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