ORDER NO. 96-068

ENTERED MAR 8 1996

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UF 4137

DISPOSITION: APPLICATION APPROVED WITH CONDITIONS

GTE Northwest, Inc. (GTE-NW or Company) filed this application on February 13, 1996, pursuant to ORS 759.315 and OAR 860-27-030, requesting authority to issue and sell not more than $350,000,000 of debentures on a competitive or negotiated basis. The company requested authority to issue debt through June 30, 1999. On February 22, 1996, GTE provided supplemental information regarding intended use of the proceeds.

At its public meeting on March 5, 1996, the Commission adopted the Staff’s recommendation to approve the application with reporting requirements.

Based on the application and the Commission records, the Commission makes its:

FINDINGS OF FACT

The Company provides telecommunications services to the public in Oregon.

GTE-NW proposes to issue up to $350,000,000 aggregate principal amount of debentures on a competitive or negotiated basis. The debentures’ maturities will not exceed 40 years.

Expenses are estimated at $4,212,500, or 1.2 percent. Such fees are generally considered to be reasonable and are subject to review in a subsequent rate proceeding.

GTE-NW will use securities’ proceeds for the following purposes: the acquisition of utility property or the construction, extension or improvement of utility facilities; the improvement or maintenance of service; the discharge or lawful refunding of its obligations (such as relatively higher-coupon debt and maturing debt previously authorized by the Commission); and, reimbursing the company's treasury for funds expended on utility purposes. To the extent the company's treasury is reimbursed, the original expenditures, or their precedents, were made for purposes described by ORS 759.315(1) (a), (b), or (e). To the extent that obligations are discharged or refunded, those obligations or their precedents were used for purposes described by ORS 759.315(1) (a), (b), or (e). To a large extent, the proceeds will be used to reimburse the company’s treasury for funds the company used to call four series of debt in December for purposes of refinancing at lower rates. Those series bore interest rates ranging from 8.258 percent to 10.488 percent. GTE-NW will be required to demonstrate cost-effective refinancing.

Authority granted in this order should be valid as long as GTE-NW’s bond rating does not fall below investment grade by Standard & Poor’s or Moody’s. This provision allows the company additional flexibility but helps ensure that the requested authority is consistent with the public interest.

OPINION

Jurisdiction

ORS 759.005 defines a " telecommunications utility" as anyone providing telecommunications service directly or indirectly to the public in Oregon. The Company is a telecommunications utility subject to the Commission's jurisdiction.

Applicable Law

ORS 759.315(1) provides that:

A telecommunications utility may issue [bonds, notes and other forms of indebtedness] for the following purposes and no others . . .:

(a) The acquisition of property, or the construction, completion, extension or improvement of its facilities.

(b) The improvement or maintenance of its service.

(c) The discharge or lawful refunding of its obligations.

(d) The reimbursement of money actually expended from income or from any other money in the treasury of the telecommunications utility not secured by or obtained from the issue of stocks or bonds, notes or other evidences of indebtedness, or securities of such telecommunications utility, for any of the purposes listed in paragraphs (a) to (c) of this subsection except the maintenance of service and replacements, in cases where the applicant has kept its accounts and vouchers for such expenditures in such manner as to enable the commission to ascertain the amount of money so expended and the purposes for which such expenditures were made.

(e) ****

When an application involves refunding of obligations, the applicant also must show that the original borrowings were made for a permissible purpose. Avion Water Company, Inc., UF 3903, Order No. 83-244; Pacific Power & Light Co., UF 3749, Order No. 81-745 at 5.

ORS 759.315(2) provides that:

[The applicant] shall secure from the commission . . . an order . . . stating:

(a) The amount of the issue and the purposes to which the issue or the proceeds thereof are to be applied; and

(b) In the opinion of the commission, the . . . issue reasonably is required for the purposes specified in the order and compatible with the public interest, which is necessary or appropriate for or consistent with the proper performance by the applicant of service as a telecommunications utility, and will not impair its ability to perform that service; and

(c) Except as otherwise permitted in the order in the case of bonds, notes or other evidences of indebtedness, such purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.

The amount of the issue is not to exceed $350,000,000. GTE-NW will use the proceeds for purposes consistent with ORS 759.315(1)(a), (b), or (e). The company keeps its accounts in a manner which enables the Commission to ascertain the amount of money expended and the purposes for which the expenditures were made.

The Commission believes that the proposed issuance is reasonably required for the purposes stated, is compatible with the public interest, and is consistent with the proper performance of the Company's telecommunications utility service. The purposes of the proposed issuance are not, in whole or in part, reasonably chargeable to operating expenses or to income.

For rate-making purposes, the Commission reserves judgment on the reasonableness of the Company's capital costs and capital structure. In its next rate proceeding, the Company will be required to show that its capital costs and structure are just and reasonable. See ORS 759.180.

CONCLUSIONS

1. GTE-NW is a telecommunications utility subject to the Commission's jurisdiction.

2. The application meets the requirements of ORS 759.315.

3. The application should be granted.

ORDER

IT IS ORDERED that the application of GTE Northwest, Incorporated for authority to issue up to $350,000,000 aggregate principal amount of debentures, is granted, subject to the following reporting requirements.

1. GTE-NW shall file, as soon as available:

a. The Report of Securities required by OAR 860-27-030.

b. Verified statement setting forth in reasonable detail the disposition of all the issuance proceeds.

c. Demonstrations that the interest rate achieved on its debentures are competitive with market conditions.

2. GTE-NW shall demonstrate that any debt refinanced early is cost-effectively refunded.

3. The authority granted in this order is valid without termination as long as GTE-NW ‘s outstanding debt securities are rated at least investment-grade by Standard & Poor’s (BBB or better) and Moody’s (Baa or better).

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 this order. The request must comply with the requirements of 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.