PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Telecommunications Division |
RESOLUTION T-16561 |
Public Programs Branch |
August 23, 2001 |
R E S O L U T I O N
RESOLUTION T-16561 TO ADOPT THE BUDGET FOR THE TIME PERIOD FROM JULY 1, 2002 THROUGH JUNE 30, 2003 FOR THE UNIVERSAL LIFELINE TELEPHONE SERVICE (ULTS) PROGRAM WHICH INCLUDES THE UNIVERSAL LIFELINE TELEPHONE SERVICE TRUST ADMINISTRATIVE COMMITTEE (ULTS-TAC) AND THE UNIVERSAL LIFELINE TELEPHONE SERVICE MARKETING BOARD (ULTS-MB).
_________________________________________________________________
SUMMARY
This resolution adopts a budget of $284.012 million for the ULTS for the time period from July 1, 2002 to June 30, 2003 (FY 2002-03) and decreases the surcharge rate to 1.25% from 1.45% for FY 2002-03. The surcharge will fund the ULTS program claims, the ULTS-TAC, and ULTS-MB administrative and program costs, and a three-month reserve. By approving this resolution on a fiscal year basis, the Commission will conform with the State Budget process.
This total ULTS budget of $284,011,726 consists of the following components:
ULTS Carrier Claims for ULTS Service |
$275,000,000 |
ULTS-MB |
$7,164,108 |
ULTS-TAC |
$1,847,618 |
$284,011,726 |
The adopted ULTS FY 2002-03 budget is included in Appendices A-1 through A-3 of this resolution.
This resolution adopts a FY 2002-03 budget of $1,847,618 for ULTS-TAC's administrative expenses. The ULTS-TAC administers the ULTS program on behalf of the Commission. At the same time, this resolution adopts a FY 2002-03 budget of $7,164,108 for the ULTS-MB's program costs. The objective of the ULTS-MB is to promote and market the ULTS program. The adopted FY 2002-03 budget for the ULTS-MB covers administrative expenses, estimated costs for marketing assessment study, and marketing programs including a call center. Finally, this resolution adopts a FY 2002-03 budget for estimated annual claims of $275,000,000 for reimbursement to carriers for providing ULTS services.
BACKGROUND
ULTS Program:
The ULTS program was established in 1984 (Decision 84-11-028) pursuant to Public Utilities Code Section 871. The program provides discounted basic service to low-income households. The Commission, in Decision 87-07-090, authorized a 4% surcharge on service rates of intrastate inter-Local Access and Transport Area (LATA) services beginning on July 29, 1987. The surcharge was extended to intrastate intraLATA toll beginning on January 1, 1988 to provide adequate funding for the program. In Decision 94-09-065, the surcharge was further extended to all end users services, except for specific exceptions, on January 1, 1995. 1 Appendix A-4 lists the historical ULTS surcharge rates since the inception of the program.
ULTS-TAC and ULTS-MB Programs:
The California Public Utilities Commission (CPUC or Commission) established the ULTS-TAC in Decision 87-10-088. The ULTS-TAC was given the responsibility of setting up the ULTS Trust and to administer the financial aspects of the ULTS program. The ULTS-TAC provides administrative functions for the ULTS programs, receives surcharges, makes payments on claims, and provides investment advisory for ULTS Trust assets. The ULTS Trust is currently budgeted for seven full-time employees who handle daily administrative and financial responsibilities of the ULTS trust and ULTS-MB.
The Commission established the ULTS-MB in Decision 97-12-105 as an entity responsible for marketing the ULTS program in a competitive environment, with a focus on achieving the ULTS program goal of providing basic telephone service to all qualifying low-income households. The ULTS program provides subsidized basic telephone service to qualifying low-income households. At the end of 1999, there were approximately 3.350 million ULTS subscribers in California. Specifically, the ULTS-MB was given the responsibility to develop a budget for marketing the ULTS program, to devise competively neutral marketing strategies, and to oversee the implementation of the ULTS marketing campaigns.
The ULTS-MB began its activities in January 1998. Pursuant to Decision 97-12-005, the ULTS-MB uses ULTS-TAC and Commission resources, when necessary, to carry out its operations. However, to better understand and monitor ULTS-MB activities, Decision 97-12-005 required the ULTS-MB to submit an annual budget, which covers administrative expenses, costs of market studies, and other activities associated with ULTS marketing and outreach programs. The ULTS-MB's budget, once approved, will become part of the ULTS-TAC's annual budget.
NOTICE/PROTESTS
On May 25, 2001, the ULTS-TAC and ULTS-MB submitted to the Commission a proposed FY 2002-03 budget of $9,011,726. A copy of this budget filing was mailed to the service list of R-95-01-020. This filing was publicly noticed on the Commission's Daily Calendar on June 4, 2001, stating that any comments and/or protests must be made in writing and received by the Commission within 20 days. No protests to the budget letter request have been received.
BUDGET FILING PROCESS
Public Utilities Code (PU Code) Section 277(b) requires the ULTS program funds to be deposited to the State Treasury and PU Code Section 273(a) requires the submission of an annual budget to the Commission for approval. To conform to the State Budget process, the ULTS budget process was modified from a calendar year basis to a State of California fiscal year budget basis. The last ULTS budget in year 2000 was transitioned into a fiscal year basis. In Resolution T-16435 the Commission adopted a budget for the ULTS program on a fiscal year basis, for the period July 1, 2001 through June 30, 2002. In the current resolution, the Commission adopts the ULTS FY 2002-2003 budget and surcharge rate for the period of July 1, 2002 through June 30, 2003.
To comply with the requirements of the PU Code Section 273 (a), the ULTS-TAC must submit a proposed budget through a letter request to the Commission on or before June 1 (or the next business day if June 1 is on a weekend). The Commission has ninety (90) days to approve the proposed ULTS budget since the Commission must submit a Budget Change Proposal for the ULTS program to the Department of Finance (DOF) by September 1. For FY 2002-03, the ULTS-TAC filed the budget through a letter request on May 25, 2001. In order for the Commission to fulfill this obligation in a timely manner in the year 2002, the Commission will require the ULTS-TAC and ULTS-MB to file by June 1, 2002 (or the next business day if June 1 is not a business day) a proposed budget and a proposed surcharge level for fiscal year 2003 - 2004 for Commission approval.
Furthermore, PU Code Section 274 includes a provision that the Commission conduct financial and compliance audits of public program related costs and activities at least once every three years, beginning January 1, 2000.
In future years under the provisions of PU Code Section 277(b), if the State budget, which includes the ULTS budget expenses, is not adopted by the Legislature and signed by the Governor on or before the beginning of the fiscal year, payments for any ULTS related claims will not be paid even if the associated claims and expenses are approved by the ULTS-TAC. Thus, the ULTS claim payments to carriers are contingent on approval of a state budget.
DISCUSSION
On May 25, 2001, the ULTS-TAC and ULTS-MB filed a proposed FY 2002-03 program budget for adoption by the Commission. The FY 2002-03 budget is a combined ULTS-TAC and ULTS-MB amount of $9,011,726, exclusive of carrier claims for ULTS services of $275 million. The budget was prepared using a "zero-based" budgeting approach and the budget includes "projected costs for completing tasks" assigned to ULTS-TAC and ULTS-MB.
ULTS-TAC AND ULTS-MB BUDGET FOR THE FY 2002-2003 BUDGET
The ULTS-TAC and the ULTS-MB submitted a proposed FY 2002-03 budget of $1,847,618 and $7,164,108, respectively. Tabulations of the proposed budgets are set forth in Appendices A-1 through A-3 of this resolution. The ULTS-TAC's proposed FY 2002-03 budget covers administrative expenses. The ULTS-MB's proposed FY 2002-03 budget covers administrative expenses, ULTS marketing program expenses including call center, and marketing program assessment study. Telecommunications Division (TD) staff recommends the adoption of the ULTS-TAC and ULTS-MB proposed budget subject to the following discussion.
1) Personnel - The functions of ULTS-TAC and ULTS-MB are administered by seven external staff positions. The seven external staff positions for FY 2002-03 are as follows:
a. Executive Director
b. Office Administrator
c. Internal Auditor
d. Administrative Assistant
e. ULTS-TAC Administrative Assistant
f. ULTS-MB Project Manager
g. ULTS-MB Administrative Assistant
The proposed salary increase for FY 2002-03 for the five of the seven staff positions ranges from 3-5% while the proposal salary increase for the other two positions (Office Administrator and Administrative Assistant) is a 10.5% increase. These two positions have been reclassified due to increased responsibilities resulting in the proposed salary increase of 10.5%. All proposed salary levels for all seven positions for FY 2002-03 are within the ranges identified in the ULTS Compensation Study as authorized by the Commission in year 2000. Appendix A-3 lists the salary structure for each of the seven positions.
The Commission notes that the budget for Personnel and other administrative expenses is likely to change because of the need to transition ULTS funds to the State Treasury pursuant to Section 270, which was added by SB 669 (Polanco 2000). Once ULTS funds are moved to the State Treasury, we expect that the ULTS program will need to be internalized at the Commission. This internalization of the program may occur in the 2001-2002 fiscal year. The Commission awaits the approval of the 2001-2002 State budget to know the precise impact of internalization on the ULTS budget. If the budget is approved in time, we may amend this resolution to reflect the changes resulting from internalization.
2) Marketing Program - The ULTS-MB proposed $5 million for the Permanent Marketing Program and $1.5 million for Call Center for the FY 2002-03 budget. The permanent marketing program activities include implementing the marketing campaigns and outreach programs for ULTS. A Call Center enhances the marketing program efforts by providing an avenue for potential ULTS customers to contact and request additional information on the ULTS program. For example, a Call Center will be able to serve as an educational resource and as a competitively neutral referral source for potential ULTS customers. Results from the interim marketing program, Phase I, indicated a separate Call Center is essential to the successful expansion of the ULTS program.
TD staff recommends that the Commission adopt both a Call Center and a permanent marketing program totaling $6.5 million ($5 million for the marketing program and $1.5 million for the Call Center) for FY 2002-03. In D.97-12-105, the Commission stated that the ULTS-MB budget should not exceed the average of the annual ULTS expenses reimbursed to all carriers for the previous three years that carriers provided ULTS marketing services. In resolutions 2 issued after the issuance of D.97-12-105 the Commission has interpreted this request to impose a $5 million cap on annual expenditures for marketing. However, TD staff believes that additional costs of $1.5 million for the Call Center are reasonable and should be incurred in order to expand subscription to Lifeline service by eligible customers. Accordingly, TD staff recommends that the Commission increase the $5 million cap to $6.5 million..
3) Assessment - The ULTS Administrative Committee proposed $200,000 for the Marketing Assessment study for the FY 2002-03 budget. Resolution T-16366 adopted a $200,000 annual budget for calendar year 2000. Since the assessment is an annual ongoing activity, this resolution adopts the requested level of $200,000 for Market Assessment.
4) Auditing and Accounting Expenses -- The ULTS-TAC proposed FY 2002-03 budget includes $16,000 for financial audit, $600,000 for carrier audits, and $500,000 for a compliance audit. The financial and compliance audits will involve a review of ULTS Trust and ULTS-MB financial records, contract processes, and other compliance issues consistent with the PU Code Section 274. The carrier audit will review various local exchange telephone carriers' (LEC) practices and procedures for ULTS claims and surcharges. The audit will examine the accuracy of the surcharges carriers remit to the ULTS program, as well as the accuracy of the claims they submit and payments they receive from the ULTS program.
The TD staff believes that the ULTS-TAC proposed FY 2002-03 budget of $1.116 million for financial, compliance, and carrier audits is reasonable and should be adopted. The contract proposals (e.g. Request For Proposals, Invitation for Bids, etc.) and contracts for the audits should comply with state contracting rules. Both of the contract proposals and contracts should be submitted to the Director of the Telecommunications Division for review and approval before being release for bids. The audits should be under the authority and control of the Commission. A copy of the audit report, including recommendations, should be sent to the Director of the Telecommunications Division within 5 days after completion.
5) ULTS Claims: The TD staff recommends that $275 million be adopted for ULTS claims. For FY 2001-02, the Commission adopted $274 million for ULTS claims. The TD staff recommends the adoption of the $275 million for FY 2002-03 because the carriers will likely incur the same approximate level of costs in FY 2002-03 as in FY 2001-02 resulting from the modifications of the ULTS program in D.00-10-028. In addition, with increased awareness of the ULTS program from the Permanent Marketing Program and Call Center, TD staff estimates the expenses to increase about $ 1 million in FY 2002-03 from FY 2001-02.
The TD recommendations to adopt the ULTS FY 2002-03 budget of $284 million, consisting of $275 million for ULTS Carrier Claims for ULTS Service, $7.1 million for ULTS-MB, and $1.8 million for ULTS-TAC, are reasonable.
ULTS Surcharge
TD performed a cash-flow analysis to determine a reasonable surcharge rate from July 1, 2002 through June 30, 2003. The calculation to decrease the ULTS surcharge rate to 1.25% from 1.45% is included in Appendix B of this resolution. The factors considered in assessing the surcharge are a three-month reserve, no investment income for FY 2002-03 and actual June 30, 2001 balance of $107.2 million. For purposes of estimating the surcharge level, TD staff has omitted the interest for calculation purposes after June 30, 2002 because the interest earnings thereon, after transfer of the Fund to the State Treasury are indeterminable. Interest earnings will not materially impact the surcharge estimate.
The TD staff recommended surcharge rate of 1.25% is reasonable.
Notice to Other Carriers and Advice Letter Filing
In resolution T-15558 (dated June 8, 1994) the Commission waived the notice requirements of General Order 96-A, Section III, G.1, to furnish competing utilities either public or private 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 that comply with this resolution.
The TD oversees the administration of eight public programs. The surcharge rates for some of these programs will be revised effective July 1, 2002 for FY 2002-2003. For administrative efficiency, we will allow all 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 in accordance with the provisions of G.O. 96-A for FY 2002-2003 on or before June 15, 2002. These advice letters shall become effective July 1, 2002.
NOTICE OF AVAILABILITY OF CONFORMED RESOLUTION
In order to be consistent with the Commission's commitment to utilize the CPUC Internet web site for distributing Commission orders and information, TD has informed all telecommunications carriers of the availability on the Commission's web site, www.cpuc.ca.gov, of the conformed copies of this resolution, when adopted by the Commission. In addition, a hard copy of the conformed resolution will be mailed to all parties on the service list of R.98-09-005/I.95-01-020/021.
1 Assembly Bill (AB) 386 was enacted on July 15, 1987 to replace AB 1348 (1983) and to provide funding for the ULTS program. AB 386 did not, after establishing an initial rate, provide specific directions for establishing surcharge rates or the related amount of reserve for the ULTS Fund. However, the legislation allows the Commission to "determine any questions of fact in the administration of this article."
2 Resolution T-16176, dated August 6, 1998, adopted one half (or $2.5 million ) of ULTS proposed $5 million calendar year 1998 budget for the remaining months of calendar year 1998 for ULTS marketing programs. Resolution T-16245, dated December 3, 1998, adopted a $7 million 1999 calendar year budget for ULTS marketing programs.
