DR 98-058
                           DR 98-059
                                
                 WILTON TELEPHONE COMPANY, INC.
                 HOLLIS TELEPHONE COMPANY, INC.
                                
                  Overearnings Investigations
                                
    Order Approving Stipulation and Comprehensive Settlement
                           Agreement
                                
                    O R D E R   N O.  23,190
                                
                         April 6, 1999
     
     APPEARANCES: Frederick J. Coolbroth, Esq. for Wilton Telephone
     Company; William Homeyer, for the Office of Consumer Advocate;
     and Larry S. Eckhaus, Esq. for the Staff of the New Hampshire
     Public Utilities Commission.
     
     I.  PROCEDURAL HISTORY
     
               Pursuant to Commission Order No. 22,823 in DR 97-187
     (January 6, 1998), the Staff ("Staff") of the New Hampshire
     Public Utilities Commission ("Commission") conducted and prepared
     for the Commission a review of the earnings of Wilton Telephone
     Company, Inc. ("Wilton") and Hollis Telephone Company, Inc.
     ("Hollis") (together the "Companies"), both wholly owned
     subsidiaries of Telecommunications Systems of New Hampshire
     ("TSNH"),  and the relationship of those excess earnings to toll
     rates. The Staff concluded that, based upon a 1996 test year,
     both Wilton and Hollis were substantially overearning and
     recommended initiation of rate cases for both Companies.
               On April 20, 1998, the Commission issued Orders of
     Notice pursuant to RSA 365:5 and 378:7 opening investigations
     into the level of earnings of Wilton and Hollis.  The Orders of
     Notice scheduled  prehearing conferences for May 27, 1998 to
     address the issue of temporary rates, to consider motions to
     intervene, and to establish a procedural schedule.  By letter
     dated May 18, 1998, the Commission postponed the hearing on
     temporary rates to June 19, 1998.
               On June 23, 1998, the Commission issued Order No.
     22,960 (Wilton) and Order No. 22,961 (Hollis) approving a common
     procedural schedule for both Companies.  That schedule has been
     modified from time to time at the request of the Participants or
     the Commission.
               On June 30, 1998, the Commission issued Order No.
     22,968 approving a stipulation of the Parties and Staff
     establishing Wilton's current rates as temporary rates effective
     as of the date of the Order.  On the same date, the Commission
     issued Order No. 22,969 approving a stipulation of the Parties
     and Staff establishing Hollis's current rates as temporary rates
     effective with the date of the Order, subject to certain specific
     reductions.
               The Staff conducted audits of the Companies and issued
     Final Reports on October 2, 1998, after review by the Companies
     and their responses thereto.  After periods of discovery, Staff
     filed the testimonies of Mark A. Naylor, Finance Director, Mary
     K. Hart, PUC Examiner and Thomas S. Lyle, Utility Analyst III on
     October 6, 1998.
               On November 16, 1998, the Companies filed the
     Testimonies of Stuart Draper, President, General Manager and sole
     Director of Wilton and Hollis, John M. Chandler, CPA, and Robert
     J. Rohr in support of their position.  The OCA filed the joint
     testimony of Kenneth E. Traum, Finance Director and William P.
     Homeyer, Economist in support of its position.
               In an effort to narrow the issues and reach a
     settlement in these proceedings, the Parties and Staff met on
     numerous occasions; on October 27, 1998, November 5, 1998 and
     December 1, 10, and 16, 1998.  On February 4, 1999, the Parties
     and Staff entered into a Stipulation and Comprehensive Settlement
     Agreement ("Agreement").  A hearing was held on February 10,
     1999, at which time the Agreement was presented to the Commission
     for its consideration.
          II.  THE AGREEMENT
               The Agreement represents all of the full participants
     in this docket, with regard to the fixing of permanent rates
     pursuant to RSA 378:28; temporary rate refunds pursuant to RSA
     378:29; rate case expenses; penalties pursuant to RSA 365:41 and
     RSA: 374:17; affiliate contracts pursuant to RSA Ch. 366;
     Customer Refunds pursuant to RSA 365:5, and RSA 366:4 and other
     related statutes.
               With regard to revenue requirement issues, the Parties
     and Staff resolved all outstanding issues relating to normalizing
     and adjusting entries between Staff and the Companies.  In
     attempting to reach accord on the portion of the overall expenses
     involved in the operations of TSNH, Wilton and Hollis, a compromise
     rate of 10.875% was settled on for the purpose of this proceeding. 
     It was also agreed to split the costs allocable to the Companies on
     an equal basis (50/50) for this proceeding only.  In summary, the
     Agreement produces the following permanent revenue requirement (on
     an intrastate basis):
                                      Wilton                 Hollis
                           
       Revenue Requirement               1,224,464           $ 1,239,123
       Revenue Increase (Decrease) $(   126,971)               ($258,811)
       %Increase (Decrease)                  (9.40)%              (17.28)%
       Rate Base                   $ 1,025,190          $ 1,845,477
       Return on Rate Base              10.000%                   
       8.588%
       Return on Equity                 10.000%                  
       10.000%
     
               The Companies agreed that their financial reporting to
     the Commission has been inaccurate and earnings have been
     understated.  The Companies agreed to take the steps detailed in the
     Agreement to rectify this situation.  Furthermore, each of the
     Companies agreed to pay a cash penalty of $25,000, for a total of
     $50,000 as provided by RSA 365:41 and RSA: 374:17.  No portion of
     such fines shall be considered by the Commission in establishing any
     of the Company's rates or charges, now or in the future.  The
     Companies further agreed to credit customers with an amount
     approximately equal, after agreed upon adjustments, to the excess
     revenues collected by the Companies during the period 1994 -
     1997.  It was agreed that $130,691 would be refunded to Wilton
     Customers for a period not to exceed three (3) years, and that
     $231,666 would be refunded to Hollis customers over a period not
     to exceed five (5) years.  It was also agreed that the Companies
     may return the amounts more quickly via larger credits, subject
     to approval by the Commission, and that at such time as the above
     total amounts to be returned are achieved, the credits would
     cease. No interest shall accrue with regard to the unrefunded
     amounts, however, the unrefunded amount shall be deducted from
     rate base in any future rate case proceeding. 
               The Companies agreed to the following terms to fulfill
     their promise of full compliance with Commission rules and
     reporting procedures:
     
          1.   A new senior accountant shall be hired to oversee and assist
          in keeping accurate records for the Companies.  The cost of
          this position is not to be included in the current rate
          cases.
     
          2.   The accounting software used by the Companies shall be either
          upgraded or replaced, with the decision regarding such upgrade
          or replacement, and which software if replacement is decided
          upon, being made before December 31, 1998.  The cost of
          upgrading/replacing the software is not to be included in the
          current rate cases.
     
          3.   The Companies' auditors shall perform additional audit
          procedures to ensure the presence and filing of affiliate
          agreements and to test the accuracy of the allocation of
          expenses among the Companies and their affiliates, including
          but not limited to:
     
          4.   The Companies' Auditors shall perform additional procedures to
          tie the Companies' financial statements to the PUC Annual
          Reports and provide the reconciliation to the Commission
          Finance Staff and the OCA.  This reconciliation may be included
          in the management letter referenced below.
     
          5.   Beginning with the 1998 financial audit, the Companies'
          auditors shall conduct its audits in accordance with the more
          stringent standards applied to publicly-held companies
          (issuance of SAS 61 letters to the Companies' Boards of
          Directors and rotation of audit partners) rather than the more
          lenient privately-held company standards used in auditing the
          Companies in prior years.
      
          6.   As additional agreed-upon procedures, the Companies' auditors
          will review the accounting relating to affiliate transactions
          for consistency with contracts on file with the Commission. 
          The results will be incorporated into the management letter
          referenced in item 8 below.
                                             
          7.   The Companies agree to meet Compliance Deadlines, specified in
          the Agreement pertaining to Findings as contained in the
          Staff's audit.
     
          8.   The Companies' auditors shall issue a management letter with
          copies of the SAS 61 letter and annual financial reports to be
          provided directly to the Commission Finance Director and OCA
          for FY 1998 through FY 2000.
     
          9.   Should instances which precipitated the OCA and Staff's
          recommendation for replacement of the Companies' auditors occur
          again in the future, the Parties and Staff  agree that
          retention of the Company's auditors will be reviewed by the
          Commission.
     
               All startup and organization costs associated with the
     acquisition of Hollis shall be considered Transaction Costs and
     shall be booked below the line as provided for in the stipulation
     approved by Commission Order 21,253. No portion of such costs shall
     be considered by the Commission in establishing any of the
     Companies' rates or charges, now or in the future.
               The switch currently leased by TSNH to Hollis shall be
     sold by TSNH to Hollis at its original cost, or then fair market
     value whichever is lower, net of depreciation that would have been
     allowed and net of any lease payments in excess of depreciation
     which exceeds what Hollis' return would have been on the switch. 
     The proposed value shall be reviewed and approved by Staff.
               It was also agreed that TSNH shall be permitted to earn
     the allowed return on equity for the Companies as a return on the
     assets it holds (trucks, etc.) which are used by TSNH in providing
     telephone service for the Companies.  It was further agreed that, to
     facilitate the tracking of this return during subsequent audits, the
     charges related to the TSNH should be recorded as separate,
     stand-alone monthly recurring journal entries in the Companies'
     general ledgers.
               The Parties and Staff agree that 10.875% of allocable
     costs shall be borne by TSNH and the remainder shall be allocated to
     the Companies based upon the number of access lines using the number
     of lines present in each company at the end of the previous year.
               All recently filed affiliated contracts, contracts
     between affiliates for the benefit of Wilton and/or Hollis, and
     previously filed contracts shall be separately reviewed in this
     docket on a going forward basis only. Once approved they shall be
     effective as of January 1, 1999.  All contracts between and among
     affiliates shall be considered affiliate contracts if any of the
     service or materials provided are for the benefit of either Wilton
     or Hollis.  Wilton and Hollis shall file with the Commission
     annually, in conjunction with its Annual Report to the Commission, a
     reconciliation of all charges by TSNH, Draper Energy and any other
     companies owned by Stuart Draper, showing amounts billed to Hollis
     and Wilton.  The reconciliation should  provide a functional cost
     analysis and be broken down between labor and other expenses, and
     direct and indirect charges.  Where goods and services are provided
     based on prevailing prices approved by the Commission, the charges
     shall be reconciled to the contract.
               All markups from affiliates for any services provided,
     directly or indirectly, to either Hollis or Wilton shall be
     eliminated.  All such services or materials from affiliates shall
     henceforth be provided in accordance with the Commission's Uniform
     System of Accounts or as otherwise approved by the Commission.
               For Wilton, the revenue reduction will be implemented
     through rate reductions in toll and access services which maintain
     the toll-access rate differential prescribed in Order No. 20,196 in
     Docket DE 90-002, Generic Investigation Into Intralata Toll
     Competition Access Rates, 78 NH PUC 365 (1993).  For Hollis, the
     revenue reduction shall be implemented first through ten percent
     (10%) reductions in residential and business basic exchange rates. 
     The balance of the revenue reduction shall be implemented through
     rate reductions in toll and access services which maintain the
     toll-access rate differential prescribed in Order No. 20,196 in
     Docket DE 90-002, Generic Investigation Into Intralata Toll
     Competition Access Rates, 78 NH PUC 365 (1993).
               Neither Wilton nor Hollis shall file for an increase in
     rates to take effect prior to the resolution of all compliance
     issues referred to previously.
               The parties also agreed that only that portion of
     expenses related to the rate case may be collected from ratepayers;
     that portion related to compliance and other issues may not.  It was
     agreed that the proper allocation between the rate and compliance
     issues was approximately 50/50, and that the Companies will,
     therefore, collect only 50% of expenses from ratepayers, after the
     expenses have been reviewed and approved by the Commission as
     appropriate.  No portion of the expenses to be borne by shareholders
     shall be considered by the Commission in establishing any of the
     Companies rates or charges, now or in the future.
               The Companies agreed to provide a calculation, subject to
     review by the OCA and Staff, of the difference between Permanent
     Rates and  Temporary Rates from June 30, 1998 to the date Permanent
     Rates are implemented.  The Parties and Staff agreed that the Rate
     Case Expenses may be offset against the sum of Refunds to Customers
     and the Temporary Rate Refunds with the net amount to be refunded
     over the length of time referred to above.  The Companies agree 
     that the Refunds to Customers, Rate Case Expenses and Temporary Rate
     Refunds will be tracked separately in the accounting records to
     facilitate reconciliation.
     III. COMMISSION ANALYSIS
               These dockets were initially opened for the purpose of
     addressing the issue of overearnings.  In addition to the
     overearnings issue, the Stipulation addresses issues concerning
     accounting procedures not followed by Wilton and Hollis.  We note
     that the Companies had previously agreed to follow those procedures
     in a previous stipulation.  As a consequence of their failure to do
     so, the Companies have agreed to pay certain penalties under the
     terms of the Agreement.  The Companies have also agreed to proposals
     for rate design, temporary rate refunds and rate case expenses. 
               The rate design proposal actually results in decreases in
     all rates except the intra-state toll message rate for both
     companies.  The net result of the temporary rate refunds, stipulated
     customer credit and rate case expenses is a monthly credit for
     Wilton customers of approximately $1.62 for three years and
     approximately $1.26 for Hollis customers for five years.  The
     permanent rate reduction for Wilton customers of $76,989 in toll
     charges is an average annual reduction of $23.38 per customer
     assuming 3,292 customers.  The permanent rate reduction for Hollis
     customers of $129,960 in local, toll and installation charges is an
     average annual reduction of $37.70 per customer assuming 3,447
     customers.  An individual customer's reduction will, of course,
     depend upon his/her usage.  In addition, the intrastate toll
     providers will experience reductions in access charges totaling
     $49,623 for Wilton and $128,961 for Hollis.
               After considering the Stipulation that was presented to
     the Commission and the number of issues that it resolves, as well as
     the reductions that it proposes for customers, the Commission finds
     that the Agreement is an appropriate resolution of the issues
     involved. 
               Based upon the foregoing, it is hereby 
               ORDERED, that the Agreement entered into by the Parties
     and Staff is hereby approved; and it is
               FURTHER ORDERED, that Wilton and Hollis shall file
     appropriate tariff pages to effectuate the permanent rate decreases
     effective with service rendered on and after April 1, 1999; and it
     is
               FURTHER ORDERED, that Wilton and Hollis shall file
     appropriate tariff pages to effectuate the Refunds to Customers and
     Temporary Rate Refunds net of Rate Case Expenses, in accordance with
     the Agreement effective with service rendered on and after April 1,
     1999; and it is
               FURTHER ORDERED, that each Company shall pay a cash
     penalty of $25,000, for a total of $50,000, as provided by RSA
     365:41 and RSA: 374:17, by check made payable to the State of New
     Hampshire no later than March 31, 1999; and it is
               FURTHER ORDERED, that the Parties and Staff shall review
     all recently filed affiliated contracts, contracts between
     affiliates for the benefit of Wilton and/or Hollis, and previously
     filed contracts for submission to the Commission for their approval
     no later than April 30, 1999.
               By order of the Public Utilities Commission of New
     Hampshire this sixth day of April, 1999.
     
     
     
                                                                      
           Douglas L. Patch       Susan S. Geiger     Nancy Brockway
               Chairman           Commissioner          Commissioner
     
     
     Attested by:
     
     
                                     
     Thomas B. Getz
     Executive Director and Secretary