Amended in Senate May 31, 2016

Amended in Senate March 29, 2016

Senate Bill No. 1122

Introduced by Senator Cannella

February 17, 2016

An act to amend Section 275.6 of, and to add Section 455.4 to, the Public Utilities Code, relating to telecommunications.

LEGISLATIVE COUNSEL’S DIGEST

SB 1122, as amended, Cannella. Telecommunications: small independent telephone corporations: rates: universal service: California High-Cost Fund-A.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including telephone corporations. Existing law authorizes the commission to fix just and reasonable rates and charges for every public utility. Existing law, with certain exceptions, prohibits a public utility from changing any rate, except upon a showing before the commission and a finding by the commission that the new rate is justified. Existing law requires the commission to exercise its regulatory authority to maintain the California High-Cost Fund-A Program (CHCF-A program) to provide universal service rate support to small independent telephone corporations, as defined, in amounts sufficient to meet the revenue requirement, as defined, 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.

This bill would revise the CHCF-A program requirements to provide that the revenue requirement of a small independent telephone corporation includes rate case expenses, as begin delete defined, and would require that rate case expenses be separately included in the revenue requirement regardless of any commission determinations regarding the reasonableness of other expenses. The end delete begin insert defined. end insert

begin insert This end insert bill would require the commission to issue its final decision on a general rate case of a small independent telephone corporation no later than 390 days following the corporation’s filing of its general rate case application or advice letter initiating the general rate case. If the commission fails to issue a final decision by the 390th day, the bill would begin delete provide that the rate design proposed by the small independent telephone corporation in its application or advice letter will take effect on an interim basis, subject to an accounting true-up in a final commission decision or resolution concluding the rate case, if issued within 420 days. If a final decision or resolution concluding the case has not been issued by the commission within 420 days, the bill would provide that the interim rate design that went into effect on the 390th day following the filing of the general rate case application or advice letter would become final and that rate design would remain in place until the commission issues a final decision or resolution concluding the rate case, without any true-up accounting. The bill would provide that any new rate design adopted in a final decision or resolution issued by the commission after 420 days following the filing of the application or advice letter would take effect on a prospective basis only, as of the effective date of the final decision or resolution. end delete begin insert authorize the small independent telephone corporation to file a tariff implementing interim rates. The interim rates would generally be effective on the first day of the first test year in the general rate case application, subject to refund and adjustment upward or downward back to the interim rate effective date, consistent with the final rates adopted by the commission. end insert The bill would provide that begin delete its end delete begin insert these end insert provisions may be waived at any time by mutual consent of the executive director of the commission and the small independent telephone corporation.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

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
Administrative Committee Fund program (CHCF-A program) to
provide universal service rate support to small independent
telephone corporations in amounts sufficient to meet the revenue
requirement 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 case expenses” mean the reasonable begin delete costs end delete begin insert costs, as
determined by the commission, end insert incurred by a telephone corporation
in preparing, initiating, and participating in any commission
proceeding or advice letter process in which its rates, rate design,
or revenue requirement are evaluated or adjusted.

(4) “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.

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

(6) “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.
Reasonable expenses include rate case expenses. begin delete Rate case
expenses shall be separately included in the revenue requirement
regardless of any commission determinations regarding the
reasonableness of other expenses. end delete

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

(c) In administering the CHCF-A begin delete program end delete begin insert program, end insert 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 the 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 CHCF-A program is limited.

(d) In order to participate in the CHCF-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. Sec. 153(44)).

(e) Upon request from the commission, a small independent
telephone corporation that receives support from the CHCF-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 CHCF-A program 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.

SEC. 2.  

Section 455.4 is added to the Public Utilities Code, to
read:

455.4.  

(a) For purposes of this section, “small independent
telephone corporation” has the same meaning as in Section 275.6.

(b) A small independent telephone corporation may file its
general rate case application or advice letter initiating a general
rate case any time up to and including December 1 of the second
year preceding the test year used in its rate case.

(c) The commission shall issue its final decision on a general
rate case of a small independent telephone corporation no later
than 390 days following the corporation’s filing of its general rate
case application or advice letter initiating the general rate case.

begin delete

(d) Notwithstanding Section 454, if the commission fails to
issue a final decision as required by subdivision (c), the rate design
proposed by the small independent telephone corporation in its
application or advice letter shall take effect on an interim basis
beginning 390 days following the filing of the application or advice
letter. That rate design shall be subject to an accounting true-up if
a final commission decision or resolution concluding the rate case
is issued within 420 days of the filing. The rate design adopted in
a commission decision or resolution within 420 days shall be made
effective as of the 390th day and the accounting true-up shall
eliminate any revenue differences between the interim rate design
and the rate design in the commission decision or resolution. If a
final decision or resolution concluding the case has not been issued
by the commission within 420 days of the filing, the interim rate
design that took effect on the 390th day following the filing of the
general rate case application or advice letter shall become final
and that rate design shall remain in place until the commission
issues a final decision or resolution concluding the rate case,
without any true-up accounting. Any new rate design adopted in
a final decision or resolution issued by the commission after 420
days following the filing of the application or advice letter shall
take effect on a prospective basis only, as of the effective date of
the final decision or resolution.

end delete begin insert

(d) Notwithstanding Section 454, if the commission fails to issue
a decision as required by subdivision (c), the applicant may file a
tariff implementing interim rates that may be increased by an
amount equal to the rate of inflation as compared to existing rates.
The interim rates shall be effective on the first day of the first test
year in the general rate case application. These interim rates shall
be subject to refund and shall be adjusted upward or downward
back to the interim rate effective date, consistent with the final
rates adopted by the commission. The commission may authorize
a lesser increase in interim rates if the commission finds the rates
to be in the public interest. If the presiding officer in the case
determines that the commission’s decision cannot become effective
on the first day of the first test year due to actions by the small
independent telephone corporation, the presiding officer or the
commission may require a different effective date for the interim
rates or final rates.

end insert

(e) The requirements of subdivisions (c) and (d) may be waived
at any time by mutual consent of the executive director of the
commission and the small independent telephone corporation.