Newspaper article THE JOURNAL RECORD

Bell Claims Rate Cuts Would Hurt Return on Investment

Newspaper article THE JOURNAL RECORD

Bell Claims Rate Cuts Would Hurt Return on Investment

Article excerpt

By Ronda Fears Journal Record Staff Reporter Southwestern Bell Telephone Co.'s return on investment in Oklahoma would plummet to the 1 percent to 3 percent range under proposed rate reductions by Oklahoma Corporation Commission staff, a Bell executive asserted Tuesday.

The rate case began Monday before Administrative Law Judge Bob Goldfield at the commission, 2101 N. Lincoln Blvd. It is set to continue through Nov. 22.

Commission staff asserts Bell's current level of return on equity, 14.25 percent, generates $146.7 million more than is necessary to recoup the cost of service determined by staff as proper to charge ratepayers.

Public Utility Division Director Jim Proctor categorized excess revenues as "overearnings." Technological advancements in the telecommunications industry have been cited by Proctor as a contributor to the company's reduced cost of providing service.

Hence, commission staff is recommending a $141.4 million reduction in revenues _ 25 percent of Bell's total revenues in Oklahoma _ and a $101.4 million refund. The refund is tied to an interim rate reduction approved by the commission April 19.

Commission staff is recommending Bell's rate of return on equity be lowered to 12.2 percent with authorization to earn up to 12.49 percent. The interim rate, effective through Jan. 31, is 11.41 percent.

Rate reduction and refund figures were lowered by Proctor on Monday by $7.8 million.

Commission staff is also recommending that Bell be ordered to make about $83 million in network modernizations in Oklahoma. In Bell's controversial TeleState 21 plan, which was withdrawn last week, it proposed to make about $84 million in system upgrades, but in exchange for a five-year freeze of basic rates.

In TeleState 21, Bell also suggested pricing flexibility of non-basic services. Commission staff has embraced flexible pricing of non-basic services in the rate case, which Proctor said would offset lower revenues generated by basic rates.

J.B. Ellis, president of the Oklahoma Bell Division, made the distinction Tuesday between return on shareholders' equity and return on investment, which he said reflected the company's actual input into the state.

"I don't believe Southwestern Bell is overearning in Oklahoma," Ellis said.

"Such a revenue reduction would be catastrophic to our business in this state and would send a strong negative message throughout the entire business community and economy in Oklahoma." A 12.2 percent rate of return on equity, Ellis testified, "really isn't the real world" because if Bell's revenues are reduced, the company will still have the same number of customers and be required to provide the same services.

The earnings outlook for the company would fall into the 1 percent to 3 percent return on investment range, he said, and investment capital would essentially dry up. …

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