Hearings on US WEST Communication's incentive rate plan got under way Thursday before the Utah Public Service Commission.
The company's request is the first received by the commission under a 1990 state law that allows public utilities to seek approval for alternative regulatory plans. The hearings are scheduled to run through March 15 with a public witness day set for March 8.US WEST says the plan is needed to convince investors to put up $91.7 million to finance efforts to accelerate upgrades of some 40 central switching offices, many located in rural areas, and the installation of a fiber optic trunk system.
The main ingredient of the plan is a provision that would allow US WEST to keep all or part of any earnings in excess of the authorized profit margin if those earnings result from improved company efficiency. In return, the company promises to freeze current telephone rates for four years.
The company currently has an authorized profit margin of 11.8 percent. The company wants the commission to allow it to keep all earnings over that up to 14 percent. Anything in excess of 14 percent would be shared equally between the company and the ratepayers.
The plan now before the commission indicates the company will spend about $59.4 million of its "discretionary capital" to make central switching office improvements. The company also wants to put $32.3 million into a fund for fiber optic network facilities to serve state colleges, high schools and school district offices. The fiber optic network would allow high-speed data and two-way video transmissions between the schools and offices.
The Utah Division of Public Utilities has recommended in favor of an alternative incentive plan. The division's plan would have all excess earnings over 11.8 percent shared equally between the company and ratepayers. Also, the division plan would use an indexing system to alter the sharing formula to give the company a greater share should it experience unexpectedly high costs for borrowing money to finance the system improvements.
Division officials say their plan will save ratepayers an additional $32 million over the four-year life of the incentive plan.
The division is also urging the commission to require proposed system upgrades on a timely basis whether the incentive plan is approved or not.
Commission Chairman Ted Stewart has indicated in the past that the commission views system upgrades and improvements as an issue separate from the company's incentive regulation plan. He said the commission is willing to listen to the incentive proposal but will tie system improvements to the plan only if the commission is convinced that is the best approach for financing those improvements.
Since December 1987, the commission has ordered rate reductions totaling $75 million, including an $18.9 million reduction last fall when the 11.8 percent profit margin limit was also imposed.
Should US WEST keep extra profits?
US WEST Communications is authorized to earn an 11.8 percent profit.
As an incentive for better efficiency, the company wants to keep all profit in excess of 11.8 percent, until it reaches 14 percent. After 14 percent, US WEST and ratepayers would share equally the savings.
The state Division of Public Utilities has recommended that all excess earnings over 11.8 percent be shared equally between the company and ratepayers.