BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 379 - Fuller Hearing
Date: August 29, 2012 S
As Amended: August 20, 2012 FISCAL B
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DESCRIPTION
Current law authorizes the California Public Utilities
Commission (CPUC) to regulate telephone corporations and
establish just and reasonable rates through a rate proceeding
for each small independent telephone company.
Current law requires the CPUC to establish and maintain
universal service programs, including the California High Cost
Fund A program (CHCF-A), to support small independent telephone
companies' provision of basic voice service in rural, high-cost
areas of the state. The program, funded by a customer surcharge
on intrastate communications service, sunsets January 1, 2015.
Current decisions of the CPUC authorize small independent
telephone companies to recover in rates, supplemented by CHCF-A
support, the cost of facilities to provide voice service.
Current federal law and decisions of the Federal Communications
Commission (FCC) provide universal service funding to providers
serving rural, high-cost areas to help pay for facilities that
provide customers both voice and broadband service, and
condition receipt of those federal funds on meeting broadband
deployment milestones and minimum network speeds.
This bill requires the CPUC, in administering the CHCF-A, to
promote customer access to advanced services in rural areas and
to include in small company rate calculations the cost of all
reasonable investments necessary to provide voice services and
deployment of broadband-capable facilities.
This bill requires that CHCF-A support be available only to a
company subject to CPUC rate regulation and that is a Carrier of
Last Resort with the obligation to fulfill all reasonable
requests for service within its service territory.
BACKGROUND
Universal Service Policy - Ensuring the availability of high
quality, affordable telephone service for all Americans has
always been a bedrock principle of telecommunications policy.
Separate state and federal programs provide subsidies to help
carriers pay the cost of facilities in rural, remote, and
sparsely populated areas where it is very expensive to provide
service. The goal is to keep rates affordable and everyone
connected.
State Program Supports Voice Service - The CPUC administers the
CHCF-A to support provision of voice service by the 14 small
rural telephone companies under rate-of-return regulation.
Funding is from an all-end-user surcharge assessed as a
percentage of all customers' intrastate communications service
charges (excluding Lifeline service to low-income customers).
The CPUC adjusts the surcharge annually to ensure adequate
funding to cover all the companies' funding requirements and
program administrative costs. The current budget is about $50
million for 2012-13, with a surcharge of 0.4 percent of
intrastate service charges.
Each company's draw from the CHCF-A is determined as part of a
rate proceeding, either a general rate case (GRC) with
evidentiary hearings before an administrative law judge in which
the Division of Ratepayer Advocates (DRA) and other parties
participate, or a less formal advice letter process administered
by the CPUC's Communications Division staff. In either process,
the CPUC determines a "revenue requirement" necessary to cover
expenses, a return on capital investment, and a profit. Based
on this revenue requirement, customer rates are established,
subject to the statutory maximum of 150 percent of rates for
comparable services in urban areas. Support from the CHCF-A
covers the difference between the company's revenue requirement
and the revenue generated from rates. The CPUC does not include
in the rate calculation the revenue a company or an affiliate
earns from providing Internet access service, which is under the
jurisdiction of the FCC.
Federal Program Now Supports Broadband Service - Federal rules
specify cost recovery of the portion of a company's network that
is deemed to be for interstate services, with support from a
federal universal service program. Although originally focused
on networks to provide only voice service, the FCC in late 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 CAF funding must meet broadband buildout
requirements and demonstrate that their networks provide minimum
broadband speeds of 4 megabits per second (MBPS) downstream and
1 MBPS upstream. It is estimated that California carriers could
lose a total of at least $25 million in federal funding per year
if they do not make additional investments to improve the speeds
of their networks.
CPUC Proceedings - In 2011 the CPUC opened a rulemaking
(R.11-11-007) to undertake a comprehensive review of the CHCF-A
program in order 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." Among the reasons cited to
support the review was the FCC's shift to support broadband,
along with the observation that any reduction in federal high
cost support translates into an increase in support from the
CHCF-A.
COMMENTS
1. Author's Purpose . According to the author, this bill
will align California's universal service program with
recent changes at the federal level and thereby preserve
about $25 million of federal support for building broadband
networks that will provide California's rural communities
access to e-commerce, e-government, and the information
superhighway.
2. Federal and State Broadband Policy Goals . Congress and
the FCC, through the National Broadband Plan, and this
state through legislation and CPUC decisions have made it a
top priority to bring broadband facilities to all corners
of the nation and California currently lacking high-speed
Internet access. This bill furthers these federal and state
broadband goals in at least two ways. It codifies policy
direction for the CPUC's administration of the CHCF-A to
support investment in today's modern broadband technology
rather than in the minimal facilities needed for providing
voice service. It also helps prevent loss of substantial
federal funds specifically targeted for broadband
facilities in rural areas.
3. Improper Subsidy of Broadband ? The CPUC, TURN, and DRA
oppose this bill, claiming that the issues it addresses are
under consideration in the CPUC rulemaking on the CHCF-A.
They also claim that the bill could as much as double the
size of the A Fund, thereby impacting all customers,
although the bill's sponsor disputes this claim. In
addition, they object to providing ratepayer-funded
subsidies for broadband facilities without giving the CPUC
authority to consider the revenue a rural company earns
from unregulated services delivered with the same broadband
facilities that the CHCF-A would subsidize.
Recent amendments seek to address these concerns. An
Assembly Utilities and Commerce Committee amendment
requires the CPUC to ensure that support to companies is
"not excessive" so that customer impact is limited. An
Assembly Appropriations Committee amendment requires
companies to provide the CPUC information about revenues
from unregulated broadband revenues, which they could
otherwise assert they are not required to provide given FCC
jurisdiction over these services.
4. Only Two Years Until Sunset Review . Although this bill
establishes a new directive for the CHCF-A to align with
federal changes to support broadband, its long-term impact
may be minimal. The bill requires the CPUC to determine
the amount of a company's A Fund subsidy as part of a GRC.
Thus, the bill's provisions are not triggered until a GRC
is filed. A proposal is pending before the CPUC to stay
any new GRC until the CPUC completes its CHCF-A proceeding,
which the CPUC states will be the middle of 2013 at the
earliest.
In addition, even after a GRC is filed, the bill preserves
the CPUC's discretion to determine, based on the facts in
each case, what is a "reasonable investment" necessary for
providing voice and broadband service. This question will
presumably be debated by all parties in the GRC, including
DRA and TURN.
Moreover, all of the provisions of this bill are part of
the CHCF-A program that sunsets at the end of 2014, thereby
ensuring legislative review in less than two years. In the
meantime, all parties can continue to monitor the impacts
of the CAF's new broadband requirements, address related
issues in the CPUC's proceeding, and potentially get some
experience with one or more GRCs under this bill. All of
these developments will help the Legislature determine
whether the purposes of this bill are being achieved and
then further refine the CHCF-A program for years beyond
2014.
5. Ratepayer Impact . This bill could increase demand for
CHCF-A funding, which could lead to an increase in the
customer surcharge that pays for this program. Any
potential increase to the CHCF-A surcharge could be offset,
however, if the bill prevents loss of federal funding that
would have to be back-filled by more CHCF-A funding.
PRIOR VOTES
Assembly Floor (78-0)
Assembly Appropriations Committee (17-0)
Assembly Utilities and Commerce Committee (12-0)
Senate Floor (40-0)*
Senate Energy, Utilities and Communications Committee
(11-0)*
*Prior votes are not relevant.
POSITIONS
Sponsor:
California Independent Telecommunications Companies
Support:
California Communications Association
California State Association of Counties
Ducor Telephone Company
Ponderosa Telephone
Regional Council of Rural Counties
Small School Districts' Association
Sebastian
Sierra Telephone
Siskiyou Telephone
Volcano Communications Group
Oppose, unless amended:
California Public Utilities Commission
Division of Ratepayer Advocates
The Utility Reform Network
Jacqueline Kinney
SB 379 Analysis
Hearing Date: August 29, 2012