Chesapeake & Potomac Telephone Co. has asked the Maryland Public Service Commission to approve a $36 million rate increase that apparently would involve lower residential rates but higher charges for other, unspecified services.
The surprise filing by C&P, a wholly owned subsidiary of American Telephone & Telegraph Co., came in response to an agency finding on Feb. 26 that the telephone firm is making too much money and suggesting a rate cut of $7.5 million.
AT&T is involved in a similar situation before the Federal Communications Commission, involving interstate rates. After studying AT&T's rate of profit last year, FCC staff members concluded that earnings were higher than permitted -- to which the telephone company company responded with a request for an increase in permitted profitability levels, without adjustments to current tolls.
In Maryland, C&P has described the permitted level of profitability as inadequate and asserted that a 6 percent rate in crease would bring profits "to a more reasonable level." To continue to attract investors and maintain service standards, C&P proposed a rate of return on its investment of between 9.82 percent and 10.31 percent compared with the current authorized rate of 9.25 percent.
For the 12 months ended last November, the PSC found that C&P was earning 9.58 percent -- but C&P argued that such data was based on costs established in the most recent major C&P rate case in the most recent major C&P rate case in the state, during May 1977. If inflated costs for the 12 months ending in January were used for such calculations, the rate of return would have been 8.48 percent, C&P said.
The rate of return being sought would bring in between $56.8 million and $69.3 million of new revenues a year, but because of the Carter administration's guidelines, C&P said it is holding the request to $36 million to be in compliance.
Details were skimpy, but C&P said it would file proposed new tariffs soon that could cut basic residential rates by $10 million of permitted to charge higher rates for other telephone operations to reflect actual costs.
C&P Vice President Thomas Gibbons noted that the prime interest rate paid to borrow funds has increased from 6 1/2 to 11 3/4 percent in the past two years. "The real issue is that current earnings are completely inadequate in light of today's economic conditions," he added.