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'Making Amends': Utility Refunds

July 04, 1989

Your editorial "Making Amends" (June 10) perpetuates misinformation regarding excess deferred tax reserves for utilities.

Your readers have been led to believe that $19 billion in excess reserves are still outstanding and that utilities will keep this money for as long as 30 years.

The misleading 30-year reference applies only to an average depreciation period for certain items of utility equipment, not to the total outstanding reserve. The fact is, utilities are returning this money now and have been since 1986.

By the end of this year, Pacific Bell will have already returned more than 20% of its excess reserves to customers. About 75% will be returned within 10 years.

Proponents of the legislation mentioned frequently characterize it as a pro-consumer bill. Wrong. Only about one-third of the outstanding reserves would be returned to Pacific Bell's residential customers. Big businesses and long-distance companies stand to gain the most if this legislation passes; almost two-thirds is earmarked for them.

When you calculate the equation for consumers, you find that the average residential customer, with a monthly bill of $25, will receive only about 70 cents a month (less than 2.5% of the phone bill) for three years under the proposed formula. For life-line customers, the figure is about 10 cents a month.

If adopted, the legislation would upset long-term utility rate stability for our customers. To return that 70 or so cents per month, Pacific's increased external financing costs would eventually drive rates up. In total, customers would end up paying almost twice as much as the refunds they would receive in the short term.

Last, but far from least, if California utilities accelerate the refund of these reserves to customers over the next several years, the utilities' state and local tax bill would be reduced by roughly $150 million. In view of current budget deficits, this will only make matters worse.

When you add all this up, it's clear why we believe that the "benefits" of the proposed legislation only give the illusion of lower utility rates.

In reality, passage of this legislation will cost rate payers more in the long run.

ARTHUR C. LATNO JR.

executive vice president

Pacific Telesis Group

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