TURN Opposition Letter to Rachelle Chong’s Nomination to CPUC Post

TURN opposes the confirmation of Rachelle Chong to the CPUC because she has demonstrated that her priority is achieving a certain vision of what the telecommunications market should look like, whether or not it requires riding roughshod over basic consumer interests and protections.

December 14, 2006

Senator Don Perata, President pro tem, Chair
Senate Rules Committee
California State Senate

Re: OPPOSE Appointment of Rachelle Chong to California Public Utilities Commission

Dear Senator Perata:

On behalf of California’s residential and small business consumers, TURN opposes the confirmation of Rachelle Chong as a member of the Public Utilities Commission. We take this position reluctantly: During our 30-plus years of advocacy on utility-related issues, TURN has successfully worked with virtually every member of the CPUC. However, in the year since she was appointed, Rachelle Chong has demonstrated that her priority is achieving a certain vision of what the telecommunications market should look like, whether or not it requires riding roughshod over basic consumer interests and protections and over well-established procedures at the PUC. Thus TURN has little choice but to oppose her confirmation.

California consumers deserve a Commissioner whose top priority is promoting and protecting their interests. California does not need a CPUC member driven by the mantra “what’s good for the market is good for consumers.” Nor does California need a CPUC member who acts as though consumers are best served by giving phone giants such as AT&T and Verizon everything on the companies’ wish lists. Unfortunately, Rachelle Chong appears to deem promoting and protecting the “market” and the industries operating in that market as her paramount concern, with unshakable confidence that consumer benefits will follow. TURN does not doubt that she holds this position in good faith. But where the regulatory body’s duty is to act in the public interest, such an approach borders on being an abdication of responsibility. And whether driven by true faith in the market or other motivations, her track record to date has been one of embracing without hesitation and, it seems, without serious question the interests of the companies that dominate the telecommunications market.

Further undermining our confidence in the prospects of Commissioner Chong is her demonstrated willingness to act based on ideology rather than an objective review of actual facts. The most telling example is the assessment of whether or not full-fledged competition exists for particular utility services. There is no disputing that for many Californians, there is no meaningful competition for local phone service,the incumbent local exchange company is the only realistic choice. So when Ms. Chong recently led the effort to deem competition in California’s telecommunication’s market sufficient to allow the CPUC to eliminate most regulations governing local phone service, what was the basis for that decision? Ideology. And where the ideology was undermined by factual evidence, the evidence was ignored. As a direct result, Californians that need the protection of utility regulation will be without it.

In less than one year as a member of the CPUC, Rachelle Chong has amassed a troubling record of giving the industry what it wanted over consumer objections, all couched in the name of promoting ‘competition,’ and of ignoring, if not trampling, long-followed processes for public debate and discussion which have long been the practice at the PUC. Examples include:

1. Letting AT&T Off The Hook For Company-Specific Consumer Abuses, In The Name Of Creating A Uniform Regulatory Framework for Telecomm Companies

The most recent example of how far Commissioner Chong seems willing to go to do the phone companies’ bidding is also perhaps the most troubling. Not only did Commissioner Chong give AT&T what it wanted, she did so in a manner that produced suggestions allegations of foul play from her fellow commissioners. Whether driven by ideology or a desire to do AT&T’s bidding, eliminating remedies for that company’s past marketing abuses was inexplicable and inexcusable.

In August the CPUC issued a decision that, among other things, promised to eliminate “asymmetric” regulation of telephone companies, and to enable those companies to change their tariffs on only one day of notice (rather than the twenty- to thirty-day period that provides interested parties an opportunity to weigh in where the proposed change is inappropriate). The “asymmetry” addressed in the proceeding was the perceived different standards impacting the regulated phone companies as opposed to less-regulated cable companies, VOIP companies, or other purported competitors for local phone service. TURN is not aware of any discussion on the record of using “asymmetry” as an excuse to eliminate company-specific restrictions that serve as a remedy to company-specific malfeasance. And based on the unusually strong language in their dissent, two of Commissioner Chong’s colleagues were also unaware that the new decision was intended to permit such an outcome.

After the August decision, AT&T immediately sought to test the boundaries of these changes and proposed to do away with disclosure requirements imposed on the company to remedy its marketing abuses of the past and to prevent future transgressions. A broad array of consumer groups, including TURN, UCAN, Latino Issues Forum, Centro La Familia Advocacy Services, and the Division of Ratepayer Advocates, objected to AT&T’s ploy.

At its November 30, 2006 meeting, the Commission, in closed session, voted out a resolution that gives AT&T exactly what it wants, in the name of regulatory “uniformity.” As the Assigned Commissioner in the related proceeding, Commissioner Chong’s choice could hardly have been starker—she could have advocated that the Commission maintain the ongoing consumer protection under AT&T’s longstanding tariff language while the Commission considers the scope of its previous decision, or agree to grant relief to AT&T by eliminating a disclosure requirement tailored to prevent marketing abuses such as those AT&T had engaged in previously. Commissioner Chong opted to give AT&T everything it requested—elimination of a consumer protection that the company deemed vexing.

Rather than try to describe in detail the Kafka-esque machinations that led to this outcome, TURN urges you to read the dissents attached to Resolution L-339. As Commissioner Brown very cogently set out, consumers have lost a remedy that no one (other than perhaps Commissioner Chong and her staff) understood to be at risk under the URF decision. He also explains why the outcome is not only procedurally defective (for failure to notify the original complainants that they were at risk of losing their remedy), but was the product of last-minute insertions made to a complicated and lengthy decision, insertions that gave no indication that the new language would absolve AT&T of future compliance with the earlier decision. His dissent seems to hint at (but, due to “deliberative process” privilege concerns, cannot lay out in detail) representations surrounding the issuance of this decision that were at least overstated, if not patently false.

And as Commissioner Grueneich points out, even though the CPUC could easily have mitigated the potential damage by staying the loss of that marketing abuse remedy for further consideration, Commissioner Chong chose to go forward and allow AT&T to eliminate these protections as if this outcome was an obvious outcome of the URF decision.

The fact that Commissioner Chong believes that consumers are better off without the disclosure requirements, so much so that she deemed it appropriate to eliminate those requirements on one-day’s notice, illustrates why she should not be confirmed as a member of the CPUC. What possible advantage is there to consumers to be rid of such disclosures? And what possible purpose is served by erring on the side of giving the phone company what it asked for, rather than maintaining the status quo as it had existed for years without any evidence that it was hindering AT&T’s legitimate marketing efforts? In the end, the explanation of the outcome is simple: consumer interests have been brazenly sacrificed in order to give AT&T what it wanted.

2. Abandoning basic phone regulation in the name of a “uniform regulatory framework.”

From the day she arrived at the CPUC, Rachelle Chong made it clear that she brought preconceived ideas about the benefits of further deregulating the telephone industry, and became the driving force behind “URF,” a rulemaking designed to relieve the incumbent local exchange companies such as AT&T and Verizon of the remaining vestiges of regulation.

The August decision referred to in the preceding section purports to do just that. Where there had been limitations on the companies’ ability to raise prices for local residential or business service, or for directory listings, soon there will be none. Also troubling is the opportunity created for “geographic deaveraging,” where a customer is at risk of paying higher rates due solely to living in a part of the state with limited or no competitive choices. There was no finding whatsoever that meaningful competition exists for rural telecommunication services, an omission that is not surprising given the record evidence that there is no such competition in large portions of the state. As a result of this decision, consumers lost fundamental protections and face risks that did not exist before.

But not all of the interested parties came out worse for the wear in the URF proceeding. Phone giants AT&T and Verizon will soon be able to raise prices for basic phone services, even where they have near-monopoly status. And where the revenues from Yellow Pages had previously been credited to consumers to help reduce the costs of local service, these revenues now flow unimpeded into the coffers of the companies.

When Commissioner Chong assumed control of this proceeding, she appeared to already have a clear image of the outcome she intended to achieve, and set out to create a justification for that outcome. Even though the state of competition in the industry was a disputed issue that was to be addressed in the proceeding, Ms. Chong did not hesitate to proclaim her view that competition had indeed arrived. And when faced with evidence demonstrating that Verizon and AT&T held market shares upwards of 90% on average, and effectively 100% in numerous areas of the state, she deemed the market share analysis irrelevant (even though it is a longstanding and widely accepted approach to determining the degree of competition that exists).

URF is a disturbing example of a tendency to make decisions based on ideology, even where the factual evidence runs counter to that ideology. And URF gives the indication that the ideology is, at least in application, little more than “give the companies what they want,” although it is dressed up in “pro-market, pro-competition” language for public consumption.

3. Further emasculation of the Telecommunications Bill of Rights

The dismantling of the Bill of Rights is one of the lowest points achieved by the CPUC in recent years. The erosion process began in 2005, and was admittedly well underway when Ms. Chong joined the CPUC. But Commissioner Chong seemed more than happy to continue to whittle away at the Bill of Rights adopted in mid-2004 until it became, with a title straight out of Brave New World, a set of “Market Rules To Empower Telecommunications Consumers.” Were CPUC members themselves subject to a truth-in-billing requirement, the product issued in mid-2006 under Commissioner Chong’s signature would be titled “Market Rules Designed By and For Telecommunications Industry To Create The Appearance, But Not The Reality, Of Consumer Rights.” More importantly, her work in this proceeding reflected the disturbing pattern that is a hallmark of her first year on the Commission; whenever there was a dispute between the industry’s position and the position of consumer advocates, she sided with the industry. The “Consumer Protection Initiative” spawned by the 2006 decision has been slow to produce any meaningful or substantial consumer benefit, despite the fanfare that Commissioner Chong gave to the effort.

It was not the breadth of the Bill of Rights that drove Commissioner Chong’s opposition: Even when proposals for consumer protections included only a limited subset of the original set, Commissioner Chong opposed them. For example, SB 440 would have provided consumers with a mere disclosure that they are entitled to dispute certain charges, and clarification of the treatment of charges incurred on lost or stolen phones. Yet Ms. Chong opposed the legislation as unnecessary and providing more burden than benefit to consumers. With her position on SB 440, Commissioner Chong made clear that no meaningful consumer protection measure, even with the most limited scope, would pass muster with her.

The result? Consumers continue to be subject to outrageous early termination fees, at risk of bait-and-switch tactics, constrained by the most one-sided contract termination and revision terms, and otherwise at the mercy of an industry that continues to get low to middling grades for consumer service. California consumers deserved far better, but thanks in no small part to Commissioner Chong, what they got was barely a shadow of what they had under the mid-2004 decision. The telecommunications industry appreciates the backsliding, no doubt.

4. The Video Franchise Rulemaking

When the Legislature enacted AB 2987 (the Digital Infrastructure and Video Competition Act of 2006), it included several important provisions specifically designed to protect consumer interests. Rate hikes for basic services and cross-subsidization of video services by consumers taking only basic services are both forbidden. Providing access to the video services for underserved communities is required. TURN’s understanding is that these provisions were critical to obtaining the necessary legislative support to turn this bill into state law.

The CPUC is charged with implementation of the bill, and in early October issued an order instituting a rulemaking to that purpose. Drafted by Commissioner Chong, the order set forth the initial proposals for implementing the new statute. Nowhere in the rulemaking order was there any acknowledgment of the consumer issues that were such a critical part of the bill. The order does not address, and does not even seek input on, enforcement of the law’s anti-discrimination and cross-subsidy provisions. Making matters worse, the order would have the CPUC prevent consumers and other stakeholders from protesting video franchise applications and subsequent changes to those franchises, and curtail the ability of a consumer to make a charge of discrimination in the provision of such services. The entire effort is focused on making the new legislation work for the industry (primarily AT&T and Verizon), with virtually no attention devoted to making the new protections work for the state’s consumers.

The new rulemaking also presents another example of Ms. Chong’s willingness to engage in questionable procedural steps in order to more speedily implement her desired outcome. The administrative law judge assigned to the video services rulemaking is Timothy Sullivan, who has served for years as a telecommunications advisor, first to Commissioner Kennedy and currently to Commissioner Chong. Indeed, all indications are that Mr. Sullivan continues to serve as an advisor to Commissioner Chong for other telecommunications matters, such as the implementation of URF. To TURN’s knowledge, such reassignment of an advisor to be the ALJ of a sure-to-be controversial proceeding is unprecedented, and for good reason. Even if it does not violate any applicable statute or rule, it creates the appearance of impropriety. Having an impartial and unbiased ALJ is critical to ensuring that all parties have a reasonable opportunity to have their points fairly considered. Where, as here, the ALJ appears to be hand selected based on his fealty to the ideology of the assigned commissioner, it instead looks like the deck is stacked in favor of a particular outcome.

5. Broadband over Power Lines

Providing broadband service over electric power lines (BPL) is a technology that is still in the nascent stages of development, but holds some promise as an alternative to current methods of delivering that service to consumers. It also creates the potential, if not the certainty, that electric utility facilities will be put to uses that do not directly benefit electric utility customers. And under California law, particularly Section 851, such uses are prohibited/subject to strict conditions.

Again, the ideology of serving the “market” by creating more competition for broadband service providers trumped complying with the statute and the basic principles of consumer protection that underlie the statute.

The final decision sponsored by Commissioner Chong was the product of questionable procedural tactics. The version that came before the agency for its vote was substantially different than the version that had received comment from the public, yet the changes (many of which made modifications in favor of industry positions and contrary to consumer positions) were never subject to public comment before the final decision issued.

In conclusion, Commissioner Chong’s first year at the CPUC has produced a track record that should result in her not being confirmed for the position. TURN cannot think of a single example when, having to choose between an industry-supported position and a consumer-supported position, Commissioner Chong came down on the side of consumers. Instead, she has uniformly given the industry members what they wanted, generally attempting to justify such outcomes as promoting competition. And there is evidence of a pattern of ignoring, if not violating, procedure at the PUC in order to get the outcomes she has sought. Given that a CPUC member is often on his or her best behavior until Senate confirmation is obtained, TURN shudders to think what the next five years might hold were Commissioner Chong to be confirmed.

If the Senate believes consumer interests should be the focal point of the CPUC, it needs to reject an appointee that has demonstrated such a pro-industry view. And if the Senate believes that a commissioner must be open-minded and fairly consider evidence, even where that evidence runs counter to her previous positions or firmly-held beliefs, it needs to reject an appointee who appears to allow ideology to trump fact. Finally, if the Senate believes that the CPUC decision-making process must be respected, it needs to reject an appointee whose record on this point is dubious. For all of these reasons, TURN urges the Senate to not confirm Ms. Chong for this position.

Please feel free to contact me if you wish to discuss this matter further.

Yours truly,
Robert Finkelstein
Executive Director

cc: Members, Senate Rules Committee
Governor Arnold Schwarzenegger