BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 379|
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                              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 
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          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 

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          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 

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          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 

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          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, 

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            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

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