ORDER NO. 95-1060

ENTERED OCT 3, 1995

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UI 146

DISPOSITION: APPLICATION APPROVED WITH CONDITIONS

On June 29, 1995, U S WEST Communications, Inc. (USWC) and Malheur Home Telephone Company (Malheur) filed a joint application pursuant to ORS 759.375 and 759.380, requesting approval to transfer certain assets between Malheur and USWC, affiliated interests.

At its September 26, 1995, public meeting, the Commission adopted staff's recommendation to approve the application with conditions.

Based on the application and the Commission's records, the Commission makes the following:

FINDINGS OF FACT

USWC provides telecommunications service to the public in Oregon. Malheur is a wholly owned subsidiary of USWC and therefore an affiliated interest under ORS 759.010.

The joint application requests approval for USWC to purchase Malheur’s Plug In Control System (PICS) inventory valued at approximately $85,000. Applicants also seek approval for USWC to sell and Malheur to purchase up to $300,000 annually of materials and supplies. Applicants estimate that Malheur will initially purchase approximately $200,000 annually of materials and supplies from USWC, but they request approval of $300,000 to accommodate Malheur’s future purchasing needs. Malheur is ending its past practice of maintaining its own PICS inventory. The warehouse used for storage of these units has been closed. The continuing transactions satisfy Malheur’s operating requirements and consist of the PICS units and many small items (connectors, wires, tools, gloves, etc.) that are used in quantity to provide service.

The PICS sale will be recorded at net book value. The continuing sales will be made on a fully distributed cost basis. These transfer methods are compatible with the Commission’s transfer pricing policy. Malheur should benefit from the decreases in inventory carrying costs and attendant risks while USWC ratepayers are made whole by the recovery of fully distributed costs.

Oregon ratepayers will likely not be harmed by these transactions. Reporting requirements provide adequate access to records for auditing transactions between Malheur and USWC.

OPINION

Jurisdiction

ORS 759.005 defines a "telecommunications utility" as anyone providing telecommunications service to the public in Oregon. USWC and Malheur are telecommunications utilities subject to the Commission's jurisdiction. An affiliated interest relationship exists under ORS 759.010 in that Malheur is a wholly owned subsidiary of USWC.

The Transaction

ORS 759.375 provides, in substance, that no utility shall dispose of any of its property which is necessary or useful in the performance of its duties without approval of the Commission if it has a value in excess of $10,000. Any disposal without Commission approval is void.

ORS 759.380 provides, in substance, that no telecommunications utility shall directly or indirectly purchase, acquire or become owner of property utilized for utility purposes and having a value in excess of $10,000 of any other public utility or telecommunications utility without approval of the Commission.

ORS 759.390 requires any telecommunications utility entering into a contract with an affiliated interest to file the agreement with the Commission. The statute requires the Commission to investigate to determine if the transaction is fair, reasonable, and not contrary to the public interest. The statute is designed to protect ratepayers from abuses which may arise from less than arm's length transactions.

There is no evidence of harm to the customers of either USWC or Malheur from the transfer of these assets. For rate-making purposes in future proceedings, the Commission reserves judgment on the reasonableness of the financial impacts of the agreement.

CONCLUSIONS

USWC and Malheur are telecommunications utilities, subject to the Commission's jurisdiction.

 

An affiliated interest relationship exists between USWC and Malheur.

 

The application is fair, reasonable and not contrary to the public interest.

 

The Commission should grant the application.

 

ORDER

 

IT IS ORDERED that the joint application of U S WEST Communications, Inc. and Malheur Home Telephone Company for authorization for USWC to purchase an estimated $85,000 Plug In Control System (PICS) inventory, and to sell approximately $300,000 of USWC materials and supplies inventory on an annual basis to Malheur is granted, subject to the following conditions:

USWC and Malheur shall provide the Commission access to all books of account as well as all documents, data, and records which pertain to this transaction between USWC and Malheur.

 

The Commission reserves the right to review for reasonableness all financial aspects of this agreement in any rate proceeding or earnings review under an alternative form of regulation.

 

USWC and Malheur shall notify the Commission in advance of any substantive changes to the agreement, including any material changes in cost. Any changes to the agreement terms which alter the intent or extent of activities under the agreement from those approved in this order shall be submitted for approval in an application for a supplemental order, or other appropriate format, in this docket.

 

 

USWC and Malheur shall furnish the journal entries on both companies’ books related to the one-time transaction and the first year’s continuing sales.

 

Made, entered, and effective ________________________.

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561.

A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with OAR 860-14-095. A copy of any such request must also be served on each party to the proceeding as provided by OAR

860-13-070. A party may appeal this order to a court pursuant to

ORS 756.580.