Opinion ID: 2454404
Heading Depth: 2
Heading Rank: 2

Heading: GTE Directories

Text: GTE Directories is a subsidiary of GTE Corporation. GTE Directories publishes and prints directories for the GTE telephone companies and unaffiliated telephone companies. Under a joint venture agreement between GTE and GTE Directories, GTE Directories publishes and prints GTE's subscriber directories for the right to sell yellow page advertising to the business subscribers and GTE provides the subscriber listings and bills and collects the yellow page advertising revenues. As payment for the listings, and the billing and collection, GTE retained 52.5% of the revenues it collects and GTE Directories received 47.5% of the revenues. The PUC included GTE's payments to GTE Directories of 47.5% of the revenues in GTE's operating expenses. [19] The PUC's final order included Finding of Fact 16 which stated: The testimony of GTE witness Keys refutes the conclusion that GTE Directories' agreement with GTE Southwest [GTE] is unfavorable in comparison with its other customers. It would not be appropriate to adjust GTE Directories' prices for return and tax components. Because the matching principle would require ignoring the revenues from the arrangement with GTE Directories if the expenses are not allowed, the customers benefit from recognizing the arrangement for rate-making purposes. Accordingly, expenses of $19,400,000 and revenues of $47,416,000 should be included in the cost of service. Section III.D.6 of the Examiner's Report stated in pertinent part: e. Discussion and recommendation.  The ALJ [Administrative Law Judge] disagrees with the company's [GTE's] position [that payments to GTE Directories are not an expense subject section 41(c)(1)]; the expenses incurred as a result of the agreement with GTE Directories are subject to scrutiny as an affiliate transaction. The ALJ agrees with the General Counsel and staff, however, that the expenses should be allowed because disallowance would cause a net reduction of revenues. Adopting Mr. Arndt's [a witness for Intervenors/Cities] recommendation of disallowing all the expense would require not recognizing the revenues. The ALJ agrees with the direct and rebuttal testimony of GTE Southwest [GTE] witness Keys that Mr. Arndt's analysis does not demonstrate that GTE Directories' agreement with GTE Southwest [GTE] is unfavorable in comparison with its other customers. With respect to Mr. Allen's [a witness for Intervenor Office of Public Utility Counsel] recommendation, the ALJ is of the opinion that it is not appropriate to adjust an affiliate's prices for return and tax components on the basis of the assumptionmade by Mr. Allen that such components would be adjusted if the utility were providing the services for itself. Accordingly, the ALJ recommends that the Commission allow in cost of service $19,940,000 of expenses associated with the directories; $47,416,000 of revenues should be recognized. Finding of Fact 16 and section III.D.6 of the Examiner's Report which was adopted and incorporated by reference in the PUC's final order state that (1) the testimony of GTE witness Keys refutes the conclusion that GTE Directories' agreement with GTE Southwest [GTE] is unfavorable in comparison with its other customers, (2) GTE's customers benefit from recognizing the [joint venture] arrangement [between GTE and GTE Directories] for rate-making purposes and (3) the analysis [of a witness for Intervenors/Cities] does not demonstrate that GTE Directories' agreement with GTE Southwest [GTE] is unfavorable in comparison with its other customers. The finding of fact is missing at least one essential finding required by section 41(c)(1)that each item or class of items allowed is reasonable and necessary. Consequently, we conclude that the PUC's finding of fact as supplemented by the Examiner's Report was not sufficient to support its determination that payments by GTE to GTE Directories were reasonable and necessary operating expenses.