BILL ANALYSIS Ó
SB 379
Page 1
SENATE THIRD READING
SB 379 (Fuller)
As Amended August 20, 2012
Majority vote
SENATE VOTE :40-0
UTILITIES & COMMERCE 12-0
APPROPRIATIONS 17-0
-----------------------------------------------------------------
|Ayes:|Bradford, Fong, Fuentes, |Ayes:|Gatto, Harkey, |
| |Furutani, Gorell, Roger | |Blumenfield, Bradford, |
| |Hernández, Huffman, | |Charles Calderon, Campos, |
| |Knight, Ma, Nestande, | |Davis, Donnelly, Fuentes, |
| |Swanson, Valadao | |Hall, Hill, Cedillo, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
-----------------------------------------------------------------
SUMMARY : Modifies the California High Cost Fund - A (CHCF-A)
program to align the Federal Communications Commission's (FCC)
modification of the federal universal service program to allow
high-cost support for the California Independent
Telecommunications Companies (CITC) broadband-capable facilities
in rural areas.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, significant savings, potentially in the millions of
dollars, to the CHCF-A fund due assuming preservation of federal
funding. Public Utilities Commission (PUC) calculates the
annual amount of CHCF-A support based on anticipated revenues
from the federal High Cost Loop Support (HCLS). Federal and
state funding works in concert and no double recovery occurs;
i.e., decreases in federal HCLS funding increase CHCF- A funding
and vice versa. Presently, the small independent telephone
companies receive about $25 million annually in federal HCLS and
$33.7 million in CHCF-A support. Hypothetically, if these
companies lost the $25 million in federal funding because they
could not meet the FCC's broadband speed, capacity, and other
reliability requirements, the CHCF-A program could increase
significantly.
Cost pressure, in the hundreds of thousands, to CHCF-A due to
SB 379
Page 2
incorporation of broadband as an allowable cost. The sponsor
indicates that its member (13 small, rural) telephone companies
already provide both telephone and broadband (albeit, very slow)
services, and that these multi-use networks just need
incremental upgrades to meet new federal broadband speed,
latency, and service quality requirements. These cost pressures
are unknown, but at current CHCF-A funding levels, each 1% of
additional cost would be $337,000.
Increased administrative costs in the $200,000 range. PUC
indicates that allowing the incorporation of broadband
infrastructure will add complexity to these companies' rate
cases, requiring additional review and analysis, and a
determination whether the broadband facilities are appropriate
for rate-making purposes. For at least the initial rate cases
following enactment of this legislation, PUC may need two
additional regulatory analysts at a cost of $200,000 for one to
two years. Aside from rate cases, any other general regulatory
issues should be able to be incorporated into PUC's opened
rulemaking on CHCF-A program.
COMMENTS : According to the author, "SB 379 will help preserve
federal funding coming into rural California and enhance the
availability of advanced broadband services in rural areas of
the state. The modern communications network is a broadband
network, and California's rural communities need to be connected
to the digital superhighway in order to access the economic
development, tele-medicine and educational opportunities
available through advanced broadband services. At a minimum,
state policy should support the efforts of our small rural
telephone companies to upgrade their networks with
broadband-capable facilities in order to meet the requirements
of the federal high-cost support program. SB 379 ensures this
outcome by including the goal of rural access to advanced
services in CHCF-A program."
Background : Universal service has been an important public
policy objective on both the
federal and state level. The United States Congress first made
universal service a basic goal of telecommunications policy with
the passage of the Communications Act of 1934. In 1983, the
California Legislature enacted the Moore Universal Telephone
Service Act to ensure that consumers have access to basic voice
service that is both affordable and ubiquitously available.
SB 379
Page 3
In 1987, the California Legislature directed PUC to establish a
rate structure for small independent telephone companies serving
rural and small metropolitan areas to mitigate increases in
service. To achieve this legislative goal, PUC created various
public programs such as CHCF to provide a source of supplement
revenues to telephone companies serving rural or geographically
hard-to serve areas of California. In 1996, PUC divided CHCF
into two separate programs labeled A and B: the CHCF-A, to
provide high cost support for the small companies, and CHCF-B,
to provide high cost support for large companies.
Support from both the federal and state programs is often
necessary to cover service providers' costs and keep customer
rates affordable. CHCF-A is scheduled to sunset on January 1,
2015.
FCC activities and orders : Recognizing the need for all
Americans to have universal access
to broadband, FCC in March 2010 released the National Broadband
Plan, which included a proposal for transforming the federal
universal service program and intercarrier compensation systems
to support the provision of affordable broadband in high-cost
areas rather than just voice telephone service.
In November 2011, FCC issued a decision adopting this proposal
and redirecting the $4.5 billion in Universal Service Fund (USF)
into a new "Connect America Fund" (CAF) to support providers in
high-cost areas that accept obligations to build out high-speed
broadband networks. FCC designated funding for a "Mobility
Fund" to accelerate mobile broadband networks, and a "Remote
Areas Fund" for the most difficult to serve areas. While
stakeholders continue to evaluate the implications of the Order,
states are taking initial steps to implement decisions and
determine how state universal service programs align with the
federal reforms.
PUC looking at CHCF-A : Also in November 2011, PUC opened
Rulemaking 11-11-007
to review CHCF-A program. According to PUC's Order, "a detailed
review of the program is warranted in response to market,
regulatory, and technological changes since CHCF program was
first established in 1987." In its June 1, 2012, analysis of SB
379, PUC states that the "aim of the proceeding is to develop a
SB 379
Page 4
more efficient, prudent, and forward-looking plan for rural
consumers that will reflect realities of the market place and
technological advancements to safeguard California ratepayers."
The issue : The question before us is whether California should
follow FCC's example of
modifying CHCF-A program to explicitly allow it to support
investments in broadband-capable infrastructure? CHCF-A program
was established long before broadband become available when
there was only the traditional telephone network to consider.
Technology has dramatically changed since then, and the small
independent telephone companies' networks now deliver both
telephone and broadband services. In order to continue to meet
CAF's broadband latency, speed, and service quality
requirements, both now and in the future, these companies will
need to systematically upgrade their networks.
According to the small independent telephone companies supported
by CHCF-A program, the state needs to update CHCF-A program to
reflect the new broadband-focus of the federal CAF program in
order to preserve their federal universal service rate support.
They argue that without this update, PUC may not allow cost
support from CHCF-A program for network improvements because
they benefit the provision of broadband service, even though the
improvements benefit the provision of telephone service as well.
According to PUC staff analysis of SB 379, it notes that PUC has
an open rulemaking on CHCF-A and that "this comprehensive public
process is a better way to address any necessary changes to
CHCF-A program." The analysis raises their concern that "SB 379
would require ratepayers to subsidize the rate-of-return
carriers' deployment of broadband-capable facilities even though
California has limited jurisdiction over broadband services and
cannot take into account revenues from these unregulated
services when determining local rates for the rate of return
carriers."
Who's up first ?: This bill aims to codify PUC's current
practice of administering CHCF-A program, while adding an
explicit requirement for PUC to promote reasonable access to
advanced services and broadband-capable facilities. This bill
also preserves the January 1, 2015, sunset date on CHCF-A
program adopted by the Legislature last year in SB 3 (Padilla),
Chapter 695, Statutes of 2011, ensuring Legislative review
SB 379
Page 5
before the program can be extended.
The bill sponsor, California Independent Telecommunications
Companies (CITC), asserts that this bill preserves PUC's
regulatory authority to determine whether and to what extent
company expenses and investments are reasonable, thereby
maintaining PUC's flexibility in its administration of CHCF-A
program. Recent amendments require the small telephone
companies to provide, upon PUC request, information on revenues
from unregulated Internet access service.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083
FN: 0005033