BILL ANALYSIS
SB 1040
Page 1
Date of Hearing: June 14, 2010
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 1040 (Padilla) - As Amended: June 10, 2010
SENATE VOTE : 33-0
SUBJECT : Telecommunications universal service programs:
California Advanced Services Fund.
SUMMARY : Authorizes telecommunications carriers to collect an
additional $125 million for the California Advanced Services
Fund (CASF) to encourage deployment of advanced communications
services in California. Specifically, this bill :
1)Requires the California Public Utilities Commission (PUC) to
establish specified accounts in the CASF with the following
annual allocations:
a) The Broadband Infrastructure Grant Account-$100 million.
b) The Rural and Urban Regional Broadband Consortia Grant
Account-$10 million.
c) The Broadband Infrastructure Revolving Loan Account-$15
million.
2)Increases the total amount allowable for collection, from $100
million to $225 million.
3)Requires moneys in the Rural and Urban Regional Broadband
Consortia Grant Account to be available for grants to eligible
consortia to fund the cost of broadband deployment activities
other than the capital cost of facilities as specified by the
PUC, and includes representatives of public and private
entities as an eligible consortium.
4)Requires moneys in the Broadband Infrastructure Revolving Loan
Account to be available to finance capital costs of broadband
facilities not funded by a grant from the Broadband
Infrastructure Grant Account, and allows the PUC to
periodically set interest rates on the loans based on surveys
of existing financial markets.
SB 1040
Page 2
5)Requires the PUC to conduct an interim and final financial
audit and an interim and final performance audit on the
implementation and effectiveness of the CASF by December 31,
2010 for interim audits, and by April 1, 2017 for the final
audits.
6)Includes an urgency clause.
EXISTING LAW :
1)Requires the PUC to develop and administer the CASF to
encourage deployment of high-quality advanced communications
services to all Californians that will promote economic
growth, job creation, and social benefits, and sunsets January
1, 2013.
a) Restricts the collection of funds for the CASF to not
more than $100 million.
b) Permits any entity eligible for funding pursuant to the
federal American Recovery and Reinvestment Act of 2009
(Recovery Act), to be eligible to apply to participate in
the CASF program.
2)Establishes the High-Cost Fund-A to provide transfer payments
to small independent telephone corporations that provide local
exchange services in high-cost rural and small metropolitan
areas in the state, and sunsets January 1, 2013.
3)Establishes the High-Cost Fund-B to provide transfer payments
to telephone corporations that provide local exchange services
in high-cost areas in the state, and provides an operative
date of January 1, 2006.
4)Requires the PUC to establish the Rural Telecommunications
Infrastructure Grant Program to aid in the establishment of
telecommunications service in areas not currently served by
existing local exchange carriers.
a) Requires the program to be funded out of either the
High-Cost Fund-A or the High-Cost Fund-B, or both, as
determined by the commission.
b) Restricts the encumbrances to $40 million during the
four-year period ending on December 31, 2012.
SB 1040
Page 3
5)Establishes the Universal Lifeline Telephone Service Trust
Administrative Committee Fund, the Deaf and Disabled
Telecommunications Program Fund, the Payphone Service
Providers Committee Fund and the California Teleconnect Fund
within the State Treasury. Provides the funds in these
accounts shall be held in trust for the benefit of ratepayers
to compensate telephone corporations for their costs of
providing universal telephone service to high cost or under
service communities.
6)The PUC created the California Emerging Technology Fund (CETF)
as a non-profit corporation as a condition of approving the
mergers of SBC-AT&T and Verizon-MCI in 2005, and requires AT&T
and Verizon to contribute a total of $60 million over 5 years
for the purpose of achieving ubiquitous access to broadband
and advanced services in California.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to support broadband deployment statewide and position
California to maximize opportunities under the new National
Broadband Plan. The author states that broadband facilities
enable high-speed internet access, which is essential to
virtually every aspect of modern life. People without broadband
access have fewer economic opportunities and are unable to
access online education, medical information, and vital
government services.
The CASF : In 2007, as part of a High-Cost Fund-B rulemaking,
the PUC created the CASF to help promote the deployment of
broadband infrastructure in unserved areas of the state. As
part of the decision, the PUC reduced the annual allocation of
money to the High-Cost Fund-B by $315.4 million and implemented
a phased-in reduction in the ratepayer surcharge from 1.3% on
all intrastate calls to .25%.
The PUC had created the program and assessed a surcharge on
telephone ratepayers to fund the program, however, the PUC did
not have clear legislative authority to assess the surcharge or
to expend the funds. SB 1193 (Padilla) Chapter 393, Statutes of
2008, provided that authority by statutorily establishing the
CASF; however, SB 1193 prohibited the PUC from collecting more
than $100 million.
SB 1040
Page 4
The PUC prioritized CASF expenditures to areas where no
facilities-based provider offered broadband service. A
secondary priority was for funding in underserved areas where no
facilities-based provider offered broadband service at benchmark
download transmission speeds of at least 3 megabits per second
and upload speeds of at least 1 megabit per second. By
Resolution T-17143, dated June 12, 2008, the PUC adopted filing
requirements and scoring criteria for the award of CASF funds
and a timeline for further filings and for final approval of
awards.
After the enactment of the American Reinvestment and Recovery
Act of 2009 (Recovery Act), the PUC revised the CASF program to
allow California companies to use CASF grants as a match for
Recovery Act broadband grants. AB 1555 (Perez) Chapter 24,
Statues of 2009, expanded CASF eligibility to any entity
applying for CASF funding in conjunction with a Recovery Act
funding request.
Are Californians digitally divided : According to the CETF 2010
Annual Report, there are substantial differences among
population groups and regions in the use of broadband.
Thirty-nine percent of Latino families, 40 percent of
lower-income households (under $40,000 annually), and 47 percent
of people with disabilities have a broadband connection at home
compared with 62 percent of all adults statewide and 89 percent
of all higher-income households ($80,000 or more annually). The
CETF report states that many rural and remote communities have
no access at all, and there are great variations among regions,
with 51 percent of Central Valley residents having a home
broadband connection versus 73 percent of residents in the Bay
Area.
What's the effectiveness of the first $100 million : The PUC has
only awarded a total of $54 million from the first $100 million.
SB 1193 required the PUC to conduct both a financial audit and a
performance audit of the implementation and effectiveness of the
CASF to ensure that moneys have been appropriately expended in
accordance with bidding procedures and programmatic parameters.
The PUC is required to report its findings to the Legislature by
December 31, 2010. The PUC expects to complete the report on
time.
SB 1040
Page 5
This bill would identify the December 31, 2010 report as an
"interim" audit, and require the PUC to report its "final
findings" to the Legislature by April 1, 2017.
How broad are funds for broadband: In addition to CASF, other
programs intended to create incentives for deployment of
infrastructure in unserved and underserved areas throughout
California and include the following programs:
The California Rural Telecommunications Infrastructure Grant
Program aids in the establishment of telecommunications service
in areas not currently served by existing local exchange
carriers. In 2008, SB 1149 (Wiggins), Chapter 388, Statutes of
2008, extended the program to January 2012. The PUC can grant
$40 million over a four-year period and can issue individual
grants of $5 million.
The CETF makes investments in programs and projects to "minimize
the digital divide" by accelerating the deployment and adoption
of broadband and other advanced communication services to
unserved and underserved communities, and to increase the number
of subscribers to these services. The PUC created the CETF as a
non-profit corporation as a condition of approving the mergers
of SBC-AT&T and Verizon-MCI in 2005, and requires AT&T and
Verizon to contribute a total of $60 million over 5 years to
help bridge the "digital divide" in California. The CETF makes
grants to existing community based organizations that perform
projects consistent with the CETF "digital- divide" goals.
Grantees are expected to match the CETF funds in a three to one
ratio. The CETF Board has voted $16 million (consisting of $1
million for the California Telehealth Network and $15 million
for other broadband) to provide matching grants not to exceed
10% of any project's cost for Recovery Act applications by
California applicants.
The California Telehealth Network is a three year pilot program
funded by a $22 million grant from the Federal Communications
Commission. The Telehealth network uses advanced
telecommunications and information services to connect more than
300 rural healthcare sites with a network of specialized
healthcare providers at academic medical centers and other
healthcare providers throughout the state of California.
The Recovery Act appropriates approximately $7.2 billion dollars
SB 1040
Page 6
to be used to fund the Broadband Technology Opportunities
Program. The purposes of the program are to: (1) provide access
to broadband service to consumers residing in unserved and
underserved areas of the United States; (2) provide broadband
education, awareness, training, access, equipment, and support
to schools, libraries, medical and healthcare providers,
community colleges and other institutions of higher education,
and other community organizations, that provide outreach,
access, equipment, and support services to facilitate greater
use of broadband service by low-income, unemployed, aged, and
otherwise vulnerable populations; (3) create jobs by creating
strategic facilities located within a state-designated economic
zone, Economic Development District designated by the Department
of Commerce, Renewal Community or Empowerment Zone designated by
the Department of Housing and Urban Development, or Enterprise
Community designated by the Department of Agriculture; (4)
provide public safety agencies with improved access to broadband
services; (5) stimulate the demand for broadband, economic
growth, and job creation; (6) provide $350 million in grants to
develop and maintain broadband inventory maps; (7) allocate an
additional $12.5 billion to the Department of Agriculture for
support of distance learning, telemedicine and broadband through
Rural Utility Service loans and guarantees.
In addition, the PUC oversees nearly $1 billion in
telecommunications consumer programs including the California
Lifeline Fund, California Teleconnect Fund, Deaf and Disabled
Telecommunications Program, and California High Cost Funds, all
of which provide services to the state's consumers and
communities. The objectives of the universal telephone
service programs are to: (1) ensure that basic telephone service
remains available and affordable to all Californians regardless
of geography, language, cultural, ethnic, physical or income
differences; (2) encourage consumer choice among competitive
telephone companies; (3) modify, as necessary, the basic
telephone service definition to incorporate new technology for
all residential subscribers; and (4) ensure that consumers have
access to sufficient information to make informed choices about
basic service and universal lifeline telephone services.
It's only a few cents per month: In a previous PUC decision,
the PUC reduced the allocation from the High-Cost Fund-B to fund
the CASF. Over the past three years, the PUC has authorized the
collection of $223 million in 2007-08, $138 million in 2008-09,
and $93 million for the first nine months of 2009-10 for both
SB 1040
Page 7
the High-Cost Fund-B and CASF combined. AT&T and Verizon
receive a majority of the funds. According to the PUC, the
major decrease in funding between the 2007-08 and the 2008-09 is
due to the PUC changing the allocation formula that determines
the amount transferred to the incumbent telephone companies.
The decrease was imposed on AT&T. Some of the AT&T reduction
was used to fund the CASF.
Absent the audit by the PUC that will evaluate the effectiveness
of the first $100 million, understanding that the PUC has only
been able to award $54 million of CASF over the past two years,
also considering the $1 billion that California
telecommunications ratepayers are currently paying for universal
service, this committee may wish to amend the bill to do the
following:
1)Require the PUC to disallow any collection of the additional
$125 million until after January 1, 2011, and require the PUC
to permit the collection of funds of not more than $25 million
per year over a five-year period.
2)Require the PUC to submit annual reports to the Legislature,
starting December 31, 2011, that identify (1) the amount of
funds expended for the prior year, (2) the recipients of the
prior-year expenditures, (3) the geographic regions affected
by prior-year expenditures, (4) the expected benefits derived
by prior-year expenditures, (5) actual adoption levels of
prior-year expenditures, (6) the amount of CASF funds used to
match federal funds, (7) an update on the actual expenses and
adoption levels of prior-year expenditures, and an accounting
of remaining unserved and underserved areas.
REGISTERED SUPPORT / OPPOSITION :
Support
Amador-Tuolumne Community Action Agency
Applied Development Economics
Big Sur Community Emergency Response Team (BSCERT)
Big Sur Health Center
California Center for Rural Policy (CCRP)
California Community Technology Policy Group (CCTPG)
California Library Association (CLA)
California Public Utilities Commission (CPUC)
SB 1040
Page 8
California State Grange
Camino Fiber Network Cooperative (CNFC)
Chico Economic Planning Corporation
Communications Workers of America (CWA)
Datawise, Inc.
Dave Finigan, District 5 Supervisor, County of Del Norte
Division of Ratepayer Advocates (DRA)
Frontier Communications
Great Valley Center (GVC)
Greg Newbry, Mammoth Unified School District Mono County I.T.
Humboldt Area Foundation
Humboldt County Board of Supervisors
Jim Cook, Siskiyou County Supervisor, District 1
Judy Morris, Trinity County Supervisor, District 2
Lake County Board of Supervisors
Monterey County Board of Supervisors
Northern California Small Business Development Center (SBDC)
Praxis Associates, Inc.
Redwood Coast Connect (RCC)
Redwood Coast Rural Action (RCRA)
Rollin C. Richmond, President, Humboldt State University
San Diego Futures Foundation (SDFF)
Southeast Community Development Corporation (SCDC)
TechNet
The McConnell Foundation
The Salvation Army Red Shield Youth & Community Center
Tri-Agency Economic Development Authority
Trinity County Board of Supervisors
United Way
Valley Vision
Youth Policy Institute (YPI)
Yuba Community College District (YCCD)
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083