PSC approves C&P rate freeze for basic service

September 25, 1990|By Leslie Cauley

Gasoline prices may be going up, but basic phone rates for consumers won't be for at least two years, thanks to a controversial measure approved yesterday by Maryland's Public Service Commission.

Chesapeake & Potomac Telephone Co. agreed to freeze rates in exchange for freedom to continue to set prices for competitive services -- and keep all the profit. The plan goes into effect Monday.

For Baltimoreans and residents of neighboring counties, that means the current, basic monthly phone rate, $16.15, won't be edging up even a penny until at least 1992.

"This is a good thing for ratepayers," said J. Henry Butta, C&P president. "If we do well, the ratepayers do well, and if we don't do so well, then consumers are protected, on basic services at least."

That view was shared by Frank O. Heintz, PSC chairman, who characterized the plan as a "good deal" for consumers.

"There are advantages without any real disadvantages," he said.

The advantages are twofold, said Mr. Heintz, who cited stable rates and the "possibility" of a once-a-year rebate from C&P to its customers.

Under the plan, C&P will retain the limited pricing flexibility it won from the commission in 1988, a maSee C&P, 16A, Col. 1C&P, from 1Ajor goal of both C&P and its parent, Bell Atlantic Corp. Bell Atlantic closed down 75 cents a share yesterday at $45.50.

During the 1988 case, the commission acknowledged that the telecommunications market had grown sufficiently competitive to warrant relaxing some of the regulatory restrictions on C&P.

The commission subsequently divided up C&P's service offerings into two categories, monopoly and competitive, then relaxed the rules for the latter so C&P could respond more quickly to competition.

Competitive services include "800" phone lines, Centrex (switchboard) business services and custom-calling features such as speed dialing and call waiting.

Monopoly services include basic phone service and repair, and the 911 emergency number.

Under the plan approved yesterday, C&P will continue to set prices for about $230 million worth of competitive services and pocket the profit. Had the commission turned down the plan, C&P could have been forced to turn those profits back to ratepayers in the form of lower rates.

C&P's persistent concerns about its market rivals ultimately led to a three-party agreement involving C&P, the commission's staff and the People's Counsel, the state office charged with representing the interests of consumers before the commission.

John Glynn, head of the People's Counsel, called the plan "a fair thing for consumers. The commission has accepted C&P's premise for the moment. If the future does not turn out as C&P claims, the commission has the right to return to the old ways of regulation."

Mr. Glynn noted that C&P will have to come back before the commission in two years to prove that the plan has benefited consumers.

Bruce Bereano of Bereano & Resnick, a lobbyist who represented MCI Communications Corp. in opposition to the measure, said, "There's nothing in this proposal for business or residential consumers. The only one

who benefits is C&P."

Customers doubtless will welcome the two-year freeze on rates, but, even without the incentive of relaxed regulation, C&P hasn't asked for an increase in basic rates since 1985.

Moreover, Mr. Heintz cautioned that C&P customers shouldn't count on the rebate, since "it isn't a given. But it is a possibility."

Under the agreement, C&P has to share profits with customers if it is able to earn a return on equity -- a key measure of the company's earning power -- of 13.6 percent. If the return on equity is over 15.6 percent, all profits would be returned to customers.

But C&P has met the 13.6 percent minimum only twice in its history, in 1984 and 1985. And the company has never come close to the 15.6 percent level that would trigger a 100 percent rebate.

Janelle Cousino of Maryland's Citizen Action Coalition, a consumer advocacy group, said she is reserving judgment on the plan until all of the financial data are in.

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