VI. Fines

The Commission set the basis for future decisions assessing fines in D.98-12-075, Appendix B. In setting the amount of the fine, the Commission will consider the severity of the offense, the utility's conduct, the utility's financial resources, mitigating or exacerbating factors, and precedent.

The Commission has found that violations of reporting or compliance requirements cause harm to the integrity of the regulatory processes. For example, compliance with Commission directives is required of all California public utilities. Pub. Util. Code § 702 says:

"Every public utility shall obey and comply with every order, decision, direction, or rule made or prescribed by the Commission in the matters specified in this part, or any other matter in any way relating to or affecting its business as a public utility, and shall do everything necessary or proper to secure compliance therewith by all of its officers, agents, and employees."

Such compliance is absolutely necessary to the proper functioning of the regulatory process. For this reason, we may deal severely with the disregard of

statutory or Commission directives, regardless of the effect on the public. In this case, Applicant violated GO 96-A, Section XIV as discussed above.

The number of the violations is also a factor in determining the severity of the offence. A series of distinct violations can suggest an on-going compliance deficiency that the utility should have addressed after the first instance. Similarly, a widespread violation that affects a large number of consumers is a more serious offense than one that is limited in scope. In this case, Applicant provided three successive false and misleading notices to its customers. These constitute three violations of GO 96-A, and Pub. Util. Code § 702, and suggest an ongoing compliance deficiency. In addition, the service interruptions of three customers constitute three distinct violations of the utility's tariffs.

The utility's conduct in (1) preventing the violation, (2) detecting the violation, and (3) disclosing and rectifying the violation is also a factor. Prior to a violation occurring, prudent practice requires that all public utilities take reasonable steps to ensure compliance with Commission directives. The utility should become familiar with applicable laws and regulations and, most critically, regularly review its own operations to ensure full compliance. In this case, Applicant claims that it was unaware, when it filed its advice letter, that it had to file an application for approval to discontinue local exchange service. It should have been aware of the requirement. Applicant claims that it did not commit any violations. As discussed above, it did. In addition, it made no attempt in subsequent notices to correct its violations.

The Commission holds public utilities responsible for their actions. Deliberate as opposed to inadvertent wrongdoing will be considered an aggravating factor. Even if Applicant misunderstood the Commission's requirements at the time it mailed the first notice, it was well aware of them, as evidenced by the filing of this application, before it mailed the second and third notices. In addition, it should have been aware of its own tariffs when it violated them by interrupting service to its customers. Therefore, we find that Applicant's violations were deliberate.

Effective deterrence requires that the Commission recognize the financial resources of the public utility in setting a fine that balances the need for deterrence with the constitutional limitations on excessive fines. Applicant is a subsidiary of Verado Holdings, Inc. (Verado). The last annual report Applicant filed with the Commission was for 1999. The report provided combined financial information, including a consolidated balance sheet for Verado, that shows assets of $267 million, and a net loss of $107 million, as of December 31, 1999. The names of Applicant and its affiliate, FirstWorld Anaheim, appeared on the first two notices. First World Anaheim filed a similar application on the same day using the same outside counsel. In addition, Applicant's and First World Anaheim's responses to ALJ rulings have been very similar.³ Therefore, it appears that Applicant's operations are not independent of its affiliates. As a result, it is the parent that must be deterred from wrongdoing. Therefore, for the purpose of assessing a fine, we will consider the parent's financial condition using the reported combined financial statements.

Setting a fine at a level that effectively deters further unlawful conduct by the utility and others requires that we also consider facts that tend to mitigate or exacerbate the wrongdoing. In this instance, Applicant claims that it was unaware that it had to file an application to discontinue local exchange service at the time it filed its advice letter and, therefore, at the time it mailed its first notice. Ignorance of a Commission or statutory requirement is a feeble excuse at best. In addition, the fact that Applicant sent two additional false and misleading notices, and interrupted service to three customers after it filed this application, and was, therefore, aware of the Commission's requirements, more that offset any mitigation of its conduct due to ignorance. There is no excuse for Applicant's treatment of its customers in this matter.

The final factor to be considered is precedent. We find two fairly recent decisions to be useful in determining what, if any, fines should be imposed.

The first is D. 01-06-036. In this decision, we addressed an application by Verizon Select Services, Inc. (VSSI) to transfer its customer base, and to withdraw from providing local exchange service. We determined that VSSI had sent misleading notices to its customers that led them to believe that service would be automatically terminated after a specified date. The notices technically provided disclosure that the withdrawal was subject to Commission approval, but mistakenly left the impression that service would terminate on a specified date in any event. We imposed no fines, but ordered reparations.

The second decision is D.00-12-053. In this decision, the Commission fined Mail.com, Inc. (Mail) and NetMoves Corporation (Net) $5,000 for failing to comply with Pub. Util. Code § 854. Specifically, Mail acquired Net without advance authorization. We found that: (1) the offense was serious but not egregious because no physical or economic harm was done to the customers, and Mail and Net did not benefit from the violation, (2) Mail and Net did not disclose the violation until asked, (3) the violation was unintentional, (4) Mail and Net took steps to remedy the violation once it was discovered, and (5) Mail and Net's regulated revenues for 1999 were approximately $25,000 with equity of $247,000, and a total net loss of $76 million.

Pub. Util. Code § 2107 provides for fines ranging from $500 to $20,000 for each violation of the Public Utilities Code, or Commission decisions, orders or rules. As discussed previously, Applicant effectively withdrew from service through the use of false and misleading notices. Applicant also interrupted service to three customers in violation of its tariffs. Therefore, its violations were more severe than Verizon's. Applicant's violations were worse than Mail and Net's because Applicant's violations were intentional, and Applicant took no steps to remedy them. At the same time, Applicant's parent's financial condition is generally comparable to Mail and Net's. Therefore, we will impose a fine of $6,000 for each of the three false and misleading notices. Since only one customer was affected by each of the three service interruptions, we will impose a lesser fine of $2,000 each. The total fine is, therefore, $24,000.