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New Jersey Upholds LEC Price-cap Plan

Fortnightly Magazine - September 1 1996

The Superior Court of New Jersey has upheld a state regulatory decision authorizing Bell Atlantic-New Jersey, Inc., a local exchange carrier (LEC), to switch from traditional regulation to a new price-cap plan. The new plan sets rates for noncompetitive LEC services by offsetting the annual inflation factor by a separate factor for cost savings due to productivity gains. For its part, the LEC agreed to accelerate deployment of new technologies, including a fiber-optic telecommunications network for the state. See, Re New Jersey Bell Telephone Co., 143 PUR4th 297 (N.J.B.R.C. 1993).

The court rejected claims that the plan was illegal because it was based on existing rates that were higher than warranted. The court maintained that the New Jersey Board of Public Utilities (BPU) had clearly explained its ruling that the LEC's existing rates and prospective rate adjustments were reasonable "because they were the lowest in the nation and could never rise in any year by more than half of the inflation rate." New state legislation authorizing alternative rate plans does not require the BPU to conduct a rate-base/rate-of-return analysis to determine whether such rates are reasonable, the court concluded. It also rejected arguments that the plan was unfair to the LEC's competitors and that the BPU should have reduced the LEC's access charges to cost to ensure fair competition. Re New Jersey Bell Telephone Co., Nos. a-5013-92T2, A-5090-92T2, June 13, 1996 (N.J. Super. Ct. App. Div.).

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