BILL ANALYSIS
AB 1200
Page 1
Date of Hearing: April 16, 2001
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
AB 1200 (Cardenas) - As Amended: April 16, 2001
SUBJECT : Public Utilities Commission.
SUMMARY : This bill requires the California Public Utilities
Commission (CPUC) to conduct a study regarding the ways in which
to amend, revise and improve rules governing the handling of
telecommunications matters. Specifically, this bill requires
CPUC to:
1)Review its rules and procedures among telecommunications
carriers to ensure that no provider has an undue competitive
advantage.
2)Address how timeframes for reviewing matters at CPUC can be
reduced, including for advice letters, application
proceedings, complaint proceedings, rulemakings and
investigations.
3)Ensure that new services can be brought to customers as
quickly as possible.
4)Provide more flexibility to utilities in providing services to
meet competition.
5)Review whether matters currently handled under an application
process should be instead handled under informal filing rules.
6)Submit the study required by subdivision (a) to the
Legislature on or before May 1, 2002.
EXISTING LAW requires incumbent local exchange carriers (ILECs)
to file applications with CPUC to significantly increase service
prices, introduce new services or to otherwise materially change
circumstances of service.
Requires ILECs to file advice letters to provide pricing
flexibility for discretionary or partially competitive services,
make non-substantive changes to tariffs or to modify services in
a non-substantive manner.
AB 1200
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Requires CPUC complete ratemaking and compliance proceedings
within an 18 month timeframe and adjudicatory proceedings within
one year.
FISCAL EFFECT : Unknown.
COMMENTS :
Regulatory History .
CPUC regulates local, intraLATA and intrastate
telecommunications services. In 1995 intraLATA (local toll)
service was opened up to competition, allowing long distance
carriers to offer local toll service to customers. In 1996 the
intrastate long distance market in California was determined to
be workably competitive and AT&T was no longer regulated as a
dominant carrier in that market held to more stringent
regulatory requirements than the other non-dominant carriers.
In 1997 the entire local market was opened to competition with
ILECs, enjoying monopoly market share, held to more stringent
regulatory requirements than the competitive local exchange
carriers (CLECs) that were now entering the market.
The long distance market was initially opened to competition
with the breakup of AT&T in 1982 under terms outlined in the
Modified Final Judgment in Federal Court of Judge Greene. In
California, from 1982 through 1996, AT&T, as the dominant
carrier in the intrastate long distance market, was required to
submit financial and market reporting to CPUC and to submit
tariffs for price changes subject to approval on 30 days'
notice. CPUC's internal division governing telecommunications
submitted an annual report on the market status of the
intrastate long distance market, and in its non-dominant
interexchange carrier (NDIEC) rulemaking, CPUC determined in
1996 that AT&T no longer had market dominance. It was
substantively confirmed that AT&T had less than 60% market share
for intraLATA long distance and that other carriers combined to
account for in excess of 40% market share.
In 1997 it was determined that ILECs had lost some initial
residential and business market share in the local service
market. Estimates put Pacific Bell's share of residential local
service market at 97%, with GTE (now Verizon), Roseville
Telephone and Citizens Communications, all retaining slightly
more than 97% market share for residential exchange services. A
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January 2001 San Francisco Chronicle article written by Todd
Wallack, with data provided by Pacific Bell, put the local
company's residential market share for 200 at 99%. The other
local companies had similarly gained back some of the market
share they had initially lost to other providers.
Under reforms ordered by Senate Bill 960 (Chapter 2, Statutes of
1998), CPUC reduced the statutory amount of time required to
resolve various filings and proceedings and determined that
adjudicatory matters (complaints) had to be resolved within a 12
month timeframe and other matters within 18 months. With the
reforms instituted under local competition and the New
Regulatory Framework (NRF) regulation applied to ILECs, carriers
reporting was significantly reduced and many rate matters could
be handled through the informal advice letter process, which can
be resolved in 30 days. Formal applications continued to be
required to increase monopoly rates, to exercise pricing
flexibility outside the parameters of NRF, or to re-categorize a
monopoly (Category I), discretionary or partially competitive
service (Category II) to a fully competitive (Category III)
status. With pricing restraints relaxed, the volume of advice
letters soared and price changes occurred much more frequently
than under the previous cost of service rate case cycle (once
every five years).
CPUC conducts regular reviews of NRF requirements of ILECs and
has reduced reporting requirements and eliminated many of the
pricing constraints on ILECs.
Who Competes with Whom ?
In the intrastate long distance market, no one carrier has
market dominance, and all carriers file rates with CPUC, but not
subject to stringent review and approval. Rate changes may
occur on very short notice.
In the local telecommunications market, the ILECs maintain
monopoly control of all residential exchange services and retain
market dominance for all business services. Business services
are all either Category II and Category III. Category III
services are subject to full pricing flexibility and most of
these services' revenues are outside regulatory control or
accounting. CLECs are estimated to have less than 1 percent to
about 2 percent of the residential market in the state and may
account for as much as 30% of the business intraLATA market and
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between 20 and 30% of the business local service market.
"Competitors" in the local telephone market are CLECs, those
with monopoly control (residential market) or market dominance
(business market) are the ILECs. The ILECs do not compete with
each other, but each serve within their own service territories.
Pacific Bell and Verizon both have CLEC operations, but even as
CLECs, neither of these companies competes in the other's
service territory.
Rule changes Needed ?
AB 1200 calls for a study and report to the Legislature by May
1, 2002 by CPUC regarding many of its administrative and
regulatory formats and timeframes. The existing timeframes for
most CPUC procedures have been revised within the last three to
four years, and CPUC is currently reviewing its advice letter
and other informal processes. There has been no significant
market structure change in the local telecommunications market.
It appears CPUC is being responsive in attempting to address
concerns with process and timing.
It should be noted that while there are statutory limits, much
of the lag time that market participants complain of regarding
CPUC is that final decisions are not voted on by the
Commissioners in a timely fashion. For instance, there are two
major complaint cases pending against Pacific Bell for which the
one year statutory deadline applies. One of the cases was filed
in March of 1998, the assigned commissioner extended the
statutory deadlines beyond March 1999, an assigned
administrative law judge's ruling was issued in August of 1999,
and the case has yet to be voted on - to the detriment of all
parties. It is now more than two years beyond the statutory
deadline, the evidentiary portion of the case is closed more
than two years, and no decision has been voted out. The other
complaint case referenced has lagged nearly as long without a
decision. Cutting down on staff time spent reviewing filings or
making more filings informal will not totally relieve the
problem of closing the process.
It should also be noted that many of the formal complaints
before CPUC in the past three years arose because a competitor,
a consumer group or some other party noted a problem with a rate
or a service which had been approved under an informal process.
AB 1200
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Staff Recommends .
Ordering CPUC to review its internal processes and timelines is
advisable. CPUC on its own has already begun reviewing many of
these processes, and a report to the Legislature seems to be a
reasonable task to ensure that thorough review has taken place
and to better inform the legislature about the processes at
CPUC. Staff does recommend that the author amend the measure to
add at least six months to the timeframe for such an undertaking
and report to the legislature. There have been no significant
market changes in the local telecommunications market for
incumbents in recent years, and the rules for new competitors
are already very streamlined.
It may be advisable to allow CPUC to adjust to the pending
Federal Section 271 clearance sought by the largest local
telecommunications carrier in the state, Pacific Bell. CPUC may
need to watch how the local service market may change if Pacific
Bell is allowed into the long distance market in the near
future. Currently there remains a monopoly structure for local
residential telephone services and it isn't likely significant
change would be proposed by CPUC within the next year. Adding
an additional six months or a year to the timeframe may allow
CPUC to better determine if significant long term changes are
warranted.
REGISTERED SUPPORT / OPPOSITION :
Support
Pacific Bell (sponsor)
Sweetwater Union High School District
Economic Alliance
California Manufacturers & Technology
Neighborhood Empowerment & Economic Development, Inc.
Mid Valley Chamber of Commerce
Amante & Shaffer, LLP
BV Engineering
Newport Harbor Area Chamber of Commerce
San Diego's Voice for Binational Business
Sor Juana Ines
Chula Vista Chamber of Commerce
Highland Senior Center
Lao Family Community of Fresno, Inc.
NAACP - Fresno Branch
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California Telephone Association
Opposition
California Cable Television Association (unless amended)
AT&T (unless amended)
Analysis Prepared by : Kelly Boyd / U. & C. / (916) 319-2083