Small Business Bulletin 7/12/2004

Small Business Bulletin 7/12/2004

7/12/2004

Small Business Bulletin

Small Business Under Attack from Regulated Industries
Small Business Chamber Fighting Back

Look out small businesses! Telephone, electricity and workers comp insurance costs will all be going up soon. This Bulletin tells you what these regulated industries are up to and how The SC Small Business Chamber of Commerce is working to keep your business costs down.

Telephone Rates

Small businesses are about to get hit with a one-two punch from the giant monopolistic telephone companies like BellSouth. First, in a recent federal court ruling, BellSouth and its Baby Bell cousins got approval to be free of state regulatory oversight on how much they charge competitors like AT&T and MCI to lease local telephone lines. In an effort to promote healthy competition in local phone service, the SC Public Service Commission has been responsible for making sure that BellSouth and other giants that exclusively control local phone lines were not gauging their would-be competitors for access to these lines. The result has been spirited competition for local phone service that has kept costs down for small businesses. This will now change.

Because of the new court ruling and the refusal of the Bush Administration to seek to overturn it in the Supreme Court, small businesses can expect to see increases in local phone service as early as January of next year. One economic impact study released this month estimates cost increases for small businesses possibly as high as 25%. This will be the result of both BellSouth et. al increasing the local line access fees for its competitors, which then pass along the increases to the consumers, and also BellSouth et. al then being able to increase their own rates. Eventually the competitors will simply have to abandon the local service arena because they will no longer be able to compete leaving the Baby Bells as total local phone line monopolies once again.

But don’t the states regulate how much a utility monopoly can charge, you might ask? Well, we used to. However, at the end of this legislative session, the SC General Assembly passed legislation deregulating bundled telephone services (meaning the state Public Service Commission no longer approves rates) and allowing rural telephone companies to easily avoid regulation by the Public Service Commission. The latter will guarantee rate increases for small businesses served by 13 of our 20 small rural telephone carriers. The deregulation of bundled services will mean that if BellSouth competitors are driven out of the local phone service business, BellSouth will not have to contend with either the PSC nor competitors when it wants to raise its rates.

Fighting Back. The SC Small Business Chamber of Commerce fought to change BellSouth’s bill this past session so as to provide more protection for small businesses. The bill was amended to limit the possible rate increases on rural small businesses. Also, as a direct result of our efforts, 13 Senators signed a letter requesting that the Legislative Audit Council audit the Universal Service Fund, a $40 million a year telephone tax assessed on every phone line to supposedly subsidize rural telephone service. The Legislative Audit Council has agreed to conduct the review. This past legislative session BellSouth and local rural telephone companies publicly made statements calling into question the need for this tax. Senators making this important request for an audit that could lead to reduced telephone costs for small businesses were Senators Richardson, Elliott, Ford, Gregory, Martin, Mescher, Ryberg, Grooms, Verdin, Knotts, Cromer, Ritchie, and Malloy. Please thank these Senators for their support.

The Small Business Chamber has also sent a letter to the Federal Communications Commission requesting that the agency write new regulations to insure a healthy, competitive local telephone service marketplace to protect small businesses from increased costs. We have also taken the unusual step of sending a letter to Governor Mark Sanford requesting that, in order to protect the interests of small businesses, he veto the telephone deregulation bill passed last month in light of the federal court stripping our PSC’s oversight over access to local phone line. As of today, the Governor has neither signed nor vetoed this legislation. He has until the beginning of the next legislative session to make a decision on this matter.

Electricity Rates

SCE&G’s current approved electric rates allow for the company to make over a 12% return on equity. SCE&G’s parent company, SCANA, saw this year’s first quarter profits rise by 20%. SCANA’s, president was paid over $2 million in 2002. All financial signs are that this power monopoly is doing quite well.

But now SCE&G is asking the state’s Public Service Commission for an electric rate increase of 3.3% on small businesses and a 5.66% overall increase. Just last year the power company, which serves 574,000 customers in 24 counties, received an overall rate increase of 5.8% but an 8% increase on small businesses. During that rate hearing the Small Business Chamber vigorously and successfully contested SCE&G’s original request of a 14% rate hike on small businesses. While the newly proposed rate increase on small businesses is much smaller this time, if approved it would still result in electricity rates for small businesses served by SCE&G going up over 11% in less than two years.

Fighting Back. SCE&G and SCANA may not be suffering during these poor economic times, but small businesses certainly are. The Small Business Chamber will again be the champion of small businesses during the PSC’s hearing this fall on SCE&G’s electric rate increase request. Any reduction in the rate hike as a result of our efforts will be beneficial to small businesses.

Workers Comp Insurance

Starting this month workers compensation rates will be going up an average of about 11.4%. As bad as this is, it could have been worse. The National Council on Compensation Insurance (NCCI), the rating bureau that calculates the “lost cost” rate for workers compensation insurers and seeks to get the rate approved by the SC Department of Insurance, originally asked for a 17.6% increase. The SC Department of Consumer Affairs then stepped in, questioned the appropriateness of the rate request and was instrumental in negotiating the lower rate. As a result of the Consumer Advocate’s intervention, the annual savings to South Carolina businesses is estimated to be $20 million.

Even with this workers comp rate “victory”, our small businesses will still be taking it on the chin for yet another increase in regulated business costs. Continued double-digit increases in workers comp rates threaten the economic health of our small businesses and cannot be sustained.

Fighting Back. This September the Small Business Chamber will start the process of addressing the workers comp problem. The first order of business must be to have a complete understanding of this highly complicated issue. To do this the Small Business Chamber will hold a workshop for key representatives of our trade association members. Speakers will address how these insurance rates are determined, the factors that drive costs and what each business can do to keep premiums down. With this understanding of the problem, we hope to arrive at a comprehensive and consensus approach (legislative and otherwise) to control workers comp insurance rates.