BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: AB 2570 Hearing Date: 6/27/2016 ----------------------------------------------------------------- |Author: |Quirk | |-----------+-----------------------------------------------------| |Version: |6/14/2016 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- SUBJECT: Telecommunications: universal service: wireless communications DIGEST: This bill makes changes to the state's LifeLine universal telephone service program specific to procedures for reimbursements related to wireless telephone service provided to eligible low-income households. ANALYSIS: Existing law: 1)Establishes the Moore Universal Telephone Service Act to achieve universal service by making basic telephone service affordable to low-income households through the creation of a lifeline class of service. Requires the CPUC and telephone corporations to employ every means to ensure that every qualified household is informed and afforded the opportunity to subscribe to the service. (Public Utilities Code §871) 2)States it is the intent of the Legislature that the CPUC initiate a proceeding investigating the feasibility of redefining universal telephone service by incorporating two-way voice, and data service as components of basic service. (Public Utilities Code §871.7) 3)Defines "household" as a residential dwelling that is the principal place of residence of the lifeline telephone service subscriber, and excludes any industrial, commercial, or other nonresidential building. (Public Utilities Code §872) AB 2570 (Quirk) Page 2 of ? 4)Requires the CPUC to annually designate a class of lifeline service necessary to meet minimum communication needs, set the rates and charges for that service, develop eligibility criteria for that service, assess the degree of achieving universal service, including telephone penetration rates by income, ethnicity, and geography. (Public Utilities Code §873) 5)Requires a lifeline telephone service subscriber to be provided with one lifeline subscription, as defined by the CPUC, at his or her principal place of residence, and no member of that subscriber's family or household who maintains residence at that place is eligible for lifeline telephone service. (Public Utilities Code §878) 6)Requires the CPUC to, at least annually, initiate a proceeding to set rates for lifeline telephone service and requires telephone corporations providing lifeline telephone service to apply the funding requirement in the form of a surcharge to service rates which may be separately identified on the bills of customers. (Public Utilities Code §879) This bill: 1)Prohibits the CPUC from reimbursing a telephone corporation for providing wireless lifeline service to a new subscriber if the subscriber has enrolled in wireless lifeline service with another telephone corporation within the previous 60 days. 2)Provides that a subscriber may terminate wireless LifeLine service within 14 days of service activation without incurring any charges, including an early termination, as authorized pursuant to Rulemaking 11-03-113. 3)Requires the CPUC to reimburse a telephone corporation providing wireless lifeline service within 60 days of the date the telephone corporation submits a reimbursement claim. 4)Requires the CPUC to pay all of the costs of the telephone corporation resulting from a late reimbursement if the CPUC does not reimburse a telephone corporation for a reimbursement claim for wireless lifeline service within 60 days, including financing fees, interest payments, and staff time. Background AB 2570 (Quirk) Page 3 of ? About the LifeLine program. The Moore Universal Service Telephone Act of 1987 establishes the goal of offering basic telephone service at affordable rates to the greatest number of California residents. To help achieve this goal, state law directs CPUC to develop the California LifeLine Program to provide basic telephone service at a discounted cost to low-income households. The Act requires the CPUC to annually designate a class of LifeLine service necessary to meet minimum residential communications needs, develop eligibility criteria, currently 150 percent of the federal poverty level (about $36,000 annually for a family of four), and set rates for the LifeLine services, which are required to be not more than 50 percent of the rate for basic telephone service. The maximum state subsidy in the current year is about $12.65 per month. The federal government also administers the federal LifeLine program that provides a monthly discount of about $9.25 per month. As a result, an eligible participant has a combined nearly $22 per month subsidy to cover the costs of telephone service. Additionally, the CPUC provides (1) a per enrollee monthly payment to cover carriers' administrative costs, (2) a one-time connection subsidy for new enrollees or enrollees that switch plans, and (3) a subsidy to cover other telephone taxes and surcharges for LifeLine enrollees. The revenues to fund the program are collected from a surcharge on telephone bills for non-LifeLine customers. The CPUC adjusts the level of the surcharge based on its projections of the amount of revenue needed to cover the costs of the program. Wireless telephone LifeLine. Historically, the LifeLine program in California has only included traditional landline service. AB 2213 (Fuentes, Chapter 381, Statutes of 2010) made changes to state law that gave CPUC the authority to allow LifeLine customers to choose between wireline, wireless service or other technologies. In January 2014, the CPUC officially expanded the program to allow wireless carriers to offer LifeLine service. Participating wireless plans are eligible for the same monthly subsidy amount available for traditional landline plans. However, in the case of wireless telephone service the amount of the subsidy varies based on the number of voice and data minutes included in the telephone service plan. Wireless telephone carriers participating in the LifeLine program must offer plans that meet specified criteria and conditions established by the CPUC related to quality of service, voice and text minutes, consumer protection requirements and others. There are roughly 34 LifeLine wireless plans available and 21 of the available AB 2570 (Quirk) Page 4 of ? plans are offered at no cost. Increased popularity. The expansion of the LifeLine program into wireless telephone service has increased the demand for the program. Program enrollment had been steadily declining prior to adding wireless service in 2014. However, program enrollment doubled between the years of 2013-14 to 2014-15 as a result of the new wireless telephone service offering. With growth in enrollees, program costs also have increased substantially over the same time period. The surcharge on telephone service to fund the program has increased from to 5.5 percent from 1.15 percent. Recent legislative budget action. Per the Senate Budget Committee analysis: As part of the May Revision, at the Legislature's request, CPUC prepared a caseload and cost estimate package that provides revised projections of the current and budget year local assistance costs for the Universal LifeLine program. For 2015-16, CPUC estimates LifeLine expenditures will total $483.5 million, which is an increase of $137.8 or 40 percent, compared to the 2016-17 Governor's Budget. This projected increase in expenditures is due to increased carrier claims from wireless service providers. In addition, $53.2 million of the 2015-16 appropriation was used to pay 2014-15 carrier claims. In 2016-17, the May Revision estimates total state operations and local assistance costs of $483.1 million, which is a decrease of $142.4 million from the January proposal. Why only wireless? This bill attempts to address various issues of the LifeLine program from the perspective of a wireless provider. However, many of the proposed changes could be applicable to wireless, landline or other technologies should they be included in the program. The author and committee may wish to amend the bill to require technology neutral language where applicable. Why 60 days? At the initial rollout of the wireless LifeLine program, the CPUC was paying reimbursements CPUC General Order 153 sections 9.5.2 and 9.9 specify a deadline of 60 to 120 days (depending on the when the claim is submitted) by which the California LifeLine Program may pay a claim to a qualified telephone service provider for reimbursements without incurring interest. According to the CPUC, as of this date, the LifeLine program has never had to pay any interests for late AB 2570 (Quirk) Page 5 of ? reimbursements. It's understandable that telephone providers would desire quick reimbursements for services provided, particularly for smaller company providers whose main business is hinged on the Lifeline program. Delayed reimbursements can affect the company's cash-flow and debt-burden. However, the desire to pay out reimbursements must be balanced against the practical limitation s of processing payments for what is quickly become a popular program. The author and committee may wish to amend the bill to require the CPUC to reimburse providers within 90 days, instead of 60 days as proposed in this bill. Ratepayers on the hook. The bill includes sanctions on the CPUC if it fails to make a reimbursement to a provider under the specified schedule. The proposed consequences could be costly and beyond what would be reasonable, particularly requiring the CPUC to pay all of the costs of the telephone corporation resulting from the late reimbursement, including, but not limited to financing fees, interest payments, and staff time. Currently, the CPUC's general orders require the CPUC to pay interest on late reimbursements - of which they claim to have none. The author and committee may wish to amend the bill to narrow and limit the sanctions proposed on the CPUC should they reimburse a provider within the specified time. Consumer choice. The bill proposes to limit the ability of an eligible enrollee to transfer service and receive a subsidy if they have previously enrolled in a program within the past 60 days. The CPUC's third party administrator of the LifeLine program provides a real-time verification system based on matching a person's name and address. However, if there is no match based on name or address, then the process to verify eligibility becomes more difficult. Ultimately, an improved verification system can help reduce fraud or mistakes in enrolling someone who is not eligible. In those situations, the wireless provider is left holding the bag which includes the hardware - telephone and accessories. It may be that 60 days is too long a period to institute a "port freeze" on someone who may urgently need a phone and 14 days is too short to provide a subscriber the opportunity to terminate their service without a termination fee. This portion of the bill merits further attention to ensure consumers are appropriately protected. Prior/Related Legislation AB 2570 (Quirk) Page 6 of ? AB 2213 (Fuentes, Chapter 381, Statutes of 2010) deleted references to LifeLine service being a residential basic telephone service, required that an eligible low-income subscriber be provided with one lifeline subscription per household, and made findings that technologies beyond traditional landline telephones could be used to offer low-income citizens access to affordable, reliable, and high quality basic telephone service. AB 1407 (Bradford, 2014) would have phased out the existing lifeline program for basic landline service and created a new lifeline discount of $11.85 per month for voice communication services from a telephone corporation or eligible wireless and Voice over Internet Protocol (VoIP) providers. The bill would have prohibit the CPUC from requiring state LifeLine providers to offer more than is required under the federal LifeLine Program. Died in the Senate Committee on Appropriations. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No SUPPORT: enTouch Wireless Pacoima Beautiful State Board of Equalization TruConnect Communications, Inc. OPPOSITION (unless amended): California Association of Competitive Telecommunications Companies California Cable and Telecommunications Association Consolidated Communications, Inc. The Utility Reform Network ARGUMENTS IN SUPPORT: According to the author, "The CPUC initially refunded wireless lifeline providers every 45 days for the upfront costs to companies in providing a phone and the communication services. However, in early 2015, the CPUC changed its reimbursement period to 120 days which has resulted in service providers leaving the marketplace, going into debt to cover capital and operations costs, and ultimately hurting low-income consumers by reducing service options. Additionally, AB 2570 (Quirk) Page 7 of ? the enrollment process has experienced problems with customers enrolling in multiple service plans within a short period of time. This is problematic for service providers because the reimbursement subsidies from the state and federal government are eligible one time to a consumer. Providers are finding that after waiting nearly three months for the CPUC's reimbursement, a portion of their subscribers were in fact ineligible for the service all along." ARGUMENTS IN OPPOSITION: The opponents to this bill, CCTA and CalTEL argue that this bill's provisions should apply to all technologies, not only wireless telephone service. They raise concerns that the reimbursement rates proposed by this bill would result in the CPUC prioritizing reimbursements for wireless providers' ahead of reimbursements for other lifeline service providers. In opposing this bill, the Utility Reform Network (TURN) argues that these issues raised in this bill are better left to decision-making by the CPUC within its proceedings. TURN asserts that "AB 2570 attempts to short circuit the CPUC's process by creating a prescriptive legislative mandate on two critical issues affecting the administration of the program - carrier reimbursement payment schedules from the LifeLine Fund and restrictions on customer choice of LifeLine providers." -- END --