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Pull In Phone Monopoly ...

Rates in California could soar if the PUC loses its regulatory muscle.

July 01, 2002

If the state Senate passes a bill by Assemblyman Roderick Wright (D-Los Angeles), residential and business customers in California could end up being gouged $3 billion in inflated phone bills over the next five years.

AB 2958, which would strip the California Public Utilities Commission of most of its power to regulate monopoly phone companies, resoundingly passed the Assembly in May. Its principal beneficiary, SBC Communications, Pacific Bell's parent company, had expected it to sail through the Senate. After all, the Texas-based company has contributed nearly half a million dollars to state legislators' campaigns in just the current election cycle.

However, the Senate Energy, Utilities and Commerce Committee postponed a vote on the bill that had been set for last week. We can only hope that the committee's chairwoman, Sen. Debra Bowen (D-Marina del Rey), has begun to see AB 2958 for the shameful outrage it is.

The bill would prohibit the PUC, at least until 2007, from using either of its two tools for ensuring just and reasonable phone rates. The first tool, "profit sharing," allows the PUC to require phone companies to split profits in excess of 11.5% with customers. The second compels phone companies to pass along to customers some of the cost savings they gain from installing more efficient equipment.

It's not as though the PUC has regulated with a heavy hand. In fact, the requirement that equipment-efficiency savings be passed on to customers has never been invoked. But without such limits on the books, the companies, which are monopolies in most California cities, will have no incentive to be fair to consumers.

SBC began fiercely stumping for the Wright bill in February, after a PUC audit found that SBC, by understating its net operating income by almost $2 billion from 1997 to 1999, had kept $350 million in excess profit it was supposed to share with California consumers. Wright, who received $14,000 in campaign donations from PacBell's political action committee in 2002 alone, promptly threatened to drastically cut back the Office of Ratepayer Advocates, the PUC's consumer advocacy arm, which had estimated that Wright's bill could cost consumers $3 billion. Then AB 2958 sped to the Assembly floor.

There, legislators struck by a collective amnesia over how their meddling in electricity deregulation in the mid-1990s led to disastrous energy price hikes and supply shortages, passed the bill 66 to 1.

SBC says it disputes the state's audit and plans to appeal the findings. Though the company has every right to challenge the math, it should not be allowed to kill the mathematicians or cripple the PUC, an agency that Californians had the good sense to create by constitutional amendment in 1911 to prevent gouging by utility monopolies.

We encourage Bowen to get rid of the measure in committee. If that fails, the full Senate should remember what voters thought of electricity deregulation. If that fails, Gov. Gray Davis should not hesitate to veto this anti-consumer, lobbyist-driven legislation.

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