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GTE REFUNDS $32.5 MILLION TO CUSTOMERS AS PART OF INCENTIVE REGULATION

 THOUSAND OAKS, Calif., June 7 /PRNewswire/ -- GTE California will refund $32.5 million to its customers thanks to productivity improvements and cost reductions achieved by the company last year. The refund was approved recently by the California Public Utilities Commission (CPUC).
 "The average flat-rate residential customer refund will be $2.81 per month during June, July and August," said Timothy McCallion, director of revenue and earnings for GTE's West Area, which includes GTE California. "Refunds will appear on GTE bills during those months as a 9.55 percent credit on basic service and calls made within local service areas."
 Through incentive regulation, GTE California has refunded $69.8 million to customers during the last three years, including $7.6 million refunded in 1991, $29.7 million in 1992 and the $32.5 million refund this year.
 Under current incentive regulation, GTE California's annual earnings above a predetermined level are "shared" evenly between ratepayers and shareholders.
 Incentive Regulation -- An Overview
 Traditionally, telephone utilities were regulated by a cost-of- service method, in which rates were based on the utility's investment and expenses. This "cost-plus" regulatory process did little to encourage or reward operating efficiency.
 The current incentive based regulation process, approved by the CPUC in late 1989, removed those disincentives for increased efficiency and cost reductions.
 "Incentive regulation gave local phone companies economic incentives to improve cost controls, efficiency and productivity," McCallion said. "At the same time, incentive regulation has CPUC oversight and includes consumer protections."
 Incentive regulation sets a price cap on most rates. To increase earnings, telephone companies must improve productivity and cut costs.
 Under incentive regulation, the CPUC adjusts GTE California's rates each year by subtracting a preestablished rate of productivity growth (4.5 percent) from the national inflation rate.
 For example, if the annual inflation is 3 percent, then GTE California's rates would be reduced by 1.5 percent (3 percent inflation minus 4.5 percent productivity equals 1.5 percent rate reduction).
 The price cap formula also adjusts rates to reflect miscellaneous factors that are beyond management's control, such as accounting changes adopted by the CPUC or changes in tax law that have a disproportionate affect on telephone companies compared to other firms in the general economy.
 GTE California provides telecommunications services to more than 3 million customers in 330 communities, mostly in Southern California.
 -0- 6/7/93
 /CONTACT: Dan Smith of GTE, 800-227-5556 (24-hour GTE Newsline)/


CO: GTE California ST: California IN: TLS UTI SU:

JB-JN -- LA017 -- 5985 06/07/93 11:30 EDT
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Date:Jun 7, 1993
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