BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1364 - Fuller Hearing Date:
April 1, 2014 S
As Introduced: February 21, 2014 FISCAL/Urgency
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DESCRIPTION
Current law requires the California Public Utilities Commission
(CPUC) to establish and maintain universal service programs to
ensure statewide affordable telephone service and access to
broadband and advanced communications services, funded by
customer surcharges on landline, wireless, and Voice over
Internet Protocol (VoIP) service (Public Utilities Code � 270 to
285) .
Current law effective until January 1, 2015, requires the CPUC
to establish and maintain a California High Cost Fund for A
program (CHCF-A) to support small independent telephone
companies' provision of basic service in rural, high-cost areas
of the state. (Public Utilities Code � 275.6)
Current law 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. (Public Utilities
Code � 275.6)
Current law effective until January 1, 2015, requires the CPUC
to establish and maintain the California High Cost Fund B
(CHCF-B) to provide support to large providers that are Carriers
of Last Resort for provision of basic service in the high-cost
portions of their service areas. (Public Utilities Code � 739.3)
Current federal law and decisions of the Federal Communications
Commission (FCC) provide federal 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. (47
U.S.C. 254)
This bill would extend the sunset date of the CHCF-A and CHCF-B
for four years to January 1, 2019.
This bill would go into effect immediately as an urgency
measure.
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 federal and state high-cost 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. Keeping as many people as possible connected
to the network increases the value of the network for all.
Thus, all customers of landline, wireless, and VoIP service are
required to pay the surcharges that support these programs.
Federal High-Cost Program: Connect America Fund - 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 build-out
requirements and demonstrate that their networks provide minimum
broadband speeds of 4 megabits per second (MBPS) downstream and
1 MBPS upstream. Millions in annual federal funding is at risk
if California carriers do not meet these requirements.
State High-Cost Programs: California High Cost Fund - California
has two programs administered by the CPUC to promote universal
service in rural, high-cost areas, one for each of the two major
groups of providers of basic telephone service. Each program is
funded by a customer surcharge assessed as a percentage of
intrastate service. The CPUC adjusts the surcharge, typically
on an annual basis, to ensure adequate funding to cover carrier
claims administrative costs.
California High Cost Fund B (CHCF-B) - The first group includes
the large local exchange carriers (AT&T California, Verizon of
California, and Frontier Telecommunications Company of
California) and Cox California Telecom, a competitive local
exchange carrier, each of which is a Carrier of Last Resort.
These companies are eligible for support from the CHCF-B to
offset the cost of providing service in the high-cost Census
Block Groups in their service areas where the cost of service
exceeds $36 per month. The CPUC has an open rulemaking to
update the carrier claim process to reflect 2010 Census Block
Groups.
Carrier claims from the CHCF-B Fund has been declining in recent
years from about $50 million in 2010-11 down to a projected
program budget of $22.4 million for 2014-15. Effective
February 1, 2014, the CHCF-B surcharge rate was reduced from
0.30% in 2011 to 0.00%, reflecting anticipated repayment in 2014
and 2015 of a $134 million loan to the State of California.
California High Cost Fund A (CHCF-A) - The CPUC also administers
the CHCF-A program to support the 10 small rural telephone
companies under rate-of-return regulation. The current budget
is about $34 million for 2014, with a surcharge of 0.18 percent
of intrastate service charges. Current recipients of CHCF-A
support are:
Calaveras Telephone is located in Calaveras County,
and is headquartered in the small town of Copperopolis;
Cal-Ore Telephone is headquartered in Doris, and
serves the Butte Valley and Tulelake areas in northern
California between Mt. Shasta and the Oregon border;
Ducor Telephone is headquartered in Ducor, which is
located in the southern San Joaquin Valley. It also
serves Rancho Tehama, west of the Corning/Red Bluff area,
and Kennedy Meadows, at the southern end of the Sierra
Nevada;
Foresthill Telephone (dba Sebastian) is located in
Foresthill, a small historical gold mining town,
northeast of Sacramento and east of Auburn;
Kerman Telephone (dba Sebastian) serves the Kerman
area in western Fresno County;
Pinnacles Telephone is headquartered in Paicines and
serves the rural areas of the Idria Valley and the San
Benito Valley;
Ponderosa Telephone is headquartered in O'Neals and
serves areas in Madera, Fresno, and San Bernardino
counties;
Sierra Telephone is headquartered in Oakhurst and
serves areas in eastern Madera and Mariposa counties; and
Siskiyou Telephone is headquartered in Etna, and
serves a large area of Siskiyou County.
Volcano Telephone is located primarily in Amador
County, and is headquartered in the small town of Pine
Grove near Jackson.
Each company's draw 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 Office of
Ratepayer Advocates (ORA) 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. SB 379 (Fuller, 2012) requires
the CPUC to include in small company rate calculations the cost
of all reasonable investments necessary to provide
broadband-capable facilities.
In 2011 the CPUC opened a rulemaking 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"
(R.11-11-007). 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. The
proceeding has been subject to continued delay, and all company
rate cases are on hold until the proceeding is completed, which
is now expected to be the end of 2014 at the earliest, according
to another new Amended Scoping Memo released March 18, 2014.
COMMENTS
1. Author's Purpose . The author states the following as
the purpose of the bill:
Rural residents and businesses have a critical need to
be connected through both the telephone and the
Internet for public safety, economic, educational and
other reasons. Building, operating and maintaining
telecommunications networks in rural areas is
extremely expensive on a per customer basis due to
tough terrain, greater distances between customers,
and sparse populations. Due to these factors, there's
generally no business case for providing affordable
communications services in rural areas without cost
support from federal and state universal service
programs?This bill will help to maintain lower rates
for rural customers and provide access to
telecommunications services than would be otherwise
available without state and federal high cost support.
All California telephone users - whether they use
landline, VoIP, or wireless technologies, and whether
they live in rural or urban areas - pay a surcharge on
their intrastate usage to support the availability of
affordable telephone service in rural, high-cost areas
of the state, ensure universal service in virtually
every area of the state, and thereby enhance the value
of the state's telecommunications network for all
Californians.
2. Maximizing Federal Funding for California . In addition
to administering the CHCF-A and CHCF-B and all other state
universal service programs, the CPUC plays a role in
administering federal universal service programs for
California participants. All California customers of
landline, wireless, and VoIP service pay the state and
federal surcharges that fund all of these programs. Given
the overlap of state and federal programs, ensuring maximum
California participation in the federal programs can help
minimize costs of the counterpart state programs.
Unfortunately, California customers pay much more into the
federal universal service programs than comes back to
California participants, and the net contribution is
growing each year - up to $380 million in 2012 (see
attached chart with data compiled by CPUC staff).
To benefit all the customers who are paying universal
service surcharges pursuant to Sections 270 and 285 of the
Public Utilities Code, the CPUC should make it a priority
to ensure that its policies and practices maximize every
opportunity for increasing California's take of federal
funds. In addition, the language in Section 270 which
provides that surcharge fees are held in trust and
available for use only for the benefit of those who pay
them should be updated to conform with AB 841 (Buchanan,
2011), which required VoIP customers to pay all the
surcharges. The references to "ratepayers" and "telephone
corporations" are no longer accurate because VoIP service
is not always provided by a "telephone corporation" and the
charges for service are not utility "rates." Further,
conformity is essential to preserve these surcharges as
fees that support benefits for those who pay them. Thus,
the author and committee may wish to consider amending the
bill to require the CPUC, in administering universal
service programs listed in Section 270, and in
administering state participation in federal universal
service programs, to prioritize policies and practices that
maximize the amount of federal funding to California, and
to make conforming changes.
3. Related Legislation . AB 1693 (Perea, 2014) requires the
CPUC to resolve A-Fund company rate cases within one year
of filing or proposed rates go into effect.
4. Ratepayer Impact . This bill extends for four years two
state programs funded by existing customer surcharges and
includes requirements to maximize federal funding that
could potentially lessen demand for state support funded by
these surcharges.
POSITIONS
Sponsor:
California's Independent Telecommunications Companies
Frontier Communications
Support:
California Communications Association
Rural County Representatives of California
Oppose:
None on file
Jacqueline Kinney
SB 1364 Analysis
Hearing Date: April 1, 2014
ATTACHMENT A
Annual Total USF contributions by California Customers and
Disbursements to California Participants in Federal USF
Programs. (Lifeline, E-Rate, High-Cost, and Health Care
Networks) (Source: CPUC January 2014, derived from annual FCC
Universal Service Monitoring Reports)
2012 - Net Contributor
Total CA USF Contributions: $963,027,000 (10.92% of total
federal contributions)
Total CA USF Disbursements: $582,478,000 (6.69% of total
federal disbursements)
***$ 380,549,000 more contributed to federal USF than disbursed
to California.
2011 - Net Contributor
Total CA Contributions to USF: $902,067,000 (10.92% of total
federal contributions)
Total USF Disbursements to CA: $576,380,000 (7.07% of total
federal disbursements)
***$ 325,687,000 more contributed to federal USF than disbursed
to California.
2010 - Net Contributor
Total CA Contributions to USF: $885,312,000 (10.99% of total
federal contributions)
Total USF Disbursements to CA: $616,486,000 (7.75% of total
federal disbursements)
***$ 268,826,000 more contributed to federal USF than disbursed
to California.
2009 - Net Contributor
Total CA Contributions to USF: $822,527,000 (11.05%of total
federal contributions)
Total USF Disbursements to CA: $583,849,000 (8.05% of total
federal disbursements)
***$ 238,678,000 more contributed to federal USF than disbursed
to California.