VI. Discussion

In a situation where a company which has a CPCN desires to acquire the assets or control of a company which also has a CPCN, questions relating to public convenience and necessity are not relevant to the transfer of assets. This is because the fitness to provide telecommunications services was previously determined in the proceeding in which a CPCN was granted.⁴ ITC was granted its CPCN by D.96-12-018 and eGCS by D.00-03-067. Hence, the issue to be decided in this proceeding is whether the transfer of assets is in the public interest.

Because applicants completed the transfer of assets prior to the filing of this application, applicants failed to comply with, and therefore violated, the § 851 requirement that Commission authorization to sell assets be obtained prior to their sale. To alleviate their failure to comply with § 851, applicants seek Commission approval nunc pro tunc to August 5, 1999.

A. Nunc Pro Tunc

Applicants state that it was impossible to obtain Commission approval of the asset transfer in advance of consummation. However, because ITC and eGCS want to comply with all California statues and regulations governing the provision of telecommunications service in California, applicants seek approval of the asset transfer on a nunc pro tunc basis.

Other than to explain that eGCS intended to focus on transaction processing⁵ on behalf of other carriers rather than providing public utility service at the time the asset transfer took place, applicants provided no reason for not seeking timely authority from the Commission to transfer the assets prior to the actual August 5, 1999 transfer date. Subsequent to consummation of the asset transfer, eGCS began to focus on the provision of toll services by resale in certain states, including California. Since consummation of this asset transfer took place, ITC has been carrying a small volume of interexchange traffic, its principal business being transaction processing for other carriers. eGCS has assisted ITC in providing telecommunications services under ITC's CPCN, to ensure a seamless transition.

eGCS, a New Hampshire corporation, did not become qualified to transact business in California as a foreign corporation until November 4, 1999, four months after the asset transfer was completed. A copy of eGCS's Certificate of Status Foreign Corporation issued by California's Secretary of State is attached to the application as Exhibit 2(c). That certificate states, in pertinent part, that eGCS complied with the requirements of California law in effect on November 4, 1999 for the purpose of qualifying to transact intrastate business in California and that eGCS is entitled to transact intrastate business in California as of the date of the certificate.

Approval of this application on a nunc pro tunc basis would effectively provide eGCS with authority to transact business in California as a foreign corporation prior to it obtaining approval from the Secretary of State to transact business in California. Such approval could also relieve applicants of risk for consequences from activities and transactions completed prior to applicants requesting and receiving Commission approval to transfer the assets.

The Commission has no authority to authorize a foreign corporation, such as eGCS, to transact business in California prior to November 4, 1999. Section 2105 of the California Corporations Code precludes a foreign corporation, such as eGCS, from transacting business within California without having first obtained from the Secretary of State a certificate of qualification. Even if the Commission had such authority, it is not in the public interest to relieve applicants of risk for any consequences from activities and transactions completed prior to requesting and receiving Commission approval. Hence, any approval of this application should not be made on a retroactive basis.

Pursuant to § 853(b), the Commission may exempt a public utility from the requirements of § 851 if it finds that the application thereof with respect to the public utility is not necessary in the public interest. However, such an exemption is not applicable to applicants' nunc pro tunc request because eGCS was not qualified to transact business in California at the time the transaction was completed.

Our denial of nunc pro tunc authority does not preclude us from authorizing prospective approval of the transfer of assets from when Commission authorization is obtained. We now address whether the transfer of assets is in the public interest.

B. Public Interest

Applicants contend that approval of the proposed transfer of assets is in the public interest because our approval will provide increased investment in the telecommunications marketplace and provide increased telecommunications choices for California customers. eGCS explained that it has assisted ITC in providing service under the ITC CPCN since the time of the transfer to ensure a seamless transition and is committed to serving ITC's customer base by honoring calling cards issued by ITC. In addition, the Commission's Consumer Service Division⁶ has not received any customer complaints against ITC up to the time its CPCN was cancelled or eGCS in the past two years. eGCS is ready, willing, and able to provide telecommunications services in California and is committed to honoring all prepaid calling cards issued by ITC. It is for all of these reasons that we find the transfer of assets to be in the public interest.

No new construction is being proposed. Accordingly, there is no possibility that the transfer of assets may have any significant impact on the environment. However, applicant's failure to comply with § 851 raises the issue of whether a monetary penalty is applicable in this instance.

C. Monetary Penalty

The purpose of § 851 is to protect the public interest by enabling the Commission, before any transfer of assets takes place, to review the proposed transfer of assets and take such action as the public interest may require. Hence,

any violation of § 851, whether intentional or unintentional, is a serious offense that should be subject to fines. Such violation is subject to monetary penalties under § 2107, which states as follows:

Any public utility which violates or fails to comply with any provision of the Constitution of this state or of this part, or which fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the commission, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than five hundred dollars ($500), nor more than twenty thousand dollars ($20,000) for each offense.

D.98-12-075⁷ set forth five criteria to be considered in assessing a fine. Those criteria consists of an analysis of the severity of the offense, conduct, financial resources, totality of the circumstances, and the role of precedent.

The severity of an offense is measured by the extent of physical harm, economic harm, and harm to the regulatory process. We find applicants' violation of § 851 to be a serious offense. By filing their application after the date that the transfer of assets was consummated, the applicants did not even give the Commission an opportunity to approve the transfer prior to its purported effective date. Moreover, by allowing eGCS to serve ITC's customer base before the Commission had approved the transfer of assets, the applicants have created potential confusion about whether eGCS has authority to serve customers. The public interest is harmed when the failure to seek timely authority under Section 851 yields uncertainty for consumers regarding whether their serving carrier was authorized to do so.

Applicants' conduct is measured by their actions to prevent, detect, and to disclose and rectify a violation. Applicants' violation of § 851 appears to be unintentional because eGCS intended to only focus on transaction processing on behalf of other carriers rather than providing public utility service and ITC continued its public utility service until such time that eGCS would take control of its operations. Applicants also attempted to disclose and rectify the violation of § 851 by filing their application with a candid acknowledgement of their mistake and a request for the necessary authority. This factor argues in favor of a mitigated fine.

The financial resources are considered to determine the size of a fine that would deter applicants from future violations without becoming excessive. The financial statements attached to the application as Exhibit 3 substantiates that applicants have minimal financial resources and that eGCS's businesses are not yet profitable. Accordingly, a modest fine could effectively deter future violations.

The totality of the circumstances is measured by the degree of wrongdoing and public interest. The facts of this application show that applicants' violation of § 851 was unintentional. In addition, the absence of complaints gives rise to an inference that customers did not experience a significant deterioration in service quality as a result of the unauthorized transfer.⁸ On the other hand, as noted above, the unauthorized transfer of assets has created potential uncertainty and confusion about whether eGCS was serving customers without the required authorization.

Finally, the precedent that an assessment of a fine may have on other proceedings is considered. In recent years the Commission has been concerned about approvals involved transactions that has already occurred. The violations indicate that applicants may continue to ignore and violate § 851 unless such violations are subject to a fine. Hence, a fine is warranted and should be imposed. Based on our application of the criteria adopted by the Commission in D.98-12-075 to the facts in this application, a $1,500 fine is warranted pursuant to § 2107.⁹ The size of the fine being imposed is based on the unique facts and circumstances of this application and should not be used as a precedent by other utilities for any violation of the Commission's rules.

In addition to this fine, applicants are at risk for any adverse consequences that may result from their having completed the transfer of control without Commission authority.

VII. Expedited Approval

Applicants have requested expedited approval of this application by the Executive Director. Ordering Paragraph 1 of D.87-10-035 provides in relevant part that the Executive Director may grant noncontroversial applications by nondominant telecommunications carriers for authority to transfer assets or control under § 851.¹⁰ Although this application has not been protested, approval of this application may be controversial. That is because applicants sought nunc pro tunc authorization, that request is being denied and a penalty is being assessed.