BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 740
                                                                  Page  1

          SENATE THIRD READING
          SB 740 (Padilla)
          As Amended  September 6, 2013
          Majority vote

           SENATE VOTE  :   36-1
            
           UTILITIES & COMMERCE                11-4             
          APPROPRIATIONS      12-4        
           
           ----------------------------------------------------------------- 
          |Ayes:|Bradford, Bonilla,        |Ayes:|Gatto, Bocanegra,         |
          |     |Buchanan, Fong, Garcia,   |     |Bradford,                 |
          |     |Gorell, Roger Hernández,  |     |Ian Calderon, Campos,     |
          |     |Quirk, Rendon, Skinner,   |     |Eggman, Gomez, Hall,      |
          |     |Brown                     |     |Holden, Pan, Quirk, Weber |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Patterson, Chávez, Beth   |Nays:|Harkey, Donnelly, Linder, |
          |     |Gaines, Jones             |     |Wagner                    |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :   Expands eligibility in the California Advanced  
          Services Fund (CASF), establishes a program goal, and increases  
          the program funding.   Specifically,  this bill  :   

          1)Specifies the goal of CASF program is to approve funding for  
            infrastructure projects that will provide broadband access to  
            no less than 98% of California households no later than  
            December 31, 2015.

          2)Requires the California Public Utilities Commission (PUC) to  
            give priority to projects that provide last-mile broadband  
            access to households that are unserved by an existing  
            facilities-based broadband provider.

          3)Requires PUC to provide each applicant and any party  
            challenging an application the opportunity to demonstrate  
            actual levels of broadband service in the project area, as  
            prescribed.

          4)Allows an entity that is not a telephone corporation to apply  
            to participate in CASF program to provide access to broadband  
            to an unserved or underserved household, as defined, if the  
            entity meets the eligibility requirements and complies with  








                                                                  SB 740
                                                                  Page  2

            program requirements established by PUC.

          5)Requires PUC to conduct an additional interim financial audit  
            and interim performance audit and to report findings to the  
            Legislature by April 1, 2017.  Final findings are due to the  
            Legislature by April 1, 2021.

          6)Extends CASF annual reporting requirement until January 1,  
            2021, and requires additional program information.

          7)Increases the amount PUC is authorized to collect to an amount  
            not to exceed $215 million, and requires that $190 million be  
            deposited into the Broadband Infrastructure Grant Account.

          8)Contains an urgency clause allowing the bill to take effect  
            immediately upon enactment.

          9)Provides language that double joints the bill with AB 1299  
            (Bradford) of the current legislative session.

           FISCAL EFFECT  :  According to Assembly Appropriations Committee,  
          unknown cost pressures, possibly in the hundreds of thousands of  
          dollars from CASF (special fund) for expanded grantee  
          eligibility.

           COMMENTS  :   

           1)Author's Statement  :  According to the author, "SB 740 would  
            modify CASF to support broadband infrastructure in the most  
            remote areas of the state that still lack the high-speed  
            Internet access that is essential to function in modern life.  
            It would give CPUC flexibility to award CASF grants to  
            entities that are uniquely suited to provide broadband access  
            in the last remaining unserved areas and authorize additional  
            funding for this purpose, thereby advancing state policy to  
            ensure that all Californians are connected."

           2)Background  :  In 2007, as part of a High-Cost Fund-B  
            rulemaking, PUC created CASF to help promote the deployment of  
            broadband infrastructure in unserved areas of the state.  As  
            part of the decision, PUC reduced the annual allocation of  
            money to the High-Cost Fund-B by $315.4 million and  
            implemented a phased-in reduction in the ratepayer surcharge  
            from 1.3% on all intrastate calls to .25%. 









                                                                  SB 740
                                                                  Page  3

            PUC created the program and assessed a surcharge on telephone  
            ratepayers to fund the program however PUC did not have clear  
            legislative authority to assess the surcharge or to expend the  
            funds.  SB 1193 (Padilla), Chapter 393, Statutes of 2008,  
            provided that authority by statutorily establishing CASF;  
            however, SB 1193 prohibited PUC from collecting more than $100  
            million.  

            PUC prioritized CASF expenditures to areas where no  
            facilities-based provider offered broadband service.  A  
            secondary priority was for funding in underserved areas where  
            no facilities-based provider offered broadband service at  
            benchmark download transmission speeds of at least three  
            megabits per second (mbps) and upload speeds of at least one  
            mbps.  By Resolution T-17143, dated June 12, 2008, PUC adopted  
            filing requirements and scoring criteria for the award of CASF  
            funds and a timeline for further filings and for final  
            approval of awards.

            After the enactment of the American Reinvestment and Recovery  
            Act of 2009 (Recovery Act), PUC revised CASF program to allow  
            California companies to use CASF grants as a match for  
            Recovery Act broadband grants.  AB 1555 (V. Manuel Pérez),  
            Chapter 24, Statues of 2009, expanded CASF eligibility to any  
            entity applying for CASF funding in conjunction with a  
            Recovery Act funding request.

            Subsequently Governor Schwarzenegger signed into law SB 1040  
            (Padilla), Chapter 317, Statutes of 2010, which provided an  
            additional $125 million, and expanded the program into three  
            accounts:

             a)   $100 million to the Broadband Infrastructure Grant  
               Account (for a total of $200 million);
                
             b)   $10 million to the Rural and Regional Urban Consortia  
               Account; and

             c)   $15 million to the Broadband Infrastructure Loan  
               Account.
            The Broadband Infrastructure Grant Account funds the capital  
            costs of broadband infrastructure projects in unserved and  
            underserved areas in California.  Carriers eligible to apply  
            for a grant award must hold a certificate of public  
            convenience and necessity (CPCN) or Wireless Identification  








                                                                  SB 740
                                                                  Page  4

            Registration (WIR) from PUC.

            The Rural and Urban Regional Broadband Consortia Grant Account  
            provides funding for the cost of broadband deployment and  
            adoption activities other than the capital cost of facilities.  
            Eligible recipients include, but is not limited to local and  
            regional governments, public safety, K-12 education, health  
            care and community based organizations.

            The Revolving Loan Account supplements financing for projects  
            also receiving CASF grant funding. Up to 20% of total project  
            cost is eligible for financing.  Applicant and project  
            eligibility is the same as the Infrastructure Grant Account.

           3)CASF grants awarded to date  :  As of December 31, 2012, PUC  
            reports the followings CASF grant awards:

             a)   The Broadband Infrastructure Grant Account:  PUC  
               authorized $41.08 million for 34 projects that will benefit  
               255,246 households when completed, including $2.31 million  
               for 15 projects benefitting 16,530 households in unserved  
               areas, and $38.77 million for 19 projects benefitting  
               238,716 households in underserved areas.  There are a total  
               of 1,777 new subscribers since program initiation (45%  
               subscription rate).

             b)   The Rural and Urban Regional Broadband Consortia Grant  
               Account:  PUC authorized $2.85 million for 14 consortia  
               grantees in 2012, and has provided grantees with a  
               three-year budget allowance of $8.55 million.

             c)   The Broadband Infrastructure Revolving Loan Account:  As  
               of year-end PUC had not received any loan applications.   
               Currently, there are seven loan applications pending.

            On February 1, 2013, 28 applications were submitted to PUC for  
            projects in underserved areas of the state seeking total CASF  
            funding of $240.6 million.  
             
           4)Alas, a goal for CASF  :  There is agreement among state  
            policymakers, key community organizations, and industry  
            stakeholders that achieving ubiquitous broadband deployment in  
            order to bring the social and economic benefits of high-speed  
            internet throughout the state.  In fact, the state has made  
            notable strides to close the "digital divide" but no statewide  








                                                                  SB 740
                                                                  Page  5

            goal has been established.  Since CASF statute does not  
            specify a goal, this bill establishes a state goal of  
            achieving deployment to 98% of California households no later  
            than December 31, 2015.  

            The California Emerging Technology Fund (CETF), established in  
            2005 with funds derived from conditions on mergers of  
            telecommunications companies, was created as a nonprofit  
            organization dedicated to making grants to community based  
            organizations for projects to help close the digital divide.   
            CETF has established a statewide broadband goal of achieving  
            98% deployment by 2017, with projects approved and funded by  
            2015.  

            According to PUC's California Broadband Report, statewide as  
            of June 2011, an estimated 72.9% of all households subscribe  
            to fixed broadband services.  It found that of households  
            which have been determined to have geographic access to fixed  
            broadband services, an estimated 74.6% subscribe.

           5)Expanding CASF eligibility :  Current CASF rules limit program  
            participation to telephone corporations.  This bill proposes  
            to expand eligibility to for infrastructure grants to entities  
            that are not telephone corporations, similar to the expanded  
            eligibility authorized in connection with the Recovery Act.   
            In October 2012, PUC proposed this very issue, subject to  
            legislative authorization, because it found that commercial  
            and nonprofit entities that are not telephone corporations,  
            such as tribal entities and Wireless Internet Service  
            Providers (WISPs) have expressed interest in providing  
            broadband.  These broadband services provide wireless  
            solutions that are viable for "last mile" connection of end  
            users in rural areas that are challenging to serve.  To  
            protect against waste, fraud, and abuse of ratepayer funds  
            being awarded to entities it otherwise does not regulate, PUC  
            proposed imposing requirements similar to those it applied to  
            Recovery Act applicants that did not hold a CPCN or WIR,  
            including a requirement to comply with applicable PUC rules.

           6)Unserved vs. underserved  :  PUC's rules administering CASF  
            authorize grants for projects to both unserved and underserved  
            areas, with a priority for funding unserved areas. An unserved  
            area is where no broadband service is available (except  
            through dial-up or satellite service).  PUC defines an  
            underserved area as where broadband service is slower than six  








                                                                  SB 740
                                                                  Page  6

            mbps down or 1.5 mbps up.  The Federal Communications  
            Commission defines underserved as slower than four mbps down  
            or one mbps up.   
           
           7)Additional CASF funding  :  This bill authorizes PUC to collect  
            an additional $90 million in increments of no more than $25  
            million per year through 2020 for CASF infrastructure grants.   
            According to the author, additional funding is needed for the  
            following reasons: expanded eligibility authorized by this  
            bill will generate more applications for funding than under  
            current rules - especially for last-mile projects to unserved  
            households, pending CASF applications at PUC seek  
            substantially more funding than currently authorized for CASF,  
            and the average cost per household required so far to connect  
            remaining unserved households exceeds authorized collections.

           8)Related legislation  :  AB 1299 (Bradford) of 2013, which  
            authorizes PUC to award $25 million in CASF grants and loans  
            for the deployment and adoption of broadband services in  
            publicly supported housing communities. 


           Analysis Prepared by  :    DaVina Flemings / U. & C. / (916)  
          319-2083 


                                                                FN: 0002569