Babauta backs increasing fee vs Verizon

Gov. Juan N. Babauta supported the Commonwealth Telecommunications Commission’s imposition of increased regulatory fee on Verizon, opposing the company’s request to allow it to pass on the cost of the increase to consumers.

Verizon has been disputing the $107,526.03 fee being assessed it by CTC. The amount represents 2.5 percent of the company’s declared gross revenue of over $4.3 million for the first quarter of 2005. Verizon wants to pass the cost on to consumers. Earlier, it sent the CTC a $21,505 check representing 0.5 percent of the gross revenue.

Public Law 14-53, which was enacted on Jan. 6, 2005, removed the 0.5-percent cap on the fee, which had been effective since 2001. For about two decades, the historic rate had always been 2.5 percent before the 0.5-percent cap took effect.

Verizon Micronesia’s owner, Micronesian Telecommunications Corp., contends that the CTC should also assess regulatory fees on other telecom players, saying that singly imposing them on Verizon equates to violating not only the Commonwealth Telecommunications Act but also the U.S. and CNMI Constitutions.

Babauta’s lawyer, assistant attorney general James Livingstone, and CNMI consumer counsel Brian Caldwell jointly stated that the CTC correctly imposed the 2.5-percent rate on Verizon, in response to MTC’s request for reconsideration of a CTC order.

“The amendment contained in P.L. 14-58 is legislative acquiescence that 2.5 percent is in fact the proper funding level,” Livingstone and Caldwell said.

“MTC’s argument that the fee assessment was not properly promulgated is also misplaced. Contrary to MTC’s assertion, the amount of the fee is not discretionary. Rather, the fee amount is subject to a statutory scheme set out in the CTA. This fact makes the Administrative Procedures Act inapplicable,” they said.

MTC contends that implementation of a new regulatory fee rate should be properly promulgated by complying with the requirements of APA, such as providing notice and the opportunity to comment.

Livingstone and Caldwell disagreed, saying that no statutory requirement mandates CTC to promulgate regulation first before implementing the increased rate because the amount of charge can be readily determined by a statutory formula laid out in the CTA.

They also disagreed with MTC’s contention that Adam Turner, the CTC’s executive director, lacks the authority to assess an increased fee without a commission vote. They said the executive director was merely carrying out his administrative duty to collect money owed the CTC.

MTC had also said that the CTC could not impose the increased fee retroactively. Turner assessed MTC with an increased fee for the first quarter of the year, applying the 2.5 percent rate retroactive to Jan. 17, 2005, the date when P.L. 14-53 became law.

Pass-through provision is not ripe yet

Livingstone and Caldwell said that the CTC’s ability to increase consumer rates is a discretionary act that must be supported by a record and subject to procedural safeguards.

At this time, they said the matter is not ripe for consideration. They said procedural safeguards include the provision of public notice about the rate increase by the MTC. A public hearing should also take place after the notice.

“Before the CTC can order any rate modification, these procedures must be followed. Until then, MTC’s arguments should not be considered,” they said.

The government attorneys contended that allowing MTC to pass on the cost of an increased rate to consumers would equate to a rate increase, a matter that the company disputes on the ground that increased franchise costs are beyond its control.

In seeking CTC approval for passing on the cost of an increased fee, Verizon cited a provision in a 2004 settlement agreement, which MTC and prospective purchaser Pacific Telecom Inc. jointly agreed with the governor and Caldwell. The two have intervened in the companies’ joint application for the transfer of all common stock.

MTC-PTI attorney Steven Carrara said the settlement agreement, which the CTC adopted, provided that both parties would seek legislation increasing CTC funding in the form of a consumer pass through. He said that, even though the Legislature chose to be silent regarding the pass-through provision in passing P.L. 14-53, the parties have the obligation to support the pass-through request.

Livingstone and Caldwell said the agreement was limited to supporting the passage of the draft bill into law. They said the parties have already fulfilled their obligations in supporting the enactment of P.L. 14-53.

The dispute between the companies and the intervenors continue despite the CTC’s issuance of a final order last June 16 that approved the multi-million-dollar sale. This came more than one year and nine months after MTC and PTI first applied for the approval of transfer of all common stock.

In its final order, though, the commission also ordered the conduct of a contested case proceeding on competitive issues related to Verizon’s sole ownership of the CNMI’s only inter-island cable, asserting its jurisdiction over the matter.

Both the companies and the intervenors have also filed separate requests for reconsideration of the final order.

In the government’s request, it wants the CTC to impose dividend reporting obligations on PTI, including the company’s intention to declare a special cash dividend at least 30 days before the declaration, its intention to transfer more than 5-percent of retained earnings to a corporate parent over a six-month period at least 60 days before the actual transfer, and the company’s most recent quarterly common stock cash dividend payment.

Livingstone and Caldwell disclosed that PTI had concealed to them that the company found a new lender and negotiated two potential loans, until the information became necessary for auditing firm Deloitte & Touche to consider. They said they knew about the development only upon receiving the Deloitte & Touche report.

They said the CTC should revert to the 10-day deadline instead of seven days before the closing of the sale, in connection with the requirement for PTI to submit to the commission all of its financing documents. The deadline will allow them to address any changes.

They also said the companies should be required to submit a proposed draft agreement regarding technical services agreement between them. They want the CTC to require father-and-son Ricardo and Jose P.R. Delgado, the owners of PTI, to submit audited financial statements that are compliant with local telecommunications regulations.