THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, October 19, 1994 TAG: 9410190415
SECTION: BUSINESS PAGE: D01 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Medium: 95 lines
A divided State Corporation Commission on Tuesday approved a controversial new plan for regulating three of the state's main local telephone companies into the next century.
The commission voted 2-1 to stop controlling the profits that the phone companies earn in Virginia - so long as they freeze rates on basic services for at least several years. The decision rankled consumer advocates, who argued that phone rates instead should be slashed.
SCC Commissioners Preston C. Shannon and Theodore V. Morrison Jr. contended in their majority opinion that the new regulatory plan will give the phone companies incentives to invest in new services and become more efficient. They said the plan will keep service levels high.
But SCC Commissioner Hullihen Williams Moore charged in a long dissent that his two fellow commissioners' decision ``fails to protect consumers.'' The decision, he said, ``will allow the use of a state-granted and -protected monopoly to extract excessive profits from customers, will impede and limit the development of competition, innovations and infrastructure in Virginia, and does not require the local exchange companies to deploy any new technology or facilities in Virginia.''
Moore urged the state General Assembly to pass legislation as soon as possible to open up competition to the local phone companies. One such bill was introduced in the last legislative session but stalled in committee. Cable industry executives, who want to expand into local phone service, have said they'll push for the bill's adoption next year.
Under the new regulatory scheme, the commission will, starting Jan. 1, let Bell Atlantic-Virginia, Central Telephone and United Telephone earn whatever profit they can from providing phone services, even when they are the monopoly provider - in return for the rate freeze.
Until now, the commission has controlled rates basically by telling phone companies what profit percentage they are allowed each year. That profit margin is supposed to be based, among other things, on the company's operating and capital costs.
The phone companies favor the new scheme. But consumer advocates say that instead of locking in rates, phone companies ought to be forced to cut them dramatically because their operating costs are rapidly declining.
Jean Ann Fox, president of the Virginia Citizens Consumer Council, said the three companies got just about everything they asked for.
``The commission made a few small gestures toward rate payers,'' she said, noting the commission's order, against Bell Atlantic's wishes, that charges for Touch-Tone service be eliminated.
``But essentially,'' Fox said, ``the majority of the commission has given away the store on telephone regulation in Virginia.''
Under the commission's order, Bell Atlantic, the state's largest local phone company, would have to freeze its basic rates until 2001. It would also hold subsequent rate increases to no more than half the inflation rate.
And before the freeze, the commission said Bell Atlantic would have to eliminate all charges for Touch-Tone, which costs 60 cents a month for residential customers and $1.85 a month for business customers.
Bell Atlantic has the option by Dec. 1 of choosing whether to be regulated under the new plan or staying with a more traditional method.
Company executives didn't immediately comment on the corporation commission's decision, saying they needed more time to study the 150-page order.
GTE-Virginia, the other local phone company covered in the commission's order Tuesday, has said it will continue to rely on the traditional method of regulating its rate of return and, thus, its customers' rates.
Bell Atlantic has for several years advocated moving away from traditional phone regulation in Virginia. And the commission's regulatory methods over the past six years have been evolving in the direction the phone company proposed - with considerable controversy. There have been numerous legal challenges to each change in policy. Tuesday's decision is likely to generate even more legal appeals.
Bell Atlantic argues that by focusing on controlling its return on equity from basic services, currently between 10.55 percent and 12.55 percent, the commission has discouraged it from trying to operate more efficiently. And it says consumers have suffered as a result.
The company has said that if its profit margin caps were removed, it could still keep the actual rates that customers pay level while achieving an even higher profit for itself. It said it would do so largely by investing more in cost-saving and service-enhancing technologies.
Consumer advocates like Fox have said they don't necessarily object to the change in regulatory method. But they have argued that the State Corporation Commission ought to first hold a full-blown rate case with plenty of public comment before deciding on the change.
``What they have done here is rule as if telephone competition is effective in the local market when, in fact, competition is not only non-existent but would be illegal under current state law,'' Fox said.
She said her group has done research showing that instead of freezing rates, Bell Atlantic should be required to cut rates by as much as $5 a month per residential customer.
KEYWORDS: VIRGINIA STATE COPORATION COMMISSION
by CNB