XI. Assignment of Proceeding

Rami S. Kahlon is the Examiner in this proceeding.

Findings of Fact

1. CTC, a California corporation, is a public utility telephone company subject to the jurisdiction of this Commission.

2. CTC is the incumbent service provider within rural southwest Calaveras County and offers DSL service over its telephone lines.

3. CTC currently provides a mixture of basic telephone service or POTS and unregulated internet access and video services to customers located in the Poker Flat service area over its copper facilities.

4. CTC is experiencing an increasing demand for broadband services and intends to provide a mixture of POTS, internet access and video services in its Poker Flat service area over a FTTH platform.

5. The Poker Flat area is a high cost and high demand area in need of additional services for which CTC's existing facilities are not sufficient.

6. CTC needs funding for its Poker Flat project.

7. CTC's proposed broadband project may provide ancillary benefits to its telephone service.

8. There are common costs that both of CTC's telephone and broadband services may share.

9. On July 20, 2009, Governor Schwarzenegger signed AB 1555, amending

§ 281 until January 1, 2013, to expand the CASF eligibility to any entity applying for CASF funding in conjunction with an ARRA funding request.

10. On September 25, 2010, the Governor approved SB 1040 that increased by $125 million the funding authorized for CASF and extended the sunset date of the CASF program from January 1, 2013 to January 1, 2018.

11. The Commission has authority to monitor and enforce any conditions attached to approval of the CASF funding.

12. Section 281 encourages the deployment of high-quality advanced communications services to all Californians that will promote economic growth, job creation, and the substantial social benefits of advanced information and communications technologies.

13. In Res. T-17282, the Commission awarded CTC contingent CASF funding of $640,698 for its Poker Flat Project. This amount represents 10% of the project costs for CTC to provide broadband service.

14. On September 15, 2010, RUS confirmed CTC's eligibility for a grant in the amount of $2,860,883 and a loan in the amount of $1,226,093 to fund the construction of its broadband infrastructure project.

15. Both the RUS grant and the loan were awarded to CTC pursuant to the BIP, as authorized by the ARRA.

16. CTC currently has long-term secured borrowings through RUS for utility plant.

17. CTC's existing RUS loans with a total outstanding balance of $7,613,205, as of June 30, 2010, are secured by the utility's assets, as evidenced by the Amending Telephone Loan Contract dated January 2, 2003, and the Restated Mortgage, Security Agreement and Financing Statement dated February 7, 2005.

18. Section 818 and RUS require this Commission's approval of the RUS loan.

19. The inability to secure approval of the RUS loan could jeopardize the receipt by CTC of the RUS and CASF grants.

20. The construction costs to be funded partly with CTC's proposed RUS loan are shown in Table 2 of this Decision.

21. The RUS borrowing is for proper purposes.

22. RUS requires a security interest in the utility's assets.

23. CTC has planned construction projects for its regulated telephone service from years 2010 to 2013.

24. If CTC will need to obtain additional debt in the future, RUS is amenable to share a first lien position on a pari passu basis with other lenders.

25. RUS imposes conditions to ensure completion of the Poker Flat Project.

26. In Resolution ALJ 176-3262, dated October 14, 2010, the Commission preliminarily categorized this Application as ratesetting, and preliminarily determined that hearings were not necessary.

27. CTC's Motion for expedited treatment of the Application is moot.

28. By email dated November 8, 2010, RUS notified CTC, that it granted CTC a 60-day extension, extending the deadline for CTC to submit the executed Agreement and supporting documents to January 15, 2010.

29. CTC must comply with all environmental permitting requirements applicable to the construction and improvements that it will undertake in conjunction with this proceeding.

30. Res. F-616 specifically exempts debt issues of $20 million or less from the Commission's Competitive Bidding Rule.

31. GO 24-B requires utilities to submit a monthly report to the Commission that contains, among other things: (i) the amount of debt and preferred stock issued by the utility during the prior month; (ii) the total amount of debt and equity securities outstanding at the end of the prior month; (iii) the purposes for which the utility expended the proceeds realized from the issuance of debt and equity securities during the prior month; and (iv) a monthly statement of the separate bank account that the utility is required to maintain for all receipts and disbursements of money obtained from the issuance of debt and equity securities.

32. The Commission has routinely required utilities to maintain records to

(i) identify the specific long-term debt issued; and (ii) demonstrate that the proceeds from such debt have been used only for authorized purposes.

33. The Commission has routinely required utilities to keep and maintain copies of the debt agreements and within fifteen days from a request provide copies to the Commission's Utility Audit, Finance & Compliance Branch.

34. On September 22, 2010, CTC served its Application on its service list.

35. Notice of the filing of the Application appeared on the Commission's Daily Calendar on September 24, 2010. No protests have been received.

36. The fee for this financing authority as required by § 1904(b) is $2,226.

Conclusions of Law

1. Broadband is regulated by the FCC but the Commission retains some discretion to ensure continued public benefits since part of the infrastructure costs is being funded with CASF monies.

2. CTC's proposed Poker Flat Project costs are for facilities for services not regulated by this Commission which may provide ancillary benefits to its POTS and are not reasonably chargeable to expenses or income.

3. CTC's proposed RUS loan to help fund the Poker Flat Project is for proper purposes.

4. It is not adverse to authorize CTC to enter into the Agreement with the RUS for the $1,226,093 loan to help finance the construction discussed herein.

5. It is not adverse to the public interest to allow CTC to provide a continuing security interest in and to all of CTC's property and execute related agreement and supplemental security instruments in conjunction with the loan and the grant.

6. The loan authorization herein is not a finding of the reasonableness of CTC's proposed construction plan or expenditures, the cost allocation between regulated and non-regulated services, the resulting plant balances in rate base, the resulting capital structure, or the cost of money, nor does it indicate approval of matters subject to review in general rate case of other proceedings.

7. CTC should be authorized to execute the Agreement and encumber its property to secure the debt authorized herein so long as the debt is to be used solely for CTC's Poker Flat Project.

8. CTC's proposed loan is exempt from the Commission's Competitive Bidding Rule.

9. It is CTC's responsibility to abide by and comply with any applicable environmental regulations for any capital improvement undertaken using the debt authorized herein.

10. Consistent with § 824, CTC should maintain records to (i) identify the specific long-term debt issued pursuant to this order, and (ii) demonstrate that the proceeds from such debt have been used only for the purposes authorized herein.

11. CTC should provide the Commission with the monthly reports required by GO 24-B.

12. A public hearing is not necessary.

ORDER

IT IS ORDERED that:

37. On or after the effective date of this decision, Calaveras Telephone Company is authorized to:

a) Enter into a loan agreement with the United States of America, acting through the Rural Utilities Service (RUS) for the purpose of borrowing $1,226,093 under the Broadband Initiative Program, as authorized by the American Recovery and Reinvestment Act of 2009, to fund the construction of a broadband infrastructure project in its Copperopolis exchange in Calaveras County;

b) Execute and deliver the Loan/Grant and Security Agreement and all related documents required for the completion of the loan; and

c) Encumber its assets in connection with the loan.

38. Calaveras Telephone Company shall not use the proceeds authorized by this decision to begin construction of capital projects until Calaveras Telephone Company has obtained any required environmental review under the California Environmental Quality Act.

39. Calaveras Telephone Company shall notify the Commission's Utility Audit, Finance and Compliance Branch in writing when its Poker Flat project has been completed.

40. Calaveras Telephone Company's loan authorized herein is exempt from the Commission's Competitive Bidding Rule.

41. Calaveras Telephone Company shall maintain records to (i) identify the specific long-term debt issued pursuant to this decision, and (ii) demonstrate that the proceeds from such debt have been used only for the purposes authorized by this decision.

42. Calaveras Telephone Company shall keep and maintain copies of the Loan/Grant and Security Agreement and all related documents and within fifteen days from a request provide copies to the Commission's Utility Audit, Finance and Compliance Branch.

43. On or before the 25th day of each month, Calaveras Telephone Company shall file with the Commission's Utility Audit, Finance & Compliance Branch the reports required by General Order No. 24-B. When the full amount of the loan has been received and reported, and the system improvements completed and all the capital expenditures reported, the General Order No. 24-B reporting shall terminate and will no longer be required.

44. The authority granted by this decision shall become effective when Calaveras Telephone Company pays $2,226 as required by Public Utilities

Code § 1904(b).

45. Application 10-09-014 is closed.

This order is effective today.

Dated December 16, 2010, at San Francisco, California.

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