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LOS ANGELES (AP) _ California regulators claimed that Verizon Communications understated earnings for six years to avoid sharing profits with ratepayers.

The California Public Utilities Commission, which regulates telecommunications and other services, said Tuesday that Verizon failed to include earnings from its yellow pages and white pages directories in California in a review process used to set profit sharing with consumers.

The PUC said Verizon may be subject to a financial penalty for violating commission rules between 1996 and 2001. The charge relates only to Verizon's California operations.

For years, the PUC used a complicated formula to set how much money privately owned telecom firms could make from providing regulated services.

The rule was suspended in 1999, although regulators may reinstate it in the future.

Verizon said it did not include the additional earnings because they were not enough to push the firm's rate of return beyond the threshold 15.5 percent, at which point profit sharing would be required.

Revised audit numbers from the PUC said Verizon earned a rate of return of no more than 14.26 percent between 1996 and 1998, although the company reported rates of return no higher than 12.72 percent.

``We played by the rules as they were stated at the time,'' said Jonathan Davies, a spokesman for Verizon.

In 1999, after profit sharing rules were suspended, Verizon reported a rate of return of 17.61 percent. Revised numbers from the PUC show the actual number was 19.34 percent.

The Office of Ratepayer Advocates, an arm of the PUC, has recommended that Verizon rates be cut by $104 million over the next three years to reflect the understated earnings. On Tuesday, the PUC rejected that idea, but said it will hold further hearings in the fall to decide whether Verizon's profits are excessive and whether profit sharing should be reinstated.