Commission OKs shift in Bell Regulation - School Money, increase in competition expected

by Bob Vandewater

The Daily Oklahoman - December 11, 1999

The state Corporation Commission on Friday formally approved an agreement that is expected to change how Southwestern Bell is regulated in Oklahoma and result in benefits for customers and educators.

The deal could mean Oklahoma public schools will get $30 million. It could increase phone competition that might lead to lower rates, and it could lead Bell to invest about $200 million in Oklahoma to upgrade its network to allow faster Internet connections and data transmission.

Commission Chairman Bob Anthony also issued a written concurring opinion Friday defending his regulatory panel's action and "debunking the myths" that have swirled around the issues.

In an unsuccessful effort in the closing days of the 1999 Legislature last spring, several state officials and legislators tried to get Bell to donate as much as $300 million for an education bond issue in return for partial deregulation or alternative regulation that Bell wanted.

But a much different effort led to the agreement approved by Friday's order. It arose from commission development of new rules allowing alternative regulation and Bell's use of those rules to seek that change in a case with detailed scrutiny and input from consumer groups, potential Bell competitors, state officials and education leaders.

Anthony said the agreement, while containing $30 million for Oklahoma education and providing for changes in how state regulators treat Bell, will not deregulate the state's largest local-exchange phone utility.

"The Oklahoma Corporation Commission surrenders no regulatory oversight. What does change is that the commission moves from overall earnings regulation of the company, which by state law we have been unable to do since 1997, to price regulation," he noted.

When reviewing Bell's rates and proposed changes under that new regulation, the commission would focus more on costs and whether prices are reasonable and competitive than on earnings and rate of return.

State Sen. Cal Hobson, D-Lexington, tried unsuccessfully in recent weeks to get the commission to press Bell to agree to provide much more than $30 million for schools.

"The commissioners seem intent on giving the telephone company what it wanted, instead of trying to determine whether the proposed changes were actually in the best interest of the consumers and the state," Hobson said recently.

But Friday's commission order concludes that the approved agreement is in the state's and public's interest and will encourage competition against Bell in the local phone service arena. The commissioners said they expect such competition eventually to lead to lower customer rates.

Anthony said, "This is a negotiated agreement containing hard-fought concessions achieved by Bell's potential competitors, commission staff, the attorney general and others."

While the agreement provides for replacing earnings-based, rate-of-return regulation of Bell with another type, the deal calls for the company not only to give cash to education but also to upgrade its Oklahoma network and technology to improve and expand services. That upgrading and technology rollout is expected to cost Bell close to $200 million.

The approved deal further calls for Bell to cap its rates for basic local service in Oklahoma for five years and during that period also to stop charging the Oklahoma Universal Service Fund fee to state customers.

Exempting them from that fee, which goes into a pool to help all of the state's local phone companies cover certain costs, could save customers an estimated $9 million.

In addition, the deal calls for Bell to discount some rates it can charge potential competitors for use of its system and services, a move intended to encourage local phone service competition against Bell.

Work on Bell's network upgrades and technology deployment is expected to begin by early 2000. But other provisions, including the discounts for prospective competitors and education funding, must await the Legislature's review of commission alternative regulation rules that were the basis for the agreement. That review period won't officially begin until the legislative session starts in February.

Anthony's concurring opinion notes the company's agreement to provide $30 million to an Oklahoma education fund "is a voluntary contribution by Bell from stockholder money and does not affect rates....

"The commission clearly has no authority to require education funding. Constitutionally, that authority resides in the legislature."

Hobson recently said, "I think the commissioners ignored important evidence generated by their own staff, namely the fact that this proposal locks rates into place that could guarantee Bell annual excess earnings of at least $90 million a year."

Senate President Pro Tempore Stratton Taylor, D-Claremore, also recently warned of potential future Bell rate hikes. He said, "It may turn out the best course of action is a complete rate review of Southwestern Bell."

But Anthony said such statements relate to other "myths." For instance, even without the agreement, the commission was not able to conduct a traditional Bell rate case before 2001 because the Legislature itself prohibited that in a law it created in 1997, he said.

"I warned the legislature against stopping a Southwestern Bell rate case when there may be excess revenues," said Anthony. "We cannot engage in retroactive ratemaking to reach backward and recapture that money," he said. Also, "Southwestern Bell is charging rates authorized by the commission. Those rates were reviewed and left in place by the legislature in 1997," he said.

Also, with the new Bell agreement - assuming lawmakers approve the rules on which it is based - the company's rates won't be "locked" in or frozen but would be "capped" for five years, meaning they could go down in response to competition or other factors, said Anthony.

"If, at the end of that five-year cap, competitors have not been established in the exchange, rates may only increase once per year by a formula of inflation less 1 percent.

"Even this formula increase is restricted, as there is further protection found in the statutes. By state law, rates for basic local service may not exceed those in effect on March 20, 1997, without first being granted approval from the legislature," he added.

© 1999 The Daily Oklahoman

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