Split PUC Says SBC Rebate Not Required
Amid accusations of backroom skulduggery, a bitterly divided Public Utilities Commission on Thursday rejected its staff’s recommendation that SBC Communications Inc. be ordered to refund $470 million to telephone customers statewide.
In its first audit of California’s dominant local phone company, the commission found that SBC never earned enough money in 1998 to trigger a state-mandated profit-sharing formula with customers. The formula was abandoned at the end of that year.
Thursday’s 3-2 vote spurned the recommendation of two PUC administrative law judges that SBC should be ordered to reduce the average customer phone bill by about $3 a month for a year to give back profit deemed excessive under a 1989 regulatory framework.
“What a shameful outcome here,” said Bob Finkelstein, executive director of the Utility Reform Network, a San Francisco consumer advocate group.
SBC spokesman Marc Bien said the commission reached the right decision.
“SBC followed standard regulatory accounting practices endorsed by the PUC at that time and complied with all the applicable PUC regulatory accounting rules,” he said.
The decision sparked an angry reaction from Commissioner Loretta M. Lynch, who had pegged the amount of the refund at $1.1 billion in March when Commission President Michael R. Peevey yanked the still-pending case from her control.
Lynch accused the majority of failing to follow the state’s open-meeting law by effectively meeting with each other in private and of giving SBC lobbyists more consideration than the public.
“The public deserves to know when we are not comporting ourselves in accordance with the law or basic principles of fairness,” said Lynch, a former trial lawyer.
Commissioner Geoffrey F. Brown, a swing vote who sided with the majority, rebuked Lynch for implying that he violated any laws or procedures. The former San Francisco public defender said he followed the law precisely. “If you have no shame in making those allegations, I cannot help it,” Brown said of Lynch’s remarks.
The vote rubbed the already raw nerves of a dysfunctional agency.
Commissioners have such disparate ideological splits and personal animosities that many observers find it hard to believe that all five were put on the PUC by ousted Gov. Gray Davis.
Davis had installed the aggressive, consumer-oriented Lynch as PUC president four years ago and removed her at the end of 2002 after she criticized his electricity and energy plans. Peevey, an equally aggressive but more business-minded president, reassigned the audit to Commissioner Susan P. Kennedy, who had been Davis’ deputy chief of staff.
On telecommunications issues, Kennedy has been as outspoken on behalf of protecting business interests as Lynch has been on the consumer side.
“None of the issues that we are dealing with amounts to misleading accounting of any kind.” Kennedy said.
“There is no allegation that SBC violated accounting rules, and anyone who makes accusations to the contrary is doing a grave disservice to the integrity of this commission, to the company and to the thousands of people who work for SBC,” she said.
Lynch called the decision “the product of unrelenting and unchecked lobbying by the utility and backroom deal making by the commission. In the process, the public interest has suffered terribly.”
The company, Lynch argued, was “cooking the books.” Kennedy later claimed that Lynch had tried to “cook the audit.”
In taking the case, Kennedy launched a new analysis of SBC’s numbers. But in separate proposals in September, she disagreed with the two judges who had worked several years on the audit.
The judges proposed a $661.1-million refund based on what it found to be under-reported profit. Kennedy found that SBC’s profit was properly stated and was less than the amount that would trigger a refund. Under rules in place then, SBC was allowed to keep all profit up to 11.5% of its capital base, a figure called return on assets. It was supposed to share half its profit over that amount with ratepayers.
