IX. Ex Parte Communications

Per Rule 7(d) of the Commission's Rules of Practice and Procedure, ex parte communications are allowed without restriction or reporting requirement in any quasi-legislative proceeding. Therefore, there are no such restrictions or reporting requirements applied to this proceeding.

Therefore, IT IS ORDERED that:

1. The Commission hereby institutes this rulemaking on its own motion to review the costs associated with the California High Cost Fund-B program.

2. The issues to be considered in this proceeding are set forth in the Preliminary Scoping Memo as proposed changes to the Commission's California High Cost Fund-B program.

3. The Executive Director shall cause this Order Instituting Rulemaking (OIR) to be served on all telecommunications carriers, the B-Fund Administrative Committee and parties on the service list of R.95-01-020/I.95-01-021.

4. Within 15 calendar days from the date of mailing of this order, any person or representative of an entity interested in becoming a party to this rulemaking shall send a request to the Commission's Process Office, 505 Van Ness Avenue, San Francisco, California, 94102 (or ALJ_Process@cpuc.ca.gov) to be placed on the official service list for this proceeding. Individuals interested only in monitoring the proceeding may request to be placed on the "Information Only" section of the service list. This service list will be posted on the Commission's website, www.cpuc.ca.gov, prior to the time comments are served pursuant to Ordering Paragraph 8.

5. All parties shall abide by the Commission's new electronic service rules contained in Rule 2.3.1 of the Commission's Rules of Practice and Procedure.

6. We preliminarily determine the category of this rulemaking to be "quasi-legislative" and preliminarily determine that hearings are unnecessary. Parties objecting to these determinations shall include their objections in their opening comments.

7. Any party who believes that an evidentiary hearing is required shall file a motion requesting such a hearing no later than 10 business days after reply comments are due. Any such motion must identify and describe (i) the material issues of fact, (ii) the evidence the party proposes to introduce at the requested hearing, and (iii) the schedule for conducting the hearing. Any right that a party may otherwise have to an evidentiary hearing will be waived if the party does not submit a timely motion requesting an evidentiary hearing.

8. Respondents shall, and other parties may, file opening comments on the issues identified in this rulemaking by August 4, 2006, and reply comments by September 15, 2006.

9. The Assigned Commissioner and Administrative Law Judge will set the schedule for this proceeding by subsequent rulings, as warranted, to develop the record and to bring this rulemaking to a conclusion.

This order is effective today.

Dated June 29, 2006, at San Francisco, California.

MICHAEL R. PEEVEY

President

GEOFFREY F. BROWN

DIAN M. GRUENEICH

JOHN A. BOHN

RACHELLE B. CHONG

Commissioners

Appendix A - Tables

(END OF APPENDIX A)

Appendix B - High-Cost Programs in Other States:⁹⁸

· 19 states (including California) that maintain a functioning high-cost fund.⁹⁹

· 14 states (including California) operate programs similar to the B-Fund (i.e. large ILECs are allowed to participate).¹⁰⁰ These states utilize a variety of models and methods to determine eligibility and carrier reimbursement.

Determining Eligibility for State High-Cost Programs:

· Five states use either the FCC's Hybrid Cost Proxy Model or the HAI Cost Proxy Model (which relies on data from Census Block Groups) (CO, KS, OR, TX , UT, WA);

· Two states utilize a cost model developed by the RBOC (CA, WY), California's program also relies on data from Census Block Groups;

· Four states utilize an embedded cost standard (AK, ID, NV, SC)

· One state only considers USF funding in ratemaking cases (AZ);

· One state applies credit based on the difference between the carrier's authorized rate of return and its actual revenue (NV); and

· One state utilizes county median household income (WI).

To further differentiate need:

· Three states determine high-cost areas utilizing information from individual wire centers (CO, ID, OR, TX);

o One state requires carriers who receive USF support to propose matching reductions to regulated rates (CO, ID);

o In two states funding is determined by a PUC-set benchmark less other support (OR, ME); and

o In one state funding is determined by a PUC benchmark based on local and some portion of toll and access revenue (TX); and

o Two states utilize a geographic zone system combined with statewide average cost (KS, WY); and

o Two states utilize Census Block Groups (CBGs) and reimburse based on average weight determined through the model (CA, CO).

Miscellaneous High-Cost Fund Information:

· Of the High Cost Funds similar to the B-Fund, Colorado, Kansas, and Oregon are reviewing their programs. Colorado's docket examines all aspects of the program (051-431T); Kansas is reviewing competition issues remanded by the State Appeal Court; and Oregon's dockets (UM1017; UM73) focus on smaller carriers.

· New Mexico recently adopted a new rule that requires all intrastate communications providers, including Voice over Internet Protocol providers, to pay into the state's Rural Universal Service Fund. ¹⁰¹ In addition, Kansas, Nebraska, and South Carolina require some VoIP providers to contribute to their state High Cost Funds.

Appendix B - Table: Comparison of High Cost Fund Programs in the U. S.
	Are large ILECs allowed to use fund or do large ILECs currently participate?	What method/model/benchmark does your state use?	Ongoing updates to methodology?	Planned Program Changes?
Alaska	Yes. Rural ILECs, Wireless Carriers, Landline CLECs, Non-Rural, Non-RBOC ILECs, RBOCs, and Others may receive support.	Embedded Cost.	Not Available	None Planned.
Arkansas	Not Available	Not Available	Not Available	None planned.
Arizona	Yes, currently only one carrier, a rural ILEC utilizes the fund. All ETCs Eligible.	Only consider USF in rate-making cases. RBOC uses statewide cost averaging, so rural rates are close to urban rates	Taking comments on docket (RT-00000H-97-0137)	Unsure. Docket is not active.
California	Yes. Carriers of Last Resort (COLR) in high cost areas of CA's four largest ILECs participate in the program.	Utilized Census Block Groups and the RBOCs Cost Proxy Model to determine statewide and per line costs. Reimbursement is made for estimated per line costs over the statewide average.	Not Available	Program is beginning a complete review.
Colorado	Yes. ETCs Eligible.	Utilize the HAI model and Census Block Groups to determine average weight and reimburse for anything over that amount.	Update the ILEC, update the information on a yearly basis	Going through a complete review: program differences between ILECs vs Quest, what is assessed) Open Docket: 05I-431T
Idaho	The large RBOC would be allowed to participate, but has chosen not to.	Wire centers divided into high and low density; low density are eligible for support. Carriers who receive USF must propose matching reductions to regulated rates.	Not Available	None
Illinois	No. RBOC is ineligible; only those with less than 35,000 lines may use.	Only consider number of landlines. HAI model for eligibles.	Illinois experienced challenges differentiating voice versus advanced service costs when carriers applied for capital subsidization. They will open a docket in next six months and will most likely allow capital subsidization (up to 75%) for voice and advanced services. Most rural carriers have already built out, so assume most use will be from municipal projects.
Kansas	Yes. ETCs Eligible.	Utilize the FCC's Hybrid Cost Proxy Model and made several KS-specific adjustments. Geographical zones. Uses statewide cost averaging to reimburse.	Each company has been audited, will rotate on a 5-6 yr basis. Companies apply through a rate-making case	Until last fall, companies could file on a per line basis; increased lines meant increased fundings. Commission lost litigation, and are now issuing refunds. Originally implemented through telco supported legislation, support waned as lines began decreasing.
Maine	Yes. Rural ILECs, Non-Rural, Non-RBOC ILECs, and RBOCs may receive support.
Nebraska	Yes Rural ILECs, Wireless Carriers, Landline CLECs, Non-Rural, Non-RBOC ILECs, RBOCs, and Others may receive support.	Cost Proxy Model	Unknown.	No.
Nevada	Yes, but only one recipient currently, a rural ILEC.	Utilize authorized rate of return. After applying federal USF, is still below authorized rate of return, Commission will pay difference.	None	None
Oregon	Yes. Carriers need to meet PUC eligibility standards.	For RBOCs utilized FCC's Hybrid Cost Proxy Model, and calculated cost at wire center level. Funding is based on PUC-set benchmark less federal universal service support and other support.	Currently, trying to update information. Have not updated RBOC information since 2000.	Workshop in 3/06 with small carriers due to increased program costs for those carriers. Dockets: UM1017; UM731
Pennsylvania	"The PAUSF is not a high-cost fund in the normal definition...[it] is more of a mechanism to lower intrastate toll rates and intrastate access charges while keep rural residential rates affordable under and $18 cap.
South Carolina	Yes. Rural ILECs, Wireless Carriers, Landline CLECs, Non-Rural, Non-RBOC ILECs, and RBOCs, may receive support.
Texas	Yes, utilize the TX High Cost Universal Service Plan (Similar to CHCF-B). ETCs and ETPs eligible.	For RBOCs utilized HAI and calculated at wire center. Greater cost per lines are subsidized with fund.	Statute bars TX from reassessing wire center.	None
Utah	Yes and No. RBOC is ineligible for ongoing support; anyone (individual or company) can apply for one time support	For one-time support: assess cost to bring service based on engineering study, after determining customer and carrier share, USF pays balance up to $10K/customer	No	None
Washington	No formal high cost program. However, prior to 96 act, they used implicit subsidies on originating and terminating access charges. After the Act, the Commission ruled that all access charges needed to be set at cost. The Commission has accounted for the effects of this change on a case-by-case basis during ratemaking decisions.
Wisconsin	Allowed to participate. LECs that are ETCs in eligible high rate areas.	Uses county median household income and level of rate. If the rates are between 1.5% and 2% of medium income, the state will reimburse 50% of the rate; between 2% and 2.5%, the state will cover 75% of the rate; and between 2.5-3% of the median county income, the state will cover 95% of the rate.	Wisconsin is mandated to engage in program updates biannually	None at this time.
Wyoming	Yes.	RBOC created geographical zones based on distance from central office, this allows the commission to account for distance and density. RBOC submitted this cost model to Commission, which approved over several years. Funding based on statewide averaging.	Reviewed every 3 years.	None; though there is always possible legislation. NOTE: WY requires providers to show federal and state credit on bill.

(END OF APPENDIX B)

⁹⁸ All information in this appendix was compiled through the following sources: Personal communication with state regulatory commissions in February 2006; information from the National Regulatory Research Institute: Rosenberg, et al. State Universal Funding Mechanisms: Results of the NRRI's 2001-2002 Survey. Columbus, Ohio: National Regulatory Research Institute [2002]; Ed Rosenberg and Jing Liu. State Universal Funding Mechanisms: Results of the NRRI's 2005-2006 Survey. Columbus, Ohio: National Regulatory Research Institute [Draft: April 2006].

⁹⁹ AK, AR, AZ, CA, CO, ID, IL, KS, ME, NE, NV, OR, PA, SC, TX, UT, WA, WI, and WY. In addition, three states have approved, but not functioning, High Cost Fund (Fl, IN, VT). Ed Rosenberg and Jing Liu. State Universal Funding Mechanisms: Results of the NRRI's 2005-2006 Survey. Columbus, Ohio: National Regulatory Research Institute [Draft: April 2006]. Additional information was garnered through CPUC interviews with state regulatory commissions during February 2006.

¹⁰⁰ AK, AZ, CA, CO, ID, KS, ME, NE, NV, OR, SC, TX, WI, and WY.

¹⁰¹ State Rural Universal Service Fund, New Mexico Public Utilities Commission, 17.11.10.1-31 NMAC. ONLINE Available: http://www.nmcpr.state.nm.us/nmac/parts/title17/17.011.0010.htm [28 Mar 2006].