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On Thursday, November 6, 2008, the California Public Utilities Commission held its regularly-scheduled agenda meeting. The Commission resolved the copper loop retirement proceeding, and authorized CPUC comments in the FCC proceeding to determine whether to permanently eliminate ARMIS reports. The Commission also approved the California High Cost Fund A budget for fiscal year 2009-2010, and during the discussion on that item, the Commission indicated that a review of the CHCF-A could be expected during 2009. These and other telecommunications-related items addressed during the meeting are summarized below.


REGULAR AND CONSENT AGENDA ITEMS

  • Decision Regarding Removal of Copper Loops Adopted (Items 60, adopted 4-1, Comm. Grueneich dissenting) – The Commission resolved the copper loop retirement proceeding by adopting a revised version of the Chong Proposed Decision. This Decision declines to adopt any rules requiring carriers to seek Commission approval prior to permanently retiring copper loop facilities.

    The California Association of Competitive Telecommunications Companies (“CALTEL”) initiated this application proceeding by requesting that a set of rules be adopted to address retirement of copper facilities. For the purposes of this proceeding, the Commission has referred to “copper loop retirement” as the disconnection of copper loops or sub-loops, and the replacement of those facilities with fiber-to-the-premise facilities. CALTEL argued in part that the retirement of copper loops fell within the purview of Section 851. Public Utilities Code Section 851 requires utilities to apply for Commission approval to “sell, lease, assign, mortgage or otherwise dispose of or encumber facilities that are necessary or useful in the performance of their duties to the public.” Although the Commission generally agreed with CALTEL’s interpretation of the statute, the Commission ultimately granted carriers an exemption from compliance with Section 851 pursuant to Section 853(b). The Commission also declined to adopt CALTEL’s proposed rules, finding that they would discourage and delay the installation of fiber systems in contravention of state policy, and that CALTEL had not demonstrated any current harm that would necessitate rules in this area.

    Although the Chong Revised Proposed Decision prevailed by a 4-1 vote, this issue generated significant disagreement amongst the Commissioners. Commissioner Simon had released an Alternate Proposed Decision that would have required carriers to file Tier 2 advice letters to obtain approval for copper retirements. Commissioner Simon was persuaded to withdraw his Alternate based on Commissioner Chong’s substantial revisions to her Proposed Decision. The Revised Proposed Decision bridged several of the gaps between the Commissioners’ proposals, which led to the consensus. In its final incarnation, the Decision requires that whenever an ILEC files a copper retirement notice with the FCC it must file copies concurrently with Commission staff, and all CLECs that interconnect with that ILEC. If any interconnected CLEC expresses interest in using the copper facilities, the ILEC must negotiate in good faith for 60 days with the CLEC. The Commission will arbitrate a dispute if the parties are unable to resolve it. The decision also leaves open the possibility for Commission intervention should the process of copper retirement result in harm to service.

    Commissioner Chong introduced this item, noting that the decision “attempted to balance our state and federal policy goals” and “maintain appropriate competitive neutrality.” She remained cautious, however, about the success of the system and its effect on service, warning that the Commission would “stand by and watch how things progress.” In a similar vein, Commissioner Simon recognized the “substantial public benefit” in preserving competition, but expressed concern with the amount of oversight in the copper retirement scheme outlined in Revised Proposed Decision. Commissioner Bohn supported the decision despite his reservations about the Section 853(b) exemption upon which the decision relies. Bohn was ultimately swayed by the fact that current evidence showed no harm, but he warned that “this Commission will reconsider whether to continue granting” the exemption in the future, if it turns out to be harmful or problematic. As the lone dissenter, Commissioner Grueneich opined that the Decision did not contain enough protections to maintain competition and that copper loop retirement should not be exempted from the Section 851 requirement. Grueneich emphasized that the balance struck by the Decision leaned too much in favor of the ILECs’ installing fiber at the expense of CLECs’ alleged need for copper. The most recent draft of the Chong Revised Proposed Decision can be found at the following link: http://docs.cpuc.ca.gov/word_pdf/AGENDA_DECISION/93402.doc.

  • California High Cost Fund-A Administrative Committee Fund Expense Budget for Fiscal Year 2009-10 Adopted, Res. T-17177 (Item 21, adopted 5-0) – By this Resolution, the Commission adopted an expense budget of $64.713 million for the CHCF-A program for fiscal year 2009-10. The Resolution approving the budget mentions that the adopted budget is slightly less than the $64.866 million budget adopted for fiscal year 2008-09.

    Communications Division Director Jack Leutza introduced this item by observing that the CHCF-A was set to expire on January 1, 2009, but that it was extended by SB 780 until January 1, 2013. He summarized the basic purpose of the CHCF-A and noted the amount adopted in the Resolution. Following Mr. Leutza’s comments, Commissioner Simon asked a clarifying question regarding whether or not this Resolution directed the distribution of funds to the CHCF-A-eligible companies, or whether this was solely a budget resolution. Director Leutza responded that this Resolution simply established the CHCF-A budget, based on the amounts that he believed would be necessary to fulfill the Commission’s obligations for the fiscal year under the CHCF-A. Leutza stated that the budget represents the best estimate of what will be needed, but it is not a firm commitment to pay that money. The companies must file requests for the money in accordance with the CHCF-A rules and procedures in order for the allocations to be made.

    As a follow-up, Commissioner Simon expressed his concern that unused money in the CHCF-A could become the target of the Legislature or the California Department of Finance for a loan to the general fund. Such “raiding” of special funds has occurred in the past with some of the CPUC’s public policy funds. Director Leutza explained that these special funds are separate from the California general fund, but that the state has “borrowed” such money in recent years where general funding has been scarce. He characterized this circumstance as “a temporary loan to the California budget using funds that are available.” Commissioner Chong then questioned whether the CPUC has been repaid for all the money it has so loaned to the state. Director Leutza responded that there is still a fairly large outstanding loan from the California High Cost Fund-B program that has not been repaid, but that the Commission periodically asks for repayment of loans, as needed. As Leutza put it, [w]hen revenues are needed for program purposes, a request letter is written to the state, and so far all those requests have been honored, but it is “not the intention of the Legislature or the administration to repay a lump sum.” Putting it succinctly, President Peevey observed that “we gave them a big chunk of money and it dribbles back.”

    Commissioner Chong then summarized that the total budget for California universal service programs for 2009-10 will be approximately $624 million, which she approvingly noted was a 30% reduction from the current year. In conclusion, she observed that a review of the CHCF-A was expected, but that it had not yet occurred. She recommended that the Commission conduct such a review sometime during 2009. The final version of the Resolution adopting the budget can be found at the following link: http://docs.cpuc.ca.gov/word_pdf/FINAL_RESOLUTION/93483.doc.

  • Order Instituting Rulemaking Issued Regarding Regulations Relating to Safety of Utility Facilities (Item 65, adopted 5-0) – The Commission unanimously adopted an Order Instituting Rulemaking (“OIR”) to consider revising and clarifying the Commission’s regulations concerning the safety of utility facilities. General Orders 95, 128, and 165 are designed to promote the safe operation of electric utility and communications infrastructure facilities, and they regulate activities including design, maintenance, and inspection of facilities. According to the OIR, the severe fires in Southern California in the last two years, combined with other incidents, have indicated that a further revision of the orders may be needed. The rulemaking will evaluate a proposal that “communication infrastructure providers” inspect their facilities in the manner required of electric utilities in GO 165. The OIR will also explore possible regulations to avoid pole overloading where both electric and communications facilities on joint utility poles.

    Director Clark presented the OIR and stressed his hope that the process would be swift and simple. The OIR calls for a two-day workshop and comments, but not evidentiary hearings. Director Clark expects that it will be possible to “quickly revise the rules and bring them back to [the Commission] for a final vote.” In supporting the OIR, Commissioner Simon pointed out the dilemma that people are now afraid of transmission lines because they view them as major culprits in starting fires. He then noted the serious fire problem in California, remarking that “we no longer have a fire season in this state; we’re looking at year round fire challenges.” Commissioner Chong posited that the OIR needed to begin by looking at whether the existing rules are adequate before proceeding with a consideration of new rules. The most recent draft of the OIR is available at the following link: http://docs.cpuc.ca.gov/word_pdf/AGENDA/93401.doc.

  • CPUC Staff Granted Authority to File Comments in Response to FCC’s Notice of Proposed Rulemaking Regarding ARMIS Reporting Requirements (Item 66, adopted 4-1, Comm. Chong dissenting) – As part of its Uniform Regulatory Framework (URF) docket, the Commission decided several years ago to eliminate state-specific monitoring reports for the four large and mid-sized incumbent carriers, relying in part on the fact that similar reports were required by the FCC. On September 6th of this year, the FCC granted conditional forbearance on several of these ARMIS reports, which deal with service quality, customer satisfaction, infrastructure, and operating data. Simultaneously, the FCC released a Notice of Proposed Rulemaking seeking comment as to whether this information should continue to be collected, but be collected from all carriers.

    Assistant General Counsel Helen Mickiewicz introduced the staff recommendation that the Commission file comments supporting industry-wide collection of significant portions of the data called for by the ARMIS reports. The staff conducted a review of the ARMIS data, and made recommendations as to which data it believes should the FCC should continue to collect, and which information is no longer useful. Commissioner Chong offered support for the FCC’s move to eliminate ARMIS reporting and instead collect selected information from all providers, but she took exception to some of the information slated for collection. Chong pointed out that the original purpose of ARMIS was to evaluate price caps, so the ARMIS reporting requirements are clearly obsolete. In a challenging exchange with Ms. Mickiewicz, Chong inquired about several specific technical issues and questioned how long it had been since the CPUC staff had relied on ARMIS data for any specific regulatory purpose. She wanted to ensure that data collected “is relevant to something that . . . this Commission has an interest in continuing to regulate.” Ms. Mickiewicz responded that “the purpose of this isn’t necessarily to regulate since the Commission is no longer regulating this.” “It’s to give us information,” she clarified.

    Following this discussion between Chong and Mickiewicz, Commissioner Peevey called for a consensus vote on the item. The item was adopted 4-1, with Chong dissenting. Accordingly, the CPUC will move forward with comments along the lines described by the staff.

  • Decision Granting Request for Merger and Transfer of Control of Global Tel*Link Adopted (Item 61, adopted on consent agenda) – The Commission adopted a decision granting the application of Global Tel*Link Corporation (Global), GTEL Holdings, Inc., and GTEL Acquisition Corp (collectively, Applicants) for Approval of Merger and Transfer of Control. In 1996, Global was issued a Certificate of Public Convenience and Necessity to operate as a reseller of InterLATA and IntraLATA Telecommunications Services within California. Applicants state that the proposed transfer of control will strengthen Global as a competitor and will be made in a transparent fashion that will not affect the provision of telecommunications services or the rates, terms, and conditions currently available to Global’s customers. The most recent draft of the decision is available at the following link: http://docs.cpuc.ca.gov/word_pdf/AGENDA_DECISION/92691.doc.

  • Decision Granting Peerless Network a CPCN Approved (Item 14, adopted on consent agenda) – The Commission granted Peerless Network of California LLC a certificate of public convenience and necessity to provide limited facilities-based resold competitive local exchange and interexchange services in large and mid-sized ILEC territories. A final copy of the decision granting approval is available at the following link: http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/93479.doc.


SIGNIFICANT HELD ITEMS

  • Proposed Decision Designating ConnectTo as an ETC in California, Res. T-17152 (Item 3, held by Staff until 11/21) – This proposed decision would grant ConnectTo Communications, Inc.’s request to be designated as an Eligible Telecommunications Carrier (“ETC”) in the territories of AT&T, Verizon, SureWest, and Frontier for LifeLine purposes only. The decision had originally rejected the request, but the Communications Division staff reversed its opinion after receiving an Advice Letter from ConnectTo addressing the concerns. The decision is notable in that it would make ConnectTo the first ETC to receive federal subsidies for the LifeLine program only. A recent draft of the proposed decision can be found at the following link: http://docs.cpuc.ca.gov/word_pdf/AGENDA_RESOLUTION/92749.doc.

  • Proposed Decisions Ordering Termination Fees from Various Carriers to Pac-West Telecomm (Items 10, 11, and 12, held by Simon until 11/21 for further review) – These three proposed decisions would order three different carriers to pay Pac-West unpaid call termination fees. The carriers and the amounts they would owe are: Blue Casa Communications, $309,348.65; Telscape Communications, $554,605.39; and Comcast, $379,446.43. The proposed decisions may be found at the following links:

  • Proposed Decisions Regarding Transaction between Warburg Pincus, Electric Lightwave (ELI), and Eschelon Telecom (Items 59/59a, held by Bohn until 11/21 for further review) – The proposed decision would approve prospectively a transaction in which Warburg Pincus Private Equity X acquires an indirect control of ELI and Eschelon. However, the proposed decision would deny a request to approve the transaction on a retroactive basis and a separate request to dismiss the application on the grounds that the transaction did not result in a transfer of control under Public Utilities Code Section 854. Despite the finding of violation of Section 854 due to the parties having finalized the transaction without the Commission’s advance approval, the proposed decision imposes no fines because of the unique circumstances of the case. A recent draft of the proposed decision is available at the following link: http://www.cpuc.ca.gov/EFILE/PD/86841.pdf.

    The Alternate Proposed Decision of Commissioner Peevey in this matter would grant the request to dismiss the application for approval of a transfer of control. Describing the circumstances as a “close call,” the Alternate would find that Section 854 does not apply to the transaction. Since the Commission has not previously determined whether to view stock transfers on a fully diluted or non-diluted basis, the Alternate does not take this factor into account. Looking at other factors of control, the Alternate would find that no transfer of control has occurred. Alternatively, even if Section 854 were to apply, the Peevey Alternate would use the Commission’s authority under Section 853(b) to dismiss the application. Section 853(b) allows the Commission to forbear from application of Section 854 if it finds that Section 854’s requirements are not necessary in the public interest. A recent draft of the alternate decision may be found at this link: http://docs.cpuc.ca.gov/word_pdf/AGENDA_DECISION/93339.doc.

  • Proposed Decision Granting Transfer of Control from Lightyear to Wherify (Item 47, held by Simon until 11/21 for further review) – The proposed decision would grant the request for approval of the indirect transfer of control of Lightyear to Wherify. Applicants state that the proposed transaction will enable Lightyear to obtain access to additional financial resources to strengthen its competitive position in California. A recent version of the proposed decision is available here: http://docs.cpuc.ca.gov/word_pdf/AGENDA_DECISION/92585.doc.


NOTES AND COMMISSIONER REPORTS

  • Small Business Expo to be Held in Yuba City, CA — Commissioner Bohn offered a brief notice that the next “Small Business Expo” would be held in Yuba City, California on November 13, 2008. Bohn thanked Comcast for being willing to sponsor the event, and noted that it was “a long way to Yuba City.”

  • Commissioner Chong Report on CalTrans Right-of-Way Workshop — Commissioner Chong briefly summarized the recent CPUC meeting between CalTrans and California’s telecommunications carriers, which the Commission hosted on October 23, 2008. Chong was pleased with the outcome of the meeting, noting that the parties discussed standards for CalTrans conduit construction, notification procedures to inform carriers about pending projects in existing rights-of-way, and suggestions for streamlining the encroachment permitting process. Chong also summarized the two action items from the meeting, which were the creation of two “working groups.” One working group will identify strategic corridors where conduit and/or fiber availability may be of particular benefit. The second working group will identify protocols for sharing of trenching costs.

  • Chong to Attend Joint Conference on Advanced Services — Chong noted that she would be attending – and jointly hosting – a meeting of the Joint Conference on Advanced Services. The meeting took place in San Jose on November 6, 2008, and included presentations from FCC Chairman Martin and other officials and individuals involved in promoting efficient broadband deployment. Chong stated that she would be giving presentations at that meeting addressing the California Telehealth Network, the California Advanced Services Fund, and other items.

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