BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1122 (Cannella) - Telecommunications: small independent
telephone corporations: rates: universal service: California
High-Cost Fund-A
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|Version: March 29, 2016 |Policy Vote: E., U., & C. 11 - |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 16, 2016 |Consultant: Narisha Bonakdar |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1122 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.
Fiscal
Impact:
SB 1122 (Cannella) Page 1 of
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Up to $367,320 (Public Utilities Commission Utilities
Reimbursement Account) to the Public Utilities Commission for
up to two full-time Administrative Law Judges to ensure that
the codified deadlines are met.
Background: Small Independent Telephone Companies. There are 13 small
independent telephone companies that provide local exchange
telecommunications service in rural areas of the state. The
small companies operate as monopoly providers under traditional
rate of return regulation with rates set by the CPUC. Rates are
determined 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.
SB 1122 (Cannella) Page 2 of
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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.
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
for Kerman.
Proposed Law:
This bill:
1)Revises the CHCF-A program requirements to provide that the
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.
SB 1122 (Cannella) Page 3 of
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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.
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. Vetoed by the
Governor.
SB 1122 (Cannella) Page 4 of
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Staff
Comments: At the direction of the Governor's veto message, the
CPUC adopted the Rate Case Plan Schedule in 2015. This plan
outlines timelines for the completion of rate case proceedings
(the same as those outlined in the bill) as well as deadlines
for submission of rate cases to normalize workload. This cost
estimate assumes that the CPUC's historical inability to close
general rate proceedings expeditiously was, at least in part,
the result of staff capacity issues. Given that the schedule
would be codified if this bill is enacted, the CPUC would need
to redirect staff from other activities or hire new staff to
ensure the statutory deadline is met.
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