Sanctions

In its opening brief, CSD requests that the Commission require (1) all California LECs to cease billing for USP&C, (2) USP&C to conduct a survey of all customers who it billed in 1999 who were potentially victimized by the companies USP&C bills on behalf of, and to use the information so obtained to provide refunds to the customers, and (3) USP&C pay a fine of up to $3.5 million, with a large portion suspended pending refunds to customers.

As set out above, we find that USP&C has violated § 2890(e)(2)(A) and (B). Among the sanctions that we are authorized to impose for such violations are: (1) ordering the LECs to cease to provide billing and collection services, § 2889.9(c), and (2) requiring USP&C to pay a fine to the State of California, § 2889.9(b).

As set out above, we find that USP&C's billing practices violate both the "clear and concise description" and the "name" requirements of § 2890. These violations occurred in the context of customer refund rates that were more than twice the maximum rate allowed by USP&C's contract with Pacific Bell. Despite repeated warnings by Pacific Bell, USP&C was either unable or unwilling to take the steps necessary to reduce its volume of customer complaints and refunds to an acceptable level. USP&C has demonstrated that it cannot conform itself to the requirements for billing agents imposed by Pacific Bell's tariffs and by the Public Utilities Code. For these reasons, safeguarding the rights of customers and enforcing the provisions of §§ 2889.9 and 2890 requires that we order all California LECs permanently to cease providing billing and collection services to USP&C, its corporate affiliates, and any billing agents with which USP&C has common corporate officers or owners of 10% or more of outstanding stock.

CSD also asks that we impose a fine on USP&C for its violations of § 2890. CSD states that each bill should be considered a separate offense for each violation of the § 2890.

The Commission may impose fines payable to the State of California pursuant to § 2107 against any "public utility which . . . fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the Commission." Such fines shall be not less than $500 nor more than $20,000 for each offense. Each day of a continuing offense is a separate offense as provided in § 2108.

CSD recommends that we impose the statutory minimum for each bill issued by USPC in violation of § 2890. As an alternative, CSD suggests using the number of days USP&C was out of compliance, 350, to calculate the fine. CSD recommends $10,000 per day, resulting in a fine of $3.5 million. CSD would further reduce this amount by 75% to $875,000, contingent upon USP&C's continued cooperation.

To provide guidance in setting fines within the broad statutory range, the Commission has distilled the principles that it has historically used in assessing fines and restated them such that they may form the basis for future decision assessing fines. (Rulemaking to Establish Rules for Enforcement of the Standards of Conduct Governing Relationships between Energy Utilities and Their Affiliates Adopted by the Commission in Decision 97-12-088, D.98-12-075, App. B.)

Those principles begin by distinguishing reparations from fines. The purpose of reparations is to return improperly collected amounts. Here, however, CSD has not proven that USP&C retained any funds collected from California customers. While we order USP&C to submit additional information on this issue, the current state of the record would not support reparations from USP&C.

The purpose of fines, in contrast, is to deter further violations. In setting the fine level, the Commission will consider the severity of the offense, the utility's conduct, the financial resources of the utility, the totality of the circumstances in furtherance of the public interest, and the role of precedent.

USP&C's offense is significant. Thousands of customers were directly affected, and tens of millions of dollars were unlawfully billed and collected.

The conduct of the utility is another factor that we consider in setting fines. Here, USP&C failed to prevent, detect, and rectify these violations.

USP&C's financial resources also play a role in determining the appropriate fine level. CSD notes that USP&C has not presented any evidence of its financial resources. The record shows that USP&C did over $14 million worth of billing and collection business in 1999 through Pacific Bell alone. Exhibit 24 contains a USP&C document stating that USP&C has 250 employees, and continues to provide service in numerous other states. USP&C has also been represented in this proceeding by attorneys from both a San Francisco law firm and a Washington, D.C. law firm. From these facts, we conclude that USP&C is a going concern with significant financial resources. Thus, a substantial fine could be necessary to achieve our goal of deterrence of future violations.

Our guidelines also require that we consider the totality of the circumstances in furtherance of the public interest when setting a fine. Billing agents enable service providers to have access to customers' local telephone bills. Billing agents, unlike the LECs, contract directly with the service providers and therefore have a unique role in end-user customer billing. Achieving our goal of customer protection requires that billing agents perform their services with diligent regard for their ethical and legal duties. Here, USP&C implemented business practices that allowed service providers to bill customers for $51 million worth of services, while at the same time failing to comply with the statutory requirements. Most troubling to us is USP&C's refund rate of over 52%. The long duration of this refund rate, and USP&C's steadfast refusal to reduce the volume of refunds voluntarily, reveals an unacceptable disregard of responsible billing practices. USP&C either knew or should have known that billings that generate this level of refunds over an extended period of time are unlikely to be in full compliance with legal and regulatory requirements. The volume of refunds call into serious question the validity of the $51 million worth of charges billed to California customers by USP&C. Accordingly, the totality of the circumstances also inclines us to impose a substantial fine.

The final factor in our guidelines is precedent in setting an appropriate fine. In Communications TeleSystems International, 72 CPUC2d at 639-40, we imposed a fine of $19.6 million and suspended all but $2 million for violations of § 2889.5. In FutureNet, D.99-06-055, we imposed a fine of $1.3 million for violations of § 394.

In sum, we hold that USP&C's violations of §§ 2890(e)(2)(A) and 2890(e)(2)(B) are severe offenses. In light of the number of violations, and the conduct of USP&C, as well as our precedent, we will impose a fine of $5,000 for each day USP&C was out of compliance, or $1,750,000. Such amount shall be paid to the State of California, General Fund, no later than 60 days after the effective date of this order.

CSD also puts forward an elaborate proposal for a refund process, and bases its proposal on § 2890(f). That section, however, states that upon receiving a complaint from a customer, the entity responsible for placing the charge on the bill must resolve the dispute within 30 days. Setting aside the question of whether USP&C is the entity placing charges on the bill, it is not obvious how this particular statutory provision could grant this Commission authority to order a customer survey and customer refunds.

Moreover, CSD fails to address the practical issues of obtaining refunds for end-user customers. First, CSD has not shown what fraction, if any, of the funds collected from end-user customers remains in USP&C's possession. Second, CSD has also not shown that USP&C possesses customer billing records going back over two years such that customers owed a refund might be identified and located. Because the entities that caused the billings to be placed on customers' bills, and obtained the funds from the billings, are not respondents here, we have limited remedies, with no practical opportunities to make whole the end-user customers who paid the unauthorized charges.

We have, however, pursued funds retained by billing agents from unlawful billings to California customers. See D.99-08-017. We have found that some billing agents retain reserves of amounts collected from end-user customers for the purpose of making any refunds that might be requested by the customers or ordered by a regulatory or legal authority in the future. We also are aware that billing agents charge fees for their services, and that such fees are typically paid out of the funds collected from customers. We have previously determined that these amounts are subject to this Commission's jurisdiction pursuant to § 2889.9(i). CSD, however, has not requested that we order USP&C to turn over such funds, nor has CSD presented any evidence that such funds exist. We address this issue in the next sections.