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Maine Approves LEC Price-cap Plan

Fortnightly Magazine - August 1995

The Maine Public Utilities Commission (PUC) has approved a regulatory reform plan for New England Telephone and Telegraph Co., a telephone local exchange carrier (LEC). The plan includes a price cap program for "core" services (em that is, nondiscretionary services such as basic exchange and toll services. The price-cap structure and pricing rules will not apply to the LEC's noncore services. The PUC declined to add an earnings sharing mechanism to the plan, finding that efficiency incentives are maximized if the LEC is allowed to retain all benefits of increased productivity beyond the 4.5 percent contained in the price-cap mechanism or experience the full effects of substandard productivity. It also adopted a service-quality index and a mechanism to provide rebates to customers if service quality does not meet specified standards. Re Regulatory Alternatives for the New England Telephone and Telegraph Co., Docket No. 94-123, May 15, 1995 (Me.P.U.C.).

In a separate order, the PUC also directed the LEC to file rates to decrease intrastate revenues by $10.446 million. It said a fresh review of the company's earnings was needed to establish a starting point for rates under the price-cap plan. The PUC set the cost of common equity at 12.5 percent, including flotation costs. It directed the LEC to accomplish the revenue decrease by eliminating charges for touch-tone service and reducing rates for toll services. In addition, the LEC will provide $4 million per year in rate reductions or other benefits for libraries and schools and issue a one-time credit to all customers totaling $2.8 million. Pease et al. v. New England Telephone and Telegraph Co., Docket No. 94-254, May 15, 1995 (Me.P.U.C.).

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