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On July 12, 2007, the California Public Utilities Commission held its regularly-scheduled agenda meeting. The meeting was very brief, and the Commission moved quickly through the agenda. There were no public speakers, and only a couple of Commissioner reports. The Commission reached a significant decision regarding “ex parte” violations by Cox and AT&T, and approved a series of agreements between Small LECs and Pac-West with regard to Virtual NXX traffic. Further information about these and other telecommunications-related items on the July 12, 2007 agenda is provided below.


REGULAR AND CONSENT AGENDA ITEMS

  • Cox and AT&T Penalized $40,000 Each for Improper “Ex Parte” Contacts in Warmline Complaint Proceeding (Item 45, adopted 4-1, Peevey dissenting) – In a significant decision impacting the Commission’s interpretation of its “ex parte” rules, the Commission imposed stiff penalties on Cox and AT&T for engaging in “ex parte” contacts with Commissioner advisors regarding matters that the Commission determined were within the scope of the parties’ complaint case with UCAN.

    The matter arose out of a complaint filed by UCAN against Cox and AT&T, in which UCAN alleged that the carriers had failed to comply with the 911 “warmline” obligations under Public Utilities Code Section 2883. Following the filing of the complaint, the carriers filed a motion to dismiss. The carriers argued that the interpretation of Section 2883 was a matter of industry wide concern, and that these standards should not be established in a complaint case involving only two parties. This motion was denied on procedural grounds. Following that defeat, the carriers renewed their argument in a motion in the local competition docket (R.95-04-043), arguing that the issue should be addressed in that generic proceeding. The carriers filed a related stay motion in the complaint proceeding.

    With the stated purpose of discussing the motion in the local competition docket (as opposed to the substance of the complaint cases), Cox and AT&T each had two meetings with Commissioner advisors. Although the carriers explicitly stated that the meeting was not being held to discuss the complaint cases, the Commission found that the presentations and discussions during these meetings violated the ban on ex parte contacts in adjudicatory proceedings.

    Commissioner Bohn introduced the item, emphasizing that the motion in the local competition docket addressed the same substantive issues as those addressed in the complaint cases. Bohn noted that the discussions were clearly “interested persons,” that the advisors were clearly considered “decision makers,” and that these were clearly “oral and written communications.” Bohn reasoned that the only disputed issue in applying the ex parte test was whether the matters under discussion involved “substantive issues at issue in the complaint cases.” Although the issues were “housed in an artful camouflage,” Bohn concluded that the same issues were involved in the motion and the complaint cases, and that this fact is sufficient to find an ex parte violation. Bohn remarked that “you can put two bees in an 8 inch jar or a 16 inch jar, but the nature of the bees is the same.” He added that AT&T and Cox are sophisticated parties, and that they should know better than to violate the rules in this way. Bohn classified the carriers’ actions as “very troubling.”

    Commissioner Chong seconded Bohn’s comments in support of the decision. Describing her rationale as “straightforward,” Chong stated that the decision is “narrowly tailored” and “based on the facts of this case.” Chong emphasized that “forum selection is substantive issue under the PU Code.” She warned parties that they should be aware of this in future Commission proceedings. Chong also justified the extent of the penalties imposed by characterizing this as a “serious violation affecting the integrity of our process” and by stating that the amounts would have to be high to act as a deterrent with respect to parties with resources of the magnitude of AT&T and Cox.

    Commissioner Peevey strongly dissented, attacking the decision as “arbitrary and capricious” and “unsupported by precedent.” Peevey observed that even if there was a violation, it was inadvertent rather than intentional. As a result, this is a “very severe penalty” that, in Peevey’s mind, “fails completely to meet the test of elemental fairness.” Peevey noted that there were mitigating factors present in this case that the decision failed to consider. For example, the parties explicitly stated that the complaint cases were not to be discussed during the meetings. Similarly, the meetings in this case were far removed in time from any Commission decision that might be issued on the substantive issues in the case. In fact, hearings had not even taken place yet. Peevey also distinguished the case from a prior case involving WorldCom and Pacific Bell, in which a more “blatant” violation took place, but where the Commission imposed a much lower penalty. In conclusion, Peevey stated that he will remain skeptical of ex parte-related penalties until the Commission produces clearer standards to guide parties’ actions in this area.

    Commissioner Simon also supported the substance of the decision, even though he acknowledged that this was a “technical violation of very technical rules.” Although he supported the ex parte penalties against these carriers, Commissioner Simon stated that he supports the substantive arguments of AT&T and Cox presented during the ex parte meetings. Simon agrees that the warmline issue is a matter of industry wide concern that should not be determined in a complaint case involving only two parties.

    Ultimately, the decision was adopted by a 4-1 vote, with Peevey as the lone dissenter.

  • Small LECs / Pac-West Interconnection Agreements Approved Regarding Exchange of VNXX Traffic (Items 14, 15, 16, 17, 18, 19, 20, adopted on consent agenda) – By these resolutions, the Commission approved a series of advice letters filed by Small LECs with regard to their exchange of Virtual NXX or “VNXX” traffic with Pac-West. Each of these filings was found to be in the public interest, and the affected parties can now interconnect on the terms specified in the agreements. These resolutions approved interconnection agreements for the following Small LECs: The Siskiyou Telephone Company (T-17088); Ducor Telephone Company (T-17097); The Ponderosa Telephone Company (T-17095); Global Valley Networks, Inc. (T-17096); Pinnacles Telephone Company (T-17094); Calaveras Telephone Company (T-17093); and Volcano Telephone Company (T-17093).

  • Fones4All Liable for Overcharging AT&T for Terminating Intrastate Traffic (Item 35, adopted on consent agenda) – The Commission ordered Fones4All to pay AT&T $2.6 million in overcharges in connection with the termination of intra-LATA toll traffic on Fones4All’s network. Fones4All charged the disputed amounts to AT&T from September 2003 through August 2005. In August 2005, AT&T acquired new technology that allowed for better tracking of the minutes associated with Fones4All’s billings. At that point, it came to light that AT&T had been overcharged, and that Fones4All’s billings bore no relation to actual minutes of terminating traffic. In support of its billings, Fones4All alleged that the charges were not subject to the interconnection agreement between the parties, but rather were authorized by a verbal agreement between Fones4All and AT&T whereby Fones4All had supposedly acquired a favorable rate for this traffic in exchange for supporting AT&T’s application to operate as a long distance carrier in California. Fones4All also justified its billings by arguing that AT&T had failed to timely dispute the amounts.

    The matter was submitted to Commission-sponsored mediation, which was unsuccessful. Following the mediation, the Commission held hearings to further examine the parties’ positions. The Presiding Officer ruled in favor of AT&T, and this decision was upheld by the full Commission, as reflected in the following decision: http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/70118.doc. In reaching its conclusion, the Commission found that the parties’ interconnection agreement did govern the disputed traffic, and that AT&T’s failure to immediately dispute the amounts was not grounds to reject its claims.

  • Consumer Groups Granted Intervenor Compensation in VoIP and Gain on Sale Proceedings (Items 13, 25 adopted on consent agenda) – The Commission granted intervenor compensation to a variety of consumer groups based on their participation in two major proceedings with implications for the telecommunications industry, the VoIP proceeding (I.04-02-007) and the “gain on sale” proceeding (R.04-09-003). Although the VoIP proceeding did not result in a substantive decision on the issues presented by the Order Instituting Investigation, the Commission nevertheless found that The Greenlining Institute, TURN, and the Peninsula Ratepayers Association are entitled to intervenor compensation in connection with their contributions to the proceeding. These parties received approximate amounts of $102,000, $52,000, and $48,000, respectively. Greenlining’s award was reduced by 10% due to its failure to specifically allocate hours to particular tasks. The Commission warned all intervenors that absent such a particularized allocation, other proposed intervenor compensation awards could be reduced. The decision awarding these intervenor amounts is attached at the following link: http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/70105.doc.

    The Commission also awarded TURN more than $40,000 in intervenor compensation for TURN’s contributions to the Commission’s examination of the rules governing the allocation of gains on sale from utility transactions. During the proceeding, TURN relied on a series of joint filings with DRA, and TURN admitted that DRA took the “laboring oar” in litigating the issues in the case. Although this admission caused the Commission to request further justification for TURN’s request, it ultimately did not result in reductions to TURN’s requested award. The decision embodying this award to TURN is attached at the following link: http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/70121.doc.

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