12. Future Disposition of B-Fund Eligibility and COLR Responsibilities

After full price flexibility is implemented, carriers will no longer be restricted on the level that can be charged for basic service. Accordingly, we must determine how B-Fund subsidy requirements will be measured in an environment where there is no longer a cap on basic rates.

DRA proposes that the ILECs retain their COLR obligation, and that the Commission hold additional proceedings to determine how to guarantee affordable service throughout the state thereafter through other means. DRA argues, however, that if a CHCF-B subsidy program is to continue after January 1, 2009, while allowing detariffing or geographic deaveraging, there would need to be rate reporting and monitoring reports. DRA believes that such reports should be location-specific, at least as granular as a Census Block Group. DRA argues that such reports would be vital to ensure that ratepayers are not providing funding to COLRs that yields little or not benefit.

We agree with DRA that the COLR obligation should continue. We shall develop an additional record in the next phase of this proceeding to address how the COLR obligation shall be administered after full pricing flexibility takes effect. In particular, we shall pursue implementation of a reverse auction, as discussed in the following section. We recognize that the level of retail prices ultimately determines whether basic service is affordable in high cost areas consistent with universal service goals. We shall also consider what other measures may be appropriate as an alternative to the current B-Fund program thereafter.

To the extent that a COLR seeks to continue to qualify for B-Fund support after full pricing flexibility takes effect, we shall consider whether, or through what process the COLR should certify that its rates for basic service do not exceed the adopted benchmark. In this manner, the carrier would be free to charge less than the benchmark, but any rate reductions will have no effect on the level of B-Fund support. If the carrier charges basic rates in excess of the benchmark, the carrier would not receive B-Fund support.

In the next phase of this proceeding, we shall also consider what processes should be adopted for subsequent evaluation of the B-Fund program viability and justification for its longer-term continuation. As part of this process, we shall consider what processes may be applied to periodically review, refine, or update the $36 per line benchmark threshold adopted in this order. Also, as explained below, we shall pursue implementation of a reverse auction to establish high cost funding levels.