Remedies and Fines

We must determine whether Respondents' authority granted under D.99-08-049 should be suspended or revoked. We also must determine whether Respondents should be fined as provided in Pub. Util. Code §§ 2107 and 2108 for violating Rule 1.

CPSD's Proposals and Respondents' Response

CPSD recommends that Respondents' operating authority be held invalid and revoked and that Respondents be fined for intentionally omitting and misstating information on the CPCN application. CPSD does not propose a specific fine but states it could justify a fine of $1250 per violation per day. CPSD proposes that the fine be assessed for a period of 634 days, the difference between the date Respondents filed the CPCN application and the date this investigation was filed, and be set at the statutory minimum fine per day, $500.

Respondents state that they should not be fined, and that Titan's operating authority should not be revoked. They note that Titan has suspended its operations and that they have provided CPSD with sufficient financial statements to show that Titan has a current net worth of less than $5,000. Titan has no ability to pay any fines or penalties. Titan notes that the potential fine proposed by CPSD is far higher than that imposed by the Commission on Sprint Spectrum L.P. dba Sprint PCS, a much larger company, for violating Rule 1.

Revocation of Operating Authority

The severity of the violations of our rules and regulations is a criterion we use in determining whether we should revoke the operating authority of a utility. As discussed above, we have concluded that Respondents violated Rule 1 and are unfit to resell long distance services in California. The numerous investigations into allegations of slamming by ACI in California and other states and the failure to comply with our application process are sufficiently serious to warrant revoking Titan's operating authority.

We have considered Respondents' showing that Titan operated in California between six months and a year without consumer complaints and remains fit to conduct telecommunications services in California. However, Titan is the second telecommunications business of Bucci's that has ceased to provide service to customers in this state. To acquire and lose a DSL and long distance customer base in less than a year, mostly through attrition, does not persuade us to continue operating authority that was obtained by misleading the Commission. Titan was not eligible to use the registration application. Although we did not contemplate a specific remedy for improperly using the registration process, revoking that authority and permitting the opportunity to reapply is consistent with the process we envisioned.

We revoke Titan's operating authority, because Respondents violated Rule 1 in obtaining that authority, because the authority obtained is invalid, and because Respondents are unfit to resell long distance services. Although we revoke Titan's operating authority obtained through the registration process, we do not preclude Titan from reapplying for authority through the formal application process in which we can consider any conditions on Titan's operating authority. We also will require Bucci to apply by formal application for authority for any telecommunications carrier in which Bucci is an officer, director, partner, or owner.

Legal Standard for Imposition of Remedies and Fines

In D.98-12-075, we established standards for the imposition of fines. We consider two general factors: (1) severity of the offense, and (2) the conduct of the utility. In addition, we consider the financial resources of the utility, the totality of the circumstances in furtherance of the public interest, and the role of precedent. (See Order Instituting Rulemaking on the Commission's Own Motion into Competition for Local Exchange Service, D.01-08-019, 2001 Cal. PUC LEXIS 653 *18.) A fine might be a penalty of not less than $500, nor more than $20,000, for each offense, with every day of a continuing offense a separate and distinct offense. (Pub. Util. Code §§ 2107, 2108.)

Severity of the Offense

The size of the fine should be proportionate to the severity of the offense. To determine severity, we consider three factors: (1) physical harm; (2) economic harm; and (3) harm to the regulatory process. Respondents' violation of Rule 1 resulted in no physical harm. Regarding economic harm, we consider costs imposed upon the victims of the violation and unlawful benefits gained by the public utility; we use the greater of these two amounts in setting a fine. Here there are no costs imposed on the victims. The record does not reflect that Respondents directly benefited from their conduct, because we have not established a benefit from receiving authority through an expedited process rather than applying for authority through the more extensive application process. The record does not conclusively establish that we would have declined to grant Titan a certificate. Instead, Respondents' conduct harmed the regulatory process by failing to disclose ongoing consumer misrepresentation investigations on the CPCN application. We must ensure that the simplified application process serves its intended purpose, to permit those with a clean slate to obtain expedited authority while requiring those with prior conduct that might be of concern to use the more detailed and lengthier application process. We accord a high level of severity to any violation that harms or undermines the regulatory process (2001 Cal. PUC LEXIS, supra, at **23-24), and find this violation constitutes a grave offense.

Conduct of the Utility

In D.98-12-075, we held that the size of a fine should reflect the conduct of the utility. When assessing the conduct of the utility, we consider the following factors: (1) the utility's actions to prevent a violation; (2) the utility's actions to detect a violation; and (3) the utility's actions to disclose and rectify a violation.

We expect utilities to take reasonable steps to ensure compliance with applicable laws and regulations. The record reflects that Bucci delegated the completion of the application and did not monitor its accuracy, conduct that could, and in this instance did, facilitate a violation. The application attaches Bucci's resume in which he states that he built ACI into a $14 million company from nothing by 1998. However, Bucci failed to note that ACI was in receivership, an event that had occurred when the application was filed. Both the omissions in the resume and the application indicate, at a minimum, that Bucci failed to take reasonable steps to ensure that Titan's application was completed in conformance with our requirements.

CPSD and Respondents dispute whether there was intent to mislead the Commission. Absent actual notice of all pending investigations, CPSD's allegation that Bucci intentionally misled the Commission remains speculative, especially because the receiver represented ACI in many of those matters. Although the record does not prove intent to mislead the Commission with respect to ongoing investigations and regulatory sanctions, Respondents should not avoid responsibility for the truthfulness of their representations to the Commission. We expect utilities to diligently monitor their activities, and we consider deliberate wrongdoing an aggravating factor. Although the record does not establish deliberate wrongdoing, it does establish carelessness inconsistent with the diligence we expect.

We expect utilities to promptly bring violations to our attention. The record does not conclusively demonstrate that Bucci was aware of the failure to accurately complete the application in advance of this investigation. However, Michigan's revocation of Titan's operating authority because Bucci failed to pay the fine assessed against ACI should have prompted Bucci to review the status of Titan's operating authority in other jurisdictions. Instead, at that time Titan had ceased providing telecommunications services in California. Based on the conduct criteria, Respondents' ongoing carelessness weighs in favor of more than a minimum penalty.

Totality of the Circumstances and Financial Resources of the Utility

In D.98-12-075, we held that the size of the fine should reflect the financial resources of the utility and should consider two factors, the need for deterrence and any adjustment to achieve deterrence without becoming excessive. We also held that a fine should be tailored to the unique facts of each case.

The penalty for failing to disclose information requested on the CPCN application should be tailored to the resulting harm and should be sufficient to ensure that applicants fully disclose information requested. Respondents' offense involves regulatory harm that Bucci at no time acted to avoid. As a result, CPSD conducted an extensive investigation into ACI's actions, an outcome that would have been avoidable had Bucci monitored the regulatory consequences of ACI's customer operations. Although CPSD did not propose a specific fine, CPSD indicated a range of acceptable fines, from $500 to $1250 per offense. CPSD also provided the number of hours Molzner spent on this investigation, a total of 957 hours at an hourly rate of $23.88 for a total of $22,853. This investment of resources is a fair measure of the regulatory harm involved and suggests an appropriate amount for the fine.

Titan obtained operating authority through our expedited registration process, authority it should have requested through the lengthier application route. As a result, the duration of the offense extends, at a minimum, from the date Titan filed its application until the date it received its CPCN, a total of 35 days, because that was the timeframe when Respondents could have corrected the registration application. CPSD proposes that the violation extend until the date this investigation was filed, a total of 634 days. However, once we granted Titan its operating authority, there would be little reason for Titan to review its application for accuracy.

Respondents failed to disclose two matters that Question 7 requested and one matter that Question 8 requested that would have prompted a "not true" response. CPSD proposes that a false answer to one question be considered one offense and we will adopt that proposal and find there were two offenses.

CPSD does not contest Respondents' claim that Titan has limited ability to pay a fine. As a result, we are constrained in setting the fine higher than the minimum amount per day per offense, $500. We find there were two offenses that extended for 35 days each. Therefore, we fine Titan $35,000. This amount shall be payable to the State of California General Fund. This amount is sufficient to deter future violations and exceeds the cost of the investigation. We require that this amount be paid before Respondents seek future operating authority.

Precedent

Finally, D.98-12-075 requires that we address previous decisions that involve reasonably comparable factual circumstances and explain any substantial differences in outcome. In D.01-08-019, we reviewed precedent for Rule 1 violations. In that decision, we adopted a standard of $10,000 per offense after noting that we had fined one utility $10,000 plus parties' expenses of $38,495 and proposed to fine another utility $78,500 for Rule 1 violations. Although the fine assessed here is less, it is reasonable to do so in light of Titan's limited ability to pay a fine.