The Settlement

Settlement Overview

The settlement is attached as Appendix A to this decision. In Section 1, Joint Statement of the Case, the settling parties provide a 69-paragraph summary of the problems that led to this proceeding, what caused those problems, how Pacific Bell, PBI and ASI responded, and what corrective actions have been and will be taken. Those explanations need not be repeated here. Subsequent settlement sections describe more specifically the settling parties' intended remedies. Section 2 calls for: credits for the next two years of either $25 or one month of DSL service for customers who experience future DSL billing errors, as specified, double those amounts when the problem is not timely corrected, and customer recourse to the Commission's expedited complaint process for resolving related disputes; a tracking and reporting requirement; applicability to all residential and up to 20-line business customers; and a 60-day implementation timeframe and two-year sunset provision. Section 3 describes operational improvements including: Pacific Bell business and residential DSL Internet billing centers dedicated to handling billing inquiries for PBI's DSL Internet services⁴; improved disconnection notices; upgraded DSL order-confirmation, billing, collection, problem resolution, and customer complaint recording and reporting procedures; and restrictions for two years on using coupon rebates and gift or debit cards as DSL promotional offerings. In Section 4, PBI agrees to maintain its billing and collection agreement with Pacific Bell until at least July 1, 2004, thus preserving for at least that period the billing and collection-related improvements in the settlement.

In settlement Section 5, Respondents agree to pay $27,000,000 into the State General Fund within 30 days after the Commission's approval of the settlement agreement.

Specific Issues

Wrongful DSL Billing Practices

In settlement Section 1, the parties have agreed to a statement regarding complaints: "During the period of January 2000 through the present, an estimated 30,000 to 70,000 Respondents' customers complained about and/or experienced billing errors." They go on to characterize "certain of these complaints" as falling into five categories that generally parallel wrongful billing practices set forth in I.02-01-024 and which constitute violations of Section 2890(a).⁵

In addition, Respondents acknowledge in this same settlement Section 1 that certain of those complaints fall into a sixth category: "[B]illing errors were not resolved in a timely manner and/or required multiple calls and substantial investment of time to resolve." Further confirmation of the problem is provided in settlement Section 1, paragraph 11: "[C]ertain customers experienced... unresponsive service, such as long waiting queues, delays on hold, transfers to other departments, unreturned calls, full voice mail boxes, [and] inability to resolve the problem without having to wait on the phone." This is also one of the allegations in UCAN's complaint, and constitutes violation of Section 2890(d)(2)(D).⁶

Disconnection and Toll Restriction

UCAN alleged that Pacific Bell improperly threatened local service disconnection or toll restriction for disputed DSL Internet service charges in violation of Section 2890(c)⁷ and D.00-03-020 as modified by D.00-11-015.⁸ UCAN further alleged that Pacific Bell failed to update its tariffs to reflect the Commission's revised disconnection policies, in violation of D.00-03-020. These were issues #5 and #6 in the Assigned Commissioner's Scoping Ruling above.

Respondents' confirmation that there was a toll restriction and disconnect notice problem is provided in settlement Section 1, paragraph 11: "[C]ertain customers experienced the following: inappropriate application of toll restriction for outstanding DSL-related charges; [and] disconnect notices were sent to customers that might have led them to believe that their basic service would be disconnected for non-payment of DSL Internet charges or that a security deposit was required." That Respondents acknowledge the problem is further confirmed by the accompanying motion, at pages 5 and 6.

The same cannot be said about UCAN's allegation (which was not also an I.02-01-024 allegation) that Pacific Bell failed to update its tariffs with regard to disconnection practices, since neither the settlement nor the accompanying motion make mention of it. Additionally, UCAN did not prepare direct or rebuttal testimony pressing this issue, nor did any other party's prepared testimony mention it. With neither factual information in the proceeding record to rely on nor further mention of a problem in the settlement, we see no need to pursue the tariff-filing allegation.

The Commission at one time did have a policy of permitting carriers to disconnect local exchange service for non-payment of certain other, non-local exchange services. That changed with Section 2890(c) and D.00-03-020 as modified by D.00-11-015:

For these reasons, we intend to limit disconnection of basic residential and single line business service (i.e., Flat Rate and/or Measured Rate services) to nonpayment of non-recurring and recurring charges for basic residential and single line business services, including all mandated surcharges and taxes.

While those two decisions were clear in stating the new policy, they did not immediately forbid the former practice; nor is whatever was formerly an acceptable practice defined in the record of this proceeding. Rather, they gave carriers of last resort 180 days to file advice letters with new, conforming tariff provisions. Since there is no reference in the record of this proceeding to any resulting Pacific Bell advice letter or tariff, we decline to conclude that there was a specific Public Utilities Code, Commission order, or tariff violation associated with issues #5 and #6 of the Assigned Commissioner's Scoping Ruling. What we do know is that the settling parties have agreed that there was a toll restriction and disconnect notice problem, as evidenced by their settlement Section 1, paragraph 11, statement quoted above, and that the measures set forth in the settlement are intended to remedy it.

Recordkeeping and Reporting

In D.00-03-020, Ordering Paragraph 2, we adopted a set of Subscriber Complaint Reporting Rules. In I.02-01-024, Ordering Paragraph 1(b), we sought to determine whether Pacific Bell as a billing telephone company violated D.00-03-020 by failing to maintain accurate and up-to-date records of all customer complaints made to or received by it for charges for products or services provided by a third party, including corporate affiliates, as those rules require. In Ordering Paragraph 1(c), we sought to determine whether Pacific Bell violated those decisions by failing to create a calendar month summary report of all customer complaints received each month for each service provider and billing agent for charges by a third party, including corporate affiliates, and to provide it to the Director of CSD quarterly. A public utility's failure to comply with a Commission order or rule may constitute a violation of Section 702,⁹ a possibility raised in Ordering Paragraph 1(d).

In settlement Section 1, paragraphs 30 through 44 set forth the parties' statement of facts which constitute Respondents' admission that they did not always maintain the records and submit accurate reports as D.00-03-020 and D.00-11-015 require. This is summarized in the settlement's page 1 Joint Statement of the Case as, "Respondents acknowledge to the Commission that certain billing errors and reporting deficiencies occurred that were unacceptable and should not have happened." Further confirmation is provided in the accompanying motion, which states that the settlement's new tracking and reporting requirements are for Pacific Bell's "failure to report to CSD all complaints against its affiliates SBC-ASI and PBI...," and, "This action is expected to eliminate future violations of D.00-03-020 as alleged by CSD in the OII."

We conclude that Pacific Bell did violate Ordering Paragraph 2 of D.00-03-020 as modified by D.00-11-015, and thus Section 702.

Further, we note that, although settlement Section 2.5 calls for additional customer complaint tracking and reporting, nothing in the settlement relieves Pacific Bell as a billing telephone company of its responsibility to comply with the tracking and reporting requirement we established in Ordering Paragraph 2 of D.00-03-020 as modified by D.00-11-015. These are different requirements, established for different purposes, and the D.00-03-020 reports are still needed.

Standard of Review

Five parties have tendered an "uncontested settlement" as defined in Rule 51(f), i.e., a settlement that "...is not contested by any party to the proceeding within the comment period after service of the [ ] settlement on all parties to the proceeding." Rule 51.1(e) requires that settlement agreements be reasonable in light of the whole record, consistent with the law, and in the public interest.

This settlement is tendered pursuant to Rule 51, and it is under this standard of review set forth in Rule 51.1(e) that we will evaluate it.

Reasonable in Light of the Whole Record

The settling parties spent considerable time and effort conducting discovery, analyzing complaint records and other documentation, and understanding and explaining the events that led to this proceeding. They prepared and served extensive written testimony and exhibits setting forth and supporting their positions before evidentiary hearings began. That prepared material was admitted into the record by agreement, and it shows all of the parties to have been vigorous and capable participants on behalf of their constituencies. The parties' Joint Statement of the Case (settlement Section 1) provides a summary that reflects the record in this proceeding.

Respondents have acknowledged that the problems consumers experienced, and their failure to report all consumer complaints as the Commission required, were unacceptable and should not have happened.

The settling parties have considered the corrective measures already taken by Respondents to address those problems and have described those measures at length in the settlement agreement. In addition, the settlement agreement prescribes other remedies, such as the billing credits and operational improvements set forth in settlement Sections 2 and 3, to minimize the likelihood of similar problems in the future and to compensate consumers if they do recur. Finally, Respondents have agreed to pay a substantial penalty in consideration of the problems they have acknowledged.

The proposed settlement agreement is based closely on the record the parties have developed, and the remedies it proposes are commensurate with the problems documented. We conclude that it is reasonable in light of the whole record.

Consistent with the Law

In I.02-01-024, Ordering Paragraphs 1(e) and 1(f), we stated that we would consider whether "Pacific Bell and/or SBC-ASI should be ordered to pay reparations pursuant to ... Code section 734; [and] any or all of the Respondents should be fined pursuant to ... sections 2107 and 2108 for violations of the Public Utilities Code or other order, decision, rule, direction, demand or requirement of the Commission." We address each of these sections here.

In the analysis above, we concluded that some or all of the Respondents have violated Sections 2890(a) and 2890(d)(2)(D), D.00-03-020 as modified by D.00-11-015, and Section 702.

Settlement Section 5 states,

Pursuant to Public Utilities Code sections 2107 and 2108 and the California Public Utilities Commission's Rules of Practice and Procedure Rule 51, Respondents agree to pay $27,000,000 (twenty-seven million dollars) into the State General Fund within 30 days after the Commission's approval of this Agreement.

While the settlement itself provides no additional statement of the purpose of this provision, the joint motion does: "Respondents have also agreed to pay a penalty in the amount of $27,000,000 in acknowledgement of the billing errors that occurred and to ensure future compliance with all applicable laws relating to unauthorized billing." We noted above Respondents' acknowledgement that an estimated 30,000 to 70,000 customers complained about and/or experienced billing errors. The settlement provides no count of the recordkeeping and reporting errors, but their number seems likely to have been small in comparison. The 30,000 to 70,000 figure constitutes customers who "complained about and/or experienced billing errors." We cannot assume that every customer who suffered a billing error actually noticed it or complained, nor can we assume that every complaint represented a true violation. However, even though the absolute number of violations cannot be accurately determined, the 30,000 to 70,000 range the parties have agreed to indicates the scale of the problem and is sufficient for our purposes here.

Section 2107 provides for penalties ranging from $500 to $20,000 for each offense, and Section 2108 provides that each violation, and each day's continuance of a violation, is a separate offense. The parties have not indicated how they derived the $27,000,000 total penalty figure, but if Respondents were penalized $500 for each offense, the total penalty would equate to 54,000 offenses, well within the range indicated. We conclude that the $27,000,000 penalty the parties propose is consistent with Sections 2107 and 2108.

Section 734 allows the Commission to award reparations where a utility has charged an unreasonable, excessive, or discriminatory amount for a product or service. Settlement Section 1, paragraph 23 states, "Except perhaps for open complaints, the parties are not aware of any billing complaints that were not ultimately credited or adjusted by Respondents." The motion echoes that thought as support for the parties' belief that "Reparations or restitution to consumers are not warranted in this case." The parties have thus taken into account our I.02-01-024, Ordering Paragraph 1(e) directive to determine the need for reparations pursuant to Section 734, and have recommended that reparations not be ordered. Nothing in the record would lead us to conclude otherwise, so we concur. We note, however, that the settlement does not absolve Respondents of responsibility for reparations on a case-by-case basis where individual customers may in the future present meritorious claims based on Respondents' past or future wrongful billings, nor would we have approved the settlement on any other basis.

By this decision, we also do not validate the corrective actions identified in paragraphs 45 through 69 and do not make any findings about whether they have been or will be effective in correcting the problems identified. Respondents remain responsible for adopting any and all necessary changes to ensure they are for the future in full compliance with all legal requirements.

The Parties assert that the settlement agreement is consistent with the law. After reviewing the settlement agreement, we agree.

In the Public Interest

The settling parties aver that the proposed settlement agreement is in the public interest because it protects consumers in many ways, and provides a substantial penalty to ensure future compliance with all applicable laws. We agree. Specifically, we observe that the parties have examined every allegation set forth in our investigatory order and provided their conclusions with respect to each. Where there were problems with Respondents' operations and practices that harmed consumers, those problems have been exposed and measures taken to ensure they do not recur. Where there were violations of law, those violations have been acknowledged and an appropriate penalty applied. One of the important advantages any settlement provides is avoiding the time, the expense and the uncertainty of continued litigation. Here, the parties have addressed every issue that led us to open the investigation. Our approval of this settlement will now allow Respondents to implement the corrective measures the settlement outlines, and our staff and the other parties to pursue consumer protection needs in other areas.

For these reasons, we find the proposed settlement to be in the public interest and will approve it.