BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1825 - Strom-Martin Hearing
Date: June 27, 2000 A
As Amended: June 26, 2000 FISCAL B
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DESCRIPTION
This bill creates a grant program of up to $10 million
annually, funded out of an existing surcharge on telephone
service, to extend telecommunications service to
communities which don't currently have telephone service.
This bill establishes the Rural Telecommunications
Infrastructure Task Force to evaluate those grant
proposals.
This bill sunsets on January 1, 2006.
BACKGROUND
California has long embraced a policy of universal
telephone service. That policy has resulted in rate
subsidies for low-income and rural consumers, as well as
subsidies to extend telephone wiring to people who aren't
located adjacent to existing telephone plant. However,
some communities are so far away from an existing telephone
plant that the cost of extending telephone service to them
will never be recouped, even with the existing subsidies.
This bill creates a grant program to pay for the capital
expenditures to build a network to serve those remote,
unserved communities. A recent report by the State
Auditor estimated that 112,000 people live in areas where
telephone service isn't offered.
The existing surcharge program, which this bill taps into,
is known as the California High-Cost Fund-B (CHCF-B). It
raises $500 million a year to subsidize local telephone
service rates for roughly 4 million customers at about $125
per customer, per year.
The bill diverts $10 million from the CHCF-B program each
year to pay for the program it creates. The funding must
come from existing monies in the fund and may not increase
the current 2.6% surcharge on all intrastate telephone
service that funds the program. (The CHCF-B differs from
the CHCF-A, which the Committee voted to extend in AB 995
(Wright) at the June 13, 2000 hearing. CHCF-B deals with
the largest telephone companies while CHCF-A deals with the
smallest.)
The bill creates the Rural Telecommunications
Infrastructure Task Force. The three members of the Task
Force are appointed by the Executive Director of the
California Public Utilities Commission (CPUC) and include
one member of the telecommunications industry, one member
of the Rural Development Council, and one member of the
Administrative Committee for CHCF-B. The Task Force will
review the grant proposals and make recommendations to the
CPUC for final action. Grant proposals must contain
engineering feasibility studies, local letters of
recommendation, letters of commitment from 75% of the
unserved population, a project schedule, and a management
plan.
The grant program is need-based in that the median income
of the community to be served cannot exceed the level used
to determine Lifeline Service eligibility, which is 150% of
the federal poverty level. Grant applicants must also seek
federal funding.
QUESTIONS
1.Should this measure establish a cost-effectiveness
threshold for grant proposals?
2.Should the grants to be awarded by the program created by
this bill require a match by the local community to be
served?
3.Should the task force created by this bill be revised or
eliminated?
4.Will diverting money from an existing program to fund the
program created by this bill have a negative impact on
people who benefit from the existing program?
COMMENTS
1)Should Telephone Service Be Extended Regardless of Cost?
While California has a long-standing universal service
policy as it applies to telephone service, that policy is
not absolute. If it were, every Californian would have a
telephone and this bill wouldn't be necessary.
The grant proposal created by this bill doesn't contain a
minimum cost effectiveness threshold or require the CPUC
to determine that providing telephone service via a grant
established by this bill is cost effective. If, for
example, a grant of $25,000 is required to build the
telecommunications network needed to serve 250 people,
that - at $100 per person - might be considered a
reasonable expenditure. However, if instead it required
$2.5 million to extend telephone service to those same
people - at a cost of $10,000 per person - then such an
expenditure might not be reasonable. The author and
Committee may wish to consider establishing some minimum
cost effectiveness threshold in the bill or requiring the
CPUC to set a threshold under which grants could be
awarded.
2)Should The Grants Be Matched? The grant program provides
funding to build a telecommunications network, but it
doesn't pay to operate such a network or to pay for the
purchase of telecommunications services by customers.
There is no requirement for a local match for the
infrastructure costs, nor is there a requirement that the
CPUC make a determination that the grant recipient has
funds available to operate the system or that the people
to be served by the system can afford to pay for service.
At a minimum, the author and Committee may wish to
consider requiring the CPUC to make the latter two
findings before awarding any grant.
Another avenue to explore is whether grants should be
awarded to people or communities to operate, for example,
a satellite phone network. Depending on the community,
that may be much more cost effective than installing an
entire telephone infrastructure.
3)Revising - Or Eliminating - The Task Force . The bill
creates a 3-member Task Force to administer the program
and evaluate grant proposals. It consists of a member of
the CHCF-B Administrative Committee, a member of the
Rural Development Council, and a member of the
telecommunications industry.
Because the Task Force is charged with evaluating grant
proposals, the telecommunications industry Task Force
member could have a conflict of interest in that his or
her company - or rival company - may be a part of the
grant proposal. The author and Committee may wish to
consider eliminating that potential conflict either by
eliminating the telecommunications industry
representative from the Task Force or by eliminating the
Task Force altogether and simply requiring the CPUC to
create a process for reviewing grant proposals.
4)Funding The Program . The California High-Cost Fund-B
(CHCF-B), which this bill taps into, is funded by a 2.6%
surcharge on all intrastate telephone service and raises
$500 million a year to subsidize local telephone service
rates for roughly 4 million customers at about $125 per
customer, per year.
The bill diverts $10 million from the CHCF-B program each
year for five years. The existing CHCF-B fund is
forecast to have a reserve of $160 million by the end of
the year, so theoretically, diverting $10 million a year
for five years from the reserve to fund the grant program
established by this bill won't impact the CHCF-B subsidy
program. However, because the existing subsidy program
is a needs-based program, there's no guarantee that the
reserves won't be spent down before the program created
by this bill expires. If that occurs, either someone
entitled to subsidized telephone service won't be able to
receive it or the amount of the surcharge will have to be
raised to ensure both programs are funded.
5)Grants Capped . This measure caps the maximum amount of
any individual grant at $2.5 million. The author and
Committee may wish to consider whether that cap is
appropriate.
ASSEMBLY VOTES
Assembly Utilities and Commerce Committee(9-0)
Assembly Appropriations Committee (14-7)
Assembly Floor (60-18)
POSITIONS
Sponsor:
Author
Support:
California Telephone Association
Kern County Superintendent of Schools
Oppose:
Office of Ratepayer Advocates
Randy Chinn
AB 1825 Analysis
Hearing Date: June 27, 2000