Daniel Helmick, Assistant Vice President for Government & Regulatory Affairs, Sprint

Andrew P. Varley, Senior Vice President, Energy Pricing & Regulatory Services, American Electric Power

American Electric Power, 1 Riverside Plaza, Columbus, Ohio, 43215

REMARKS BY DANIEL HELMICK
I think of myself as someone who cares about the issue of ethics in business and who cares about creating and nurturing an ethical work place. Let me compliment the Council for Ethics in Economics on its mission-"to strengthen the ethical fabric of business and economic life." This kind of thinking and work is significant and extremely important. It is becoming more so, not just for the industry of telecommunications or for deregulating industries, but for all business and industry.

Describing the telecommunications industry as deregulated or as becoming deregulated is a bit of a misnomer. It is certainly an industry facing a lot more competition than it ever faced before. For today's discussion, I am not sure it makes a difference whether it is a more competitive industry or an industry that is becoming deregulated. When the Public Utility Commission recently released its "minimum telephone service standards" that are forty pages longer than the minimum telephone service standards that existed in the environment of monopoly, I think you have to ask: Is there less regulation?

I would like to touch briefly on three issues:

1. downsizing and dealing with employees
2. our wholesale customers becoming our competitors, and
3. privacy.

Probably the biggest issue facing our industry right now is the laws that not only created competition but are requiring us to enable that competition. We are going to be expected and required to provide wholesale service to our competitors. We have to open our central offices and the rest of our network to our competitors. We have to provide access to our operating systems. We have to be prepared to sell pieces of our network to allow any of the long list of new entrants access into our business. Congress enacted legislation in 1996 to require this.

Sprint supports the policy, but it does create issues. For example, when we provide repair service to a competitor, we must offer the same level of service that we provide to one of our own customers. A problem arises when there is a repair call from your competitor and from your customer at the same time. You have two technicians available-one is brand new on the job-the other has 20 years on-the-job experience. Whom do you send to serve your customer, and whom do you send to your competitor? I don't know the answer but it's an example of the dilemmas that companies will face.

Another issue is privacy of customer data. This is a major ethical concern for the telecommunications industry. Not just how we protect the customer information we possess, but what do we do with information to the extent that it gives us a competitive advantage? What are we allowed to do? There are rules for it but rules can be interpreted a lot of ways. That is why you need to have a work environment that nurtures ethics-one where somebody can say: Is that fair? Is that right? Nobody as far as I know has THE RIGHT WAY to do it. It requires an example being set at the top of the business-and a sense within that company that ethics is very important.

REMARKS BY ANDREW P. VARLEY
I want to comment on the electric industry in general to provide background for my remarks. We believe there is potential competition in the generation of electricity and we are actively working to see that it comes about. As we make the transition, there are many ethical questions that arise. Many are the same that the telecommunications industry has. In addition to these, there are some unique characteristics in the electric industry that create other questions. For example, there are several different functions. These are:

• Generation that produces electricity. There are a lot of people willing to build generation plants in a competitive environment.
• Transmission with transmission lines requires dealing with the Federal Energy Regulatory Commission.
• Distribution that takes the energy from transmission lines into individual homes or businesses. This is regulated by the state Public Utility Commission (PUC).
• Marketing, including installation of meters as well as meter reading, billing, collection, etc.

• A transition design that has the potential for creating an unregulated monopoly rather than a truly competitive market.
• Over-recovery of stranded costs inflating current rates and providing utilities with future windfalls.
• Using information and knowledge from the regulated business to benefit the unregulated business.
• Using discriminatory practices in the regulated business to benefit the unregulated business.
• Serving customers in another utility's territory-under-delivering energy when prices are high and over-delivering when prices are low.
• Riding the system (not paying for support services) and selling spinning reserves (lack of backup capacity).
• Using market power to manipulate the market price, e.g., withholding a generating plant at critical times or limiting transmission access to shore up the market.
• Slamming customers-changing suppliers against their will or switching services without the customer knowing it.
• Increasing profits by reducing quality of service in the regulated portion of the business.

Will there be oversight to make sure the system is working properly?
Response: This must be accomplished.

Is the utility industry or the regulator best suited to make sure everyone complies with industry standards?

Response from Varley: In terms of compliance, the industry should be good at establishing rules for conduct. However, there will need to be some enforcement at the state or federal levels, or both, to be sure there is compliance. The penalties for noncompliance will need to be worse than making the extra effort to comply. Penalties would be such that people do not see an option not to comply.

Response from Helmick: As any industry becomes more competitive, a lot of these issues will be regulated by the market place. Customers won't put up with a bad practice and will go someplace else, whether it's a direct customer of our company or a customer that we are serving wholesale who is serving the end-customer.

ABOUT THE PANELISTS AND THE ORGANIZATIONS THEY REPRESENT
Daniel R. Helmick received a Bachelor of Arts degree from Xavier University in Cincinnati, Ohio, and a Masters in Business Administration degree from The Ohio State University. Previous positions include legislative and regulatory representation for Cincinnati Bell Telephone and Columbia Gas. He served for eight years as executive vice president of the Ohio Cable Television Association. Helmick is currently responsible for developing legislative and executive branch strategies in Ohio for Sprint's local telephone division.

Sprint's Local Telecommunications Division provides services through four regional companies based in Mansfield, Ohio; Wake Forest, N.C.; Altamonte Springs, Fla.; and Overland Park, Kan. Sprint's regional operation headquartered in Mansfield serves Illinois, Indiana, New Jersey, Ohio and Pennsylvania. Sprint employs 5,300 associates and serves 1.6 million residential and business customers throughout the five-state region.

Andrew P. Varley holds a Bachelor of Science degree and a Master of Science degree in agricultural economics from Iowa State University and North Carolina State University, respectively. Varley joined AEP in January 1988 after nine years of service with the Iowa State Utilities Board, of which he served as chairman during the period from 1980-88. At AEP he was subsequently made Vice President, Rates, and in June 1996 was selected for his current position.

AEP, founded in 1906, is one of only two investor-owned utilities in the United States that generate more than 100 billion kilowatt-hours of electricity in a calendar year. It serves seven million residents in seven Midwest states. AEP owns all, or portions of, twenty-one major generating plants, nineteen are coal-fired while one is a nuclear station and the others a pumped-storage hydroelectric facility. AEP operates more than 125,000 miles of power lines and is interconnected via high-voltage lines with 29 other power systems at 120 locations in six states. At present, AEP is preparing for deregulation and competition.

Council for Ethics in Economics
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Columbus, Ohio 43215-3605 U.S.A.
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