Commission Fixes Pacific Bell Rate Reduction at $191 Million Yearly

The California Public Utilities Commission on Wednesday ordered Pacific Bell to trim its telephone rates by $191 million a year, effective May 1.

Neither the commission nor the company could offer an immediate estimate of how much the action would reduce residential bills.

But Pacific Bell, which had unsuccessfully argued for a $75.7-million rate cut, estimated that its proposal would have reduced bills by about 20 cents a month. Since the commission’s reduction is 2.5 times greater, the monthly savings could amount to about 50 cents--all other things being equal.

Pacific Bell’s customers currently pay a 4.13% surcharge that is applied to their total local phone charges. The PUC order will reduce the size of this surcharge starting with May bills.

The company was unhappy with the decision, which it claimed “overestimates the effect on our revenues of growth while underestimating the expenses which growth forces Pacific to absorb.” The company said it is unable, under its present rates, to achieve its authorized maximum rate of return of 12.52%.

“The decision clearly indicates the need for a thorough examination of the way regulation is conducted in California,” Pacific Bell said in a statement. “Our goal should be a framework in which the company, the commission and our customers work together to assure stable rates and the adoption of regulatory changes which allow Pacific to support those rates.”

Wednesday’s action grew out of a PUC order in December that requires the company to show that it is not “unduly benefiting at ratepayers’ expense” from lower inflation and interest costs.

The commission allows utilities to seek periodic adjustments to their rates between major overhauls of the rate structure, which occur about every three years. Until the December decision, however, Pacific Bell was not required to apply for a “mid-course correction”--and did not unless its costs had risen. It recommended a $75.7-million reduction only after the commission decided that if rates can rise as business costs go up, they should also fall as costs drop.

“We are in a period of falling interest rates,” the PUC observed. “Without our intervention, the regulatory process can operate to the detriment of ratepayers.”