BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 379| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 379 Author: Fuller (R) Amended: 8/20/12 Vote: 21 SENATE ENERGY, UTIL. & COMM. COMMITTEE : 11-0, 4/5/11 AYES: Padilla, Fuller, Berryhill, Corbett, De León, DeSaulnier, Pavley, Rubio, Simitian, Strickland, Wright SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SENATE FLOOR : 40-0, 5/9/11 AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner, Simitian, Steinberg, Strickland, Vargas, Walters, Wolk, Wright, Wyland, Yee ASSEMBLY FLOOR : 78-0, 8/23/12 - See last page for vote SUBJECT : Telecommunications policies SOURCE : Californias Independent Telecommunications Companies DIGEST : This bill modifies the California High Cost Fund - A (CHCF-A) program to align the Federal Communications CONTINUED SB 379 Page 2 Commission's (FCC) modification of the federal universal service program to allow high-cost support for the California Independent Telecommunications Companies broadband-capable facilities in rural areas. Assembly Amendments add language that states the bill requires a small independent telephone corporation that receives support from the CHCF-A program to provide information regarding revenues derived from the provision of unregulated internet access service upon request from the Public Utilities Commission (PUC) and requires the PUC to treat this information as confidential, add coauthors, and make clarifying and technical changes. ANALYSIS : Existing law: 1. Requires the PUC to establish and maintain universal service programs to ensure that affordable telephone service is available in rural, high-cost areas of the state, including the California High Cost Fund A program, which sunsets on January 1, 2013. 2. Declares the policies for telecommunications in California which include continuing our universal service commitment by ensuring the continued affordability and widespread availability of high-quality telecommunications services to all Californians. 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. In 1987, the California Legislature directed the PUC to establish a rate structure for small independent telephone companies serving rural and small metropolitan areas to CONTINUED SB 379 Page 3 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 into a new "Connect America Fund" 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, the PUC opened Rulemaking 11-11-007 to review CHCF-A program. According to the 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 this bill, the PUC states that the "aim of the proceeding is to develop a more efficient, prudent, and forward-looking plan for rural consumers that will reflect CONTINUED SB 379 Page 4 realities of the market place and technological advancements to safeguard California ratepayers." 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." Prior Legislation SB 3 (Padilla) Chapter 695, Statutes of 2011, extends the sunset date of the California High Cost Fund B. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes 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. The 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 CONTINUED SB 379 Page 5 significantly. Cost pressure, in the hundreds of thousands, to CHCF-A due to incorporation of broadband as an allowable cost. The sponsor indicates that its member (13 small, rural) telephone companies already provide both telephone and broadband 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. SUPPORT : (Verified 8/23/12) California Independent Telecommunications Companies (source) Calaveras Telephone Company California Communications Association California State Association of Counties Ducor Telephone Company Ponderosa Telephone Regional Council of Rural Counties Sebastian Siskiyou Telephone Small School Districts' Association Volcano Communications Group ASSEMBLY FLOOR : 78-0, 8/23/12 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, CONTINUED SB 379 Page 6 Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman, Hall, Harkey, Hayashi, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski, Yamada, John A. Pérez NO VOTE RECORDED: Roger Hernández, Williams RM:n 8/24/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED