BILL ANALYSIS
SB 1276
Page 1
SENATE THIRD READING
SB 1276 (Bowen)
As Amended August 17, 2004
2/3 vote. Urgency
SENATE VOTE :27-5
UTILITIES AND COMMERCE 11-0 APPROPRIATIONS 14-2
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|Ayes:|Reyes, Aghazarian, |Ayes:|Chu, Berg, Laird, |
| |Calderon, Canciamilla, | |Corbett, Correa, |
| |Diaz, Jerome Horton, La | |Goldberg, Leno, Nation, |
| |Malfa, Levine, Maddox, | |Negrete McLeod, Pavley, |
| |Ridley-Thomas, Wesson | |Ridley-Thomas, Wesson, |
| | | |Wiggins, |
| | | |Yee |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Haynes, Keene |
| | | | |
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SUMMARY : Extends the requirement for the California Public
Utilities Commission (PUC) to provide affordable telephone rates
in high cost areas and appropriates funds for the support of the
California Teleconnect Program. Specifically, this bill:
1)Extends the requirement for PUC to develop a program to ensure
universal telephone service is provided in high cost areas at
affordable areas until 2009 and requires PUC to conduct an
audit of the program to evaluate whether subsidy levels can be
reduced while meeting the goals of the program.
2)Specifies that money 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.
3)Specifies the program to be structured so that any charge
imposed to promote the goals of universal service reasonably
equals the value of the benefits of universal service to
contributing entities and their subscribers.
4)Appropriates from the California Teleconnect Fund
Administrative Committee Fund to the PUC $17.974 million to
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fund telephone corporations providing discounted rates to
qualifying schools, libraries, hospitals, health clinics, and
community organizations pursuant to PUC Decision 96-10-066.
5)Includes an urgency provision.
FISCAL EFFECT : According to Assembly Appropriations Committee
extending the current surcharge for the two programs the High
Cost Fund A (HCFA) and the High Cost Fund B (HCFB) would
continue annual revenues of about $540 million for the subsidies
and program administration. PUC costs for the program review
would be around $100,000 from the Public Utilities Reimbursement
Account.
COMMENTS :
1)This bill extends the requirement for PUC to develop,
implement, and maintain a fair and equitable local rate
structure aided by transfer payments to telephone companies
providing service to high cost areas. This bill extends the
sunset date from January 1, 2005 to January 1, 2009 and
includes an urgency clause.
2)Teleconnect fund appropriation added to this bill: This bill
also includes an appropriation of $17,974,000 for transfer
from the California Teleconnect Fund Administrative Committee
Fund (CTF) to PUC to fund telephone corporations providing
discounted rates to qualifying schools, libraries, hospitals,
health clinics, and community organizations pursuant to PUC
Decision 96-10-066.
In this decision, PUC reaffirmed its commitment to universal
service, and in accordance with state and federal directives,
created CTF to provide discounted rates for a family of
telecommunications services for schools and libraries,
government-owned health care providers and qualifying
community based organizations.
SB 669 (Polanco), Chapter 677, Statutes of 1999, codified six
advisory boards under PUC's authority to administer various
universal service programs like High Cost Fund programs and
CTF. Funding for these programs were subject to the annual
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Budget process.
In the Governor's 2004-05 Budget the funding support for CTF
program was eliminated.
3)Background on HCFA and HCFB programs: There are two separate
programs administered by PUC HCFA and HCFB to support
universal telephone service in California.
California High Cost Fund - A: This program was created out of
the High Cost Program in 1985 and modified in 1988 as a result
of proposed drastic reductions in access charges. Access
charges are the fees charged to interexchange carriers like
AT&T for terminating and originating long distance calls on
the local networks of either independent telephone companies
or Regional Bell Operating Companies (RBOCs).
HCFA provides supplemental revenues to 17 small, rural local
exchange carriers (LECs) providing services in high cost areas
through an all end user surcharge assessed on intrastate
telecommunications services. Furthermore, in order to draw
funds from the program the eligible carriers local rates
cannot exceed 150% of the local rate charged by Pacific Bell.
Carriers in HCFA also receive support from the Federal High Cost
Fund (FHCF) to support universal service. The amount received
from FHCF is deducted from the draws from HCFA amount each
year but the requirements for carriers to be eligible for FHCF
is based on whether a their actual loop costs exceed 115% of
the national average cost per loop.
The elimination of HCFA might jeopardize the ability of small
independent carriers to access federal funds due to a lack of
participation by the state to partner with the federal
government to promote universal service.
4)Detrimental impact to public safety: The elimination of HCFA
support mechanism for small independent carriers would be
devastating to the public safety of these communities. These
carriers rely on support from HCFA for 30 to 80% of their
intrastate revenue and the elimination of it would result in
them not being able to stay in business. All of these
carriers in HCFA are carriers of last resort in their
communities and are required to provide basic phone service to
their customers, which includes the ability to access 911
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emergency service. By eliminating the support mechanism the
state would jeopardizing the health and safety of individuals
living in these areas and their ability to call for emergency
service because the cost of providing basic phone service
would be too high for these carriers to continue to operate.
5)Elimination of HCFA would widen the digital divide in rural
communities: Elimination of HCFA support mechanism would
exacerbate the digital divide between communities that have
access to the Internet and communities that do not. According
to the Consumer Federation of America report titled Does the
Digital Divide Still Exist? Bush Administration Shrugs, But
Evidence Says"Yes" less then one-quarter of those with incomes
below $25,000 have the Internet at home, while over three
quarters of those with incomes above $50,000 do. This sharp
contrast between lower and upper income households represents
a very substantial divide in the population. Without a
support mechanism like HCFA, small independent phone carriers
would be forced to either raise the costs of Internet access
where it would be unaffordable to most families or stop
providing the service altogether.
6)California High Cost Fund - B: This program was created by
PUC in 1996 in Decision No. 96-10-066. The decision
established the term basic service and specified all the
service elements to be included. An all end user surcharge
was established and carriers of last resort (COLR), who serve
high cost areas in their service territories, were able to
draw from the funds to support equitable local rates.
Furthermore, PUC in their decision required the five large and
mid size local exchange carriers to reduce their rates,
excluding basic service, by an equal percentage to what they
were drawing from the fund to prevent double dipping.
In the decision PUC adopted a cost proxy model sponsored by
Pacific Bell that resulted in a statewide average cost of
$20.30 for basic telephone service to serve as the cut off
point for determining if an area is high cost and therefore
eligible for the subsidy.
7)Consequences of not having HCFA and HCFB statute re-extended:
The goals of both HCFA and HCFB are to provide fair and
equitable basic phone service to high cost and hard to serve
areas. The elimination of the program would result in rate
increases for rural customers served by small independent
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telephone carriers from an average of $16.85 per month for
basic telephone service to $149.00 per month for the smallest
carriers. This increase would make telephone service
unaffordable for these customers served by some of the
smallest telephone carriers and kill the goal of providing
universal telephone service as required by both the state and
federal government.
8)Office of ratepayer advocates (ORA) review of HCFB program:
In March ORA had released a report titled Review of the
California High Cost Fund B: A $500 Million Subsidy Program
for Telephone Companies . In the report ORA had found that
carrier claims to the fund increased dramatically since its
creation without regard to whether the carriers need the
subsidy or not. Furthermore, the program has not been
reviewed by PUC as required which has resulted in a lack of
information on the effectiveness of the subsidies and whether
the amounts are too high in proportion to the costs to the
carriers to provide the service.
9)Department of Finance (DOF) believes goals of universal
service have been met. DOF opposes this bill because it
believes the goals of universal service have been met and
eliminating these programs will not result in a reduction in
telephone subscribers sizable enough to threaten this
achievement. Furthermore, DOF believes the programs provide
subsidies to individuals who choose to live in rural locations
and that since housing costs in rural locations tend to be
significantly less than in urban and suburban locations, the
savings from these lower costs are available to rural
residents to offset higher telecommunications costs.
10)Department of Finance fails to take into account
socio-economic factors in making their assessment about the
need for universal service programs: Based on 1999 data from
the Great Valley Center a major determinant of the standard of
living in the Central Valley is the household income. The
data from that year showed that the previous 10 years, average
household income in the Central Valley averaged approximately
20% lower than in the state as a whole. Furthermore,
individuals and families are moving into the Central Valley
not out of choice but out of need due to the unavailability of
affordable housing close to their work in areas such as San
Jose and San Francisco.
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Furthermore, recent studies are showing that more and more
Americans are joining the ranks of the working poor as a
result of unaffordable healthcare, skyrocketing housing costs
and growing childcare costs. The financial conditions of the
working poor in rural areas like the Central Valley would only
be magnified by eliminating the support mechanisms like HCFA
and HCFB and thereby increasing their basic phone service by
more than $100 a month in some areas.
Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083
FN: 0007755