Public Service Commission est Virginia

Transcription

1 Public Service Commission est Virginia 201 Brooks Street, P.O. Box 812 Charleston, West Virginia Phone: (304) Fax: (304) June 29,2018 Electronic Service Only Vincent Trivelli, Esq. Counsel, Communications Workers of America, AFL-CIO The Law Office of Vincent Trivelli, PLLC 178 Chancery Row Morgantown, WV Joseph J. Starsick, Esq. Associate General Counsel - Southeast Region Frontier West Virginia Inc MacCorkle Ave., S.E. Charleston, WV RE: Case No T-P Frontier West Virginia Inc. and Citizens Telecommunications Company of West Virginia, dba Frontier Communications of West Virginia Dear Messrs. Trivelli and Starsick: The Staff Memorandum issued today was served via on the above-listed parties. Any responses must be submitted to the Executive Secretary s Office in writing within 10 days of this date, unless directed otherwise. You will not receive a copy of the Staff Memorandum by regular mail. Your failure to respond in writing to the utility s answer, Stafl s recommendations, or other documents may result in a decision in your case based on your original filing and the other documents in the case file, without further hearing or notice. When you provide an address, you will automatically receive electronic docket notifications as documents are filed in this proceeding. The notifications allow recipients to view a document within an hour from the time the filing is processed. If you have not done so, you are encouraged to file the Electronic Mail Agreement, previously mailed to you, which allows the Commission to serve all orders issued in this matter via electronic docket notification. Please note - the Public Service Commission does not accept electronic filings. Sincerely, IFhg Enc. - Memo Ingridderrell, Director Executive Secretary Division

2 FINAL JOINT STAFF MEMORANDUM TO: FROM: INGRID FERRELL Executive Secretary CHRIS HOWARD Staff Attorney And LINDA S. BOUVETTE Staff Attorney DATE: June 29,2018 RE: CASE NO T-P FRONTIER WEST VIRGINIA, INC. AND CITIZENS TELECOMMUNICATIONS COMPANY OF WEST VIRGINIA DBA FRONTIER COMMUNICATIONS OF WEST VIRGINIA STAFF RECOMMENDATIONS Staff recommends that the Commission grant the petition of the Communications Workers of America, AFL-CIO for a general investigation into the current status of Frontier West Virginia, Inc. s copper network in West Virginia and the service quality issues related to the network. In addition, Staff recommends that the investigation be expanded to determine (1) whether the benchmarks are an adequate method to ensure service quality; (2) whether the benchmarks should be expanded or the standards increased to ensure service quality; and (3) whether Frontier has the financial ability to provide adequate, economical and reliable telecommunications service in West Virginia. PROCEDURAL HISTORY On March 2, 2018, the Communications Workers of America, AFL-CIO (CWA) filed a motion requesting the Commission initiate a general investigation into the current status of Frontier West Virginia Inc. s (Frontier) copper network in West Virginia and the service quality issues related to the network. On March 12, 201 8, Frontier West Virginia filed its response to the Motion for a general investigation, noting first that the CWA announced a strike on Sunday, March 4, 20 18, two days after it filed its motion. On March 21, 2018, the CWA filed a brief Reply to Frontier s Response to its Motion for a general investigation, disclaiming Frontier s allegation that the purpose of the Motion was to draw the Commission into the center of a labor dispute and renewed

3 Case No T-P June 29,2018 Page 2 its request that the Commission conduct a thorough investigation of Frontier West Virginia s policies and practices regarding its copper network. The parties have served data requests on each other and responses from the Communications Workers of America are due back to Frontier in July, On May 29, 2018, Staff filed a Further Memorandum stating that it would file a final memorandum on or before June 29, On June 11,2018, the CWA filed objections to Frontier s first set of data requests. On June 11, 2018, the CWA filed a response to the Staff Initial Joint Memorandum. On June 18, 2018, the CWA filed a schedule to resolve the discovery dispute with Frontier, with responses to discovery requests due on July 17, On June 22, 2018, Frontier filed a Motion to compel data responses from the CWA. Utilities Division Final Memorandum On June 29, 2018, Stephen Wilson, Utilities Analyst with the Utilities Division, submitted his Final Memorandum. Mr. Wilson summarized the petition for a general investigation. He then provided a summary of recent litigation filed with the Commission involving Frontier. He noted that Frontier is currently meeting the overall metric benchmarks and that there was approximately twelve open formal complaint cases involving quality of service. Only four of the metrics have standards that must be met. He noted that the Retail Service Quality Plan (RQSP), approved by the Commission in Case No T-GI, Verizon West Virginia, Inc., remains in effect with Frontier affirming its commitment to abide by the terms of the RQSP until terminated pursuant to Section E of the RSQP. He also stated that the RQSP applies only to that portion of Frontier s service area that was Verizon WVs service territory. There are no reporting metrics for that part of Frontier s territory that was the former Citizen s service territory. The same applies to the recently implemented quarterly reporting of the twenty-five wire centers with the highest network trouble report rates and do not cover any of the former Citizen s service territory. Mr. Wilson also expressed concern about certain financial aspects of Frontier WV as well as Frontier Communications. These concerns were initially discussed by the

4 Case No T-P June 29,201 8 Page 3 Commission in Case No T-PC, Frontier Communications Corporation, et al. Mr. Wilson noted that the recent service quality problems may suggest the need for increased capital investment to provide quality telephone service. Frontier s stock closed at $5.27 per share on June 28, 2018; in May, 2009, at the time of the filing of the transaction case, the share price was $1 10. Mr. Wilson stated that Value Line reports that Frontier has long-term debt payments of $227 million in 2020; $2.04 billion in 2021 and $2.688 billion in Frontier s ability to repay this debt may be adversely affected by a future increase in interest rates or a slowing of the economy. Further, Frontier s decline in customer lines (from 613,443 at year-end 2010 to 385,832 at year-end 2017) is also concerning since it directly affects Frontier s revenues. Overall, Utilities Staff is concerned that (1) The reported metrics may not accurately reflect the actual quality of service provided by Frontier since they do not cover Frontier s entire service territory; (2) The standards to be met under the metrics may be insufficient to realize an actual improvement in quality of service; and (3)Frontier s financial condition and its ability to invest in its infrastructure may be insufficient to improve its quality of service. The steps taken by the Commission to date has had a positive impact on Frontier s quality of service. There are areas of the State however, where there is a continuing quality of service problem that is not being adequately addressed. Staff recommends that it be given an opportunity for further investigation in the areas of (1) adequacy of the reported benchmarks; (2) the need to expand the benchmarks or raise the standards as well as the reporting of identified high trouble wire centers; and (3) the financial capability of Frontier to provide adequate, economical and reliable telecommunications service. Legal Division Final Memorandum Legal Staff reviewed the pleadings filed to date, including the Final Memorandum from Technical Staff. The CWA raised concerns regarding Frontier s maintenance of its copper facilities in its petition for a general investigation. The CWA specifically cited Frontier s inadequate investment in capital and human resources deemed necessary to properly maintain and repair the copper facilities. Petition, p. 1.

5 Case No T-P June 29,2018 Page 4 Since January 1, 2017, a total of thirteen (13) formal complaint and numerous informal complaint cases have been filed against Frontier or Citizens Telecommunications Company for quality of service issues. While Frontier appears to be meeting its benchmark metrics, Technical Staff noted that only a portion of its service area is covered by the metrics. Technical Staff also highlighted its concerns regarding Frontier s financial ability to not only maintain its system but remain a viable telecommunications provider in the State. The Commission has consistently held Frontier to a high quality of service standard. The first duty of Frontier management is to operate a sustainable utility that provides adequate, economical and reliable telecommunications service. W.Va. Code 24-1-l(a)(2). Frontier Communications Corporation, et al., Case No T-PC, Order entered May 13, 2010, at p. 12. The CWA and Technical Staff expressed concern that the service being provided is not adequate or reliable, especially in certain portions of Frontier s service area. The CWA alleges that the service problems are the result of a decrease in the number of service personnel and inadequate capital investment. Technical Staff is concerned that the metrics are not providing an accurate comprehensive picture of Frontier s quality of service throughout its service area. Further, Technical Staff is also concerned that Frontier may not have the financial resources to improve its quality of service. The discovery produced to date has not adequately addressed these issues. Technical Staff is requesting additional time to pursue these issues. Therefore, Legal Staff believes a general investigation into Frontier s policies, procedures and practices regarding quality of service may be warranted. In addition, Legal Staff believes a general investigation into Frontier s financial condition may be appropriate at this time as well. The Commission has approved the initiation of a general investigation to investigate the deterioration in the quality of service of other utilities. See Case No T-GI, Verizon West Virginia, Inc., Commission Order entered June 30, In Case No W-GI, West Virginia-American Water Company, the Commission ordered the initiation of a general investigation when the Company elected to reduce its staffing by thirty-one (31) employees. The Commission limited its investigation to whether the staff reduction and associated reduction in capital spend would adversely affect the Company s quality of service. The Commission noted in its order that it may review and remediate unreasonable actions without the need to change control of a utility

6 Case No T-P June 29,2018 * Page 5 through a receivership proceeding citing W.Va. Code $ and $ Commission Order entered June 9, Finally, the Commission initiated a general investigation into billing practices in Case No E-G1, Monongahela Power Company and Potomac Edison Company. The Commission stated: The purpose of this general investigation is not to address individual customer bills directly. We recognize that considering the high level of formal and informal filings by individual customers to date, there may be a tendency for individuals to want to address their grievances in this proceeding. Each customer is entitled to specific evaluation of the particulars of individual billing and payment issues and such evaluation is best accomplished through the formal and informal review processes available for individual complaints. Customer-specific, formal and informal matters will continue to be resolved individually. This proceeding will focus on the practices, policies and procedures in place at Mon Power and PE and evaluate the strengths and weaknesses at a structural level. Legal Staff believes that the request for a general investigation into Frontier is similar to the Mon Power and PE general investigation. Individual complaint cases are being addressed both formally and informally. The required metrics are being met by Frontier - but concerns remain. Is the Company financially viable? Is it spending enough money on maintenance and repair? Does it have sufficient capital to invest in maintenance and repair? Are its policies and procedures leading to the reopening of repair service orders rather than completing a repair all at one time? Are they charging enough for the service they are providing? The Commission should grant the CWA s petition and open a general investigation into whether Frontier s quality of service is improving and whether Frontier has the financial capability to maintain and repair its copper networks. LSB/bg cws fn H:\LBouvette\CASESDO 18\ T-PWinaLdoc

7 PUBLIC SERVICE COMMISSION OF WEST VIRGINIA UTILITIES DIVISION FINAL MEMORANDUM FROM: Steve Wilson, Utilities Analyst Utilities Division sw DATE: June 29,201 8 SUBJECT: CASE NO T-P PETITION FOR GENERAL INVESTIGATION On March 2,20 18, a motion was filed with the Public Service Commission of West Virginia ( Commission ) requesting that a general investigation be initiated into the current practices of Frontier ( Defendant or Frontier ) regarding its copper line network and related service problems in West Virginia. The motion notes that the poor status of the Frontier network is reflected in the service quality data submitted by Frontier to the Commission as well as in the formal and informal complaints filed by Frontier customers throughout West Virginia. The petition for the general investigation of Frontier requests that the Commission conduct an investigation of Frontier s policies and practices regarding its copper network. The investigation should include a financial analysis of the copper network revenue and expenses since 20 10, should examine the current state of the copper infrastructure, should examine the staffing levels dedicated to preventative maintenance and customer service, and should examine the policies that impact the quality of customer service. The Initial Staff Memorandum is dated April 5, 2018, and notes the following, presented as concisely as possible: (A) The Commission has expressed concerns about the service quality metrics reported by Frontier. It has been established that during the summer months of 2017, Frontier had an increase in the number of complaints and lower quality service statistics. Case No T-C, which originally began as an individual complaint was I Frontier West Virginia, Inc. (Frontier WV) and Citizens Telecommunications Company West Virginia d/b/a Frontier Communications of West Virginia (Frontier Citizens) 2 Page 2, second paragraph of the motion.

8 Case No T-P June 29,20 18 Page 2 of 6 expanded by the Commission to study and report into the overall metrics and complaints lodged against Frontier; (B) The Recommended Decision in Case No T-C was entered on March 14,2018, and became a Final Order of the Commission on April 3,2018. As a part of that Recommended Decision, Frontier WV was ordered to file on a quarterly basis, in addition to the monthly metric data, a listing of the twenty-five wire centers with the highest network trouble report rates per 100 lines and to include comments on the cause of the high trouble report rates for each wire center as well as actions taken or actions planned to address the quality of service in these centers. In response to Staff recommendations, Frontier WV voluntarily submitted a quarterly report for the fourth quarter of 2017 on February 2,2018 The report for the first quarter of 2018 was filed with the Commission on May 9,2018; (C) Beginning with 2017, Frontier WV has met its overall metric benchmarks except for the during the summer of 2017, when parts of West Virginia had flooding damage and were under a State of Emergency. Subsequent to that Staff memo, additional metrics were filed that indicated some benchmarks were not met in March and April 2018 but there are permitted exclusions for those month^.^ (D) There are approximately a dozen open formal complaint cases which involve quality of service matters with Fr~ntier.~ The Commission approved a Retail Service Quality Plan ( RQSP ) in Case No T-GI (a previous investigation into quality of service for Verizon West Virginia, Inc, the predecessor of Frontier WV). Under the Plan, Verizon reports a variety of service quality measurements and agreed to meet increasing standards for four of the metrics until at least July 1, 20 I 1. As part of the transfer of Verizon s local exchange and long distance business in West Virginia to Frontier in Case No T-PC, an agreement was made to continue all requirements of the RQSP through at least July 1, On March 2,20 17, Frontier WV gave written notice to the Commission of the intent to terminate the RSQP six months from the date of the filing. As support for that 3 Does not include results from March, 2018 when there was a Frontier work stoppage. Under Section G(a)(2)(c) of the Retail Service Quality Plan, Frontier s compliance is excused for causes beyond its control, including labor disputes or work stoppages that are ongoing at the time such standard or metric was not met, and for thirty days thereafter. Frontier s collective bargaining agreement with the Communications Workers of America (CWA) expired March 3, at 11 :59 pm and the CWA announced a strike that lasted until March 27 at 5:OO pm. 4 Initial Staff Memorandum dated April 5,2018, page 3.

9 Case No T-P June 29,20 18 Page 3 of 6 decision, Frontier claimed to have achieved or exceeded every metric standard every month since January 2016, On June 30,2017, Frontier WV withdrew its notice of termination of the RSQP and agreed to continue to abide by the terms of the RSQP until terminated pursuant to Section E of the RSQP. Frontier WV has continued to abide by the RSQP. While the RSQP requires reporting a variety of metrics, only four of the standards have benchmarks to be met. These benchmarks are (1) Out of Service with Exclusions cleared within the first 48 hours-benchmark 85%; (2) Affected Service with Exclusions cleared within 72 hours-benchmark 80%: (3) Percentage of Repair Commitments Met-Benchmark 78%; and (4) Percentage of Repair Repeats within thirty days-benchmark 19%. The Out of Service with Exclusions cleared within the first 48 hours has a benchmark of 85.0% A percentage set at this level, however, means that it is permissible for 15 out of 100 households to have a service quality problem that was not cleared in a two-day period. Such matters could involve a phone outage in an emergency situation. Similarly the allowable leeway of the other benchmarks leaves those customers exposed and affected. There are areasethat are prone to having service quality problems. One way in which the Commission is attempting to address these areas is (B) above. Staffs Initial Memorandum dated April 5, 201 8, noted the formal complaint case, Case No T-C. The Recommended Decision was entered May 17,201 8 and become a Final Order of the Commission on June 6,20 18.The Commission ordered remedial steps which include the filing of reports that detail the progress on specific complaints presented at the hearing, the development and implementation of a remediation plan in the Spencer exchange area, and a preventative maintenance plan. Staff or Complainants may petition the Commission to reopen the proceeding if Frontier WV fails to file the required reports or materially fails to comply with the obligations in this Order. The problem with any reopened case is that it means the original complaint was not fully resolved and time has passed without a solution. For repeat repairs, a call made directly to a service technician requesting follow-up repairs may not be logged in a accounted for in the same matter as the original repair request as that request originated in the call center, thus it is possible that these requests for repeat repairs are underreported.

10 ~~ ~ Case No T-P June 29,201 8 Page 4 of 6 The above attempts to summarize the RSQP self-reporting and agreed upon benchmarks; it is possible that the RSQP needs refined and improved. The RSQP only applies to the former Verizon W service territory and does not require reporting any metrics for the part of Frontier s service territory that was the former Citizen s service territory. Thus the RSQP does not give results for the entire Frontier service territory in West Virginia. The same situation exists for the recently implemented quarterly reporting of the twenty-five wire centers with the highest network trouble report rates per 100 lines, that is these reports do not identify any wire centers in the former Citizens WV service territory with high network trouble reports or remedial actions either underway or to be taken. Beyond the metrics and any deficiencies or areas of improvement to those and other reporting requirements, Staff has concerns about certain financial aspects of Frontier WV as well as Frontier Communications and, based on the Commission Order in Case No T-PC, believes the Commission may continue to have concerns that need to be examined. These concerns were discussed by the Commission in the proceeding that granted approval for Frontier to acquire the Verizon entities. Case No T-PC approved the transfer of Verizon s local exchange and long distance business in West Virginia to Frontier Communications ( FTR ). The Final Commission Order of May 13, 2010, noted the Commission is nonetheless concerned by what the Commission finds to be consistent pattern of dividends that exceed net earnings. This concern is heightened by the recent service quality problems experienced by Verizon W, suggesting the possible ongoing need for additional investment to provide quality telephone service. The first duty of Frontier management is to operate a sustainable (emphasis added) utility that provides adequate, economical and reliable telecommunications service. W.Va. Code (a)(2) While the Commission attempted to address these concerns by restricting the dividends that Frontier entities subject to Commission regulation pay to their corporate parents to no more than 100% of their net earnings for four years after closing, these conditions did not apply to the corporate parent dividend payments to its stockholders. Frontier Communications continued to pay out dividends that exceeded net earnings every year, even in years in which FTR reported negative earnings. Frontier Communications discontinued its quarterly dividend after the fourth quarter of 2017, The declining and subsequent discontinuation of the corporate dividend contributed to a tremendous decline in the price of stock for FTR and greatly decreased the ability to raise 5 Case No T-PC, Final Order May 13,2010, page 12.

11 Case No T-P June 29,20 18 Page 5 of 6 capital by issuance of stock. This leads to a situation where necessary capital is likely raised by assuming increasing levels of debt, leading to even greater concerns about financial leverage. In May 2009, the time of the filing of the transaction case, FTR stock was approximately $1 10 per share. The price closed at $5.27 on June 28, Clearly stockholders are reflecting their concerns with the financial condition and sustainability of FTR through their valuation of the common stock of the company. The highly leveraged capital structure of FTR creates both immediate concerns via the requirement of cash dedicated to debt interest payments and longer term as a substantial amount of debt is due within four years. Concerns about financial stability at the time the transaction led the Commission to require Frontier to file at first quarterly reports and then annual reports for at least three years that included a detailed showing of the financial status of Frontier at the corporate level and for each operating subsidiary conducting business in West Virginia including Verizon WV, NOLD and Citizens. In support of its decision to approve the transaction, the Commission stated: The Commission believes that Frontier has shown that its business plan works in its existing territories and has produced smaller line losses than the current losses in Verizon WV Territories. The Order cited the testimony of Mr. Gregg who in his testimony predicted that traditional landline business would eventually ~tabilize.~ This has unfortunately not occurred. In Frontier s March 12,2018 Response filing, it indicated that at year-end 2010, Frontier had a total of 613,443 access lines in West Virginia. By year-end 2017, the number of access lines in the State had declined to 385,832. Such a continued decline of access lines and the associated loss of revenue is not a model for financial stability and sustainability. Value Line reports that Frontier Communications has pushed out about $1.6 billion in debt payments from to The payment schedules on these long-term debt issues now stand at $227 million in 2020; $2.04 billion in 202 1, and $2.688 billion in This looming debt leaves little room for error if interest rates rise or the economy slows.* Per share prices are adjusted and reflect a 1 for 15 reverse split effected July Order at page 16. Value Line, June 15,201 8 by Wayne C. Nef.

12 Case No T-P June 29,20 18 Page 6 of 6 Staff believes that the Commission is holding Frontier accountable to provide service quality to citizens of West Virginia. There are areas of the State, however, that continue to deal with poor telecommunications service and it is an ongoing problem in need of a solution. Service quality is measured, in part, by the monthly metrics which are reported to the Commission. It may be possible to introduce other metric benchmarks from those currently reported to the Commission or to increase the benchmark standards of the ones currently required and reviewed. This may assist in the discovery of answers to the continued outages that are reported in some areas of the State. Furthermore, Staff believes that the performance metrics and the commensurate reporting requirements should be expanded to include all Frontier service territories in West Virginia. Frontier is compliant with its self-reporting to the Commission with the monthly metric results and the recently established quarterly requirement to report the top twenty-five wire centers with the highest trouble rates and actions taken or planned to address the trouble. The quarterly reporting may need to be expanded so that subsequent quarterly reports provide a more detailed look back at how previous high problem areas are being remedied instead of the current description of what the plans are to remedy the reported high trouble areas. Staff concludes that Frontier s self-reported data has demonstrated it is in compliance most reporting periods with the existing metrics required by previous Commission Orders. Meanwhile there are customers in areas of the State that report nearly continuous service problems. While the metrics may be being met, it is possible that the nearly forty percent loss of lines for Frontier in West Virginia since 2010 when Frontier acquired Verizon WV indicates that many customers have complained by dropping their service, an action not reflected in the RQSP. The financial ability to provide the required level of service and investment is not clear at this time. The Staff requests the Commission permit further investigation in the areas of (1 j adequacy of the reported benchmarks; (2) the need to expand the benchmarks or raise the standards as well as the reporting of and identified high trouble wire centers; and (3 j a demonstrated financial ability to provide adequate, economical and reliable telecommunications service. sw:sw