ORDER NO. 99-314

ENTERED MAY 4, 1999

This is an electronic copy. Appendices and footnotes may not appear.

OF OREGON

UI 148 (2)

DISPOSITION: SUPPLEMENTAL APPLICATION APPROVED WITH CONDITIONS

On January 19, 1999, the Commission received an application from GTE Northwest Incorporated (Company), filed pursuant to ORS 759.375 and ORS 759.390, requesting authority to modify the agreements with GTE Leasing Corporation (GTEL).

Based on a review of the application and the Commission’s records, the Commission finds that the application satisfies applicable statutes and administrative rules. At its Public Meeting on April 20, 1999, the Commission adopted Staff’s recommendation to approve the application with conditions. Staff’s recommendation is attached as Appendix A and is incorporated by reference.

Jurisdiction

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

Affiliation

An affiliated interest relationship exists under ORS 759.010.

Applicable Law

ORS 759.390 requires telecommunications utilities to seek approval of contracts with affiliated interests within 90 days of execution of the contract. The intent of the statute is to protect ratepayers from the abuses which may arise from less than arm's length transactions. Portland General Electric Company, UF 3739, Order No. 81-737 at 6. Failure to file within the 90-day time limit may preclude the utility from recovering costs incurred under the contract. See ORS 759.390.

ORS 759.390(3) requires the Commission to approve the contract if the Commission finds that the contract is fair and reasonable and not contrary to the public interest. However, the Commission need not determine the reasonableness of all the financial aspects of the contract for ratemaking purposes. The Commission may reserve that issue for a subsequent proceeding.

Ratepayers should not be harmed by approval of this application.

CONCLUSIONS

The Company is a telecommunications utility subject to the jurisdiction of the Commission.

An affiliated interest relationship exists.

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

The application should be granted.

ORDER

IT IS ORDERED that the application of GTE Northwest Incorporated for authority to engage in certain affiliated interest transactions with GTE Leasing Corporation is granted, subject to the conditions stated in Appendix A.

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 the requirements of OAR 860-014-0095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-013-0070. A party may appeal this order pursuant to ORS 756.580.

DATE: April 8, 1999

TO: Bill Warren through Marc Hellman and Mike Myers

FROM: Marion Anderson

SUBJECT: UI 148 (2) - GTE Northwest, Incorporated (GTE-NW) Supplemental Application for Approval of Amendments to the Agreements for Vehicle Leasing with GTE Leasing Corporation (GTEL), an Affiliated Interest

SUMMARY RECOMMENDATION:

I recommend approval with conditions.

DISCUSSION:

GTE-NW and GTEL, as wholly owned subsidiaries of GTE Corporation, are affiliated under ORS 757.015. The effective date of these amendments is September 1, 1998 and their filing date was January 19, 1999.

PERTINENT ISSUES:

I have investigated the following issues to determine if the agreement is fair and reasonable, and not contrary to the public interest.

1. Scope of Services

Previously, The Vehicle Leasing Services, Capital Lease and Operating Lease Agreements’ terms were indefinite. The Vehicle Acquisition Services, Vehicle Management and Lease Administration Agreements’ terms were subject to yearly extensions by written consent of all parties. This revision establishes a uniform expiration date of August 31, 2001 for all three agreements. As with the previous supplemental application, there is an address change and updating of GTE affiliate entities.

2. Transfer Pricing Methods and Cost Allocations

The following statements are excerpted from the cover letter to this supplemental application: "The amendments also revise the pricing structure with PHH (intermediary - PHH Vehicle Management Services Corporation formerly PHH FleetAmerica Corporation), which will result in a $400,000 savings annually in vehicle acquisition costs to the GTE ordering companies….The amendments will have no bearing on the rates charged by GTE Leasing and thus they will be cost neutral in terms of funding."

Transfer Pricing Methods and Cost Allocations (continued)

In reviewing the amended Exhibit B to the Vehicle Management and Lease Administration, Vehicle Leasing Services Capital Lease, and Vehicle Leasing Services Operating Agreements, numerous changes were noted that I was unable to quantify. In response to my request, a confidential company cost comparison was submitted in support of the claimed cost reduction.

3. Determination of Public Interest Compliance

Per preliminary information furnished by GTE-NW, 1998 will be the first year of the eight years since the initiation of these contracts that this transaction category will exceed the 0.1 percent of the previous calendar year’s Oregon utility operating revenues threshold of OAR 860-027-0044. For this reason and the previously discussed cost reduction, I do not consider these amendments to impact previous Commission approval.

4. Records Availability, Audit Procedures and Reporting Requirements

I believe that Detailed Recommendation Condition 1 affords the Commission adequate access to records and provides for the auditing of transactions between GTE Northwest, Inc., and GTE Leasing Corporation.

CONCLUSIONS:

Based on an investigation and review of this application, my conclusions are as follows:

GTE Northwest, Inc., is a regulated telecommunications company subject to the jurisdiction of the Public Utility Commission of Oregon.

An affiliated interest relationship exists between GTE Northwest, Inc., and GTE Leasing Corporation.

The application appears to be fair and reasonable and not contrary to the public interest.

DETAILED RECOMMENDATION:

Based on the preceding discussion and conclusions, I recommend that the application reflecting the amendments to the agreements between GTE Northwest, Inc., and GTE Leasing Corporation be approved with the following conditions:

GTE Northwest, Inc., shall provide Staff access to all books of account, as well as all documents, data and records of GTE Northwest, Inc. and GTE Leasing Corporation that pertain to transactions between the two.

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

GTE Northwest, Inc., shall notify the Commission in advance of any substantive changes to the agreements, including any material changes in any cost. Any changes to the agreements’ terms that alter the intent and extent of activities under the agreements from those approved herein shall be submitted for approval in an application for a supplemental order (or other appropriate format) in this docket.