Critics Decry PacBell Cut as Far Too Small

The California Public Utilities Commission voted unanimously Wednesday to cut Pacific Bell’s telephone rates this year by $32.5 million, or about 13 cents a month for a typical residential user.

A consumer group immediately derided the sum as puny.

Beginning in July, phone customers will see a slight increase in a “surcredit” on their bills. That credit, which under the previous rate formula had come to about 37 cents on a typical monthly residential bill of $23, will now be 50 cents. In theory, the amount will rise in 1995 and 1996.

Toward Utility Rate Normalization, a consumer group, and MCI, the long-distance provider that expects to eventually compete with Pacific Bell in regional long-distance and local service, expressed dismay at what they contend is a paltry rate reduction. They and others, including the California Cable Television Assn. and Sprint, had urged the PUC to slash Pacific Bell’s rates by $560 million over three years.

The five commissioners voted to change the way the San Francisco-based telephone company computes charges for its 9 million residential and 2 million business customers. The utility serves about two-thirds of California’s more than 30 million people.

Among other changes, the PUC raised Pacific Bell’s so-called annual productivity factor to 5% from 4.5%. Regulators include in their rate decisions an assumption that technological and other improvements boost a phone company’s efficiency and thereby reduce its costs. The PUC allows a certain percentage of that figure to go to ratepayers; as an incentive to cut costs, the company gets to keep any savings above that.

Pacific Bell had asked that the PUC leave the factor at 4.5%. The company could have fared far worse. In a March 7 proposal, PUC Administrative Law Judge Jacqueline Reed had advocated that the productivity rate be raised to 6%.

“They dodged a bullet,” said Michael Shames, executive director of Utility Consumers Action Network, a consumer group in San Diego. Shames noted that some other state commissions are imposing much higher productivity requirements on utilities.

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The PUC also said in its ruling that Pacific Bell must split 50-50 with customers any return on its investment above 11.5%, instead of the current 13%. Anything above a 15% return would also be divided--30% for customers and 70% for shareholders.

The company had asked the PUC to eliminate that sharing requirement and let it put the money back into infrastructure and the development of new services. Reed’s proposal suggested eliminating the requirement.

Mark Brown, a regulatory attorney for MCI, said his company has “strong concerns as to whether the sharing mechanism . . . will actually create sufficient incentives” for Pacific Bell to increase its return. In the past, he noted, Pacific Bell has avoided sharing by failing to achieve the level of earnings that would trigger the requirement.

However, John A. Guelden, Pacific Bell’s vice president for regulatory operations, said the company’s return has been in the 11.5% to 12% range lately, indicating that the sharing mechanism will kick in.