US WEST Communications is offering a slight modification to its incentive rate plan which is now the subject of hearings before the Utah Public Service Commission.

The company is now proposing to add a minor penalty to the element of shared earnings if the company fails to meet service levels included in the plan.The plan calls for US WEST to keep excess revenues up to a specified level if the excess revenues result from improved company efficiency. Excess earning beyond the specified level would be shared 50-50 between the company and customers. The plan would freeze customer rates during the four-year life of the plan.

At present, US WEST is allowed an 11.8 percent profit margin. Under the modified proposal, the company would keep all excess earnings up to 14 percent. Anything over 14 percent would be shared equally unless the company fails to meet required service standards. Then customers would receive 55 percent and the company 45 percent. Those percentages would be reversed, however, if the company exceeds service standards included in the plan.

Because customer rates will be frozen, the company can only achieve overearnings by making its operations more efficient, US WEST officials said.

US WEST says the incentive plan is needed to generate an additional $91.7 million from investors to finance a major modernization plan that includes up-grading central switching offices and installing fiber optic trunk lines and digital microwave transmitters throughout its service territory over the next four years.

But representatives for residential consumer groups contend that more time is needed to study elements of the plan, especially the economic feasibility for modernizing rural switching offices. A study by the Utah Committee of Consumer Services says the plan is marginally feasible but needs more review. The company's own study was not completed until December which has not allowed time for a thorough evaluation, a committee representative said.

Kent Walgren, the committee's attorney, said a 1988 US WEST study indicated upgrading 54 central offices would be economically feasible, and that was before the incentive plan was proposed.

Phil Selander, US WEST's director of network facilities engineering, said 13 of the offices have already been upgraded and that four others were removed from the incentive plan because they need fiber optic modernization and digital switching equipment whether the incentive plan is approved or not.

He said the removal of the 17 offices from the plan affects the economic feasibility and makes the effort more risky financially for the company.