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             California Public Utilities Commission
CONTACT: Armando Rendon           April 8, 1996          CPUC-032
         415-703-1366                                (R95-04-043)

   CPUC STAFF JUDGE RECOMMENDS REJECTING PACIFIC/GTEC REQUEST
          FOR COMPENSATION TO MAKE UP PROJECTED LOSSES;
         LEAD COMMISSIONER WILL ISSUE ALTERNATE PROPOSAL

     A California Public Utilities Commission (CPUC)
Administrative Law Judge (ALJ) today, in an interim proposal that
must still be reviewed by Commissioners, rejected Pacific Bell
(Pacific) and GTE California (GTEC) requests for billions in
compensation for the financial losses the companies expect to
experience due to local phone competition.
     Assigned Commissioner P. Gregory Conlon has begun his
evaluation of the ALJ proposal.  He is of the preliminary view
that he disagrees with aspects of it and will issue an alternate
decision to present to the full Commission.
     Pacific is seeking $3.7 billion over five years.  GTEC is
asking for compensation as well, estimated at about $500 million.
     The companies argue that because of the CPUC-imposed
competition in the local phone market, they would be denied an
opportunity to earn a fair rate of return on investment,
amounting to a violation of their constitutional protection
against uncompensated "takings" of property.
     In order to ensure they are compensated, the companies are
asking the CPUC to set up a proceeding to determine the method
for recovering the money from customers.
     ALJ Barbara Hale concluded that the recently enacted federal
Telecommunications Act, enacted after the Commission adopted
competitive entry rules, largely preempts CPUC regulation of
local competition by prohibiting states from constraining entry
into local markets.  State regulations must be consistent with
the Act and federal regulations.
     Commissioner Conlon emphasized that, "We began this process
well before the federal regulation was enacted.  I believe that
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the CPUC has primary responsibility for addressing this issue, as
long as the PUC action is not inconsistent with the Act."
     As for the companies requesting that the CPUC take further
action to ensure their financial health, ALJ Hale noted that
local phone competition rules do not alter the CPUC's regulatory
program to the extent that the companies cannot earn a fair rate
of return.
     In considering this question, Hale stated that the U.S.
Supreme Court's holding in Duquesne Light Co. v. Barasch (488
U.S. 299) requires the Commission to consider earnings from
regulated services as well as from other related business which
may not be regulated by the CPUC.  This is among the conclusions
of concern to Commissioner Conlon.
     Finally, Hale concluded, a fair return is one that would
fall within the range set by the New Regulatory Framework program
which gears profits to company performance and national rates of
inflation.  Under these criteria, Pacific's and GTEC's evidence
projecting dollar losses was reviewed and rejected.
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