PUC Ruling to Cut Pacific Bell Revenue $120 Million

SAN FRANCISCO — A decidedly unhappy Pacific Bell learned Wednesday that the California Public Utilities Commission not only will not increase the telephone company’s revenue this year but will slash it by about $120 million.

Because of an earlier PUC decision to shift so-called access charges to local telephone customers from long-distance carriers, however, monthly phone bills are likely to be affected only slightly by the revenue cut.

Residential customers currently pay a 2.54% surcharge on their monthly Pacific Bell bills, reflecting cost-of-living increases since the company’s last general rate increase. That surcharge will increase “very slightly, if at all,” a Pacific spokesman said.

The five commissioners postponed final action on the rate case until Friday due to a number of changes in dollar figures made in the course of Wednesday’s discussion. The surcharge will eventually be dropped--probably in June--after the PUC adopts specific rates for Pacific Bell’s services that reflect this week’s decision on the company’s revenue requirements.

The revenue decrease is “way below what we believe our requirement is,” said L. Reed Waters, Pacific Bell vice president for regulatory affairs. The company had sought a $471-million rate increase.

To PUC President Donald Vial, the fact that Pacific Bell’s revenue needs, as viewed by the regulators, can be reduced reflects the company’s financial health.

“This is the first real regulatory checkup on PacBell since divestiture” from AT&T;, Vial said. “PacBell is in excellent health.”

The previously approved shift in access charges to local telephone customers is designed to reduce the economic incentive of major telecommunications users to bypass the local company, which normally completes their customers’ calls, Vial explained.

The commissioners also reduced Pacific Bell’s authorized profit goal--its rate of return on shareholders’ equity--to 15% from the current 16%. Commissioner Frederick R. Duda unsuccessfully sought to drop it even lower, to 14.75%.

Pacific Bell had sought to increase its rate of return to 16.75%. The figure is significant because rates are calculated to enable the company to earn that return. Waters estimated that the difference between what the company sought and what the commission approved represented $200 million in revenue. “We believe our rate of return should have increased because of the added risks we face in the rapidly changing telecommunications industry and our increased competition for telephone services,” Waters said.

The commissioners indicated that they will seek to find a way to review the authorized rate of return each year, and they may ask the Legislature for enough additional staff so that rates can be adjusted, up or down, annually. Major utilities now must wait three years for a hearing on their general rate structure, but they receive interim cost-of-living adjustments.