ORDER NO. 99-330

ENTERED MAY 10 1999

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

OF OREGON

UI 93 (19)

DISPOSITION: APPLICATION APPROVED WITH CONDITIONS

On February 8, 1999, the Commission received an application from GTE Northwest Incorporated (Company), filed pursuant to ORS 759.375 and ORS 759.390 requesting authority to engage in certain affiliated interest transactions. The Commission approved the initiation of software improvements for local number portability in Order No. 98-175.

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 May 4, 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 supplemental application of GTE Northwest Incorporated for authority to engage in certain affiliated interest transactions with AG Communications Systems Corporation is granted, subject to 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 26, 1999

TO: Bill Warren through Marc Hellman and Mike Myers

FROM: Marion Anderson

SUBJECT: UI 93 (19) - GTE Northwest, Incorporated (GTE-NW) Supplemental Application for Approval for the Development and License of Set 1 to the Local Number Portability Agreement with AG Communications Systems Corporation (AGCS), an Affiliated Interest

SUMMARY RECOMMENDATION:

Staff recommends approval with conditions.

DISCUSSION:

The affiliated interest relationships in this docket arise under ORS 759.010 in that GTE Corporation has 100 percent and 19.99 percent equity positions in GTE-NW and AGCS, respectively. Under a joint venture agreement with AT&T, the latter position has declined by sale from an initial 51 percent and will be liquidated on the first business day following December 31, 2003.

The Commission approved the initiation of software improvements for local number portability (LNP) in Order No. 98-175, dated April 27, 1998. This supplemental application was filed with the Commission on February 8, 1999 and is priced at $95,681 total Oregon dollars for development, testing, debugging, completion and licensing.

PERTINENT ISSUES:

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

1. Scope of Services

Enhancement Set 1 has ten provisions of a highly technical nature that improve the number portability capabilities of the GTD-5 switch. The following summary is excerpted from the cover letter on this application. "….AGCS commits to provide the following ten features/enhancements: six features deal with changes to match current T1S1.6 LNP; three features that improve operational efficiencies; one feature that reduces the LNP switch memory requirement." Acceptance criteria and warranty features complete the agreement.

2. Transfer Pricing Methods

Due to the lack of system interchangeability, once the initial switching investment was made, no alternative suppliers existed. Detailed Recommendation Condition 1 allows staff to develop necessary information as needed.

3. Public Interest Compliance

Sterling Sawyer, Senior Economic Analyst, reviewed and approved the technical descriptions in this agreement. These improvements are needed to maintain switch currentness with FCC and Oregon operational requirements.

4. Records Availability, Audit Procedures and Reporting Requirements

I believe that Detailed Recommendation Conditions 1 and 4 afford the Commission adequate access to records and provide for the auditing of transactions between GTE-NW and AGCS.

CONCLUSIONS:

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

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

2. An affiliated interest relationship exists between GTE Northwest, Incorporated, and AG Communications Systems Corporation.

3. 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 supplemental application presenting the agreement between GTE Northwest, Incorporated, and AG Communications Systems Corporation be approved with the following conditions:

1. GTE Northwest, Incorporated, shall provide Staff access to all books of account, as well as all documents, data and records of GTE Northwest, Incorporated, and AG Communications Systems Corporation that pertain to transactions between them.

2. 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.

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

4. Condition 4 of Order No. 98-042 (carried over to all orders from Order No. 93-238 in this docket) remains in effect.