Commission Watch

While electric restructuring pauses, telecom pushes forward.
While electric restructuring pauses, telecom pushes forward.
Fortnightly Magazine - February 15 2003

State PUCs Show Split Personality



While electric restructuring pauses, telecom pushes forward.

No matter which way they turn, state public utility commissions (PUCs) have their work cut out for them.

While federal policy-makers push ahead with wholesale market reforms in the electricity sector, many at the state level now call for a cautious approach to protect consumers.

The same does not appear to be true in the area of telecommunications local exchange service. Although much-publicized statements by federal telecommunications regulators signal a possible shift away from network rates aimed at encouraging new market entrants, state regulators see possible benefits to consumers if a competitive telecommunications market is allowed to mature. Regulators in Kansas tout the significant number of competitors in that state's telephone market, and in Pennsylvania, utility commissioners brag about the success of an outreach program designed to educate consumers about alternative carriers.

However, at the same time, electric market watchers in Ohio, Oregon, and Virginia warn that moves to further deregulate electric service might harm customers rather than help them, especially in the residential sector. The lack of competitive entrants in retail power markets is the most glaring defect. But at the same time, consumers seem alarmed by the recent power market crisis and by troubles associated with the marketing of competitive telephone services and, in Oregon, wary of potential marketing practices and gimmicks.

FCC Plan Alarms PUCs

In January, Federal Communications Commission (FCC) Chairman Michael Powell announced that he was considering a proposal allowing telecommunications local exchange carriers (LECs) to increase prices for network services provided to competing carriers. Regional phone companies have long maintained that the services they must provide to competing carriers are priced too low and that, as a result, some of today's competitive activity is artificial and harmful to regulators' long-term goal of promoting true facilities-based competition.

Stock prices for Bell carriers rallied on the news but fell back the following day as brokerage group UBS Warburg downgraded its investment recommendations on Verizon Communications Inc., SBC Communications Inc., and BellSouth Corp., finding the price spike unjustified. UBS Warburg also warned that network pricing reform could be delayed by legal battles and might not provide expected benefits to earnings. Investment analysts explained that any such change must first be debated by the FCC and state regulators and could land in federal court.

Recent statements by state PUCs support this view. Even though the states balked when the FCC began implementing the Telecommunications Act of 1996 in a way that forced LECs to favor competitors with discounted network service rates, the same regulators are now complaining as the FCC suggests that it might be time to modify the policy.

In a January press release, the National Association of Regulatory Utility Commissioners (NARUC) noted that the Competitive Telecommunications Association (CompTel) released a study, based on state-by-state data collected by the Telecommunications Research and Action Center, indicating that consumers could save up to $9.24 billion a year in lower phone bills nationwide if vigorous local phone service is allowed to flourish. According to CompTel, the customers that