BILL ANALYSIS �
SB 1364
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Date of Hearing: June 23, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 1364 (Fuller) - As Amended: May 27, 2014
SENATE VOTE : 37-0
SUBJECT : Telecommunications universal service programs.
SUMMARY : This bill would extend the sunset date of the
California High Cost Fund-A (CHCF-A) and High Cost Fund-B
(CHCF-B) universal telecommunications service programs to
January 1, 2019. Specifically, this bill :
1)Extends the sunset date of CHCF-A and CHCF-B from January 1,
2015 to January 1, 2019.
2)Requires the California Public Utilities Commission (PUC), in
administering the universal service programs and state
participation in federal universal service programs, to
prioritize policies that maximize the amount of federal
funding to California.
3)Deletes a provision of law related to universal service
program funds, which states that "moneys in the funds are the
proceeds of rates and are held in trust for the benefit of and
to compensate telephone corporations for their costs of
providing universal service."
EXISTING LAW
a)Requires the PUC 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)
b)Requires the PUC, until January 1, 2015, to establish and
maintain the California High Cost Fund-A to subsidize small
independent telephone corporations' provision of basic service
in rural areas of the state. (Public Utilities Code � 275.6)
c)Requires the PUC, in administering CHCF-A, to promote access
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to advanced services in rural areas and to include the cost of
all reasonable investments necessary to provide voice services
and deployment of broadband-capable facilities in the rate
base of small independent telephone corporations. (Public
Utilities Code � 275.6)
d)Requires the PUC, until January 1, 2015, to establish and
maintain the California High Cost Fund-B to subsidize large
providers that are Carriers of Last Resort for provision of
basic telephone service to residential customers in high-cost
areas. (Public Utilities Code � 739.3)
FISCAL EFFECT : Unknown.
COMMENTS :
1)Author's statement: According to the author, "SB 1364 will
help to maintain lower rates for rural customers and provide
access to telecommunications services that would be otherwise
unavailable without state and federal high cost support. 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. Many technologies, such as
wireless and Voice over Internet Protocol (VoIP), would not be
available in rural areas if not for the existing networks
built by the telecommunications companies receiving cost
support from universal service programs."
2)Universal telephone service. Universal telephone service is
the principle that all Americans should have access to
high-quality, affordable telecommunications services. Both
federal and state programs provide subsidies to carriers that
help pay for the costs associated with providing service in
rural, remote, and sparsely populated areas (i.e., where
service would otherwise be of high cost). The programs are
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funded by bill surcharges paid by most landline, wireless, and
VoIP customers. The goal is to keep everyone connected through
affordable rates, as many argue the value of the network
increases when everyone is connected to the telecommunications
network.
3)Federal universal service: the Connect America Fund (CAF). In
2011, the Federal Communications Commission (FCC) reformed its
universal voice service programs to accelerate broadband (and
voice) build-out to rural, high-cost areas. CAF is funded by
customer surcharges on interstate services, and carriers that
accept funding must meet minimum network (i.e., broadband
speed) requirements. If carriers do not meet these
requirements, millions in annual federal funding to California
is at risk.
4)Universal service in California. California has established
various public programs to promote universal service.<1> The
California High Cost Fund-A (CHCF-A) and High Cost Fund-B
(CHCF-B) support universal telephone service in rural,
high-cost areas. In conjunction with federal funding, these
programs ensure rates for Californians in rural areas remain
reasonable and comparable to rates in urban areas. CHCF-A and
CHCF-B are administered by the PUC and funded by a customer
surcharge on all telecommunications customers' intrastate
services. The PUC adjusts the surcharge, typically on an
annual basis, to ensure sufficient funding for carrier claims
and administrative costs.
a) CHCF-A. This fund supports small rural telephone
companies under rate-of-return regulation. Although
thirteen companies are eligible for support from CHCF-A,
only ten companies currently receive funding. The 2014
budget is about $34 million, with a surcharge levied at
0.18% of intrastate service charges.
The level of support received by a carrier is determined as
part of a PUC rate proceeding - either via a general rate
case (GRC) proceeding or an advice letter. In both cases,
the PUC calculates a "revenue requirement" needed to cover
expenses, a return on capital investment, and a profit.
Customer rates are established based on the revenue
requirement, and are subject to a statutory maximum of 150%
of rates for comparable services in urban areas. The
-------------------------
<1> http://www.cpuc.ca.gov/puc/telco/public+programs/
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difference between the revenue requirement and the revenue
generated from rates is covered by CHCF-A.
The PUC opened a rulemaking in 2011 to review CHCF-A to
determine the "most appropriate, efficient, and effective
means of minimizing rate disparity and promoting
California's goal of providing universal service."<2> The
review was initiated in response to the increased use of
other technologies in telecommunications, such as the FCC's
shift to support broadband (and the observation that a
reduction in federal funding will correspond to increased
support from CHCF-A). The proceeding has been repeatedly
delayed, with all rate cases on hold, and is not expected
to be completed until December 2014 at the earliest.<3>
b) CHCF-B. This fund supports large companies that are
"Carriers of Last Resort" - currently AT&T California,
Verizon of California, Frontier Telecommunications Company
of California, and Cox California Telecom. Pursuant to
CHCF-B program rules, a Carrier of Last Resort must offer
basic telephone service to all residential customers within
a designated service area, and is eligible for CHCF-B
support 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 PUC has opened a rulemaking to update the carrier claim
process to reflect 2010 Census Block Groups. A proposed
decision has been issued to adopt provisions implementing
updated cost calculations.<4>
Carrier claims from CHCF-B have been declining in recent
years, from about $50 million in 2010-11 to a projected
$22.4 million in 2014-15. The 0.30% CHCF-B surcharge rate
established in 2011 was reduced to 0% on February 1, 2014,
reflecting anticipated repayment of a $134 million loan to
the State of California.
---------------------------
<2> PUC Order Instituting Rulemaking R.11-11-007
<3> R.11-11-007.
http://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M090/K936/909367
59.PDF
<4> R-09-06-019.
http://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M090/K098/900983
93.PDF
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1)Recent 270(b) amendments. In addition to the main goal of this
bill - an extension of the sunset on CHCF-A and CHCF-B - the
bill proposes to amend Section 270(b) of the Public Utilities
Code. Specifically, it seeks to remove the first sentence of
270(b), which reads "Moneys in the funds are the proceeds of
rates and are held in trust for the benefit of ratepayers and
to compensate telephone corporations for their costs of
providing universal service." The Senate Energy Committee
analysis states the intent behind this amendment is to conform
statute with AB 841 (Buchanan, 2011), which required VoIP
customers to pay all the surcharges. The analysis expresses
concern that statutory references in Section 270(b) 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."
However, removal of language stating that moneys in the funds
are held in trust may have unintended consequences - the
Legislature may borrow from these funds and not reimburse the
monies at a later point. Therefore, the author may wish to
consider an amendment reinserting the phrase "held in trust"
into Section 270(b), as follows:
"Moneys in the funds are held in trust and may only be
expended pursuant to this chapter and upon
appropriation in the annual Budget Act or upon
supplemental appropriation."
As this section of code affects several universal service
funds other than CHCF-A and CHCF-B (including the
Lifeline, Deaf and Disabled, Payphone Service,
Teleconnect, and the California Advanced Services Funds),
it is unclear the extent to which this sequence of
amendments - in a bill whose primary goal is to extend
the CHCF-A and CHCF-B programs - will affect the
administration of these other universal service funds.
2)Amendments maximizing federal funding to California.
Maximizing California's participation in the federal high cost
programs can minimize expenditures of the state high cost
programs. However, California has been making net
contributions to the federal universal service programs (i.e.,
paying in more than receiving back) - amounting to $380
million in 2012. This bill contains provisions directing the
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PUC, in administering the universal service programs and state
participation in federal universal service programs, to
prioritize practices and policies that maximize the amount of
federal funding to California.
The author may wish to consider an amendment to this provision
that encourages (rather than directs) the PUC to maximize
federal funding, as follows:
"The commission, in administering the universal
service program funds listed in subdivision (a), and
in administering state participation in federal
universal service programs, shall make it a priority,
and take all reasonable steps consistent with the
state's universal service policies and goals, is
encouraged to maximize , consistent with the state's
universal service policies and goals, the amount of
federal funding to California and to California
participants in the federal programs."
3) Related legislation . AB 1693 (Perea, 2014) requires the
PUC to resolve A-Fund company rate cases within one year of
filing or proposed rates go into effect.
4)Support and opposition. Supporters state that extension of the
sunset on CHCF-A and CHCF-B will help ensure that affordable
telephone service remains available in rural, high-cost areas
of the state. They further state the bill will help maintain
lower rates for rural customers and provide access to
telecommunications services that would be otherwise
unavailable without state and federal high cost support.
In opposition unless amended, The Utility Reform Network
(TURN) argues that recent amendments proposing revisions to
Public Utilities Code Section 270 create unnecessary risk for
ratepayers. TURN contends that these amendments impact all of
the Commission's Public Purpose Programs (including the High
Cost Funds, LifeLine, the Teleconnect Fund and the Deaf and
Disabled Program) by fundamentally changing the focus of the
programs. TURN states that elimination of the term "telephone
corporation" from this section of statute may allow those
telecommunications companies that have refused to submit to
the jurisdiction of the Commission to receive ratepayer funded
subsidy money. This is because some telecommunications
companies have repeatedly argued that they are not subject to
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the requirements and responsibilities of telephone
corporations set out in the Code and PUC regulations.
Furthermore, TURN states it does not support a policy that
prioritizes federal funding at the expense of addressing
state-specific concerns.
REGISTERED SUPPORT / OPPOSITION :
Support
AT&T
California Communications Association (CalCom)
California State Association of Counties (CSAC)
California's Independent Telecommunications Companies (CITC)
Frontier Communications
Office of Ratepayer Advocates (ORA)
Rural County Representatives of California (RCRC)
Opposition
The Utility Reform Network (TURN) (unless amended)
Analysis Prepared by : Brandon Gaytan / U. & C. / (916)
319-2083