Governor’s Budget Bills Would Allow PSC to do More Utility Deregulation

Governor Paterson’s proposed 2009 - 2010 Executive Budget is several hundred pages long. Buried among its many proposals to cut program funding and raise fees are substantive changes in the Public Service Law. If these changes were to be enacted by the Legislature as requested by the Governor, they would grant the Public Service Commission (“PSC”) the power to deregulate many activities of telecom companies. It would allow the PSC to ease cable franchise approvals and to eliminate longstanding statutory requirements for local exchange telephone companies.

This is euphemistically styled as giving the PSC power to “streamline its processes and improve administrative efficiency and prioritize resources.” How this language qualifies to be included in a state budget is a mystery.
Under Part MM of the proposed Executive Budget, the PSC would be authorized to:

(1) streamline the process for confirming cable franchises, renewals, and amendments granted by municipalities unless the PSC determines that the public interest requires a full review and written order; and

(2) after notice and hearing, refrain from applying certain regulatory provisions to telephone corporations and services, upon a determination that application of the provisions is not necessary to ensure just and reasonable rates, charges and practices, and consumer protection; and upon a determination that it will serve the public interest, including, but not limited to, promotion of competitive market conditions and increased competition among telephone corporations;

Easing Cable Franchising Requirements
The Commission is already exercising little actual review of municipal cable franchise deals. For example, when Verizon was granted a cable franchise for all of New York City last year – the largest cable franchise in the state – the Commission approved it despite concerns over the openness of the process and serious electrical grounding issues associated with Verizon’s FiOS service installations.

Recent cable franchise approval and renewal decisions released by the Commission have become boilerplate documents for the most part: just the name of the provider and the municipality change from order to order. In addition, it does not appear that anything is being done to help break the logjam of temporary operating authorities for cable television service being approved by the PSC, which would ensure that the state’s citizens receive appropriate compensation for use of public rights-of-way. For example, the Albany cable franchise affects approximately 30,000 households and is worth around $25 million dollars each year. The contract expired in 2004 and has yet to be re-negotiated.

How much less work can this agency possibly perform in the area of cable franchise renewals than it does now?

Does the Legislature want it to do even less?

Telephone Deregulation
Under the Governor’s proposals, the Commission would be able to forbear on a case-by-case basis from enforcing the following longstanding statutory provisions:

(1) the bedrock "just and reasonable rates" standard for local exchange carriers (Sec. 91),
(2) the requirements regarding filed rate schedules, i.e., tariffs (Sec. 92),
(3) the need to obtain a Certificate of Public Convenience and Necessity from the PSC and a franchise from the municipality in order to offer local exchange service, and that the transferring of a Certificate to another provider requires Commission approval (Sec. 99),
(4) the transfer and ownership of stock by a regulated entity (Sec. 100),
(5) Commission approval for the issuance of indebtedness (Sec. 101), and
(6) the reorganization of telephone companies (Sec. 101-a).

These provisions protect consumers, investors, and workers at the telecom companies. By granting forbearance authority, the enforcement of these provisions would be at the whim of the Commissioners. That’s right, if the Governor's budget bill were enacted, three of the five PSC Commissioners could decide whether to stop enforcing any of these longstanding statutory requirements, or they might ease standards for one provider, but not another.

Has the time come to eliminate these provisions or give the PSC power to waive them because they no longer make sense?

Some of the largest providers of local phone service in the state – for example, the cable television companies that offer local voice service – are exempt from some requirements due to statutory gaps or PSC inaction. Does a situation where some competitors have made an end run around existing laws and rules justify getting rid of the rules for all providers? Or does the situation call for statutory amendments or exercise of current jurisdiction by the PSC to apply regulations equally to all providers in order to have a level playing field for competition?

Even if more deregulation were the correct path to take – and PULP does not believe the time has come for that because there is insufficient competition and because competition does not eliminate the need for consumer protection – how could these major changes take place in a budget bill without public input and a more deliberate legislative hearing and opportunity for public input? One reason to include this language in the budget bill might be to hide it, isolated from the eyes of public opinion and more careful scrutiny by legislative committees.

An informal survey of other states reveals that Florida has a similar regulatory forbearance provision on its books, but its Commission has not implemented the forbearance language. There is a high hurdle that a utility must reach first, that is, showing that it faces effective competition prior to being granted forbearance.

Several of the largest telephone companies have sought forbearance from various federal rules in protracted proceedings at the FCC in recent years, often facing significant opposition from a variety of groups. A January 21, 2009 FCC decision regarding forbearance outlines the three steps an applicant must satisfy in order for the statutory forbearance requirements to be met:

(1) The first prong states that the Commission will grant forbearance if it determines that “enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable, and are not unjustly or unreasonably discriminatory.”
(2) The second prong states that the Commission will grant forbearance if “enforcement of such regulation or provision is not necessary for the protection of consumers.”
(3) The third prong states that the Commission will grant forbearance if “forbearance from applying such provision or regulation is consistent with the public interest.”

The FCC does not routinely grant forbearance requests and, in pending cases at the federal Court of Appeals for the DC Circuit (such as Verizon’s request for forbearance in six metropolitan statistical areas, including the one for New York City in which PULP is a party) the question is whether the FCC properly applied these strict requirements.

PULP believes that forbearance decisions can not only be discriminatory, but can be a waste and diversion of limited administrative resources, which is the exact opposite result claimed to be advanced by the budget proposal. Giving this authority to the PSC invites the telecom companies to distract the commission with forbearance petitions and to bog the commission down in protracted proceedings, as occurred when the FCC got such power.

The proper method to consider whether established rules and statutes continue to make sense should be in a public forum, vetted by the appropriate standing committees of the legislature, to discuss whether the existing rules should apply in general, whether they should be amended to cover all providers, including those currently not subject to existing rules, and not whether there should be a waiver or a forbearance request for an individual company.

Some may argue that many of the existing rules and laws in question find their origins in ancient common carrier provisions and 19th Century railroad oversight and are now outdated. On the other hand, the traditional utility regulatory paradigm was developed only after bitter experience in order to protect customers with transparency, agency scrutiny of matters affecting the public interest, and just and reasonable rates. The time may have truly arrived to re-evaluate them. But, through a waiver or forbearance request – or a budget bill under time constraints that preclude reasoned consideration, hearings, and public input? No way.

Lou Manuta