Attorney General of Tennessee 07-00105 Atmos Energy Gorp

DEPARTMENT OF THE ARMY UNITED STATES ARMY LEGAL SERVICES AGENCY 901 NORTH STUART STREET ARLINGTON, VIRGINIA 22203-1837 November 16,2009 REPLY TO ATTENTION OF Regulatory Law Office U 4192 VIA ELECTRONIC FAX FILING (11/16/09) & OVERNIGHT MAIL Sandra Squire Executive Secretary Public Service Commission of West Virginia 201 Brooks Street, P.O. Box 812 Charleston, West Virginia 25323-0812

Subject: DoD/FEA’s Direct Testimony of Charles W. King

In Re: Case No. 09-0871-T-PC - Frontier Communications Corporation, Citizens Telecommunications Company of West Virginia, dba Frontier Communications of West Virginia, Verizon West Virginia Inc., et al. Joint Petition for consent and approval of the transfer of Verizon’s local exchange and long distance business in West Virginia to companies to be owned and controlled by Frontier Communications.

Dear Ms. Squire:

Enclosed for filing in the above-captioned proceeding are the hard copy original and twelve (1 2) copies of the Direct Testimony of Charles W. King on behalf of the United States Department of Defense and All Other Federal Executive Agencies (collectively referred to herein as “DoD/FEA”). A Certificate of Service is appended to this filing.

Copies of this document are being sent in accord with the Certificate of Service. Inquiries to this office regarding this proceeding should be directed to the undersigned at (703) 696-1643. Thank you for your cooperation and assistance in this matter.

General Attorney Regulatory Law Office (JALS-RL) U.S. Army Litigation Center 901 N. Stuart Street, Suite 700 Arlington, Virginia 22203-1 837 Telephone: (703) 696-1 643 stephen.melniko ff@,hqda.armv.mil Enclosure: Twelve (1 2) Copies CF: See Certificate of Service 1

PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON

Case No. 09-0871 -T-PC

Frontier Communications Corporation, Citizens Telecommunications Company of West Virginia, dba Frontier Communications of West Virginia, Verizon West Virginia Inc., et al. Joint Petition for consent and approval of the transfer of Verizon's local exchange and long distance business in West Virginia to companies to be owned and controlled by Frontier Communications.

CERTIFICATE OF SERVICE

I certify that I have caused two (2) copies of the foregoing document, together with this

Certificate of Service, in Case No. 09-0871 -T-PC to be sent this day by electronic service

(FAX) to the Public Service Commission of West Virginia and one (1) copy each postage

prepaid, properly addressed, first class US. Mail (or private courier) to the counsel and

parties named below, as indicated:

Sandra Squire (UPS; original and 12 copies) Lisa Wansley, Esq. Executive Secretary Public Service Commission Public Service Commission of West Virginia Staff Attorney 201 Brooks Street, P.O. Box 812 (25323-0812) P.O. Box 812 Charleston, West Virginia 25301 Charleston, WV 25323

Joseph J. Starsick, Jr., Esq. Patrick W. Pearlman Goodwin & Goodwin, LLP Deputy Consumer Advocate P. 0. Box 2107 Consumer Advocate Division Charleston, WV 25328-2107 700 Union Building 723 Kanawha Blvd., East Charleston, West Virginia 25301

1 Vincent Trivelli, Esq. James V. Kelsh, Esq. The Law Office of Vincent Trivelli Rodecker Law Office 178 Chancery Row P. 0. Box 3713 Morgantown, WV 26505 Charleston, WV 25337-3713

Steven Hamula, Esq. Jeffrey A. Ray, Esq. Director of Regulatory Affairs Citynet West Virginia LLC FiberNet, LLC 113 Platinum Drive, Suite B 1200 Greenbrier Street Bridgeport, WV 26330 Charleston, WV 253 1 1

Trevor R. Roycroft Robert R. Rodecker, Esq. Roycroft Consulting P. 0. Box 3713 51 Sea Meadow Lane Charleston, WV 25337 Brewster, MA 0263 1 Scott J. Rubin Stephen G. Hill 333 Oak Lane Hill Associates Bloomsburg, PA 17815 P.O. Box 587 Hurricane, WV 25526 Amanda M. Ream, Esq. Lewis, Glasser, Casey & Rollins, PLLC PO Box 1746 Charleston WV 25326 Kevin Saville, Esq. Lydia Pulley Frontier Co~LlniCationsCorporation 2378 General Counsel- VA, WV, NC & SC Wilshire Blvd. Verizon Corporate Services Cop. Mound, MN 55364 703 713 E. Grace Street Richmond, VA 23219

Dated this 16 th day of November 2009, at Arlington County, Virginia. General Attorney Regulatory Law Office (JALS-RL) U.S. Army Legal Services Agency Department of the Army 901 N. Stuart Street, Suite Arlington, VA 22203-1837 (703) 696 - 1643

(11/13/09)

2 DoD/FEA Exhibit 1

PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON

Case No. 09-0871-T-PC

DIRECT TESTIMONY OF

CHARLES W. KING

On Behalf of THE UNITED STATES DEPARTMENT OF DEFENSE And ALL OTHER FEDERAL EXECUTIVE AGENCIES

November 16,2009 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

CONTENTS

Qualifications...... , ...... , , ...... , , ...... , ...... l

Interests of DoD/FEA.. . , ...... , , ...... , , . . . .. , . , ...... 2

Previous Verizon Spin-offs...... , ...... 4

Objective of this Intervention...... , ...... 11

Financial Health of West Virginia Operations...... 12

Service Quality Concerns...... , ...... , ...... 2 1

Further Protections. , .. . , ...... , ...... , , ...... , ...... , ...... 28

Summary of Recommendations. , .. , . , ...... , ...... , ...... , ...... , ...... 32

Attachment A...... ,...... ,...Resume of Charles W. King

Attachment B.. . . , .Appearances of Charles W. King before Regulatory Agencies

Attachment C.. .Statement of David Hauser, CEO of FairPoint Communications

Attachment D ...... Joint Stipulation and Agreement, N.Y.P.S.C. Case Nos. 93 -CO 103 and 93 -C-003 3

Attachment E...... Applicants’ response to CWA Data Request No. 19, West Virginia P.S.C. Case No. 09-0871-T-PC

Attachment F.. , ...... Docket No. UT-99 1358, Ninth Supplemental Order Approving and Adopting Settlement Agreements and Granting Application, June 29,2000,$/30.

i DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 DIRECT TESTIMONY OF 2 CHARLES W. KING

3 OUALIFICATIONS

4 Q* PLEASE STATE YOUR NAME, POSITION AND BUSINESS ADDRESS.

5 A. My name is Charles W. King. I am President of the economic consulting firm of

6 Snavely King Majoros O'Connor & Bedell, Inc. ("Snavely King"). My business

7 address is 11 11 14'h Street, N.W., Suite 300, Washington, D.C. 20005.

8 Q* PLEASE DESCRIBE SNAVELY KING.

9 A. Snavely King, formerly Snavely, King & Associates, Inc., was founded by the

10 late Carl M. Snavely and me in 1970 to conduct research on a consulting basis

11 into the rates, revenues, costs and economic performance of regulated firms and

12 industries. The firm has a professional staff of 12 economists, accountants,

13 engineers and cost analysts. Most of its work involves the development,

14 preparation and presentation of expert witness testimony before federal and state

15 regulatory agencies. Over the course of its 39-year history, members of the firm

16 have participated in over 1000 proceedings before almost all of the state

17 commissions and all Federal commissions that regulate telecommunications,

18 utilities or transportation industries.

19 Q. HAVE YOU PREPARED A SUMMARY OF YOUR QUALIFICATIONS

20 AND EXPERIENCE?

21, A. Yes. Attachment A is a summary of my qualifications and experience.

1 1 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 Q. HAVE YOU PREVIOUSLY SUBMITTED TESTIMONY IN

2 REGULATORY PROCEEDINGS?

3 A. Yes. Attachment B is a tabulation of my appearances as an expert witness before

4 state and federal regulatory agencies. It shows that I have testified before the

5 public utility commissions of over 40 states, and I have appeared before all

6 federal agencies that regulate telecommunications, utilities, transportation and

7 postal services.

8 Q. FOR WHOM ARE YOU APPEARING IN THIS PROCEEDING?

9 I am appearing on behalf of the consumer interests of the Department of Defense

10 (“DoD”) and all other Federal Executive Agencies (“FEA”) in West Virginia.

12 INTERESTS OF DoD/FEA

14 Q. WHY HAS DoD/FEA INTERVENED IN THIS CASE?

16 A. The Department of Defense and all other Federal Executive Agencies maintain

17 numerous offices, both military and civilian, throughout West Virginia in areas

18 that include the affected exchanges. These offices and installations vary in size,

19 and the business telecommunications purchased range fi-om large complex

20 systems to small office services. Federal employment in West Virginia, civilian

21 and active military, is approximately 17,500 persons.

2 , DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 This case involves the transfer of the West Virginia exchanges and associated

2 long distance services of the West Virginia subsidiary of Verizon

3 Communications, Inc. (“Verizon”) to Frontier Communications Corporation

4 (“Frontier”). Federal offices in local exchange areas subject to being transferred

5 to Frontier include medical centers of the Department of Veterans Affairs in

6 Huntington and Martinsburg and the regional office of the Veterans Benefits

7 Administration, also in Huntington, Offices of the Department of Health and

8 Human Services, the Department of the Interior, the Drug Enforcement

9 Administration, the US Trustees Office and other federal agencies are located in

10 Charleston. A number of agencies in the Department of Agriculture, as well as

11 offices of the Department of Energy and the US Government Center for Disease

12 Control, are situated in Morgantown. It is vital to these and other Federal end

13 users that the transition fiom Verizon to Frontier be made seamlessly and without

14 degradation of service quality or efficiency.

16 Moreover, the DoD/FEA interest goes beyond the locations directly affected by

17 the transition. Most DoD and FEA telecommunications services are procured

18 under contract through competitive bidding procurement. The effectiveness of

19 the competitive procurement process is, of course, dependent upon there being a

20 number of financially strong and technically capable entities that can submit bids.

21 It is therefore important to the DoD/FEA that the West Virginia successor to

22 Verizon, the second largest telecommunications company in the nation, be a

23 viable, financially sound and technologically sophisticated company that will be

3 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 able to bid competitively in Federal telecommunication procurements, not just in

2 its own service territory, but throughout the state.

4 Additionally) the successor to Verizon will be a wholesale provider of services

5 and facilities to competitive retail telecommunications providers. The service

6 quality performance, the practices, and the operations of this successor must

7 support effective competition among carriers in providing services to contract

8 customers and the general public in West Virginia.

10 Unfortunately, the record of two recent Verizon spin-offs has not been

11 encouraging.

13 PREVIOUS VERIZON SPIN-OFFS ._

15 Q. WHAT PREVIOUS VERIZON SPIN-OFFS ARE YOU REFERRING TO?

17 A. Recently) there have been two major Verizon landline spin-offs. The first was the

18 sale of Verizon’s Hawaiian landline assets to The Carlyle Group (“Carlyle”). The

19 second was the sale of Verizon’s northern New England wireline operations to

20 FairPoint Communications (“FairPoint”).

22 Q. PLEASE DESCRIBE THE HAWAIIAN TELEPHONE TRANSACTION.

4 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 A. The Hawaiian Telephone Company was created in the 1880’s under the laws of

2 the Kingdom of Hawaii. In the mid-20th century it was acquired by General

3 Telephone and Electronics, later the GTE Corporation. It became part of the

4 Verizon family of companies when Verizon acquired GTE in the 1990s. In 2004,

5 Verizon sought approval to sell its Hawaiian assets to Carlyle, a private equity

6 enterprise. Carlyle created a new entity, Hawaiian Telcom, Inc. (“HT”), to

7 provide the local exchange services previously offered by Hawaiian Telephone.

8 The applicants in that case stated that after the transition HT “will have the

9 financial fitness and ability to fund the continuing operations of Verizon Hawaii

10 through the revenue generated from the existing and proposed operations.”’

11 Likewise, the applicants stated that they “. . . acknowledge the importance of

12 ensuring a seamless transition for customers and have conducted a rigorous

13 process to select a world-class systems integrator to replicate the full functionality

14 of the systems currently provided by Verizon.”’ In 2005, the Hawaii Public

15 Utilities Commission (“HPUC”) approved the transfer subject to numerous

16 condition^.^

18 In its decision approving the sale, the HPUC stated that it would initiate an

19 investigation of HT’s service quality approximately six months after HT assumed

20 the back office operations that Verizon previously provided on a national basis to

21 all of its service territories, including Hawaii. This service quality proceeding,

22 HPUC Docket No. 2006-0400, confirmed that the transition from Verizon was far

’ Application, Docket No. 04-0140, June 21,2004, pp. 13-14. Id., p. 15. Docket No. 04-0140, Decision and Order No. 21696, March 16,2005.

5 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 from seamless or harmless to customers. Although the HPUC has not yet

2 rendered a decision in that proceeding, it is undisputed that for more than a year

3 following the cutover from Verizon’s back office operations, HT was unable to

4 collect data - even manually - as to six service standards for which the HPUC

5 required report^.^ Thus, the full extent of the problems associated with the

6 transfer could not even be quantified.

8 As to the seven service standards for which HT was able to file reports, five dealt

9 with call answering time. HT’s ability to answer calls was lacking compared to

10 the experience under Verizon, For example, during the nine months following the

11 cutover, HT’s percent of residential installation and billing office calls answered

12 in 20 seconds ranged from a low of 8.01 percent to a high of 70.37 percent,

13 compared to the objective of 85 percent and Verizon’s 2005 percentage of 87.46

14 percent. Likewise, the answering time achieved for business installation and

15 billing office calls following the cutover ranged from 12.83 percent to 78.82

16 percent compared with the objective of 85 percent and Verizon’s achieved rate of

17 88.23 percent. In an effort to repair the damage caused by the non-functioning

18 systems, HT had to replace the contractor working on the transition.6

20 HT admitted in its pleadings that service suffered as a result of the transition from

21 Verizon and that it created erroneous bills and was unable to handle adequately

HT’s Post-Hearing Brief, HPUC Docket No. 2006-0400, filed November 9,2007 at p. 118, note 101. The missing reports included crucial data such as the percent of trouble reports cleared within 24 hours, the percent of installation and repair commitments met and customer trouble reports per 100 lines. HT’s February 15,2007 Statement of Position, HPUC Docket No 2006-0400, pp. 39-41. ‘Id., pp. 14-11.

6 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 incoming calk7 HT candidly admitted that “. . . the cutover did unfortunately

2 create some negative impacts on its customers.” Finally, HT agreed with the

3 assessment of the Consumer Advocate that its “. . . retail customers following

4 cutover experienced long waiting times to reach [its] contact center, extremely

5 slow and long transaction processing times, high levels of fall out, long waiting

6 times to repair, missed or delayed installation and repair commitments and billing

7 errors.yyg

9 The cutover from Verizon’s back office operations also caused significant

10 problems for HT’s wholesale customers. One Competitive Local Exchange

11 Carrier (“CLEC”), Time Warner Telecom of Hawaii, L.P. (“TWTC”),

12 summarized the problems as follows:

13 HT’s conversion to its new back office systems was a failure by any 14 measure. Immediately following cutover, virtually none of the 15 wholesale back office systems were functioning. Today, 19 months 16 after cutover, they are still not functioning at the same level as the 17 Verizon systems. Although HT has made significant progress in 18 addressing its issues, those efforts are not complete. 19 20 HT violated the Merger Decision and the Stipulation by failing to 21 provide the same or similar functionality for wholesale service as 22 previously provided by Verizon, and by failing to remain on the 23 Verizon systems until HT’s new systems were fblly tested and 24 operational. These violations significantly harmed TWTC and HT’s 25 other customers. 10

Id., pp. 53-57. ’ HT’s August 3 1,2007 Final Position Statement, HPUC Docket No. 2006-0400, p. 21. Id., p. 7. “Time Warner Telecom of Hawaii, L.P., dba Oceanic Communications’ Post-hearing Brief, HPUC Docket No. 2006-0400, November 9, 2007, p. 2. (footnote omitted). The text of the brief contains a detailed description of HT’s numerous failures in connection with providing wholesale service after acquiring the Verizon exchanges, and the adverse impact that the failures had on Time Warner and its customers. Another CLEC, Pacific LightNet, Inc., filed a Post-hearing Brief asserting that the flawed transfer of operations caused it to incur additional expense to resolve interconnection problems and billing errors.

7 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 In summary, the applicants in the Hawaii sale promised a seamless transition to

2 HT's back office systems, but the record in that case - including HT's own

3 pleadings -- shows that both wholesale and retail customers suffered significantly

4 fiom the failure of automated systems, dropped calls, long call answering and

5 holding times, billing errors and costly manual efforts to correct the deficiencies.

6 HT was not able to track repair and installation times, so that data for these

7 critical service quality metrics could not even be assessed in determining the

8 adverse effects of the transition to HT's systems.

10 On December 1, 2008, HT filed for Chapter 11 bankruptcy protection." The

11 public explanation for the bankruptcy was the impending inability to refinance its

12 debt, but the costs and lost customers resulting from HT's poor service quality

13 probably contributed to the Company's inability to service its debt.

15 Q. PLEASE DESCRIBE VERIZON'S SALE OF NEW ENGLAND

16 OPERATIONS TO FAIRPOINT.

18 A At the beginning of 2007, FairPoint was an incumbent local exchange

19 telecommunications company with about 330,000 access lines. In that year,

20 Verizon New England, Inc., Fairpoint, and affiliated firms announced a planned

21 $2.4 billion transaction, generally similar to that proposed in West Virginia, under

I' See Hawaiian Telcom Communications, Inc., Securities and Exchange Commission Form 8-K filed December 1,2008, and HT's December 1,2008 Press Release contained in that filing.

8 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 which Fairpoint would obtain Verizon’s landline businesses in Maine, New

2 Hampshire and Vermont.

4 The proposed transaction was controversial and the implementation of the sale

5 was seriously flawed. In Vermont, for example, the Public Service Board initially

6 denied the application. The petitioners submitted a revised proposal in which

7 they improved the transaction from the standpoint of ratepayers in several ways.

8 The revised proposal bettered Fairpoint’s financial standing after the acquisition

9 by substantially reducing the initial debt and decreasing dividends. In addition,

10 the proposal was revised to include a Performance Enhancement Plan, which was

11 designed to prompt more investment and improve service quality by mandating

12 that Fairpoint set aside funds when it fails to meet certain specified service

13 standards. Also, Fairpoint agreed to an independent monitor of the transition

14 from Verizon’s systems to its own, with the objective of making the transition

15 more seamless and further safeguarding consumers.12

17 The Vermont Public Service Board approved the transfer with additional

18 conditions on February 15, 2008.13 Following the transaction, there began a series

19 of “cut-over” problems that are still not fully resolved. Indeed, service

20 deteriorated to the extent that the Board instituted an investigation into whether

21 the Company should be allowed to continue its operations in the state if it cannot

l2 Vermont Public Service Board Docket No. 7270, Order entered February 15,2008. l3 Id.

9 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 overcome its customer service, billing and operational problems. Fairpoint is

2 scheduled to file testimony in that docket December 8, 2009.14

4 On July 1, 2009, Fairpoint's new CEO, David Hauser, candidly acknowledged 5 5 that Fairpoint's reputation has been damaged by operational problems following

6 the takeover of Verizon's northern New England landline telephone and Internet

7 business. Attachment C to this testimony is a complete copy of Mr. Hauser's

8 statement.

9 On October 26, 2009, Fairpoint announced that it had filed for Chapter 11

10 bankruptcy pr~tection.'~ On the same date, the Maine Public Utilities

11 Commission stated that it had retained special bankruptcy counsel and that the

12 Commission will participate in the federal proceedings to protect the interests of

13 Maine's ratepayers. The Commission continues to analyze and monitor the

14 company's customer service and back office systems performance. Moreover, the

15 Commission has conducted meetings with Fairpoint's management, as well as

16 with staff and counsel of the public regulatory agencies of New Hampshire and

17 Vermont, subsequent to the announcement of voluntary reorganization. l6

18 Q. WHAT IS THE LESSON FROM THESE PREVIOUS VERIZON SPIN-

19 OFFS?

l4 Vermont Public Service Board, Docket No. 7540, Petition of Vermont Department of Public Service for an Investigation and for an Order Directing ...Fairpoint Communications to Show Cause Why its Certificate of Public Good Should Not be Revoked, Order Extending Schedules, entered November 13,2009. l5 Fairpoint Form 8-K, filed with the Securities and Exchange Commission, October 26,2009. l6 See http://www.maine.gov/tools/whatsnew/index.php?topic=puc-pressreleases&id=83655&v.

10 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 A. Both the Hawaii and the FairPoint transactions were described as seamless and of

2 no harm to consumers, much as this transaction in West Virginia has been

3 described by Frontier and Verizon. Events proved otherwise in each case. In view

4 of this history, this Commission must view with great suspicion any statements by

5 Verizon and Frontier that there will be no impact on customers from the transfer.

7 I therefore believe it is important that this Commission establish safeguards to

8 ensure that the difficulties that arose in these previous spin-offs will not be

9 repeated in West Virginia.

11 OBJECTIVE OF THIS INTERVENTION

13 Q. DO YOU OPPOSE THIS TRANSACTION?

15 A. As it is now structured, I do. However, with adequate and focused safeguards

16 such as I will describe in this testimony, this transaction could be in the public

17 interest. As Frontier’s witnesses state in their testimony, Frontier is a rurally

18 oriented local exchange carrier with many years of experience. It appears eager

19 to expand the scope of services offered in West Virginia, particularly high-speed

20 Internet service. To deny this transaction would be to require Verizon to continue

21 to serve exchanges it would prefer to exit and customers it would prefer not to

l7 Direct Testimony of Daniel McCarthy and J. Michael Swatts, p. 10.

11 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 have. This would not be a prescription for reliable, efficient and responsive

2 telecommunications service.

4 Q* WHAT, THEN, IS YOUR CONCERN IN THIS PROCEEDING?

6 A. I am concerned that the transition from Verizon to Frontier be as seamless as

7 possible and that there be no rate increases, disruptions, or other service quality

8 losses arising from this transaction. In this testimony, I recommend several

9 conditions that should be imposed on Frontier and Verizon as part of the approval

10 of the transaction. If these two companies are prepared to meet the commitment

11 they have made to transparency and seamlessness, then these conditions should be

12 altogether painless.

14 These conditions relate to two principal areas of concern to DoD/FEA. The first

15 is the financial health of the West Virginia operation. The second is the

16 maintenance of adequate service quality in the West Virginia exchanges.

18 FINANCIAL HEALTH OF WEST VIRGINIA OPERATIONS

20 Q. WHY ARE YOU CONCERNED ABOUT THE FINANCIAL HEALTH OF

21 THE WEST VIRGINIA OPERATIONS?

22 A. Some historical numbers describing Frontier will explain this concern:

12 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

Frontier Communications 9 Mos. 2004 2005 2006 2007 2008 2009 Earnings per Share $0.23 $0.60 $1.06 $0.65 $0.57 $0.37 Dividends per Share $2.50 $1.oo $1.00 $1 .oo $1.00 $0.75

Book CaDital Structure:

Long-term Debt ($000) 4,266,998 3,999,376 4,467,086 4,736,897 4,721,685 4,898,535

Equity ($000) 1,362,240 1,041,809 1,058,032 997,899 519,045 428,761

Total Capital ($000) 5,629,238 5,041,185 5,525,118 5,734,796 5,240,730 5,327,296

Percentages Long-term Debt 75.8% 79.3% 80.9% 82.6% 90.1% 92.0% Equity 24.2% 20.7% 19.1% 17.4% 9.9% 8 .O% Total Capital 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 1 2 Source: Frontier SEC Forms 10-K and 10-Q

This table demonstrates that Frontier has repeatedly issued dividends well in

excess of its net income with the result that the equity portion of its capital

structure has declined from an already low level of 24.2 percent in 2004 to only

8.0 percent as of September 30,2009.

Frontier has promised to reduce its post-transaction dividend to $0.75 per share.

10 Unless earnings per share improve dramatically, this reduction will still result in a

11 dividend greater than net income. A $0.75 dividend is more than 30 percent

12 greater than the Company’s 2008 earnings per share. Moreover, as of the third

13 quarter of 2009, Frontier’s earnings are down almost 20 percent from the same

14 period in 2008.

13 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 As a result of this over-generous dividend policy, Frontier’s stock price, currently

2 at about $7.30 per share, is over four times its book value. Even at the reduced

3 dividend of $.75, the dividend yield is close to 10 percent. This very high

4 dividend yield indicates that investors have little expectation of further stock

5 appreciation, not a good harbinger for the future.

7 This strategy of paying shareholders in excess of the Company’s earnings is

8 unsustainable. The book value of Frontier’s equity is now only about eight

9 percent of the total asset value of the Company. Thanks to Frontier’s very

10 generous treatment of its shareholders, the market value of its equity is

11 considerably higher, so that its market capitalization (as opposed to book

12 capitalization) is about 3 5 percent equity. But Frontier cannot continue

13 indefinitely to issue dividends greater than its net income because otherwise its

14 book equity will be wiped out altogether. Either Frontier must dramatically

15 increase its earnings per share or it must reduce further its dividend. If the

16 Company reduces its dividend, the market value of its stock will likely decline,

17 and the Company’s market capitalization will become as severely over-leveraged

18 as its book capitalization is now.

20 Frontier must change its ways; otherwise it will be unable to raise further capital.

21 Even now, Frontier bears an S&P rating of BB, below the level acceptable for

22 investment by pension and benefit funds. Any further deterioration of Frontier’s

23 financial condition will constrain Frontier’s access to both debt and equity capital,

14 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 and that will threaten the investments that Frontier has indicated that it will make

2 in its newly acquired West Virginia exchanges.18

4 Q. WHAT WILL BE THE EFFECT OF THIS TRANSACTION ON

5 FRONTIER’S HEALTH?

7 A. Frontier is absorbing an entity more than twice its size:”

8 Frontier Verizon Lines (“SpinCo”) 9 Lines 2,254,333 4,790,673 10 Revenues (Millions) $2,137 $4,287 11 12 There are important financial and service implications from his relationship. The

13 principal financial implication is that Frontier’s balance sheet and income

14 statement will be very significantly impacted by the debt/equity mix and

15 profitability of the newly acquired exchanges. In the near term, the impact will be

16 quite positive thanks to the financial strength of the acquired assets. The

17 approximately 60 percent ($5,247 million) of the value of the transferred assets

18 ($8,580 million) will take the form of a transfer of equity. Verizon will create a

19 temporary corporation, termed “SpinCo,” the stock of which will be distributed to

20 Verizon’s existing shareholders. That stock will then be transferred to Frontier,

21 so that each Verizon shareholder will become a shareholder in Frontier. This is a \

22 tax-free transaction for Frontier, Verizon and Verizon’s shareholders. The

On September 29,2009, Fitch, one of the bond rating agencies, reported that it had evaluated 30 companies with what it termed ‘‘junk bond” ratings. It found that Frontier was among the three companies most in danger of breaching lender requirements. On September 30, Fitch clarified that this assessment was based on the pre-merger condition of Frontier and that the merger will improve that condition. Presentation of Frontier Communications at the Barclays Capital Worldwide Wireless and Wireline Conference, May 2009, pp. 19 and 24.

15 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 remaining 40 percent ($3,333 million) will be debt (or debt relief) that the new

2 entity, Spinco, will pay to Verizon.20

4 The result of this transaction will be a Frontier that is considerably less leveraged

5 than the existing company. Its equity proportion of total market capitalization

6 will increase from 35 percent to 49 percent, and its debt proportion will fall

7 correspondingly from 65 percent to 51 percent. The ratio of net debt to Earnings

8 Before Interest, Taxes, Deprecation and Amortization (“EBITDA”) will decline

9 from 3.8 times to 2.2 times. Other ratios will improve as well, although not quite

10 so dramatically. For example, the ratio of EBITDA to total revenue will increase

11 from 54.3 percent to 55.7 percent, and the annual free cash flow per share of stock

12 will increase from $1.58 to $1.75.

14 Q. WILL THESE IMPROVED FINANCIAL RATIOS ALLEVIATE YOUR a 15 CONCERN ABOUT FRONTIER’S FINANCIAL HEALTH?

17 A. No. From the standpoint of ratepayers, the improvement in Frontier’s financial

18 condition is not particularly relevant. What is relevant is Frontier’s financial

19 condition following the transaction relative to Verizon’ s financial condition now.

20 Frontier has an S&P rating of BB compared with Verizon’s rating of A, and there

21 is no indication that this relationship will change after the transaction. Following

22 the transaction, Frontier will have a market equity capitalization of $7.7 billion

2o Id., pp. 15 and 19.

16 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 compared with $86.0 billiop for Verizon. Frontier will have a revenue margin

2 over EBITDA of 55.7 percent.21 Verizon currently has a revenue margin of 92.1

3 percent.** The West Virginia exchanges transferred to Frontier will be leaving a

4 strong, well-capitalized company and joining a company with a lower bond

5 rating, a highly leveraged capital structure and much weaker financial ratios.

7 Additionally, I am concerned that the improvement in Frontier’s financial

8 condition will serve merely to perpetuate the past pattern of paying shareholders

9 more than the earnings of the Company. Unless Frontier is willing to limit its

10 dividends to the level of earnings per share, it will again erode its ability to raise

11 capital for the investments needed to expand services to its customers in West

12 Virginia.

14 Q. WHAT CAN THE WEST VIRGINIA COMMISSION DO ABOUT THIS

15 SITUATION?

17 A. I doubt that the West Virginia Commission is interested in micro-managing

18 Frontier, or that it wishes to dictate the nation-wide financial policies of the

19 Frontier Communications Corporation. The Commission’s focus is on

20 telecommunications services in West Virginia.

2’ Frontier Presentation at Barclays Capital Worldwide Wireless and Wireline Conference, May 2009, p. 19. Also the source of the $7.7 billion marker equity value. 22 Verizon Form 10-Q, September 30,2009.

17 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 The West Virginia exchanges transferred from Verizon to Frontier will be served

2 by a Frontier subsidiary successor to Verizon to be named Frontier of West

3 Virginia. Frontier of West Virginia will prepare balance sheets, income

4 statements and cash flow statements. The income statements will identify the

5 income for the previous year. The cash flow statements will identify the

6 dividends that the subsidiary pays to its parent.

8 I can suggest two actions the Commission might take. The first is to condition

9 approval of this transaction on a requirement that the subsidiary serving West

10 Virginia will not in any year issue dividends from its West Virginia operations

11 that exceed the level of its West Virginia net income in the previous year. This

12 provision will help keep West Virginia secure fiom any raid by the parent

13 company on the cash generation of the subsidiary serving the state. In a small

14 way this condition may also discourage the parent company from distributing

15 more dividends to its shareholders than it earns from its operations. If there are

16 no service quality problems after the first three years following the completion of

17 the transaction, then the Commission could suspend this limitation.

19 The second proposal is to tie the resolution of the two concerns I have with this

20 transaction - financial and service quality - together. The Commission can

21 condition any dividend from the West Virginia operations on Frontier’s meeting

22 the service quality thresholds in Verizon’s Retail Service Quality Plan (“RSQP”)

23 that it adopted in Case No. 08-0761-T-GI. The same condition should apply to

18 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

I Frontier’s meeting its obligations in the Carrier-to-Carrier (“C2C”) Guidelines

2 and Performance Assurance Plan (“PAP”). These provisions will help keep

3 Frontier from draining cash out of West Virginia when it is clear that Frontier

4 needs to devote more resources to the state. This provision, too, should remain in

5 effect for at least three years following the closing of the transaction.

7 These two requirements can be enforced by periodic audits and the application of

8 the Cornmission’s existing general powers to enforce its orders.

10 Q. ARE THERE ANY PRECEDENTS FOR THESE REQUIREMENTS?

12 A. Yes. The first restriction - no dividends in excess of net income - is similar to

13 that imposed by the Oregon Public Utilities Commission when it approved the

14 merger of CenturyTel, Inc. and Embarq Corporation on May 11, 2009. The exact

15 language of the Oregon restriction is as follows:

16 At any time when the condition in subsection (i) [below] exists, the 17 Operating Companies of the merged company will limit payments of 18 dividends on common equity distributed to any company (including 19 affiliates and subsidiaries) of [Frontier] holding shares of the operating 20 companies in any year to an amount not more than 50% of net income in 21 the preceding fiscal year. The Operating Companies will limit payment 22 of dividends on common equity in any quarter, if dividends are 23 distributed quarterly, to not more than one-fourth of the annual limitation 24 amount. 25 26 (i) The average market value of [Frontier’s] common equity is less than 27 50 percent of the book value of [Frontier’s] net debt. The average 28 market value of [Frontier’s] common equity will be calculated using 29 the average stock price and the average number of fully-diluted shares 30 outstanding during the preceding 120 calendar days. As used in this 31 section, “net debt” means total long-term debt less cash. This test will

19 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

be calculated prior to the determination of each declaration of dividend, whether quarterly, special, or other.23

As regards the second restriction - no dividends if service quality is inadequate -

5 there is precedent relating directly to Frontier. Last year, Frontier, the New York

6 Commission Staff and the Consumer Protection Board signed an agreement

7 whereby Frontier’s New York subsidiary would not be allowed to issue dividends

8 to its parent if its service quality fell below certain levels specified in the

9 agreement. This provision was among a number of conditions relating to finances,

10 corporate governance and reporting. It replaces a much more restrictive regime

11 known as the “Open Market Plan” that was adopted when the Rochester

12 Telephone Company merged with other corporate entities to form Frontier

13 Communications. 24

15 Q. ARE THERE ANY OTHER CONCERNS REGARDING FRONTIER’S

16 FINANCES?

18 A. Yes. As I have noted, the $0.75 dividend that Frontier proposes to pay to its

19 shareholders still exceeds its 2008 earnings per share by about 30 percent, and it

20 appears it may exceed 2009 earnings by a yet larger margin. Frontier is therefore

21 under fairly severe pressure to increase its earnings. This pressure could result in

23 Oregon P.U.C. Order No. 09-169, May 11,2009, Appendix B, Sec. 4j. 24 A copy of this agreement is Attachment D to this testimony.

20 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 a campaign of rate increases that would burden ratepayers who remain dependent

2 on Frontier’s landline services.25

4 Q. WHAT CAN THE COMMISSION DO TO AVERT THIS OUTCOME?

6 A. I recommend that the Commission condition approval of the transaction on

7 Frontier’s commitment not to increase rates for a period of three years following

8 the transaction. This condition could be waived in cases offorce majeure or if

9 Frontier presented persuasive evidence that it imposes an undue burden on the

10 Company that threatens the quality of its services.

12 SERVICE OUALITY CONCERNS

14 Q. WHY ARE YOU CONCERNED ABOUT THE SERVICE QUALITY

15 RESULTING FROM THIS TRANSACTION?

17 A. As noted earlier in my testimony, the two recent large Verizon spin-offs have

18 resulted in severe service quality degradation. I am concerned that this pattern not

19 be repeated in West Virginia following the Verizon-to-Frontier transition. This

20 concern is amplified by the following service quality indicators published by the

21 Federal Communications Commission (“FCC’’):

25 Transaction costs associated this transfer add a further incentive to increase revenue. The recovery of these costs from ratepayers in most cases would be inappropriate because ratepayers are not responsible for them. These costs would not be incurred were it not for the transaction.

21 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 Nationwide West Virginia 2 Frontier Verizon Frontier Verizon 3 1. Installation Interval (days) 4 Business Lines 5.9 1.9 6.6 2.1 5 All Lines 5.6 1.7 5.9 1.1 6 2. % Local Installation Commitments Not Met 7 Business Lines 4.3% 2.8% 8.8% 4.2% 8 All Lines 3.7% 1.7% 10.4% 2.9% 9 3. Trouble Reports per Month per 100 Lines 10 Business Lines 1.58 0.77 1.90 0.87 11 All Lines 2.78 1.63 3.83 2.78 12 4. Repeat Out of Service Trouble Reports as a Percentage 13 Of Initial Out of Service Trouble Reports 14 Business Lines 13.4% 13.7% 16.5% 12.5% 15 All Lines 16.9% 15.5% 18.9% 19.3% 16 5. Out of Service Repair Interval (hours) 17 Business Lines 21.3 18.9 22.8 17.4 18 All Lines 24.2 35.5 26.8 68.2 19 20 Source: 2008 FCC ARMIS 43-05 Reports. The Frontier observations are the simple 21 average of indications for the three Frontier subsidiaries reporting in West 22 Virginia. 23

24 In every case but two, Frontier scores worse than Verizon both nationally and

25 within West Virginia. These comparisons do not bode well for the service quality

26 that can be expected following the transfer of Verizon’s West Virginia operations

27 to Frontier. They are of particular concern in West Virginia where Frontier

28 proposes to appoint its own management team to oversee the previous Verizon

29 operations.26 It also plans to abandon Verizon’s back office operating support

30 systems in favor of its own.

2G Testimony of Daniel McCarthy and J. Michael Swatts, pp. 43-44.

22 I DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 Q. FRONTIER WITNESSES McCARTHY AND SWATTS ARGUE THAT

2 FRONTIER WILL NOT ENCOUNTER THE SERVICE PROBLEMS

3 THAT PLAGUED THE TWO PREVIOUS VERIZON SPIN-OFFS. WHAT

4 IS YOUR RESPONSE?

5 A. The position of these witnesses is that Frontier is already a substantial operating

company with established billing, operational and customer service systems in

place. According to the witnesses, Frontier’s new service territories will be

transferred seamlessly and without any deterioration in service quality.27

9 I very much hope Messrs. McCarthy and Swatts are correct. However, the reality

10 is that Frontier is proposing to cut over all of Verizon’s West Virginia billing,

11 operating and customer service systems, which are not the same as Frontier’s,

12 over to Frontier’s systems. This same plan was followed by Fairpoint in northern

13 New England with disastrous results that were costly and highly disruptive to both

14 retail and wholesale customers.

15 Another concern relates to planning. In response to a data request, Frontier stated

16 that it had no detailed capital budget for the year 2010.28This is ominous because

17 most utility companies have capital budgets five years out. If Frontier has no plan

18 for capital expenditures, the Commission should question the seriousness of its

19 promise to increase greatly the proportion of West Virginia subscribers with

20 access to the Internet.29

2’ Id., pp. 34-35. 28 Attachment E is a copy this data request and its response. 29 Joint Testimony of Daniel McCarthy and J. Michael Swatts, p. 15.

23 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 For these reasons, it is important for the West Virginia Commission to monitor

2 Frontier’s service performance. To be a deterrent against service degradation, the

3 Commission should be prepared to impose sanctions if service performance

4 deteriorates.

6 Q* DOES THE WEST VIRGINIA COMMISSION HAVE ESTABLISHED

7 SERVICE QUALITY STANDARDS FOR VERIZON?

9 A. Yes. In Case No. 08-0761-T-G1, the Commission adopted the RSQP for Verizon.

10 This plan establishes a series of services quality standards and metrics that went

11 into effect on July 1, 2009, become tighter on July 1, 2010 and tighter again on

12 January 1, 201 1. Frontier has agreed to abide by the terms of this plan.30 For

13 wholesale services, there are the C2C and PAP with which Frontier has also

14 committed to comply.31

16 Q. HOW ARE THESE STANDARDS ENFORCED?

18 A. The Verizon Retail Service Quality Plan establishes a system of customer credits

19 that increase over the three phase-in dates.

21 Q. WHAT ADDITIONAL ENFORCEMENT MECHANISMS COULD YOU

22 SUGGEST IN ADDITION TO THOSE CURRENTLY IN THE RULES?

30 Id., p. 38. 31 Id., p. 31.

24 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 A. As an initial step, I have already recommended that as a condition of approving

2 the transaction, the Commission adopt the mechanism currently in place for

3 Frontier in New York State. If the service quality metrics currently being

4 reported to the Commission fall below those specified in the RSQP, C2C or PAP

5 during any quarter, then the Frontier subsidiary operating in West Virginia will be

6 precluded from issuing dividends to its parent in the following quarter. Of course,

7 the Commission can excuse the Company from these provisions if it can

8 demonstrate that it was not responsible for the failure to achieve the service

9 quality thresholds.

11 Q* ASIDE FROM DIVIDEND RESTRICTIONS, WHAT FURTHER 12 SANCTIONS SHOULD THE COMMISSION IMPOSE IN ORDER TO

13 ENSURE ADEQUATE SERVICE QUALITY?

15 A. There are three types of sanctions which the Commission could impose for poor

16 service quality:

. 17

18 1. Require annual credits to the bills of all Frontier customers for Frontier’s

19 failure to meet service standards state-wide for a consecutive number of

20 months, or for a total number of months during a year.

25 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 2. Impose a fine on Frontier, payable to the Commission or to the state

treasury, as appropriate, for its failure to meet service quality standards for

a certain consecutive or total monthly period during a year.

3. Require credits to Frontier’s customers on a customer-by-customer basis

for failure to meet a Commission-mandated provisioning or restoration

7 standard in a particular instance, with a credit applied to the bill following

8 the failure.

10 The first approach would provide an incentive to Frontier to provide service

11 according to the prescribed standards. The disadvantage, however, is that the

12 annual credit is spread over the general ratepayer base and may be seen as

13 inadequate for customers who experienced severe problems. Moreover, because

14 the credit is annual, a customer who experienced problems may have moved or

15 changed carriers by the time that the credit is issued. In that respect, the benefit is

16 received by new customers whose service was not affected negatively. The

17 approach would be of value in a situation where service problems are extended

18 and severe, and the credit is large in amount, because the action would heighten

19 public awareness of the carrier’s service deficiencies and bring pressure to

20 improve.

22 The second approach - payment of penalties for failure to meet service standards

23 - has merit as an incentive to the carrier to meet the designated service criteria.

26 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 The approach, however, provides no compensation to customers who received

2 poor service. Rather, it is a punishment that reduces the carrier’s earnings and

3 generates negative publicity if the fine is issued in a significant amount.

4 Frontier’s failure to provide service quality reports for an extended period is the

5 type of situation that this approach should encompass. This approach could be

6 combined with the prior approach in egregious situations to preserve the

7 Commission’s processes and orders while making whole the affected customers.

9 Arguably most appropriate is the third approach - immediate credits to individual

10 customers’ bills. Customers who do not receive the quality of service according

11 to the standard that the Commission specifies should not be expected to pay full

12 price for what they received. This approach - which has been adopted elsewhere

13 for both retail and wholesale customers - provides a financial incentive for

14 Frontier to provide high quality service, and the beneficiaries of the credit are the

15 individual customers who suffered. Importantly, the immediate nature of the

16 credit guarantees that the customer directly affected receives the full benefit of

17 Frontier’s obligation to redress service failures. Appropriately, this form of

18 sanction is already embedded in the Retail Service Quality Plan.

20 I recommend that the Commission monitor closely Frontier’s service quality

21 performance under the RSQP, C2C and PAP, as well as those measured by the

22 FCC’s ARMIS program. If service quality begins to deteriorate, the Commission

27 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 should open a special proceeding to determine the causes and to consider remedial

2 action, including additional sanctions.

4 FURTHER PROTECTIONS

6 Q. ARE THE SAFEGUARDS YOU HAVE RECOMMENDED FULLY

7 ADEQUATE TO PROTECT CUSTOMERS FROM SERVICE

8 DETERIORATION?

10 A. No. The safeguards I have recommended are probably adequate only so long as

11 Frontier is a healthy, fully fimctional provider of local exchange

12 telecommunications services. But if Frontier’s financial condition deteriorates in

13 similar manner as Hawaiian Telcom and FairPoint have deteriorated, these

14 protections will be of little value from the customers’ standpoint. The limitations

15 on dividend payments would be irrelevant when there is little or no net income

16 from which to pay dividends. The fines and credits for poor service would offer

17 little incentive to improve performance when there is no money to fund the

18 improvements. Indeed, the sanctions would only aggravate the Company’s

19 deteriorating financial condition.

21 Q. HOW MIGHT THE COMMISSION SAFEGUARD CUSTOMERS

22 AGAINST THE POSSIBILITY OF FRONTIER’S BANKRUPTCY?

28 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 A. If Frontier’s financial condition deteriorates, it will likely be the result of the

2 failure of the back office functions to perform properly. That was certainly the

3 case on the Hawaiian Telcom and FairPoint spin-offs.

5 One of the more disturbing aspects of this transaction, as with the previous

6 transactions, is the extent to which Verizon walks away from it after it is

7 consummated. Once the transfer is completed, Verizon will take no further

8 responsibility for the performance its previous subsidiary.

10 I recommend that the Commission challenge Verizon’s lack of responsibility for

11 the exchanges it is transferring to Frontier. The Commission should require that

12 Verizon continue its involvement with Frontier’s performance - financial and

13 operational. The length of that involvement would depend on the effectiveness of

14 Frontier’s operations, management and financial arrangements. Only when

15 Frontier has demonstrated that it can provide adequate service to its customers in

16 West Virginia should the Commission let Verizon “off the hook” for its former

17 operations in the state. This commitment by Verizon should also continue until

18 all of its systems and programs have been successfully transitioned over to

19 Frontier’s own back office operations and Frontier has demonstrated that it can

20 handle its greatly expanded footprint in West Virginia.

22 There are a variety of ways that this involvement could be maintained. Among

23 the possibilities are:

29 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 Require Verizon to operate its back office systems in parallel with those of

2 Frontier until Frontier’s own systems have proved to be reliable and

3 efficient.

4 Require Verizon and Frontier jointly to plan and execute the cutover of

5 former Verizon systems to Frontier’s systems, take joint responsibility for

6 any necessary corrective actions, and assume joint liability for sanctions

7 that may be imposed for service problems resulting from the cutover.

8 Require Verizon to compensate Frontier and its customers for

9 inadequacies in its data files that result in failures of Frontier’s systems.

10 Require Verizon to retain a portion of the stock in “SpinCo” that it would

11 otherwise distribute to its shareholders.

12 Condition the transfer of the West Virginia operating authority on

13 Frontier’s performance and financial health so that if conditions

14 deteriorate, the authority reverts to Verizon.

15 Prior to the integration of the back office operation into Frontier, require a

16 third party certification that it fully replicates all functionalities provided

17 by the Verizon system(s) it will replace.32

19 Each of these alternatives could involve significant operational, financial and

20 possibly legal complications. For this reason, I do not specifically recommend

32 In approving this transaction, the South Carolina Public Service Commission imposed the condition that Frontier notify it of each change or replacement of former Verizon systems and provide it assurance that all systems have been tested and certified before any irreversible cutover is made. South Carolina Public Service Commission Docket No. 2009-220-C, Order No. 2009-769 Approving Transfer of Assets, Authority, and Certificates, October 29,2009, p. 21, decretal 710. h.

30 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 any one or a combination of these approaches. Nor do I suggest that this is a

2 complete list of alternatives. There is, however, one contractual obstacle that

3 must be eliminated, and that is the “make whole’’ provisions of the agreement that

4 require Frontier to compensate Verizon for any added costs or obligations

5 Verizon experiences as a result of any commission’s regulatory action.33 This

6 aspect of the agreement would make any conditions imposed on Verizon self-

7 defeating by shifting Verizon’ s financial burden back onto Frontier and Frontier’s

8 customers. The Commission should not approve the transaction if it contains

9 these provisions.

11 I recommend that the Commission require the joint parties themselves devise and

12 present a mutually acceptable and workable arrangement that will preserve

13 Verizon’s involvement and responsibility through the successful integration of

14 Verizon’s systems into those of Frontier. The objective should be to maintain is Verizon as an operational and financial “safety net” until the transaction is fully

16 implemented and Frontier has demonstrated that it can provide efficient, reliable

17 service and that it retains sufficient financial strength to fulfill its service quality

18 and performance assurances including broadband depl~yment.~~The plan should

19 spell out the responsibilities of each party, the fair distribution of any costs, and

20 their respective liability for any penalties, refunds or other sanctions that may

21 result from Commission action. A sharing plan that imposes all responsibility,

33 Frontier Corp. Prospectus, Form 424B3, filed with the Securities and Exchange Commission on September 16,2009, Mary Agnes Wilderotter cover letter to Frontier Shareholders, p. 1. 34 Verizon’s involvement should terminate only after the Commission has solicited comments and has determined affirmatively that Frontier’s assurances have been fulfilled.

31 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 costs and liability on Frontier will not be ac~eptable,~~The plan should be

2 submitted for Commission approval after interested parties have had an

3 opportunity to provide comments.

5 SUMMARY OF RECOMMENDATIONS

7 Q. PLEASE SUMMARIZE YOUR RECOMMENDATIONS. 8 8

9 A. In this testimony, I have recommended that:

11 The Commission prohibit Frontier West Virginia from issuing dividends

12 to its parent that exceed the level of net income earned in the previous

13 period.

15 For at least the first three years following the closing of the transaction, if

16 any of the standards and requirements in the RSQP, C2C or PAP are

17 below their prescribed levels during any quarter, then Frontier West

18 Virginia be constrained from issuing dividends to its parent company in

19 the following quarter.

35 The costs of this “safety net” are not appropriately the responsibility of ratepayers. But for the sale of these exchanges, these costs would not have been incurred.

32 DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 0 The Commission condition approval of the transaction on Frontier’s

2 commitment not to increase rates for a period of three years following the

3 transaction.

5 0 The Commission monitor closely Frontier’s service quality performance,

6 and if it begins to deteriorate, open a special proceeding to determine the

7 causes and to consider remedial action, including additional sanctions.

9 0 The Commission disallow the provisions in the agreement between

10 Frontier and Verizon that require Frontier to compensate Verizon for any

11 costs resulting from conditions imposed by regulatory agencies.

13 0 The Commission require the joint parties to devise terms and conditions

14 acceptable to both that will maintain Verizon’s involvement and

15 responsibility through the successful integration of Verizon’s systems into

16 those of Frontier and until Frontier has demonstrated that it can provide

17 efficient, reliable service and that it retains sufficient financial strength to

18 fulfill its service quality and performance assurances including broadband

19 deployment.

22 Q. DOES THIS COMPLETE YOUR TESTIMONY?

33 B. DoD/FEA Exhibit 1 Direct Testimony of Charles W. King

1 A. Yes. It does, although I should note that there are some aspects of this transaction

2 that I have not addressed. These include such issues as the likelihood of cost

3 savings from the transaction or the quality of the broadband services that Frontier

4 offers. My silence on such issues does not mean that they are not important to

5 DoD/FEA or that DoD/FEA will not address them later in this proceeding.

34 Charles W. King Attachment A

In Canada, Mr. King designed and directed an Experience extended inquiry into the principles and procedures for regulating the telecommunication carrlers subject to the jurisdiction of the Canadian Transport Commission. He Snavely King Majoros O’Connor also was the principal investigator in the Canadian & Lee, Inc. Transport Commission’s comprehensive review of rail Washington, CIC costing procedures. President (1989 fo Present) Management Consultants, Inc., Vice President (1970 1989) EBS - Washington, DC Mr. King, a founder of the firm and acknowledged Dlrecfor, EcwiOmk Develapment.Deparfment authority on regulatory economics, brings over thirty (79684970) years of experience in ‘economic consulting to his direction of the firm’s work in transportation, utility and Mr. King orga.nlzed and directed a five-person staff of telecommunications economics. economists . performing resebrch, evaluation, And planning relating to economlc development of Mr. Ktng has appeared as an expert witness on over depressed areas and communities within the U.S. 300 separate occasfons before more than thirky state Most of thls work was on behalf of federal, state, and and nine U.S. and Canadlan federal regulatory muntclpal agencies responsible for community or agencies, presenting testfmony on rate base reglonal economic development calculations, rate of return, rate design, costing methodology, depreciation market forecasting, and Principal Consultant (19664968) ratemaking princlples. Mr. King has also testifled before House and Senate Commlttess on energy and Mr. King conducted research on a broad range of telecommunications leglslation pending before the U.S. ,economic topics, including transporlation, regional Congress. economic development, cornmunlcations, and physical distrtbution. In telecommunications, Mr. King has testified before the Federal Communfcations Cornmisslon on a number of W.B. Saunders i% Company, Inc., policy issues, service authorization, competitive Washington, impacts, video dialtone, and prescription of interstate DC depreclatlon rates. Before state regulatory bodies. he Staff Economist (f962-7966J has presented testlmony tn proceedings on intrastate cafes, costs earnings and depreciation. For this economic consulting firm, whlch later merged with EES Management Consultants, Inc.. Mr. King Mr. King has tesUfied in electric, gas and water utility engaged in numerous research efforts relating prlmarity cases on virtually every aspect of regulation, including to economic development and transporbtlon. cost of capital, revenue requirements, depredatlon, cost allocation and rate design. Mr. King Is one of the US. Bureau of the Budget, Office natlon’s leadfng authorities on utllity depreclation of practices, having testified on this subject In several Statistical Standards dozen cases before state regulatory bodies. Analyticel Sta flstlclan (79614962)

In addltlon to his appearances as a witness In judicial Mr. Klng was responsible for the revlew of all and admlnistrakjve proceedings, Mr. King has federal statistical and data-gathering programs negotlated settlements among private parties and relating to transportation. behveen private parties and regulatory offices. Mr. King also has directed depreciatjon studles, Investment cost benefit analyses, demand forecasts. cost Education allocation studies and antitrust damage calculations. Mr. King directed analyses of the prlces of services Washington & Lee University, B.A. in Economics under Federal Government’s FTS2000 long distance system. The George Washington Vniversily, MA. in GovernmenI Economic Policy CHARLES W. KING Attachment 6 Snaveiy King MaJoros O'Connor 81 Lea Ine. Page 7 of -I5 1220 L Street, N.W., Sub410 Washington, D.C. 20005 {ZOZ) 371=1111 Appearances before State Regulatory Agencies

Electric, Gas, Water Utfiity Cases I

Case Date of Cross-Examination Client I. state I Case Number Utility

AK IExxonUW P-89-1.2 Trans Alaska Pipeline System Dctober 18.1990

A2 Arizona Corporation Commission u-1345-1 Arizona Public Service Co. December 16,1980 Arizona Rstailen Association u-1345-11 Arizona Public Sewlce CO. January 15,1982

Callfoomla Retailers Association 57666 Pacific Gas & Electrlc Co. March 6, 1978 California Retailers Associ@on 57602 Southern California Edison Aprlt 25, 7 978 CA California Retailers Association 59351 Pacific Gas & Electric Co. June 12, 1981 CaMornia Rataiters & Callfbmia Manufacturer3 59351 Southern Carifomfa Edison May20,lQSZ California Retailers Association 61138 Southern California Edison May 28,1982 I

U. S. Department of Defense 1&S I100 Colomda Springs (Elec) June 14,1977 J.C. Penney Company 5693 All Electric UlMm March 8,1978 U.S. Department of Defense I&S 1339 Colorado Springs DPU (Gas) October 18,1979 CQ U. 5. Department of Defense I&S 1540 Colorado Springs DPU (Gas) February 9,1982 US. Department of Defense C. Coundl Coiorado Spfings OPU (Qas) SeRtember 30,1984 U.S. Department of Oefense c. Council colorado Sprfngs PPU (Efec) June 8,1985 U.S. Department of Defense c. council Colorado Springs DPU (aec) May 19,1986 US. Department of Defense C. Council Colorado Springs DPU (Elec) June 30,1987

Retailers Merchants Association 724204 Various Electric Utilities July 22,1976 Olvfsion of Consumer Counsel 76-06043 CL&P and HELCO November IO, f 977 Public Utilities Control Auto 78-0303 Bridgeport Hydraulic Co. (none) Division of Consmer Counsel 80-0403,4 CLLP and HELCO August II, Isa0 CT Division of Consumer Counsel 81-0413 United Illurnlnating Company Jdy 20,1981 Dhrlsjon of Consumer Counsel 81-0602.4 CUPand HELCO October 5,1981 Division of Consumer Counsel 825701 CLLP September 28,1982 Coalition of Hotels, Alloys & Retalleffi 85-10-22 CUP (none) Coalltion of Hotels, Alloys & Retailers 87-07-01 CL&P April 25,1888

I CHARLES W. KlRG Attachment B

Appearances before State Regulatory Agencies Page 2 of 15 1 Elebrlc, Gas, Water Utility Cases I I Date of Cross-Examination State Case Client

Case Number Utility

D.C. People's Counsel 685 Potomac Electric Power Company March 6,7978 D.C. People's Counsel 715 Poiomac Eledrlc Power Company (none) 0.c. People's Counsel 725 Potornac Electric Power Company April 4,1900 D.C. People's Counsel 737 Pctornac ElecMc Power Company January 1;,1881 Wasfilngtan Metro Area Transit Authority 748 Potomac Electnlc Power Company June 26,1981 Washington Metrc Area Transit Authority 758 Potornac flectric Power Company December 15,1981 D.C. People's Counscf 785 Patomac Eleotrie Power Company September 21,1982 Washlngton Metro Area Transit Authority 759 Potornac Electrlc Power Company March 29,1984 D.C. People's Counsel 685 Remand Potomac Electric Power Company June 10,7 985 D.C. People's Counsel 905 Potomac Electtic Power Company August 20,199 1 D.C. People's Counsel 912 Potomac Eedc Power Company May 7,1992 D.C. People'e Counsel 834, ill Potomac Electric Power Company May 22,1992 D.C. People's Counsel 917 Potomao flectric Power Company September 24,1992 D.C. People's Counsel 922 Washington Gas LigM Company June 15,1993 D.C. ~aople'sCounsel 929 Potomac Etectric Power Company December 16. 1993 D.C. Psaple's Counsel 934 Washingtan Gas Ught Company Filed April 22, j994 D.C. People's Counsel 939 Potomac Electric Power Company March 16,1995 D.C. People's Counsel 91 7 Potomac Electric Power Company ~priile, 1995 D.C. People's Counsel 95 1 Potomac Electric Power Company February 20,1497 D.C. People's COuns%l 945 Potomac Electric Power Company September 29,q 899 D.C. People's COUM~ 847 Washlngton Gas Light Company June 27,2001 D.C. People's Counsel 989 Washington Gas Light Company May 22,2002 D.C. People's Counsel 1016 WashingtorT Gas Light Company September 23,2003 June 27,2007 D.C. People's COUnSel 1063 Potomac Electric Power Company

Flled Mach 1995 Delaware PSC Staff 94-1 64 Artesian Water Company 10, DE Delaware PSC Staff 94-1 49 Wllmington Suburban Water Company March IO, 1995 Filed July 2004 Delaware PSC Staff 04-152 Tidewater Utilities Company 26,

I "AIS Electric Utilities March 5,1981 Florida Retail Federation 790593-EU Florida Retail Federation 810002-EU Florida Power and Light Company July 23, 1Q8l Fiorida and Company September 22,1982 Federation 820097-EU Power Light Florida Retalf April TI, 1983 FL Florida Retail federation 820097-EU 'Florida Power and tight Company Florida Retail Federation 830012-ELI 'Tampa Electric COInpaW August 18,1983 Florida Retail 830465-El Florida Power and LigM Company April 19,1984 Federation (none) Florida Retail Federation 830465-E1 Tampa Elect& Company I 1 CHARLES W. KtNG Attachment E3 Appearances before State Regulatory Agendes Page 3 of 15

4 Electrfc, Gag, Water Utiffty Cases I -1 State Case, 1 Date of Cross-Examination Client Case Number I Utility 1 i Georgia Retail Federation 3270-U Georgia Power Company September 3, 1981 Georgia Public $ewhCommission 40074 Georgia Power Company August 21,9991 Georgia Public Service Commission 4384.11 All Electric Utilities August 1, $993 Georgia PubfIc Scrrke Commfsslon 4755-u Lseorgla Power Company January 25,1994 Georgia Publlc Service Commission 4687-U AI1 Lltllities May 10,1994 Georgia Publlc Senrice Cornmisston 83554 Georgia Power Company November 4,3998 Georgia Public Senrice Commieslon 14000-U Georgia Power Company Oc&ober23,2001 GA Georgia Pubk Service Commission 148184 gavannah Electric & Power Company March 27,2002 'GeoqlaPublic Service Comrn'sslon 14311 -u Atlanta Gas Light Company April 8, 2002 Georgia Public Service Qmrnission 17gS6-U Georgia Power Company July 31,2003 Georgia Public Service Commission 18300-u Georgia Power Company October 26,2004 Georgia Public Service Commission 186384 Atlanta Gas Ught Campany March 14,2005 Georgla Pubb Service Commission 19758-U Savannah Elecbic& Power Company March 29,2005 Georgia Public Service Commission 20288-U Atmos'Energy Cow. October 21,2005 Georgia Public Service Commission 250604 Georgia Power Company Filed October 22,2007 Georgia Public Service Commission 271 63 Atrnos Energy Corn. August 16,2008 I I I I HI Public Utilities Department All ElecMc Utilities February 34,1970 Hawaii Consumer Advocate 45362f93 Hawsiian Eectric Company February 1,1083 I I lilinois RetaU Merchants Assodation ("IRMA"/ 76.0698 ICMmmonwealth Edison [June 22.1977 Chicago Bldg. Mgrs, Association ("CBMA") lRMCVCBMA 76.0568 [AI1 Electric Ut&tieS (none) IRMNCBMA 00.0546 ,Commonwealth Edison March 6,1989 IL lRMAlCSMA 82-0026 Commonwealth Edison July 22 1982 IRMNCBMA 83-0537 &mrnonweaith Edison March 18,1984 IRMNCBMA 87-0427 &mrnonweakh Edjson MarchlApril22, 1988 IRMNCBMA g0-0169 Commonwealth Edison October 29,1990 City of CTFallon, tL 024690 ,Illinois-Amerlcan Water Company Filed Feb.5, Apr,t Z ,2003

Indiana Retail Coundl 35780-52 N. Ind. Public Service GO. June 1,1980 IN Indiana Retail CouncU 35780-S1 Public Service of Indiana October 15,1980 lndlana Retail Council 36318 public Service of Indiana May 4; 1982

KS J. C. Penney Company January 22,1981 CHARLES W. KING Attachment E Appearances befor8 &ate R9gubl~t-yAgenclar Page 4 of IS

I I Electric, Gas, Water UtllSty Cam I i state I CUSE Date

Seven Kenlucky Rotailem 7310 louisvllle Gas 8 Electric CP. April 25,1979 Atmney Conera1 OtKeniucky 2W2-146 Cclmbla (589 ofKentucky Fllatl August E, 20D2 Attorney Osnerel of !bntuoky 2009-232 Udon Heat UgM& PwrCo. Septernber30,2003 KY AttMnsy Ganeral of hntucky 2004-87 DebGas Compeny August IE, 2004 Attomay General of Kentuuky 20oMM846 Atm06 EneraY COW. Filed Apdl27.2007 Attorney Oensral of Kentueky 200740008 Columbia Om of Kentucky Filsd June 72, u)07 Aitornsy General of Kentucky 200740089 Dalfa Oar Company FIlsd August 14,2007

Malylarwr PoaplE'. caun5al ann Washln$on @a8 (L Nht Campany September VI976 Marylalxr People's Cwnsaf 6614 PdmacBmMc MerCompany Marylend Papprer Couml 6W7 All El&I8 UUlHleS Septembarl, 1977 MarylandPMDk'S &UI%d Bas2 Baltlman Ow&-0 Company WM) Maryland People's CoUixd 6886 BaMnum Gas & El~GblcCompany DecemberSaptsrnber28,%976 20,1W6 Maryland PeopldsCwnsel 7071) Battlmon @a$ HdcCompany Maryland People's Counsel 7149 Potomac El& Power Campany April I8,1978 Maryland Peopia's hnsal 7163 An a&rk UMIties January l7,1979 Maryland Pmpl~'~Counsel 7236 Delrnanta Power & tlgMCornpeny Ottober23.1978 Retall Marrhants of Raltlrnore T397 6aMnorP Gas & Electric Company June 20,1980 Maryland Pwptsk Counsel 7427 Da~mnrsPower& U$nt Company Septernkisr 8,1880 Malyland Peopf~'sCounsel 7374 BaRlrnm Gas (I E1pctrlc Company December 2,1961 Maryland Peoph'S CoIEWl 7697 Wrnm Elearlo Power Company Fsbruary 18,1982 OrganhtbndCansumef Justbe 7604 Potornae Eledb Power Cornpny April 20,1082 Maqbnd Peoplah hum1 7588 Baltimore OlS 8 &ddP COmpny Octobsr IS, W82 haar/tsnd Pempk's Counsel 76e~ Potomae Ek&o WarCDmpany Novamber22,1982 Retall Mewhanlsaf Ballmom 7685 kitinmu Ow & EIacMc Company API~Iizwa3 Omstar Stgne Pmdwts, et el. 787878 Paawnac Elsdrlo Paver Company PEembar 3,1885 induetri.1 Intarvenom rm Potomac Elect& Power Cornpay June 261Julg 1986 Maryland Peophk couwel 7903 Baltimcm ass fi EW4Company March 4,1087 Glad Fda,lffi. 8855 Baltlrnm Gru 1 fledno Company January 8,2003 Mqland Paople's Ccunsel gd35 BatUmoa Gas 8 El& Company Septembf 29.2005 Mqiand People9 Counsel 8092 Potomc EIdcPower Company Aprll16.2007 Maryland Pwpte'5 Counsel 9093 pelms~Powera UgM Company April Q, 2007 Maryland Paople'r Counsel 91 0.4 Washington Bas & LlgM Company AuguatZB, 2W7 Maryland People's Counsel gDQ8 BaiUrnonOat 8 Electric Company September 24.Mi37 Maryland People's Counsel 8103 Washington Gas 6, Ught Company tlled DecsmtberZ7,2& CHARLES W. KING Attachment E Appearances before State Regulatory Agencies Page 5 of 15 - I I Uecfrlc, Gas, Water UtUlty Cases

state Date of Cross-Exarnlnatlon Cllent

Case Number Utlmy

General Sanrlcar Administration u-10102 Detroit Edlson Company March 22,1993 Mlchigan AaDrney General u-11722 Detrdt Edison Company November 6,1998 Miehlgan Attorney General Mi772 Consumers EnergylDetmit Edison November 16,1998 Michlgan Attomay General U-I 1485 .Detroit knson Company December 8. IgQg Mtehigao Attorney Generat U-I 1956 Consumer EnergyfDefmlt Misun December IS, I999 Michigan Attorney General U-12305 Corr~umersEnergy Company September 7,2000 Mlchfgan Attorney Qemral U42478 DetraIt Edfson Company October 5,2000 Mlchlgan Attorney General U-YZ839 Consumem EnergyiDetM Edison July 18,2001 MIchtgan Attamey Oeneral U-13000 Cansumers Energy Company January 29.2002 MIchtgan Attamey General U-13380 Consumers Energy Company September 9,2002 Mlchlgan Attorney General U-13715 Consumers Energy Company April 24,2003 Michigan Attorney General U-13808 Defrcft Edlson Company Dee 12,2003: Jan 30, Mar 5.04 MI Mlchlgan Attorney General U-12PB Consumen Energy Company March 10,2004 Michigan Atlorney General U-13896,9 Miehlgan Cpnsolidated Gas Co. August 23,2004 Michigan Attorney General U-14201 Detroit Wison Company Filed December 5,2004' Michlgsn Attorney General u.mr4 Consumers Energy Cempany Filed Febiuary 16,2005 Michigan Attorney General U-14148 Consumers Energy Company Filed Mach 2,25,2005 Michigan Attorney Oeneral u.14399 Detrclft Edtwn Company July 29,2005 1 Michigan Attorney Beneal U-14428 Detrolt Edison Company September 7,2005 Micnigan Attorney General U-14282 All Michigan Wlifia September 27,2005 Michigan Attmey General U-1380ER Detroit Edison Company November 7,2005 Michigan Attorney general u-14547 Consumers Energy Company NOV.7,2005 Mar. 22.2006 Mlchlgan Attorney General U-1470I Consumers Energy Campany March 21,2005 Michigan Attorney General U-14628 Consumers !Energy Company April ff2006 MichlpAltomy Oened &I4564 AII Gas DlsMbuUon Unities June 1,2006 Michigan Attorney Deneral u-ILIDOZ Detroit Edison Company DecEmbar 8,2006 Miuhlgan Attorney QeneraYAEATE U-f5245 consumers &mgy Company December 17,2007 Michlgan Attorney Generat U-15417 Detroit Edlson Company April 2,2008 Michlgan Attorney QenrraUABATE: Ut5244 Detroit EdisDn Company July IS, 2008 Mlchlgan Attorney OeneraVABAl& U.15506 Consumers Energy Company September 12,2008 .Michigan Attorney General U-15002-R Detroit Edisen Company October 'IS, 2008

MN Minnesota Retall Federation E002/6R-77-611 Northern Slatas Power I876

Missouri Retailers AsscolaPon EO-7&16? Kansas City Power & Light Company =ebruary19, IS81 Mi$$ouri Publlc Counsel ER-ZUOBd315 Empire Dlstrlct EldoCompany September 14,2006 MO Mlssouri Publlc Counsei OR-2007-0003 Amem UE (Gas) qled December 15,2006 Missouri Public Counsel ER-20070002 Ameren UE (ElMc) darch 22,2007

NC North Carolina Merchants Assodatton Xcember 18.1975 Attachment B Page 6 of 15

Etectric, Gas, Water Utility Cases ! State Case Date Client Case Number Wlky t North Dakota PuMlc Service Commission PU-400.00-521 Xcel Energy, Lnc. April 20.2002 North DewPublic Sewice Commission PU-399-01-166 Montana-Dakota Utilities (Ele~c) February 25,2002 North Dakota Public Servfce Commission PU-399-02-183 Montana-Dakata Utilities (Gas) October 7,2002 North Dakota Public Senrlce Comrnlssion PU-39B-02-183 Montana-Dakota Utlllties (CasDepr.) Filed April 7, 2003 ND North Dakota Public Service Commission PU-3B9-03-296 Montana-Dakota Utilltles (EiecMc) Filed October 15, 2005 North Dakota PublicServjC8 Commission PUd4-97 Montana-Dakob Utilities (Gas) Filed 3uiy 6,2004 PU-06625 Northern States Power (Gas) Filed May I,2007 North DakofaDakota PublicPubllc Service Cornmiss!onCommission PU-07-776 Northern States Power (Eleehic) June 25,2008

Business & lndusby Association of N.H. 79-187-1 I Public Service of N.H. February 6,1981 NH Business & Industry AssochtionAssodst~on of N.H. 82-33380-260 PublfcPublic Service of N.H.N,H. NovemberFebruarj 5,1981 2,1983

N.J. Retail Merchants Association 803-151 All New Jetsey UtlIitfes March 31, 2981 NJ Department of WBc Advocate 825459 NA Natural Gas Company (none) Dept.Resorts of lnternatlpndPublic Advocate Hotel. Inc. 8Oq822-1 1-827 16 AttanticAtlantfc CiQClty ElectricSewerage Co. Co. ' August(none) 'I 1,1982 355-87 Eiizabethtown Gas June 9,1887 Dept.Dover of Township Public Advocate Fire Chlefs 8E-080987 Tom's River Water &nnpany February 22,1989

NY Council of Retall Merchants 20806 All Electn'c Utilities February 3.1976 27029 Consolidated Edison Company (none) NY Metropolitan N.Y. RetallRetail Council 271 36 long Island lighting Company July 1,1977 N.Y. Metm. Transit Alltho&' 27353' Consolirjatad Edison Company September 5, 1980

88-170-EL Cleveland Elec. Illuminating (none)* Ohio Council of Redl Association February 15,1992 OH Ohio Council of Retail Associahn 83-1 529-EL Cincinnati Gas & Electric Ohio Energy Group 08-936-EL-SSO RrstEoergy Companles Filed September 25, 2008 Atlachment B ''*~ Page 7 of 15

CHARLES W. KMG Appearances before State Regulatory Agencles

1 Electrlc, Gas, Wabr UtlfIty Cases

State Case Cllent

Case Number Uttlity

Pennsylvania Retail Acsouatlon 76-PRMD-7 All Electric UtllkfeS September 7, I877 Southeastern Pa. Tmsp. Authority R-811626 Pbiladelpfa EIdcCompany December 11,.1981 ' PA Eestern Pen0 Energy Users Group R-822169 Penn. Power 8 Light &mpany MarchlApril1983 Eastern Penn Energy,Assnciation R-842661 Penn. Power & LytCompany December 3,1984 Penn Business Utility User Group R-850152 Philadelphia Electric Company February ID, N86 Pennsyivenia Oftice of Consumer Advocate R-00016338 Pennsylvania-Ameiican Water Co. September 18,2001 Pennsylvania Office of Public Advocate R-2008-203269 Pennsylvania-AmericanWater Co. August 6,2008: Sept.i5,,2008

Attorney General of Tennessee 07-00105 Atmos Energy Gorp. Ffled August 21,2007 I TN 1Attorney General of Tennessee 0840039 TennesseeAmedcan Water Co. IAugust 26,2007 1 I I 1 I I I Houston RetailersAssociation Houston Lighting Company October 59,1984 Houston Retailers Association Houston Llghtiq Company September 25,1886 Cttles far Fair Utility Rates April 25.1989 I TX I Houston Lighting Company I .I Div. Of Public Utilities Dept of Commerce 9E2035.33 Pael% Cotp Filed August 16, Sept 22. W99 Div. Of Public Utilities Dept of Commerce 05-0!V-T01 Cluestar Gas Cdmpany May 17,2006 1 UT IDiv. Of Public Utllltles OeptofCommene 07635-13 IRocky Mountain Power CO. IFiled October 15* 2007 Consumer Cpngress of Wrgiainia 19426 Vlrglnla Electrlc Pwver Company July 1, 1975 ! VA Consumer Cangrese d Vlginla lSQ60 Virginla Electric Power &any September 19,1978 Va. Business Committee on Enemy PUE 7900012 Virginia Electric Powr Company Febnrary 25,1981 i Virginia Pipe Trades Council PUE 8900051 Old Dominion ElecMc Cop. d .Dctober 31,1989

WA Attorney General - Public CourmOl I UE-On30(1:UG-072301 Pugst Sound Enemy Filed May 30,2008 WA Attorney General - Publlc Counsel UE.080220 PecillCofp Filed August 15, 2008 September 18;October IO, I WA IWA Attorney General Public Counsel UE-O8426;UO48417 IAvlsta Utilitles I 2008 I WI , IWisconsln Merchants Fadefatlon I 683bER-2 IWIscmsin Electrlc Power Company IMay 15,1878 I I I I 1 CHARLES W. KING Attachment E

I TelecommunicationsCases I 1 I State I Case Date of Cross-Examination Client

Case Number Utlllty

:I AL IUS. Department of Defense 24472 All Telephone Companies June 74, 1995

AK GCI Communications, Inc. U-Q7-82,U47-143 Alaska Comrnuniealons Systems Filed Feb 25, April 5, 2004 GCf Communications, Inc. U-05-46 Matanuska Telephone Assodation October 118,2005

9981-E- Mountain State Telephone (none) 1051-80+4 Mountaln State Telephone f-1051-88-146 Mountain State Telephone (nvne) T-010513-999105 US WEST Cornrnunlcatians Rled July 26, Sept 8,2000

i Western Burglar &, Fire Alarm Assodation 58849 ' PacifloTelephtine & Telegraph March 25,1981 Western Burglar & Fire Alarm Assodation 5984cont. Pacific Telephone & TeleQmph June 23,1882 Western Burglar & Flre Alarm Assodation A83-01-22 Pacific Telephone &Telegraph June 29,1983 Westem Burglar & Flre Alarm Assoclatbn ~a3.02-02 General Tetephone of California January 17,1884 Western Burglar & Fire Alarm Assodation A82-I 1-07 PacificTelephone & Telegraph Jan, 18, Oct. 31, Nov28,1984 CA Western Burglar & Rre Alarm Association A8541434 PadRc Telephone &Telegraph June 4,1985, October 2, 1986 Western Burglar & Fire Atarm Association A87-01-02 General Telephone of California October 22,1987 Western Burglar & Fire Alarm Association A88-07-17019 Pac. Bell Tel. & ORof CA. January 23,1989 California Cellular Resellers A.88-11-1040 All Cellular Carriers August l't.1989 Federal Executlve AgenCteS 1.87-11-033 All TetephDne Companies March 6-7, 1981 Califomla Cellular Resellers i.a8.11-040 All Cellular Caniers August 19,1991 Cellular Servlces, Inc. Z.88-11-040 At1 Cellular Carriers October 3,1991 Federal Executive Agencles A92-05-004 Pacitic Telephone & Telegraph June 9,1993 I I 1 I I t I&S 717 Mountaln Bell Telephone Company 1072 l&S 1700 Mountain Bell Tdephone Company (none) APPI. Mountain Bell Telephone Company September 18,1986 I&S 1766 MounfaA Bell Telephone Company Novmber 28,1988 Cobrado Municipal League Appl30883 Mountaln Bell Telephone Company December 23,1988 CO US. Department of Defense I&S 8Dl-OmT US. West Comrnwlcaffons Februaty21,1990 US. Department of Defense 805-544T US., West Communications July 17,1991 U.S. Department of Defense 90A-665T us. Wfst Communications October 23,1991 U.S. Dkpment of Defense 92M439T US. West Communtcetlons February 24-24, I992 US. Department of Defense 92s-229T US. West Communications July 3091,7992 U.S. Department of Defense 9OA-6657' U.S. West Comrnunlmtions November 6,7996 AY&T 965-331T US. West Cornmmlmtions April 77, 1997 I I CHARLES W. KING Attachment 6 Appearances before State Regulatory Agenctes Page S of 15

Tdecommunlcatlons Cases I I State cas0 Date of Cross-Examination Clifmt I I I I CaseNurnber 1 utility I I I I I I I I Connecticut Consumer Counsel 770526 Southern New EngtandTelephone Co,November 15,1977 CT CT Calluhr ResellersAssn. 89-12-05 Southern New England Telephone Co. (none) CT Cellular Resellers Coalition 94-03-27 Springwich Cellularlt3eflAUantic May 16,June, 1994 AT&T AT&T!SN€T Arbitration Southern New Engiand Telephone Go. Filed October 28, 1996 Connecticut Consumer Counsel 96-04-07 Southern New England Telephone Co. February 10,1998 Connecticut Consumer Counsel 00-07-1 7 Southern New England Telephone Co. December 5,2000 I D.C. People's Counsel 720 Chesapeake 8 Potornac Tel. Co. May 13,1980 D.C. People's Counsel 798 Chesapeake 8 Potomac 7el. Cp. ;luly 18,1983 DC General Services Administration 827 Chesapeake & Potomac Tel. Co. May 7, I985 General Servlces Adminlstraticrn 854 Chesapeake IPotomacTel. CO, April 16,1987 General Services Administration 850 Chesapeake & PotomacTel. Go. October 7,1991 (3eneral Servfces Administration 026 Chesapeake & Potomac Tel. Co. October 7,1883 I I I I I I 1 I Public Service Cnmrnisslon Depr.Repre Diamond State Telephone Co. April 1,1985 DE Federal tcewtive Agencies 86-20 Mamond Steta Telephone Ca. duly 31,1987 Public Service Commission Depr.Repre Diamond State Telephone Co. March 8,1988 I1 I I I I 1 I I GTE Sprint Cummunicatlons Company 720536-TP All Telephone Companies September 12,1983 Oftice of Public Counsel Depr.Rapre Southern Belf ~uiy30, is86 FL Federal Executlwe Agencies 880069-TL Southem Bel[ July 21,1988 Federal Executive Agencies 880069-TL SOOthWn Bell November 30,1880 Federal Executive Agencies 880069-TL Southern Bel ' February f 1, f992 I I 1 I I Georgia Attorney General 3893-u Southern Bell Telephone Co. 'January 8, I980 GA Federal Executive Agencies 3905-U Southern Bell Telephone CO. June 12,lgQO Southern Bell Telephone Federel EKecutive Agencies 39874 Co. ' Georgla Public Service Cornrnisslon 401 84 Southern BeIl Telephone Co, JanFebruary 14, Feb 13,l 10,1993Q92 t Hawaii Public Utiilty Commission 1871 Hawaiian Telephone Company July 8,1971 Four Hawalf Counties 4688 , Hawaiian Telephone Company December 15,1983 HI DDpaRrnent of Defense 7678 Hawaiian Telephone Company April 26,1984 Department of Defense 94-0093 Oceanic Communicatfons March 73, 1995 Department of Defense 7702 Mi Communications Carriers June 2.1995 Department ot Defense 94-0298 GTE H-iian Telephone Company May 7, 1996 Department of Defense 7720 ' VerirowHawaii . November 15,2000 CHARLES W. KING Attachment E3 Appearances before State RegulatoryAgencies Page 40 of 15

Telecommunlcatlons Cases

I State Case Date of Cross-Examination Cljeni

Case Number Utility

10 U.S. Department of Energy U-I000-63 MominBell Telephone Co. May 16,1983 US. Department of Energy U-1000-70 Mountain Bell Telephone Co, March 6,1984

Illinois Alarm Companies 79-0143 Illlnois Bdl Telephone September 26, 1979 IL Attorney General of IlIinois 816470 flllnois Bell Telephone December 28, 1981 GTE Sprint Communications Co. 83-01 42 All Telephone Companies August 4,1983 Federal Executive Agendes 89-0033 Illinois Bell Telephone June 12,1989

State Corporation Cornmidon Depr. Repr. Southwestern Sell May 12-14,1986 KS Federal Executive Agencies 166.856-U Southwestern Bell November 7,?989 Federal Executive Agencles 190,492 All Telephone Companies November 4,1994

KY Kentucky Cable Telecommunications Assn. 2000-414 Blue Gmss Energy Cooperative January 11,2001 Kentucky Cabie Telecommunications Assn. 2000-39 Cumberland Valley Electric, inc. January 11,2001

Maryland People's Counsel 681 3 C&P Telephone Company 1975 Maryland People's Counset 6881 C&P Telephone Company December 17,1975 Maryland People's Counsel 7025 C&P Telephone Company March 15, 1975 MD Maryland People's Counsel 7467 C&PTelephone Company October 20, f981 Federal Executive Agencies 7857 C&P Telephone Company March 20, 1985 Federal Executive Agencies 81 06 C&P Telephone Company May 9,1988 Federal Executive Agencies 8274 C&PTelephone Company August2, 9990

MI Michigan Attorney General U-891'I Michigan 3ell Telephone Co. November 7, 'I 988 Michigan Attorney General u-9553 AT&T CommunjcationslMCI December 4,1990

MN GTE Sprint CornmuntcatlonsCo. 83-7 02-HC All Telephone Companies August 5,1983 U.S. Department of Defense 87-021 -BC Northwest Bell Telephone Co. (none) Appearances before State Regulatory Agendes Pege 11 of 15

Telocornmunlcatlons Cases

State Case Date of Cross-Examination Client

Case Number Utlifty

GTE Sprint Cornmuoltations Co. TR83-253 Southwestern Bell Tel. Co. September 5,1983 MO Federai Executive Agencies TC-8%I 4 Southwestern Bell Tel. Ca. (none) Federal Executive Agendes To89-s6 Southwestern Bell TEI. Co. November 7,1990

- MS Federal Executive Aiendes u-5453 South Centtal Belt Tel. Co. May 15.1900

Department of Publlc Advocate Depr.Repr. N.J. Bell Telephone Company Mar-79 Department of Public Advocate - 815-458 N.J, Sell Telephone Company October 15,1981 NJ Department of Pubk Advocate Depr.Rept. N.J. Bell Telephone Campany March 1,1982 Department af Public Advocate Depr.Repr. N.J. Bell Telephane Company February 1,1985 Department of Public Advocate To92030558 NJ. Bell Tefephone Company September 30,1992 Depamant of Public Advocate TMO(JS080739 United Telephone Co, of New jersey January 5,2006 .. NM New Mexico Corporation Commission 1032 Mountain Bell Telephone Co. November 14,1983 New Mexico CorpfaUm Commlssion 86-151-TC GenealTelephone of Southwest Febnrary 6,1987

NV Prime Cable of Las Vegas 96-80348035 Central Telepbone - NV Flled November 22,1995 Prime Cable of.las Vegas 96-9036 Sp,printlc%ntel, Nevada Bell June 2,1907

Holmes Protectlon, Inc. 27360 New York Telephone Company October 17,1978 NY Holmes Protection, Inc. 27469 New 'fork Telephone Ccmpany May 17,1979 5 Alarm Companies 2771 0 New York Telephone Company July 24, 1980 GTE Sprint Communications Cob 28425 AX Telephone Companies July 8, 1983

PA City of Philadelphia ~-832316 Pennsylvania Bell Telephone September 20,1983

Ofrice of Consumer Advocate Depr.Repr. Southem Bd July 1,1968 Office of Consumer Advocate 86-51 1-C Southern Bell December 11,1986 SC OfFIce of Consumer Adwcate 86.541-C QeneralTelephone of South April 8,1987 Ofice of Consumer Advocate Depr.Repr. Southern Bell July IO, 19SQ September 26,1989 f Omce of Consumer Advocate 841SO-C ALLTEL of South Carolina Attachment 6 Page 12 of 'f5

CHARLES W. KING Appearances before Staie Regulatory Agencies

Telecommunicdons Cases I State Case Date of Cross-Examination I Client

Case Number UtIlrty

TX U.S. Department of Defense 858618218 Soothwestern Bell Telephone Co. (none)

VA US. Dept. M Defense, QSA, et 19696 CW Telephone Company October 8.1976 Federal ExecutfveAgencies PUG 890014 All Telephone Companies February 13,1989

VI V.I. Department of Commerce 20s Virgin Islands Telephone Co. April 29, 1989 V.I. Public Service Cammission 341 Virgin tsfands Telephone Co. March 20,1991

US.Department of Defense U-72-39 Pacific Northwest Bell 1973 U,S. Department of Defense U-87-796-T Padflc Northwest Bell December 20,1983 U.S. Department of Defense U-8840524 Pactflc Northwest Bell November 8,1988 US. Department of Defense 11-842698-F US West Communications November 28,1989 WA WA Attorney GenemIfTRACER UT-940641 US West Cammunlcations filed October 14,1994 US.Department of Defense UT-441464 US West Communications June 22,1995 U.S. Department of Defense US West Cornrnunicatlans January 22,1996 WA Attorney GenetalllRACER UT-951425 US West Communications .Filed June 23,1997 WA Attorney General/lRACER UT-961632 GTE Northwest, Inc July 29, 1997 U.S. Department of Ddense UT-021 120 Qwest Communicatbns May 22,2003 WA Attorney GenerallWeBTECIAARP ur-~ona Verlzan NarttiwMt, Inc. August 12,2004 WA Attorney 0en.eral uf-040520 Verizon Norlhwest, Inc. February 2,2005 WA Attorney General UT-050814 Verizon - MCI Merger November 2,2005 I I I I 6720-TR-38 AI Telephone Companies October 20,1983 Wisconsin Consumers Utllity Board 2056-TR-I 02 CentutyTel of Central Wisconsin June 26,2002 Wisconsin Consumers Utlllty Board 5846-TR-102 Telephone USA, LCC June 26,2002 I I I CHARLES W. KING Attachment B Appearances before Federal Regulatory Agencies Page 13 of 15

Federal Communicatttons Commission

Docket Subjett Date of Cross-Examination Client

16020 Consat Rate of Return ? 973 Department of Defense 26250 Bell System Rates July 22. tQ68 Airllne PattIes 18128 TELPAK 3/22,10ff5 1971, Feb. 22,1972 Airline Parties WATS (none) National Data Corporation 19989 Press Wire Senrices 19919 private Me Rates (none) October 5, I978 Aeronautlcal Rad10 20814 Private Line Rates January 30,1979 Department of Defense 206W 1,544 Mbps Service February 7, 1979 State of Hawaii 21263 Interstate Ssparallon international Record Carriers CC78-97 TelexrrWX Rates March 6,1980 1lT World Communications CC84.633 Rate of Return (none} Aeronautical Rad10 CC7E-72 Access Line Charges (none) CC84-800 Rate of Return (none) MCI CC86-26 AT&T Accounting Plan (none) Ind. Data Corn. Mfg. Asan. ENF84-22 Packet SwltChlng costs (none) Tymnet, Inc. Bell Atk3nttc Video Dialtone Fled 7/29/94 Adelphia Jones Intercable, LI. et Filed ,Adelphla Jones Intercable, et at. Bell Atlantic Video Dialtone W23194 lAdelphia Jones Intercable, d at. Bell Atlantic %dm Dtalbne Flied 2121195

Nuclear Regulatory Commisslon

FaUquier League For Environmmt PIOteCtfOn 50-328 Va. ElecMo Power GO. 1976 50429

Postal Rate Commission

1970 Association of Third Class Mail Users R71-1 Rates R72-I . Rate5 1972 Dow Jones €iCompany Rates September 93, 1974 Dow Jones &Company R74-1 January 6,1979 DOWJones & Company MCE-2 Rate Structure MC79-3 September 12.1979 Dow Jones & Company RatesRate Structure Novewber 25,1080 Jones &Company R80-1 Dow (none) Warshawsky & Company c82-1 Rat8 Smchrre! R84-1 Postal casts June 14,1984 Dow Jones & Company November 2,1987 Dow Jones & Company R87-I Rate Structure Costs Sept 12, Oct 10,1990 Jones & Company RQO-I Rate Structu* COS& Dow November 19, 1991 Jones & Company MC91-1 Pre-barcoding Discounts Dow Jones 8c Company Mal-3 Pallettzatlon Discounts March 2,1992 , CHARLES W. KlNG Attachment B Appearances before Federal ReguIatory Agenebs Page 14 of 15

Client Docket Subject Date of Cross-Examination

lational Retail Merchants Associatlon HouseiSenate Electric Rate Reform Legislation 1a%, 1977 8 1979 Hearings lational Wireless Resellers Association House Commerce Interconnection & Resale of October 12,1995 Committee Wireless Services

tate of Hawaii 71-18 Ocean Shipping Rates October-71 oss Alaska Line 79-54 Barge Rate Increase July 1979 almetto Shipping and Stevadoring 85-20 Vessel Charge Uability October 27,1986 I I If Interstate Commerce Commission - Surface TransportatIan Board I i I lestern Coal Traffic League Ex Parte 349 R.R. Rate Increase May-76 lestern Coal Traffic League Ex Parte 367 R,R, Rate Increase 013.78 lestern Coal Traffic League Ex Parte 375 (Subl) R.R. Rate Increase June I, I980 rkansas Power & Light Co. 37276 Cost d Capital (none) entral Illinois Ught Co. 37450 Cost of Capital March IO, 1081 restern Coal Traffic League Ex Parte 347 Costing Methods (none) navely King Majoros OConnor 81 Lee, Inc. Ex Parte 664 Cost of Capitat December 8,2006. Warns Energy Services, Inc Ex Parte 582, Sub 1 Rall Merger Guidelines April 5,2001

lomas Cook, Inc. 36595 Air fare Deregulation (none)

JbticBroadcasting Service 88-2-86CD Televlsion Valuation (none) Attach m ant E Page 15 of 15

CHARLES W. MNG Appearances before Federal Regulatory Agencies

Went Docket Subject Date

I 1 t I Exxan USA OR852-000 Pipefjne Quality Bank October 48, li390 Consumer Advocates of PE,DC,OH,MD,NJ,PA,WV,VA ER08-386-000 Bectdc Transmission Cost of Equity March 26,2008 Consumer Advocates of DE,DC,OH,MD,NJ,PA,WV ER08-23-000 Eladtic Transmission Cost of Equity May 21,2008 Maryland OWce of People's Counsel ER08-686-01 Electric Transmission Cost of Equity April 7,2008: July 8,2008, ,Maryland Ofice of People's Counsel mO8-1329 Electric Transmission Cost of Equity August, 2008 f I I I 1 Canadian Transport Commission

Rail Costing Inquiry, 29674969 Telecommunications Costing inquiry, I g72-1975 1 I At tachrne n t C

New Fairpoint CEO seeks to avoid bankruptcy filing July I, 2009 3:Ol PM ET ApA&W&MPM PORTLAND, Maine (AP) - The new head ofFairPoint Communications said Wednesday the company will have to make some big changes to get out of its financial pinch, but he's optimistic it won't have to file for bankruptcy reorganization.

.In his first day on the job, David Hauser acknowledged that FairFoint's reputation has been damaged by operational problems it has had since it took over Verizon Communications Inc.'~landliae telephone and Internet business in northern New England,

He said fixing the company's problems requires restructuring-~-----.,.- debt, getting- . . -- operations to run smxy,cutting costs 'GiZET&ing to customers.

"I firmly believe I have a good shot at righting the ship," Hauser said in a phone interview from company headquarters in Charlotte, N.C.

FairPoint is now seeking to, postpone a bond interest payment due in October on debts totaling $53 1million. If it can't be put off, the company might seek alternative debt-r'estructuring plans, which could include bankruptcy, Fairpoint said in a Securities and Exchange Cornmission filing last week.

"I have every intention oftaking the steps we need to take without going through bankruptcy," Hauser said. "But that depends on other people also, like the debt holders."

Fairpoint owns and operates 32 phone companies in 18 states, with a total of 1.7 million lines. Most of them are in northern New England, where last year it bought Verizon's assets in Maine, New Hampshire and Vermont for $2.3 billion.

Since taking total control of the Verkon system last winter, Fairpoint has been plagued by customer service, billing and other operational problems.

Page 1 of 2 The company's subscriber access line count fell roughly 200,000 in the 12-month period ending March 3 1. Now, with falling revenues brought on by a shrinking customer base and bill collection problems, the company says it might not be able to make its October interest payment.

If the company is forced into bankruptcy it would be able to restructure financially, which probably wouldn't have a direct impact on customers, said Andrew Hagler, director of telephone utility industries at the Maine Public Utilities Commission. - "It certahly wouldn't be a liquidation," Hagler said. "And in that context, continuing to provide service, continuing to bill for service and continuing to collect payment for service is entirely consistent with .the interests of creditors."

Hauser took over as Fairpoint's chairman and chief executive officer aRer working for 35 years at Duke Energy Corp., most recently as its chief financial officer, He replaces Fairpoint eo-founder Eugene Johnson, who retired Tuesday.

Page 2 of 2 Attachment D STATE OF NEW YORK DEPARTMENT OF PUBLIC SERVICE THREE: EMPIRE STATE PLAZA, ALBANY, IVY 12223-1350 [ntrmct ,6ddrcw htrF:II*nn.Jpr.rlxIr.Rj.ur

July 3 I. 1008

ru VIA HAND DELIVERY SI.. L '0 Won. Jaclyn A. Brillirig F . I: w ... Secretary c

New York Public Service Commission A ;. Three Empire State Pluza = .. - .. - Albany. New York 12123-1350 9 L r" tx+ 0. RE: Case 93-C'-0103- Pelition of Rochesrrr Telephone Corporation for Apprtwal of I9wposed Restructuring Plan - SLatus of Frontier Telephone of Rochester. Inc.'s Open Market Plan

Case 93-C-0033 - Petition of Rochester Telephone Corporation t'or Approval ofa Multi-Year Rate Stability agreement

Dear Secrelary Brilliny:

Enclosed please tind an original and five copies ofa Joint Proposal and Stipulation that Staff'is tiling iu the abok e-referenced matter.

Any qucstiaiis reyarding this filing should be dinctcd to me.

Sieff Counsel Department of Public Service

Enclosures

cc: Active parties in Case 99-C-0949 (with enclwurcs) July 17, 2008

STATE OF NEW YORK PUBLIC SERVICE COMMISSION

1 Petition of Rochester Telephone Corporation for Approval of case93-C-0103 Proposed Restructuring Plan - Status of Frontier Telephone of Rochester, Xltc.'s Open Market PIan 1 1 Petition of Rochester Telephone Corporation for Approval of a 1 New MuIti-Year Rate Stability Agreement ) Case 93-C-0033

JOINT STIPULATION AND AGREEMENT July 17, 2008

STATE OF NEW YORK PUBLIC SERVICE COMMISSION

1 Petition of Rochester Telephone Corporation for Approval of case93-c-0103 Proposed Restructuring Plan - Status of Frontier Telephone of Rochester, Inc.'s Open Market Plan 1

Petition of Rochester Telephone Corporation far Approval of a I New Multi-Year Ratc Stability Agreement ) Case 93-C-0033 1

JOINT STIPULATION AND AGREEMENT

?'his Joint Stipulation and Agreement, resolving all issues raised in connection with the April 5,2005 petition by Frontier Telephone of Rochester, Inc. (Frontier) seeking removai of provisions of the Open Market Plan (OMP or Plan), ' is made this day of July 2008, by and among Frontier, dl of its affiliated incumbent local telephone companies (collectively Citizens NYS ILECs),' the Staff of the Department of

Public Service (Staff), the New York State Consumer Protection Board (CPB), and such other pdeswhose signature pages are attached to this Joint Stipulation and Agreement

(calIectively Signatory Parties).

' Cases 93-(2.0 103,93-C-0033,@hion and Order Approvine JoInt Stinulation and Acreemenf, Opinion ND.94-25 (issued November 25, 1994). Cases 03-C-0103,93C-Q033, Opinion and Order Establishing -and -and N Rat e PiaOpinion No. 004 (issued March 30,2000). I 'Asused in this Joinr Proposal, Citizens WS ILECs refers to Frontier Telephone of Rochester, Inc.; Citizcns Telecommunications Company of New York, Inc.; Fronlier Communications of New York, Inc.; Frontier Communications of Ausablo Valley, Inc.; Frontier Comrnunicalioos of Seneca-Gorham, Inc.; Frontier Communicationsof Sylvan Lake, Inc; Ogden Telephone Company, and any incumbent local exchange carrie

2 July 17, 2008

I. Introduction

The OMP was instituted on January I, 1995 pursuant to the Commission’s approval of a Joint Stipulation and Agreement.’ At its inception, the OMP was a progressive alternative regulatory plan that incorporated both price cap regulation and extensive mechanisms to bolster the entry and operations of competitors in Frontier’s local exchange markets. The OMP also included certGn rate reductions and incentives to maintain high service quality. A key element of the OMe was that Frontier was &owed to establish a new, unregulated holding company. At the time, the Commission and Staff had a number of concerns about the creation of this new holding company structure for

Frontier. As a result, the OMP contained a number of permanent provisions to provide protections relating to the risks of creating and operating an unregulated holding company. While the OMP expired on December 3 1,2004, the permanent provisions associated with the creation of it hoIding company remain in effect unless modified by the

Cornmission. Many of these provisions are in addition to the Commission’srules and regulations covering all New Yotk ItECs. Since the OMP commenced, there were fundamental and material changes in the teleconununicatians marketplace consisting of consolidation and expansion of traditional services over new platforms. As discussed in the Comp 111 Order,‘ the market conditions that existed when the OMP was instituted changed dramatically and the

’See Opinion and Order Approving Joint Sdpulation and Agreement, Opinion No. 94-25 NOV.10, 1994), as modified by Opinion and Order Establishing New Terns of Open Market Plan and Rate Plan, Opinion Nu. 00-4 (March 30,2000). Some of he provisions ofthe OMP also apply to Frontier’s New York ILEC affiliates. ‘Case05-C-0616, Proceedins on Motion of the Comission to Examine Issues Related o the Tmsilion to Intermodal ConpatihMmbvision of TclccommunicationsServices, Statement of Policy on Further Steps Toward Competition in the lntermodal T~lecommunicationsMerket and Order Atlowing Rate Filings (issued April 11,2556).

3 July 17, 2008 various players in the marketplace expanded their services well beyond those traditionally offered. In addition, the TelecommunicationsAct of 1996 was enacted to develop and foster competition. Moreover, Citizens Communications Company

(Citizens) purchased the stock of Frontier and its affiliated New York ILECs. Citizens, a long-established holding company, already had lLEC subsidiaries in New York and many

other states.

On April 5,2005 Frontier filed a petition requesting that the Commission

remove all remaining permanent restrictions ofthe OW. On May 24,2005 the

Commission issued a Notice Soliciting Comments. Comments were filed by the CPB

and Reply Comments were filed by Frontier. The Commission invited further comments

pursuant to a Notice in the New York State Register dated June 7,2006, Comments were

filed by the CPB. On January 30,2007the Commission issued a Notice Regarding

Settlement Conference and Active P&y List. Pursuant to that Notice, Staff, the CPB, the

New York State Telecommunications Association and Frontier (collectiv~lythe Parties)

initiated negotiations, The Parties engaged in many telephonic and in-person meetings in

2007 and ZOOS and exchanged several draft proposals as part of their discussions.

The Parties have now reached a consensus and offer the fillowing

replacement of the permanent restrictions in the OMP for the Commission’s review and approval. Each of the remaining provisions of the OMP “aimed at eliminating or

minimizing potential improprieties under a holding company structure” is addressed

below? Except for the restrictions and requirements stated below, the Parties propose

Frontier agrees that the list ofprovisions below includes all of the remaining provisions ofthc OMP, but be[ieves that the list may be over-inclusive, induding some provisions that are not related to il holding company structure arid that have, therefore, expired. However, Frontier agrees to the resolution of each issue as provided herein

4 July 17, 2008 that the Commission declare that the remaining permanent restrictions of the OMP, to the

extent that they go beyond the restrictions and requirements of the New York State Public

Service Law (PSL) and the Commission’s own rules and regulations, are no longer

effective.

11. Proposed Replacement to the Remaining Restrictions of the Open Market Plan.

The Parties Propose thc Elimination bf the Following Provisions, (1) through (11):

Frontier must provide quarterly director certification that payment of a dividend by Frontier will not impair Frontier’s service quality or its ubility to maintain a debt rating target of “A” (for Standard and Poors (S&P), or the equivalent for other rating agencies).

A majority of Frontier’s Board of Directors must be outside members, only on0 director may be a holding company or af€iliateofficer or employee, and new directors must be nominated by outside members of the Board. Prontier must maintain the position of legal counsel for the provision ofiegal services to Frontier only.

Frontier is allowed to impose a termination charge to reimburse itself far unrecovered investment in the event a person or entity terminates service before capital expenditures are fully recovered for specifically requested purchased network fhctions or services.

The annual compensation of officers and employees of Frontier must be based on Frontier’s performance only and Frontier’s officers and senior managers cannot collectively own more than 10% of the holding company’s stock.

B. Affiliate Transactions?

Staff has access, upon a showing of need, to the books and records of affiliates not having an obvious relationship with the Citizens NYS ILECs (see item 21 bel ow).

‘These provisions were eliminatedbecause the OMP’s specific pravisions are either no longer necessary or are duplicative with he PSL and the Commission’s rules and regulations required offLECs.

5 July 17, 2008

Transactions between Frontier and its affiliates and bet ween its holding company and irs affi1iate.s shall be limited to purchases and sates made pursuant to tariff except for the non-tariffed transactions discussed in (8). This restriction applies to transactions between Citizens NYS lLECs, other than Frontier, and the holding company and its affiliates.

Monetary caps on non-tnriffed transactions are limited to $4 million annualty plus 1993 allocated cost unless otherwise authorized by the Commission.

All non-tariffed transactions must be subject to arms-length bargaining and written contracts.

Where common coats arc to be allocated, the alIocation procedures must be filed with and approved by the Commission.

Frontier’s managers must annually certify their fkmiliarity with the Commission’s affiliate transaction rules.

The Parties Propose to Retain, Eliminate and/or Modi9 the Following Provisians:

(1 2) When Citizens or any of its affiliates seek to acquire an incumbent New Y ork telephone corporation, the petitioner@)must consent to the treatment of the acquisition as a Citizens NYS ILEC subject to the treatment of this Joint Stipulation and Agreement or provide justification why the acquisition,should not be so treated.

Parties’ Proposal: Maintain this provision.

(13) Frontier bears the burden of justifying continuation of transactions with affiliates at the end of the rate plan.

Partics’ Proposal: All Citizens NYS ILECs bear the burden of demonstrating the reasonabIenessof transactions with affiliates in the event of any hture rate case.

(14) Frontier may not make dividend payments to parent hoJdmg company iFits service quaiity falls below a certain level (see item 15, below).

Parties’ Proposal: No Citizens NYS IL3Cs may make dividend payments to the parent holding company if its service quality falls beIow a certain level as described in item 15 below. For the purposes of determining the service quality dividend restriction, service quality will be

6 July 17, 2008

considered for all Citizens NYS 1LECs on a combined basis as described in item IS.

(1 5) Frontier must maintain service quality minimums. Parties’ Proposal: Eliminate duplicative service quality reporting and base any rebate or dividend restriction on the Commission’s current Telephone Service Standards as follows:

Citizens NYS ILECs’ service quality will be measured and reported monthly on a combined basis.

A customer rebate system will be in effect and will be based on the total number of measurement opportunities on a twelve month rolling basis using the previous twelve months. If the Commission adopts this Plan, the dare the Commission issues its approval order will be the date the Plan commences using the previous twelve month analysis as service quality data.

A ‘‘measurement opportunity” is the monthly Customer Trouble Report Rate (CTxrrC) performance of each central office. Thus, the total number of measurement opportunities in a year represents the number of central offices times 12 (months), For purposes of this rebate, the Citizens MYS ILBCs currently have er total of 210 central offices. Thus the total number of measurement opportunities on a rolling LZmanth basis would be 2,520.

A customer rebate equal to 25% of the flat monthly basic service charge as presented in each of the respective Citizen NYS ILECs’ tariffs (this applies to retail business and residence customers that are jurisdictionally regulated with respect to retail service quality’) shall be applied to customer bills when the companies fail a 90?! CTRR (90% of the central offiae entities) with CTRR of at or lower than 3.3 per 100 access lines over a rolling 12-month average (“Performance Threshold”). The 25%rebate to customers will go to customers in the affected central office entities, will be based upon specific rate groups, bdmessage rate customers will receive the same rebate as flat rate customers within their same rate groups. The rebates shall be credited in within 60 days of report of failure to the Commission, which occurs on the 10’ day of the month following the failure to meet the Performance ThreshoId(s).

This rebate will not apply to private line services.

7 July 17,2008

During periods when the Performance Threshold is missed, the rebate shall double to 50% of the monthly service charge for each office where the CTRR measurement exceeds the higher threshold of 5.5 CTRR per 100 access lines. The 50% rebate is payable when the 25% rebate would have been payable.

In the event that a customer rebate is paid, a bill message briefly explaining the reason for the rebate shall be placed on the customers’ bills the month(s) during which the rebate@) appear.

Rebates shall end with the month the company meets the Performance Threshold.

Further, dividends shall be suspended if service quality fails, such that Citizens NYS ILECs CTRR level falls below the Performance Threshold for three consecutive months. The dividend suspension ends when the Citizens NYS LECs meet the Performance Threshold for three consecutive months.

(1%) Consequences of Missing Service Quality.

Partics’ Proposal: Waivers can be requested pursuant to the Commission’s rules. The conditions for a waiver are those specified in 16 NYCRR $603. I(c) of the Commission’s regulations.

E. Financial Infcmftv.

(16) There must be a review With Staff, at least annually but also following any circumstance that couJd reasonably be expected b af€ect adversely Citizens’ debt ratings, including but not limited to a downgrading of Citizens’ debt ratings. Frontier will review with the Department of Public Service’s Omce of Accounting and Finance Director its activities and plans relating to the attraction of capital and review Frontier%+dividend and financial experience over the past fiscal year and projections for the approachingfiscal year.

Parties’ Propossl: Eliminate this provision and replace it with the following:

The Citizens NYS lLECs will provide copies of the debt rating agencies’ reports from Moody’s Investors Service and Standard & Poors, with respect to Citizens’ debt, to Staff upon request. In addition, the Citizens NYS ILECs will provide copies of any company presentations given to analysts or credit agencies to Staff upon request. If the senior unsecured credit ratings of Citizens should ever fall below Ba3 by Moody’s Investors

8 July 17, 2008

Service and BB-by Standard 42 Poor’s, Citizens NYS ILECs shall file with the Cornmission within 45 days of the downgrade: (1) a description of the actions and plans that Citizens is taking in response to the downgrades; (2) an analysis showing Citizens’ current and projected investments in the Citizens NYS ILECs’ facilities; and, (3) plans and programs to ensure the safety and reliability of the network. For any business plans or other non-pu blic information qualifying for confidential treatment under Subpwt 6-1 of the Commission’srules, the Citizens NYS ILECs will file and the Commission will protect such information pursuant to such rules.

Frontier’s assets cannot be pledged for debt obligations other than Frontier’s own. Parties’ ProposaI; No Citizens NYS ILEC assets can be pledged for debt obligations or provide financial guarantees without approval by the Commission.

Frontier’s services, functionatities or databases cannot be transferred to affiliates without Commission approval. Parties’ Proposal: All Citizens NYS ILECs will comply with the applicable provisions of the PSL and the Commission’s rules and regulations.

Frontier’s total debt, fimd transfers to affiliates, customer deposits and preferred stock cannot exceed 45% of total capital.

Parties’ Proposal: All Citizens NYS ILECs’total debt, fund transfers to affiliates, customer deposits and preferred stock cannot exceed 45% of total capital for its NYS iLECs on a statewide basis, or 60% of total capital for any individual New Y ork company,

A cash management agreement (CMA) among the fliliates must be maintained wherein the holding company (Frontier Corporation) is the cash manager. The CMA must include specific protections against potential financial manipulation of the cash management fund including (1) a requirement that Frontier’s fknd transfer balances not exceed 5% of total mpital, and (2) the authority for the Commission,if necessary, to modify the CMA,

Parties’ Proposal: Eliminate the restriction on fund transfer balances as long as (19) is met. Maintain the requirements for a CMA including notifying the Commission when modifications are necessary. Continue the current accounting to establish evidence of indebtedness between Ci hens

9 July 17‘ 2008

NYS ILECs and the holding company. This Will be applicable to all of Citizens’ NYS ILECs.

Staff has fuII access upon roqucst (and, in some instances, without nolice), to the books and records of the hotding company and its affiliates having a direct or indirect reIationship to Citizens.

Parties’ Proposal: Maintain this provision.

None

Parties’ Propasal: Add new provision. Service Quality and Infrastructure Protection Fund - To the extent Citizens NYS ILECs service quality misses the Performance Threshold as provided in (15) above, a Senrice Quality and Idrastructure Protection Fund (SQIPF) shall be established. Citizens’ NYS ILECs shall be required to set aside $15 million into a fund over which each of its NY S LECs will have legal control. Funds shall be transferred to the SQIPF within 30 days of the date the Performance Threshold is missed.

Further, within 30 days after the finds are tranderred into the SQIPF, the Company shall submit to the Secretary of the Commission a detailed service improvement plan that will obtain consistent monthly performance.

The SQIPF shall be released once the Performance Threshold has been met for three consecutive months.

III.Geners1 Provisions.

A Dispute Resolution.

If a disagreement over the interpretation or implementation of any provision of this Joint ProposaI cannot be resolved informally among the Signatory Parties, it will be resolved tu follows: (a) the Signatory Parties will promptly convene a conference and in

good faith attempt to resolve the disagreement; and (b) if a resolution cannot be achieved, July 17,2008 then any Signatory Party may petition the Commission for a decision of the disputed matter,

€3. Provisions Not Precedent.

This Joint Proposal is a negotiated agreement. Its terms and provisions apply solely to, and are binding on each Signatory party only in, the context of this proceeding.

None of the positions taken herein by any Signatory Party, including agreement to the terms and provisions of this Joint Proposal and any methodology or principle utilized herein, may be cited or relied upon in any fashion as precedent in any other proceeding before the Commission, another regulatory agency or a court of law for any purpose, except in hrtherance of the purposes and results of this Joint Proposal.

C. Cornmidm Authority to Modify. All Commission nrles, regulations and orders remain in effect. Nothing in this

Joint Stipulation and Agreement shall be construed to affect or otherwise limit the

Commission’s authority under the Public Service Law or any other law or regulation appticable in the State of New York. The Parties understand that the Commission reserves the authority to modify this Joint StipuIation and Agreement if circumstances in the opinion of the Commission have such a substantial impact as to render this Joint Stipulation and Agreement unreasonable, unnecessary, or insufficient for the continued provision of safe and adequate service by Citizens NYS lLECs at just and reasonable rates or otherwise contrary to the Public Service Law or my other law rule or regulation in the State of New York,

I1 July 17, 2008

D. Integrated Agreement.

Each provision of this Joint Proposal is in consideration andvsupport of all the provisions and is expressly conditioned upon approval of the Joint Proposal in full by the

Commission. If the Commission fails to adopt the rems of this Joint Proposal as presented, the Signatory Parties are free to pursue their respective positions in this proceeding without prejudice.

E, Entire Agreement.

This Joint Proposal contains the entire agreement of the Signatory Parties regarding the niattcrs contained herein and supersedes and replaces any and all prior ox contemporaneous written or oral agreements pr ynderstandings.

G. Intent of Signatory Parties The Signatory Parties agree that the record in this proceeding fully justifies approval of the terms of this Joint Proposal, and intend to submit the Joint Proposal to the

Commission with the recommendation that it be approved as being in the public interest.

H. Counterparts. This Joint Proposal is king executed in counterpart originals and will be binding on each Signatory Pmty that executes a counterpart.

ZV. Conclusion

The Parties believe that the proposals stated in this Joint Stipulation are in the public interest, because they eliminate restrictions that are no longer necessary or

12 July 1 7, 2008 appropriate, retain or modify restrictions that remain in the public interest, and refocus

Citizens NYS 1LECs' regulatory plan on the achievement of high quality service not only in the Rochester area, but throughout the service territories of alI of the New York State lLECs under the common ownership of CitIzens Cornmudcations Company.

IN WlTNESS WHEREOF, the Parties have duly executed this Joint Stiputation and Agreement and respectfdIy submit it for the Commission's review and approval.

STAE"F OF THE NEW YORKSTATE BEq4ltTMENT OR PUBLTC SERVICE

Date: -?--A3- Q'8

FRONTIER TEISPHONE OF ROCHEWER TNC., on its own behalf and on behalf of its AEliated New York State Local Exchange Carriers

13 July 17, 2008

NEW YORK STATE CONSUMER LAW OFFI~ES Attachment: E 'Li ~OO'DWIN& QO.ODWXR, LLr

$00 sYMM~RJ$IREET,SUITE 1500 CHARLESTON. WEST VIRGINIA 2530k1678

Q.BW 2107 CHARLESTON. #ST VIkGINtA 2!328*2107

ELEPHOHE (304) 346-7OqO TEL~COP~~A(304)34d-9682 www.goodwingooclwIn.com

July 21,2009

Sandra S. Squire Exwzlltive Secretary Ptbiie SW.he(hmnission 201 Brooks Street Charleston, West'Vkginia 25323. Re: Case No. 09-0871-T4'C

Deat Ms. Squire:

Pursuant to Rule 13.6.c of the CoM1TLIssfon's Rules of Practice and Procedure, C.S.R. Q 150-1-1 3.64 please find enclosed for mng, on behaif of the Joint Applicants Ir! this proceeding one (1) copy of the Responses To The First Set Of Interrogatories, Pate Requmts Or Requests For Information, Filed July 7, 2009, By The Communications Workers Of America, DL-CXO in the abova-referenced matter.

Tlxmlc you for your attention to this matter.

Very truly yours,

JJSjr/sc Enclosure

cc: Jaffrey Ray, Esy. (with enclosure) Vincent Trivelli, Esq. (with enclosure) Lisa Wansley-Layiie,Esq. (with enclosure) Steven Harimla, Esq. (with enclosure) Pat Pemlman, Esq, (with enclosure) Amanda M.R&m, Esq. James Melsh: Esq.

Page 1 of 2 DATA REQUEST NO. 19: ~egard5mgSection 7.1 of the Agreement and P1.m of Merger, “Conduct of Business by the .CompanyPending t.hp Merger,”

a. With mped to Sectlon 7.l(g), .Fmntier has apedtha$ from and afhr March 1, 2010, her Frmtier or my of its subsidides .wilI ’‘&a- or salioit or engage in any discusdon or negotiations c0n-g any potentkd issuance of debt seourjtics by the. ~onlpiu~yor its SuWdi:iaries(or the Sun;lving Corporation), or autboize by marhting of any potential issuarioe of debt sedprities other. than the Special hpentFkgux&~g and the issuanoc of ihe Spinco Seowities . . .” Whqn wiI1 .this restriction on.Frontierlsability to isspa additioml debt securities be IBed.7 b. Fbmq provide a.copyof Fxontier’s 2010 capital expenditure budget, as tefwencad in Section 7.l(h). c. ,With &:sped to Sdmtion 7.l(i), does this provision reskiut Fmntir’s ability to nngag13in good fdth negiotif3ffmU with re@Ptct to COmmerChl, employment m ~0ll&d~8bargaining contracts, if the result of such negotiations would laid ta increased gosts to Frotitier? Ifriot, pleas8 explain.

Response:

Without limitation of the other Generat Objeations, please see, in p@hular, General OhjectionNos. 3,7;8,9, lV,11 and 12. The Merger Agreemeat and other transaction dooumertts speak for themsdves. Subject to and Without waiving its objections, Frontier rwponds as foUows:

s. At the time of closing, the restriction is removed. b. SeCtiod 7.1Q refers to the 2010 capital. expenditure budget, to the extent it is substantially ohdlar in stl material respects to the 2009 capital expendike budget. The 2010 capital budget has not been prepared or approved yet.- c. See objections above. The Merger Agreement and other transaction documents speak for themselves.

Prepared By: Cassandra Cl’uinness D’ate: July 21,2009 1

Page’2 oi 2‘ . . .-.. . .. -.* , :.;- Attachment P

Docket No. UT-991 358, Ninth Supplemental Order Approving and Adopting Settlement Aseements and Granting Auplicntion. June 29. 2000,

30. More specifically, the Retail Settlement Agreement states the terms summarized below:

1. Thirty days after the merger closes, USWC (Le, the principal corporate operating subsidiary in Washington State both pre- and post-merger) will file tariff revisions to include a Consumer Bill of Rights. The proposed Consumer Bill of Rights is to include statements of customer rights such as privacy, accuracy, courtesy, and good service. In addition, the proposed Consumer Bill of fights will state, or restate, certain specific customer service credits or service alternatives, and the availability of an order confirmation number so customers may more easily track service commitments. Joint Applicants commit that they will not seek tariff revisions to eliminate the customer credits or alternatives for a period of three years from the merger closing date.

2. Joint Applicants commit that they will retain existing held order customer service guarantee program (e.g., installation charge waiver, wireless loaner phone), as currently tariffed (USWC Tariff WN-U31, Section 2, Sheets 27 and 27.1.

3. USWC will retain the existing $50 missed appointment and commitment credit (USWC TariffWN-U31, Section 2, Sheets 27.2 and 27.3) for an indefmite period.

4. Effective thirty days after tlm merger closing date, any customer who experiences an out-of-service condition (Le., no dial tone) for more than two days (excluding Sundays and holidays) and less Qan eight calendar days will receive a $5.00 credit. If such a condition that lasts more than seven days, the affected customer(s) will receive credit for the fill1 month's recurring charges (local exchange service and associated regulated features). Out-of-service conditions caused by force majeure and related causes, or by customer premises equipment, are expressly excepted from this commitment.

5, Effective thirty days after the merger closing date, all customers within a given wire center will receive a credit of one month's recurring charges (local exchange service and associated regulated features) during any month in which customers within the wire center axe unable to obtain a dial tone within three seconds on at least ninety percent of calls placed during a normal busy hour. There are certain exceptions for wire centers that use analog switches, force majeure conditions, hofidays, and disruptions caused by third parties.

6. Effective thirty days after the merger closing date, all customas in any exchange that falls out of compliance with the trouble report rate of 4.0 per

1 Attachment F hundred access lines in a given month will receive a $0.25 credit per line, per month.

7. By October 1, 2000, USWC Will complete all orders for local exchange service and retail intraLATA private line service that on February 29,2000, were pending and had been held due to company reasons for more than sixty days. DOCKET NO, UT491358 Page 11 There is an exception for held orders that require fiber optic capabilities and USWC may petition by June 1, 2000, to be relieved of its obligation with respect to held orders shown to be "unreasonablyexpensive" to complete.

8. Effective thirty days after the merger closing date, USWC will use Washington based employees to respond to customer complaints lodged with the Commission, and will do so within two business days of m inquiry.

9. Within sixty days after the conclusion of each calendar year, for at least three years, USWC will provide its customers with a service quality pafonnmce report for the preceding year. The first report will be filed in 2002 for calendar year 2001. The Retail Settlement Agreement states eight service quality performance measures and requires the establishment of baseline performance levels against which performance will be measured and reported to the Commission on a monthly basis. These reports will be the basis for calculating the amount of credits payable to customers each month. The December report will include a calculation of any calendar year credits due to customers under the Service Quality Ferformance Program, subject to a petition for mitigation based on demonstrable "unusual or exceptional circumstances"that US WC dl have the burden to show. USWC may petition to terminate the Service Quality Performance Program that is not required of all telecommunications carriers operating in exchanges in which USWC operates after calendar year 2003, and will not be obligated to continue the program after calendar year 2005, in any event.

10. Any adits paid will be excluded from USWC's regulated results of operations and hence will not be recovered through prospective rates established following a rate case.