14     Subd. 2.  [PLANT ACCOUNT SERVICE LIVES.] Minimum and 
  5.15  maximum service lives shall be established for each plant 
  5.16  account annually.  An overall composite depreciation rate range 
  5.17  will also be established.  Individual accounts may have service 
  5.18  lives outside the prescribed range for an account as long as the 
  5.19  overall composite depreciation rate for all accounts is within 
  5.20  the prescribed overall composite depreciation rate range for all 
  5.21  accounts.  Following the submission of the telephone 
  5.22  jurisdictional annual report to the department by May 1 of each 
  5.23  year, the department shall compile a list of the service lives 
  5.24  in use.  The list will be used to check compliance with the 
  5.25  commission's published list of minimum and maximum lives and 
  5.26  provide a basis for industry and regulatory agencies to evaluate 
  5.27  the depreciation process and depreciation rates on an annual 
  5.28  basis. 
  5.29     Minimum and maximum service lives and the overall composite 
  5.30  depreciation rate range effective January 1 of the following 
  5.31  calendar year must be established annually by the commission 
  5.32  based on the comments submitted by the industry and its 
  5.33  suppliers, and other regulatory agencies.  In calculating a 
  5.34  particular year's depreciation rates, companies shall use lives 
  5.35  that result in an overall composite rate within the range 
  5.36  established by the commission for that particular calendar year. 
  6.1      Sec. 4.  [237.222] [INFORMATION PROVIDED FOR 
  6.2   CERTIFICATION.] 
  6.3      A telephone company may use a service life above or below 
  6.4   the commission's established minimum and maximum as long as the 
  6.5   overall composite depreciation rate for all accounts falls 
  6.6   within the prescribed overall composite depreciation rate 
  6.7   range.  If the overall composite depreciation rate falls outside 
  6.8   the prescribed depreciation rate range, the commission may 
  6.9   determine that service lives outside the prescribed ranges are 
  6.10  economically feasible based on an analysis of the following 
  6.11  criteria for any account that drives the overall composite 
  6.12  depreciation rate for all accounts outside the prescribed range: 
  6.13     (1) the age and investment amounts currently in each 
  6.14  account; 
  6.15     (2) the expected remaining life for the current investment; 
  6.16     (3) the expected service life and dollar amount of 
  6.17  projected replacement investment; 
  6.18     (4) the projected dollar amounts and service lives of 
  6.19  investments required to maintain the existing investment in each 
  6.20  account; and 
  6.21     (5) analyses of regulatory or noneconomic factors that have 
  6.22  prompted an investment replacement. 
  6.23  All telephone companies shall furnish any additional 
  6.24  documentation necessary to support findings of the study. 
  6.25     Sec. 5.  [237.223] [COMPOSITE DEPRECIATION RATE.] 
  6.26     A telephone company may implement an annual composite 
  6.27  depreciation rate for all classes of fixed capital that is 
  6.28  outside the range established by the commission, by filing the 
  6.29  rate with the commission.  The proposed annual composite 
  6.30  depreciation rate is effective on the date specified in the 
  6.31  filing, but no sooner than 30 days from the date of filing it 
  6.32  with the commission, unless: 
  6.33     (1) the commission determines during the 30-day period that 
  6.34  the rate is not just and reasonable or is not in the public 
  6.35  interest; or 
  6.36     (2) the commission directs that the depreciation rate be 
  7.1   made effective at an earlier date. 
  7.2      Sec. 6.  Minnesota Statutes 1998, section 237.773, 
  7.3   subdivision 5, is amended to read: 
  7.4      Subd. 5.  [DEPRECIATION.] While an election under 
  7.5   subdivision 2 is in effect, the company shall be subject to 
  7.6   complaints by the department or others concerning its 
  7.7   depreciation rates and practices pursuant to section 237.081, 
  7.8   subdivision 1a, and shall submit to the department the 
  7.9   information required by Minnesota Rules, parts 7810.7700 and 
  7.10  7810.7800 sections 237.22, subdivision 2, and 237.222, but shall 
  7.11  not otherwise be subject to other provisions of section 237.22 
  7.12  or the any other certification procedures of Minnesota Rules, 
  7.13  part 7810.7000.  
  7.14     Sec. 7.  [EXPIRATION; RULES REPEALED.] 
  7.15     (a) Sections 1 to 6 expire December 31, 2002. 
  7.16     (b) Minnesota Rules, parts 7810.7000; 7810.7100; 7810.7200; 
  7.17  7810.7300; 7810.7400; 7810.7500; 7810.7600; 7810.7700; 
  7.18  7810.7800; 7810.7900; and 7810.8000, are repealed. 
  7.19     Sec. 8.  [EFFECTIVE DATE.] 
  7.20     This act is effective the day following final enactment.