Bell Atlantic pleads its case Firm goes before PSC for regulation relief

April 16, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

Bell Atlantic Corp. and its many tormentors squared off before the Maryland Public Service Commission yesterday as the agency opened a series of hearings on proposals to change the way the state regulates telephone service.

Daniel J. Whelan, president of Bell Atlantic-Maryland, sparred with lawyers representing AT&T Corp., MCI Communications Corp., the state People's Counsel and the staff of the PSC as he mounted a staunch defense of the telephone company's proposed plan to abandon traditional rate-of-return regulation.

But Bell Atlantic clearly lost ground yesterday afternoon as state People's Counsel Michael Travieso turned testimony by the company's key expert witness against it on several important points.

The rules the PSC adopts in the case will affect the phone bill of every Marylander and determine whether telephone industry competition will thrive or wither in the state.

Mr. Whelan gave little ground even as his company's antagonists pounded away at Bell Atlantic's insistence that the PSC should adopt a price cap form of regulation based on Bell Atlantic's current rates, insisting the commission had already found them to be reasonable.

He stood his ground even as Karlyn Stanley, an attorney for AT&T, cited a June 1993 decision in which the PSC clearly stated its intention to conduct a thorough review of Bell Atlantic-Maryland's non-competitive rates and operations in 1996. Mr. Whelan contended that the entry of competition and a 1995 General Assembly action allowing the PSC to change the form of telephone regulation invalidated the commission's earlier resolution.

Bell Atlantic's rivals and the state People's Counsel maintain that a thorough review of Bell Atlantic's rates, last reviewed in 1993 based on 1991 cost studies, would find that they are unreasonably high.

The company's rivals want any price cap to be set at a level that reflects Bell Atlantic's current costs, which they believe have dropped as a result of technological innovations and job cuts.

Mr. Whelan contended that the price cap should be based on a determination of what was affordable to customers -- not on an inquiry into costs or profits.

"I do not believe the concept of reasonable prices, at least in my mind, has any reference to earnings," he said.

Bell Atlantic is proposing a two-year freeze on residential rates, after which they could be increased if offset by cuts in the price of other services -- a trade-off known in regulatory jargon as "rebalancing."

MCI attorney Jeffrey Blumenfeld bore in on this aspect of Bell Atlantic's plan, grilling Mr. Whelan about how much residential rates could theoretically rise after the proposed freeze would expire.

Mr. Blumenfeld elicited from Mr. Whelan an admission that under Bell Atlantic's plan, if inflation averaged 4 percent a year over 10 years, residential rates could rise 30 percent.

"I would not consider that significant," Mr. Whelan said. Bell Atlantic's plan calls for a "productivity factor," an offset to inflation based on presumed increases in efficiency, of 1.5 percent. For instance, if the rate of inflation is 4 percent, and the productivity factor is 1.5 percent, rates could rise 2.5 percent.

The PSC staff is proposing a factor of 5.3 percent -- one of the highest in the country.

Mr. Whelan conceded that rebalancing could lead to further increases in residential rates, but he repeatedly emphasized that the PSC would have the power to review any rate changes.

While Mr. Whelan held his own under tough questioning, Bell Atlantic's first expert witness brought smiles to the faces of the lawyers and executives of the company's rivals.

Alfred E. Kahn, professor emeritus at Cornell University, came to testify against proposals by MCI and AT&T that Bell Atlantic be required to fix its long distance access charges at cost.

But Mr. Travieso managed to "flip" the witness into providing testimony that seemed to undermine Bell Atlantic's resistance to a full-blown rate inquiry.

Dr. Kahn, best known as the architect of airline deregulation during the Carter administration, testified that his position that no rate case should be necessary to set a price cap was based on the assumption that rates had been reviewed "comparatively recently."

Prodded by Mr. Travieso, he said that locking in rates based on older data might be "improper."

He also said he had no idea whether Bell Atlantic's current rates would be higher or lower in a competitive environment.

At other points in his testimony, Dr. Kahn acknowledged a lack of familiarity with relevant PSC orders, Bell Atlantic cost studies and the statute empowering the PSC to consider a price cap.

Testimony will continue throughout the week and into next Monday, giving Bell Atlantic plenty of opportunity to go on the offensive against opposing witnesses.

Pub Date: 4/16/96

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