The Public Service Commission is studying US WEST's profit levels, and the panel's ultimate decision could result in rate decreases for customers in early 1991.
The profit level, fueled by increased sales of telephone services and employee cutbacks, is the focus of hearings before the PSC through Wednesday.If commissioners keep profit level at the currently authorized 11.8 percent, customers can expect nearly $16.5 million in annual rate decreases sometime after the first of the year.
The dollar amount can move up or down, depending on what profit level - called "rate of return on equity" - the PSC decides is appropriate following the hearings.
A stipulation reached Oct. 30 among most parties in the case calls for at least $8.2 million of any final reduction to go into effect Jan. 1.
Commissioners have yet to rule whether they will accept the agreement but are expected to issue a ruling on that part of the case before year's end.
The rate reduction likely to result from the case would be the latest in a long series of reductions ordered by the commission. Since December 1987, customers have received $70 million in rate decreases, primarily ordered because the utility consistently earns profits above its allowed rate of return.
Two state agencies charged with balancing the company's interests with the needs of its customers are recommending to commissioners that US WEST's rate of return be held at or near the status quo. The state Division of Public Utilities wants an 11.5 percent return, while the state Committee of Consumer Service suggests holding the company to its 11.8 percent level.
US WEST is seeking a 14.5 percent return on equity.
"We base our recommendation on the risks we feel are inherent in the telecommunications industry," US WEST attorney Ted Smith said.
The 14.5 percent number, he said, reflects what other regional companies are allowed to earn, and profit levels for other large companies with similar risk characteristics.
Smith acknowledged his company is earning "somewhat above" 11.8 percent and said an exhibit is being prepared for presentation to the commission this week that will pinpoint actual performance.
He said higher earnings result from a variety of factors, including the company's efforts to reduce costs and increase efficiency by cutting its work force.
Other factors are a 1987 change in federal law that reduced corporate taxes; the leveling out in the late 1980s of inflation; and the strong performance of the company's pension plan, allowing it to pay its own expenses without needing company contributions.
Analysts for the Division of Public Utilities agreed with Smith about reasons for over-earning.
If the trend continues, said division Director Frank Johnson, additional rate decreases would result.
"We don't chastise US WEST for making more money," he said. "We encourage them to make more money as long as it keeps a high quality of service."
This week's hearings will be followed in late February with the final phase of US WEST's general rate case. That phase will include testimony on the utility's incentive-rates plan submitted to the PSC last spring.
The plan, opposed by consumer groups, would allow the company to earn a 14 percent profit level and then share any additional profits on a 50-50 basis with customers.