I. INTRODUCTION

In this Order, we dispose of the application for rehearing of Decision
(D.) 10-06-029 (or "Decision"), filed by Calaveras Telephone Company, et al. ("Rehearing Applicants").¹ In D.10-06-029, issued on June 28, 2010, we ordered Rehearing Applicants to credit approximately $31.3 million from Rural Telephone Bank stock dividends and redemption to ratepayers. We further ordered Rehearing Applicants to show cause why they should not be subject to a fine of up to $20,000 each for violating D.91-09-042,² and Rule 1 of the Commission's Rules of Practice and Procedure, which requires all persons who transact business with the Commission "never to mislead the Commission or its staff by an artifice or false statement of fact or law." (Cal. Code of Regs., tit. 20, §1.)

Each of the Rehearing Applicants owned stock in a federal government entity known as the Rural Telephone Bank ("RTB"). The RTB was created by Congress in 1971 to make capital available to rural telephone providers at reasonable costs for investment in infrastructure to serve their customers. (D.10-06-029, p. 3.) Rehearing Applicants obtained substantial loans from the RTB prior to its dissolution in 2006. They also acquired stock in the RTB in three ways: (1) stock purchased using shareholder funds; (2) patronage refunds, which were refunds issued to Rehearing Applicants by the RTB when the RTB's interest income exceeded its expenses, reserve requirements and obligatory shareholder payments, issued in the form of Class B stock with a par value of $1 per share; and (3) mandatory stock purchases with loan proceeds, due to the fact that the RTB required all borrowers to use 5% of their loan proceeds to purchase RTB stock. (D.10-06-029, p. 5.) In August 2005, the Board of Directors of the RTB authorized its dissolution and initiated the stock redemption process. Redemption payments began in April 2006. (D.10-06-029, p. 9.)

On December 20, 2007, Rehearing Applicants initiated this proceeding by filing an application (Application (A.) 07-12-026) seeking our authorization to distribute a total of $3,037 to their customers from the RTB stock redemption. Only after two years of repeated inquiries by Commission staff did Rehearing Applicants disclose that they had received approximately $31.3 million in proceeds from the RTB stock redemption. (D.10-06-029, p. 10.)

In D.10-06-029, we found that Rehearing Applicants "were not forthcoming in disclosing the substantial proceeds from the sale" of the RTB stock. (D.10-06-029, p. 52 [Finding of Fact 14].) We ordered Rehearing Applicants to show cause why they should not be held liable and/or fined for their failure to disclose, in a timely and voluntary manner, the actual amounts they received in the RTB stock redemption process. (D.10-06-029, p. 56 [Conclusion of Law 28].) We further determined that Rehearing Applicants' proposal for shareholders to retain over $31 million in RTB stock proceeds, and allocate only $3,000 to ratepayers, was not justified by the record and would not result in just and reasonable allocation of the proceeds as between ratepayers and shareholders. (D.10-06-029, p. 54 [Conclusion of Law 14].) We ordered each Rehearing Applicant to file an advice letter with the Commission within 90 days of the issuance of the Decision, demonstrating how it planned to issue credits to allocate properly the RTB stock redemption proceeds. (D.10-06-029, pp. 56-57 [Ordering Paragraph 1].)

On July 28, 2010, Rehearing Applicants filed an application for rehearing of D.10-06-029. They seek rehearing and allege error on the following grounds: (1) the Decision effectuates an unlawful taking of utility property; (2) the Decision violates well-established law prohibiting retroactive ratemaking; (3) the Decision contradicts the Commission's own "Gain on Sale" Decision; (4) the determinations are not supported by the record and are contradicted by undisputed evidence presented by Rehearing Applicants; (5) the process by which the Decision was adopted violates Rehearing Applicants' due process rights; and (6) the Commission acted in excess of its authority and contrary to law in failing to make adequate findings and in failing to make findings on all issues material to the Decision. Rehearing Applicants also request oral argument on their rehearing application.

On July 28, 2010, Rehearing Applicants filed a motion for stay of D.10-06-029.³ In their stay motion, Rehearing Applicants allege that they will suffer serious and irreparable harm if a stay of the Decision is not granted while their rehearing application is pending, and further argue that they are likely to prevail on the merits of the claims asserted in their rehearing application.

Finally, on July 28, 2010, after filing their application for rehearing, Rehearing Applicants sought to file with the Commission a request for official notice of certain documents. This request was rejected for filing by the Commission's Docket Office under Rule 13.9 of the Commission's Rules of Practice and Procedure because the record in the proceeding was already closed. On August 18, 2010, Rehearing Applicants filed with the Commission a motion for an order directing the Commission's Docket Office to accept the July 28, 2010 request for official notice for filing. We dispose of this motion in this Order.

We have carefully considered the arguments raised in the application for rehearing, and are of the opinion that good cause has not been established to grant rehearing. However, we do determine that D.10-06-029 should be modified to correct a mathematical error. As modified, we deny the application for rehearing of D.10-06-029. Further, we deny the motion for stay of the Decision as moot. In addition, we deny the request for official notice for the reasons stated below.

¹ The Rehearing Applicants include: Calaveras Telephone Company; Cal-Ore Telephone Company; Ducor Telephone Company; Happy Valley Telephone Company; Hornitos Telephone Company; Kerman Telephone Company; The Ponderosa Telephone Company; Sierra Telephone Company; The Siskiyou Telephone Company; Volcano Telephone Company; and Winterhaven Telephone Company.

² Re Alternative Regulatory Frameworks for Local Exchange Carriers - Order Modifying Decision 91-05-016 and Denying Rehearing D.91-09-042] (1991) 41 Cal.P.U.C.2d 329.

³ That same day, Rehearing Applicants filed a response to the order to show cause. In their response to our order to show cause, Rehearing Applicants allege that they were not obligated to include the RTB stock redemption proceeds in their 2006 California High Cost Fund A filings with the Commission, and further claim a good faith difference of opinion with the Commission as to whether these amounts should have been voluntarily brought to the Commission's attention prior to the initiation of this proceeding. Because the proceeding on the order to show cause is an adjudicatory matter pending before the Commission, we do not intend to address the merits of the issues raised by the order to show cause in order to avoid any prejudgment.