RICHMOND — The State Corporation Commission (SCC) has approved a new alternative plan of regulation for Embarq. The plan, if adopted by Embarq, would apply to the local telephone services provided by the company to the 370,000 residential and business customers it serves in Virginia.

The SCC modified Embarq’s original proposal. It found that Embarq’s proposed plan could result in price increases to Embarq customers that were too high to meet the standards of applicable Virginia law.

Embarq had proposed that it be allowed to raise prices for basic local telephone service to the higher of either a price cap reflecting an inflation factor applied to a 1995 baseline, when Embarq’s last regulatory plan took effect, or the highest tariffed price currently in effect for either of Embarq’s Virginia companies (Central Telephone Company of Virginia and United Telephone-Southeast, Inc.).

The SCC rejected this proposal for basic telephone service, finding that such a price cap could result in price increases for some Embarq customers of 60 percent in the first 13 months, and more than 80 percent in the first 25 months, of the new plan.

The SCC instead limited the increase in Embarq’s price cap for basic telephone service to a “catch up” inflation factor applied to the 1995 baseline. The SCC further limited Embarq’s ability to raise prices during the “catch up” phase to no more than 10 percent for any single year period. And, no more than 25 percent in any single year for allowable price increases under the cap not implemented in prior years.

For typical residential customers of Embarq's basic, single-line local dialtone service who currently pay between $9.08 and $15.04 a month, the annual increases proposed by Embarq could have been as high as $3.00 per month. Under the SCC's modified plan, customers will see considerably lower increases of between 91 cents and $1.50 per month in the first year.

For other local telephone services, which include a large number of optional services that customers sometimes choose in addition to basic service, such as call waiting or caller ID, Embarq proposed complete price deregulation, which would allow it to raise prices without limit.

The SCC rejected Embarq’s proposal to deregulate prices entirely for other local services. Instead, the SCC will allow Embarq to raise prices by no more than 15 percent in any single year period. And, no more than 25 percent in any single year for allowable price increases under the cap not implemented in prior years.

Embarq argued in support of its proposed new regulatory plan that market conditions and competition would act to keep its prices affordable for its customers. The SCC noted, however, that Embarq’s proposal was not a request for complete price deregulation under the Virginia law allowing for such deregulation.

Embarq has the option of adopting this plan or continuing to be regulated under its existing plan which has been in effect since 1995. It has until July 18 to notify the SCC of its intentions.

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Case Number PUC-2008-00008
Final Order