BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 1050 - Ma Hearing Date: July
3, 2012 A
As Amended: September 8, 2011 FISCAL/Urgency
B
1
0
5
0
DESCRIPTION
Current law establishes the State Board of Equalization (BOE) with
duties that include administering tax and fee programs that
provide revenue for state and local government.
Current law the Fee Collection Procedures Law specifies procedures
for BOE collection of fees and taxes that fund programs
administered by other state agencies, including taxes and fees
that retailers collect from customers and remit to the BOE for
transfer to another agency.
Current law requires the California Technology Agency (CTA) to
administer the state's 911 emergency telephone system with funds
derived from a surcharge on intrastate communication service that
providers remit to the BOE, which transfers the funds to the CTA.
Current law authorizes cities and counties to collect User Utility
Taxes (UUTs) on utility and communications service that providers
collect from end users and remit to the BOE, which transfers the
funds to local agencies.
Current law establishes the California Public Utilities Commission
(CPUC) to regulate utilities, including telephone corporations,
and establishes the CPUC Reimbursement Fee to be collected from
utility customers and remitted to the CPUC to fund its operations.
Current law requires the CPUC to administer several universal
service programs, to ensure that all customers are connected to
the public telecommunications network, funded by surcharges on
intrastate communications service.
This bill enacts the Prepaid Wireless Surcharge Collection Act
(the Act), which provides for point-of-sale collection by
retailers of a Prepaid Communications Charge (PCC) that consists
of a "state component" (state 911 fee, CPUC Reimbursement Fee, and
CPUC universal service surcharges) and a "local component" (UUTs
and other local fees).
This bill provides that the PCC is the liability of the consumer
and not the seller or provider, but requires sellers of prepaid
wireless service to remit all PCCs collected to the BOE, which is
required to transfer the state component of the funds to the CPUC
and the CTA and the local component to the appropriate city or
county.
This bill requires BOE to establish registration and payment
procedures for retailers consistent with the Fee Collection
Procedures Laws and authorizes both a seller and BOE to deduct and
retain an unspecified percentage of collected PCCs to cover
administrative costs.
This bill requires the PCC to be separately stated on a customer's
invoice for prepaid wireless service.
This bill provides that the PCC is to be based upon a percentage
of the sales price of each retail transaction that occurs in this
state, defined to include a product delivered to an address in
this state, with an exclusion for 10 minutes or $5 or less of
service sold in a bundle with a device.
This bill requires the CPUC to annually set the amount of the CPUC
Reimbursement Fee and universal service surcharges to be paid
under the Act, post the amounts on the CPUC Internet Web site, and
notify the BOE.
This bill requires the CPUC to set a lower rate for the universal
service surcharges for prepaid wireless service if it determines
that prepaid users derive a lower benefit from that service than
subscribers of postpaid service.
This bill provides that a seller of prepaid charges may rely upon
the accuracy of the information posted on the CPUC's Internet Web
site in collecting those charges.
BACKGROUND
Prepaid Wireless Service Growing - Telephone service traditionally
has been provided on a postpaid basis where customers get a
monthly bill for calls made and services received in the prior
month. With prepaid service, customers pay in advance for a
predetermined amount of calling minutes, typically loaded onto a
calling card or directly onto a mobile phone, with options to
reload once the calling minutes are used. According to CTIA the
Wireless Association, prepaid wireless is an expanding
multi-billion dollar business nationally, estimated to grow about
10 percent per year, with about 20 percent of the nation's 300
million wireless consumers currently using prepaid service.
Prepaid service is popular for "backup" phones kept in the car for
emergencies and "starter" phones for children so it is easy to
control usage, and is an attractive option for low-income
customers unable to afford a long-term contract or pass a credit
check. CTIA states that about 80 percent of all prepaid service
sales are through retailers such as grocery stores and big-box
stores, to which providers sell prepaid cards on a national basis,
not knowing in which state the cards will be sold.
No Bill for Collecting Customer Fees and Surcharges - Current law
imposes on intrastate communications service a fee to support the
state 911 system administered by CTA, a CPUC Reimbursement Fee to
pay for the CPUC's operations, and several surcharges to pay for
the following state universal service programs administered by the
CPUC:
California High Cost Fund A and B
Deaf and Disabled Telecommunications program
California Teleconnect Fund
California Advanced Services Fund
Lifeline Telephone Service.
These state fees total about 2.5 percent of intrastate service.
Local 911 fees and UUTs are assessed on service provided within
the jurisdiction of the city or county imposing the tax. UUTs
range up to 11 percent, but not all cities and counties impose
them.
These state and local charges are easily determined and collected
for post-paid service and included on customer bills after service
is used. With prepaid service, there is no billing process.
Neither providers nor retailers selling prepaid service know ahead
how many minutes will be intrastate calls, let alone within the
city or county where the transaction occurs.
National Strategy for Point-of-Sale Legislation - Given growing
customer demand for prepaid service, and lack of a billing
relationship between providers and prepaid customers, the wireless
industry has advocated nationwide a point-of-sale collection
methodology with model legislation endorsed in 2009 by the
National Conference of State Legislatures. According to CTIA, 24
states have adopted point-of-sale legislation based on the model
statute. Point-of-sale legislation has been introduced in
California since 2009 but failed passage.
CPUC Prepaid Efforts Focus Only on TracFone - TracFone is the
nation's largest provider of prepaid wireless service and provides
only prepaid service, unlike other carriers that offer both
postpaid and prepaid wireless service. In 2003, TracFone sought
clarification through CPUC staff about whether CPUC fees and
surcharges apply to its service. TracFone claims to have relied
on staff indicating that it was exempt. The CPUC opened a formal
investigation against TracFone in 2009, and in November 2011
issued a decision concluding that TracFone is a telephone
corporation subject to its jurisdiction and is required to pay
CPUC fees and surcharges (D.12-02-032). The CPUC plans a second
phase of the proceeding to determine whether a penalty is
appropriate and the amount TracFone owes in past due fees and
surcharges.
The CPUC denied requests of carriers during the TracFone
proceeding to review the obligations of all prepaid service
providers to pay CPUC fees and surcharges. (Some providers,
including AT&T, Cricket and Sprint, claim to voluntarily remit
payment to the CPUC based on estimates of intrastate minutes of
prepaid service.) CPUC staff stated recently that a general
rulemaking is likely at some point in the future, perhaps after
the penalty phase in the TracFone proceeding. The CPUC has not
taken any enforcement action against Verizon even though Verizon
has stated publicly and to the CPUC that it is not remitting
surcharges for its prepaid wireless service.
COMMENTS
1. Author's Purpose . According to the author, this bill
would establish a statewide system for point-of-sale
collection of state and local fees imposed on communications
service that are currently paid by end users of postpaid
customers, thereby ensuring that the prepaid wireless sector
of the communications market equitably shares in the
responsibility to fund the state 911 system, state universal
service programs, and CPUC operations paid with the CPUC
Reimbursement Fee, and also contribute to the revenue of
cities and counties generated by local fees and UUTs.
2. Retailers, BOE, and CTA on Board . Although retailers
currently have no legal obligation to collect taxes and fees
on communications service, they have agreed to collect them
at point-of-sale for prepaid service provided they collect a
single aggregated charge statewide, remit all funds to BOE
(with which they are familiar for remitting sales tax) rather
than to different agencies, and get reimbursed for
administrative costs.
The BOE collects numerous taxes and fees on behalf of other
state agencies, including some imposed on consumers that
retailers remit to BOE for deposit into accounts that fund
programs the receiving agencies administer. These include,
for example, the California Tire Fee, which is collected from
purchasers of new tires for CalRecycle and the Air Resources
Control Board to fund tire recycling programs, and the
Electronic Waste Recycling Fee, which is collected from
purchasers of certain electronic devices for CalRecycle to
fund electronic waste recycling programs. BOE states that it
could collect the PCC under the procedure established in this
bill pursuant to the Fee Collection Procedures Law.
The CTA, which already receives funds for the state's 911
system through BOE, has raised no concerns with this bill.
3. CPUC Fears Losing Jurisdiction . The CPUC favors removing
the CPUC Reimbursement Fee and universal service surcharges
from this bill, stating that these fees should go directly to
the CPUC as they do for postpaid service. The CPUC claims
that the bill is an "encroachment" into its jurisdiction,
"would place intermediaries - the retailer and the BOE -
between the CPUC and the carrier, thus diluting, if not
vitiating, the CPUC's role in overseeing and managing the
collection of surcharges," and "could severely hamper the
CPUC's ability to enforce the required collection of fees and
surcharges on prepaid wireless services."
There is no doubt that the traditional scheme where postpaid
service providers collect fees from customers on monthly
bills and remit them directly to the CPUC does not match up
with prepaid wireless service. But perhaps regulators should
adjust their ways. Rather than cast retailers as
"intermediaries" interfering in its traditional regulatory
model of direct "privity" with service providers, the CPUC
should recognize that retailers are the key component in the
business model for the vast majority of prepaid service.
Moreover, the CPUC expresses concern about the bill's impact
on its ability to enforce fee collection on prepaid service,
but it has not taken pro-active steps to establish procedures
that fully acknowledge the dominant retail sale business
model for prepaid service. The CPUC has been aware for about
a decade of questions from industry about how its fees and
surcharges apply to prepaid service, yet it still has
proposed no industry-wide rules. In denying a 2009 industry
petition for rulemaking, the CPUC said it would issue rules
"in the near future" but none have been proposed. More
recently, staff has indicated both that a rulemaking may not
be necessary and that it might propose rules after it
concludes the TracFone case. Meanwhile, the prepaid service
market continues to grow, and nationwide momentum for a
point-of-sale collection method is picking up steam as about
half the states have now adopted it.
Removing the CPUC surcharges and fees from this bill would
eliminate retailer support for the statewide uniform
point-of-sale method this bill seeks to establish and this
legislative effort would likely fail again. If the committee
wishes to advance this legislation with CPUC surcharges and
fees included, several amendments that will help address CPUC
concerns are identified in the following comments.
4. Frequency of CPUC Surcharge Adjustment . This bill
requires the CPUC to set the CPUC Reimbursement Fee and the
multiple universal service program surcharges annually, post
the rates on its Web site, and notify BOE so the rates can be
included in the PCC. The CPUC surcharges typically are set
once a year but sometimes require mid-year adjustments due to
program changes or fluctuating fund balances. In order to
provide flexibility for the CPUC to maintain financial
integrity of its program funds, the author and committee may
wish to consider amending the bill to allow for CPUC
surcharge rate adjustments more than once a year if
warranted.
5. Reducing CPUC Surcharges for Prepaid . Provisions
directing the CPUC to compute the state universal service
program surcharges also require the CPUC to lower the
surcharge if it determines that users of prepaid service
derive a lower benefit than postpaid customers from these
state programs. Reducing the CPUC surcharges in this manner
raises significant policy issues about the purpose and
funding base of each program. Resolving those issues are not
necessary to this bill's primary purpose of establishing a
point-of-sale collection method for prepaid wireless service.
Thus, the author and committee may wish to consider amending
the bill to strike the provisions on page 4, lines 1 to 7,
relating to lower surcharges for prepaid service.
6. Collection Method for the Future . This bill establishes a
collection method that will be effective in the future if the
bill is enacted. The CPUC has an open enforcement proceeding
against TracFone for determining past due surcharges and
potential penalties. TracFone vows to appeal the CPUC's
decisions based in part on its claim that no fee collection
mechanism currently exists for prepaid service. The CPUC
vehemently disputes this claim, stating that it has a system
for service providers to pay fees and surcharges and that
carriers have discretion as to how they collect those fees
from end users or have the option to pay them out of profits.
Several statements in the findings and urgency sections of
this bill imply or assert that current law provides no
collection mechanism and that the surcharges are solely end
user, not carrier, charges. These statements are not
essential to achieve the bill's purpose of ensuring that a
standardized mechanism for collecting these charges from
prepaid service customers exists going forward. Moreover,
with regard to the dispute about current law, the statutes
enacting the surcharges are not completely clear and uniform
as to who is responsible for payment. But what is known for
sure is that these statutes were all enacted with postpaid
service in mind, and the common practice of providers
collecting these surcharges on customer monthly bills does
not fit the prepaid service business model. Thus, the author
and committee may wish to consider amending the bill by
striking page 5, lines 1 to 5, and on page 10, line 3, state
the intent to establish a "standardized" collection mechanism
as soon as possible.
7. BOE Sets Rate for Retailers . This bill requires the CPUC
to post on its Web site the rate of universal service fees
and provides that a seller may rely on the accuracy of the
information the CPUC posts. However, the bill requires BOE
to set the PCC that retailers will charge prepaid service
customers. The CPUC surcharge rates will be only one part of
the state component of the PCC the BOE will establish. Thus,
the author and committee may wish to consider amending the
bill to provide that sellers may rely on the BOE web site for
the PPC rate to charge customers, rather than the CPUC web
site.
8. Gaps In the Bill . This bill currently has only intent
language regarding development of a method for sellers to
collect a single local component of the PCC consisting of
UUTs and other local fees. Establishing a uniform local
component is difficult because of differing UUT rates and
constitutional issues, all of which will be addressed by the
Senate Committee on Government and Finance if this bill moves
forward. In addition, other gaps in the bill that the author
states an intent to work on with the Government and Finance
Committee include the date when collection of the PPC begins
(page 7, line 11); how many days prior to its effect BOE is
required to post the state component on its Web site (page 7,
line 20), the date by which BOE shall establish registration
and payment procedures for retailers to remit PCC funds (page
9, line 10), the percentage of the PCC that retailers can
retain (page 9, line 13) and that the BOE can retain (page 9,
line 23).
9. Ratepayer Impact . If the collection mechanism established
by this bill results in collection of taxes, fees and
surcharges on prepaid wireless service that are not currently
being collected, it could result in an overall reduction in
fee and surcharge rates by being spread out over a larger
base. But startup administrative costs could offset the
revenue increase at least initially.
10. Related Legislation . AB 2545 (de La Torre 2010) required
a public process to recommend a prepaid wireless service
collection mechanism and was essentially a study bill. It
failed passage on the Senate floor.
11. Double Referral . Should this bill be approved by the
committee, it should be re-referred to the Senate Committee
on Governance and Finance for its consideration.
ASSEMBLY VOTES
Assembly Floor (75-3)
Assembly Appropriations Committee (17-0)
Assembly Revenue and Taxation Committee
(9-0)
Assembly Utilities and Commerce Committee
(13-0)
POSITIONS
Sponsor:
CTIA
Support:
AT&T
California Fire Chiefs Association
Oppose:
California Public Utilities Commission
Los Angeles County Board of Supervisors
Jacqueline Kinney
AB 1050 Analysis
Hearing Date: July 3, 2012