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Universal Service: A Performance-Based Measure for Competitive Industry

Fortnightly Magazine - June 15 1998

contrast, West Penn Power posted a continuing decline in money at-risk and weighted arrears components, offsetting its continuing high level of performance in termination and percent customers in debt components.

Some Observations

Overall, two observations become evident from the Pennsylvania data. First, improving universal service performance is much more difficult than allowing it to degrade. Given 14 utilities and 6 years of data, there are 84 potential points where performance can be measured. Of those 84 instances, 47 (56 percent) involved overall universal service degradation in Pennsylvania while only 18 (21 percent) involved improvements. The remainder showed no change. The reason for this situation is beyond the scope of the data. However, one can speculate that improvement is more likely to require an affirmative change of procedures by a utility; doing nothing allows for degradation while improvement needs pro-active effort.

Second, there is little volatility in universal service performance. None of the 14 Pennsylvania utilities experienced wide variability in universal service performance from year to year. Given the period for which data has been collected (8 years), if such volatility were to exist, it would likely have become evident. One conclusion from this might be that total universal service performance is not particularly sensitive to variables that might change from year to year, such as weather and overall economic conditions.

Yet it is important to note two things about the reported scores. First, the scores do not allow an absolute judgment between companies. A company with a 1995 score of 20 is not necessarily doing a "better job" at maintaining universal service than a company with a score of 12. The score shows where the company is compared with where it began. A score of 20 may be achieved by a company that began with a poor universal service record and has not further degraded.

The purpose of this system is not to create a benchmark through which a company's performance is measured vis-à-vis the industry generally. This indicator shows whether universal service performance for a company is improving or degrading vis-à-vis its previous performance.

Second, the scores are most effective at showing the direction of universal service performance rather than the level of performance. The scores do not allow a determination of whether universal service in Pennsylvania is good or bad. It allows a determination that, whatever the performance, that performance is worse today than in 1989.

Such a review will allow policymakers to determine if performance is being maintained after restructuring or following a merger. In addition, the performance review will allow policymakers (both inside and outside the company) to determine whether the implementation of a particular program is having a positive impact on the attainment and maintenance of universal service.

Roger D. Colton is with Fisher, Sheehan & Colton Public Finance and General Economics of Belmont, Mass..

The Model Defined

Performance-Based Measures for Universal Service Programs

TERMINATION RATE. The frequency of involuntary termination for nonpayment represents the ultimate failure of universal service. Disconnection is not only a social problem for those households disconnected, but a business problem for the