BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 1276
Author: Bowen (D), et al
Amended: 8/17/04
Vote: 27
SENATE ENERGY, U.&C. COMMITTEE : 5-1, 4/13/04
AYES: Bowen, Alarcon, Dunn, Murray, Sher
NOES: McClintock
NO VOTE RECORDED: Morrow, Battin, Vasconcellos
SENATE APPROPRIATIONS COMMITTEE : 8-2, 5/3/04
AYES: Alpert, Aanestad, Bowen, Burton, Escutia, Karnette,
Machado, Murray
NOES: Battin, Ashburn
NO VOTE RECORDED: Johnson, Poochigian, Speier
SENATE FLOOR : 27-5, 5/27/04
AYES: Aanestad, Alarcon, Alpert, Ashburn, Bowen, Burton,
Cedillo, Chesbro, Denham, Ducheny, Dunn, Escutia,
Figueroa, Florez, Karnette, Kuehl, Machado, Margett,
McPherson, Perata, Romero, Scott, Soto, Speier,
Torlakson, Vasconcellos, Vincent
NOES: Ackerman, Brulte, Hollingsworth, McClintock, Morrow
NO VOTE RECORDED: Battin, Johnson, Murray, Oller, Ortiz,
Poochigian, Sher, Vacancy
ASSEMBLY FLOOR : 77-2, 8/19/04 - See last page for vote
SUBJECT : Telecommunications: telephone service rates:
universal
sevice programs
CONTINUED
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SOURCE : Author
DIGEST :
This bill extends the requirement for the State Public
Utilities Commission to provide affordable telephone rates
in high cost areas and appropriates funds for the support
of the California Teleconnect Program.
Assembly Amendments (1) add a provision requiring the State
Public Utilities Commission to review the California
High-Cost Fund A and California High-Cost Fund B programs'
current subsidy levels, (2) appropriate funds for the
support of the California Teleconnect Program, (3) add
language relating to fund purposes and program structure,
and (4) add co-authors and urgency clause.
ANALYSIS : Current law requires the State Public
Utilities Commission (PUC) to develop a program to ensure
universal telephone service is provided in high-cost areas
at affordable rates. This requirement expires on January
1, 2005.
This bill:
1.Extends, from January 1, 2005 to January 1, 2009, the
requirement that the State Public Utilities Commission
maintain a program that establishes a telephone rate
structure designed to reduce disparities in (a) rates
charged by small, independent telephone corporations
serving rural areas, referred to as California High-Cost
Fund A, and (b) rates charged by larger telephone
companies in other high-cost areas, referred to as
California High-Cost Fund B. The programs, which provide
subsidies to eligible telephone companies, are funded
with surcharges imposed on telephone bills.
2.Requires the PUC to conduct an audit for the program to
evaluate whether subsidy levels can be reduced while
meeting the goals of the program.
3.Specifies that the money in the funds are the proceeds of
rates and are held in trust for the benefit of ratepayers
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and to compensate telephone corporations for their costs
of providing universal service.
4.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.
5.Appropriates from the California Teleconnect Fund
Administrative Committee fund to the PUC $17.974 million
to fund telephone operations providing discounted rates
to qualifying schools, libraries, hospitals, health
clinics, and community organizations pursuant to PUC
Decision 96-10-066.
Background
California has a long tradition of supporting universal
telephone service. This tradition extends to rural areas
in the state and manifests itself in two separate programs,
each dependent on the same statute. The California High
Cost Fund - A (CHCFA) is a program which subsidizes 17
small, rural local telephone companies:
1. Calaveras Telephone Company
2. California-Oregon Telephone Company
3. Citizens Telecommunications Company of the Golden
State
4. Citizens Telecommunications Company of Tuolumne
5. Ducor Telephone Company
6. Evans Telephone Company
7. Foresthill Telephone Company
8. Happy Valley Telephone Company
9. Hornitos Telephone Company
10. Kerman Telephone Company
11. Pinnacles Telephone Company
12. The Ponderosa Telephone Company
13. Sierra Telephone Company
14. Siskiyou Telephone Company
15. Verizon West Coast Incorporated
16. The Volcano Telephone Company
17. Winterhaven Telephone Company
The CHCFA provides these companies with a $37 million
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annual subsidy funded by a 0.21 percent surcharge on
telephone bills. The subsidy is used to cap residential
telephone rates for these companies at not more than 150
percent of the rate charged residential customers in urban
areas.
The second universal service program is the California High
Cost Fund - B (CHCFB), which provides a subsidy to
companies providing service in high-cost areas of the
larger local telephone companies: SBC, Verizon, Citizens,
and Roseville. This subsidy provides these companies with
$483 million a year funded by a 2.7 percent surcharge on
telephone bills. One purpose of this program is to
encourage competition in the residential telephone service
arena and any company providing that service in those areas
is eligible for that subsidy.
Both of these programs rely on Section 739.3 of the PUC as
their statutory foundation, which is slated to sunset on
January 1, 2005. This bill extends that section until
January 1, 2009.
Comments
What Happens If The Sun Sets? What will happen if the
statutory basis for the CHCFA and CHCFB expires at the end
of this year isn't clear, but it's likely the two
surcharges, a combined 2.91 percent of the intrastate
telephone bill, will be deleted.
While that will result in a small rate reduction for urban
telephone customers, the 17 small rural telephone companies
will need to raise their rates by $37 million to make up
for that shortfall, with the increase most likely to show
up in higher basic residential rates. SBC, Verizon,
Citizens and Roseville will also likely increase their
basic residential rates to make up for the $483 million
shortfall.
There will also be pressure to allow these companies to
charge different rates for different parts of their service
area (e.g. rate de-averaging), which would result in higher
residential rates in rural areas and relatively lower rates
in urban and suburban areas. To the extent it exists, this
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residential rate re-balancing will have a bearing on
competition as competitors focus their attention on the
areas where residential telephone service is offered at
higher than cost.
Do The Programs Work? The Office of Ratepayer Advocates
(ORA) has recently released a report critical of the CHCFB,
noting the program hasn't been reviewed by the PUC since
1996. Consequently, some areas which were designed as high
cost in 1996 may no longer be high cost and may no longer
warrant a subsidy. The ORA urges the PUC to review the
CHCFB to ensure it's fulfilling its purpose in a
cost-effective way.
Teleconnect Fund Appropriation Added to Bill . This bill
also includes an appropriation of $17,974,000 for transfer
from the California Teleconnect Fund Administrative
Committee Fund to the 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, the PUC reaffirmed its commitment to
universal service, and in accordance with state and federal
directives, created the California Teleconnect Fund to
provide discounted rates for a family of telecommunications
services for schools and libraries, government-owned health
care providers and qualifying community based
organiazations.
SB 669 (Polanco), Chapter 677, Statutes of 1999, codified
six advisory boards under the PUC's authority to administer
various universal service programs like High Cost Fund
programs and the California Teleconnect Fund. Funding for
these programs were subject to the annual Budget process.
In the Governor's 2004-05 Budget, the funding support for
the California Teleconnect Fund program was eliminated.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee,
extending the current surcharge for the two programs, the
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High Cost Fund A and the High Cost Fund B, will continue
annual revenues of approximately $540 million for the
subsidies and program administration. PUC costs for the
program review will be around $100,000 from the Public
Utilities Reimbursement Account.
SUPPORT : (Verified 5/4/04) (Unable to reverify at time
of writing)
SBC
State Public Utilities Commission (8/12/04)
ASSEMBLY FLOOR :
AYES: Aghazarian, Bates, Benoit, Berg, Bermudez, Bogh,
Calderon, Canciamilla, Chan, Chavez, Chu, Cogdill, Cohn,
Corbett, Correa, Cox, Daucher, Diaz, Dutra, Dutton,
Dymally, Firebaugh, Frommer, Garcia, Goldberg, Hancock,
Harman, Jerome Horton, Shirley Horton, Houston, Jackson,
Keene, Kehoe, Koretz, La Malfa, La Suer, Laird, Leno,
Leslie, Levine, Lieber, Liu, Longville, Lowenthal,
Maddox, Maldonado, Matthews, Maze, McCarthy, Montanez,
Mountjoy, Mullin, Nakanishi, Nakano, Nation, Negrete
McLeod, Oropeza, Pacheco, Parra, Pavley, Plescia, Reyes,
Richman, Ridley-Thomas, Runner, Salinas, Samuelian,
Simitian, Spitzer, Steinberg, Strickland, Vargas, Wesson,
Wiggins, Wolk, Yee, Nunez
NOES: Haynes, Wyland
NO VOTE RECORDED: Campbell
NC:cm 8/21/04 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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