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On September 6, 2007, the California Public Utilities Commission held its regularly-scheduled agenda meeting. The Commission resolved a number of high profile telecommunications-related items, including significant matters addressing revisions to the California High Cost Fund B (“CHCF-B”), the Uniform Regulatory Framework (“URF”), and General Order 96-B. These matters and others telecommunications matters of interest are discussed in further detail below.


REGULAR AND CONSENT AGENDA ITEMS

  • URF Phase II Tariffing Decision Adopted (Item 31, adopted 5-0) – This decision addresses various tariff-related issues that were allocated to Phase II of the URF proceeding. The decision clarifies that advice letters with regard to URF-flexible services should be submitted as “Tier I” filings under G.O. 96-B. Tier I advice letters are effective on the day of filing, but they may be rejected upon Commission review if they do not qualify for Tier I treatment, or if they fall into a narrow set of grounds for rejection of Tier I advice letters. In addition to clarifying URF tariffing procedures, this Phase II decision establishes procedures for URF carriers to detariff services subject to URF pricing flexibility. Detariffing is not mandatory. Rather, within 18 months of the effective date of this decision, URF carriers may select the services that they wish to detariff, if any, and submit a Tier II advice letter seeking such authority. The decision also upholds the hotly-contested Ordering Paragraph 21 from the Phase I URF Decision (D.06-08-030). That paragraph permits carriers to file advice letters seeking removal of asymmetric marketing, disclosure, and administrative requirements, as long as those requirements were not adopted in connection with an enforcement, complaint, or merger proceeding. Carriers are also precluded from seeking advice letter removal of tariff language reflecting the requirements of state or federal law, including carrier of last resort obligations.

    Commissioner Chong introduced this item jointly with Item 31, the decision adopting telecommunications industry tariffing rules (discussed below). Chong summarized the significant elements of the decision, and noted that the rules outlined in the decision would apply to all “URF carriers,” which includes the large and mid-sized ILECs, CLECs, and IXCs. Chong explained that the processing of advice letters under Tier I marks a departure from the policy in the URF Phase I Decision, which provided that URF advice letters would be effective “upon one day’s notice.” Commissioner Chong further noted that carriers will be required to post on their web sites “rates, terms, and conditions” information about any detariffed services. As Chong suggested, these web pages may well give customers more information than they receive in a tariffed environment. Chong also clarified that these web sites must be “free from marketing and advertising” and that they should be accessible without the submission of individually-identifiable customer information. None of the other Commissioners offered comments on this item, but it passed unanimously by a vote of 5-0. A draft of the decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72287.doc.

  • Telecommunications Industry Tariffing Rules Incorporated into General Order 96 (Item 32, adopted 5-0) – This decision completes the Commission’s review of General Order 96 by adopting telecommunications industry rules that will be included in the recently-updated G.O. 96-B. These rules include filing procedures, and descriptions of how various types of tariff changes should be handled in relation to the three “tiers” of review under the General Order. The URF detariffing and other advice letter rules described above are specifically incorporated in G.O. 96-B. The telecommunications industry rules adopted in this decision were based on a set of 2001 draft rules that have been recently revised to reflect regulatory and industry changes that have occurred since those rules were first considered. A draft of this decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72359.doc.

  • Revisions to CHCF-B Program Adopted (Item 33, adopted 5-0) – This decision sets forth a series of reforms of the CHCF-B, thereby significantly reducing the CHCF-B program budget and the associated surcharge. The decision finds that the existing $20.30/line cost benchmark for targeting CHCF-B subsidies is overly inclusive, as it sweeps in lines that are not truly “high cost.” This decision orders a transition to a $36 benchmark over an 18-month period starting in January 2008, and ending in July 2009. The Commission anticipates that this reform will reduce the current $434.6 million CHCF-B budget by approximately $315.4 million, a decrease of 74%. Accordingly, the decision orders a reduction in the CHCF-B surcharge from 1.3% to 0.5%, effective January 1, 2008. The current rate freeze on basic service rates will be lifted for the URF carriers on January 1, 2009. However, AT&T and Verizon will be entitled to raise basic service rates for inflation based on the consumer price index, as of January 1, 2008. The decision identifies a series of issues for consideration in Phase II of the proceeding. In Phase II, the Commission intends to: (1) update cost proxies for qualifying high cost census block groups; (2) implement the phase-in from the current benchmark to the new benchmark; (3) develop a certification process for URF ILECs to demonstrate that their basic rates do not exceed the benchmark as a means of showing eligibility for CHCF-B support; (4) consider broadening the scope of the CHCF-B to allow intermodal carriers to participate; (5) develop a reverse auction mechanism for determining subsidy support levels in the future; (6) establish rules to govern a new “California Advanced Services Fund” that would provide subsidies for broadband deployment in unserved and underserved areas; (7) develop standards and procedures for future review of the CHCF-B; and (8) streamline the administration of the CHCF-B program.

    Commissioner Chong introduced this item by providing a brief history of universal service in California. She noted that the CHCF-B was created more than 10 years ago, with the goal of subsidizing carriers of last resort for providing service to high cost areas. As Chong observed, the competitive landscape has changed since the creation of the B-fund, and the time has come for the Commission to reform the manner in which it directs subsidies. Chong emphasized that the reforms are designed to avoid “skewing competition” or “stifling innovation,” but at the same time ensure that customers in high-cost areas continue to receive affordable phone service. Chong characterized the decision as embodying a balanced approach to CHCF-B reform. It rejects calls by some parties to end CHCF-B subsidies altogether, and it also rejects arguments that the reforms should be more measured. The decision also rejects AT&T’s position that it should be entitled to revenue neutrality in connection with CHCF-B reductions. Chong described the new benchmark as “more rational and contemporary.” However, she cautioned that the benchmark should not be interpreted as a cap on basic rates; it is only a basis for determining eligibility for CHCF-B subsidies. Commissioner Chong briefly mentioned the inflationary increases in basic rates for Verizon and AT&T, noting that both would be entitled to file Tier I advice letters requesting not greater than a 2.36% adjustment, to become effective on January 1, 2008. This would increase the AT&T rate by 25 cents, and the Verizon rate by 40 or 41 cents, depending on customer location. Chong also discussed the proposal to establish a California Advanced Services Fund, with the goal of “preventing people living in high cost areas from becoming victims of the digital divide.” In closing, Chong emphasized the importance of continuing to monitor the CHCF-B to ensure that it continues to meet California’s universal service goals.

    The other Commissioners each offered brief comments in support of the decision. Simon emphasized the decision’s determination that “the tax and subsidy scheme known as the CHCF-B no longer serves the public interest” in its current form. Simon stated that “both businesses and consumers will benefit” from the reforms in this decision. While it may be possible to “quibble” with the specifics of the decision, Simon concluded that the overall policy directives in the decision are clearly a “step that is well taken.” Commissioner Peevey noted that there are those who feel that the reforms are “too precipitous” and those who feel that the reforms are not dramatic enough. Peevey supported the decision as a middle ground compromise that balances the perspectives of the interested parties. Commissioners Grueneich and Bohn also endorsed the decision, and it passed by a unanimous 5-0 vote. A draft of the decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72409.doc.

  • Phase-Out of SureWest EAS Draw Approved (Item 1, adopted on consent agenda) – This decision approves a phase-out of SureWest’s annual EAS draw from the CHCF-B. In D.00-11-039, the Commission authorized SureWest to receive an $11.5 million annual draw from the CHCF-B to offset the termination of previous EAS-related payments from AT&T that were included as part of SureWest’s NRF start-up revenue requirement. The same decision that initiated the special CHCF-B draw directed the opening of an investigation to consider how to replace the draw on a permanent basis. Following an interim decision reducing SureWest’s draw to $10.2, SureWest submitted a proposal for a five-year phase-down of the payments over a period from now until January 1, 2012. A draft of the decision adopting SureWest’s proposal is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72414.doc.

  • Further Changes to Video Franchising Forms Approved, Res. T-17017 (Item 7, adopted on consent agenda) – Based on the Commission’s experience in processing the first three video franchise applications, this Resolution makes certain adjustments to the application and accompanying materials. First, the Resolution adds a question to the application regarding whether an applicant’s video service will be provided primarily using fiber optic facilities. Second, the affadavit accompanying the application now clarifies that only one joint annual report should be submitted for each franchise holder and its affiliates. Third, the affadavit now clarifies that a California corporation need not be the franchise holder. A draft of the Resolution is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_RESOLUTION/72235.doc.

  • Modifications to OSS Standards and JPSA Revision Procedures Approved (Item 11, adopted on consent agenda) – This decision approved consensus modifications to the Joint Partial Settlement Agreements (“JPSA”) for Verizon and AT&T, pursuant to a pair of settlement agreements between those large ILECs and a group of participating CLECs. Since 2004, these parties have been working to update the JPSA, the document that specifies the Operational Support Services (“OSS”) performance metrics governing wholesale and UNE-based services offered by AT&T and Verizon. The proposed amendments to the JPSA were recognized as “reasonable in light of the whole record and in the public interest.” Notably, the Verizon amendments remove measurements for UNEs that are not longer required based on the Triennial Review Order and Triennial Review Remand Order. In addition to adopting this latest round of changes to the JPSA, this decision establishes a new advice letter procedure for the submission of consensus revisions to the JPSA. Following negotiations with interested parties, these advice letters will be submitted by the ILECs as “Tier II” advice letters, which are effective upon the expiration of 30 days, unless there is a timely protest. A draft of this decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72392.doc.

  • Verizon Granted Section 851 Authority to Sell Office Building (Item 13, adopted on consent agenda) – This decision approves a purchase and sale agreement between Verizon and LBA, Inc. with regard to an office building and underlying real estate in Thousand Oaks, California. Verizon sought Commission approval through the application procedure prescribed in Public Utilities Code Section 851. The subject property includes a two-story, 260,000 square foot structure that has been used for general office purposes. The property includes a fitness center, numerous parking spots, and extensive landscaping. Part of the building also houses a remote switch that is used by Verizon to provide telecommunications services to users in the building and to users in nearby buildings. Verizon will continue to own this switching equipment, and will retain an easement sufficient to allow it to operate and maintain the switch. This decision approves the transaction. The decision concludes that the transaction is consistent with the public interest since Verizon “no longer needs to own the property for utility purposes” and since the transaction “may have a positive impact on the local Ventura County economy through its planned investment, redevelopment of the property, and tax implications.” In granting Verizon’s application, the Commission also finds that the transaction satisfies CEQA standards. The decision states that “the sale of the property to LBA will not have significant adverse effects on the environment.” A draft of this decision is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72465.doc.

  • Further Intervenor Compensation Awarded to UCAN in Connection with Cingular Wireless Consumer Protection Investigation (Item 18, adopted on consent agenda) – This decision awards more than $170,000 in intervenor compensation to UCAN in connection with its residual work in the Commission’s investigation into various alleged consumer protection violations by Cingular Wireless. In D.04-09-062, the Commission found that Cingular had advertised and marketed its services without disclosing significant network coverage problems to customers. This led customers to sign up for wireless service with inadequate coverage, and these customers could not terminate the service without incurring early termination fees. These allegations led to various Public Utilities Code violations. Cingular appealed the decision, but the appeal was ultimately unsuccessful. While the appeal was pending, UCAN objected to Cingular’s proposed mechanism for handling the restitution ordered by the Commission. Ultimately, the parties reached a settlement regarding an appropriate restitution plan, which was approved by the Commission in D.07-03-048.

    UCAN was active in the investigation that led to the findings of Public Utilities Code violations. For that participation, UCAN already received more than $367,000 in intervenor compensation. Following the Commission decision approving the settlement, UCAN applied for a further award of intervenor compensation based appellate work in support of D.04-09-062, and for its work on the settlement that was adopted in D.07-03-048. This decision awards UCAN $171,996.30 in intervenor compensation for the requested period. The decision approving UCAN’s request is available at the following link: http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/72461.doc.

  • Sierra Telephone Rate Case Decision Adopted, Res. T-17082 (Item 34, adopted on consent agenda) – This Resolution resolves the informal general rate case of Sierra Telephone Company, Inc., establishing authorized revenues and a California High Cost Fund A (“CHCF-A”) draw for test year 2008. Sierra’s authorized rate of return is 10%. Sierra will receive $29,970,934 in total intrastate revenue, including a $12,014,767 draw from the CHCF-A. The Resolution also approves new depreciation rates and non-basic service rates for test year 2008. The rates that will be modified include the rates for directory assistance, voice mail, and certain custom calling features. In addition to setting the parameters for Sierra’s rates and revenues going forward, the Resolution also directs Sierra to submit a proposal with its next rate case for providing mandatory business measured rate service. A draft of the resolution is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_RESOLUTION/72306.doc.

  • Phase II Gain on Sale Decision Adopted (Item 36, adopted 5-0) – This decision disposes of some residual issues left open after the Commission established policies for allocating gains and losses on sale of utility assets in the Phase I Decision in R.04-09-003. The issues addressed by this decision are directly relevant only to water and energy utilities. With the resolution of these concerns, the gain on sale proceeding is now closed. A draft of the decision resolving these further issues is available at the following link: http://www.cpuc.ca.gov/word_pdf/AGENDA_DECISION/72319.doc.


SIGNIFICANT HELD ITEM

  • Directive Authorizing CPUC Comments in FCC Emergency Alert System Proceeding (Item 37, Held by staff until 9/20/07) – The Commission is considering whether to offer comments on the FCC’s Further Notice of Proposed Rulemaking addressing whether Emergency Alert System participants should be required to deliver alerts originated by local, county, tribal, and state governments. This FCC inquiry is being conducted in EB Docket No. 04-296.


NOTES AND COMMISSIONER REPORTS

  • Leutza Update Regarding LifeLine Program — Communications Division Director Leutza gave a brief report on the status of the LifeLine program reforms that have been implemented since the Commission reinstated the verification process in May 2007. Director Leutza informed the Commissioners that several of the problems with the program have been rectified, and that the Commission staff are working to correct the remaining problems. Leutza noted that Solix (the certifying agent) is now providing automatically-dialed reminders to customers regarding the deadlines for returning LifeLine verification and certification forms. As of July 16, 2007, first-class postage began for all Solix materials. In addition, Leutza described the monthly database “true up” process that is now in place to ensure that carriers and Solix have the same information regarding LifeLine customers. Among the improvements that Solix has implemented is a new IVR system that provides information about the program to customers in English, and in seven non-English languages. Further, the denial letters from Solix now include customer telephone numbers, which is useful to the Consumer Affairs Branch (“CAB”) in reviewing appeals. Leutza also mentioned that automated or web-based enrollment mechanisms for LifeLine are being evaluated. Some staff recommendations on this issue can be expected during October. Further, in November 2007, the Commission’s audit branch will be submitting an audit of Solix’s operations to the Commission.

    Leutza also summarized some of the recent performance information regarding response rates under the program. The verification process was partially reinstated in June, and as of August 31st, the verification return rate has increased to the 55%-59% range, which is considerably higher than the previous response rate in the 40% range. Certification return rates to new customers have also improved, increasing to somewhere between 48% and 51%. For the 3% audit customers, the return rates are between 48% and 50%. These are all improvements, but Leutza suggested that further improvements could be expected. In September, the verification process will be fully reinstated.

    Leutza also provided some data from CAB regarding complaints and appeals under the LifeLine program. As of June 1, 2007, there were 1,343 LifeLine appeals, and also 4,251 related billing complaints. As of last week, there were slightly more than 100 LifeLine-related calls. Leutza anticipated that there may be an increased call volume in the next few weeks, as the first round of verification denials will be coming through. Leutza indicated that at least 10 individuals would be hired to help with CAB appeals. Leutza also mentioned that carriers have been called upon to provide back-credits to customers who were rejected during the first year of the new program, but were ultimately found eligible for LifeLine service.

    Commissioner Grueneich thanked Leutza for the report, and highlighted two items. First, Grueneich noted that “we are making the emphasis to Solix that they are basically responsible for getting the program in correct operation and dealing with customers who have questions, because that is legally where the responsibility is under the contract.” Grueneich’s vision of the complaint processing procedure is that Solix would provide the first level of information to customers, and that the CAB would get involved only if Solix is unable to address a customer’s inquiry. Second, Grueneich expressed hope that an interactive web site for processing LifeLine applications would create greater efficiencies for customer, carriers, and the Commission. Such a web site could also create synergies between the LifeLine program and the Commission’s other low-income programs by facilitating some type of automatic enrollment system.

    In closing, Commissioner Simon asked whether the additional functions that will be performed by Solix will require expansions of Solix’s contract. Director Leutza stated that no contract amendments are necessary at the present time, but that amendments may be necessary in the future.

    The powerpoint presentation used during Director Leutza’s remarks is available at the following link: http://www.cpuc.ca.gov/static/aboutcpuc/cpuc01-293446-v1-agenda_3198_lifeline_status_report_ppt_manager_report.ppt.

  • Clanon Report on Budget — Executive Director Clanon announced that the Governor has signed the 2007-2008 fiscal year budget, and Clanon provided a summary of the CPUC’s budget for that period. The total budget for the CPUC is $1.3 billion, but only $151 million of that figure supports Commission operations. The remainder of the $1.3 billion represents the budget for the public policy programs, including energy, water, and telecommunications programs. Clanon described the various sources of the CPUC’s revenue, which include the CPUC reimbursement fee, and payments directly from utilities (primarily in connection with required CEQA review). Clanon noted that the majority of the Commission’s operating expense go to salaries and benefits for the 996 individuals employed by the Commission. This year, the Commission grew by 70 positions, increasing the total operating budget by more than $12,000. Notably, 31 of those new hires are devoted to LifeLine appeals. The Commission also hired 12 individuals to work on video franchising issues.

    Some useful detailed information about the Commission’s budget can be found in the powerpoint presentation provided by Director Clanon, which is available at the following link: http://www.cpuc.ca.gov/static/aboutcpuc/cpuc01-293345-v1-puc_budget_summary_07-08.ppt#257,2,PUC%20Budget%20Summary,%20FY%202007-08%20($000s).

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