4. Discussion
4.1. Standard of Review
The standard of review for settlement agreements is set forth in Rule 12.1(d), which states as follows:
The Commission will not approve settlements, whether contested or uncontested, unless the settlement is reasonable in light of the whole record, consistent with law, and in the public interest.
The proponents of a settlement have the burden of demonstrating that the settlement satisfies Rule 12.1(d).
The Commission favors the settlement of disputes. This policy supports many goals, including reducing the expense of litigation, conserving scarce Commission resources, and allowing parties to reduce the risk that litigation will produce unacceptable results. The policy favoring settlements weighs against the Commission's alteration of uncontested settlements such as the one before us here. As long as a settlement is reasonable in light of the whole record, consistent with the law, and in the public interest, it should normally be adopted without alteration.7
As noted above, the Settlement Agreement requires NOS/ANI to pay a fine of $10,000, of which $9,500 is suspended and will be waived after two years if there are no further violations of Rule 1.
The Commission's general criteria for determining the amount of a fine are set forth in D.98-12-075 (84 CPUC2d 155, 188-90). As stated in that decision, in cases where there has been no physical or economic harm to the public, the appropriate criteria are as follows:
Harm to the Regulatory Process: A high level of severity will be accorded to violations of statutes or Commission directives.
Number and Scope of Violations: A single violation is less severe than multiple offenses. A violation that affects many consumers is worse than one that is limited in scope.
Utility's Actions to Prevent a Violation: Utilities are expected to take reasonable steps to comply with applicable laws and regulations. The utility's past record of compliance may be considered in assessing a penalty.
Utility's Actions to Detect a Violation: Utilities are expected to diligently monitor their activities. Deliberate, as opposed to inadvertent wrongdoing, is an aggravating factor.
Utility's Actions to Disclose and Rectify a Violation: Steps taken by a utility to promptly report and correct violations may be considered in assessing a penalty.
Need for Deterrence: Fines should be set at a level that deters future violations. Effective deterrence requires that the size of a fine reflect the financial resources of the utility.
Degree of Wrongdoing: The Commission will review facts that tend to mitigate the degree of wrongdoing as well as facts that tend to exacerbate the wrongdoing.
Consistency with Precedent: Any decision that levies a fine should address previous decisions that involve reasonably comparable circumstances and explain any substantial differences in outcome.
Public Interest: In all cases, the harm will be evaluated from the perspective of the public interest.
We will use these criteria for determining whether the Settlement Agreement here is reasonable in light of the whole record, consistent with the law, and in the public interest.
4.2. Reasonable in Light of the Whole Record
There is an adequate record to decide whether to adopt the Settlement Agreement. The record includes the applications themselves, CPSD's protests, and NOS/ANI's responses to CPSD. The Settlement Agreement also provides sufficient information to enable the Commission to (1) implement the provisions, terms, and conditions of the Settlement, and (2) discharge its future regulatory obligations with respect to the parties and their interests.
The Settlement Agreement resolves a Rule 1 violation by requiring NOS/ANI to pay a fine of $10,000, of which amount $9,500 will be waived provided there are no further Rule 1 violations by either NOS or ANI during a two-year period. The $10,0000 fine, the minimum we impose in cases of Rule 1 violations claimed to be inadvertent,8 is consistent with a record which shows that the violation of Rule 1 apparently was inadvertent, did not cause any physical or economic harm to the public, and was limited in scope. Further, the violation occurred with respect to applications that are now being withdrawn. Consequently, because the violation does not involve any matters that are being decided by the Commission, the harm to the regulatory process has been relatively minor.
On the other hand, the fact that the Rule 1 violation did occur and was not disclosed until after CPSD started its investigation shows that NOS/ANI did not do enough to prevent, detect, and disclose the violation. Although these factors could be said to weigh in favor of a larger fine, we find they are offset by the good-faith efforts of NOS/ANI to rectify the violation promptly once it came to light.
The primary purpose of a fine is to deter future wrongdoing. Effective deterrence requires that the size of a fine reflect the financial resources of the utility. NOS and ANI have sizable financial resources, as shown by the settlement payment of $2.95 million that they have agreed to make as part of the settlement approved in D.05-06-032. Thus, it could be argued that a fine which is likely to amount to $500 (assuming no future Rule 1 violations) is insufficient to deter future violations by NOS/ANI.
However, as the Settling Parties point out, the Settlement avoids the expenditure of Commission resources that would otherwise have been necessary if the parties had chosen to litigate this matter. Although we believe it is likely that a larger fine would have resulted if this matter been fully litigated, it is also likely that the additional costs incurred by the Commission and its staff would have exceeded the larger fine. Thus, there is a net public benefit to adopting the Settlement Agreement that makes it reasonable in light of the whole record.9
4.3. Consistent with the Law
In deciding whether the Settlement Agreement is consistent with the law, we must assess whether the Settlement complies with all applicable statutes and Commission decisions. Of particular relevance is § 2107, which authorizes the Commission to levy a fine of $500 to $20,000 under the following circumstances:
§ 2107: Any public utility which violates or fails to comply with any provision of the Constitution of this state or of this part, or which fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the commission, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than five hundred dollars ($500), nor more than twenty thousand dollars ($20,000) for each offense.
As noted above, NOS/ANI admit that they have violated Rule 1 and have agreed to pay a fine of $10,000, $9500 of which will be waived if there are no further Rule 1 violations within a two-year period. We find this outcome consistent with the language of § 2107.
We next assess whether the Settlement is consistent with previous decisions that involve reasonably comparable circumstances. There are several recent decisions where the Commission has levied fines for Rule 1 violations. D.06-04-048 imposed a fine of $55,000 for violating Rule 1 and several Commission decisions and statutes. D.05-02-001 imposed a fine of $45,350 for violating Rule 1 and for slamming, cramming, and failing to remit regulatory fees. D.03-01-079 imposed a fine of $35,000 for two violations of Rule 1 that continued over 35 days. D.01-08-019 imposed a fine of $200,000 for 20 separate violations of Rule 1.
Although these decisions imposed larger fines for violating Rule 1, we agree with CPSD that what is likely to be a net fine of $500 is acceptable here because there is no basis to question the claimed inadvertence by NOS/ANI, because of the companies' cooperation in resolving this matter, and because the Commission and its staff have not had to expend substantial resources on the matter. These circumstances were absent in prior decisions that imposed larger fines for Rule 1 violations.
Thus, we conclude that the Settlement Agreement is consistent with the law.
4.4. The Public Interest
Our primary concern in deciding whether the Settlement Agreement is in the public interest is whether the likely net fine of $500 is reasonable based on the circumstances of this case. It is clear that the degree of wrongdoing here was relatively slight because (1) there is no evidence that NOS/ANI intended to deceive the Commission, and (2) there was no harm to others. Further, NOS/ANI made a good-faith effort to rectify the violation promptly once it came to light. In view of these circumstances, we conclude that the Settlement is in the public interest.
4.5. Conclusion and Implementation
For all of the foregoing reasons, we conclude that the uncontested Settlement Agreement is reasonable in light of the whole record, consistent with the law, and in the public interest. Therefore, we will grant the Settling Parties' Motions filed in A.05-12-007 and A.05-12-008 to adopt the Settlement Agreement. In accordance with Rule 12.5, the adopted Settlement Agreement is binding on all parties. Our adoption of the Settlement does not constitute approval of, or precedent regarding, any principle or issue.
The Settlement Agreement requires NOS/ANI to pay $500 upon the Commission's adoption of the Settlement. To implement this provision, NOS/ANI shall submit a check for $500 to the Commission's Fiscal Office no later than 10 days from the effective date of today's Opinion. The check shall be made payable to the State of California's General Fund, and the decision number of this Opinion shall be shown on the face of the check.
Finally, NOS/ANI and CPSD have agreed to the withdrawal of A.05-12-007 and A.05-12-008. We approve of the withdrawal.
7 D.06-06-014, mimeo., p. 12.
8 See D.01-08-019, mimeo. at 15-16, 18-19.
9 Because of the unique circumstances of this case, we caution future violators of Rule 1 that they should not expect fines of $500 if they possess substantial financial resources, or if their conduct is more egregious.
