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On August 23, 2007, the CPUC held its regularly-scheduled agenda meeting. The Commission resolved a variety of telecommunications matters, although most of them were on the consent agenda. The Commission renewed the Section 851 Pilot Program for another three years, adopted budgets for the public policy programs, and voted to oppose AT&T’s FCC petition for forbearance from certain ARMIS requirements. These and other telecommunications matters addressed during yesterday’s meeting are discussed in further detail below.


REGULAR AND CONSENT AGENDA ITEMS

  • Section 851 Pilot Program Extended for an Additional Three Years, Resolution ALJ-202 (Item 15, adopted on consent agenda) – This ALJ Resolution extends the Section 851 Pilot Program for an additional three years, and also modifies certain aspects of the program. The most recent version of Resolution ALJ-202 is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_RESOLUTION/71600.doc. The 851 Pilot Program is designed to provide an advice letter process for transactions valued at less than $5 million that would otherwise require an application under Public Utilities Code Section 851. The Pilot Program was initiated in August 2005, and several carriers have successfully utilized the program as an alternative to the full Section 851 process. All carriers supported the continuation of the Pilot Program, and urged the Commission to make the process permanent. Some consumer groups were more skeptical regarding the possibility of a permanent Pilot Program.

    The recently-adopted AB 736 (Stats 2005, ch. 370, section 1) outlines the basic terms of Pilot Program, and gives the Commission limited authority to define the scope and terms of the advice letter process. Pursuant to that authority, the Commission revised the Pilot Program in several respects, including the following: (1) Pilot Program advice letters will be processed under “Tier III” of G.O. 96-B, which means that they are only effective when a resolution is passed approving them; (2) the eligibility criteria are broadened to include transactions that do not involve “projects” as defined under CEQA; (3) a $5 million fair market value eligibility threshold was adopted for all 851 transactions, whether they involve depreciable or non-depreciable assets; (4) additional information is required in the Pilot Program advice letter, including information about how the transaction will impact a carrier’s rate base (telecommunications carriers operating under the Uniform Regulatory Framework are exempt from this requirement); (5) the protest period is modified to be consistent with G.O. 96-B; and (6) staff is permitted to reject a Pilot Program advice letter if it determines that “the transaction warrants a more comprehensive review.”

    In response to parties’ comments, the Commission clarified that URF carriers need not submit information on rate base impacts with Pilot Program advice letters. The Commission also confirmed that utilities must serve Pilot Program advice letters on persons and organizations on the utilities’ general advice letter service lists.

  • Budget Resolutions Approved for the ULTS, CTF, CHCF-B, and DDTP, Resolutions T-17091, T-17104, T-17103, T-17105 (Items 10, 52, 67, 13, adopted on consent agenda) – Through a series of resolutions, the Commission approved the program budgets for the Universal Lifeline Telephone Service (“ULTS”), California Teleconnect Fund (“CTF”), California High Cost Fund B (“CHCF-B”), and Deaf and Disabled Telecommunications Program (“DDTP”) programs for Fiscal Year 2008-2009. The budgets will be as follows: ULTS ($307.7 million, an increase of $20.7 million over the prior fiscal year); CTF ($33.2 million, an increase of $8.1 million over the prior fiscal year); CHCF-B ($419.5 million, a decrease of $16.5 million over the prior fiscal year); and DDTP ($69.0 million, the exact same budget as the prior fiscal year).

    Notably, the ULTS budget has increased in several areas, largely due to the certification problems that have arisen in connection with the program. Projected carrier claims have been increased $13.1 million to reflect “the potential for continued extraordinary program implementation expenses” in Fiscal Year 2008-2009. The CPUC’s internal costs increased $7.5 million. The cost of the third-party administrator rose from $16 million to $20 million. The costs of the marketing center have also increased $250,000 based on high call volume.

    The increases in the CTF budget were due entirely to increases in carrier claims. By contrast, the budget for claims under the CHCF-B is lower by more than $16 million.

  • Commission Will Oppose AT&T’s FCC Petition for Forbearance with Regard to Certain ARMIS Reporting Requirements (Item 56, adopted on consent agenda) – This item authorizes the Commission staff to offer an opposition to AT&T’s petition at the FCC requesting authority to discontinue four reports that the company currently provides under the Automated Reporting Management Information System (or “ARMIS”) requirements. Specifically, AT&T is seeking a declaration from the FCC that it will forbear from requiring AT&T to file ARMIS reports 43-05 (addressing service quality), 43-06 (addressing customer satisfaction), 43-07 (addressing infrastructure data), and 43-08 (addressing operating data). AT&T’s argument is that these reports are relics of the transition from cost-of-service regulation to price cap regulation, and that they are now obsolete and unnecessary. AT&T’s petition was filed on June 8, 2007 on behalf of its ILEC affiliates. The matter is being considered in FCC WC Docket No. 07-139.

    The CPUC will file late-filed comments on this issue, since the deadline for opening comments has already passed. The CPUC will emphasize that the ARMIS reports remain relevant in the URF era, and that the CPUC has relied upon the information in these reports to make significant policy decisions. Further, the CPUC will cite a variety of statements from its own URF and service quality dockets that suggest a reliance on ARMIS reports in lieu of California-specific monitoring reports. A recent draft of the Commission’s memorandum describing its proposed comments is available at the following link: http://www.cpuc.ca.gov/word_pdf/REPORT/71553.doc. This development could have significant impacts on the dialogue in URF, Phase II, and in the Commission’s service quality docket.

  • Sprint CLEC CPCN Expanded to Include SureWest and Frontier Territories (Item 39, adopted on consent agenda) – This decision grants Sprint authority to operate as a limited facilities-based CLEC in the service territories of SureWest Telephone and Frontier Communications of California. Sprint already had authority in Verizon and AT&T territory, so Sprint now may operate as a CLEC in each of the large and mid-sized carrier service areas. The most recent draft of this decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/71155.doc.

  • Hotline of San Luis Obispo County Granted Authority to Use 2-1-1 Dialing Code in San Luis Obispo County (Item 22, adopted on consent agenda) – This decision designates the Hotline of San Luis Obispo County as the 2-1-1 provider in San Luis Obispo county. This starts the clock on the timeframe for submission and approval of carriers’ advice letters setting forth the terms of originating and terminating 2-1-1 service in the county. The 2-1-1 dialing code has been allocated to providers who direct callers to non-emergency community services. In California, implementation of 2-1-1 is proceeding on a county-by-county basis pursuant to CPUC Decision 03-02-029. The most recent draft of this decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_RESOLUTION/70978.doc.

  • Siskiyou Telephone Transfer of Control Approved (Item 36, adopted on consent agenda) — This decision approves Siskiyou Telephone Company’s proposed transfer of control from the deceased controlling shareholder, Mrs. Eleanor Hendricks, to the beneficiaries of her testamentary trust. Mrs. Hendricks passed away in November 27, 2006, immediately transferring her interest in the company to her grandchildren. On May 24, 2007, Siskiyou filed an application under Public Utilities Code Section 854 seeking approval of the transfer of control. This decision ratifies the transfer, and notes that, notwithstanding the requirements of Section 854, “it would be impossible for the Commission to consider in advance the bequest clauses in each [CPCN] holder’s will or trust . . . or to predict the circumstances that might exist at the time of the testator’s death.” The most recent draft of the decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/71119.doc.

  • NewPath Networks Granted Authority to Construct Fiber-Fed Distributed Antenna Communications Systems Along Highway 50 (Item 37, adopted on consent agenda) – This decision grants NewPath Networks’ request for authority to install a fiber-based distributed antenna system along Highway 50 in El Dorado County. Although the Commission had previously approved an expedited process by which NewPath could satisfy CEQA requirements, that process was designed to apply to “predominantly aerial” projects of short distances that did not involve major ground disturbances. Since this project will involve some undergrounding along a California scenic highway, NewPath filed an application with the Commission, and the Commission conducted a full environmental review. This decision finds that the proposed project is in the public interest, and that it will involve significant adverse effects on the environment. The most recent draft of this decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/71161.doc.

  • Comtel Transfer of Control Approved (Item 31, adopted on consent agenda) – This decision grants Comtel’s request under Public Utilities Code Section 854 to effectuate a transfer of control, based on a shift in the arrangement of the partnerships that own Comtel. The most recent draft of the decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/71038.doc.

  • Edison Granted Authority to Place WiFi Devices on Edison-Owned Streetlights, Res. E-4107 (Item 49, adopted 5-0) – This resolution approves Southern California Edison’s request to provide unmetered electric service to WiFi devices mounted on Edison streetlights. This terms and conditions of this service are embodied in a tariff. Cities, counties, and commercial entities can purchase the service out of that tariff to facilitate WiFi projects. The tariff includes a statement that safe and reliable electric service to Edison’s other customers takes precedence over service to WiFi providers. The Resolution approving the tariff also clarifies that license and pole use agreements are covered by General Order 69-C.

    Two cities protested Edison’s proposed tariff. The cities sought to introduce a variety of additional conditions into the tariff, including specific procedures for handling abandoned WiFi devices and rules for adjudicating pole access disputes. The cities also questioned some of the pricing in the tariff. The Resolution resolves the protests generally in Edison’s favor, but defers some of the pricing issues to another proceeding where a record on the subject can be better developed.

    Following a brief introduction by the Commission’s Energy Division director, Commissioner Chong voiced support for the resolution. Chong noted that this resolution will pave the way for greater broadband access, and could help to extend broadband further into rural and remote areas of California. She observed that the energy utilities have a “responsibility to help the Commission realize its telecommunications goals,” and that this is an important step in that direction. Following these comments, the item was adopted unanimously. A recent draft of the resolution is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_RESOLUTION/71550.doc.


SIGNIFICANT HELD ITEMS

  • SureWest Revenue Requirement Decision (Item 11, held by staff until 9/6) – The proposed decision being considered under this item would institute a permanent reduction in SureWest Telephone’s annual CHCF-B draw, and would phase out that draw entirely by January 2012. The proposed decision would also eliminate the cost proxy model requirement, since that filing would no longer be necessary.

  • URF Phase II Decision (Item 51, held by staff until 9/6) – The proposed decision being considered under this item would resolve various issues in Phase II of the URF proceeding. The proposed decision finds that advice letters filed pursuant to URF are subject to “Tier I” review under G.O. 96-B. The proposed decision also provides for permissive detariffing, and it upholds the disputed language from paragraph 21 of the URF Phase I Decision permitting carriers to remove certain “asymmetric regulations” via advice letter.

  • G.O. 96 Decision Addressing Telecommunications-Specific Rules (Item 51, held by staff until 9/6) – This proposed decision is a companion to the URF Phase II Decision described above. It would promulgate the telecommunications-specific portion of G.O. 96-B. The detariffing procedures and other advice letter procedures discussed in the URF docket would be codified in the rules attached to this proposed decision.


NOTES AND COMMISSIONER REPORTS

  • State Budget Expected to be Passed — In a brief management report, Executive Director Clanon noted that the California state budget is expected to be passed shortly. It has been approved by both houses of the Legislature, and is awaiting the Governor’s signature. At the next Commission meeting, a specific discussion of the CPUC portion of the budget will be provided.

  • Commission Responds to Allegations of Inadequacy in Collecting Fines — Executive Director Clanon also provided a report to the Commissioners regarding recent suggestions by the California State Controller that the Commission has been remiss in collecting fines levied against utilities. Earlier this week, the Controller released an audit finding that the Commission had failed to collect more than $32 million in fines, largely due to inadequate debt collection practices. News stories on the subject ran earlier in the week on CBS News and in the Contra Costa Times.

    Clanon’s report was designed primarily to put the Controller’s findings in the proper context. Clanon reported that the Commission has ordered approximately $300 million in fines and restitution since 1999. All but about 10% of this amount, or $32 million, has been either submitted to the state or returned to customers. According to Clanon, the uncollected amount is almost entirely the result of companies leaving the state, or going out of business entirely. While Clanon characterized the audit results as “somewhat negative,” he also noted that he generally agreed with the findings. At the same time, he urged the Commission to keep in mind the “substantive facts” that 90% of the penalties have been collected, and that the providers who have not paid them have been “driven out of the state,” so they can no longer harm California customers.

    Clanon described the three general findings in the Controller audit. First, the Controller found that the Commission has imposed “too low of an entry barrier” for companies wishing to provide service in California. For example, the Commission does not require the posting of large bonds as a prerequisite to providing service in California. The low entry barriers described in the audit may have impaired the Commission’s ability to collect against providers when wrongdoing is found. This phenomenon is most pronounced in the area of telecommunications, where a flood of new providers entered the market in the late 1990s and early 2000s. Clanon observed that the large influx of telecommunications carriers is no longer occurring, so this concern may be considerably minimized today. Moreover, while the low entry barriers may have limited the Commission’s collection abilities, these low entry barriers also allowed a variety of new providers to enter the market, to the benefit of competition and California consumers. So, there may be countervailing concerns that justify the low entry barriers. Clanon suggested that this issue should be further considered “at the Commissioner level.”

    The second concern in the Controller audit is that the Commission has not done a good job of internal accounting with regard to fines and restitution orders. The Commission does not have a systematic way to inform the Commission’s fiscal officers of what fines have been levied, and what the status of collection efforts is. Clanon stated that the Commission will be implementing such a system in response to the audit.

    A third and related concern is that the Commission has not done a recent, comprehensive audit of its internal controls and processes. According to Clanon, the last such audit was in 1992. Clanon acknowledged this concern as “an obvious lack,” and indicated that Department of Finance will be working with the Commission to conduct a “soup to nuts” audit of this sort. In summary, Director Clanon noted that “nobody likes to be audited,” but he characterized the Controller’s auditors as “professional,” and observed that many of the findings identified important areas for improvement within the Commission.

    Clanon’s report spurred a brief conversation amongst the Commissioners. Commissioner Simon requested further information regarding what types of collection processes are being pursued to recover unpaid amounts. Clanon responded that internal resources are typically used for debtors that are within the state, but that collection firms are being utilized in some cases where there are jurisdictional issues or where the debtor has gone out of business. Recently, the Commission has been searching for a firm to go after the $32 million in unpaid fines, but the Commission has not been able to find a firm who would do so on a “contingent basis.” The Commission’s General Counsel, Randy Wu, provided some further thoughts on the subject, noting that sometimes the resources required to collect debts are greater than the debt itself, and that unless the Commission is prepared to start assessing personal liability against officers of offending carriers, the collection process may not be possible in a lot of cases.

    The issues related to this audit will continue to be a topic of discussion within the Commission. Commissioner Chong suggested that it could be useful to take a look at the entry rules in the modern environment. Commissioner Simon stated that he would like to be involved in considering what new types of collection efforts might be available to the Commission. On a related note, Commissioner Grueneich suggested that perhaps the Commission should put in place a mechanism for tracking carriers’ compliance with Commission orders.

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