5. Issues to be Addressed in the Order Instituting Rulemaking (OIR)
5.1. Should Performance Bonds or other Forms of Financial Security be Required for CPCN and WIR Carriers?
Performance bonds are surety bonds issued by an insurance company or a bank to protect the owner from financial loss should a contractor fail to fulfill the terms of the contract in accordance with its terms and conditions. Pub. Util. Code § 1013(e) uses the term "performance bond" as a mechanism to recover taxes or fees, or both, as well as advances or deposits. Pub. Util. Code § 1013(f) uses the same term as a mechanism to facilitate collection of fines, penalties and restitution. We clarify here that the term "performance bond," for purposes of this rulemaking, is defined as a "commercial surety bond" whose purpose is to guarantee performance by the principal of the obligation or undertaking described in the bond.18
Performance bonds can significantly improve the Commission's ability to collect fines and penalties owed, surcharges and reimbursement fees due, and restitution for customers for advances or deposits. It can provide for this whatever the cause of the financial failing, whether bankruptcy or other business failing or fraud or other nefarious practices. Other State Commissions with bond requirements for telephone service providers include Connecticut, Delaware, Georgia, North Dakota, Oklahoma, and Tennessee.
If performance bonds or other forms of financial security are required for CPCN and wireless carriers, we seek comments on the following:
a. What size of bond should be required?
b. What should the terms and conditions of the bond be?
c. Should the bond requirement be applied to existing carriers or only to transferees and new applicants seeking operating authority
d. Should the bond amount differ for each utility type and service?
e. Should the bond requirement be continuous or should the obligation cease after a number of years without problems or corrective actions?
f. Should the Commission allow for alternatives to the posting of a bond such as an irrevocable standby letter of credit, site draft letter of credit, or escrow agreements? If so, what criteria will provide comparable levels of protection?
We seek comments on what size of bond should be required. Should performance bonds for CPCN holders and wireless registrants be of the same magnitude as those adopted for NDIEC registrants in D.10- 09-017 as modified by D.11-09-026, i.e., 10% of annual revenues or $25,000, whichever is greater. The scope of use of such bonds would be to cover, in priority order, customer restitution, fines, and penalties, surcharges and fees.
This is recommended for two reasons. First, the risk of default is at least as great in the case of many CPCN holders and wireless registrations as those holding NDIEC registrations. In fact, of the telecommunications corporations identified in the Controller's Audit Report, not all were registrations holders. As many CPCN holders were implicated in the problems of financial failure and recovery problems identified in the Audit Report. Second, it defies logic to have an entry route intended to be the less rigorous/less applicant burdensome (registration) that in fact, has more comprehensive financial fitness requirements than the CPCN approach. As noted, experience since approval of D.10-09-017 has resulted in virtually all those seeking authority to provide service, even limited to non-facilities based NDIEC approval, to seek CPCNs for their lesser financial and other requirements, such as the performance bond.
In order to obtain a performance bond, the surety company requires the applicant to 1) complete a bond application to determine the applicant's risk to the surety; and 2) a bond form. Applicants with a shorter business history, with bad credit, or with a prior net loss in their income statement often cannot secure or have difficulties securing a financial guarantee bond. For these high risk or other applicants, alternatives to a performance bond may provide the same degree of financial protection.
Such alternatives can include an irrevocable standby letter of credit,19 site draft letter of credit, or escrow agreements.20 21 Should the Commission allow for alternatives to posting of a performance bond? If so, what types of alternative should be allowed? What criteria would be required to ensure these alternatives provide the same degree of protection to customers and the people of the State of California?
We appreciate that some CPCN holders and wireless registrants have sufficient longevity of operation and financial stability that alternatives to a performance bond may provide the same degree of financial protection. For these telephone corporations, should the bond obligation cease after a number of years without problems or corrective actions? We seek comment on this performance bond proposal and also solicit comment as to whether these alternatives provide the same degree of protection to customers and the people of the State of California.
5.2. Should a Standardized Applicant Fitness Checklist be Required for CPCN Applicants and a More Extensive Information Form for Wireless Carriers?
We initially established CLEC and NDIEC certification requirements in D.95-07-054 (R.95-04-043/I.95-04-044). This decision, in the Local Competition docket, authorized the grant of a CPCN to any applicant that possesses the requisite managerial qualifications, financial resources, and technical competence to provide local exchange telecommunications service. Most of the requirements in Part 4, Appendix A, to that decision focus on financial standards for applicants, and not on the ethical or legal fitness of the applicants.
We established wireless registration requirements in D.94-10-031, as modified by D.94-12-042, and in D.95-10-032 for all CMRS wireless providers. All wireless providers in California, including resellers of wireless service are only required to file a WIR containing contact information in lieu of a formal application. Requiring registrants to provide additional information will reduce the potential for fraud or other inappropriate practices.
Therefore, we seek comments here on whether it is reasonable to extend, to CLEC and NDIEC applicants seeking CPCN certification and to wireless carriers seeking WIR registration, standardized informational checklists and, for CPCN certifications, background review requirements similar to those we have devised for NDIEC registrants. We ask parties to also address in their comments what these requirements should be. Suggested checklist topics are provided in Attachment A to this order.
5.3. Should the Application Fee be Increased for Applicants Seeking CPCN Certification, and WIR Registration?
We currently issue three types of operating authority for telephone service providers - CPCN certification, NDIEC registration, and WIR registration. The current application fees are listed in the table below - $75 for CPCN certification and $250 for NDIEC registration authority. There is no filing or processing fee for wireless resellers seeking WIR registration authority or transfers of wireless resale registration authority.
Type of Operating Authority |
Application Fee |
CPCN |
$75 |
NDIEC Registration |
$250 |
WIR |
None |
The CPCN application fee was established in the 1970s by Pub. Util. Code § 1904(a) and has not been adjusted for inflation for over 30 years. If adjusted for inflation using the Consumer Price Index inflation calculator, we estimate the application fee now would be $432. We surveyed other states and found application fees for CPCN authority can range from $400-$3000. The application fee for NDIEC registration was recently revised in D.10-09-017 to $250. We also note here that the current application fee for Passenger Stage Applications seeking CPCN authority is $500 as established in Pub. Util. Code §1036(a).
The workload associated with a CPCN application is significantly greater than that for processing an NDIEC registration.
As noted previously, an NDIEC registration application includes a template set of questions which the registration applicant completes. It is processed on the understanding, absent other information or protests, that the information is correct. If the information is complete and satisfies the response pattern necessary to qualify for registration, the decision granting the registration is prepared by the Communications Division staff and signed by the Executive Director. The entire process is required to take no more than 30 days from a filing being deemed complete.
A CPCN application is processed in a similar fashion to other Commission applications. The application must be assigned to an administrative law judge for review. It is subject to a 30-day protest period. It is also assigned to the Communications Division to review tariffs and other technical aspects of the application. Additionally, the CPSD generally does a review of CPCN applications to identify fitness issues, e.g. prior regulatory problems in another jurisdiction which the applicant didn't disclose. The Administrative Law Judge (ALJ) review (which may involve other staff as well) includes at least some level of background check.
Depending on the nature of the CPCN application and the initial review, additional information requests may be made of the applicant, which may or may not ultimately require a supplemental formal filing. If the applicant already has an existing utility ID number, there is an additional review to see whether the applicant is up to date with assessed fees and surcharges. When all of the necessary information is provided, a decision is prepared.
While there is a general common structure to CPCN decisions, each is customized to reflect the applicant and the results of the review. If there is a protest, whether by CPSD or another party, a hearing may be required. If there are facilities involved, CEQA review may be required. While there are separate requirements for funding the preparation of a negative declaration or environmental impact report, significant staff time may be involved in determining whether either or neither of these is required. The applicant does not otherwise compensate for such time.
Finally, while utility reimbursement fees by those holding CPCNs constitute revenue for and support the activities of the Commission, those fees are only paid by telecommunications corporations that have received a CPCN. Applicants have not paid such fees. Not all applicants are granted their requested CPCN.
When all of this is done, the decision - whether approving or denying the CPCN application - is sent out for comment (if any protest or if it grants authority at some variance from the request) or placed directly on the Commission's meeting agenda. If sent out for comments, the comments are addressed before the Commission acts. The Commission then votes on the matter.
Therefore, it is clear that the Commission incurs substantial expense in processing a CPCN. Based on an examination of employee time reports, the efforts to process a CPCN range upwards from $500 to several thousand. Therefore, we recommend that an application fee be established for CPCN applicants of at least $500, indexed annually to reflect changes in the consumer price index. We understand that the current fee is set by statute and would require legislative action. We will seek such legislative change for any application fee change determined to be appropriate.
We also propose that a fee be charged for the processing or transfer of a wireless registration. Currently we do not charge a fee for wireless registration. We propose that the fee be $250 based on similar issues regarding compensation for the staff efforts in reviewing, and processing, and maintaining the registration.
We seek comment on whether it is reasonable to increase the application fee for applicants seeking CPCN certification, and for FCC licensed wireless carriers seeking WIR registration authority as indicated above. We seek comment on whether a filing fee should be required for the sale, assignment or transfer of an existing certificate/registration to another company. Finally we seek comment on whether a separate filing fee should be required for requests for expansions of authority or just for the carriers first authority application.
5.4. Should the Terms of Payment of the CPUC User Fee as Required for CPCN Holders, and for Wireless Registrants, be Adjusted so that Telephone Corporations pay a Minimum Assessment Amount or a Percentage of Gross Intrastate Revenues, whichever is Greater?
The CPUC User Fee (also known as the PUC Reimbursement fee) is required of all telecommunications corporations and is based on intrastate revenues. (Pub. Util. Code § 431.) Some telephone corporations holding CPCNs or wireless registrations pay no CPUC user fees because they file reports claiming zero annual intrastate revenues. As a result of D.10-09-017, NDIEC registration holders are subject to a minimum $100 user fee, even if they report no intrastate revenues, and are subject to license revocation if they fail to pay the minimum user fee. As noted in D.10-09-017, the Commission incurs costs in maintaining registration information, utility records and databases.
We seek comment as to whether the same requirement for NDIEC registration holders should be imposed on telephone corporations with CPCN authority, and on wireless registrants. We seek comment also on what should be the minimum assessment amount for both CPCN holders and wireless registration holders. If telecommunications corporations really have no intrastate revenues, the way to avoid this fee would be to cancel the CPCN or registration.
5.5. Should Other Changes Be Made in the Requirements for Processing CPCN Applications and Wireless Registration?
For example, should we require CPCN holders or wireless carrier registrants, including prepaid wireless providers, to pay an annual licensing fee? If so, what should the requirements and the amount be? Should there be an application fee to withdraw the operating authority? Should we add terms and conditions to the existing wireless registration process, such as providing proof of registration with the California Secretary of State and a copy of the resale agreement with an underling facilities-based wireless carrier as shown at the end of Attachment A to this OIR?
The issues identified above are intended to address concerns similar to those addressed in D.10-09-017 for NDIEC registrations, given the different scope and role of the CPCN and wireless registration process. To the extent that commenters believe that modifications to the CPCN or wireless registration requirements or process should be made beyond those identified above, they should provide their recommendations and reasons for their proposals.
18 http://www.sio.org/faq.html.
19 A guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit (SLOC) are created as a sign of good faith in business transactions, and are proof of a buyer's credit quality and repayment abilities. The bank issuing the SLOC will perform brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then send notification to the bank of the party requesting the letter of credit.
Read more:
http://www.investopedia.com/terms/s/standbyletterofcredit.asp#ixzz1V9HNvxOc
20 A certificate provided by an approved bank that guarantees the indicated securities are deposited at that particular bank.
21 See D.95-07-054, Appendix A, Rule 4B, for alternatives currently available for CPCN applicants. (R.95-04-043 and I.95-04-044 Order Instituting Rulemaking on the Commission's Own Motion into Competition for Local Exchange Service.)
