GTE Hawaiian Telephone Co. overbilled Hawai'i businesses an estimated $1.3 million between 1977 and 1981, according to an investigation by the state Public Utilities Commission. Yet despite discovering the errors in 1982, GTE did not reimburse customers for the overcharges, which today would be worth about $2.8 million when adjusted for inflation.

Why the billing problem wasn't disclosed earlier, who's responsible and why the money wasn't refunded remains unresolved. The PUC acknowledges that it knew of allegations of overbilling at GTE in 1984 but never investigated the issue. More than 20 years later the PUC is considering how to resolve the matter, which could include fines and other action to ensure such a problem does not occur again, said Kevin Katsura, legal counsel for the PUC. However, because of a lack of billing records, a refund seems out of the question.

"We're still determining what the next steps are," Katsura said.

Questions surrounding the billing practices arise just as Hawaiian Telcom is in the midst of switching to its own in-house billing system after the split from Verizon Communications. Hawaiian Telcom became the state's main provider of telephone services in May. Before that, the phone company was owned by Verizon communications, which was formed in 2000 when GTE merged with New York-based Bell Atlantic.

There was both underbilling and overbilling of Wide Area Telephone Services, or WATS, customers during the years 1977 to 1981, according to the PUC. However, GTE benefited from a net $1.3 million in overbilling.

The identities of the overbilled customers remain unknown, according to the PUC and Hawaiian Telcom. However, large users of WATS lines likely would have included major hotels such as The Royal Hawaiian and Sheraton Moana Surfrider, which are owned by Starwood Hotels & Resorts.

"I'm pretty sure we were" a GTE WATS customer, said Keith Vieira, senior vice president and director of operations for Starwood in Hawai'i and French Polynesia. "It was so long ago," but "anytime you find a situation where some entity has been treated unfairly, you'd like to see some type of remedy."

The commission began an investigation into the matter after receiving an e-mail complaint from Bill West in September 2004. West, who said he was a former auditor for GTE, alleged that the company deliberately tried to cover up the overbilling of about 1,000 primarily business customers.

Both the PUC and Verizon Hawaii (now Hawaiian Telcom) said allegations of a cover-up are unsubstantiated. Hawaiian Telcom has acknowledged that the overbilling occurred and that it's unaware of any refund being made to customers.

Dan Smith, vice president for corporate communications at Hawaiian Telcom, said the company does not have billing records dating to the years when the overbilling occurred. Under law, the company is required to keep detailed billing records for only seven years.

Why GTE did not refund customers when the overbilling was discovered in the early 1980s remains unknown.

"What the company's thinking was back in 1981, '82 and '83 ... we just really can't say," Smith said.

Also unresolved is whether Hawaiian Telcom faces any liability more than 20 years later.

West, who said he worked for GTE between 1977 and 1984, said he wrote to the PUC about the overbilling in September. At that time the commission was weighing whether to approve the sale of Verizon Hawaii to The Carlyle Group for $1.6 billion.

In July the PUC asked Hawaiian Telcom for assurances that such an overbilling would not happen again. That included questions about how the phone company addresses over- and underbilling of customers and whether the company has standards for accuracy in billing.

In its response dated Aug. 18, Hawaiian Telcom told the PUC that Verizon continues to bill customers under a transition services agreement. In early 2006 Hawaiian Telcom will begin using its own billing system.

"The billing system that Hawaiian Telcom will utilize ... is being designed and will be implemented to be as accurate as possible with periodic testing for accuracy as part of its internal audit program," wrote Lianne Iwanaga-Ohashi, Hawaiian Telcom director for regulatory affairs.

Reach Sean Hao at shao@honoluluadvertiser.com.