VI. Remedies Adopted

A. Penalty Mechanism for Failure to Meet Residential Repair Service Standards

In the discussion above, we find that the increases in Pacific's mean time to restore dial tone for its residential customers since 1996 violates both §§ 451 and 702 and OP 2 of the Merger Decision. ORA urges the Commission to provide customers with guarantees of quality repair service within a specified time and to establish a penalty mechanism if Pacific fails to meet repair service guarantees. However, ORA does not make any specific recommendations as to the standard to use or the appropriate penalty mechanism we should adopt. Therefore, we have developed the following remediation plan based on the principles adopted in D.98-12-075.²⁹ ORA does not propose that Pacific be subject to fines for past lack of compliance, and we do not order fines based on the past violations ORA identified.

In order to establish a reasonable standard for repair service, we look to the data for 1996, the last complete year before Pacific's merger with SBC. In the Merger Decision we ordered Pacific to maintain service quality in the five years following the merger, so it is appropriate to use 1996 data as the standard to follow. In other words, the standards we set for Pacific are based on its 1996 performance--a mean time of 29.3 hours to repair initial out-of-service requests and a mean of 39.4 hours for the repeat out of service interval. The comparable figures for 2000 were 42.5 hours (initial) and 44.6 hours (repeat). We will order Pacific to file a plan showing the steps it intends to take to meet the standards of 29.3 hours (initial) and 39.4 hours (repeat).

Violations of Commission decisions are subject to monetary penalties under § 2107 and § 2108, which state as follows:

§ 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.

2108: Every violation of the provisions of this part or of any part of any order, decision, decree, rule, direction, demand, or requirement of the commission, by any corporation or person is a separate and distinct offense, and in case of a continuing violation each day's continuance thereof shall be a separate and distinct offense.

To determine the size of the fine which Pacific will have to pay for each month in which it exceeds the standards we set, we consider the criteria adopted by the Commission in D.98-12-075:

Criterion 1: Severity of the Offense

In D.98-12-075, the Commission held that the size of a fine should be proportionate to the severity of the offense. To determine the severity of the offense, the Commission considers the following factors:³⁰

Physical harm: The most severe violations are those that cause physical harm to people or property, with violations that threatened such harm closely following.

Economic harm: The severity of a violation increases with (i) the level of costs imposed upon the victims of the violation, and (ii) the unlawful benefits gained by the public utility. Generally, the greater of these two amounts will be used in setting the fine. The fact that economic harm may be hard to quantify does not diminish the severity of the offense or the need for sanctions.

Harm to the Regulatory Process: A high level of severity will be accorded to violations of statutory or Commission directives, including violations of reporting or compliance requirements.

The number and scope of the violations: A single violation is less severe than multiple offenses. A widespread violation that affects a large number of consumers is a more severe offense than one that is limited in scope. For a "continuing violation," § 2108 counts each day as a separate offense.

We do not find the violations resulted in economic harm. However, we do find that Pacific's violations of § 451 and OP 2 of D.97-03-067 could result in physical harm to Pacific's ratepayers. If customers have no dial tone, they do not have access to 911 service or to other emergency contacts. We find that, on average, Pacific's customers who reported a service outage were without dial tone over 13 hours longer in 2000 than they were in 1996. The longer the residential customer is without telephone service, the greater the potential of physical harm because of the customer's inability to contact emergency services. If Pacific meets the standard we have set, risk of physical harm to Pacific's ratepayers will be reduced.

One factor that suggests a large fine may be warranted is our general policy of according a high level of severity to any violation of Commission decisions. In this case, we found a violation of OP 2 of D.97-03-067 and set a standard which, if met, would mean that Pacific was in compliance with that decision. While Pacific disagrees with our finding that it has violated OP 2 in the past, in this decision we make it clear that Pacific's failure to meet the standards specified in this decision will constitute a violation of a Commission order.

As for the number and scope of the violation, we find that Pacific has violated OP 2 in every year since 1996. In other words, Pacific has exceeded its pre-merger average repair interval in every year since 1996. For a "continuing violation, " § 2108 counts each day of a continuing violation as a separate offense. Therefore, on a prospective basis, each day of each month in which Pacific fails to meet the standards we have set will be treated as a separate offense subject to a fine of at least $500.

Criterion 2: Conduct of the Utility

In D.98-12-075, the Commission held that the size of a fine should reflect the conduct of the utility. When assessing the conduct of the utility, the Commission stated that it would consider the following factors:³¹

The Utility's Actions to Prevent a Violation: Utilities are expected to take reasonable steps to ensure compliance with applicable laws and regulations. The utility's past record of compliance may be considered in assessing any penalty.

The Utility's Actions to Detect a Violation: Utilities are expected to diligently monitor their activities. Deliberate, as opposed to inadvertent wrongdoing, will be considered an aggravating factor. The level and extent of management's involvement in, or tolerance of, the offense will be considered in determining the amount of any penalty.

The Utility's Actions to Disclose and Rectify a Violation: Utilities are expected to promptly bring a violation to the Commission's attention. What constitutes "prompt" will depend on circumstances. Steps taken by a utility to promptly and cooperatively report and correct violations may be considered in assessing any penalty.

A smaller fine may be warranted if a utility promptly brings a violation to the Commission's attention.

To analyze this criterion, we need to view Pacific's past performance. We are not persuaded by Pacific's arguments that it has not violated the § 451 or a Commission order. Pacific itself compiles the ARMIS data which it transmits to the FCC. Pacific could see the increase in the mean time to restore service. It is Pacific's duty to inform the Commission when it finds that its repair intervals were in contravention of a Commission decision. Pacific has had ample opportunity to do so since the numbers for every year since 1996 have exceeded the average recorded in 1996.

For the preceding reasons, we conclude that Pacific should have detected the violation and notified the Commission of its violation. Pacific did neither, which suggests that a large fine may be appropriate.

Criterion 3: Financial Resources of the Utility

In D.98-12-075, the Commission held that the size of a fine should reflect the financial resources of the utility. When assessing the financial resources of the utility, the Commission stated that it would consider the following factors:³²

Need for Deterrence: Fines should be set at a level that deters future violations. Effective deterrence requires that the Commission recognize the financial resources of the utility in setting a fine.

Constitutional limitations on excessive fines: The Commission will adjust the size of fines to achieve the objective of deterrence, without becoming excessive, based on each utility's financial resources.

Pacific is the largest Local Exchange Carrier (LEC) in California with annual revenues in excess of $10 billion. That figure suggests that a relatively small fine would not effectively deter Pacific from future violations of the repair standards established in this decision.

Criterion 4: Totality of the Circumstances

In D.98-12-075, the Commission held that a fine should be tailored to the unique facts of each case. When assessing the unique facts of each case, the Commission stated that it would consider the following factors:³³

The degree of wrongdoing: The Commission will review facts that tend to mitigate the degree of wrongdoing as well as facts that exacerbate the wrongdoing.

The public interest: In all cases, the harm will be evaluated from the perspective of the public interest.

It is difficult to analyze the degree of wrongdoing since Pacific presents a variety of plausible explanations for its failure to report its violations of OP 2. Although Pacific's explanation for why it believes it has not violated OP 2 is plausible, we are not convinced. Also, we conclude that the public interest is not served when Pacific experiences substantial increases in the average time it takes to restore service to residential customers.

Criterion 5: The Role of Precedent

In D.98-12-075, the Commission held that any decision that imposes a fine should (1) address previous decisions that involve reasonably comparable factual circumstances, and (2) explain any substantial differences in outcome.³⁴

There are no previous Commission decisions that involve reasonably comparable factual circumstances. While the Commission has assessed penalties for violations of § 451, those decisions did not deal with service quality issues. However, there is a body of Commission precedent that bears on an issue relevant to this proceeding, namely, whether the Commission is required by § 2108 to impose a fine for each day of a "continuing violation."

In general, Commission precedent indicates that where there is a continuing violation, the Commission has discretion in deciding whether to assess a fine for each day of the violation. For example, in D.99-08-007 the Commission held that while it could find a continuing violation and assess additional fines pursuant to § 2108, the Commission is not required to do so. In other cases, namely D.01-04-036, D.00-07-051 and D.99-12-055 the Commission did find a continuing violation and assessed additional penalties pursuant to § 2108.

In prior cases, the Commission has evaluated a number of factors in making its determination of whether to impose additional fines under § 2108. We find it appropriate to assess penalties on a daily basis in this case, based on the need for effective deterrence of future violations and the importance we attach to violations of our orders.

Conclusion: Setting the Fine

We previously concluded that Pacific should be fined for any future failures to meet the standards we set for restoring service to residential customers. The application of the criteria established by D.98-12-075 to the facts of this case indicates that a relatively sizeable fine is warranted. In particular, Pacific is the largest LEC in California, and any fine must be high enough to deter Pacific from violating the Commission's order. While the record of this proceeding does not provide data on harm that has resulted to customers who were without dial tone, there is a potential for substantial harm to customers who are without dial tone for an extended period of time.

According to Pacific's witness Resnick, the total customer trouble reports reported to ARMIS in 2000 was 3,337,684.³⁵ While the record of the proceeding does not show the number by month, we will divide that yearly total by 12 to determine an average number of trouble reports per month. That total is 278,140. We do not know how many of those trouble reports would be handled within the standard of 29.3 hours. For example, if half the customers did not have their service restored within 29.3 hours for initial outages, that would mean that over 139,000 customers would not have had service restored within the standard we have set. These figures are hypothetical, but they do give us some idea of the magnitude of the number of customers who could experience repair intervals longer than the standard we adopt in this decision.

We conclude based on the facts of this case that Pacific should be fined $10,000 for each day of a month in which it does not meet the standards we adopt of 29.3 hours for initial outages and 39.4 hours for repeat outages. The fine mechanism we establish today is meant to give Pacific an incentive to meet the standards we have adopted and to deter future violations of our orders.

We further order that, beginning 60 days after approval of this order and until further order of the Commission, Pacific shall make monthly reports to the Directors of the Telecommunications Division and ORA that include the ARMIS data on initial and repeat out-of-service repair intervals. Those reports shall be due by the 20th of the following month and shall be on the same basis as the ARMIS data Pacific filed with the FCC for 1996-2000. Under no circumstances is Pacific to change its methodology for compiling the ARMIS information on residential repair service without seeking the approval of this Commission.

Beginning in January 20, 2003, and every year thereafter until further order of the Commission, Pacific shall file an Advice Letter in which it compiles the monthly information for the prior year. Pursuant to § 2107, Pacific shall be subject to penalties for each month in which it has not met either one of the standards. Under § 2107, we have the authority to assess penalties ranging from $500 to $20,000 for each offense. Considering the fact that we found that Pacific has violated a Commission order, and also considering the importance we place on residential repair service, we will require Pacific to pay $10,000 for each offense. For purposes of calculating an offense, under § 2108, each day of a month in which Pacific does not meet one of the standards will be considered a separate offense so the total monthly assessment for each standard will be $300,000. If Pacific fails to meet both standards, the monthly fine will be $600,000. Concurrently with its Advice Letter filing, Pacific shall transmit a check to the Commission's Fiscal Office covering all months in the year in which Pacific has exceeded the standards we have set

We recognize that an extraordinary or catastrophic event such as an earthquake, or a widespread service outage, that is beyond Pacific's control, could have an impact on its ability to meet the standards we have set in the month in which the event occurs. In that case, Pacific should not be fined for failing to meet the standard.

For any month in which such a catastrophic event occurs that is beyond Pacific's control, Pacific should include the unadjusted ARMIS average for the month, along with an adjusted figure and workpapers that show a) the date(s) of the catastrophic event(s) and, b) how the adjusted figure was calculated. However, Pacific will not be excused from the fine unless the magnitude of the event is such that the event causes Pacific to miss either the "initial" or "repeat" standards we have adopted.

B. 4-hour Window

Above we conclude that Pacific's customers who call 611 Repair Service do not have a meaningful option to request a 4-hour appointment window, since a customer cannot accomplish that without speaking to a live MA. ORA asks that we set a 4-hour appointment requirement and order Pacific to provide customers with a credit if Pacific fails to meet repair service guarantees.

As Pacific pointed out, the 4-hour window requirement and $25 penalty for failing to meet the service timeline is subject of a Rulemaking we initiated earlier this year. We prefer to address the 4-hour window and $25 credit for failure to meet appointments within the scope of the rulemaking, where it would be applied to all carriers. Therefore, we will not adopt that remedy here.

However, we require Pacific to modify its IVR system to expressly alert the caller before an appointment is made, that a 4-hour appointment is available. Pacific then has the option to either modify the IVR system to set 4-hour appointments, or have all requests for 4-hour appointments handled by the MAs.

Findings of Fact

1. The Commission's GO 133-B data do not measure service outage times for residential customers.

2. Pacific reports ARMIS service quality data to the FCC, and the FCC has not in the past verified that data.

3. The ARMIS data show that Pacific's mean (or average) for initial out-of-service repair intervals increased 45% between 1996 and 2000.

4. The mean is an acceptable measure of central tendency.

5. The ARMIS data ORA presented is an adequate measure of Pacific's residential repair service quality.

6. There is no evidence in the record that shows any correlation between the duration of Pacific's out-of-service intervals and customer unavailability for appointments.

7. Pacific has not presented any evidence that customer unavailability for appointments has increased between 1996 and 2000.

8. Pacific has failed to establish a direct correlation between weather effects, and specific increases in numbers of trouble tickets within its service area.

9. Pacific has presented no evidence as to the specific correlation between the increase in access lines and the increase in out-of-service intervals.

10. While Pacific presented evidence on the effect of cable cuts on the mean time to repair for 1999 and 2000, it presented no data on the specific impact cable cuts had on repair times for 1996-1998.

11. Pacific failed to demonstrate that external factors had a specific correlation to Pacific's mean repair intervals for the years 1996 - 2000.

12. The ARMIS data demonstrate a 45% increase in the mean initial out-of-service repair interval for residential customers over the 1996-2000 period; the ARMIS data provide an adequate standard for the Commission to use in evaluating Pacific's performance for this element of service quality.

13. Pacific's customers must talk to a live MA in order to request a 4-hour appointment.

14. Pacific's customers who call the 611 repair service do not have a meaningful opportunity to request a 4-hour appointment.

15. Pacific was given clear notice of the Commission's service quality expectations in OP 2 of D.97-03-067; Pacific was directed to "maintain or improve" its level of service quality in the five years after the merger with SBC.

16. Aggregating the ARMIS and GO 133-B data would mask poor service quality in one area.

17. Out-of-service repair intervals for residential customers are a particularly significant element of service quality.

18. The Commission cannot find that Pacific's service quality is excellent when the initial out-of-service repair intervals for residential customers has increased 45% since 1996.

19. Based on the ARMIS data, customer satisfaction with Pacific's repair service has decreased since D.97-03-067.

20. A standard initial out-of-service repair interval of 29.3 hours for residential customers is acceptable, since this is the service level Pacific attained in 1996, prior to its merger with SBC.

21. A standard repeat out-of-service repair interval of 39.4 hours for residential customers is acceptable, since this is the service level Pacific attained in 1996, prior to its merger with SBC.

Conclusions of Law

1. Under Pub. Util. Code § 1702, a complainant must prove an alleged violation of a specific standard contained in a statute, rule or order of the Commission. The standard of proof is by a preponderance of the evidence.

2. ORA has standing to bring this complaint, under Pub. Util. Code §§ 309.5 and 1702, and the January 12, 2001 ALJ Ruling so holding should be affirmed.

3. The Commission is not limited to the use of GO 133-B data to determine whether a carrier has violated § 451.

4. A decrease in the level of service quality may constitute a violation of § 451.

5. The ARMIS data, which show an increase in the initial and repeat out-of-service repair intervals between 1996 and 2000, demonstrate a violation of § 451.

6. Pacific's own past performance is an adequate yardstick to use to determine a violation of § 451.

7. Pacific's current IVR system does not promote the convenience of the public, which constitutes a violation of § 451.

8. Because Pacific was given clear notice in OP 2 of D.97-03-067 that, as a condition of the merger with SBC, it was to maintain or improve its service quality, the Commission's finding that Pacific's record in recent years violates that condition does not constitute an ex post facto law.

9. The ARMIS data, which show an increase in the initial and repeat out-of-service repair intervals between 1996 and 2000, demonstrate a violation of OP 2 of D.97-03-067.

10. Increases in customer dissatisfaction alone are insufficient to establish a violation of the OP 2 requirement that Pacific "maintain or improve" its service quality.

11. A violation of OP 2 of D.97-03-067 constitutes a violation of § 702.

12. Pursuant to § 2107, Pacific may be fined for violating §§ 451 and 702 and D.97-03-067.

13. Pursuant to § 2108, each day of a continuing violation is treated as a separate and distinct offense for purposes of calculating fines.

14. It is reasonable to set service quality performance standards that Pacific must meet or be subject to penalties. The amount of the penalty should be based on the criteria established in D.98-12-075.

15. Pacific's violations of § 451 and OP 2 of D.97-03-067 could result in physical harm to Pacific's ratepayers.

16. A high level of severity should be accorded to any violation of a Commission decision.

17. Pacific, the largest LEC in California, would not be effectively deterred by a small fine.

18. The public interest is not served when the average time it takes to restore service to Pacific's residential customers increase substantially.

18. If a catastrophic event beyond Pacific's control occurs in one or more months of the year, Pacific should be excused from the fine for the month in which the event occurs, if Pacific can demonstrate that the magnitude of the event caused Pacific to miss the standards adopted.

ORDER

IT IS ORDERED that:

1. The Office of Ratepayer Advocate's (ORA) complaint against Pacific Bell Telephone Company (Pacific) is granted to the extent set forth in the Conclusions of Law above.

2. The January 12, 2001 Administrative Law Judge ruling denying Pacific's motion to dismiss the complaint on the grounds that ORA lacks standing to file a complaint and failed to allege facts sufficient to support its claims is hereby affirmed.

3. Beginning 60 days from the effective date of this order, Pacific shall make monthly reports to the Directors of the Telecommunications Division and ORA which include the Automated Reporting Management Information System (ARMIS) data on initial and repeat out-of-service repair intervals for the previous month. Such monthly reports shall be due by the 20^th of the following month. Such filings shall be accompanied by an affidavit, signed by an officer of the company, under penalty of perjury, asserting that the data are correct and that the methodology used for compiling the ARMIS information has not been changed.

4. Pacific shall not change its methodology for compiling the ARMIS information on residential repair intervals without prior approval of the Commission.

5. Beginning January 20, 2003, Pacific shall file an annual Advice Letter in which it compiles the monthly ARMIS data on initial and repeat out-of-service repair intervals for residential customers for the prior year. Such filing shall be accompanied by an affidavit, signed by an officer of the company, under penalty of perjury, asserting that the data are correct and that the methodology used for compiling the ARMIS information has not been changed. Pacific shall be subject to penalties for every month in which it has not met the standards of 29.3 average hours (for initial out-of-service repair intervals) and 39.4 average hours (for repeat out-of-service intervals).

6. For each month Pacific does not meet the mean of 29.3 hours initial out-of-service repair interval, Pacific shall be subject to a fine of $300,000.

7. For each month Pacific does not meet the mean of 39.4 hours repeat out-of-service repair interval, Pacific shall be subject to a fine of $300,000.

8. If a catastrophic event beyond Pacific's control occurs in one or more months of the year, as part of its annual Advice Letter filing, Pacific shall provide both the unadjusted ARMIS average for the month, along with an adjusted figure and workpapers that show the date(s) of the catastrophic event and how the adjusted figure was calculated.

9. Pacific shall file a plan with the Directors of the Telecommunications Division and ORA detailing the steps it will take to meet the standards adopted herein for initial and repeat out-of-service repair intervals.

10. Pacific shall modify its Interactive Voice Response system to alert the caller before an appointment is made that a 4-hour appointment is available, and provide an opportunity to request a 4-hour appointment.

11. This case is closed.

This order is effective today.

Dated , at San Francisco, California.