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Kentucky Resources Council, PO Box 1070, Frankfort, KY 40602 Phone [502] 875-2428

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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

KRC Voices Concerns Over Telephone Deregulation Bill  Posted: March 3, 2006
March 3, 2006

Representative Joni Jenkins
Representative Scott Brinkman
Kentucky House of Representatives
State Capitol
Frankfort, Kentucky 40601

Dear Representatives Jenkins and Brinkman:

Thank you for convening a meeting yesterday in which the various interested parties could discuss the latest iteration of HB 337.

As I had promised, I am forwarding in written form the major concerns of KRC regarding the bill. The meeting yesterday was productive, and a number of specific areas of uncertainty were clarified and suggestions to address concerns were noted. My understanding is that BellSouth will be proposing a new draft intended to address several of these concerns.

The concerns that I voiced, in the order presented yesterday, are these:

1. That there be no change in the current obligations of either an electing or nonelecting provider to provide safe, adequate and reasonable basic service, nor in the ability of the Commission to oversee and to enforce those obligations. Where the basic services are imbedded into a “package” that includes nonbasic services, with respect to all of the basic services other than ratesetting, the Commission would retain full jurisdiction over enforcement of obligations.

2. That the bill be modified to assure that the Commission has the clear authority to police predatory pricing and redlining (discriminatory practices) and had access to company records sufficient to allow for proper investigation of complaints of same. The definitions of predatory pricing would be broad enough to cover all instances in which a provider exercises market power and markets at below cost in order to eliminate competition.

3. That a mechanism be provided to assure that, prior to deregulation of rates for nonbasic service, that there is a sufficiently robust competitive marketplace between the wired local service providers and wireless or internet-based telecommunications to justify elimination of regulation based on rate of return or alternative pricing which will assure comparably low rates and high quality service for all classes of users.

I proposed that the Commission have a “gatekeeper” role which would require the making of a finding, after formal hearing in which intervention would be allowed for interested parties, as to whether a sufficient level of competition (of penetration of the various markets by true competitors) existed within a defined geographic market to warrant deregulation of that particular market area. The Commission would have the authority to monitor competition within that area and could, on its own motion or on petition, reevaluate whether effective competition existed and could reimpose rate and service regulation otherwise. This latter provision would act as a check on predatory pricing as well, since the exiting of competition from a formerly robust market may be indicative of unfair competition.

4. That unbundled nonbasic services will remain available at published rates for those that do not want a “package” of nonbasic services and that any service offered as part of a package will remain available as an individual service or as a package of two or more services that could be selected by the customer.

5. That the Public Service Commission would retain full control over the establishment, modification and elimination of performance objectives. Restrictions on that authority in Section 2 would be removed.

6. That rates for basic service would be capped at the CPI, not merely referenced by the CPI, and that any rate increase is based on the same formula (ROR or alternative method) previously employed by the Commission with respect to that provider. Section 4 would be modified to reflect that the CPI is an annual cap rather than a benchmark and that the rates would be required to be justified based on the approved methodology.

7. That the rates established for nonregulated services not be deemed “just and reasonable” since they have not had Commission review, and such a finding might estop the Commission from adjusting rates and terms if the utility elects to withdraw from the nonregulated status.

8. That “oral contracts” not be authorized, and that all terms and conditions be provided in written or electronic form in all cases, and that no penalties be allowed for termination (and recovery be limited to costs that had been amortized for installation or products).

9. That the consumer protections for basic services and Commission authority to police activities for nonbasic services be restored.

The discussion during the meeting yesterday raised several policy issues that will need to be resolved by the General Assembly, and which give me particular pause. The lack of transparency in pricing will lead to the possible redlining of those who are lacking in their ability to bargain for a better price, or who the companies don’t see as a desirable customer. Unlike the deregulation of the natural gas and electricity markets as has occurred in other states, in which the rates and services available were made transparent and the competition became that of providing a higher quality of service at a better cost, the proposed competitive framework sought by BellSouth is one in which there would be no obligation of disclosure of the pricing even as among identically-situated customers and within the same customer categories. Since economic status is not listed as a class against which discriminatory practices is prohibited, the natural tendency of a provider in a deregulated market to focus resources on those customers who want all the bells and whistles will mean, inevitably, that costs will be shifted to those who purchase one or two items a la carte and pay full price, while others are given preferential pricing for the larger “packages.” I believe the General Assembly needs to think long and hard about not requiring disclosure of pricing under various packages and plans, and exempting the companies from disclosure of the existence and terms of such arrangements.

It is instructive, in a state served in no small part by rural electric cooperatives who received electricity only through federal intervention because they were not attractive as customers in a competitive marketplace, that we bear in mind always that choice cuts both ways and that those who no one wants because their consumption of services is small compared to the transaction costs of serving them.

I know that for each of you, that is an overriding concern, and I appreciate your efforts to assure that this process is done properly and after due deliberation.

Cordially,

Tom FitzGerald
Director


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