Amended in Senate May 27, 2014

Senate Bill No. 1364

Introduced by Senator Fuller

(Coauthors: Senators Berryhill, Evans, Gaines, Nielsen, Padilla, begin delete and end delete Vidak begin insert , and Wolk end insert )

(Coauthors: Assembly Members Conway, Dahle, Beth Gaines, Gray, Grove, Logue, Olsen, Pan, Perea, begin insert V. Manuel Pérez, end insert and Yamada)

February 21, 2014

An act to amend Sections begin insert 247.1, 270, 275, end insert 275.6 begin insert , end insert and begin delete 739.3 of end delete begin insert 276 of, and to amend and renumber Section 739.3 of, end insert the Public Utilities Code, relating to telecommunications, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

SB 1364, as amended, Fuller. Telecommunications universal service begin delete programs: California High-Cost Fund-A program. end delete begin insert programs. end insert

Existing law, the federal Telecommunications Act of 1996, establishes a program of cooperative federalism for the regulation of telecommunications to attain the goal of local competition, while implementing specific, predictable, and sufficient federal and state mechanisms to preserve and advance universal service, consistent with certain universal service principles. The universal service principles include the principle that consumers in all regions of the nation, including low-income consumers and those in rural, insular, and begin delete high cost end delete begin insert high-cost end insert areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.

Existing law authorizes the Public Utilities Commission to supervise and regulate every public utility in the state, including telephone corporations, and to fix just and reasonable rates and charges for the public utility. Existing law establishes the state’s begin insert 6 end insert universal service funds in the State Treasury, including the California High-Cost Fund-A Administrative Committee Fund and the California High-Cost Fund-B Administrative Committee Fund, and provides that moneys in each of the state’s universal service funds are the proceeds of rates and are held in trust for the benefit of ratepayers and to compensate telephone corporations for their costs of providing universal service. Moneys in the funds may only be expended to accomplish specified telecommunications universal service programs, upon appropriation in the annual Budget Act or upon supplemental appropriation. Existing law, until January 1, 2015, requires the commission to develop, implement, and maintain a suitable program to establish a fair and equitable local rate structure aided by universal service rate support to small independent telephone corporations that serve rural areas and are subject to rate-of-return regulation by the commission (the CHCF-A program). Existing law, until January 1, 2015, requires the commission to develop, implement, and maintain a suitable, competitively neutral, and broadbased program to establish a fair and equitable local rate support structure aided by universal service rate support to telephone corporations serving areas where the cost of providing services exceeds rates charged by providers, as determined by the commission (the CHCF-B program).

This bill would begin insert delete the provision stating that moneys in each of the state’s universal service funds are the proceeds of rates and are held in trust for the benefit of ratepayers and to compensate telephone corporations for their cost of providing universal service. The bill would require the commission, in administering the universal service program funds, and in administering state participation in federal universal service programs, to make it a priority, and to take all reasonable steps consistent with the state’s universal service policies and goals, to maximize the amount of federal funding to California and to California participants in the federal programs. The bill would end insert extend the repeal date of the CHCF-A program and CHCF-B program requirements until January 1, 2019. begin insert The bill would renumber the statute establishing the programmatic requirements for the CHCF-B program so that it is located in the code adjacent to the statute establishing the California High-Cost Fund-B Administrative Committee Fund, would delete outdated language, and would make other conforming changes. end insert

Under existing law, a violation of the Public Utilities Act or an order or direction of the commission is a crime.

Because the CHCF-A program and CHCF-B program, that are extended under the provisions of this bill, are within the act and a decision or order of the commission implements the programs’ requirements, the bill would impose a state-mandated local program by expanding the definition of a crime.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 247.1 of the end insert begin insert Public Utilities Code end insert begin insert is
amended to read: end insert

247.1.  

(a) The Mobile Telecommunications Sourcing Act begin delete (P.L. end delete
begin insert (Public Law end insert 106-252) was enacted for the purpose of establishing
nationwide uniform sourcing rules for the imposition of state and
local taxes, fees, and surcharges on mobile telecommunications
services. In order to establish a single, uniform sourcing rule, the
federal act partially preempted state and local law imposing taxes,
fees, and surcharges on a mobile telecommunications services
customer whose place of primary use is outside of the state in
which the state and local taxes, fees, or surcharges are imposed.

(b) In accordance with the Mobile Telecommunications Sourcing
Act, which is incorporated herein by reference, and notwithstanding
Sections begin insert 275.6, 276.5, end insert 280, 431, begin delete 739.3, end delete 879, and 2881, the
surcharges or fees under these sections do not apply to any charges
for mobile telecommunications services billed to a customer where
those services are provided, or deemed provided, to a customer
whose place of primary use is outside this state. Mobile
telecommunications services shall be deemed provided by a
customer’s home service provider to the customer if those services
are provided in a taxing jurisdiction to the customer, and the
charges for those services are billed by or for the customer’s home
service provider.

(c) For purposes of this section:

(1) “Charges for mobile telecommunications services” means
any charge for, or associated with, the provision of commercial
mobile radio service, as defined in Section 216.8, or any charge
for, or associated with, a service provided as an adjunct to a
commercial mobile radio service, that is billed to the customer by
or for the customer’s home service provider, regardless of whether
individual transmissions originate or terminate within the licensed
service area of a home service provider.

(2) “Customer” means either (A) the person or entity that
contracts with the home service provider for mobile
telecommunications services, or (B) if the end user of mobile
telecommunications services is not the contracting party, the end
user of the mobile telecommunications service. This paragraph
applies only for the purpose of determining the place of primary
use. The term “customer” does not include either (A) a reseller of
mobile telecommunications service, or (B) a serving carrier under
an arrangement to serve the customer outside the home service
provider’s licensed service area.

(3) “Home service provider” means the facilities-based carrier
or reseller with which the customer contracts for the provision of
mobile telecommunications services.

(4) “Licensed service area” means the geographic area in which
the home service provider is authorized by law or contract to
provide commercial mobile radio service to the customer.

(5) “Mobile telecommunications service” means commercial
mobile radio service, as defined in Section 216.8.

(6) “Place of primary use” means the street address
representative of where the customer’s use of the mobile
telecommunications service primarily occurs, that must be:

(A) The residential street address or the primary business street
address of the customer.

(B) Within the licensed area of the home service provider.

(7) (A) “Reseller” means a provider who purchases
telecommunications services from another telecommunications
service provider and then resells the services, or uses the services
as a component part of, or integrates the purchased services into
a mobile telecommunications service.

(B) “Reseller” does not include a serving carrier with which a
home service provider arranges for the services to its customers
outside the home service provider’s licensed service area.

(8) “Serving carrier” means a facilities-based carrier providing
mobile telecommunications service to a customer outside a home
service provider’s or reseller’s licensed area.

(9) “Taxing jurisdiction” means any of the several states, the
District of Columbia, or any territory or possession of the United
States, any municipality, city, county, township, parish,
transportation district, or assessment jurisdiction, or any other
political subdivision within the territorial limits of the United States
with the authority to impose a tax, charge, or fee.

begin insert

begin insert SEC end insert begin insert . end insert begin insert 2. end insert   

end insert

begin insert Section 270 of the end insert begin insert Public Utilities Code end insert begin insert is amended
to read: end insert

270.  

(a) The following funds are hereby created in the State
Treasury:

(1) The California High-Cost Fund-A Administrative Committee
Fund.

(2) The California High-Cost Fund-B Administrative Committee
Fund.

(3) The Universal Lifeline Telephone Service Trust
Administrative Committee Fund.

(4) The Deaf and Disabled Telecommunications Program
Administrative Committee Fund.

(5) The Payphone Service Providers Committee Fund.

(6) The California Teleconnect Fund Administrative Committee
Fund.

(7) The California Advanced Services Fund.

(b)  begin delete Moneys in the funds are the proceeds of rates and are held
in trust for the benefit of and to compensate telephone corporations
for their costs of providing universal service. end delete Moneys in the funds
may only be expended pursuant to this chapter and upon
appropriation in the annual Budget Act or upon supplemental
appropriation.

begin insert

(c) The commission, in administering the universal service
program funds listed in subdivision (a), and in administering state
participation in federal universal service programs, shall make it
a priority, and take all reasonable steps consistent with the state’s
universal service policies and goals, to maximize the amount of
federal funding to California and to California participants in the
federal programs.

end insert begin delete

(c)

end delete

begin insert (d) end insert  Moneys in each fund begin delete may end delete begin insert shall end insert not be appropriated, or in
any other manner transferred or otherwise diverted, to any other
fund or entity, except as provided in Sections 19325 and 19325.1
of the Education Code.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 275 of the end insert begin insert Public Utilities Code end insert begin insert is amended
to read: end insert

275.  

(a) There is hereby created the California High-Cost
Fund-A Administrative Committee, which is an advisory board to
advise the commission regarding the development, implementation,
and administration of a program to provide for transfer payments
to small independent telephone corporations providing local
exchange services in high-cost rural and small metropolitan areas
in the state to create fair and equitable local rate structures, as
provided for in Section begin delete 739.3, the development of a grant program
for the construction of telecommunications infrastructure as set
forth in Section 276.5 end delete begin insert 275.6 end insert , and to carry out the program pursuant
to the commission’s direction, control, and approval.

(b) All revenues collected begin delete by telephone corporations in rates end delete
begin insert through surcharges end insert authorized by the commission to fund the
program specified in subdivision (a) shall be submitted to the
commission pursuant to a schedule established by the commission.
The commission shall transfer the moneys received to the
Controller for deposit in the California High-Cost Fund-A
Administrative Committee Fund. All interest earned by moneys
in the fund shall be deposited in the fund. begin delete Any unexpended
revenues collected prior to the operative date of this section shall
be submitted to the commission, and the commission shall transfer
those moneys to the Controller for deposit in the California
High-Cost Fund-A Administrative Committee Fund. end delete

(c) Moneys appropriated from the California High-Cost Fund-A
Administrative Committee Fund to the commission shall be utilized
exclusively by the commission for the program specified in
subdivision (a), including all costs of the board and the commission
associated with the administration and oversight of the program
and the fund.

(d) The Legislature finds and declares that, because maintenance
of universal public switched telephone network service throughout
the state and maintenance of public safety answering points in
high-cost areas of the state rely on appropriations from the
California High-Cost Fund-A Administrative Committee Fund,
maintaining adequate funding levels for the fund is critical to public
health and safety.

begin delete SECTION 1. end delete
begin insert SEC. 4. end insert   

Section 275.6 of the Public Utilities Code is amended
to read:

275.6.  

(a) The commission shall exercise its regulatory
authority to maintain the California High-Cost Fund-A Program
to provide universal service rate support to small independent
telephone corporations in amounts sufficient to meet the revenue
requirements established by the commission through rate-of-return
regulation in furtherance of the state’s universal service
commitment to the continued affordability and widespread
availability of safe, reliable, high-quality communications services
in rural areas of the state.

(b) For purposes of this section, the following terms have the
following meanings:

(1) “Carrier of last resort” means a telephone corporation that
is required to fulfill all reasonable requests for service within its
service territory.

(2) “Rate base” means the value of a telephone corporation’s
plant and equipment that is reasonably necessary to provide
regulated voice services and access to advanced services, and upon
which the telephone corporation is entitled to a fair opportunity to
earn a reasonable rate of return.

(3) “Rate design” means the mix of end user rates, high-cost
support, and other revenue sources that are targeted to provide a
fair opportunity to meet the revenue requirement of the telephone
corporation.

(4) “Rate-of-return regulation” means a regulatory structure
whereby the commission establishes a telephone corporation’s
revenue requirements, and then fashions a rate design to provide
the company a fair opportunity to meet the revenue requirement.

(5) “Revenue requirement” means the amount that is necessary
for a telephone corporation to recover its reasonable expenses and
tax liabilities and earn a reasonable rate of return on its rate base.

(6) “Small independent telephone corporations” are rural
incumbent local exchange carriers subject to commission
regulation.

(c) In administering the California High-Cost Fund-A Program,
the commission shall do all of the following:

(1) Continue to set rates to be charged by the small independent
telephone corporations in accordance with Sections 451, 454, 455,
and 728.

(2) Employ rate-of-return regulation to determine a small
independent telephone corporation’s revenue requirement in a
manner that provides revenues and earnings sufficient to allow the
telephone corporation to deliver safe, reliable, high-quality voice
communication service and fulfill its obligations as a carrier of
last resort in its service territory, and to afford the telephone
corporation a fair opportunity to earn a reasonable return on its
investments, attract capital for investment on reasonable terms,
and ensure the financial integrity of the telephone corporation.

(3) Ensure that rates charged to customers of small independent
telephone corporations are just and reasonable and are reasonably
comparable to rates charged to customers of urban telephone
corporations.

(4) Provide universal service rate support from the California
High-Cost Fund-A Administrative Committee Fund to small
independent telephone corporations in an amount sufficient to
supply the portion of the revenue requirement that cannot
reasonably be provided by the customers of each small independent
telephone corporation after receipt of federal universal service rate
support.

(5) Promote customer access to advanced services and
deployment of broadband-capable facilities in rural areas that is
reasonably comparable to that in urban areas, consistent with
national communications policy.

(6) Include all reasonable investments necessary to provide for
the delivery of high-quality voice communication services and the
deployment of broadband-capable facilities in the rate base of
small independent telephone corporations.

(7) Ensure that support is not excessive so that the burden on
all contributors to the California High-Cost Fund-A Program is
limited.

(d) In order to participate in the California High-Cost Fund-A
Program, a small independent telephone corporation shall meet
all of the following requirements:

(1) Be subject to rate-of-return regulation.

(2) Be subject to the commission’s regulation of telephone
corporations pursuant to this division.

(3) Be a carrier of last resort in their service territory.

(4) Qualify as a rural telephone company under federal law (47
U.S.C. begin delete Section end delete begin insert Sec. end insert 153(44)).

(e) Upon request from the commission, a small independent
telephone corporation that receives support from the California
High-Cost Fund-A Program shall provide information regarding
revenues derived from the provision of unregulated internet access
service by that corporation or its affiliate within that corporation’s
telephone service territory. The commission shall treat as
confidential any information provided pursuant to this subdivision.

(f) The commission shall structure the programs required by
this section so that any charge imposed to promote the goals of
universal service reasonably equals the value of the benefits of
universal service to contributing entities and their subscribers.

(g) This section shall remain in effect only until January 1, 2019,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2019, deletes or extends that date.

begin delete

SEC. 2.  

Section 739.3 of the Public Utilities Code is amended
to read:

739.3.  

(a) The commission shall develop, implement, and
maintain a suitable program to establish a fair and equitable local
rate structure aided by universal service rate support to small
independent telephone corporations serving rural and small
metropolitan areas. The purpose of the program shall be to promote
the goals of universal telephone service and to reduce any disparity
in the rates charged by those companies.

(b) For purposes of this section, small independent telephone
corporations means those independent telephone corporations
serving rural areas, as determined by the commission.

(c) The commission shall develop, implement, and maintain a
suitable, competitively neutral, and broadbased program to
establish a fair and equitable local rate support structure aided by
universal service rate support to telephone corporations serving
areas where the cost of providing services exceeds rates charged
by providers, as determined by the commission. The commission
shall develop and implement the program on or before October 1,
1996. The purpose of the program shall be to promote the goals
of universal telephone service and to reduce any disparity in the
rates charged by those companies. Except as otherwise explicitly
provided, this subdivision does not limit the manner in which the
commission collects and disburses funds, and does not limit the
manner in which it may include or exclude the revenue of
contributing entities in structuring the program.

(d) The commission shall structure the programs required by
this section so that any charge imposed to promote the goals of
universal service reasonably equals the value of the benefits of
universal service to contributing entities and their subscribers.

(e) The commission shall investigate reducing the level of
universal service rate support, or elimination of universal service
rate support in service areas with demonstrated competition.

(f) By July 1, 2010, the commission shall prepare and submit
to the Legislature a report on the affordability of basic telephone
service in areas funded by the California High-Cost Fund-B
Administrative Committee Fund. The report, among other things,
shall provide information on prices and costs of basic telephone
service, and penetration and utilization rates of basic telephone
service by income, ethnicity, age, and other demographic
characteristics, using surveys and other methods of identifying the
factors affecting affordability of basic telephone service for
customers and noncustomers. The report shall describe the
characteristics of noncustomers and their reasons for not having
telephone service. The report shall identify those persons most at
risk of losing basic telephone service. The report shall be funded
out of the California High-Cost Fund-B Administrative Committee
Fund.

(g) This section shall only apply to the California High-Cost
Fund-B Administrative Committee Fund program.

(h) This section shall remain in effect only until January 1, 2019,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2019, deletes or extends that date.

end delete

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 276 of the end insert begin insert Public Utilities Code end insert begin insert is amended
to read: end insert

276.  

(a) There is hereby created the California High-Cost
Fund-B Administrative Committee, which is an advisory board to
advise the commission regarding the development, implementation,
and administration of a program to provide for transfer payments
to telephone corporations providing local exchange services in
high-cost areas in the state to create fair and equitable local rate
structures, as provided for in begin delete Section 739.3, the development of a
grant program for the construction of telecommunications
infrastructure as set forth in end delete Section 276.5, and to carry out the
program pursuant to the commission’s direction, control, and
approval.

(b) All revenues collected begin delete by telephone corporations in rates end delete
begin insert through surcharges end insert authorized by the commission to fund the
program specified in subdivision (a) shall be submitted to the
commission pursuant to a schedule established by the commission.
The commission shall transfer the moneys received to the
Controller for deposit in the California High-Cost Fund-B
Administrative Committee Fund. All interest earned by moneys
in the fund shall be deposited in the fund. begin delete Any unexpended
revenues collected prior to the operative date of this section shall
be submitted to the commission, and the commission shall transfer
those moneys to the Controller for deposit in the California
High-Cost Fund-B Administrative Committee Fund. end delete

(c) Moneys appropriated from the California High-Cost Fund-B
Administrative Committee Fund to the commission shall be utilized
exclusively by the commission for the program specified in
subdivision (a), including all costs of the board and the commission
associated with the administration and oversight of the program
and the fund.

begin delete

(d) This section shall become operative on January 1, 2006.

end delete

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 739.3 of the end insert begin insert Public Utilities Code end insert begin insert is amended
and renumbered to read: end insert

begin delete 739.3. end delete
begin insert 276.5. end insert   

(a) The commission shall develop, implement, and
maintain a begin delete suitable program to establish a fair and equitable local
rate structure aided by universal service rate support to small
independent telephone corporations serving rural and small
metropolitan areas. The purpose of the program shall be to promote
the goals of universal telephone service and to reduce any disparity
in the rates charged by those companies. end delete begin insert suitable, competitively
neutral, and broadbased program to establish a fair and equitable
local rate support structure aided by universal service rate support
to telephone corporations serving areas where the cost of providing
services exceeds rates charged by providers, as determined by the
commission. end insert begin insert The purpose of the program shall be to promote the
goals of universal telephone service and to reduce any disparity
in the rates charged by those companies. Except as otherwise
explicitly provided, this subdivision does not limit the end insert begin insert manner in
which the commission collects and disburses funds, and does not
limit the manner in which it may include or exclude the revenue
of contributing entities in structuring the program. end insert

begin delete

(b) For purposes of this section, small independent telephone
corporations means those independent telephone corporations
serving rural areas, as determined by the commission.

(c) The commission shall develop, implement, and maintain a
suitable, competitively neutral, and broadbased program to
establish a fair and equitable local rate support structure aided by
universal service rate support to telephone corporations serving
areas where the cost of providing services exceeds rates charged
by providers, as determined by the commission. The commission
shall develop and implement the program on or before October 1,
1996. The purpose of the program shall be to promote the goals
of universal telephone service and to reduce any disparity in the
rates charged by those companies. Except as otherwise explicitly
provided, this subdivision does not limit the manner in which the
commission collects and disburses funds, and does not limit the
manner in which it may include or exclude the revenue of
contributing entities in structuring the program.

(d)

end delete

begin insert (b) end insert  The commission shall structure the programs required by
this section so that any charge imposed to promote the goals of
universal service reasonably equals the value of the benefits of
universal service to contributing entities and their subscribers.

begin delete

(e)

end delete

begin insert (c) end insert  The commission shall investigate reducing the level of
universal service rate support, or elimination of universal service
rate support in service areas with demonstrated competition.

begin delete

(f) By July 1, 2010, the commission shall prepare and submit
to the Legislature a report on the affordability of basic telephone
service in areas funded by the California High-Cost Fund-B
Administrative Committee Fund. The report, among other things,
shall provide information on prices and costs of basic telephone
service, and penetration and utilization rates of basic telephone
service by income, ethnicity, age, and other demographic
characteristics, using surveys and other methods of identifying the
factors affecting affordability of basic telephone service for
customers and noncustomers. The report shall describe the
characteristics of noncustomers and their reasons for not having
telephone service. The report shall identify those persons most at
risk of losing basic telephone service. The report shall be funded
out of the California High-Cost Fund-B Administrative Committee
Fund.

(g)

end delete

begin insert (d) end insert  This section shall only apply to the California High-Cost
Fund-B Administrative Committee Fund program.

begin delete

(h)

end delete

begin insert (e) end insert  This section shall remain in effect only until January 1 begin delete , 2015 end delete
begin insert 2019 end insert , and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, begin delete 2015 end delete begin insert 2019 end insert , deletes or extends
that date.

begin delete SEC. 3. end delete
begin insert SEC. 7. end insert   

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

begin delete SEC. 4. end delete
begin insert SEC. 8. end insert   

This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

In order to ensure that the Public Utilities Commission has the
necessary statutory direction to fund the state’s universal service
programs at the earliest possible time, it is necessary for this act
to take effect immediately.