DT 99-018
                 Bell Atlantic - New Hampshire
        Investigation Into Incremental Cost Methodology 
             to be Used When Applying RSA 378:18-b
                      to Special Contracts
                Order Approving Intervention and
                Establishing Procedural Schedule
                    O R D E R   N O.  23,179
                         March 30, 1999
       APPEARANCES: Victor D. Del Vecchio, Esq. For Bell
     Atlantic - New Hampshire (BA); Curtis L. Groves, Esq. For MCI
     WorldCom (MCI); Brian Susnock for the Destek Group(Destek); Jay
     E. Gruber, Esq. For AT&T Communications (AT&T); William Homeyer
     for the Office of Consumer Advocate (OCA); and Larry S. Eckhaus,
     Esq. for the Staff (Staff) of the New Hampshire Public Utilities
     Commission (Commission).
               On December 22, 1998, Bell Atlantic - New Hampshire
     (BA) filed with the New Hampshire Public Utilities Commission
     (Commission) pursuant to RSA 378:18, two petitions seeking
     approvals for two Centrex Special Contracts (Special Contracts). 
     See Docket No. DT 98-221 regarding McLane, Graf, Raulerson &
     Middleton, and Docket No. DT 98-222 regarding the Easter Seal
     Society of New Hampshire.  The proposed Special Contracts would
     provide Centrex line systems comprised of Analog and Integrated
     Services Digital Network (ISDN) lines.  Along with the Special
     Contracts, BA filed contract overviews and cost study details in
     support of the filings.  BA's cost study avers that the Special
     Contracts' proposed rates exceed the incremental costs of the
     services being provided, pursuant to the requirements of RSA
               Staff's review of the proposed Special Contracts raised
     questions as to whether the proposed rates meet the requirement
     of RSA 378:18-b. BA-NH's filing appears to follow the incremental
     cost calculation methodology which was heretofore accepted as
     adequate.  However, as required by the Federal Communications
     Commission (FCC) in implementing the Telecommunications Act of
     1996 (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 offers for sale to
     Competitive Local Exchange Carriers (CLECs).
               On January 21, 1999, the Commission issued Order No.
     23,108 and Order No. 23,109, which denied the Special Contracts
     without prejudice.  Among other things, the Commission determined
     that a separate proceeding should be opened to resolve the
     threshold question of which incremental cost methodology should
     be used when applying RSA 378:18-b to Special Contracts.  
               On February 3, 1999, the Commission issued an Order of
     Notice establishing this proceeding to address the issue of which
     incremental cost methodology should be used when applying RSA
     378:18-b to special contracts. This proceeding raises inter alia,
     issues related to whether the public interest would be served by
     permitting BA to continue pricing special contracts based upon
     non-TELRIC costing principles, and whether and how residential
     and small business customers may be protected from subsidizing
     Special Contract customers. 
               On March 10, 1999, a Prehearing Conference was held at
     which the Parties and Staff provided preliminary statements of
     position and an agreed upon procedural schedule.
          II.  Positions of the Parties and Staff
          A.   Bell Atlantic - New Hampshire 
               Rather than go into a lengthy explanation of its
     position, BA indicated that its position had already been
     presented to the Commission in Docket DE 97-171, Statement of
     Generally Available Terms, at pp. 5-19 of the December 3, 1998
     transcript.  Generally, BA believes that its proposed methodology
     is consistent with long standing cost methodology previously
     approved by the Commission; no evidence has been introduced or
     considered in an evidentiary proceeding that would require a
     departure from that procedure; and no unbundled network element
     (UNE) prices have yet been approved in DE 97-171.
          B.   AT&T Communications      
               AT&T also relied on its statement in Docket DE 97-171
     at pp. 5-19 of the December 3, 1998 transcript.  Generally, AT&T
     believes the special contract rates proposed by BA are lower than
     the rates to CLECs, resulting in an anti-competitive price
     squeeze.  AT&T maintains that the TELRIC standard is the
     appropriate standard to be used in setting price floors for
     special contracts.
                                        C.   The Destek Group    
               Destek has provided Internet and Wide-Area-Networking
     services throughout the New Hampshire region since 1994.  Destek
     maintains that special contacts that benefit only one
     organization minimize or eliminate the ability for other
     companies to compete in the New Hampshire market and provide
     services covered by special contracts.
               D.   MCI WorldCom
               MCI's Petition to Intervene included a preliminary
     statement of position.  MCI maintains that the public interest
     would best be served by using a TELRIC methodology.  According to
     MCI, BA's offering services to its retail customers at lower
     rates than it proposes to offer unbundled network elements to
     CLECs constitutes a barrier to market entry in violation of TAct
     (47 U.S.C.  253).  MCI suggests that BA be required to price a
     special contract at least at the sum of the prices, rather than
     the incremental costs, that CLECs pay for the underlying UNEs
     necessary to provide service.
               E.   Office of Consumer Advocate
               The OCA states that given a normal wholesale/retail
     pricing relationship, prices on network elements offered to
     wholesale customer CLECs would be significantly lower than the
     prices offered by BA to its largest customers.  Unfortunately,
     OCA maintains that the cost factors and pricing utilized by BA in
     special contracts are lower than those used in the SGAT.
          F.   Commission Staff
               Staff maintains BA's approach does not meet the
     requirements of RSA 378:18-b and the TAct. However, further
     investigation is required to address the other issues raised in
     the Commission's Order of Notice.  Staff is particularly
     concerned with BA's prices since both customers in Dockets DT
     98-221 and Docket No. DT 98-222 represented in letters to the
     Commission supporting their special contracts that they might
     have to seek other alternatives that would be less desirable but
     more costly.
               There being no objections, all of the Petitions for
     Intervention are hereby approved.  In addition, the Parties and
     Staff have agreed to a procedural schedule which, although it
     goes past the April 30, 1999 deadline contained in the Order of
     Notice, seems appropriate considering the importance of this
     proceeding.  The Parties have requested that the Commissioners
     hear the matter, pursuant to RSA 363:17, and we note that a
     majority of the Commission intends to be present for the hearing. 
     Several Parties requested the opportunity to submit briefs and
     the Commission agrees that briefs should be required.
               Based upon the foregoing, it is hereby 
               ORDERED, that the following procedural schedule be
     adopted to govern this proceeding:
          Data Responses from BA             Within 10 days of request
          Direct Testimony - All Parties     March 31, 1999
          Data Requests to All parties       April  7, 1999
          Data Responses from All Parties    April 16, 1999
          Rebuttal - All Parties             April 23, 1999
          Hearing                            April 29 & 30, 1999
          Briefs                             May 17, 1999
          Commission Decision                May 30, 1999
               By order of the Public Utilities Commission of New
     Hampshire this thirtieth day of March, 1999.
           Douglas L. Patch       Susan S. Geiger     Nancy Brockway
               Chairman           Commissioner          Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary