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On Thursday, May 24, 2007, the Commission held its regularly-scheduled agenda meeting. The telecommunications agenda was brief, and the Commissioners moved swiftly through the agenda. On the regular agenda, the Commission authorized staff to file comments on the recent Joint Board recommendations addressing USF high cost reform. Many of the telecommunications-related items were disposed of on the consent agenda, including a decision resolving Frontier’s NRF audit, and a decision resolving an investigation into the Foresthill Telephone Company purchase transaction. Further information about these and other telecommunications-related items on the agenda is provided below.


REGULAR AND CONSENT AGENDA ITEMS

  • Commission Will Offer Comments in Response to Joint Board on Universal Service Request for Additional Comments on High Cost USF Reform (Item 50, adopted 5-0) – By this decision, the Commission authorized the CPUC’s Legal Division to prepare comments in the FCC’s proceeding to examine reforms to the Universal Service Fund high cost support mechanisms. On May 1, 2007, the FCC’s Federal-State Joint Board on Universal Service released a set of recommendations intended to slow the explosive growth in high cost support disbursements in recent years. The Joint Board has proposed that an interim, emergency cap be placed on the amount of high cost support that competitive eligible telecommunications carriers (“CETCs”) receive from the USF fund on an annual basis. The FCC is now seeking comment on the proposed interim cap, as well as a number of other issues.

    The Commission’s comments on these issues have not yet been finalized, but they will address a variety of concerns. First, the Commission believes that any interim cap should be set at the national level, rather than as a function of the average CETC funding in each state, as the Joint Board has proposed. Second, the Commission will argue that the FCC should require carrier to disaggregate their high cost support needs at the Census Block Group level. Third, the Commission supports the use of Geographic Information System (GIS) technology as a way to calculate and target support at more granular levels. Fourth, the Commission will ask that the FCC handle any cost studies associated with efforts to base CETC high cost support on carriers’ own costs. Fifth, the Commission will oppose the proposal to include “broadband” among the list of supported services, based on concerns about the size of the fund and the associated burden on ratepayers. The Commission does not intend to take a position on whether a “reverse auction” mechanism should be adopted, nor does the Commission plan to take a position on proposed modifications to the “identical support rule,” under which CETCs receive the same levels of per-line support that incumbent LECs receive. The staff memorandum outlining the areas for comment is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA/68036.doc

    The Legal Division introduced this item by summarizing the areas for proposed comments. Based on the Legal Division discussion, the disaggregation of support seems to be the focus of the Commission’s position. Commissioner Chong offered strong support for the proposed comments, noting that there are a number of “difficult challenges” in this area. Chong was particularly concerned with the recent growth in the size of the fund. She observed that the most recent contribution factor was over 11%, representing approximately $4 billion annually in high-cost support. Although the FCC has been focused on the need to curb CLEC-related support, Chong correctly stated that California will be less impacted by the interim support cap because there are relatively few CETCs in the state. Echoing the Legal Division analysis, Chong also observed that GIS mapping can be “a very important tool so that we can better target universal service support to areas that need it more.”

    Commissioners Grueneich and Simon also expressed interest in this issue. It is likely that Commissioner Chong’s office will be most directly involved in crafting the Commission’s comments. Following the Commissioner comments, this item was adopted 5-0.

  • Frontier NRF Audit Resolved Through Settlement (Item 7, adopted on consent agenda) – This item settles the recent NRF audit of Frontier Communications of California, covering the years 2001 through 2003. DRA conducted this audit as part the triennial review process for evaluating Frontier’s operations under the now-obsolete New Regulatory Framework. As part of the proceeding, Frontier sought the elimination of revenue sharing. DRA examined whether Frontier had properly met its sharing obligations for the relevant time period. As part of the audit, DRA employed Overland Consulting, and DRA sought to recover the costs of using that outside auditor from Frontier.

    Under the settlement agreement with DRA approved through this decision, Frontier will issue customer credits in the amount of $4 million to cover its shareable earnings for 2002 through 2003 and potential shareable earnings for 2004 through 2006. Frontier will also forego recovery of all audit-related expenses incurred by Overland. As part of the settlement, Frontier agreed that it would not increase its intrastate rates for the “sole purpose” of offsetting the $4 million in customer credits. Under URF, Frontier is not subject to revenue sharing on a going forward basis. The most recent draft of the decision approving the settlement is attached at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/67836.doc

  • Commission Votes to Support Legislation Exempting URF ILECs From Prior Approval Requirements With Respect to Certain Financing Transactions (Item 54, adopted on consent agenda) – With some non-substantive suggested amendments, the Commission supports AB 918, a bill that would grant an exemption to non-rate-of-return ILECs from the requirements of Public Utilities Code Sections 816-830. These code sections require public utilities to seek prior Commission approval before consummating certain transactions, including the issuance of stock, the assumption of long-term debt, and the refinancing of short-term debt. Competitive Local Exchange Carriers have already been exempted from these requirements, and AB 918 is intended to extend a similar exemption to ILECs operating under the URF structure. Consistent with the URF Phase I Decision, D.06-08-030, AB 918 helps to level the regulatory playing field between URF ILECs and competitive carriers. The Commission’s analysis of this bill is attached at the following link: http://www.cpuc.ca.gov/word_pdf/REPORT/67913.doc

  • Investigation into Foresthill / Sebastian Enterprises Resolved (Item 30, adopted on consent agenda) – This decision approves a settlement between the Commission’s Consumer Protection and Safety Division, Sebastian Enterprises, Inc., and Foresthill Telephone Company with regard to allegations that Sebastian and Foresthill had violated Public Utilities Code Sections 818, 851, and 854 in connection with Sebastian’s acquisition of Foresthill. In order to purchase Foresthill, Sebastian formed a subsidiary, Fortel, Inc. Fortel obtained a $10.5 million loan from Bank of America, and then merged with Foresthill, causing Foresthill to assume all of Fortel’s liabilities. Although the Commission previously granted Sebastian the authority to “take control of [Foresthill] through an intermediate subsidiary if deemed necessary or convenient to secure financing or for related reasons,” the Commission opened an investigation, alleging that the merger and the assumption of debt by Foresthill had not received prior Commission approval.

    After some extensive discovery, CPSD settled with Sebastian and Foresthill regarding the alleged Public Utilities Code violations. Sebastian and Foresthill agreed to pay a $15,000 penalty, payable to the State’s General Fund within 10 business days of the decision approving the settlement. The decision recognizes that the companies did not intentionally violate the Public Utilities Code, and the decision notes that the companies cooperated fully with the Commission’s investigation. The decision finds that the settlement is reasonable in light of the whole record, consistent with the law, and in the public interest. The final draft of the decision is attached at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/67771.doc

  • Consumer Groups Granted Intervenor Compensation in Connection with URF Phase I Decision (Item 26, adopted on consent agenda) – By this decision, the Commission grants over $284,000 in intervenor compensation to TURN, and more than $44,000 to the Greenlining Institute, in connection with these parties’ participation in the proceedings leading to the issuance of the URF Phase I Decision. Attached is a link to the most recent draft of the decision: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/68002.doc

  • Commission Approves Transfer of Control over Sage Telecom (Item 14, adopted on consent agenda) – This decision approves the purchase of Sage Telecom, Inc. by SP Sage Investments, LLC. Sage Telecom is a provider of competitive local exchange, long distance, and Internet services in California and a number of other states. The transaction will provide Sage with additional access to working capital and additional management expertise needed to execute its current business plan. The most recent draft of this decision is attached at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/67656.doc

  • NOS Communications Agrees to Pay Fine In Connection with Alleged Rule 1 Violations (Item 42, adopted on consent agenda) – This decision approves a settlement between CPSD and two affiliated carriers, NOS Communications, Inc., and Affinity Networks Incorporated. The settlement resolves an investigation into the carriers’ alleged failure to disclose certain information to the Commission in connection with an application to obtain full facilities-based operating authority in California. NOS and ANI failed to disclose a previous settlement of slamming allegations, under which the carriers agreed to pay $2.9 million. Under the prior agreement, the carriers also agreed to disclose the settlement in any future Commission applications. The parties also failed to inform the Commission that their authority had been revoked in Wisconsin due to non-compliance with certain aspects of the Wisconsin Administrative Code.

    The settlement agreement approved under this decision provides that NOS and ANI must pay $10,000 in penalties to the Commission, but the decision defers $9,500 of this amount for two years. If there are no further violations found during that two-year time period, the remaining $9,500 in penalties will be waived. A recent draft of the decision approving the settlement is attached at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/67832.doc


SIGNIFICANT HELD ITEM

  • AboveNet Application for Authority to Undertake New Construction Without CEQA Review (Item 10, held by Peevey until 6/7 for further consideration) – This proposed decision would deny the application by AboveNet Communications (formerly Metromedia Fiber Network Services) for approval of a construction plan whereby the company would install new customer connections to its backbone network. AboveNet’s application proposes that this authorization be given without any new CEQA review, as long as the proposed construction is: (1) no more than five miles in length; (2) within existing rights of way; (3) the subject of notice to Commission staff prior to commencement of construction; and (4) consistent with any local CEQA requirements. Such authority would be superseded by any generally applicable CEQA policy adopted in the Commission’s current CEQA docket. AboveNet is seeking similar treatment to WilTel, who recently obtained authority to expand its facilities without further Commission CEQA review. The proposed decision is attached at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/68202.doc


NOTES AND COMMISSIONER REPORTS

  • Commissioners Chong and Simon Change Telecommunications Advisors — Commissioner Chong announced that Jane Whang will be her new telecommunications advisor. Whang only recently joined the Commission, but she has several years of experience in private practice and as an attorney for the FCC. Whang will replace Dr. Tim Sullivan, who will be joining Commissioner Simon as his telecommunications and water advisor. In addition to these announcements, the Commissioners noted that Jennie Chandra will be leaving the Commission to pursue another position in the Washington, D.C. area. Chandra served as the Governor’s liaison to the CPUC, and as an interim advisor to Commissioner Simon.

  • Commission Will Hold Several More Bill Fairs Through the Summer — CSID Director Linda Serizawa and Public Advisor Karen Miller reported on the Commission’s recent utility bill fairs, and announced that several more will be taking place throughout the summer. Following bill fairs in Oakland and in San Francisco’s Chinatown, a bill fair was held on May 3rd in San Bernardino. Another will be held on June 9th in San Ysidro. Others are expected later in the summer and early fall, including one in Sacramento. These fairs provide opportunities for customers to receive information about products and services, and to ask questions and receive help regarding their utility bills. The fairs have been attended by the major energy and telecommunications utilities, including AT&T, Verizon, Comcast, and an assortment of wireless carriers. Based on the success of the bill fairs, the Commission is contemplating a long-term plan that will provide for additional bill fairs, and for a shifting of responsibility from the Commission to community-based organizations.

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