IV. Discussion

A. Pacific and WorldCom Violated Rule 7.c

There is no dispute that on May 15, 2002, two parties to this proceeding engaged in ex parte communications despite the existence of an ex parte ban related to the RDM. Pacific does not deny that its contacts were in violation of Commission rules, although it suggests its actions were somehow warranted because of a perceived need to respond to an AT&T ex parte contact of two days prior. According to Pacific, "it was imperative to respond to Mr. Dorman's letters, which go way beyond the record in this proceeding and are inaccurate in important respects." (Pacific response, 5/28/02, p. 3.) From its own explanation, Pacific appears to believe that it should be the judge of when the record needs correcting and that it can, by itself, waive the Commission's ex parte rules in order to have the last word. This suggestion is, at best, misguided, and at worst, appalling.

Pacific's explanation is noticeably lacking in any discussion of whether it knew the Commission's ex parte rules and whether it understood that delivering its letter on the day of the RDM was a violation of the quiet time. This lack of an explanation leads to the conclusion that Pacific knowingly and willfully violated the Commission's rules. We find this extremely troubling.

In contrast, WorldCom explains that it thought its actions were not a violation. WorldCom describes its inexperience with the RDM process, its misimpression of the quiet time starting point, and its belief that Rule 7.c did not apply to ratesetting cases without a hearing. Unfortunately, we cannot allow inexperience with the rules and a lack of understanding to justify a violation. If WorldCom was unfamiliar with an RDM or when the quiet time began, it should have at least made some effort to determine whether its actions were appropriate before making the ex parte communication. Similarly, we cannot ignore the violation simply because WorldCom assumed that the rules only applied if a hearing had been held. If WorldCom had read the rules thoroughly or inquired, it would have discovered that per Rule 6.6 and Rule 7.e, the ex parte prohibitions of Rule 7.c, including a quiet time if an RDM is scheduled, apply in all ratesetting

cases where there has been no final determination that hearings are not needed. In the June 14, 2002 Scoping Memo, the Assigned Commissioner and ALJ specifically left open the question of whether hearings were required and ruled that ex parte Rules 7.c and 7.1 applied to this case.⁴ Given that the RDM concerned a decision that was interim in nature, and the proceeding quite clearly would remain open to set final rates for Pacific, the Commission had not made a final determination on the need for hearings.

Therefore, we find that both Pacific and WorldCom violated Commission Rule 7.c prohibiting ex parte communications beginning on the day of an RDM through the Commission meeting at which the item is scheduled to be considered. Because Pacific's letter was delivered to five Commissioners, five telecommunications advisors, and the ALJ, Pacific violated Rule 7.c with eleven separate offenses. WorldCom violated the rule with one offense.

B. Level of Penalty

Given these violations, we must determine whether to apply sanctions to Pacific and WorldCom. Pacific claims that no party was harmed or prejudiced by Pacific's or WorldCom's communications, that its communication was intended to correct the record, and that it immediately retrieved the communication after contacted by the ALJ. WorldCom suggests that if it is found to have violated Commission rules, a reminder of the rules regarding RDMs and a warning that sanctions will apply for future violations is appropriate.

We do not agree with Pacific that there is no harm from these violations. While neither party achieved all of its positions in the decision that ultimately issued, there was harm to the regulatory process from parties as sophisticated as Pacific and WorldCom either ignoring the rules entirely or not bothering to ascertain what rules would apply in an unfamiliar situation. Pacific's and Worldcom's lax approach to adhering to Commission rules has dealt a blow to the public's and the parties' overall confidence in the fairness of Commission processes. As we have already noted above, we vehemently disagree with Pacific's suggestion that its ex parte communications were justified in order to "correct the record." If we were to forgive Pacific's transgressions here based on this excuse, we would be inviting countless other parties to similarly bend or break Commission ex parte rules. The fact that Pacific retrieved its letter after it was told to do so is also irrelevant. Notably absent from Pacific's filing is any statement of regret for not following the rules or explanation whether Pacific realized that its ex parte letters violated Commission rules. We cannot help but wonder whether Pacific would have retrieved the letters if it had not been asked to do so by the ALJ. Even so, if you move your car after parking illegally, you still must pay the ticket.

Neither do we agree with WorldCom's suggestion that the Commission should simply provide a reminder of the rules and a warning that sanctions will apply to future violations. The Commission should not have to provide reminders to the parties that they need to follow the rules. As we have already stated, confusion over the rules does not justify a violation.

Therefore, we will assess a fine against Pacific and WorldCom for violating Rule 7.c. According to Pub. Util. Code Section 2107, the Commission can assess a fine of not less than $500, nor more than $20,000 for each offense. In D.98-12-075, the Commission set forth principles to apply to the imposition of fines, namely the severity of the offense and the conduct of the utility. The Commission also considers the financial resources of the utility, the degree of harm to the public interest, and precedent.

In terms of severity of the offense, the Commission typically evaluates an offense based on the degree of economic or physical harm, or the unlawful benefits gained by the utility. (See D.98-12-075, mimeo., at 36.) The Commission has also held that violations which do not involve harm to consumers, but instead harm the integrity of the regulatory process by "disregarding a statutory or Commission directive, regardless of the effects on the public, will be accorded a high level of severity." (Id.) Based on this guidance, we consider Pacific's and WorldCom's violations severe because they disregarded the Commission's ex parte rules.

With regard to conduct of the utility, we find no evidence that Pacific or WorldCom made any advance efforts to ensure compliance with the ex parte rules for ratesetting cases and thereby prevent the violation. We also conclude that Pacific's conduct was deliberate rather than inadvertent because of its statements that the ex parte letter was required to correct the record. Therefore, we are persuaded to apply a larger fine to Pacific because of this deliberate conduct in sending a letter to several decisionmakers on the day of an RDM. Both parties did, however, disclose the ex parte communication by filing ex parte notices. Thus, neither Pacific nor WorldCom attempted to hide their respective communications. We find that the severity of the violations is mitigated by the fact that the violations were self-disclosed and that this was the first time that either party had violated ex parte rules for an RDM. We are also persuaded to mitigate the fine based on Pacific's retrieval of its letters.

Pacific is certainly a large corporation with adequate financial resources to pay a fine. The same might have been said of WorldCom at the time the violation occurred in May 2002, but with the company's recent bankruptcy filing, its resources and ability to pay a fine are uncertain. Even with WorldCom's current financial distress, a fine between $500 and $20,000 will not be out of line with the resources of either company.

With regard to precedent, Pacific maintains that the Commission should not impose a fine here because it did not fine parties for two other apparent violations of ex parte rules.⁵ Pacific's alleged precedents can be distinguished from the current violations. Although the Commission has merely admonished parties for other apparent ex parte violations, we find that a breach of rules for closed session meetings warrants a penalty because the violation occurred during the Commission's critical decision-making phase and after the parties had many months of experience with the ratesetting rules applicable to this case. Furthermore, Section 1701.3.c quite clearly prohibits communications when closed session deliberations in ratesetting cases are underway. The Commission has zero tolerance for violations of quiet time surrounding its closed session meetings. Therefore, we will impose a fine for these violations.

Based on the totality of the circumstances, we will impose a fine slightly larger than the minimum because this was a first offense for both parties involved. The penalty is intended to send a signal to the parties that the Commission will enforce violations of its ex parte rules. Both Pacific and WorldCom have damaged the public interest by destroying faith in the Commission's process. Their actions have suggested that the Commission's rules are superfluous. To counteract this damage we will impose a fine, but not a large one.

Given all of the above factors, we will impose a fine on Pacific of $2,000 per offense and a fine on WorldCom of $1,000 for its offense. We impose a larger fine on Pacific because of our conclusion that its conduct was deliberate rather than inadvertent. Pacific shall pay a fine of $2,000 for each of its eleven violations, or a total fine of $22,000, and WorldCom shall pay $1,000.