LEC Gets Price-cap Plan and Service Penalty

Fortnightly Magazine - February 15 1996
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While reducing rates by $5.7 million for Citizens Utility Co. of California, a telecommunications local exchange carrier (LEC), the California Public Utilities Commission (CPUC) has also: 1) approved a new regulation plan for the LEC, 2) restructured rates to better position the LEC to operate in a competitive market, and 3) penalized the LEC 15 basis points on return on equity for failing to report ongoing service-quality problems.

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The new regulatory framework contains the same price-cap formula, inflation index, and "exogenous factors" as the plan adopted for Pacific Bell and GTE California Inc. But the formula for earnings sharing between shareholders and ratepayers (equal sharing between the benchmark and ceiling rates of return; all earnings over the ceiling paid to ratepayers) mirrors the original plan adopted for Pacific Bell and GTE, rather than an updated version that eliminates sharing of earnings between the benchmark and ceiling rates.

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