4. Discussion

A. Whether to Approve the Application

In A.00-02-014 the Applicants request authority under § 854(a) for Mail.com to acquire NetMoves. Section § 854(a) states, in relevant part, as follows:

No person or corporation...shall merge, acquire, or control...any public utility organized and doing business in this state without first securing authorization to do so from the commission...Any merger, acquisition, or control without that prior authorization shall be void and of no effect.

The Commission has broad discretion to determine if it is in the public interest to authorize a transaction pursuant to § 854(a).⁷ The primary standard used by the Commission to determine if a transaction should be authorized under § 854(a) is whether the transaction will adversely affect the public interest.⁸ The Commission may also consider if the transaction will serve the public interest.⁹ Where necessary and appropriate, the Commission may attach conditions to a transaction in order to protect and promote the public interest.¹⁰

For the following reasons, we conclude that it is reasonable to grant A.00-02-014 to the extent the application requests prospective authority under § 854(a) for Mail.com to acquire NetMoves. First, there will be no change to rates, services, or operations of NetMoves as a result of the acquisition. Thus, NetMoves' customers and the public will not be harmed by the acquisition. Second, Mail.com, as a nationwide provider of e-mail services, has the technical, managerial, and financial qualifications necessary to successfully operate NetMoves. Third, the public may benefit from the acquisition to the extent the acquisition enhances NetMoves' ability to compete through lower rates and/or new or improved services. Fourth, there were no protests to A.00-02-014. Finally, we have authorized acquisitions of public utilities many times in the past. Given our experience with acquisitions, we see no reason to withhold authority for the acquisition before us here.

We deny A.00-02-014 to the extent the application requests retroactive authority under § 854(a) for Mail.com to acquire NetMoves. The purpose of § 854(a) is to enable the Commission to review a proposed acquisition, before it takes place, in order to take such action as the public interest may require.¹¹ Granting A.00-02-014 on a retroactive basis would thwart the purpose of § 854(a). Since we do not grant retroactive authority, Mail.com's acquisition of NetMoves is void under § 854(a) for the period of time prior to the effective date of this decision. The Applicants are at risk for any adverse consequences that may result from their having effected the acquisition without Commission authority.

We find no merit in the Applicants' argument that we should grant retroactive authority for Mail.com's acquisition of NetMoves because it was our policy to grant retroactive authority at the time A.00-02-014 was filed. There was no such policy in effect at the time A.00-02-014 was filed, since we never issued a decision that formally established such a policy. Furthermore, while we have from time to time issued decisions that granted retroactive authority for acquisitions pursuant to our authority under § 853(b), each of these decisions was based on unique facts and circumstances, not a general policy. In this proceeding, we find that the Applicants have failed to present an adequate justification for why we should grant retroactive authority here.

As we did in D.00-09-035, we provide notice that in the future we may not grant applications that seek retroactive authority for transactions that are subject to § 854(a). Instead, we may (1) grant such applications only to the extent they request authority on a prospective basis, (2) deny the applications to the extent they request retroactive authority, and (3) find that the applicants are at risk for any adverse consequences that may result from their having completed a transaction prior to obtaining Commission approval for the transaction as required by § 854(a). It is also possible that we may conclude that an application for retroactive authority should be denied in its entirety, and that the underlying transaction, if already consummated, should be deemed void and of no effect pursuant to § 854(a). Finally, we may impose a monetary penalty for failure to obtain prior Commission approval for a transaction that is subject to § 854(a).

B. Whether to Penalize the Applicants for Their Failure to Comply with Pub. Util. Code §854(a)

Applicants failed to comply with § 854(a) by Mail.com acquiring NetMoves without Commission authorization. Violations of § 854(a) are subject to monetary penalties under § 2107 which states as follows:

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.

For the following reasons, we conclude that the Applicants should be fined for their failure to comply with § 854(a). First, any violation of § 854(a), regardless of the circumstances, is a serious offense that should be subject to fines. Second, the imposition of a fine will help to deter future violations of § 854(a) by the Applicants and others.

To determine the size of the fine, we shall rely on the criteria adopted by the Commission in D.98-12-075. We address these criteria below.

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 stated that it would consider the following factors:¹²

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.

Applicants' violation of § 854(a), while serious, was not an especially egregious offense. This is because the violation did not cause any physical or economic harm to others. In addition, there is no evidence that the Applicants significantly benefited from their unlawful conduct. Furthermore, there was only a single violation of § 854(a), and the violation affected few, if any, consumers. The only factor that indicates the violation should be considered a grave offense is our general policy of according a high level of severity to any violation of the Public Utilities Code. However, this factor must be weighed against the other factors which indicate that Applicants' failure to comply with § 854(a)was not an especially egregious offense.

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:¹³

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.

Applicants did not disclose their violation of § 854(a) until asked by the assigned ALJ,¹⁴ which suggests that a large fine may be appropriate. However, this factor is offset by Applicants' other conduct which indicates that only a small fine is appropriate. First, there is no evidence that the Applicants have previously failed to comply with applicable statutes and regulations. Second, Applicants' failure to comply with § 854(a) appears to have been unintentional. Finally, the Applicants took appropriate steps to report and remedy the violation once it was discovered (i.e., requesting retroactive authority for the acquisition).

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:¹⁵

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.

For the nine-month period ending September 30, 1999, the Applicants had total revenues of $26.6 million and a net loss of $76.2 million.¹⁶ Applicants' total equity on September 30, 1999, was $247,017. Applicants' revenues regulated by the Commission ("regulated revenues") for the nine-month period ending December 1999 were only $25,061.¹⁷ The Applicants' significant losses, depleted equity, and insignificant regulated revenues suggests that a relatively small fine could effectively deter the Applicants from future violations of the California Public Utilities Code.

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:¹⁸

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.

The facts of this case indicate that the degree of wrongdoing, though serious, was not egregious. First, Applicants' violation of § 854(a) was apparently unintentional. Second, no one was harmed by Applicants' failure to comply with § 854(a). Finally, Applicants do not appear to have materially benefited from their unlawful conduct. These same facts also indicate that the public interest was not significantly harmed by Applicants' violation of § 854(a).

Criterion 5: The Role of Precedent

In D.98-12-075, the Commission held that any decision which imposes a fine should (1) address previous decisions that involve reasonably comparable factual circumstances, and (2) explain any substantial differences in outcome.¹⁹

The facts of this case are generally comparable to many Commission decisions that approved, without penalty, transactions that were effected without prior Commission authorization in violation of § 854(a).²⁰ However, in D.00-09-035 we held that our precedent of meting our lenient treatment to those who violate § 854(a) was failing to deter additional violations; and we indicated that we would henceforth impose fines in order to deter future violations of § 854(a).²¹ Therefore, requiring the Applicants to pay a fine for violating § 854(a) would be consistent with D.00-09-035.

Conclusion: Setting the Fine

We previously concluded that the Applicants should be fined for their violation of § 854(a). The application of the criteria adopted by the Commission in D.98-12-075 to the facts of this case indicates that a small fine is warranted. First, Applicants' violation of § 854(a), though serious, was not a particularly severe offense. Second, Applicants' conduct was not egregious. Third, Applicants' financial resources are modest and declining. Fourth, the degree of wrongdoing was relatively minor. Finally, the public interest was not significantly harmed by the Applicants' violation of § 854(a).

We conclude based on the facts of this case that the Applicants should be fined $5,000.00 for violating § 854(a). The fine we impose today is meant to deter future violations § 854(a) by the Applicants and other parties. We emphasize that the size of the fine we impose today is tailored to the unique facts and circumstances before us in this proceeding. We may impose larger fines in other proceedings if the facts so warrant.