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Telecommunications Division

RESOLUTION T-16747

Public Program Branch

Date: June 5, 2003

R E S O L U T I O N

RESOLUTION NO. T-16747. TO ESTABLISH THE DEAF AND DISABLED TELECOMMUNICATIONS EQUIPMENT AND SERVICE PROGRAMS (PUBLIC UTILITIES CODE SECTION 2881, ET SEQ.) 2003-2004 BUDGET PURSUANT TO DECISION NO. 89-05-060.

SUMMARY

This resolution recommends an annual budget of $57,164,827 for the Deaf and Disabled Telecommunications Equipment and Service Programs (DDTP), pursuant to Public Utilities (PU) Code Section 2881, et seq. for Fiscal Year (FY) 2003-2004. During 2002-2003, the surcharges remitted to the DEAF Trust exceeded expenditures due to an unanticipated increase in the telecommunications billing base. This resolution thus recommends that the surcharge be decreased from its current rate of 0.30% to 0.047% beginning on July 1, 2003.

The 2003-2004 budget is the first budget cycle in which the provisions of Senate Bill (SB) 669 (1999) and Assembly Bill (AB) 1734 (2002) are fully implemented. The 2003-2004 budget year is the first of two transition years for the DDTP as was approved by the Commission in Resolution T-16703. Beginning on July 1, 2003, the DDTP will be administered by the Commission; the newly formed Telecommunications Access for the Deaf and Disabled Administrative Committee (TADDAC) will provide advice and recommendations to the Commission. July 1, 2003 also marks the first day that the DDTP will be operated and managed by a state contractor. In Resolution T-16740, the Commission approved the awarding of the California Communications Access Foundation (CCAF) as the contractor to provide the services of the DDTP, pending review and approval by the Department of General Services (DGS).

Because of the successes in the 2002-2003 marketing campaigns, TD recommends increased efforts in marketing and outreach during the 2003-2004 budget cycle to include a campaign to educate Californians on the newly structured California Relay Service (CRS) to be implemented in early 2004. Although the DDTP has experienced increases in the number of consumers using specialized equipment due to the increased marketing efforts in 2002-2003, the increase in users has not corresponded with an increase in equipment expenses. Hence, TD recommends maintaining approximately the same equipment expenses for the 2003-2004 budget as those in 2002-2003 budget.

BACKGROUND

The Commission established the DDTP to implement three legislative mandates: PU Code Section 2881(a) authorizes the provision of TTYs to deaf or hard of hearing individuals; PU Code Section 2881(c) authorizes the provision of other specialized telecommunications equipment to consumers with hearing, vision, mobility, speech, and cognitive disabilities; and PU Code Section 2881(b) uses third-party intervention (also known as the California Relay Service (CRS)) to connect consumers who are deaf or hearing impaired with hearing parties. The DDTP is currently managed by an external staff acting as agents of the Commission. An administrative committee, the DDTP Administrative Committee (AC), administers the DDTP and oversees its finances. Two advisory committees, the Equipment Program Advisory Committee (EPAC) and the CRS Advisory Committee (CRSAC), advise the DDTPAC on the equipment and relay service programs.

SB 669, signed by Governor Gray Davis in 1999, changes the current operations of the Commission's public programs in two ways: 1) it transfers the funds for the programs from a bank trust fund to the State Treasury and 2) it changes the duties of the administrative committees to those of advisory boards. The Commission successfully implemented the requirements of SB 669 by October 1, 2001 for the California High Cost Fund-A, California High Cost Fund-B, California Teleconnect Fund, and Universal Lifeline Telephone Services programs.

Because of the size of the DDTP and the complexities involved, the Commission sought an extension of the original deadline for the transfer of the DDTP funds. AB 1734, signed into law in June 2002, 1) authorizes the Commission to contract for the DDTP services, 2) provides for an extension of the deadline from July 1, 2002 to July 1, 2003, 3) creates, on July 1, 2003, the Telecommunications Access for the Deaf and Disabled Administrative Committee (TADDAC), formerly the DDTPAC, as an advisory board to the Commission, and 4) requires the current DDTPAC to provide a report to the Commission recommending a transition plan.

On October 1, 2003, the DDTPAC provided a transition plan to the Commission. The Commission responded by holding a day-long workshop that discussed both the DDTPAC's recommendations and the TD staff recommendations. The workshop provided the opportunity for public input and comment. As a result of the workshop, TD drafted a resolution with a recommended transition plan. On December 22, 2003, the Commission adopted Resolution T-16703 approving a transition plan which included the release of an Invitation For Bid to operate and manage the programs and services of the DDTP. On May 22, 2003, the Commission approved Resolution T-16740 awarding the contract to operate and manage the DDTP to the California Communications Access Foundation (CCAF), pending DGS review and approval.

Also on May 22, 2003, the Commission approved Resolution T-16746, an augmentation cap for the 2002-2003 DDTP budget in the amount of $16,956,350. These funds will 1) cover the necessary costs of events associated with the transition of the DDTP and 2) provide financial and operational stability to the DDTP during the first quarter of the program transition (July 1 - September 30, 2003). Appendix A, column B, shows the augmented budget as approved by the Commission.

Ordering Paragraph 8 of T-16746 directs the Commission Executive Director to review, approve, and direct TD to implement the amending of current contracts to include up to a 25 percent advance payment to program contractors deemed at-risk during the first quarter of the transition and 2) up to a 90-day pre-payment to non-contracted program vendors to ensure the delivery of essential goods and services during the first quarter of the transition. Where advances and prepayments have been provided, an amount equal to the advance or prepayment will be subtracted from 2003-2004 estimates.

DISCUSSION

Revenues

For the 2003-2004 budget, TD estimates a billing base of $19.845 billion. Because of a higher than anticipated billing base in 2002-2003 resulting in higher than anticipated surcharges remitted, TD recommends a revised surcharge rate decreased from 0.30 % to 0.047 % beginning on July 1, 2003. DDTP funds are scheduled to be transferred to the DDTP Administrative Committee Fund in the State Treasury on July 1, 20031. The State of California provides interest on accounts in the State Treasury. TD estimates that the interest on the DDTP funds in 2003-2004 will equal approximately $570,000. TD estimates total revenues of $19.4 million in 2003-2004.

2003-2004 DDTP Budget Changes

TD anticipates several program changes affecting the 2003-2004 budget cycle: 1) the DDTP will be managed and operated by an independent state contractor, 2) the DDTP will implement a new CRS structure in early 2004, and 3) a seventh walk-in center, approved in Resolution T-16627, will become operational in July 2003.

Resolution T-16740, approved by the Commission on May 22, 2003, awarded the contract to provide the personnel to operate and manage the DDTP to the California Communications Access Foundation (CCAF) for a two-year period at a cost not to exceed $6,844,800 per year. The contract includes a provision for a 25 percent advance payment to be provided on or about June 16, 2003 and June 16, 2004. The 25 percent advance payment per year is subtracted from the annual contract estimate. The cost of the contract for the 2003-2004 budget shall not exceed $6,844,800. The 25 percent advance payment to be provided on or about June 16, 2003 was included in the 2002-2003 DDTP budget augmentation. The 2003-2004 budgeted amount includes nine months of the contracted personnel fees (October 2003-June 2004) and the 25 percent advance payment for 2004-2005 to be paid on or about June 16, 2004. TD has allocated this amount throughout the budget categories in lieu of former personnel costs. The estimate allocated for each category will be included in the individual budget categories discussed later in this resolution.

On May 20, 2003, TD released, for public comment, Draft Resolution T-16741 recommending that the Commission authorize the Commission's Executive Director to award six contracts to provide the CRS at a total cost of approximately $146 million for five and one-half years. These six contracts represent a new CRS structure whereby CRS is provided by three types of providers: 1) one network services provider which provides the inbound and outbound network transport and consumer billing, 2) four call center services providers which provide the relay services including Speech-to-Speech (STS), video relay service and web chat relay service, and 3) one network management services provider which provides the routing of 7-1-1 and DDTP 800 calls as well as auditing and reporting performance costs of the other CRS contractors.

TD anticipates that the new CRS structure will not be fully implemented until early 2004. The current CRS structure will remain in place for part of the 2003-2004 budget cycle. The new CRS structure will then be operational for the remainder of the 2003-2004 budget cycle. Estimates for the 2003-2004 budget costs of these items are discussed in the Telecom Expenses section of this resolution.

The third program change impacting the 2003-2004 budget is the opening of a seventh walk-in center in Burbank. The opening of this walk-in center marks the completion of the centralization of the DDTP2, a project which began in 1999. The Burbank walk-in center will replace the former Studio City walk-in center operated by the former Pacific Bell Telephone Company3 prior to the centralization of the DDTP. The Studio City walk-in center served almost 7,000 customers annually, second only to the Pacific Bell Sacramento walk-in center. Given this information and the fact that Sacramento served 2,823 customers in the year 2002, TD estimates that the Burbank walk-in center will serve approximately 3,000 customers during the 2003-2004 budget year. Budget estimates for the Burbank walk-in center are discussed in the Field Operations category.

Telecom Expenses

Actual SB 597 Equipment Purchases in 2002-2003

July

2002

August 2002

September 2002

October 2002

November 2002

December 2002

January 2003

February 2003

$0

$47,718

$221,398

$15,866

$113,298

$11,026

$135,120

$29,442

-100%

-83%

-35%

-48%

-43%

-51%

-45%

-49%

Other Non-Administrative Expenses

On May 22, 2003, the Commission approved Resolution T-16740, recommending the award of a two-year contract to provide the personnel to operate and manage the DDTP to the CCAF at an annual cost of $6,844,800. In approving T-16740, the Commission also directed the Commission Executive Director to submit the proposed contract to DGS for its review and approval. A 25 percent advance payment will be provided to CCAF once the contract is approved by DGS. The 2003-2004 budget estimate for this contract includes 75 percent of year one expenses and a 25 percent advance payment for year two to be paid out to the contractor on or about June 16, 2004. The recommendations for personnel expenses are based on the assumption that DGS will approve the contract between the Commission and the CCAF. TD has divided the annual cost of this contract, $6,844,800, amongst the non-Telco categories, in lieu of personnel costs.

Administrative Expenses

Other Program Expenses

Consistent with the four other public programs administered by the Telecommunications Division, TD estimates and recommends $123,000 for Commission fiscal office staff, $20,000 for public programs programming consultant, and $30,000 for electronic storage of documents.

NOTICE TO OTHER CARRIERS, ADVICE LETTER FILINGS, AND NOTICE OF AVAILABILITY

In Resolution T-15558 (dated June 8, 1994), we waived the notice requirements of General Order (G.O.) 96-A, Section III.G.1 to furnish competing utilities either public or private with copies of related tariff sheets. We did so because it did not appear to be in the public's interest for each utility to send and receive over two hundred notices advising them of regulatory changes about which they already know. Since that time nothing has happened to change our opinion, so we will waive this notice requirement for tariff changes which comply with this resolution.

The Telecommunications Division (TD) oversees the administration of several public programs. The surcharge rates for some of these programs will be revised effective July 1, 2003 based on the revised adopted FY 2003-04 budgets. For administrative efficiency, we will allow telecommunications utilities that are subject to the surcharges for these various programs to file concurrently revised tariff schedules in compliance with resolutions and decisions revising these surcharges for FY 2004-05 in accordance with the provisions of G.O. 96-A on or before June 14, 2003. These advice letters shall become effective July 1, 2003.

In the past, the Commission has served hard copies of resolutions on all telecommunications carriers and parties on the service list(s). To be consistent with the Commission's commitment to utilize the Internet for distributing Commission orders and information, the TD has informed the telecommunications carriers and those on the parties of record in I.87-11-031, R.00-05-001 and R.03-03-014 on the availability of the draft resolution as well as the conformed resolution, when adopted by the Commission, on the Commission website, www.cpuc.ca.gov. In addition, a hard copy of the conformed copy of this resolution will be provided to all parties of record in I.87-11-031, R.00-05-001 and R.03-03-014.

COMMENTS

Telecom Expenses

SB 597

In its comments, the DDTPAC noted that the DDTP forecast for the total SB 597 expenses for this fiscal year equals $1.5 million. The DDTPAC recommended adding 10 percent to this forecast for anticipated growth in new customers, $96,000 for fax machines and $240,000 for web cams for a total of $1,986,000 for SB 597 in the 03-04 DDTP budget.

TD disagrees with the DDTP forecast. In reviewing actual SB 597 expenses from July 2002 through April 2003, TD estimates total expenses of approximately $1.16 million. TD reviewed its estimate for SB 597 in the 03-04 budget and included a 10 percent increase for anticipated customer growth and $96,000 for fax machines. TD notes that web cams are not currently included on the Commission-approved DDTP equipment list. The inclusion of web cams on the list is a policy issue that must be reviewed by the Commission. TD recommends including the estimate of $240,000 for web cams, but this amount cannot be spent by the program unless web cams are approved by the Commission for inclusion on the DDTP equipment list.

SB 60

The DDTPAC comments included the DDTP forecasts of $6.4 million for total SB 60 expenses in 02-03. The DDTPAC recommended adding 10 percent for growth in new customers, $225,000 for a new cordless telephone, $360,000 each for inductive coupler devices and amplified cordless phones, plus $150,000 for the anti-stuttering device.

TD disagrees with the SB 60 02-03 forecast. In reviewing actual SB 60 expenses from July 2002 through April 2003, TD estimates total expenses of approximately $6.015 million. Additionally, the DDTPAC should note that the inductive coupler device and the amplified cordless phone should be included under SB 597. TD has revised its SB 597 estimates to include these two items as reflected in the Discussion section of this resolution. TD revised its original SB 60 estimates to include the 10 percent increase as well as the cordless phones and the anti-stuttering device. As with the web cams, the inductive coupler device has not been approved by the Commission for inclusion on the equipment list. TD recommends including $360,000 in the 03-04 budget for the inductive coupler device, but the program cannot spend the funds unless the Commission approves inclusion of the device on the DDTP equipment list. These revised TD recommendations are reflected in the Discussion section of this resolution.

SB 244

The DDTPAC pointed out that a significant portion of the new CRS contract expenses which will be incurred in the first year of operation under the new contracts is related to the Network Management Services (NMS) expenses and recommended that 75% of the NMS first year costs will be budgeted during fiscal year 03-04. TD concurs and has reflected this in the Discussion section of this resolution.

Equipment Program

The DDTPAC recommended an increase of twelve percent for freight charges in the 03-04 DDTP budget. The DDTPAC anticipates a five percent increase in fuel prices, an increase of five to nine percent in the general and administrative overhead charge assessed by the warehouse vendor, and increases in freight charges due to new customer growth. TD agrees with the 5 percent increase in fuel prices and a 5 percent increase due to new customer growth. These recommended increases are reflected in the Discussion section of this resolution.

Customer Contact

The DDTPAC noted in its comments that TD had recommended that the DDTP add another marketing campaign to focus on the call center. The DDTPAC also noted that during the last call center marketing campaign, call center volumes doubled. The DDTPAC anticipates that the implementation of two marketing campaigns focused on the call center will increase call volumes for two months and recommended that TD revise its estimates for the call center to include two months with high call volumes at $972,000 each and 10 months with average call volumes of $415,000 each. TD agrees with this revision and has reflected the revision in the Discussion section of this resolution.

The DDTPAC also recommended increasing the amount for Special Projects to $540,000 annually. The DDTPAC noted that over the past 9 months, the DDTP averaged $37,000 per month in Special Project charges. Additionally, the DDTPAC noted that the Marketing and Outreach Outbound Call program (MOOC) is expected to generate increased mailing expenses, because the call center vendor will be adding more outbound call representatives. TD points out that the MOOC program created in June 2002 to utilize unspent minutes that were guaranteed minutes in the call center contract. The call center contract was amended to eliminate the guaranteed minutes, and so the MOOC program now increases the DDTP budget. Until the MOOC program can be justified as effective, TD recommends maintaining current program spending. After reviewing the average monthly special project charges, TD revised its estimates of Special Projects to $462,000 for the 2003-2004 DDTP budget.

Marketing Media and Materials

The DDTPAC recommended the following increases in the Marketing and Outreach budget:

The addition of this $945,000 brings the recommended total Marketing Media and Materials budget to $2,795,000.

In Resolution T-16663, the Commission approved TD's recommendation that the DDTP take small steps to promote the programs, study the results of the individual programs, and then focus its funding on the advertising media providing measurable results. The two campaigns during the 02-03 fiscal year shows that small steps can be successful. TD recommends continuing this philosophy with the execution of one not two additional marketing campaigns during the 03-04 fiscal year.

In regards to the other marketing recommendations, 1) TD agrees with and recommends the implementation of direct mail to non-English speaking communities at a cost of $100,000, 2) as was discussed before, the DDTP must justify the effectiveness of the MOOC program before TD recommends additional funding, 3) TD needs justification for outdoor electronic advertising, and 4) the Commission approved $30,000 in the 02-03 budget for customer surveys and the program spent only $6,000 as of April 30, 2003. TD sees no justification for further doubling the budget amount for customer surveys.

Administrative Expenses

The DDTPAC questioned the recommendation of $700,000 for program and financial audits in 2003-2004 when the DDTP has always been able to conduct its yearly financial and equipment audits for less than $90,000. TD notes that the $700,000 is for remittance and carrier audits as well as financial and equipment audits. The remittance and carrier audits have never been implemented by the DDTP. PU Code Section 274 requires that finance and compliance audits be performed (which includes remittance and carrier audits). This is consistent with the practice of the other public programs administered by TD.

The DDTPAC recommended that $30,000 be added for outside legal assistance for the DDTP committees and $50,000 for consultants to cover outside technical assistance that might be necessary for research conducted by of any of the committees. TD notes that as part of the transition, a liaison from the Commission Legal Division will sit on the Telecommunications Access for the Deaf and Disabled Administrative Committee as consul, thus no outside legal assistance is required. This is consistent with the other public programs administered by TD. In regards to the request for consultant funding, any research for the program will be conducted by the program not by the committees, therefore consultant fees are not required.

The DDTPAC added that the 25 percent advance payment to be made to the California Communications Access Foundation should be included in the 03-04 DDTP budget. TD notes that this amount is already included throughout the 03-04 budget as the contracted personnel fees items. The total amount of contracted personnel fees in the 03-04 budget is equal to nine months of fees for 03-04 (the first three months of 03-04 will be the 25 percent advance payment to be made on or about June 16, 2003) plus the 25 percent advance payment to be made on or about June 16, 2004.

TPIC

The DDTPAC reminded the Commission that if the recommendation in R.03-03-014 to move the oversight of the TTY Placement Program to the DDTP is adopted, the TPIC budget will need to be incorporated in this budget. TD has reviewed the draft decision which currently states in the Conclusions of Law that "Public Utilities Code Section 279(a) precludes the Commission from ordering the transfer of the TTY Placement Program from the PSPC to the DDTP program." TD concludes that the oversight of the TTY Placement Program cannot be transferred to the DDTP without legislative authority.

Other

In order to fund its recommendations and to provide for a 60-day fund balance reserve at June 30, 2004, the DDTPAC recommended that the surcharge be set at .083%. TD notes that it is the policy of the Commission that the public programs budgets include no more than a 30-day fund balance.

FINDINGS

1. The Telecommunications Division estimate of $57,164,827 for the 2003-2004 budget, as set forth in Column D of Appendix A, is reasonable for the Deaf and Disabled Telecommunications Program and should be adopted.

2. A surcharge rate of 0.047%, effective July 1, 2003, is reasonable and should be adopted and remain in effect until further revised by the Commission.

3. The telecommunications carriers are not required to notice competing utilities for tariff changes that comply with this decision.

4. The Telecommunications Division (TD) oversees the administration of several public programs. The surcharge rates for some of these programs will be revised effective July 1, 2003 based on the adopted 2003-2004 budgets. To maximize administrative efficiency, TD will allow telecommunications utilities that are subject to the surcharges for these various programs to file simultaneously revised tariff schedules in compliance with resolutions and decisions revising these surcharges for FY 2003-04 in accordance with the provisions of G.O. 96-A on or before June 14, 2003. These advice letters shall become effective July 1, 2003.

5. All certificated telecommunications carriers required to file tariffs with the Commission should file advice letters by June 14, 2003 revising the surcharge rate consistent with this Resolution.

6. It is reasonable to require the Telecommunications Division and Information Management Services Division to work with the proposed Deaf and Disabled Telecommunications Program service contractor, the California Communications Access Foundation, to research and develop a proposal for the procurement of a new centralization database and document management system and to submit the proposal to the Director of the Telecommunications Division no later than December 1, 2003.

7. It is reasonable to require that the Telecommunications Division delay actual procurement of the centralization database and document management system until July 1, 2004.

8. It is reasonable to require that the Deaf and Disabled Telecommunications Program Administrative Committee, or its successor, provide justification for and seek approval from the Commission to include web cams and induction coupler devices on the formal Deaf and Disabled Telecommunications Program Equipment List prior to purchasing.

9. It is reasonable to require that funding for the web cam and induction coupler device not be utilized unless the Commission approves the web cam and coupler device for inclusion on the formal Deaf and Disabled Telecommunications Program Equipment List.

10. It is reasonable to include allocations of $1.95 million in the marketing materials category, as set forth in Column D of Appendix B of this resolution, for a total of three marketing campaigns for the Deaf and Disabled Telecommunications Program.

11. The Telecommunications Division's recommendations are reasonable and should be adopted.

THEREFORE, IT IS ORDERED that:

1. The 2003-2004 budget for the Deaf and Disabled Telecommunications Program shall be $57,164,827, as set forth in Column D of Appendix A of this resolution.

2. The current surcharge rate of 0.30% shall be decreased to 0.047%, effective July 1, 2003 and remain in effect until further revised by the Commission.

3. All certificated telecommunications carriers in California shall apply this surcharge rate on their end-users' bills rendered on or after July 1, 2003 for intrastate services.

4. To maximize administrative efficiency, TD will allow telecommunications utilities that are subject to the surcharges for these various programs to file simultaneously revised tariff schedules in compliance with resolutions and decisions revising these surcharges for FY 2003-04 in accordance with the provisions of G.O. 96-A on or before June 14, 2003. These advice letters shall become effective July 1, 2003.

5. All certificated telecommunications carriers required to file tariffs with the Commission shall file advice letters by June 14, 2003 revising the surcharge rate for the Deaf and Disabled Telecommunications Program to 0.047% to take effect on July 1, 2003. Telecommunications carriers are not required to inform competing carriers of tariff changes which comply with this resolution.

6. The Deaf and Disabled Telecommunications Program Administrative Committee, or its successor, shall provide justification for and seek approval from the Commission to include web cams and induction coupler devices on the formal Deaf and Disabled Telecommunications Program Equipment List prior to purchasing.

7. Funding for the web cam and induction coupler device shall not be utilized unless the Commission approves the web cam and coupler device for inclusion on the formal Deaf and Disabled Telecommunications Program Equipment List.

8. The Telecommunications Division and the Information Management Services Division shall work with the proposed Deaf and Disabled Telecommunications Program contractor, the California Communications Access Foundation, to research and develop a proposal for the procurement of a new centralization database and document management system and to submit the proposal to the Director of the Telecommunications Division no later than December 1, 2003.

9. The Telecommunications Division shall delay the actual procurement of the new centralization database and document management system until July 1, 2004.

10. The outreach media and materials budget for the Deaf and Disabled Telecommunications Program, to include three marketing campaigns, shall be $1,950,000 as set forth in Column D of Appendix B of this resolution.

11. The Telecommunications Division's recommendations set forth in this resolution are adopted.

12. The Executive Director shall serve hard copies of the conformed Resolution to all parties of record in Investigation 87-11-031, Ruling 00-05-001, and Ruling 03-03-014.

This Resolution is effective today.

I hereby certify that this Resolution was adopted by the Public Utilities Commission at its regular meeting on June 5, 2003. The following Commissioners adopted it:

1 Public Utilities Code Section 270.1(g) and 278.(b) require that, on July 1, 2003, funds in the Deaf Equipment Acquisition Fund (DEAF) Trust transfer to the Controller for deposit in the Deaf and Disabled Telecommunications Program Administrative Committee Fund in the State Treasury.

2 To reflect the emergence of a competitive local carrier market and the requirement that these carriers provide qualified customers equipment under the DDTP program, the Commission directed the DDTPAC to centralize its equipment procurement and distribution program. In April 1997, the Commission adopted Resolution T-16017 authorizing the DDTPAC to engage consultants to assist in the development and implementation of a centralized DDTP program to assume these former utility functions.

3 Pacific Bell Telephone Company changed its name to SBC in 2002.

4 Budget Letter Number 03-02, dated January 29, 2003.

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