Utah regulators and US WEST Communications reached an agreement Monday to lower telephone rates $20 million, or 11 percent, Sept. 1 and another $11 million after the first of next year.

The agreement also provides incentives for US WEST, formerly Mountain Bell, to continue its improved earnings performance.Culminating months of negotiations between US WEST and the state Division of Public Utilities and Committee of Consumer Services, the stipulation was signed by all three parties Monday and must be approved by the Public Service Commission.

A hearing on the agreement will be held Aug. 30, a commission spokesman said.

If the agreement is approved, monthly bills for local residential and business users will fall 11 percent after Sept. 1 in varying amounts according to a community's service area - if a community has extended area service it will receive a larger decrease.

In Salt Lake City, residential consumers will see a $1.96 per month decrease, while business customers will receive a $4.60 decrease. The phone company maintains business customers pay higher rates than residential users; therefore, business customers receive the larger decrease.

Monthly phone rate reductions in other selected Utah communities: Logan residential $1.62, and business $3.82; Ogden residential $1.71, and business $4.03; Provo residential $1.80, and business $4.22; Cedar City residential $1.38, and business $3.29; and St. George residential $1.40, and business $3.34.

In addition to the $20 million decrease, the parties agreed to an $11 million reduction effective Jan. 1, 1989. The $11 million reduction won't take place until after a rate case is held, scheduled in mid-January, to determine how costs, and the rate reduction, will be distributed among US WEST's customers.

Regulators had been monitoring US WEST's earnings for several months, claiming the phone utility had overcharged customers by more than $30 million in the past year. US WEST's authorized rate of return on its stockholders' equity is 14.2 percent, and the division found the company earning 18 percent during the first four months of the year.

The agreement will lower US WEST's rate of return to 13.75 percent but allows the phone company to keep 50 percent of earnings over that limit, while the remaining 50 percent goes to rate payers. The split of excess earnings, commonly referred to as incentive based regulation, provides an incentive for US WEST to improve productivity and reap a portion of the resulting profits, the company said.

"We believe this is a reasonable approach," US WEST Utah vice president and chief executive W. Mack Lawrence said of the agreement. "The incentive plan would allow us to share the benefits of our increased productivity with our customers and our shareholders. It sends a very positive message to the communities we serve."

Division director Ralph Creer called the agreement a "win-win for everyone."

"We can protect the best interest of utility consumers while encouraging US WEST Communications to continue to explore new options for operational efficiency," he said.

Committee Chairman Felshaw King praised his organization's work to bring phone rates down. "We had steadfastly maintained that local rates are too high; now they are coming down."

US WEST's soaring profits have been a subject of controversy as regulators and consumer groups accused the company of gouging consumers. But US WEST didn't apologize for its profitable performance, it resulted from tax breaks and good management.

"I'd like to emphasize that the reason we are in a position to be reducing our rates is because of federal income tax changes, cost cutting and our operational efficiencies," Lawrence said. "Our employees have done an excellent job."

Those same factors resulted in a $9 million rate decrease last December.

A large portion of the anticipated $11 million reduction comes from inside wiring costs being fully depreciated at the end of the year, meaning charges for inside wiring will become profit and cannot be written off.

The $11 million reduction is separate from the incentive program.