Urging Maryland to adopt a more "modern" regulatory structure, Bell Atlantic Corp. proposed a plan yesterday that would end state controls on the profits it earns for providing local telephone service.
The plan prompted an immediate blast from state People's Counsel Michael Travieso, who labeled it "an insult to consumers" and charged that it would guarantee residential phone rate increases starting in 1998.
Bell Atlantic outlined its plan in a filing with the state Public Service Commission, which for most of this century has controlled the telephone company's earnings under traditional rate-of-return regulation. Under that scheme, a company is allowed a certain profit level, and excess earnings must be returned to customers.
In recent years the system has been loosened to give Bell Atlantic some incentives to increase efficiency, but there is still an ultimate limit on how much profit it can make from local telephone service.
The Philadelphia-based company wants to replace rate-of-return with a form of regulation known as a "price cap," which limits how much rates can rise for non-competitive services. Such a plan lets a telephone company keep any money it earns from increased efficiency.
Under the Bell Atlantic plan, basic residential rates would be capped for two years and business rates for one year. After those waiting periods, the company would be free to raise its rates to account for inflation, minus a "productivity factor" of 1.5 percent.
The productivity factor represents an estimation of the savings PTC the company should be able to achieve through increased efficiency and the use of technology.
Daniel J. Whelan, president of Bell Atlantic-Maryland, called the price cap proposal "pro-consumer, pro-competition and pro-economic development."
He noted that the proposal does not include a rate increase, although it would give Bell Atlantic the option of increasing rates to account for inflation starting in 1998.
"It will move Maryland in line with the other jurisdictions that surround Maryland that recognize that traditional regulation is no longer appropriate in the competitive environment," Mr. Whelan said. He noted that earlier this week AT&T had asked the PSC for permission to compete with Bell Atlantic in the local telephone service business.
Other companies that have received permission to compete with Bell Atlantic include MFS Communications Co., Teleport Communications Group and a subsidiary of MCI Communications Corp.
With competition on the verge of breaking the Bell Atlantic monopoly in Maryland, the General Assembly passed a bill earlier this year giving the PSC the authority to change the way it regulates the telephone industry.
Mr. Travieso, whose office represents the interests of the state's residential ratepayers, said yesterday that the commission should use that authority to reject the Bell Atlantic plan.
He singled out for denunciation a section of the plan that would let Bell Atlantic restructure its rates provided that it did so in an overall "revenue-neutral" fashion. That provision would let Bell Atlantic lower business rates to ward off competition while increasing residential rates to offset the cuts, Mr. Travieso said.
"You shouldn't be able to put the losses you might face or the challenge you might face from competition onto the backs of residential ratepayers," he said.
Mr. Whelan said that is possible under the plan, but only with commission approval, as now.
Among his other objections to the plan, Mr. Travieso cited a productivity factor he considers too low, the lack of prescribed penalties for service quality violations and a lack of a commitment to invest in infrastructure.
He also contended that the plan freezes the rates for gaining access to long-distance carriers when they ought to be coming
Mr. Whelan dismissed the complaints from the Office of People's Counsel (OPC). "What we're seeing is an example of how the OPC is willing to seek more onerous standards against us than against our competitors," he said.