BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 1122 Hearing Date: 4/19/2016
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|Author: |Cannella |
|-----------+-----------------------------------------------------|
|Version: |3/29/2016 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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SUBJECT: Telecommunications: small independent telephone
corporations: rates: universal service: California High-Cost
Fund-A
DIGEST: This bill requires the California Public Utilities
Commission (CPUC) to make a final decision in a general rate
case of a small independent telephone company no later than 390
days following the company's filing and if the deadline is
missed, provides that the proposed rates will take effect on an
interim basis subject to an accounting true-up if a decision is
issued within 420 days of the filing. If a final decision is
made after 420th day, the new rate will take effect
prospectively with no true-up to the interim rates. This bill
also allows rate case expenses to be an eligible expense within
the California High-Cost Fund-A Program that provides universal
service rate support to small independent telephone
corporations.
ANALYSIS:
Existing law:
1)Provides federal universal service funding to providers
serving rural, high-cost areas to help pay for facilities that
provide customers both voice and broadband service for
customers in rural, insular and high-cost areas to ensure they
have access to telecommunications 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. (47 U.S.C. 254)
SB 1122 (Cannella) Page 2 of ?
2)Requires the CPUC to regulate utilities, including telephone
corporations and to establish just and reasonable rates for
service, with corporations proposing rates either through a
general rate case application or an advice letter. (Public
Utilities Code §451)
3)Requires the CPUC to exercise its legal 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 requirements established by the
CPUC 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. (Public Utilities Code §275.6)
4)Requires the CPUC to resolve general rate case proceeding
within 18 months of the date the scoping memo is issued,
unless the CPUC makes a written determination that the
deadline cannot be met and provides that no single order can
extend the deadline for more than 60 days. Provides that the
CPUC may specify in a scoping memo a resolution date later
than 18 months if the memo includes specific reasons for the
later date and the assigned commissioner approves the date.
(Public Utilities Code §1701.5)
5)Requires the CPUC to issue a final decision on a general rate
case application of a large (Class A) water corporation within
one year and requires interim rates that may be increased by
an amount equal to the rate of inflation as compared to
existing rates to take effect if the CPUC misses the deadline.
Provides the presiding officer determines the water
corporation's actions have delayed resolution, the presiding
officer or the CPUC may require a different date for interim
rates. (Public Utilities Code §455.2)
6)Requires the CPUC to submit an annual report to the
Legislature on the number of cases where resolution exceeded
prescribed time periods in scoping memos. (Public Utilities
Code §910.1)
This bill:
1)Revises the CHCF-A program requirements to provide that the
SB 1122 (Cannella) Page 3 of ?
revenue requirement of a small independent telephone
corporation includes rate expenses defined as the reasonable
costs incurred by a telephone corporation in preparing and
participating in any CPUC proceeding or advice letter process
related to its rates.
2)Requires the CPUC to issue a 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 case application or advice letter.
3)Provides that if the CPUC fails to issue a final decision as
required, 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 from
the filing.
4)Requires that the interim rate design will be subject to an
accounting true-up if a final CPUC decision or resolution
concluding the rate case is issued within 420 days. The new
rate will be applied retroactively to the 390th day and the
accounting true-up will eliminate any revenue differences.
5)Requires that if a final decision has not been made by the
420th day, the interim rate shall become final until the CPUC
issues a final decision without any true-up accounting.
6)Provides that the deadlines established by this bill can be
waived by mutual consent of the executive director of the CPUC
and the small independent telephone corporation.
Background
Small Independent Telephone Companies. There are 13 small
independent telephone companies that provide local exchange
telecommunications service in rural areas of the state. These
include: Calaveras Telephone located in Calaveras County,
Cal-Ore Telephone in Doris near Shasta, Ducor Telephone in the
Southern San Joaquin Valley, Foresthill Telephone located in
northeast Sacramento, Kerman Telephone in western Fresno County,
Pinnacles Telephone in San Benito Valley, Ponderosa Telephone in
Madera/Fresno/San Bernardino, Sierra Telephone serving
Madera/Mariposa, Siskiyou Telephone in northern California, and
Volcano Telephone in Amador County. The small companies operate
as monopoly providers under traditional rate of return
regulation with rates set by the CPUC. Rates are determined
SB 1122 (Cannella) Page 4 of ?
through a general rate case (GRC) proceeding with evidentiary
hearings before an administrative law judge (ALJ) in which other
parties participate, or through a less formal advice letter
process administered by the CPUC staff. As part of the rate
case, the CPUC determines a revenue requirement necessary to
cover the company's expenses, a return on capital investment,
and a profit. However, since these areas are a high cost to
serve, the revenue from rates is supplemented with support from
the CHCF-A.
California High-Cost A-Fund. Public Utilities §275.6 requires
the CPUC to minimize telephone rate disparities between rural
and metropolitan areas to keep rates affordable in areas with
lower population densities. This fund supports the 13 small
independent telephone companies to allow rural residents to stay
connected to essential services to maintain public safety and
public health. In the current fiscal year, the CPUC has
budgeted 43.3 million dollars from the A-Fund.
Federal High-Cost Program. In addition to the revenue from
rates and the A-Fund, the small telephone companies receive
support from the federal universal service program as cost
recovery for the portion of their facilities that are deemed to
be for interstate services. Although originally designed to
only be for voice service, the FCC in November 2011 issued a
major decision revamping the former Universal Service Fund into
the Connect America Fund (CAF) to provide subsidies for
facilities that provide broadband and voice service. Carriers
that accept the CAF funding must meet broadband build-out
requirements and demonstrate that their networks provide minimum
broadband speeds.
The poster child - Kerman Telephone. Kerman Telephone Company
filed a general rate case application in December 2011. The CPUC
issued its first scoping memo six months later. In December
2012, the CPUC rejected a settlement agreement between the two
main parties, Kerman Telephone and the Office of Ratepayer
Advocates. Eight months later the CPUC issues a revised scoping
memo. Eventually, Kerman filed for interim rate relief, which
the CPUC denied. In October 2013, the CPUC adopted a stay of the
rate case. The decision provided for an additional six month
stay. Kerman filed a court appeal challenging the CPUC's delay.
Kerman has not had a rate change in nine years which has left
the company operating under a "cloud of regulatory uncertainty."
Recently, on March 29th, the CPUC released a proposed decision
SB 1122 (Cannella) Page 5 of ?
for Kerman.
AB 1693 (Perea). AB 1693 was passed unanimously by the
Legislature in 2014. The bill was very similar to this bill, as
it would have required a date certain for small telephone
companies on their GRCs. However, the bill was vetoed by the
Governor. In his veto message of the bill, Governor Brown
stated: "this bill sets inflexible time limits for the
completion of small telephone company rate cases and potentially
harm ratepayers. I am directing the CPUC to address the
concerns of the proponents and to create a Rate Case Plan to
encourage timely completion of these rate cases." Through
Decision 15-06-04 in June 2015, the CPUC adopted a plan that set
forth a timeline for how the CPUC will conduct general rate
cases for the small independent telephone companies going
forward. The timelines adopted as guidelines for resolving rate
cases are those that are included in this bill as a requirement.
(Timeline table below)
---------------------------------------------------------------
|Table below sets forth benchmarks and associated timelines for |
| the GRC applications. (R. 11-11-007) |
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|-----------------------------------+---------------------------|
| Benchmark/Timeline | Day (Count) |
|-----------------------------------+---------------------------|
|Applicant submits Notice of Intent | -60 |
|to CD | |
|-----------------------------------+---------------------------|
|Applicant provides initial | From -60 to -30 |
|proposals, basic ratemaking and | |
|summary calculations to ORA, CD, | |
|and other interested parties. | |
|Parties make good faith effort to | |
|reach agreement on procedural, | |
SB 1122 (Cannella) Page 6 of ?
|discovery and confidentiality | |
|protocols. | |
|-----------------------------------+---------------------------|
|ORA sends Master Data Request to | -55 |
|Applicant | |
|-----------------------------------+---------------------------|
|Applicant responds to ORA's Master | -41 |
|Data Request (MDR) | |
|-----------------------------------+---------------------------|
|CD provides deficiency or | -30 |
|compliance letter to the Applicant | |
|any dispute between the Applicant | |
|and ORA on the MDRs is to be | |
|resolved by the Director of CD. | |
|-----------------------------------+---------------------------|
|Applicant resolves deficiencies | ASAP: -30 but by -20 |
|-----------------------------------+---------------------------|
|At request of any party, CD | From -20 to -5 |
|convenes informal workshop for | |
|parties to meet and confer, and to | |
|address any potential application | |
|deficiencies/matters. | |
|-----------------------------------+---------------------------|
|GRC Application Filed and | 0 |
|Testimony served | |
|-----------------------------------+---------------------------|
|Protest/Intervenor Deadline | 30 |
|-----------------------------------+---------------------------|
|Reply to protest | 40 |
|-----------------------------------+---------------------------|
|Prehearing Conference | 60 |
|-----------------------------------+---------------------------|
|Parties perform discovery | 0-150 |
|(including supplemental data | |
|requests and field visits); Public | |
|Participation Hearings held | |
|-----------------------------------+---------------------------|
|Intervenor Testimony Due | 150 |
|-----------------------------------+---------------------------|
|Rebuttal Testimony Due | 180 |
|-----------------------------------+---------------------------|
|Evidentiary Hearings | 210-220 |
|-----------------------------------+---------------------------|
|Opening Briefs | 250 |
|-----------------------------------+---------------------------|
SB 1122 (Cannella) Page 7 of ?
|Reply Briefs/ALJ closes record | 271 |
|-----------------------------------+---------------------------|
|Proposed Decision | 331 |
|-----------------------------------+---------------------------|
|Comments on PD | 351 |
|-----------------------------------+---------------------------|
|Commission Meeting/Decision | 361-390 |
|-----------------------------------+---------------------------|
|Implement new GRC rate structure | 390-420 |
| | |
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Rate case expenses. In the attempts to resolve the Kerman
Telephone general rate case, the CPUC essentially started anew,
restarting the case using a 2016 test year. As a result,
Kerman, as well as, the other parties, namely ORA, had to
conduct new analysis and provide new testimony. According to
CalCom, the original expenses had to be absorbed. The changes
in this bill reflect that experience and provide telephone
corporations the opportunity to include rate case expenses
resulting from preparing and participating in a rate-related
proceeding. However, it is unclear exactly what expenses are
covered and which would not be covered. The author and
committee may wish to require the CPUC to determine what are
considered rate case expenses.
Is a bill needed? While the Kerman Telephone general rate case
may be an anomaly. The CPUC has struggled with adhering to the
recommended timelines for resolving proceedings. In recent
years, there's been an effort by the agency to better account
for the proceedings and their status. The focused commitment
from the Executive Director, Commissioners and staff is showing
some measurable improvement. However, there are also challenges
with the manner that some cases are closed and reopened as new
proceedings. Proponents of this bill refer to the statute and
the deadlines included for water corporations as a model for how
timelines should be required for small telephone companies.
However, in the case of water corporations, the interim rates
are based on the existing rates with some accounting for
inflation, whereas this bill is proposing to adopt the
corporation's proposed rates as the interim rates. Generally, a
utility will propose higher rates than what is usually found to
be just and reasonable. Additionally, the water corporation
statute related to proceeding timelines provides the
administrative law judge and CPUC additional discretion,
SB 1122 (Cannella) Page 8 of ?
particularly if it is determined the delays in the proceeding
have been caused by the corporation. The author and committee
may wish to add language to this bill in order to mirror the
provisions that exist for water corporations that establish the
interim rates based on the existing rate plus inflation and
allow the CPUC some discretion when it is determined the
corporation has caused the delay in the proceeding.
Prior/Related Legislation
AB 1693 (Perea, 2014) a bill very similar to the one being
proposes. AB 1693 would have required the CPUC to complete a
general rate case of a small independent telephone corporation
within 390 days. If the deadline was not met, the bill would
have established procedures for interim rates.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT:
California Communications Association (Source)
California's Independent Telecommunications Companies
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: The author states: "A core function of
the CPUC is rate-setting. Utilities subject to rate regulations,
like the member telephone companies of CalCom, cannot change any
rate without CPUC review and approval through a General Rate
Setting Application. As such, the efficient operation and
economic health of rate-regulated utilities, and ultimately
their ability to make investments and upgrades to ensure they
are meeting the needs of their communities and customers. If
the CPUC fails to timely process a telephone company's rate
case, there is no mechanism by which the company can compel the
Commission to act. Plus, the current generic California
statutory requirement on the CPUC for the timely completion of
its proceedings is easily circumvented and even ignored by the
CPUC. Over the past 20 years, the Commission has processed more
than two dozen small telephone company rate cases, resolving
SB 1122 (Cannella) Page 9 of ?
most of them within 13 months. Kerman's rate cases filing was
straightforward, containing no matter that would justify
additional time. Although Kerman could be considered an
anomaly, the fact that five years can go by and have no
resolution should give any company regulated by the CPUC pause."
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