DT 99-040 BELL ATLANTIC Special Contract with North Atlantic Energy Service Order Denying the Special Contract Without Prejudice O R D E R N O. 23,196 April 16, 1999 On March 19, 1999, 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. 99-3 (Special Contract) with North Atlantic Energy Service Corp. (NAES). The proposed special contract, executed on December 23, 1998, provides Centrex line systems comprised of analog 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's review of the proposed Special Contract raises questions as to whether the proposed rates meet the requirement of RSA 378:18-b. The questions arise in the context of the current evolution of the telecommunications industry to a competitive industry after passage of the Telecommunications Act of 1996 (TAct). BA-NH's filing follows the incremental cost calculation methodology which was heretofore accepted as adequate. However, as required by the Federal Communications Commission (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 BA-NH offers for sale to Competitive Local Exchange Carriers (CLECs). When the rates under this contract are compared to the TELRIC prices that Bell Atlantic has sought our approval of in docket DE 97-171, it is not clear that the requirements RSA 378:18-b have been met. Furthermore, there are outstanding concerns that approval of this special contract at the proposed rates will have the effect of being anti-competitive and subsidized by other captive ratepayers. Accordingly, we believe it is appropriate to move ahead with docket DT 99-018 to explore the issues raised by Bell Atlantic's employment of an incremental cost methodology for purposes of meeting its obligation under RSA 378:18-b and using another methodology for setting wholesale prices charged to competitors. 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 March 19, 1999, 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. By order of the Public Utilities Commission of New Hampshire this sixteenth day of April, 1999. Douglas L. Patch Susan S. Geiger Nancy Brockway Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary