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  








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            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 








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