BILL ANALYSIS Ó SB 1364 Page 1 Date of Hearing: August 6, 2014 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair SB 1364 (Fuller) - As Amended: July 1, 2014 Policy Committee: Utilities and Commerce Vote: 14-0 Urgency: Yes State Mandated Local Program: Yes Reimbursable: No SUMMARY This bill extends subsidy programs to provide universal telephone service in high cost areas of the state for four years. Specifically, this bill: 1) Extends the California High Cost Fund-A (CHCF-A) and High Cost Fund-B (CHCF-B) universal telecommunication service programs sunset dates from January 1, 2015 to January 1, 2019. 2)Extends the California Public Utility Commission's (PUC) ability to collect customer surcharges to cover these costs. 3)Encourages the California Public Utilities Commission (PUC) to maximize the amount of federal funding to California participants in the federal programs. 4)Deletes the provision that states moneys in the funds are the proceeds of rates and are held in trust to compensate telephone corporations for their costs of providing universal service. FISCAL EFFECT 1)Annual revenues from customer surcharges of approximately $35 million to the CHCF-A Fund (special fund) until 2019. Annual expenditures of approximately $40 million from the CHCF-A Fund until 2019 to support small rural telephone companies. Currently, the CHCF-A surcharge is 0.18% resulting in 2013-14 revenues of approximately $34 million. Annual expenditures for this program exceed revenues in order to reduce fund SB 1364 Page 2 reserves. 2)Annual revenues from customer surcharges in the low to mid-tens of millions of dollars to the CHCF-B Fund (special fund) until 2019. Annual expenditures of approximately $25 million from the CHCF-B Fund to support large telephone companies providing service in high cost areas. The CHCF-B surcharge was 0.3% but was reduced to 0.0% on February 1, 2014 in anticipation of general fund loan repayments which will likely cover the costs of the program for a couple of years. The 2014-15 Budget projects $75 million in 2014-15 and $59 million in 2014-15 in loan repayments. Carrier claims from the CHCF-B fund have also been declining in recent years from about $50 million in 2010 to a projected program budget of $22.2 million for 2014-15. Lower claims will extend the amount of time during which GF loan repayments can replace surcharge revenues. COMMENTS 1)Purpose. According to the author, building, operating and maintaining telecommunications networks in rural areas is extremely expensive on a per customer basis due to tough terrain and sparse populations. This bill will help maintain affordable rates for rural customers and provide access to telecommunications services that would otherwise be unavailable without state and federal support. 2)Background. California has established various public programs to promote universal service. The California High Cost Fund-A (CHCF-A) and High Cost Fund-B (CHCF-B) support universal telephone service in rural, high-cost areas. In conjunction with federal funding, these programs ensure rates for Californians in rural areas remain reasonable and comparable to rates in urban areas. CHCF-A and CHCF-B are administered by the PUC and funded by a customer surcharge on all telecommunications customers' intrastate services. The PUC adjusts the surcharge, typically on an annual basis, to ensure sufficient funding for carrier claims and administrative costs. Analysis Prepared by : Jennifer Galehouse / APPR. / (916) 319-2081 SB 1364 Page 3