20000920Opposition to Reconsideration.doc

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF UNIVERSAL TELECOM, INC. FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE COMPETITIVE TELECOMMUNICATIONS SERVICES.
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CASE NO. UTI-T-00-1

COMMISSION STAFF OPPOSITION TO RECONSIDERATION

COMES NOW the Commission Staff of the Idaho Public Utilities Commission (“Commission”), by and through its attorney of record, John R. Hammond, Deputy Attorney General, files this response to the Petition for Reconsideration filed by Universal Telecom, Inc. (“Universal”) on September 13, 2000.
BACKGROUND
On May 17, 2000, Universal filed an Application for a “Certificate of Public Convenience and Necessity” to provide competitive local telecommunications exchange services in Idaho. Universal proposed to provide basic local exchange and long distance services to residential and business customers through a combination of facilities-based and resold services. Universal does not currently have facilities or provide telecommunications services in Idaho, but will assemble them after competitive local exchange (“CLEC”) status is granted. It anticipates that in the fourth quarter of 2000 it will begin providing the above mentioned services as well as access to the Internet for business and residential use.
The Application also provided Universal’s unaudited financial statements for the year ending December 1999 and for the month of March 2000. According to these statements Universal has no income. Expenses for the full 1999-year were $252,401. Expenses for March 2000 were $118,152. At the end of March, Universal showed $44,640 in assets, $32,555 of which was cash. The March statement also showed $272,964 in liabilities, $235,000 of which was a line of credit. Universal also showed a negative ($479,344) in equity after about 1.5 years of operation.
On July 13, 2000, the Commission issued a Notice of Application and Notice of Modified Procedure to process Universal’s Application. The Notice required written comments be filed on or before August 3, 2000. The Commission Staff was the only party to file written comments. In its comments, the Staff stated that Universal submitted all information required by the Commission in Order No. 26665 and its rules. However, Staff recommended that the Commission require Universal to post a surety bond in the amount of $50,000 for a period of two years to protect customers from possible financial harm as a condition of issuance of a certificate. Staff cited the following factors to support this recommendation: 1) Universal’s limited experience and operation in Idaho; 2) its financial status; and 3) the risk to customers presented by advance billing for local services should Universal be unable to provide them.
On August 25, 2000, the Commission issued final Order No. 28481 granting Universal a Certificate, subject to the posting of a $50,000 surety bond.
On September 13, 2000, Universal filed a timely Petition for Reconsideration. See Idaho Code §§ 61-626(1) and 62-619; IDAPA 31.01.01.331.01. Based on the following grounds Universal requests the Commission to reconsider its decision conditioning the grant of a certificate upon the posting of a $50,000 surety bond:
By requiring the posting of a Surety Bond, the Commission is in effect creating a barrier for the entry of new Telecommunications businesses to operate CLEC’s in the State of Idaho and thereby restricting competition; and

This requirement creates undue financial hardship for Universal Telecom. As a start up company Universal Telecom has limited financial resources available and feels that public interest would be best served if the monies were used to develop services as opposed to posting a surety bond.

Universal Telecom, Inc., has stated in the tariff filed in the state of Idaho page #12 – sections 3.4 & 3.5[], security deposits and/or advanced payments are not required and all billing shall be billed monthly in arrears. Therefore, there is no possible financial harm to Universal’s customers now, during the start up phase, nor in the future.

Petition at 1-2.
STAFF POSITION
After considering all relevant information and evidence Staff recommends that the Commission deny Universal’s Petition for Reconsideration.
ARGUMENT
Commission Rule 111 and Procedural Order No. 26665 set the requirements for applicants seeking a certificate to provide basic local exchange service. Rule 111.07 requires applicants to provide financial statements. In addition, Procedural Order No. 26665 gives the Commission authority to require a company to post a performance bond or establish an escrow account with a bonded escrow agent as a condition of issuance of a certificate. Order at p. 8. Accordingly, the Commission acted within the scope of its authority when requiring the posting of a bond as a condition for issuance of a certificate.
The circumstances of this case also justify this condition. First, Universal has a limited history before this Commission. Second, although the Company did not propose to collect advance deposits and would not be required to provide the escrow provided by Order No. 26665, it still, like most telecommunications companies, requires payment in advance for its fixed costs (e.g., service and equipment). As illustrated by its tariff, page 11, ¶ 2.3.2, Universal states, “Charges for facilities and service other than usage charges, are due monthly in advance. All other charges are payable upon request of the Company.” (Emphasis added). Because of these advance payments it is imperative to consider the harm that could come to customers of Universal if it should, for whatever reason, be unable to provide service.
Finally, Universal’s unaudited statements show negative stockholder’s equity of nearly a half million dollars. This financial situation is not unusual for a start-up operation, but this status still causes concern about Universal’s ability to continue to provide services for which they are paid in advance for.
Universal asserts the Commission’s requirement in this case creates both a barrier to entry of new telecommunication businesses in Idaho and a financial hardship for it. However, Universal has not indicated how this requirement constitutes a barrier to entry. Indeed 47 U.S.C. § 253(b) allows States to impose on a “competitively neutral basis . . . requirements necessary to . . . protect the public safety and welfare. . . .” Furthermore, it has been customary for the Commission, under the authority of Commission Rule 111 and Procedural Order No. 26665 to require surety or performance bonds to protect consumers from possible financial harm that could be caused by the failure of a company to meet its service obligations. Since 1996, the Commission has approved more than fifty certificates and in a number of these cases it has conditioned issuance upon the posting of a surety or performance bond. The Commission also chose to require performance or security bonds rather than escrow accounts because they can be obtained for pennies on the dollar, leaving more resources free to the Company.
SUMMARY
The Commission has authority pursuant to Commission Rule 111 and Order No. 26665 to require the posting of a bond or establishment of an escrow account with a bonded escrow agent to protect a utilities’ customers from harm. Petitioner has provided no authority that contradicts this express grant. Furthermore, the factors relied on for requiring a bond initially in this case and the fact that the Commission often requires the posting of a bond in cases like this outweigh Universal’s arguments. Consumers rely on this Commission to permit reliable providers to provide service. It would be remiss of the Commission not to construct safeguards to protect consumers where appropriate. Here the circumstances justify the posting of a surety bond to protect consumers. Accordingly, Universal’s Petition for Reconsideration should be denied.
Dated at Boise, Idaho, this day of September 2000.

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John R. Hammond
Deputy Attorney General

Staff: Birdelle Brown

M:utit001_recon_jh

The Company has filed illustrative tariffs for business, residential, vertical and “managed modem” service.
A copy of these comments was mailed to Jeffrey Martin, President of Universal Telecom, Inc., at the address provided in the Application.
Staff has been unable to locate these provisions based on Universal’s citation.
Primarily stockholders equity and a line of credit fund these expenses.

Order No. 28248, 1/5/00 – Fretel, $10,000 bond
Order No. 28243, 12/29/00 – Comm South, $50,000 indemnity bond
Order No. 28228, 12/17/00 – JATO, $100,000 performance bond based on Company’s own projections that it may not generate a positive cash flow for at least two years.
Order No. 28185, 10/22/99 – dPi-Teleconnect, LLC, $5,000 + whatever to equal $50/customer.
Order No. 28080, 6/24/99 – Preferred Carrier Services, $15,000 cash bond.
Order No. 28074, 6/18/99 – CCCID, Inc., $50,000 surety bond for two years in lieu of evidence of financial stability.
Order No. 27883, 1/22/99 – Highspeed.com, LLC, $50,000 performance bond
Order No. 27806, 11/20/98 – One Eighty Communications, Inc., $100,000 performance bond
Order No. 27122, 9/4/97 – Max-Tel, Inc., $5,000 to begin, maintain bond level at no less than $50 per customer.
Order No. 28413, 6/15/00 – Maxcell - $150,000 performance bond.

COMMISSION STAFF OPPOSITION
TO RECONSDERATION -1-