A bad idea triumphs

By JEFF INGLIS  |  February 27, 2008

But even more important to the survival of bad ideas such as this merger is that state utility regulators behave like powerless functionaries whose job is to moderate corporate rapaciousness, rather than seeing themselves as empowered defenders of the public interest.

Even when regulators are presented with fundamentally terrible deals that endanger the public interest, threaten economic development, and may end up risking people’s very lives, they see their responsibility as exacting just enough concessions from massively wealthy companies to let the regulators claim they got something for the people, even when they have given away much more.

It’s not as if they haven’t been warned. Union representatives and industry experts have been railing against various aspects of the deal since it was announced back in January 2007. Customers have expressed significant concerns, in letters, e-mails, and phone calls to regulators in Augusta, Concord, Montpelier, and even Washington DC. And the consumer advocates who represent the public in utilities proceedings in Maine, New Hampshire, and Vermont have all expressed reservations about this deal in uncharacteristically bold language — saying FairPoint’s assumptions are “inappropriate” and “do not reflect reality.”

Wimpy regulators
One member of the three-person Maine PUC didn’t even ask any questions of Verizon or FairPoint during the public hearings. Sharon Reishus remained silent, even though this deal is the largest and most controversial piece of business to come before Maine utilities regulators in state history, and despite the fact that the telecommunications sector is the one that state officials, economists, and activists alike see as a key to Maine’s prosperity for decades to come. But her silence is not the problem: It’s the symptom of the real problem.

Regulators have expressed frustration with Verizon’s well-documented lack of attention to serving residents and businesses in northern New England. The solution, though, is not to hand Verizon a pass on its $500 million tax liability on profit from the sale. Regulators have standards (and can increase the standards), and they have enforcement tools to punish companies that don’t meet the standards, such as fines and penalties.

They have not used these tools very much, or very well. And they don’t seem to feel they are in a position of strength, with Maine officials making the “demand” that if North Carolina-based FairPoint does not roll out its slow-speed “broadband” Internet service, DSL, to enough homes by the end of 2013, the company would get an extra year to meet the same goal, with no penalty. “Our history with some utilities enforcing merger conditions after we issue a decision has not been great,” Maine PUC chairman Kurt Adams admitted in a January 3 hearing.

But rather than hold themselves to a higher standard of performance and actually enforce their rules, regulators have passed the buck — hundreds of millions of them, really — to us, by letting Verizon off the hook. And it is we, the public, who will pay for their complacency.

In the first place, FairPoint’s economic projections were shockingly optimistic (see “No Raises For Seven Years,” November 16, 2007, and “No Raises — It Gets Better,” November 20, 2007, both by Jeff Inglis). And those fragile projections were made before we entered the economic downturn most economists now believe we are in.

Financial peril
There has been a lot written about FairPoint’s financial problems, both current and future. Normally, when seeking to impose conditions on a sale, regulators ask for financial guarantees from the buyer.

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