The Tennessee Public Service Commission (PSC) has finalized an $8.7-million rate reduction for United Telephone-Southeast, Inc. under an alternative regulation plan in place since 1991. The rate reduction is the first under the plan's three-year earnings review procedures. The local exchange carrier (LEC), a subsidiary of Sprint Communications Co., had first asked to extend its current rates pending a PSC investigation of local competition, then went on to argue that prospective rate cuts under the new regulatory plan would produce a result "worse than traditional rate base, rate of return regulation."
The PSC refused to alter the plan to keep rates stable instead of using forecasted overearnings to produce prospective rate cuts. It said the LEC would earn an excessive 13.1-percent overall rate of return if allowed to include only after-the-fact earnings sharing in setting new rates. According to the PSC, the regulatory plan was designed as a "substitute" for a competitive market where firms are forced to continually improve efficiency rather than merely trim operations one time and maintain the additional income for stockholders indefinitely. Re United Telephone (em Southeast, Inc., Docket Nos. 93-0418 et al., Dec. 30, 1994 (Tenn.P.S.C.).
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