BILL ANALYSIS �
AB 1693
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Date of Hearing: March 24, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 1693 (Perea) - As Introduced: February 13, 2014
SUMMARY : Requires the California Public Utilities Commission
(PUC) to issue a final decision on a general rate case of a
small independent telephone corporate within a specified
timeframe. Specifically, this bill :
1)States the PUC shall issue a final decision on a general rate
case of a small independent telephone corporation no later
than 330 days following the corporation's initial filing of
the general rate case application or advice letter.
2)Stipulates if the PUC fails to issue a final decision by the
330th day, the application or advice letter is deemed approved
and the rate design proposed by the small independent
telephone corporation in its application or advice letter will
take effect 30 days following the expiration of the 330th day
period.
3)Provides that its provisions may be waived at any time by
mutual consent of the executive director of the PUC and the
small independent telephone corporation.
EXISTING LAW
1)States PUC has regulatory authority over public utilities,
including telephone corporations.
2)Authorizes the PUC to fix the rates and charges for every
public utility, and requires that those rates and charges be
just and reasonable. (Article 12, Section 6 of the California
Constitution)
3)Prohibits, with certain exceptions, a public utility from
changing any rate, except upon a showing before the PUC and a
finding by the PUC that the new rate is justified. (PU Code
�454 (a))
4)Requires the PUC to exercise is regulatory authority to
maintain the California High Cost Fund A Program (CHCF-A) to
provide universal service rate support to small independent
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telephone corporations, as defined, in amounts sufficient to
meet the revenue requirements established by the PUC through
rate-of-return regulation in furtherance of the state's
universal commitment to the continued affordability and
widespread availability of safe, reliable, high-quality
communications services in rural areas of the state. (PU Code
�275.6)
5)Requires the PUC to resolve rate-setting and quasi-legislative
cases within 18 months of issuance of a case's scoping memo,
and grants the PUC authority to extend this deadline either at
the outset of the proceeding, in the scoping memo, or by PUC
decision or resolution in 60 day increments without limit. (PU
Code �1701.5)
FISCAL EFFECT : Unknown
COMMENTS : According to the author, "until recently, the PUC
routinely processed small rural telephone corporation rate cases
within a year of filing. However, the latest telephone company
rate case has experienced unreasonable delays with the PUC
taking almost two years to final decide to stay the telephone
company's rate case, likely for another year or longer. The
longer the PUC takes to complete a ratemaking case, the more
costly it becomes for the telephone company since the new rates
do not go into effect until they are approved by the full
Commission and they are not retroactive. Small telephone
companies need their rate cases addressed within a reasonable
period so they are able to plan for investments in
infrastructure upgrades to make service better for their
customers.
1)Background : In 2006, the PUC eliminated pricing regulation
for all telephone services
except basic residential service, in effect, deregulating or
de-tariffing the industry, except for the small independent
telephone corporations. Instead of filing prices, service
descriptions, and terms and conditions (called tariffs) for
phone services such as Caller ID, Call Waiting, and Call
Forwarding with the PUC, carriers may now offer services through
service agreements directly with consumers.
Currently, there are approximately 10 small independent
telephone corporations which primarily serve customers in rural
areas of the state and are subject to PUC regulation. This means
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they cannot change any rate without PUC review and approval. The
companies are: Calaveras Telephone, Cal-Ore Telephone, Ducor
Telephone, Sebastian dba Foresthill Telephone and Kerman
Telephone, Pinnacles Telephone, Ponderosa Telephone, Sierra
Telephone, and Siskiyou Telephone, and TDS Telecom.
Two channels exist for the submission of rate cases by small
independent telephone corporations: one "formal" and the other
"informal." The formal process involves the submission of an
application, which opens a formal Commission proceeding to
address the case. Formal cases are subject to the Commission's
procedural rules governing rate setting proceedings, including
ex parte restrictions, scoping procedures, and the process for
preparation and consideration of a proposed decision.
Administrative Law Judges (ALJs) preside over formal cases and
the process is guided by an Assigned Commissioner. Formal cases
involve the preparation of testimony and a formal evidentiary
hearing in which that testimony can be tested through
appropriate cross-examination. Typically, the Commission's
Office of Ratepayer Advocates (ORA) intervenes in a formal rate
case to represent the ratepayer viewpoint. ORA provides a
formal protest, conducts discovery, submits testimony, and
participates in the evidentiary hearing as an independent party.
Formal cases are sometimes resolved through settlements between
the company and ORA, but any settlement must be approved by the
Commission before it can take effect. Ultimately, formal cases
generate a Commission Decision that concludes the case and
either adopts the company's proposed relief, denies relief, or
adopts the relief in part.
Informal cases are initiated by advice letter, and are processed
by the Commission's Communications Division. There is no
proceeding for the informal process and no official procedural
events. Informal cases involve significant data requests and
review by Communications Division staff and the preparation of a
Draft Resolution that is ultimately considered by the Commission
for adoption as a Final Resolution. There is no ALJ or Assigned
Commissioner, no ex parte restrictions, no scoping limitations,
no testimony, and no hearing in an informal case.
Both types of cases involve the same exact questions regarding
revenue requirement and rate design. They are different only in
the procedure that is followed. Historically, informal and
formal rate cases have both taken approximately one year to
complete.
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The California High Cost Fund was established in statute over 25
years ago to continue providing a source of supplemental
revenues to telephone corporations serving rural or
geographically hard to serve areas of California. The PUC
initiated a rulemaking in November 2011 (R.11-11-007) to review
of CHCF in response to market, regulatory, and technological
changes since the program was first established. Subsequently,
the ruling was revised to address additional matters,
modifications, and issues such as the passage of SB 379
(Fuller), Statutes 2012, which modified CHCF 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
broadband-capable facilities in rural areas).
Any modifications to the CHCF support amount provided to small
telephone corporations to service rural or geographically hard
to serve areas impacts the overall proposed rate design within a
rate case filed by a small Local Exchange Carrier (LEC).
A final decision on CHCF has not been issued, which potentially
impacts the final outcome on pending and future small telephone
rate cases.
2)The heart of the matter : Historically the PUC has processed
small telephone
corporation's rate cases within a year of filing. The impetus of
this bill is driven by the uncertainty caused by the PUC's
recent delay in resolving Sebastian Kerman Telephone Company's
rate case. In over two years the PUC has not issued a final
decision on this company's rate case. According to PUC staff,
"Kerman's request for interim relief was denied because they
requested a 56% increase in their CHCF-A draw just one month
after the Commission had rejected a settlement resulting in a
24% increase. The Commission found that it would be inefficient
and unworkable to simultaneously consider potential policy and
ratemaking changes raised by recent legislation in the
rulemaking as well as along with several small LEC rate cases.
Several carriers have had their rate cases frozen pending
completion of the rulemaking; all retain the right to file for
emergency relief, including Kerman. All carriers may also
continue to file annual advice letter to adjust rates to reflect
certain changes in PUC or federal regulations. Kerman is frozen
at 100% of their current CHCF-A draw."
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This bill requires the PUC to issue a final decision within 330
days of the filing of a small telephone company's general rate
case or advice letter. The consequence on the PUC, if it fails
to meet the deadline, would be that the application or advice
letter would be deemed approved as filed by the small telephone
company and effective the first month after the expiration of
360 days after the filing. The deadline in the bill can be
waived by mutual consent of the PUC and small telephone company.
3)Is the PUC meeting statutory timeliness : In 2003, the
Legislature recognized the PUC's
delay in resolving rate and quasi-legislative cases within a
timely manner when it passed AB 1735 (Assembly Utilities and
Committee, Statutes of 2003). The law requires the PUC to
resolve rate-setting and quasi-legislative cases within 18
months of issuance of a case's scoping memo, and grants the PUC
authority to extend this deadline either at the outset of the
proceeding, in the scoping memo, or by PUC decision or
resolution in 60 day increments without limit. However, there
are no consequences for the PUC if it fails to act in a timely
manner or decides not to resolve an open case.
According to the bill sponsors, California Independent
Telecommunications Companies (CITC), during 2012 and 2013, the
PUC issued more than 100 decisions unilaterally extending the
statutory deadlines, affecting more than 50 different
proceedings.
4)Is there a remedy? : The implications of this bill as written
may result in unintended
consequences and potentially leave customers vulnerable to
unreasonable rate increases. While the remedy takes into
consideration PUC delay, it does not consider delays that may
occur on the applicant side. Therefore, the author and this
committee may wish to strike paragraph (c).
To ensure the PUC is issuing a timely final decision on a small
telephone corporation's rate application, the author and this
committee may wish to add amendments to do the following:
If PUC misses the 330-day deadline, the relief
proposed in the application shall be adopted on an
interim basis as of the 360th calendar day following the
initial filing of the rate case, subject to true up at
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the conclusion of the rate case .
If the PUC is not able to resolve the rate case
within the following 6 months, the interim rate design
will become final, effective as of the 360th calendar day
following the initial filing of the rate case and that
rate design will remain in place without any true up
until the PUC concludes the rate case .
Any new rate design adopted in a final decision or
resolution issued after 540 calendar days following the
filing of the rate case will take place on a prospective
basis only, as of the effective date of the final
decision .
Existing language in the bill will remain, allowing
the above requirements to be waived at any time by mutual
consent of the Executive Director of the PUC and the
small independent telephone corporation.
1)Support : The California Independent Telecommunications
Companies argues "the PUC
claims that it can stay the rate case because it is considering
changing its rules for small telephone companies in a separate
proceeding. If such a rationale were legitimate, the PUC could
suspend its work every time a legislator introduced legislation
proposing changes to a PUC administered program."
The California Communications Association (CalCom) claims "when
a rate case is not resolved in a timely manner, unnecessary
ambiguity and complexity arise and the plans to make investments
in infrastructure and capital improvements hurt the telephone
company, however, more importantly, hurt the customers they
serve."
2)Opposition : The Utility Reform Network (TURN) agrees that
company rate cases should be
handled in a timely and reasonable manner however, AB 1693 does
not create the right framework for dealing with these delays.
TURN states "this proposal can only be described as draconian
and will serve harm to ratepayers far worse than the Commission,
resulting in automatic rate increases or automatic increases in
surcharges for the CHCF - A Fund or both."
ORA recognizes the author's efforts to provide timely resolution
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of small telephone companies' general rate case proposals before
the PUC. However, ORA states "the expedited time frame set forth
in the bill may have the unintended consequence of preventing
the PUC from establishing a robust record on these matters, thus
likely impacting its ability to ensure important public purpose
programs from universal telephone service are provided most
prudently consistent with public benefit."
3)Related legislation :
AB 1735 (Chapter 452, Statutes of 2003) by the Assembly
Utilities & Commerce Committee added �1701.5 to the CA Public
Utilities Code to require the PUC to resolve rate-setting and
quasi-legislative cases within 18 months of issuance of a case's
scoping memo, but grants the PUC authority to extend the
deadline either at the outset in the scoping memo or by
resolution in 60 day increments without limit.
AB 2838 (Chapter 1147, Statutes of 2002) by Assembly Member
Canciamilla added � 455.2 to the CA Public Utilities Code to
require the PUC to finish a Class A water corporation rate case
within one year, and if the PUC misses the deadline, it must
approve interim rate relief at an inflationary rate for the
water company.
SB 960 (Chapter 856, Statutes of 1996), the result of a
conference committee made up of Senators Leonard, Peace and Sher
and Assembly Members Conroy, Kuykendall, and Martinez, added
��1701.1, 1701.2, 1701.3, and 1701.4 to the CA Public Utilities
Code to improve the quality and timeliness of commission
decisions, as well as required the commission to submit an
annual report to the Legislature on the number of cases where
resolution exceeded the time periods prescribed in scoping
memos. The Legislative Intent section of SB 960 states:
SECTION 1. It is the intent of the Legislature to ensure that
members of the Public Utilities Commission shall be integrally
and directly involved in, and accountable for, the commission's
decisions. The Legislature intends to enhance commissioner
involvement in decision making, thereby improving the quality
and timeliness of commission decisions.
It is further the intent of the Legislature that the Public
Utilities Commission establish reasonable time periods for the
resolution of proceedings, that it meet those deadlines, that
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those
deadlines not exceed 18 months and be consistent with the rate
case plans, whichever is shorter.
REGISTERED SUPPORT / OPPOSITION :
Support
Opposition
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083