BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 442 - Levine Hearing Date:
June 29, 2004 A
As Amended: June 21, 2004 FISCAL B
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DESCRIPTION
Current law requires the California Public Utilities
Commission (CPUC) to regulate telephone corporations.
Current law establishes broad regulatory goals for the
CPUC, including just and reasonable rates as well as
adequate and efficient service, but gives the CPUC broad
latitude to accomplish those goals.
This bill requires the CPUC to conclude a proceeding by
January 1, 2006 to develop rules for harmonizing the
regulation of the communications industry for the following
purposes:
q Elimination of regulations that are no longer
necessary or appropriate as a result of
technological advancements and competition.
q Promoting competition.
q Promoting investment.
q Promoting economic growth.
This bill authorizes the CPUC to exempt telephone companies
from existing rules and orders.
This bill declares the CPUC shall rely on competitive
forces to promote consumer choice and advance consumer
interests.
The bill declares that transmission of communications over
the Internet does not make a corporation subject to the
CPUC's jurisdiction.
BACKGROUND
There is growing competition in the telephone industry,
made possible by state and federal law which recognizes the
technological changes in the industry. In some
telecommunications markets, mainly long distance and
wireless services, competition is robust, while in other
markets, such as the local telephone arena, competition is
developing more slowly.
The fight over market share plays out daily in Congress,
the Legislature, at the Federal Communications Commission
(FCC), and at the CPUC as telephone companies jockey for
any statutory, regulatory or legal advantage that will give
them an advantage in the marketplace. The Legislature has
traditionally resisted picking winners and has instead been
focused on trying to ensure California's telephone users
benefit from, and don't become casualties of, the
telecommunication industry's "market forces."
Moving from a monopoly structure to one promoting
competition means telecommunications companies are
regulated differently. The incumbent telephone companies
used to have everyone as a customer, so they were fully
regulated in exchange for being given a corner on the
market. Now that the marketplace has been opened up to
competition, the incumbent phone companies view the fact
that they're losing customers as sufficient justification
for eliminating regulation. Not surprisingly, the new
competitors on the block who are picking up customers feel
incumbent telephone company regulation should be relaxed
only once competition is firmly established and the
incumbent companies aren't going to win based on the
advantages of incumbency.
COMMENTS
1.New Bill . Prior to June 15, this was a bill by
Assemblyman Richman dealing with school finance and pupil
enrollment. The June 21 amendments changed the author
from Assemblyman Richman to Assemblyman Levine. The new
language in this bill is substantially similar to the
language in AB 2768 (Richman), which was held on the
Assembly Appropriations Committee suspense file in May
2004.
2.Changing The Mission of the CPUC . The CPUC's
predecessor, the Railroad Commission, was established by
the voters in 1909 to protect utility ratepayers. This
measure appears to change the mission of the CPUC from
protector of the ratepayer to a promoter of economic
development and a reliance on competitive forces. For
example, Page 4, Lines 14-16 require the CPUC to "rely on
competitive forces . . . to promote consumer choice and
to advance the interests of consumers, whenever
possible."
Some would argue relying on "competitive forces" to
advance the interests of telephone customers won't truly
protect telephone customers. It was those same
"competitive forces" that forced phone users to suffer
through having unauthorized charges being "crammed" onto
their bill and being "slammed" over to another long
distance provider, just to name two examples of
overzealous competition that eventually prompted the
Legislature to step in and impose a number of
restrictions. Furthermore, competition in the cable
television market, in the form of satellite television
providers, has not led to rate reductions for cable
customers.
The CPUC's job is to make sure utility rates are as low
as possible, consistent with reliable service.
Accomplishing this goal would contribute mightily to
economic growth, but this bill clearly envisions a more
comprehensive view of economic growth, thereby turning
the CPUC into an economic development agency. The
ability to set utility rates and direct utility
investment gives the CPUC powerful tools for influencing
economic growth. However, forcing the CPUC to pursue
economic growth for individual companies could be bad for
ratepayers if, in the pursuit of that economic growth,
the CPUC orders companies to make uneconomic investments
or shifts costs to residential and small commercial
customers.
3.This Applies To You, But Not You . The bill specifically
authorizes the CPUC to exempt companies from existing
rules and orders. Among other things, this provision
provides the CPUC with a legislative invitation to
rescind its recently enacted telephone consumer
protection rules.
4.Unleveling The Playing Field For VOIP . This committee
held a lengthy informational hearing on Voice Over
Internet Protocol (VOIP) service in January. The new
technology is extremely promising for a number of
reasons, but during the hearing, a number of concerns
were raised about the impact of VOIP on the state's
public purpose programs, and whether VOIP functioned
properly with the 911 system.
The CPUC indicated at the time it would open an
investigation into VOIP to understand its jurisdiction,
as well as look at how the state's public purpose
programs and 911 emergency services requirements would
fit with VOIP service.
This bill makes that study moot by declaring transmission
of communications over the Internet does not make a
corporation subject to the CPUC's jurisdiction, thus
appearing to exempt VOIP services from the CPUC's
jurisdiction. Furthermore, this language also exempts
VOIP from the CPUC's recently-enacted telephone consumer
protection rules. Given the impending CPUC investigation
into the VOIP issue, the author and the committee may
wish to consider whether the public would better served
by allowing the CPUC to finish its work before
statutorily exempting VOIP from oversight and regulation.
5."Harmonize" - But Do It Within Your Current Budget . This
bill requires the CPUC to complete a comprehensive
proceeding to "develop rules for harmonizing the
regulation of the communications industry" by the end of
2005. Setting aside what is meant by "harmonizing," this
is a complex task made more difficult because the bill
requires the CPUC to complete this review using existing
resources. What duties will the CPUC be forced to forego
as it completes this task, and are those foregone tasks
more important than this one?
6.Related Legislation . AB 2768 (Richman) was substantially
similar to this measure and also included a provision to
allow the CPUC to exempt itself from
legislatively-enacted statutes. That bill was held on
the Assembly Appropriations Committee suspense file in
May 2004.
AB 2799 (Calderon) eliminated certain telecommunications
company disclosure requirements and reversed the
presumption about whether a charge on a customer's bill
had been authorized. That bill was pulled from hearing
in this committee by the author.
PRIOR VOTES
Senate Education Committee(11-0)*
Senate Education Committee(4-2)*
Assembly Floor (76-1)*
Assembly Appropriations Committee(23-0)*
Assembly Education Committee(9-1)*
* Votes based on a prior, unrelated version of the bill.
POSITIONS
Sponsor:
Author
Support:
Bay Area Council
T-Mobile
Silicon Valley Manufacturing Group
Verizon
Oppose:
AT&T
California Association of Competitive Telecommunications
Companies (CAL-TEL)
MCI
Office of Ratepayer Advocates (ORA)
Pac West
TURN
Randy Chinn
AB 442 Analysis
Hearing Date: June 29, 2004