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Maine PUC approves Fairpoint bankruptcy plan

MPUC announcement

June 24, 2010

Augusta, Maine — The Maine Public Utilities Commission approved the regulatory settlement which is a component of FairPoint’s bankruptcy reorganization plan. In a two-to-one vote, the commission approved FairPoint’s request to modify the timing and extent of their broadband plan expansion which had been originally adopted as part of the January 2008 merger approval—the commission’s decision which lead to FairPoint’s take-over of the Verizon telecommunications network.

Commission Chair Sharon Reishus and Commissioner Jack Cashman approved the entire package of regulatory changes presented by FairPoint: “FairPoint’s financial restructuring and shedding of $1.7 billion in debt is certainly in the interests of Maine ratepayers—the company will emerge a healthier, more stable company able to service Maine telephone customers,” stated Commission Chair Sharon Reishus. “We have concerns about the proposed reductions in scope and implementation of the promised broadband expansion and pricing. However Maine ratepayers will be best served by FairPoint’s successful emergence from bankruptcy and the protection of the broadband commitments that remain.” Commissioner Cashman added, “In a bankruptcy, everyone gives up something. In this agreement the tools for maintaining service quality and for enforcement remain untouched.”

Commissioner Vafiades voted against approving the changes requested by FairPoint: “FairPoint has made promises to this Commission and to Maine consumers. The Company is using the bankruptcy process to reneg on broadband commitments which were a central aspect of approving the FairPoint takeover of the Verizon phone network. These changes were not required by bankruptcy court and are a disservice to rural customers.”

FairPoint had specifically requested the following changes to the conditions set forth in the 2008 Merger Order: a delay—from April to December 2010–of the completion deadline for the first phase of the Company’s broadband expansion project; authorization to reduce—by 3%–the percentage of lines that will be capable of carrying broadband upon completion of the five-year broadband expansion project; relief from pricing restrictions for unregulated broadband service, and certain prospective restrictions on the overall level of the company’s indebtedness. The Company had also requested a delay of three months in the payment to ratepayers of the rebate for service quality failures in the previous year.

The Commission held expert witness hearings on FairPoint’s petition for a change of ownership under Maine law and the proposed regulatory changes on May 5th and 6th. The Order finalizing the Commission decision will be publicly available shortly.

Background: In January 2008, the Commission granted FairPoint the authority to buy Verizon’s phone network and operations, in part, because Verizon—despite having more financial resources—had demonstrated a general unwillingness to invest in its northern New England network particularly with respect to increasing the geographic areas in which it offered broadband service. FairPoint agreed to invest substantially in infrastructure upgrades and expansion of broadband in Maine and the region. Starting with the service quality problems originating with the February 2009 “cut-over” of phone network from Verizon to FairPoint, the Commission has closely monitored FairPoint’s efforts to reach “business as usual” operations.

In October 2009, FairPoint filed for voluntary Chapter 11 bankruptcy in federal bankruptcy court in New York. The Commission retained special legal counsel to participate in the bankruptcy proceedings in order to ensure that the Commission retains authority over FairPoint rate-making and service quality regulation. FairPoint continues to provide bi-weekly updates on progress toward date-specific milestones for service improvements in customer call response, number of new service orders pending and number of bills with known errors.

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