June 23, 2018
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State agency to investigate whether FairPoint’s misused federal funds

By Whit Richardson, BDN Staff

AUGUSTA, Maine — The Maine Public Utilities Commission has begun an investigation to determine whether FairPoint Communications has misused federal funds it received to help subsidize telephone service to rural customers.

The Maine Office of the Public Advocate filed a complaint in January, which prompted the investigation, according to Tom Welch, chairman of the Maine PUC. The PUC officially opened the investigation on May 21.

Welch said it’s too early in the investigation to determine whether there has been any wrongdoing on the part of FairPoint, which is based in Charlotte, N.C.

“I don’t have an opinion yet on whether something was done correctly or incorrectly,” he told the BDN on Friday. “Federal law tends to be pretty arcane in this area.”

The federal funds in question are what’s known as the Universal Service Fund, which the government distributes to telecommunication companies such as FairPoint to help subsidize the cost of providing rural telephone and broadband access.

The OPA argues that FairPoint has inappropriately retained more than $2 million of the USF funds between 2008, when it acquired the business from Verizon, and 2012.

The complaint started in September 2012. That’s when FairPoint requested permission from the Maine PUC to stop passing along the USF funds to customers in the form of bill credits and instead use the money to fund broadband expansion projects in the state, according to Wayne Jortner, senior counsel for the public advocate’s office.

The commission approved that request, but during the process, the public advocate’s office noticed that while FairPoint received nearly the same amount of USF funds from the federal government, its number of customers had decreased since taking over the business from Verizon in 2008.

Rather than increase the credit each customer received, thereby ensuring that the full amount of federal funds was being passed along to customers, the public advocate’s office alleges FairPoint has been keeping the difference, Jortner told the Bangor Daily News on Friday.

“Because that support was never meant to be kept as shareholder profits, the public advocate’s office believes FairPoint has not properly used the finding,” Jortner said.

Jeffrey Nevins, a FairPoint spokesman, declined to comment on the investigation, because it is the company’s policy not to comment on pending litigation or regulatory activities.

But in an official response filed with the Maine PUC in February, the company contends that it has used the federal funds in accordance with federal regulations and claims “there is no federal regulation or order that supports the [public advocate office’s] conclusion.”

On March 15, FairPoint provided details about the funds it receives and the credits it passed through to customers.

In 2011, the company received $1.1 million in federal Universal Service Funds. That year, it passed through $794,620 of that amount to customers in the form of credits, according to FairPoint’s filing.

The company argued that it had spent $42.6 million that year upgrading its telecommunications network in Maine, which is a consistent use of the federal funds.

The OPA will argue, Jortner said, that the full amount of that public funding should have been passed to customers, and that the PUC should order the company do so, retroactively if need be.

Depending on the outcome of the investigation, the PUC does have authority to order FairPoint to provide the difference to customers in the form of bill credits.

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