PUC Assailed in Overcharging of Phone Customers by $101 Million

A legislative watchdog agency Thursday accused the state Public Utilities Commission of allowing Pacific Bell and General Telephone Co. to overcharge California consumers by about $101 million.

In a searing report, legislative Auditor General Thomas W. Hayes chiefly blamed sloppy work by the PUC staff for the excess charges. But Joseph E. Bodovitz, PUC executive director, in an acid response, deplored the report as “incomplete and misleading.”

Bodovitz said the 51-page document should be rewritten to provide a “full picture.” Otherwise, he said, it should carry a notice advising consumers, “Warning: Reading this report will be hazardous to your understanding of telephone rates.”

In his written response, Bodovitz did not directly dispute the auditor general’s figure of overcharges to customers, but said in an interview later that it reflected “Monday morning quarterbacking at a time when we are involved in multibillion-dollar issues.”

He charged that the report dwelt “almost entirely on issues that involve relatively small amounts of money, but skips quickly over issues that can mean billions of dollars in future telephone rates.

“We agree that rates should not be a penny higher than they need to be,” Bodovitz said. “But the commission has to concentrate its limited resources on issues of the largest financial impact.”

Such issues, he said, involve making certain that rates of residents and small businesses do not skyrocket as major corporations leave long-established telephone systems and seek cheaper ways of making long-distance telephone calls.

Hayes replied that he did not consider an overcharge of $101 million to telephone users to be “a small amount of money.”

The auditor general, who conducts investigations of state government agencies on orders of the Legislature, was told to examine the PUC’s rate-setting process two years ago when the divestiture of AT&T; threatened to further increase telephone bills.

For purposes of the audit, Hayes examined rate increase proposals submitted in 1983-84 by Pacific and GTE, which together provide service to 98% of California’s telephone users, and by Continental Telephone Co., a much smaller operation.

The three utilities sought $1.6 billion in increased rates, but the PUC reduced the sum by $924 million. Even so, the auditor general said, another $101 million could have been saved ratepayers.

The report cited examples of PUC staff members making mathematical and analytical errors, neglecting to read each other’s memos, failing to demand adequate documentation of the need for higher rates and of staff supervisors failing to keep on top of their projects.

The report estimated that $71 million could have been saved “if the commission’s reviews were more effectively coordinated, more accurate and more thorough.” It also said an additional $30 million in potential savings was “missed” because the staff did not review the adequacy of GTE’s rate base--the value of the plant and equipment a utility uses to provide telephone service.

The report noted that in a similar case, the PUC in 1983 reduced a Pacific rate increase request by $47.5 million because the utility had underestimated its use of plant and equipment.

The PUC’s Bodovitz said it was “just plain wrong” to assume that calculations made in the Pacific case “could have been automatically transferred to General, when in fact the companies have different kinds of equipment.”

No Retroactive Recovery

As for telephone users recovering the overcharges, Kurt R. Sjoberg, chief deputy to Hayes, said courts have ruled that an outright retroactive recovery cannot be made, but adjustments might be possible if the PUC decided to reopen the rate case and reconsider the issues and perhaps apply the overcharge to a future rate increase request.

Bodovitz indicated it would be unlikely that the case would be reopened because the PUC had directed its staff to concentrate on multibillion-dollar issues involving rate setting in the wake of the breakup of AT&T.;

“We’d be absolutely out of our minds to drop a multibillion-dollar issue and try to reopen an old decision on a $10-million or $100-million issue,” he said. “Billions are at stake in these higher priority issues.”