BILL ANALYSIS �
SB 379
Page 1
Date of Hearing: June 18, 2012
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 379 (Fuller) - As Amended: June 12, 2012
SENATE VOTE : vote not relevant
SUBJECT : Telecommunications policies.
SUMMARY : Modifies the California High Cost Fund - A (CHCF-A)
program to align the Federal Communications Commission's (FCC)
modification of the federal universal service program to allow
high-cost support for the California Independent
Telecommunications Companies (CITC) broadband-capable facilities
in rural areas.
EXISTING LAW :
1)States that the California Public Utilities Commission (PUC)
has regulatory authority over public utilities, including
telephone corporations.
2)Requires the PUC to establish and maintain universal service
programs to ensure that affordable telephone service is
available in rural, high-cost areas of the state, including
the California High Cost Fund A (CHCF-A) program, which
sunsets on January 1, 2015.
3)Declares the policies for telecommunications in California
which include continuing our universal service commitment by
ensuring continued affordability and widespread availability
of high-quality telecommunications services to all
Californians.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "SB 379 will help preserve
federal funding coming into rural California and enhance the
availability of advanced broadband services in rural areas of
the state. The modern communications network is a broadband
network, and California's rural communities need to be connected
to the digital superhighway in order to access the economic
development, tele-medicine and educational opportunities
available through advanced broadband services. At a minimum,
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state policy should support the efforts of our small rural
telephone companies to upgrade their networks with
broadband-capable facilities in order to meet the requirements
of the federal high-cost support program. SB 379 ensures this
outcome by including the goal of rural access to advanced
services in the CHCF-A program."
1)Background : Universal service has been an important public
policy objective on both the
federal and state level. The United States Congress first made
universal service a basic goal of telecommunications policy with
the passage of the Communications Act of 1934. In 1983, the
California Legislature enacted the Moore Universal Telephone
Service Act to ensure that consumers have access to basic voice
service that is both affordable and ubiquitously available.
In 1987, the California Legislature directed the PUC to
establish a rate structure for small independent telephone
companies serving rural and small metropolitan areas to mitigate
increases in service. To achieve this legislative goal, the PUC
created various public programs such as the CHCF to provide a
source of supplement revenues to telephone companies serving
rural or geographically hard-to serve areas of California. In
1996, the PUC divided the CHCF into two separate programs
labeled A and B: the CHCF-A, to provide high cost support for
the small companies, and the CHCF-B, to provide high cost
support for large companies.
Support from both the federal and state programs is often
necessary to cover service providers' costs and keep customer
rates affordable. The CHCF-A is scheduled to sunset on January
1, 2015.
2)FCC activities and orders : Recognizing the need for all
Americans to have universal access
to broadband, the FCC in March 2010 released the National
Broadband Plan, which included a proposal for transforming the
federal universal service program and intercarrier compensation
systems to support the provision of affordable broadband in
high-cost areas rather than just voice telephone service.
In November 2011, the FCC issued a decision adopting this
proposal and redirecting the $4.5 billion in USF into a new
"Connect America Fund" to support providers in high-cost areas
that accept obligations to build out high-speed broadband
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networks. The FCC designated funding for a "Mobility Fund" to
accelerate mobile broadband networks, and a "Remote Areas Fund"
for the most difficult to serve areas. While stakeholders
continue to evaluate the implications of the Order, states are
taking initial steps to implement decisions and determine how
state universal service programs align with the federal reforms.
3)PUC looking at CHCF-A : Also in November 2011, the PUC opened
Rulemaking 11-11-007
to review the CHCF-A program. According to the PUC's Order, "a
detailed review of the program is warranted in response to
market, regulatory, and technological changes since the CHCF
program was first established in 1987." In its June 1, 2012
analysis of SB 379, the PUC states that the "aim of the
proceeding is to develop a more efficient, prudent, and
forward-looking plan for rural consumers that will reflect
realities of the market place and technological advancements to
safeguard California ratepayers."
4)The issue : The question before us is whether California
should follow the FCC's example of
modifying the CHCF-A program to explicitly allow it to support
investments in broadband-capable infrastructure? The CHCF-A
program was established long before broadband become available
when there was only the traditional telephone network to
consider. Technology has dramatically changed since then, and
the small independent telephone companies' networks now deliver
both telephone and broadband services. In order to continue to
meet CAF's broadband latency, speed, and service quality
requirements, both now and in the future, these companies will
need to systematically upgrade their networks.
According to the small independent telephone companies supported
by the CHCF-A program, the state needs to update the CHCF-A
program to reflect the new broadband-focus of the federal CAF
program in order to preserve their federal universal service
rate support. They argue that without this update, the PUC may
not allow cost support from the CHCF-A program for network
improvements because they benefit the provision of broadband
service, even though the improvements benefit the provision of
telephone service as well.
According to the PUC staff analysis of SB 379, it notes that the
PUC has an open rulemaking on the CHCF-A and that "this
comprehensive public process is a better way to address any
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necessary changes to the CHCF-A program." The analysis raises
their concern that "SB 379 would require ratepayers to subsidize
the rate-of-return carriers' deployment of broadband-capable
facilities even though California has limited jurisdiction over
broadband services and cannot take into account revenues from
these unregulated services when determining local rates for the
rate of return carriers."
5)Who's up first? : This bill aims to codify the PUC's current
practice of administering the
CHCF-A program, while adding an explicit requirement for the PUC
to promote reasonable access to advanced services and
broadband-capable facilities. SB 379 also preserves the January
1, 2015 sunset date on the CHCF-A program adopted by the
Legislature last year in SB 3 (Padilla), ensuring Legislative
review before the program can be extended.
The bill sponsor, California Independent Telecommunications
Companies (CITC), asserts that SB 379 preserves the PUC's
regulatory authority to determine whether and to what extent
company expenses and investments are reasonable, thereby
maintaining the PUC's flexibility in its administration of the
CHCF-A program.
The PUC staff analysis state, "by locking into state statute
funding for high cost broadband as well as telephony for
rate-of-return incumbent local exchange carriers (small
independent telephone companies), SB 379 would prevent the PUC
from making changes to the CHCF-A program as it views necessary
in light of changes in FCC universal service support and
broadband policy changes, as well as changes in technologies,
market dynamics and the changing competitive landscapes in rural
California."
6)What is the cost to ratepayers? : The PUC calculates the
annual amount of CHCF-A support
after first factoring in the anticipated revenues from the
federal High Cost Loop Support (HCLS). Federal separations
rules ensure that federal and state funding works in concert and
that no double recovery occurs. Consequently, decreases in
federal HCLS funding increase the size of the CHCF- A program;
and conversely, increases in federal HCLS funding decrease the
size of the CHCF-A program.
Presently, the small independent telephone companies receive
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approximately $25 million annually in federal HCLS and $33.7
million in CHCF-A support. Hypothetically, if these companies
lost the $25 million in federal funding because they could not
meet the FCC's broadband speed, capacity, and other reliability
requirements, the CHCF-A program could increase significantly.
PUC staff highlight the concern in its analysis of SB 379 that
"the combination of less FCC funding and SB 379 could double the
amount of subsidies that the small independent telephone
companies may request from the CHCF-A program. This could
significantly increase the amount of money that each ratepayer
must pay into this fund each month, based on a surcharge on
intrastate telecommunications billings."
CITC asserts that "any increases in the CHCF-A are likely to be
incremental, since CHCF-A recipients' networks provide both
voice services and access to broadband-enabled services - there
are not separate networks that would require independent
investments. Any additional investments will be made to
existing networks, and will be subject to the PUC's
determination of reasonableness." CITC further claims that "the
surest way to increase the cost of the CHCF-A program would be
if California lost the $25 million in federal funding because
the CHCF-A program did not support the investments necessary to
meet the new federal broadband requirements."
7)The compromise : However to address the cost concerns raised by
stakeholders, the author
has agreed to add subparagraph (c), which directs the PUC's
administration of the CHCF-A program, the following requirement:
(7) Ensure that support is not excessive so that the burden on
all contributors to the CHCF-A program is limited .
8)Support : CITC argues that the Legislature needs to give the
PUC clear policy direction that
the CHCF-A program should support broadband-capable facilities.
They argue that if replacement of copper facilities with fiber
optic facilities is limited because of an interpretation that
funding from the CHCF-A is not available for supporting
infrastructure that is capable of providing broadband services,
Californians will suffer in three ways: 1) broadband deployment
in rural areas will be impaired; 2) California will lose federal
cost support because the rural telephone companies cannot meet
the required broadband speeds; and 3) either telephone rates
will rise to potentially unaffordable levels for rural telephone
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company customers or the CHCF-A program will expand to
compensate for the lost federal revenues.
The California State Association of Counties (CSAC) and Regional
Council of Rural Counties (RCRC) write in support of SB 379
stating "affordable telephone and other telecommunication rates
are vital to both residential and business customers in our
member counties. Without the changes to CHCF-A the state could
lose $25 million annually of federal support, potentially
causing rate increases for all telephone customers and ensuring
the delay of broadband deployment."
9)Opposition : The California Association of Competitive
Telecommunications Companies
(CALTEL) registered a letter of opposition on a prior version of
the bill which
directed the PUC to create a streamlined "uniform regulatory
framework" option for small, rural local exchange carriers that
do not participate in the CHCF-A program. Because the author
agreed to strike this provision, CALTEL has removed its
opposition.
The Utility Reform Network (TURN) supports carrier efforts to
deploy broadband-capable facilities; however TURN opposes a
"mandate to provide subsidy money to promote broadband capable
facilities through an all end user surcharges goes far beyond
the excitement over fast broadband".
10)Technical amendment : On page 5, lines 25-26, the definition
of "rural telephone company" is
an incorrect reference to federal statute. The author and this
committee may wish to amend the bill as follows: " Qualify as a
rural telephone company under federal law (47 U.S.C. Section
153(44)) ."
11)Related previous legislation :
SB 3 (Padilla), Chapter 695, Statutes of 2010: extended the
sunset date for the CHCF-A program from January 1, 2013 to
January 1, 2015.
SB 1040 (Padilla), Chapter 317, Statutes of 2010: extended and
expanded the California Advanced Services Fund program.
AB 155 (V. Manuel Perez), Chapter 24, Statutes of 2009: The
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last sentence of Section 281(c)(2) was supposed to clarify that
it is permissible for the CHCF-A companies to recover in rate
base their portion of the investment in broadband-capable
facilities not covered by the CASF grant or ARRA funds. At the
time, the CASF grant was 40% of the cost and the company had to
provide 60% of the cost. Now, the grant is 60% and the company
portion is 40%. The PUC has chosen to interpret the last
sentence of Section 281(c)(2) as only applicable when an ARRA
grant is part of the package. As such, if a CASF project's
total cost is $10 million, the company would have to invest $4
million of its shareholder profits with no opportunity to earn a
return on that $4 million investment. The result is that the
CHCF-A companies have been unwilling to apply for CASF grants.
SB 780 (Wiggins), Chapter 342, Statutes of 2008: absorbed
Senator Cox's SB 1144, which created a separate code section for
the CHCF-A program (Section 275.6) outside of the CHCF program
section (Section 739.3) and extended the CHCF-A program sunset
date from January 1, 2009 to January 1, 2013.
SB 1149 (Wiggins), Chapter 388, 2008: extended the sunset date
on the Rural Telecommunications Infrastructure Grant Program
from January 1, 2009 to January 1, 2013. This program was
funded at $10 million annually from the CHCF-A surcharge, but
was modified by SB 1149 to allow unspent funds to be rolled into
the next year up to a $40 million max because there had been no
grant applications. The PUC then encouraged rural ILECs to
partner with their counties to apply for grants to fund the
installation of facilities to reach areas currently without any
telephone service.
The last grant application by Siskiyou Telephone on behalf of
Godfrey Ranch was rejected by the PUC as unreasonably costly
(T-17316 defeated on a 1-4 vote at the November 10, 2011
Commission Business Meeting:
http://docs.cpuc.ca.gov/PUBLISHED/AGENDA_RESOLUTION/145868.htm ).
Since any remaining areas in the state that do not have service
would be just as costly as the Godfrey Ranch application, this
grant program is considered no longer viable and no one is
seeking its extension.
SB 1193 (Padilla), Chapter 393, Statutes of 2008: created the
California Advanced Services Fund.
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REGISTERED SUPPORT / OPPOSITION :
Support
Calaveras Telephone Company
California Communications Association
California Independent Telecommunications Companies (CITC)
(Sponsor)
California State Association of Counties (CSAC)
Ducor Telephone Company
Ponderosa Telephone
Regional Council of Rural Counties (RCRC)
Sebastian
Siskiyou Telephone
Small School Districts' Association (SSDA)
Volcano Communications Group
Opposition
California Association of Competitive Telecommunications
Companies (CALTEL) (unless amended)
Division of Ratepayer Advocates (DRA) (unless amended)
The Utility Reform Network (TURN) (unless amended)
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083