Consumer Federation of California

Update: The April 8, 2013 hearing was cancelled at the request of the author (Garcia).

TracFone is sponsoring AB 415 (Garcia), a bill that would give public utility companies, individuals, and private corporations the ability to ‘get out of jail free,’ or to not be responsible for their actions, if they claim a ‘reasonable good faith reliance’ defense on the advice or direction of California Public Utilities Commission (CPUC) staff.

The bill, set to be heard in the Assembly Utilities and Commerce Committee on April 8, strips the CPUC of its ability to enforce state laws passed by the Legislature. Under AB 415, the CPUC would be unable to fine, hold in contempt, or otherwise punish or issue an order for a violation of state law as long as an entity can point to ‘direction and advice of commission staff’ that they spoke with or someone who advised them.

Carlos Slim, the world’s richest man, owns TracFone.

Currently, TracFone is the subject of an ongoing enforcement proceeding for failure to pay the ‘public programs charge’ used to fund California’s Lifeline program, which provides discounts to low-income consumers and services for the hearing impaired. Telecommunications companies are required to pay these fees based on their service reach.

The CPUC alleged in a legal brief filed on February 8, 2013 that TracFone owes between $20 and $37 million in California in past due fees and penalties. TracFone claims it relied on statements of a Communications Division staff member who no longer works for the CPUC as its argument that it does not need to pay these fees and surcharges.

According to the CPUC’s brief, TracFone has collected over $1.4 billion in federal universal service subsidies since October 2008. Year by year, federal subsidies account for an increasing percentage of TracFone’s revenue (approximately 12.4% in 2011).

TracFone’s violations of California law appear to be part of a nationwide business strategy that maximizes on the collection of federal universal service subsidies, while minimizing any remittance of surcharges or fees to state or public programs. The company has  unleashed a litigation campaign against state-imposed surcharges and user fees, and public purpose surcharges, which has precipitated state administrative and/or judicial proceedings in Arizona, Colorado, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Minnesota, Nevada, New Mexico, North Carolina, Ohio, Oregon, Utah, and Washington.

AB 415 should be opposed for many reasons. The bill’s provisions are overly broad and would set a very bad precedent in California statute – and  for other states. Although this bill provides a definition of ‘reasonable good faith reliance,’ it fails to define how a utility would prove that this reliance took place.

This bill simply creates a new defense for utilities facing enforcement actions by the CPUC, one that they can exploit to avoid penalties for wrongdoing. Such a vague defense is potentially yet another obstacle for the CPUC in its efforts to hold California’s public utilities companies accountable.

Specifically, AB 415 is intended to benefit TracFone by bolstering its (previously rejected) legal argument against paying user fees and public purpose surcharges. This type of blanket protection from any enforcement action makes AB 415 wrong because it undermines the CPUC’s authority and bypasses state legislation.

Organizations opposed to AB 415 (partial list):

California Public Utilities Commission
The Utilities Reform Network
California Communications Association
Division of Ratepayer Advocates
Consumer Federation of California
Engineers & Scientists of California
Consumer Attorneys of California
Utility Workers of America AFL-CIO Local 132
California Teamsters Public Affairs Council
Greenlining Institute