DR 98-221
BELL ATLANTIC
Special Contract with McLane, Graf, Raulerson & Middleton
Order Denying the Special Contract Without Prejudice
and
Opening an Investigation to Determine Whether the Special
Contract Covers Incremental Costs
O R D E R N O. 23,108
January 21, 1999
On December 22, 1998, New England Telephone and
Telegraph Company d/b/a Bell Atlantic (Bell Atlantic or the
Company) filed with the New Hampshire Public Utilities Commission
(Commission), pursuant to RSA 378:18, a petition for approval of
Special Contract No. 98-4 (Special Contract) to provide Centrex
Service to McLane, Graf, Raulerson & Middleton, P.A. (McLane).
The proposed special contract, executed on October 28, 1998,
provides Centrex line systems at locations in Manchester and
Nashua comprised of analog and Integrated Services Digital
Network (ISDN) lines. Along with the special contract, Bell
Atlantic filed a contract overview and cost study details in
support of the filing.
Concurrently, Bell Atlantic filed a Motion for
Protective Order, seeking to exempt portions of the Special
Contract and supporting materials from public disclosure. The
Commission will rule on that motion separately. However, pursuant
to N.H. Admin. Rules Puc 204.06, the identified portions will be
kept confidential until the Commission rules on the motion.
Bell Atlantic's cost study avers that the special
contract's proposed rates exceed the incremental costs of the
services being provided, pursuant to the requirements of RSA
378:18-b. RSA 378:18 applies to special contracts in general and
RSA 378:18-b applies specifically to special contracts offered by
telephone utilities. Those statutes state:
378:18 Special Contracts for Service.
Nothing herein shall prevent a public utility from making a
contract for service at rates other than those fixed by its
schedules of general application, if special circumstances
exist which render such departure from the general schedules
just and consistent with the public interest and, except as
provided in RSA 378:18-b, the commission shall by order
allow such contract to take effect.
378:18-b Special Contracts; Telephone Utilities
Any special contracts for telephone utilities providing
telephone services shall be filed with the commission and
shall become effective 30 days after filing, provided the
rates are set not less than:
I. The incremental cost of the relevant service;
or
II. Where the telephone utilities competitors
must purchase access from the telephone utility to
offer a competing service, the price of the lowest
cost form of access that competitors could
purchase to compete for customers with comparable
volumes of usage, plus the incremental cost of
related overhead.
Staff review of the proposed special contract raises a
strong question as to whether the proposed rates meet the
requirement of RSA 378:18-b, a question which we believe must be
fully argued before us by Bell Atlantic and Staff. The question
arises in the context of the current evolution of the
telecommunications industry to a competitive industry after
passage of the Telecommunications Act of 1996 (TAct). Bell
Atlantic's filing follows the incremental cost calculation
methodology which we heretofore accepted as adequate, that is, a
minimum amount of costs incurred in order to serve the specific
special contract customer at a specific location. However, as
required by the FCC in implementing the TAct, the Commission must
employ a Total Element Long Run Incremental Cost (TELRIC)
methodology for calculating the costs of unbundled network
elements (UNEs) that Bell Atlantic offers for sale to Competitive
Local Exchange Carriers (CLECs).
It is Staff's opinion that relying upon an incremental
cost methodology other than TELRIC may create unacceptable market
barriers, in violation of the TAct, for CLECs attempting to
compete against Bell Atlantic. Specifically, the rates at which
Bell Atlantic proposes to offer UNEs to CLECs are higher than the
rates at which Bell Atlantic proposes to offer essentially the
same services to the special contract customer, effectively
precluding competition for that customer by CLECs. The threshold
question of which incremental cost methodology should be used
when applying RSA 378:18-b must be resolved before this and
future special contracts can be become effective. We will issue
an Order of Notice scheduling a full but expeditious proceeding
in order to properly consider this question. The scope of the
proceeding will consider, inter alia, whether the public interest
would be served by permitting Bell Atlantic to continue pricing
special contracts based upon non-TELRIC costing principles, and
whether and how residential and small business ratepayers may be
protected from subsidizing special contracts customers.
The language of RSA 378:18-b would have this Special
Contract go into effect 30 days from filing if the conditions set
forth therein are present. Because we are unable to determine at
this juncture the appropriate "incremental cost" as that term is
used in RSA 378:18-b, we will deny the Petition without
prejudice. Bell Atlantic may refile the petition after
resolution of the question outlined above. In addition, if the
outcome of the separate investigation supports Bell Atlantic's
position, we will consider making this Special Contract, refiled
after such resolution, effective 30 days from December 22, 1998,
the date of the original filing.
Based upon the foregoing, it is hereby
ORDERED, that Bell Atlantic's petition for approval of
the Special Contract is hereby denied without prejudice; and it
is
FURTHER ORDERED, that an Order of Notice shall be
issued to resolve the question of what incremental costing
methodology shall be used to analyze special contracts submitted
pursuant to RSA 378:18-b.
By order of the Public Utilities Commission of New
Hampshire this twenty-first day of January, 1999.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary