Mountain Bell is making a lot of money and Utah's Division of Public Utilities believes the utility could cut its phone rates up to $34 million. It has requested a probe into the phone company's profits.
In its request filed with the Public Service Commission Thursday, the division recommended lowering Mountain Bell's authorized rate of return on equity. That rate is set at 14.2 percent.Based on a review of actual and forecasted 1988 financial data, the division said if the rate of return were lowered to 13 percent, rates could be cut by $14 million. Additional adjustments to Mountain Bell's profits could slash rates by $34 million, the division said.
Late last year Mountain Bell, which recently changed its name to US WEST Communications Inc., lowered its rates $9 million to reduce excess profits. But the high earnings have continued into 1988, reaching 17.5 percent in January and a 15.9 percent return in February on the company's stockholders' investment.
US WEST acknowledges that it has done well in the past year, although its calculations differ from those of regulators. The state's Committee on Consumer Services believes the phone utility has been and could continue overcharging customers $27 million to $34 million annually.
"We are pleased with our earnings," US WEST spokeswoman Carol Dunlap said. "It's a tribute to our employees, of their productivity and the company's stringent cost-cutting efforts."
She added that changes in federal tax laws also contributed to the phone company's strong financial performance.
Despite the request to essentially initiate a full-blown rate case, neither regulators nor US WEST want a rate case, and both parties will pursue negotiating a rate reduction while the investigation is under way.
"The petition before the commission does not preclude the chance of a negotiated settlement if one can be reached among the parties," division director Ralph Creer said.
Both sides said a negotiated settlement will bring a quicker result for ratepayers. A formal rate case could take up to a year before a decision on lowering rates is made.
"If a settlement can be reached, it will benefit our customers by saving time and money," Dunlap said.
However, it could be argued that a rate case may result in a larger rate reduction. At the end of 1988, regulators anticipate US WEST Communication's profits to increase another $10 million as the inside wiring depreciation expense expires. A negotiated settlement now could not include that $10 million, said Tom Peel, division manager of telecommunications.
In either case, a rate reduction can be expected. "I'm convinced of a rate decrease," PSC chairman Ted Stewart said.
He noted that if Mountain Bell's proposed bill to deregulate the telephone industry in Utah had passed this year, the expected rate reduction would not have been possible. The bill, which was withdrawn under intense protest during the last legislative session, proposed freezing rates at their current levels and any changes would have been dictated by fluctuations in the Consumer Price Index.
A late amendment to the bill allowed for a $ 10 million reduction at the end of 1988, Dunlap said.