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PUC Cancels $600 Milion in Pac Bell Refunds

December 20, 1995

SAN FRANCISCO (AP) _ The state Public Utilities Commission on Wednesday canceled Pacific Bell refunds of at least $600 million over the next three years, saying a requirement for annual rate rebates was obsolete.

The PUC voted instead to freeze Pacific Bell rates for three years, a period in which competition is expected to accelerate in local phone service. A similar rate freeze for GTE-California, the state’s next-largest phone company, was ordered for 1997 and 1998.

The commission did not detail the effect on individual phone bills. Pacific Bell has about 10 million customers, and GTE about 3.4 million.

The refunds date from 1990, when the PUC stopped basing phone rates on its assessment of the companies’ costs and revenue needs and instead granted annual adjustments based on inflation.

Five percent was subtracted from the inflation rate to reflect presumed gains in productivity and efficiency produced by new technology. The formula has yielded modest rebates each year.

Pacific Bell’s push to reduce or eliminate the productivity factor has coincided with the PUC’s move to open phone service to competition.

Long-distance carriers started providing local toll-call service this year, and both long-distance and cable companies can apply to enter the local service market next month. The PUC approved applications from 31 companies to provide local service Wednesday and said it expects full-scale local competition by 1997.

Pacific Bell said the PUC’s productivity formula would have required refunds of $100 million in 1996, $200 million in 1997 and $300 million in 1998 _ money that it needs to be competitive in the new marketplace.

``With that $600 million, we’ll be able to accelerate our investment in improving telecommunications in California,″ said John Gueldner, the company’s vice president for regulatory affairs.

The consumer advocacy group Toward Utility Rate Normalization said the refunds would have totaled about $1 billion over three years.

The commission ``just handed Pacific Bell a billion-dollar Christmas gift,″ said Regina Costa, a telecommunications analyst for TURN.

She said the PUC was presuming benefits of future competition that may not occur for many years, if ever.

``Because they’ve (Pacific Bell) just gotten everything they wanted, they have no incentive to do what needs to be done to allow competitors into the market,″ Costa said. She noted that Pacific Bell has asked the commission for an increase in rates to offset losses the company says it will suffer because of competition.

PUC members said their vote protected consumers, by freezing rates, and fit the new competitive era.

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