WCB Cost Model Virtual Workshop 2012 - The Use of Company-Specific Values

Please provide comments to the issue below as part of the 2012 WCB cost model virtual workshop for inclusion in the record. Comments are moderated for conformity to the workshop’s guidelines.

Background

Hybrid Cost Proxy Model: The Commission determined that nationwide default values were generally more appropriate than company-specific values. Accordingly, the HCPM uses nationwide average values for estimating plant-specific operations expenses. The Commission found that averages, rather than company-specific data, are better predictors of the forward-looking costs that should be supported by the federal high-cost mechanism. The Commission also determined that the use of nationwide averages would reward efficient companies and provide the proper incentives to inefficient companies to become more efficient over time, and that this reward system would drive the national average toward the cost that the competitive firm could achieve.

CQBAT: While the CQBAT model also does not use company-specific values to predict forward-looking costs, it does use regional cost adjustment factors to capture variation in labor and materials costs by three-digit ZIP codes.

Questions for Comment

1. The CQBAT approach of using nationwide average values with regional adjustments to capture labor and materials cost variation appears to be reasonable and appropriate. Is there any reason to deviate from CQBAT's approach? Are there any modifications that should be made to this approach?