Telecom Signaling Industry News

[June 18, 2006]

Broad impact from PSC shake-up: Firing would affect firms awaiting panel's decisions

(Baltimore Sun, The (KRT) Via Thomson Dialog NewsEdge) Jun. 18--The legislature's wholesale replacement of the state utility commission would directly affect scores of businesses that have little to do with the public anger over electricity rates.

Phone providers, water utilities, bus lines, taxi drivers and pilots who guide cargo ships on the Chesapeake Bay have been delivered a dose of uncertainty and, in some cases, government delays that could cost them millions.

An unintended consequence of the lawmakers' response to the BGE rate increase is that it potentially harms companies that must occasionally go before the Public Service Commission to justify their rates, settle disputes or argue various competitive issues.

The legislature voted last week to replace all five members of the commission by July - an action that faces a possible veto by the governor or a legal challenge by the commission's chairman.

In the meantime, a tiny Hagerstown phone and Internet service provider that is taking on telecommunications giant Verizon Corp. in a multimillion-dollar billing dispute is uncertain when it might see a resolution. Cabdrivers in Cumberland who say they haven't had a rate increase in 21 years are left to wonder when they might get relief. Chesapeake Utilities, a Delaware company that has gas operations on Maryland's Eastern Shore, can't get an answer on its request for an increase in its base rates.

On Friday, the quandary led the commission to postpone an electricity auction for medium-size commercial customers, saying the pending legislation could affect how the contracts are carried out. The commission feared that the ensuing confusion might scare off potential bidders, possibly resulting in more expensive power for certain business customers of the state's publicly owned utilities.

"For the companies, these are very important matters, and it's all up in the air because it appears you have a lame-duck commission," said H. Russell Frisby Jr., a Washington attorney who was chairman of the Maryland PSC from 1995 to 1998. "And if this commission does rule on your matter before July, is the new commission going to come in and simply reverse course?"

The roughly 25 cases pending before the PSC are in regulatory limbo as commissioners and industry representatives wait to see whether the legislation passed last week becomes law and, if so, who will make up the new panel.

Beginning a century ago as an overseer of the state's once-powerful railroad companies, the commission has evolved to handle issues including power companies and telecommunications. For the panel's critics, legislation firing its members will mean good riddance to a group they felt was motivated by politics at the expense of ratepayers, especially in regards to electricity. But for regulated businesses, the flux could cause credit-rating agencies to downgrade their debt or prompt investors to consider putting their money elsewhere.

Frustrated electricity consumers also have money on the line. The legislation calls for the new commission to reconsider aspects of the state's move toward electricity deregulation, which could lead to changes that will lower electricity bills in the future. But it also means that competitive power suppliers who say they can offer lower rates than BGE might pull back from the market for fear the rules could change.

More than $2 million is on the line for New Frontiers Telecommunications, a tiny Hagerstown phone company, which is in the midst of a dispute over billing and other issues with telecommunications giant Verizon. The company has a case pending before the PSC, but now it wonders whether the regulatory body will resolve it in time to prevent damage to its business.

New Frontiers President Clint Wiley worked the corridors of the State House last week, pumping lawmakers for information about their plans for the PSC.

"I was basically told by staffers and lawmakers that it stinks that we're caught in the middle of this, but it was a political event, and the rest of us who have pending issues are just going to have live with that," he said.

Founded in 1995 as an Internet service provider, New Frontiers has expanded to provide local and long-distance phone service for customers in Western Maryland. Under the federal law created to spur competition in phone service, it's one of many competitors allowed to lease lines and equipment from Verizon, the dominant player in the region.

In its complaint, New Frontiers contends that Verizon improperly billed it for access to those lines. It also says Verizon has engaged in other anti-competitive behavior.

Verizon officials have asked that the case be dismissed, saying New Frontier has refused to pay for access and clouded the issue with "trumped-up disputes." In an e-mail, the company declined to comment on the legislation to fire PSC commissioners, saying it was too soon to gauge its impact.

New Frontiers and other companies awaiting rulings might have a long wait. If the legislation survives a potential veto from Gov. Robert L. Ehrlich Jr., there remains a chance that PSC Chairman Kenneth D. Schisler will revive an earlier suit to block implementation of the bill.

On back burner

That could drag the uncertainty out even longer, potentially tying up cases for months. The legislation also requires a new commission to take up a series of studies and cases pertaining to electricity rates and deregulation - something that could place other cases on the back burner indefinitely."If this drags on through the election, that's a long time for us to go without any kind of avenue for justice," Wiley said.

Most regulated businesses contacted by The Sun said they are reserving judgment until they see whom lawmakers and the governor will pick for a new commission. Already, various groups are making their pitch for potential candidates.

Wiley, the phone executive, is hoping for at least one commissioner with a telecommunications background. Dwight Kines, general manager of Yellow Transportation, which runs Yellow, Checker and Sun cabs, is hoping for someone with a transportation background.

"Based on our experience with the current commission, they've always treated us fairly, and obviously we hope the next one will as well," he said.

Despite the collateral damage that might result, Frisby and others said the removal of the current commissioners was probably necessary. He contended that confidence in it was lost after it was revealed in March that four of the five commissioners - all Ehrlich appointees - had met privately with the governor's top aides in the midst of a heated political debate over electricity rate increases.

But the legislature's action will have consequences beyond BGE for years to come, Frisby said.

"It's going to have an effect on other companies because other companies are now probably correctly worried that any decision by the PSC is going to become very politicized ... and that commissioners in the future will be afraid to make tough decisions out of fear of political retribution," he said.

Assuring Wall Street

During floor debate last week, lawmakers took pains to signal to Wall Street and regulated businesses that replacing PSC commissioners is unique and should not be symbolic of a new wave of regulatory uncertainty in Maryland. Lawmakers stressed that they were seeking to restore balance to the commission, not install a panel that will be pro-consumer or anti-business.

The financial community remains wary. The political feud led Moody's to downgrade BGE's debt in April and put two other Maryland utilities - Potomac Electric Power Co. and Delmarva Power & Light Co. - under review for a possible downgrade. Fitch Ratings and Standard & Poor's also have been watching the situation closely.

In a news release Thursday, Fitch said it was holding its rating on BGE's debt steady pending the outcome of the legislation. It expressed particular concern about the move against the PSC.

"The legislature's firing of the PSC raises concerns about the composition and independence of a new commission and ongoing political constraints upon timely recovery of any future utility cost increases," the firm's analysts wrote.

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