BILL ANALYSIS
AB 140
Page 1
Date of Hearing: April 2, 2001
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
AB 140 (Strom-Martin) - As Amended: March 27, 2001
SUBJECT : Rural telecommunications infrastructure: grants.
SUMMARY : Specifically, this bill : establishes a grant program
for the construction of telecommunications infrastructure, under
the Public Utilities Act. The program would be in effect until
January 1, 2006. The grant program will be:
1)Funded through the existing California High Cost Fund-A
(CHCF-A) and California High Cost Fund-B (CHCF-B) in the
respective Administrative Committee Funds
2)Subject to specified annual funding limits from each of the
funds.
3)Authorized through the California Public Utilities Commission
(CPUC), which will award the grants and establish a working
group to develop technical criteria for evaluating the grants.
EXISTING LAW creates CHCF-A Administration Committee and CHCF-B
Administration Committee to advise CPUC regarding programs to
provide for transfer payments to telephone corporations
providing services in high cost areas and to carry out programs
under the commission's authority.
FISCAL EFFECT : $10 million through existing ratepayer
surcharges
COMMENTS :
The History of California's High Cost Funds.
There are two High Cost Funds which operate to provide subsidy
to provision of high cost local telephone service in California.
CHCF-A provides for transfer payments to the small, independent
telephone companies in California providing telephone service in
high-cost areas. The fund allows for fair and equitable rate
structures throughout the state by providing payment as subsidy
to the telephone companies whose basic exchange access line
rates may be set below their average cost to serve these mostly
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rural areas.
CHCF-B established in 1996 through CPUC Decision (D.) 96-10-066,
provides for the same sort of equitable statewide rate structure
for the larger carriers. The difference is that the CHCF-B
surcharge monies are flowed back to ratepayers through either a
bill surcredit or through direct rate reductions for other than
basic exchange access line services. CHCF-B is a much larger
fund, and the rate reductions it funds can be targeted to
competitive services, like local toll service. The subsidy
level for CHCF-B is determined by taking a formula calculated in
1996, using 1994 carrier costs, to determine the statewide
average cost to provide an access line. The average is based on
costs of Pacific Bell, Verizon, Roseville Telephone and Citizens
Communications. In the 1996 decision certain rate centers in
each of these carrier's service territories were determined to
be "high cost", or above the average cost of about $20.50.
As the number of access lines in the state has grown, the amount
of subsidy required has grown. The average cost has not been
re-calculated since the 1996 decision, however, despite the fact
that overall costs of providing telecommunications services have
gone down.
Rural Infrastructure.
AB 140 seeks to modify existing Public Utilities Code Section
270 by allowing moneys in the CHCF-A and CHCF-B to be diverted
to the specified grant programs until January 1, 2006, when
existing Section 260 language becomes operative again. The
grants would fund the establishment of telecommunications
service in areas not currently served by existing local exchange
carriers. The purpose of this bill is to try to bridge the
divide between communities in California which have no basic
telephone service at all, and those with access to a broad array
of wired and wireless services. The cost of infrastructure to
many of these areas and their remoteness from other communities
have been the obstacles to many communities in getting basic
telephone service.
Who Gets the Grants and Why.
AB 140 specifies that grants for rural infrastructure can be
applied for by community-based groups representing a qualifying
community. Among the criteria specified are population, with
consideration given to communities with schools, hospitals and
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health clinics. The measure also requires that a local agency
must act as fiscal agent for any community-based group applying
for and obtaining such a grant. Finally, median household
incomes of qualifying communities shall be no greater than the
top income level of the Universal Lifeline Telephone Service
(ULTS) index.
Technology criteria for infrastructure proposals shall be
determined by a government-industry working group established by
CPUC. Engineering feasibility studies, topographical maps,
recommendations or justifications for the preferred
technologies, network compatibility statements from one or more
interconnecting carriers and cost projections for
interconnection and recurring service and letters of commitment
from at least 75 percent of the unserved population are among
the required materials to be included in grant proposals. Grant
applicants shall also seek federal sources of funding in
conjunction with the local subsidies for construction of
infrastructure.
Among the criteria CPUC shall consider in evaluating grant
applications are cost-effectiveness, number of people served,
level of local support, ability of the community served to pay
for the delivered services and the effect on public health and
safety. Any telecommunications provider under CPUC's
jurisdiction that is capable of providing service to a grant
funded area shall be afforded the opportunity to provide
interconnection to the public switched network.
There is a provision in the criteria for grant approval and
compensation in proposed Public Utilities Code Section 276.5 (7)
(d) (page 9, lines 21-23) that provides that grant applicants
rejected by CPUC may be reimbursed for the cost of preliminary
engineering feasibility studies. Verizon, in its letter of
opposition to AB 140 requests that the local carriers required
cooperate in development of these studies should be specifically
included in any compensation provided by this section.
Staff Recommends:
The infrastructure gap between low-income rural communities
without basic telephone service and communities with access to
many telecommunications technologies is significant. AB 140 is
consistent with the Moore Universal Telephone Service Act and
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with existing CPUC universal service goals. The measure seeks
only to provide basic infrastructure for the most appropriate
telecommunications technology in the most cost-effective form
for communities otherwise unable to pay the huge cost of having
a telecommunications company provide installation. This cost
can sometimes run to more than five thousand dollars per line
for installation and line extension.
The two high cost funds are appropriate sources of funding for
these purposes, up to a limited extent. CHCF-A has limited
available funding. This measure caps annual funding for
infrastructure grants at $10 million. The author may wish to
consider an amendment to require an audit by CPUC of the
existing CHCF-B and a re-calculation of the statewide average
cost which determines the amount of subsidy per line provided by
CHCF-B. If costs in the state have gone down, this audit and
adjusted cost will result in lower overall subsidy and surcharge
payment by all California telecommunications ratepayers. Unlike
the program outlined in AB 140, CHCF-B subsidies are not means
tested, and many high cost lines in high income areas are being
subsidized. An additional $10 million surcharge burden on
ratepayers amounts to less than fifty cents of subsidy per line
per year. However, it is recommended that CHCF-B be
recalculated and the $10 million annual cap for the AB 140 grant
program come from the residual budgeted amount for CHCF-B after
the adjustment is made.
Specifically , the committee recommends the following amendments.
1)On page 9, line 23, after "studies", insert
including any approved cost of the local telecommunications
carrier contributing to the studies,
2)On page 7, delete lines 32-36 and replace with:
"shall be funded out of the California High Cost Fund-B after
completion of an audit of that Fund by the CPUC and
recalculation of the statewide average cost to serve stated in
Decision 96-10-066. Any reduction in required subsidy going
forward resulting from this recalculation and subsequent
elimination or adjustment of any rate center subsidy levels
shall be returned to ratepayers, except for a residual amount
not to exceed $10 million per year to fund the specified grant
program through December 31, 2005. The audit and recalculation
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shall be completed and implemented no later than June 30, 2002."
REGISTERED SUPPORT / OPPOSITION :
Support
Konocti Unified School District
Double Eagle Ranch Residents
Opposition
Verizon (Unless Amended)
Analysis Prepared by : Kelly Boyd / U. & C. / (916) 319-2083