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Oregon Disallows Costs for Executive Compensation

Fortnightly Magazine - August 1997

The Oregon Public Utility Commission has directed U S WEST Communications Inc. to reduce rates by $97.4 million and to refund ratepayers an additional $102 million, after having excluded from rates some $4 million in executive bonuses and incentive pay plans for management.

The refund corrects interim rates left in effect last year when the commission had terminated an alternative rate plan, finding that service quality had dropped since 1991, and the incentive-based program had begun. See, Re U S WEST Communications, Inc., UT 80, Order No. 96-107, April 24, 1996, 169 PUR4th 390 (Ore.P.U.C.).

The commission disallowed bonus and incentive plan costs when it found that the goal and performance factors contained in the incentive plans were not sufficiently linked to the provision of utility service. The bonus awards were based primarily on financial performance of the company and as such benefits shareholders rather than ratepayers, the commission said. It added that ratepayer funding of bonuses based on other incentive plan goals such as customer service and customer loyalty also was inappropriate given the utility's service quality problems.

In setting new rates, the commission adopted an authorized rate of return on equity of 10.2 percent, choosing the lower end of a range suggested by its staff due to continuing service quality problems. It also upheld an earlier policy ruling and imputed Yellow Pages revenues in setting rates for regulated services. The commission found that the directory publishing rights were valuable assets that the LEC's publishing affiliate, U S West Direct, had derived from its association with the LEC. Re U S WEST Communications, Inc., UT 125, Order No. 97-171, May 19, 1997 (Ore.P.U.C.).

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