BILL ANALYSIS �
AB 1693
Page 1
REPLACE : 4/18/2014 Changes per consultant.
ASSEMBLY THIRD READING
AB 1693 (Perea)
As Amended April 2, 2014
Majority vote
UTILITIES & COMMERCE 15-0
APPROPRIATIONS 16-0
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|Ayes:|Bradford, Patterson, |Ayes:|Gatto, Allen, Bocanegra, |
| |Bonilla, Buchanan, | |Bradford, Ian Calderon, |
| |Ch�vez, Dahle, | |Campos, Donnelly, Eggman, |
| |Jones-Sawyer, Beth | |Gomez, Holden, Linder, |
| |Gaines, Garcia, Roger | |Pan, Quirk, |
| |Hern�ndez, Jones, Mullin, | |Ridley-Thomas, Wagner, |
| |Quirk, Rendon, Skinner | |Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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)Requires the PUC to 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)Establishes an interim rate period. If the PUC fails to issue
a final decision by the 330th day, the rate design proposed by
the telephone corporation will take effect on an interim basis
beginning 360 calendar days following the filing of the
application or advice letter. This interim rate is subject to
an accounting true-up in the final decision, if the decision
is issued within 540 days of filing. If the decision is not
issued within 540 days, the interim rate will be in place
until the PUC issues a final decision and will not be subject
to an accounting true-up.
3)Requires any new rate design adopted in a final decision or
resolution issued by the PUC after the 540-day period to take
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effect prospectively.
4)Allows the required timeframes to be waived by mutual consent
of the executive director of the PUC and the telephone
corporation.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, additional absorbable costs of less than $100,000
(special fund) to the PUC to operate within the timeframes. In
2006, the PUC deregulated rates for the larger telephone
companies and now only processes small company rate cases for
approximately 10 corporations.
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 they cannot change any rate without PUC review and
approval. The companies are: Calaveras Telephone, Cal-Ore
Telephone, Ducor Telephone, Sebastian dba Foresthill Telephone
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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 PUC proceeding to
address the case. Formal cases are subject to the PUCs
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 PUCs
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 PUC before it can take effect.
Ultimately, formal cases generate a PUC 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 PUCs 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 PUC
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 (CHCF) 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), Chapter 729, Statutes of 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 rate cases within a year of
filing. The impetus of this bill is driven by the uncertainty
caused by the PUCs 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
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current CHCF-A draw."
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, and establishes an interim rate
period if the PUC fails to issue a final decision by the 330th
day to take effect on an interim basis beginning 360 calendar
days following the filing of the application or advice letter.
This interim rate is subject to an accounting true-up in the
final decision, if the decision is issued within 540 days of
filing. If the decision is not issued within 540 days, the
interim rate will be in place until the PUC issues a final
decision and will not be subject to an accounting true-up.
Time frames can be waived by mutual consent of the CPUC's
Executive Director and telephone corporation.
3)Is the PUC meeting statutory timeliness: In 2003, the
Legislature recognized the PUCs delay in resolving rate and
quasi-legislative cases within a timely manner when it passed
AB 1735 (Utilities and Commerce Committee), Chapter 452,
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 sponsor, 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)Support: The CITC 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,
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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."
5)Opposition: ORA recognizes the author's efforts to provide
timely resolution 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."
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083
FN: 0003180