Concerns of the State Controller's Office
In 2007, the State Controller's Office (SCO) completed an audit of the Commission's consumer protection enforcement activities. In its audit report, the SCO noted an increasing incidence of fraudulent or inappropriate practices among carriers in the telecommunications industry. The SCO commented that the Commission is slow in rendering decisions imposing fines and restitution, and found that it was inherently difficult for the Commission to collect fines and to make restitution to customers if the offending parties are no longer operating or have filed for bankruptcy. The SCO recommended that the Commission conduct more stringent background and financial viability reviews of individuals or companies registering with the Commission. The SCO also recommended that the posting of a performance bond be required for NDIEC registration, and noted that the registration fee itself ($75) was "nominal."
The Commission carefully considered the SCO's concerns with regard to our NDIEC streamlined registration process, and responded that it would initiate a proceeding to address them. By this OIR, we are launching a proceeding to address issues raised in the SCO's audit report. We identify below the issues to be explored, and propose solutions. We seek comments from all parties on these proposals in this rulemaking.
Issues and Proposed Resolutions
7) Should a performance bond be required?
The SCO recommends that the Commission require applicants to post a performance bond prior to registration. Notwithstanding the language in Pub. Util. Code § 1013(e) that "[t]he commission shall require as a precondition to registration the procurement of a performance bond ...", in D.97-06-107 we concluded that "[n]o performance bond is necessary to ensure payment of fees or taxes or to protect consumers."4 This OIR will reconsider that conclusion.
In light of the legislative mandate, we ask parties not to comment on whether we should impose a bond requirement. Rather, we seek comment on what type of bond(s) registration applicants should be required to post. We also seek comment on the amount of the bond that should be posted. For example, should a performance bond be required similar to the bonding requirements established for video franchisees by D.07-03-014 or Electric Service Providers (ESP) by D.03-12-015? Video franchisees must post a minimum $100,000 bond, and ESPs a $25,000 bond. Comments should identify the activities and types of expenses a performance bond should cover, and how the size of the bond for registrants should be determined.
We also ask whether pre-paid debit card providers that are required to register pursuant to Pub. Util. Code § 885(a) should be subject to the same performance bond requirement as other NDIEC registrants that provide only long distance services.
8) Should registration certificates be granted for a limited term, and registration renewal or transfer be based on demonstrated good standing?
The SCO comments that it takes years for the Commission to investigate and penalize wrongdoing committed by registrants. We believe that requiring periodic renewal of registration certificates will help to more timely detect and limit or prevent wrongdoing by registrants, and seek comment on whether registration certificates should be granted for a limited duration, subject to periodic renewal, rather than remain in effect indefinitely. We also seek comment on our proposal to require registration applicants, as a condition of renewal or transfer, to make a showing of good standing.
We seek comment on our proposal to issue and renew registration certificates for a three-year period, and to require registrants to apply for certificate renewal prior to the expiration of a registration certificate. This proposal is similar to the renewal requirement currently applicable to charter-party carriers.
As part of the certificate renewal process, we propose to require registrants to demonstrate compliance with all Commission reporting, fee, and surcharge transmittals, have no record of criminal activities, citations, financial irregularities, etc., and to disclose any past or pending regulatory sanctions from the FCC or another state regulatory agency. We also propose to apply these requirements to the transfer of any registration certificate.
We also seek comment on how currently registered NDIECs should be transitioned to limited duration registration certificates.
9) Should fingerprints, criminal background checks and/or other showings be required from all registration applicants?
The SCO recommends that we conduct more stringent background reviews of individuals and companies applying for registration. We seek comment on whether background checks should be required for NDIEC registrants that are similar to those conducted by the Commission for ESP registrants or household goods carriers. These background checks may include the submission of fingerprint records from applicants. We ask parties to comment on whether these background checks should be required for the officers and directors of registration applicants.
10) Should applicants undergo expanded financial background and fiscal responsibility checks?
The SCO recommends that the Commission conduct more stringent financial viability reviews of registration applicants. We propose to develop and implement appropriate means to permit Commission staff (including Commission attorneys or paralegals) to conduct relevant civil court and regulatory agency record reviews for bankruptcy or other penalties and sanctions. We seek comment on whether this requirement should be applied to the applicant's officers and directors.
We seek comment on our proposal to require resumes from officers and directors of registration applicants listing all employment. We also seek comment on our proposal to require an applicant to state whether it has been previously or is currently being investigated by any governmental agency, has entered into any settlement agreements or made any voluntary payments in resolution of any action by any regulatory body, agency, or attorney general, or court and if/when the applicant has begun or will begin providing service in California.
11) Should the application fee be increased from $75? Should we require a minimum annual user fee payment?
The SCO calls our current NDIEC registration application fee "nominal." We note that this is the standard application filing fee for most applications with the Commission. However, in light of the SCO's comments, we propose a fee similar to that required for household goods carrier applications. We propose to increase the registration application fee to $500, and seek comment on this proposal. This increased application fee will help to offset the additional expense resulting from expanded background checks and reviews of civil and regulatory sanction records. If $500 is not an appropriate registration application fee, we seek comment on what the registration application fee should be and why.
Currently all NDIEC registrants are required to pay a fee (user fee) to fund Commission regulatory activities, which is based on the carrier's intrastate revenues. Carriers reporting no intrastate revenue, however, currently do not pay a user fee and, therefore, do not contribute to offsetting regulatory expenses. We seek comment on whether the Commission should establish a minimum annual user fee all NDIEC registrants. We propose a minimum annual user fee of $100, and seek comment on whether this amount is appropriate. If $100 is not an appropriate minimum annual user fee, we seek comment on what the minimum annual user fee should be and why.
12) Should the "registration Certificate of Public Convenience and Necessity" be renamed a "registration certificate" or a "registration license"?
While the SCO did not raise this question, we wish to reconsider our designation of the registration instrument as a "Certificate of Public Convenience and Necessity." We note that Pub. Util. Code § 1013(a) does not require the Commission to issue CPCNs to registrants. Rather, Section 1013(a) states that a telephone corporation operating in California "shall either have a certificate of public convenience and necessity or be registered under this section ..." (emphasis added).
In establishing the registration process in D.97-06-107, we chose to designate the registration instrument a "CPCN." In the years since implementation, this designation has created confusion for carriers and Commission staff. It will be less confusing to identify the registration instrument as a "registration certificate" or a "registration license." By renaming the registration instrument, we will clearly distinguish the full-service CPCN, with its multitude of associated rules and regulations, from the more limited scope of the regulatory oversight contemplated in Pub. Util. Code § 1013. We seek comment on this proposal.
4 Id., Finding of Fact 9.
