State telephone company regulators are struggling to keep up with the flood of new and more complex issues stemming from the breakup of the nation's telephone system, regulatory officials report.
"It has been the concern of many state commissions that they don't have the budgets to do as thorough a job as they could since the breakup of the Bell System ," said Genny Morelli, deputy assistant general counsel at the National Association of Regulatory Utility Commissioners, a Washington association.
"The phone companies are diversifying into areas outside telephone service as much as they can. . . . If the trend continues, it is going to take more staff time to make sure that local ratepayers are not subsidizing these new ventures," she said.
The problem of short-staffed auditing and financial analysis teams is growing more acute for public service commissions in the District, Maryland and Virginia, officials there confirmed. These teams, responsible for the financial monitoring of gas and electric companies as well as telephone companies, have barely grown at all since the creation of seven regional telephone companies.
"The general consensus is there is not enough manpower," said Roberta Willis Sims, assistant to the D.C. Public Service Commission's general counsel.
Since the breakup, regional phone companies, including Bell Atlantic Corp., owner of the Chesapeake & Potomac Telephone Cos. operating in the District, Maryland and Virginia, have begun rapidly diversifying. Bell Atlantic, a $9 billion company, has acquired, started up or expanded 10 competitive businesses.
Some of Bell Atlantic's offshoots, such as Corporate Services Inc. and Network Services Inc., are used by the monopolies to offer basic telephone service as well as to pursue new ventures outside the traditional phone market. Regulators try to ensure that telephone customers only pay for that part of the new ventures that enhances telephone service. Thus, regulators are faced with the difficult task of separating expenses that should be charged to telephone customers from those that should be borne by other customers of the new services.
Ned Addison, director of telecommunications for the Virginia State Corporation Commission, said, "It is going to be the big issue, how we are going to track regulated versus unregulated costs -- it's an emerging problem and going to get worse." The commission regulates 21 phone companies, of which C&P of Virginia serves the most customers.
But state officials say the commissions are hampered by too few staffers and lack of time to regularly review phone company finances between rate cases.
The District PSC's auditing staff "spends an extraordinary amount of time on rate cases," said Sims. "They would like to spend less time involved in rate cases and more time on ongoing functions like actual day-to-day review" of the phone company.
Acting Maryland People's Counsel Gregory Carmean, who defends customers before the Maryland Public Service Commission, said, "If the commission really wants to protect the ratepayers, it must audit the books of the phone companies.
"The Maryland Public Service Commission simply doesn't have the manpower."
Said one commission official, "A lot of the commissions have no one assigned at all to telecommunications. It's quite tough." As a result, commissions tend to rely on the phone company to provide numbers and summaries of finances, rather than on staffs researching the numbers themselves.
According to all three Washington-area commissions, phone companies must file financial reports on their return on earnings on a monthly basis, as well as an annual financial report. On-site audits of financial records often are performed only during a rate case.
Only large differences in the phone company's return on earnings from quarter to quarter will prompt a closer look in Maryland, for example, according to People's Counsel Carmean.
"There is no real PSC regulation as to what the monthly reports have to entail," he said. "There is no regularly scheduled on-site activity." The Maryland PSC has said it does have guidelines that the phone company must follow in its reports.
But consumer advocates worry increasingly that state commissions' reliance on phone companies for information bodes ill for consumers.
"It's a terribly unhealthy environment," said Gene Kimmelman, legislative director for the Consumer Federation of America, a Washington consumer group. "The commissions are totally dependent on the phone companies for the information.
"State commissions can only protect ratepayers if they have adequate personnel to track the companies' financial records -- they lack that today."
Mark Plotkin, a District advisory neighborhood commissioner -- or liaison between consumers and the city government -- for the Glover Park neighborhood, said the D.C. PSC has "failed to describe what is regulated and unregulated and what sort of subsidies are going on -- they throw up their hands.
"If the PSC needs more resources, they should be given these because the phone company is overwhelming them."
The D.C. financial staff, responsible for overseeing C&P, Potomac Electric Power Co. and Washington Gas Light Co., has grown from a staff of six before the breakup of the Bell System to a staff of seven. An additional financial slot is vacant. The commission has one financial staffer that spends a majority of his time at C&P.
Maryland regulates two phone companies, of which C&P of Maryland serves 98 percent of all customers, as well as 10 electric companies and 10 gas companies. The accounting and financial analysis staff responsible for the monitoring of all these utilities has grown from 10 to 11.
But an emphasis on telecommunications accounting is just beginning, and an outside consultant is training the staff in that method, according to the PSC.
In Virginia, the financial staff has remained at 12, according to Kent Peterson, manager of audits at the State Corporation Commission. The number of staff people "is kind of low right now. . . . We are looking for a couple of people," he said.
Privately, more than one regulatory official has said the commissions are hampered by more than just lack of a work force.
Because the regional phone companies are just starting their diversification efforts, financial staffs also are not sure about what company finances to examine. Officials say it will take time to find their bearings.
"I don't think anybody has the answer until we are two years down the road," said one regulator who asked not to be identified.
Other officials say the breakup, and rapid phone company diversification into new businesses, has made it next to impossible to keep financing of monopoly and competitive businesses straight. "Cost allocations are going to be a nightmare . . . . no commission can get a staff big enough to monitor it," one state official said.
Meanwhile, in a rate case decided last month, the District PSC awarded C&P Telephone Co. a rate increase of $31.5 million, which has caused rates for basic phone service to rise as much as 50 percent.
The PSC struck down most of what was requested in expenses for some Bell Atlantic subsidiaries because they could not make a determination about actual costs. Bell Atlantic has said it will not release information to the PSC about its unregulated subsidiaries because the information then becomes public and the company does not want to give competitors an edge.
In Maryland, officials also could not make a determination about some cost allocations and did not award the company all its expenses last year. They did, however, grant a rate increase of $28.6 million.
Kenneth G. Hurwitz, executive director of the Maryland PSC, said his auditing and financial analysis staff of 11 does "an adequate job now, but improvements could be made with more staff. To the extent we had more staff, we could dig deeper into the companies' accounting and further participate in periodic audits," he said.