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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Communications Division

RESOLUTION T-17211

Carrier Oversight and Programs Branch

August 20, 2009

R E S O L U T I O N

Resolution T-17211. Approval of the California High Cost Fund-B Administrative Committee Expense Budget for Fiscal Year 2010-11 (July 1, 2010 through June 30, 2011) to Comply with the Requirements of Public Utilities Code Section 273 (a).

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Summary

This resolution adopts a California High Cost Fund-B (CHCF-B) program expense budget of $50.935 million for Fiscal Year (FY) 2010-11.

Background

The CHCF-B program was established in 1996 pursuant to Public Utilities (PU) Code § 739.3. This program provides universal service subsidy support in the high cost areas of AT&T California, Verizon of California, SureWest Telephone, Frontier Communications of California, and new carriers that become Carriers of Last Resort (COLR), and is funded by a surcharge assessed on consumers' intrastate telecommunications services.

PU Code § 739.3 requires the Commission to implement and maintain a program for universal telephone service support to reduce rate disparity in high cost areas.

In October 1999, PU Code § 270-281 were codified as a result of the enactment of Senate Bill (SB) 669 (Stats. 1999, Chapter 677). PU Code § 270(b) requires that monies in the CHCF-B and five other funds may only be expended pursuant to § 270-281 and upon appropriation in the annual Budget Act.

In June 2006, the Commission issued an Order Instituting Rulemaking (OIR) into the Review of the California High Cost Fund B Program (R.06-06-028). The purpose of the OIR is to review the operation of the CHCF-B program to see if the goals of the program could be met while reducing costs. Interested parties filed comments.

In September 2007, the Commission issued an interim decision (D.) 07-09-020 in R.06-06-028 which adopts major reforms to the CHCF-B program to reduce the size of the CHCF-B, and to better target the support to cover only those "high cost" areas where funding is necessary to meet universal service goals. More importantly, the COLRs would be allowed full pricing flexibility, allowing for basic service rates to increase from the current subsidized rate toward cost based rates.

In D.07-09-020, the Commission ordered the following changes:

Subsequently, D.07-12-054 revised the surcharge from 0.50% to 0.25% for the CHCF-B program and initiated a 0.25% surcharge to fund the newly established California Advanced Services Fund (CASF) program effective January 1, 2008. This CHCF-B surcharge change reduced the revenues to the CHCF-B fund below the amounts expended to reduce the surplus in the fund.

The funding of the CHCF-B program was scheduled to sunset on January 1, 2009. However, subsequent legislation extended the sunset date of the CHCF-B program to January 1, 2012.

R.06-06-028 was closed and another proceeding (R.09-06-019) was opened to continue the modification of the CHCF-B program. R.09-06-019 will consider the development of a reverse auction process and ways of automating and streamlining the processing of CHCF-B claims.

Discussion

In this Resolution, the Communications Division (CD) proposes a CHCF-B program expense budget of $50.935 million. This proposed budget reflects the benchmark threshold changes adopted in D.07-09-020, the carrier's estimates of expected claims along with estimates from the Commission's Fiscal Office for staff and administrative costs, inter-agency fees, banking charges, audits, and administrative committee costs.

Carrier Claims - FY 2010-11

The major component of the CHCF-B program is the claims paid to carriers. As in prior years, CD sent a data request to the CHCF-B eligible carriers asking them to forecast the claims for the budget year, FY 2010-11. The forecasted claims were aggregated.

SureWest Telephone Company (SureWest) indicated that when the threshold reached $36, it would no longer request further claims from the CHCF-B fund as it would no longer have service areas that qualify as "high cost." However, the CHCF-B budget estimate still includes payments to SureWest to offset Extended Area Service (EAS) revenue that was lost.1 Further, pursuant to D.07-09-002, the EAS payments to SureWest will be phased out over a period of five years, and the budget reflects the reduced amount. The budget estimate for FY 2010-11 claims also includes an amount for contingences and expected errors in forecasts.

Carrier Claims - FY 2009-10

As shown in Appendix A.1, the proposed 2010-11 CHCF-B program budget of $50.935 million includes a provision of $1 million for prior year's claims. This increment is being added because there was some uncertainty on the FY 2009-10 budget and some carriers estimated the claims by not correctly accounting for the change in formula. Because of the possibility of exceeding the contingency amount in the FY 2009-10 budget, the 2010-11 budgets includes a provision to sufficiently cover prior year's claims.

Other Program Costs

For FY 2010-11 the estimate for audits increased to $353,000 due to the anticipated audits of the larger carriers. The carriers have periodic comprehensive audits and a portion of the cost that relates to auditing of the CHCF-B program is charged to the CHCF-B budget.

The FY 2009-10 estimate for banking fees was $30,000, but a review of past actual expenses shows that it was recently about $13,000. The banking fees include flat monthly charge and a charge per transaction. To be in line with the actual expenses the banking fee estimate was reduced by 50% to $15,000.

The FY 2009-10 budget for data processing automation was $50,000 while the actual expenses have been significantly less. To be more in line with actual expenditures, the Data Processing Automation estimate was also reduced by 50%.

Affordability Study

The Legislature passed SB 7802 which required an affordability study of the CHCF-B high cost areas and a report to be submitted by July 1, 2010. Because of this unanticipated expense, the Commission submitted Budget Change Proposal (BCP) #26 requesting an augmentation of $1 million to cover the estimated costs of conducting and administering the study and also providing the required report to the legislature. The BCP #26 was approved by the Department of Finance so the appropriation as shown in Appendix A.1 was augmented from the amount originally in Resolution T-17160.

Administrative Committee Costs

The Administrative Committee costs were estimated based on travel and other expenses for four meeting in the fiscal year. Historically, the committee has scheduled four meetings per year, and this is expected to continue with no changes in costs.

PUC Staff and Administration Costs

The PUC staff and administration costs have two components. The first component is the inter-agency fees that are estimated by the Department of Finance and sent to the Commission. The most recent estimate which will be applied to the 2010-11 fiscal year is $1,038,000. The other component is the CPUC staff and administrative costs. The divisions within the CPUC that work with the CHCF-B program estimate the staff time devoted to the CHCF-B program. The estimated salary and overhead expenses for are totaled to estimate the expense for the CHCF-B program for FY 2010-11. The budget estimate for FY 2010-11 is $609,000.

Conclusion

The itemized costs for the FY 2010-11 budget are included in Appendix A.1 and are summarized in the table below:

On July 17, 2009, in compliance with Paragraph 4.a.1 of the CHCF-B Administrative Committee (AC) Charter, the Chairperson of the CHCF-B AC submitted, to the Director of CD, a letter supporting an expense budget for FY 2010-11 in the amount of $ 50.935 million. The Chairperson's letter was submitted in his personal capacity following the June 10, 2009 CHCF-B AC meeting. Due to potential conflict of interest issues, the budget was not adopted by a quorum of the CHCF-B AC. 3 Notice of the chairperson's letter was published in the Commission's Daily Calendar on July 21, 2009.

In this Resolution, we adopt the proposed FY 2010-11 CHCF-B expense budget of $50.935 million.

Notice/Protests

Notice of the CHCF-B AC Chairperson's expense budget letter was published in the Commission's Daily Calendar on July 21, 2009. The proposed budget letter can be viewed on the Commission's website under the CHCF-B Budget heading at:

http://www.cpuc.ca.gov/PUC/Telco/Public+Programs/Advisory+Boards/CA+High+Cost+Fund-B.htm The Commission did not receive any protests or comments on this matter.

In compliance with PU Code § 311 (g), a Notice of Availability was e-mailed on July 21, 2009 to the CHCF-B claimants, the CHCF-B AC members and alternates, and to parties on the service list of R.09-06-0194 informing these parties that the draft of this Resolution is available at the Commission's website http://www.cpuc.ca.gov/ (search for Resolution T-17211) and is available for public comments. In addition, CD also informed these parties of the subsequent availability of the conformed resolution, when adopted by the Commission, at the Commission's website as indicated above. No comments were received.

Findings

Copies of the notice letter advising parties of the availability of this draft resolution and the conformed resolution, when adopted by the Commission on the Commission's web site were e-mailed to the CHCF-B claimants, the CHCF-B AC, and the parties on the service list of R.09-06-019 on July 21, 2009. No comments were received.

THEREFORE, IT IS ORDERED that:

This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on August 20, 2009. The following Commissioners approved it:

1 D.05-08-004 authorizes SureWest to continue receiving payments of $11.5 million on an interim basis to offset lost EAS revenues. Subsequently, D.07-09-002 requires SureWest to reduce its CHCF-B draw for EAS purposes in a series of steps beginning January 1, 2007 and ending January 1, 2012. For FY 2010-11, the CHCF-B draw for EAS is $3.06 million, which represents a $2.04 million reduction from the FY 2009-10 draw of $5.10 million.

2 Chapter 342, Statutes of 2008

3 All CHCF-B AC members are required to conform to the requirements of Govt. Code § 1090 and "The Fair Political Practices Act". AC members may not participate in an activity where there is an actual or a perceived conflict of interest.

4 The service list is initially the same as for R.06-06-028.

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