Vermont Board Rejects FairPoint Settlement
Vermont regulators turned thumbs down on a FairPoint proposal for a new regulatory arrangement with the state as part of the company’s Chapter 11 reorganization. The settlement was negotiated with the state Department of Public Service. Earlier, the Maine utility commission approved a variation on the proposal that the Vermont board rejected. New Hampshire authorities are still reviewing the settlement version proposed there.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
"We are disappointed by the Vermont board’s conclusion,” FairPoint spokesman Jeff Nevins told us by e-mail. “We will thoroughly review the board’s order and respond once we have evaluated all our options."
In its 96-page response to the company’s proposal, issued Monday, the Vermont Public Service Board acknowledged that FairPoint’s reorganization will cut its debt from $2.7 billion to $1 billion. The board also noted that the plan would delay the company’s broadband expansion commitments by six months and set aside nearly $12 million in penalties for service quality lapses. The company also may seek federal Universal Service funds that would give customers a $1.57 monthly bill credit against the usual monthly dial-tone charge of $13.65, the commission said.
However, the board said, FairPoint did not show that getting board approval of its plan would “promote the general good of the state. Specifically, based upon the record before us, we cannot find that FairPoint has demonstrated the financial capability to meet its obligations under Vermont law and its Certificate of Public Good as a telecommunications carrier."
The plan’s projections assume, perhaps unreasonably, that the company’s revenue losses to local competition will be less than it has been experiencing, the board said. Analysis of the proposal raises the same concerns “that caused us to reject FairPoint’s original petition seeking approval to acquire Verizon’s northern New England territories,” the board said.
FairPoint’s success depends “almost exclusively” on its ability to render concrete key assumptions underpinning projections that its operating systems and cutover-related issues will be resolved during 2010, that the company will lose significantly fewer access lines, that it can control and cut operating expenses and that it will complete its broadband build-out on time, boosting its subscriber base, the board said.
"However … we find that FairPoint’s projections are neither plausible nor consistent with the Company’s historical trends,” the order said. Despite a better balance sheet, “FairPoint has been unable to substantiate the reasonableness of its assumptions, in particular, reduced line losses and declining operating expenses,” it said.
"FairPoint argues that its operating systems and cutover issues are behind it,” the board added. “However, we have not received any testimony or evidence which demonstrates that to be true. The model runs that the Board requested FairPoint to make show that FairPoint will experience difficulty if historical trends in line losses and operating expenses continue. In fact, it is likely that FairPoint could fail to meet its financial covenants with its lenders as early as 2011 if FairPoint’s optimistic forecasts are not realized. As a result, there is the foreseeable risk that FairPoint may also face liquidation as early as 2011 or thereafter. Because FairPoint has not demonstrated the reasonableness of its projections, we are not persuaded that FairPoint will be financially sound after emerging from bankruptcy.
"We would welcome a revised proposal from FairPoint that addresses the concerns we have identified,” the board said. “In particular, a revised petition would need to address three basic concerns. Going forward, FairPoint still faces substantial costs associated with its debt. A reduction in the level of the debt or other restructuring of FairPoint’s financial obligations could reduce its expenses to a level that would allow it to be financially sound under a range of plausible scenarios.”