BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1122|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: SB 1122
Author: Cannella (R)
Amended: 5/31/16
Vote: 21
SENATE ENERGY, U. & C. COMMITTEE: 11-0, 4/19/16
AYES: Hueso, Morrell, Cannella, Gaines, Hertzberg, Hill, Lara,
Leyva, McGuire, Pavley, Wolk
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Telecommunications: small independent telephone
corporations: rates: universal service: California
High-Cost Fund-A
SOURCE: California Communications Association
DIGEST: This bill requires the California Public Utilities
Commission (CPUC) to make a final decision in a general rate
case (GRC) 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 utility may file a tariff
implementing interim rates that may be increased by an amount
equal to the rate of inflation. This bill requires the interim
rates to be subject to refund and adjusted consistent with the
final rates adopted by the CPUC.
ANALYSIS:
Existing law:
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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)
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
GRC 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 GRC 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 GRC
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
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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
revenue requirement of a small independent telephone
corporation includes rate expenses defined as the reasonable
costs, as determined by the CPUC, incurred by a telephone
corporation in preparing, initiating, and participating in any
CPUC proceeding or advice letter process in which its rates,
rate design, or revenue requirement are evaluated or adjusted.
2)Requires the CPUC to issue a final decision on a GRC 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 telephone corporation 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.
4)Requires that the interim rates to be subject to refund and
must be adjusted upward or downward to the interim rate
effective date, consistent with the final rates adopted by the
CPUC. The CPUC may authorize a lesser increase in interim
rates if the CPUC finds the rates to be in the public
interest.
5)Provides that if the presiding officer in the rate case
determines that the CPUC's decision can't become effective on
the first day of the first test year due to actions by the
small independent telephone corporation, the presiding officer
or CPUC may require a different effective date for the interim
rates or final rates.
6)Provides that the deadlines established by this bill can be
waived by mutual consent of the executive director of the CPUC
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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
through a 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 Section 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 Federal Communications Commission
in November 2011 issued a major decision revamping the former
Universal Service Fund into the Connect America Fund (CAF) to
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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 GRC 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.
AB 1693 (Perea, 2014). 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 GRCs 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) |
---------------------------------------------------------------
|-----------------------------------+---------------------------|
| Benchmark/Timeline | Day (Count) |
|-----------------------------------+---------------------------|
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|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, | |
|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 | |
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|Participation Hearings held | |
|-----------------------------------+---------------------------|
|Intervenor Testimony Due | 150 |
|-----------------------------------+---------------------------|
|Rebuttal Testimony Due | 180 |
|-----------------------------------+---------------------------|
|Evidentiary Hearings | 210-220 |
|-----------------------------------+---------------------------|
|Opening Briefs | 250 |
|-----------------------------------+---------------------------|
|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 |
| | |
---------------------------------------------------------------
Rate case expenses. In the attempts to resolve the Kerman
Telephone GRC, 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.
Is a bill needed? While the Kerman Telephone GRC 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
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are based on the existing rates with some accounting for
inflation. Additionally, the water corporation statute related
to proceeding timelines provides the ALJ and CPUC additional
discretion, particularly if it is determined the delays in the
proceeding have been caused by the corporation.
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
GRC of a small independent telephone corporation within 390
days. If the deadline was not met, the bill would have
established procedures for interim rates. The bill was vetoed.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee, approximately
$184,000 (Public Utilities Commission Utilities Reimbursement
Account) to the CPUC for one full-time ALJs to ensure that the
codified deadlines are met.
SUPPORT: (Verified 5/31/16)
California Communications Association (source)
California's Independent Telecommunications Companies
OPPOSITION: (Verified5/31/16)
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
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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 CPUC has processed more than
two dozen small telephone company rate cases, resolving 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."
Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
5/31/16 21:31:38
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