3. Position of the Applicants
Applicants oppose the imposition of fines and contend that they have not engaged in wrongdoing in connection with this proceeding. First, they argue that they were under no requirement to include Rural Telephone Bank stock redemption proceeds in their 2006 California High Cost Fund A filings. The rules for those filings, found in D.91-09-042, require filing an advice letter to request California High Cost Fund A funding for the upcoming calendar year with "at least seven months of recorded data annualized for the year in which the advice letter is filed and adjusted for known Commission regulatory decisions regarding the utility's rate of return."2 Applicants maintain that this recorded data does not include interstate revenue, non-operating, or unregulated revenue data. Nor does it include a "regulatory change of industry-wide effect" pursuant to D.91-09-042.
The applicants also argue that the forms submitted with the California High Cost Fund A filings, including the "means test," do not include any line items that could be construed to call for the identification of Rural Telephone Bank redemption proceeds.
Applicants further argue that since they were specifically directed by the Commission to address the Rural Telephone Bank redemption through a separate application and not through the California High Cost Fund A process, the Commission acknowledged that Rural Telephone Bank stock redemption would not naturally be included in the California High Cost Fund A filings. The applicants conclude that this direction exempted them from disclosing the redemption proceeds as required by D.91-09-042.
The applicants contend that their filings in this proceeding reflect their understanding that the Commission's 2006 decision on the Allocation of Gains on Sale of Utility Assets ("Utility Assets Decision") would control the distribution of Rural Telephone Bank proceeds.3 They maintain that the redeemed patronage shares were never in rate base, and therefore the applicants "naturally assumed that they would be excluded from distribution to ratepayers in this proceeding."4 The applicants also point to the National Exchange Carrier Association (NECA) determinations regarding the interstate treatment of patronage shares, which held that patronage shares were to be assigned strictly to shareholders because they were held outside of rate base. As such, the applicants maintain that shareholders reasonably retained all revenue from the redemption of patronage shares.
The applicants also maintain that their treatment of the shares was reasonable because the Commission provided no guidance on how to frame the application. Therefore, the applicants filed the application that identified funds that would be subject to ratepayer sharing under the applicants' interpretation of the Utility Assets Decision.
Additionally, the applicants argue that the patronage shares were plainly disclosed in their application in a footnote, and alternately, the Commission had constructive knowledge about the patronage shares and it is therefore unreasonable that the applicants be guilty of wrongdoing for not affirmatively highlighting the patronage shares in their application.
The applicants contend that they were forthcoming in responding to all data requests. They argue that the patronage shares were never part of the discussion in this proceeding until the October 15, 2009 ruling when they were asked for a "verified accounting of all amounts, excluding loan proceeds, received from the Rural Telephone Bank at any time, including as a result of dissolution and stock redemption."5 Up until this request, applicants maintain that they had determined that the "patronage shares were not within the scope of the application or an area of interest from a ratemaking perspective."6
In response to the California High Cost Fund A interest rate the Commission found will apply if the applicants had an obligation to disclose their receipt of the Rural Telephone Bank stock redemption proceeds, the applicants state that the case cited by the Commission as precedent does not govern. They also argue that the Commission improperly computed the fines to be assigned under § 2107 of the Pub. Util. Code because their behavior does not warrant maximum penalties and they believe D.10-06-029 has already defined the terms of the penalties.
Applicants Happy Valley Telephone Company, Hornitos Telephone Company, and Winterhaven Telephone Company filed a separate Response to Order to Show Cause, but fully joined in the Additional Evidence and Arguments of all other applicants. These three applicants presented an additional defense to the Order to Show Cause and argue that they cannot be penalized for violating D.91-09-042 because they did not seek any support
payments from California High Cost Fund A in the 2006 Advice Letters. The "means test" requires utilities requesting California High Cost Fund A support to submit at least seven months of recorded data, annualized for the year in which the Advice Letter is filed.7 This applies only "for those companies requesting California High Cost Fund A support."8 Utilities not requesting California High Cost Fund A support are only required to file an advice letter showing the net settlement effects of regulatory changes ordered on the company's revenue requirement, which these three applicants did.9 Finally, these applicants argue that the 10% interest rate should not apply to them because they did not receive any support from the California High Cost Fund A in 2007.
2 D.91-09-042, Appendix, Paragraph B.
3 Order Instituting Rulemaking on the Commission's Own Motion for the Purpose of Considering Policies and Guidelines Regarding the Allocation of Gains from Sales of Energy, Telecommunications, and Water Utility Assets, D.06-05-041, as modified by D.06-12-043.
4 July 28, 2010 filing, Response to Order to Show Cause in Ordering Paragraph 5 of D.10-06-029 and Additional Evidence and Argument in Response to Ordering Paragraph 6 of D.10-06-029 at 9.
5 Id. at 13.
6 Ibid.
7 D.91-09-042, Appendix, Paragraph B.
8 Ibid.
9 Ibid.
