CPUC Fails to Enforce “Just and Reasonable” Phone Rates

TURN Praises Senate Report

TURN, The Utility Reform Network, praises a scathing report released by a non-partisan research office of the California Senate documenting the failure of the California Public Utilities Commission (CPUC) to adequately protect consumers in the wake of its 2006 decision to deregulate phone rates for California’s four largest telephone companies.

The report, Gaps Emerge in Telephone Consumer Protections after Phone Deregulation, was prepared by the Senate Office of Oversight and Outcomes, which is charged with investigating the performance of state government and providing objective research to support oversight of government agencies by Senate committees.

“The Senate staff investigation demonstrates beyond a shadow of a doubt that telephone deregulation has been a disaster for California phone customers,” said TURN Executive Director Mark Toney. “The CPUC has buried its head in the sand, rubber-stamping price hikes, failing to collect the information needed to track the effects of deregulation, and failing to provide the public with crucial information on prices and service quality and arbitrarily closing thousands of legitimate customer complaints.”

“It is clear from the report that telecom deregulation is placing Basic Phone Service and LifeLine customers in jeopardy by permitting unlimited rate increases on January 1, 2011,” said Toney.

“The Senate staff, the CPUC and even the telephone companies can’t say how high prices will climb. But one thing is clear—under deregulation, prices have gone up for almost everything and have doubled or tripled for critical services such as 411 Directory Assistance, Caller ID, and Unlisted Numbers, and when rate caps come off at the end of the year—the sky is the limit on increases. If the CPUC is to comply with its legal obligation to ensure that rates are “just and reasonable,” it must freeze basic service rates at their current levels as a first step.”

The report documents five major findings, concluding that the CPUC’s drive to deregulate, combined with its hands-off approach to telecommunications oversight, has harmed Californians.

1) Prices Have Increased Unchecked and Uncontrolled.
Although the CPUC is legally required to ensure that prices for phone services are “just and reasonable,” the agency has failed to track prices and essentially rubber-stamps rate hikes desired by phone companies. The report found that since most phone services were deregulated, prices have risen for almost all retail services, and have doubled or tripled for critical services such as 411 Directory Assistance, Caller ID, and Unlisted Numbers. All price increases were “implemented on limited notice and with no immediate opportunity for protest or comment by the public.” The Report concluded that the CPUC has no formal system in place to document market power abuse.

2) Price Caps for Basic Service and LifeLine Expire at End of 2010.
The report highlights the fact that all price restrictions for basic phone service—and the Lifeline service provided to low-income Californians—will be removed on January 1, 2011. No one, including the CPUC, knows what will happen to prices after that. The report notes that even before full price deregulation for basic phone service, Lifeline prices have increased by 25% over the past two years, the maximum allowed by the CPUC.

3) Thousands of Consumer Complaints Go Unanswered.
The CPUC receives 100,000 complaints per year, many from elderly, low-income or limited-English speaking customers. State law requires “equitable resolution” of consumer complaints. Instead, the CPUC focused its efforts on closing thousands of complaints, with no investigation, to get rid of the backlog. In September, 2006, more than 2,700 cases were closed in a single day and, as the report notes, “[e]ach case represents an individual who came to the PUC for help after a utility failed to solve the problem.”

4) Consumers Not Provided with Data to Make Informed Choices.
One key argument for deregulation is that bad service or high rates will prompt consumers to “vote with their feet.” However, the CPUC does not make public the important data it collects that would allow customers to make informed choices. This includes data about rates, fraud investigations, complaint statistics and “trouble reports” from the telephone companies themselves.

5) Unauthorized Billing Complaints for Cell Phones Not Tracked.
“Cramming”—the practice of billing customers for services they did not authorize—is a very serious problem for phone customers. Over a decade ago, the Legislature required the CPUC to track and report cramming complaints. While the Commission did this for landline telephone service, it has not applied the requirement to cell phone service.