Telephone Customers' Rebates Hung Up

Times Staff Writer

Telephone giant SBC Communications Inc. owes California customers about $1 billion in refunds for excess profits it reaped in 1997-98, two administrative law judges at the state Public Utilities Commission have decided. But a last-minute move by the agency's new chief has thrown the status of the proposed refund into doubt.

On the eve of public release of the decision, PUC President Michael R. Peevey took the case out of the hands of Commissioner Loretta Lynch, who had been overseeing the audit for 30 months, and assigned it to a different commissioner.

"This has the effect of squelching two years' worth of work," an irate Lynch said Friday. "This is the first time I know of at the PUC where a case has been reassigned without permission of the sitting commissioner."

Peevey is in Japan and could not be reached for comment. A spokeswoman for the agency said Peevey has been concerned that the caseload hasn't been distributed evenly among the five commissioners .

Lynch said she believes the action was taken "so I can't get out a decision that is consumer-friendly."

The case stems from the implementation of a 1992 law that requires audits of phone companies every three years and refunds half the profits companies made above a certain amount, a provision known as excess profit sharing. But no audits were done until the PUC initiated the review of SBC in September 2000.

Lynch, who joined the commission as its president in January of that year, assigned the case to herself.

A $1-billion refund would amount to about $9 for an SBC customer with an average monthly phone bill of $45; it would be more for those with larger bills. That's about triple what consumers would have received under an independent audit released last year by the PUC.

In that audit, Overland Consulting of Kansas reported that SBC Pacific Bell, as it was known then, had hidden nearly $2 billion in revenue over three years and owed $349 million in refunds to customers for 1997 and 1998. (That audit said customers were also due $457 million for 1999 but would not get it because the Legislature suspended the provision for excess profit sharing at the end of 1998.)

Lynch, who had been reviewing the judges' reports but no longer had them, said she could not recall the factors that caused the refund to rise to $1 billion, which includes interest over five years.

Lynch said she was in Washington earlier this week and had instructed her staff to release the judges' findings for public comment on Tuesday. When she returned Thursday, she said, she learned that Peevey had reassigned the case on Monday and that she no longer had authority to move the case along.

The review of SBC's finances was such a massive task, Lynch and other PUC officials said, that it had been split between two administrative law judges.

Peevey assigned the case to Commissioner Susan P. Kennedy, who joined the PUC in January after a four-year stint as Gov. Gray Davis' Cabinet secretary. Kennedy's telecom advisor, Timothy Sullivan, said one judge had sent him a 200-page report and the other judge expected to deliver a similarly hefty document next week. He said he got as far as Page 75 by Friday; Kennedy was on Page 25.

"I have no idea how long this will take me to review," Kennedy said. "It depends on how big a problem we have with the methodologies used by the judges."

PUC rules for this kind of proceeding dictate that, if Kennedy doesn't agree with the judges' decision, she and her staff write an alternate proposal. Sullivan said that could take 30 days just for one judge's report and perhaps an additional month for the other one.

The judges' reports would be released at the same time as any alternate draft Kennedy might issue.

"We always can ask the judges to revise their own reports," Sullivan said. "But when there is a hearing and the judge has taken in a large amount of evidence, as in this case, then the judge has the ability to accept or reject any of the commissioner's revisions."

Kennedy said that, when she arrived at the commission, she asked Peevey for some of the bigger cases and told him she wanted to focus on telecom issues. She inherited a few cases her predecessor had been handling, but most of what she had were water cases.

PUC spokeswoman Terrie D. Prosper said a quick study of major cases showed that Lynch had 30% of the cases, Peevey 16% and Kennedy 12%.

The remaining commissioners had 22% and 21% of the cases, Prosper said.

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