3. Response to Comments on February 14 ALJ Draft
As noted above, we have received four rounds of comments since issuing the February 14 ALJ Draft. Opening Comments and Reply Comments on the entire ALJ Draft were filed on March 23 and April 6, 2001, respectively. In addition, the ALJ provided two opportunities for comment focusing on specific aspects of the Telecommunications Industry Rules. First, in comments due June 14 (later rescheduled to June 29), parties were requested to identify any existing telecommunications advice letter procedure that would change under the General Rules or Telecommunications Industry Rules, and (where applicable) to indicate why they prefer the existing procedure. Second, in comments due July 16, parties could make policy arguments regarding the Telecommunications Division's authority to suspend Tier 2 advice letters. We here respond to these comments to the extent they concern the notice requirements we are adopting.
Consumer advocates generally support the adopted notice requirements. For example, our Office of Ratepayer Advocates (ORA) agrees that customers should have advance notice of rate increases. (ORA, June 29 Comments, p. 5.) The Utility Reform Network (TURN) also agrees, noting that the notice requirements "will better enable customers to make informed choices, thereby enhancing the ability of telecommunications markets to function as envisioned in economic theory." (TURN, Reply Comments, p. 5.)
TURN and ORA oppose a provision in General Rule 4.2 in the ALJ Draft. Under that provision, a utility could satisfy a customer notice requirement by publishing notice in a newspaper of general circulation, but only if newspaper publication were authorized by the appropriate Industry Rules. The Telecommunications Industry Rules do not authorize newspaper publication for this purpose, nor do the notice requirements we adopt today.
However, in another respect, we liberalize the notice requirements in the ALJ Draft, as suggested by both TURN and the California Telecommunications Coalition (Telco Coalition).6 Specifically, we will permit customer notice by e-mail to customers who receive their bills via e-mail.
In addition to customer notice by e-mail, Telco Coalition (Opening Comments, p. 14) supports notice by newspaper publication. ORA (as we already mentioned) opposes newspaper notice, particularly if the utility does not use any other means to notify its customers of a given advice letter. In response, we note that the extent to which a utility may rely on newspaper publication for customer notice is still under consideration for the final order in this proceeding. In the ALJ Draft, the Energy and Telecommunications Industry Rules do not exercise the power conferred by General Rule 4.2 to allow customer notice through newspapers; only the Water Industry Rules allow such notice, and then only in limited circumstances. Undoubtedly, a notice via bill, bill insert, or direct mailing from the utility to its customers is much more likely to get the affected customers' attention than is an advertisement in a newspaper, especially if the advertisement is tucked away in the newspaper's "legal notices" section. Consequently, we are not convinced at this time to authorize any general reliance by telecommunications utilities on newspaper publication to satisfy customer notice requirements.
Verizon California Inc. and Verizon Select Services Inc. (collectively, Verizon), Citizens Telecommunications Company and various affiliates (collectively, Citizens), and Telco Coalition criticize various other aspects of the notice requirements as set forth in the ALJ Draft. We will address these criticisms in the above sequence.
Verizon objects to the notice requirements in principle. It believes, "Competitive market forces will adequately ensure that all carriers, on their own initiative, provide appropriate customer notice of service changes and other service-related information. . . . Commission-mandated notice requirements [are] unnecessary." (Verizon, Opening Comments, p. 19.) Accordingly, Verizon urges that we retain our current procedures wherever they provide for no customer notice or a shorter notice period, as compared to the notice requirements in the ALJ Draft. (See Verizon, June 29 Comments, p. 3.) In reply, TURN strongly supports the new notice requirements, citing "the sordid recent history of telecommunications industry marketing abuses and failure to provide customers with accurate information on rates, terms, and conditions of service. . . ." (TURN, Reply Comments, p. 8.)
We are convinced that prior notice to customers is necessary and appropriate in the circumstances covered by the requirements we adopt today. Our experience in many complaint proceedings and investigations conducted since we last took a broad look at customer notice requirements in the telecommunications industry shows that inadequate information, misinformation, and customer confusion in this industry are far too prevalent. Prior notice to customers will not hamper legitimate competition; in fact, our new notice requirements will help ensure that customers get what they want and like what they get.
Verizon, among other parties, notes that we currently allow "minor" rate increases (5% or less) by non-dominant telecommunications carriers to become effective without prior notice to customers. (Verizon, Opening Comments, p. 13.) We now consider this minor/major distinction to be untenable. Figuring out whether an increase is or is not "minor" has often proved controversial. More important, the question of the significance of a particular rate increase is properly one for the customer to decide, not for the utility or the regulator. Depending on a given customer's choice of services and calling patterns, a small increase could have a major impact. Consequently, our notice requirement does not distinguish between major and minor rate increases.
Verizon (Opening Comments, p. 18) objects to our treatment of "customer base" as an asset for purposes of notice to affected customers of a proposed transfer. Verizon notes that the phrase "customer base" is not used in the Public Utilities Code sections (§§ 851-854) addressing transfers of assets or control, or in Rules 35 and 36 of our Rules of Practice and Procedure (concerning applications for approval of such transfers). However, as Pac-West notes (Opening Comments, p. 13), Public Utilities Code Section 2889.3 and the rules we adopted in our "slamming" rulemaking and investigation (R.97-08-001/I.97-08-002) have different notice requirements for transfers of customers than for other kinds of transfers. As discussed further in today's decision (see Section 5.1 below), the notice requirement we adopt today to protect customers affected by proposed transfers complements the statute and our slamming rules. It is also timely, considering the many withdrawals of telecommunications service we are observing.
Citizens suggests a uniform 30-day prior notice requirement in preference to the alternate provisions in the adopted rule. (Citizens, Opening Comments, pp. 3-4.) Verizon apparently agrees with this suggestion in the event we reject Verizon's primary recommendation and instead require prior notice to customers. (Verizon, Opening Comments, p. 19.)
We reject Citizens' suggestion and adopt the notice rule as proposed in the ALJ Draft. The adopted rule better accommodates the planned structure of GO 96-B, which allows certain kinds of changes to become effective immediately upon filing of the advice letter. In such instances, and in general, we anticipate that utilities will want to use bill inserts (in preference to special mailings) to give prior notice; the minimum 25-day advance notice provision gives utilities with customers on different billing cycles more leeway to avoid special mailings, while ensuring all customers have adequate time to consider the impact of pending service changes.
Telco Coalition (June 29 Comments, pp. 12-14, 39-41) objects to the notice requirements as they pertain to higher rates or more restrictive conditions. Telco Coalition notes that the notice requirements modify those set in D.90-08-032 (for interexchange carriers) and D.95-07-054 (for competitive local carriers). D.90-08-032 requires prior customer notice of rate increases, but allows the notice to occur by bill insert following the advice letter filing of the increased rate, as long as the notice precedes the effective date of the increase. D.95-07-054 has similar notice provisions, but (as discussed earlier) it distinguishes between "major" and "minor" rate increases; for the latter, no prior notice to customers is required.7
Telco Coalition prefers the existing notice requirements to those we adopt today. Telco Coalition claims the new requirements force interexchange carriers to signal rate increases well in advance of submitting their advice letters, to the detriment of competition. Moreover, per Telco Coalition, specific details of a change to a rate or condition are often not finalized until just before the new tariff is submitted. Requiring customer notice to occur well before tariff submittal is impractical because last-minute changes are common in competitive industries; thus, the notices could become inaccurate and confusing, and the costliness to carriers of the notice process would increase. Finally, regarding minor rate increases, Telco Coalition says they "are presumed to impact customers less," and particular customers may in fact see no overall increase if a tariff change raises one element of a service's rate but reduces another element.
Telco Coalition asks for a hearing before the Commission changes the notice requirements of D.90-08-032 or D.95-07-054. Telco Coalition contends that the existing requirements adequately protect customers, that the new requirements will not necessarily provide better protection, and that the negative impacts of the new requirements (in terms of increased costs, delays, and customer confusion) would outweigh any customer benefit.
We affirm that affected customers should receive prior notice of increased rates or charges (whether "major" or "minor"), or more restrictive terms or conditions, as prescribed in the rules adopted today. We will not hold a hearing as requested by Telco Coalition; as discussed below, Public Utilities Code Section 1708.5(f) specifically authorizes the Commission to adopt or amend regulations through the notice-and-comment process used here, without an evidentiary hearing.8 Further, we find there are no disputed facts that are material to our decision to adopt these rules. Consequently, holding an evidentiary hearing is not necessary and would not be productive.
In adopting the new notice requirements, we act in our quasi-legislative capacity through a process of notice-and-comment rulemaking. We acted in the same capacity, using the same process, in D.90-08-032 and D.95-07-054. Those decisions, like today's, were not preceded by evidentiary hearings. Thus, Public Utilities Code Section 1708.5(f) authorizes us to amend, again without evidentiary hearing, the notice requirements we originally adopted in D.90-08-032 and D.95-07-054. In both of those decisions, we emphasized that conditions in the telecommunications market were changing rapidly; in that context, we stated, regarding interexchange competition, that we intended to "foster competition while still providing consumer safeguards." (D.90-08-032, 37 CPUC2d 130, 154 "Policy Considerations.") In announcing our "Initial Rules for Local Exchange Service Competition in California" (emphasis added), we set a "public policy principle and objective" to create an environment in which "telecommunications users shall receive adequate ongoing disclosure of the rates, terms and conditions of service and shall benefit from a clear and comprehensive set of consumer protection rules." (D.95-07-054, 60 CPUC2d 611, 640, Appendix A, Rule 1.B.) Today's decision is fully consistent with these policies.
Fundamentally, we consider prior notice of rate increases to affected customers to be even more important than prior notice to regulators, especially considering the generally relaxed regulatory scrutiny of rates in the telecommunications market. Unfortunately, the existing notice requirements set in D.90-08-032 and D.95-07-054 get this relationship backwards. Advice letters submitted to the Commission provide it, and the utility's competitors, 30 days' notice of rate increases, while the days of prior notice to affected customers depend fortuitously on the utility's billing cycle.9 Providing affected customers assurance that they will receive reasonable prior notice of rate increases is one of the primary purposes of the rules adopted today.
Granting Telco Coalition's assertion that the new notice requirements will entail some increased costs, we think those costs are appropriate to better inform customers. We also concede the new requirements may affect competition, but only because they help competition function as we intend. Stated differently, the competitive advantage to be derived from surprising one's customers with rate increases is not an advantage we want to protect.
To sum up, our existing notice requirements were expressly the product of policy judgments made near the start of competition in the local and long-distance markets. We made clear that we intended to revise those judgments, as might be appropriate, based on our observation of those markets.10 In modifying D.90-08-032 and D.95-07-054 regarding prior notice of rate increases to affected customers, we move in the direction of putting more (and more timely) information, and consequently more control, in the hands of consumers. That is what competition is all about.
6 Telco Coalition is a group of "competitive" companies (as distinguished from "incumbent" local exchange companies). Regarding its Opening and Reply Comments on the ALJ Draft, the group consisted of AT&T Communications of California, Inc., California Cable Television Association, The California Association of Competitive Telecommunications Companies, ICG Telecom Group, Inc., WorldCom, Inc., Cox California Telcom, LLC, XO California, Inc., and Time Warner Telecom of California, LP. The composition of Telco Coalition shifted slightly for its June 29 Comments, in that Pac-West Telecomm, Inc. joined in those comments, while ICG filed separate comments. For purposes of our response to the various comments, the shift seems immaterial. 7 A "minor" rate increase is one which is both "less than 1% of the [carrier's] total California intrastate revenues and less than 5% of the affected service's rates" when viewed cumulatively with other "rate increases that took effect during the preceding 12-month period" for that service. (D.95-07-054, Appendix A, Rule 3.C.) Another difference between the rules adopted today and those in D.95-07-054 is that the new rules require the notice to include the current rate being increased, while D.95-07-054 does not require such inclusion. Telco Coalition notes this difference but does not indicate whether it objects to the modifications to D.95-07-054 in this respect. Juxtaposing the current and increased rates makes the notice more meaningful, so we think the modification is appropriate. 8 Pub. Util. Code § 1708.5(f) reads as follows:- Notwithstanding Section 1708, the commission may conduct any proceeding to adopt, amend, or repeal a regulation using notice and comment rulemaking procedures, without an evidentiary hearing, except with respect to a regulation being amended or repealed that was adopted after an evidentiary hearing, in which case the parties to the original proceeding shall retain any right to an evidentiary hearing accorded by Section 1708.
