The Pennsylvania Commonwealth Court has overturned major parts of a price-cap regulatory plan for Bell Atlantic-Pennsylvania, Inc., a telecommunications local exchange carrier (LEC). The court directed the Pennsylvania Public Utility Commission (PUC) to modify an inflation offset and to reexamine its classification of certain LEC service offerings as competitive. It upheld, however, the PUC's authority to move away from rate-of-return analysis.
The state's Consumer Advocate as well as competing telecommunications companies had alleged that the PUC failed to adequately test the LEC's existing rates for excess earnings before allowing price-cap regulation for its noncompetitive services. Revenues from noncompetitive services could increase annually, based upon the change in the Gross Domestic Price Index less 2.93 percent as a productivity offset. Opponents also claimed that the PUC erred when it deregulated, as competitive services: 1) billing and collection, 2) directory advertising, 3) Centrex, 4) paging, 5) repeat call, and 6) speed calling.
According to the court, the PUC has discretion to choose a method that strikes an appropriate balance between the interests of shareholders and ratepayers. The court also pointed to recent state law permitting the PUC to use "alternative" forms of regulation for telecommunications carriers. In comparing existing rates with national averages and assuming that existing approved rates are reasonable, the PUC satisfied its duties under the state's public utility laws.