LAO 2006-07 Budget Analysis: Resources

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Public Utilities Commission (8660)

The California Public Utilities Commission (CPUC) is responsible for the regulation of privately owned ďpublic utilities,Ē such as gas, electric, telephone, and railroad corporations, as well as certain passenger and household goods carriers. The CPUCís primary objective is to ensure adequate facilities and services for the public at equitable and reasonable rates. The CPUC also promotes energy conservation through its various regulatory decisions.

Proposed Funding. The budget proposes CPUC expenditures of $1.2†billion in 2006-07 from various special funds and federal funds. This is an $18†million increase from the current year due, in part, to proposed new positions to administer the proposed Telecommunications Consumer Bill of Rights and to regulate railroad safety. The budget also proposes to redirect 12 positions from existing duties to implement the Governorís Climate Change Initiative. (Please see our analysis of this initiative in the Crosscutting Issues section of this Chapter.)

Funding for Telecommunications Consumer Bill of Rights Premature

The budget proposes adding $9.9†million (special funds) and 28 new positions to implement a new Telecommunications Consumer Bill of Rights. However, the California Public Utilities Commission has not adopted a final bill of rights. Since the documentís specifics will determine the expenditures necessary to implement it, it is premature to provide new funding and position authority at this time. (Reduce Item 8660-001-0462 by $9.9†million.)

Proposed Telecommunications Bill of Rights. The CPUC has been considering whether to adopt a Telecommunications Consumer Bill of Rights, which would generally ensure that consumers have adequate information about services available to them, understand their rights under California and federal law, and are able to initiate complaints over fraudulent behavior on the part of their telecommunications provider. Currently, there are two versions of a proposed bill of rights under consideration. The CPUC may adopt either of these versions or some variation of them. The CPUC expects to issue a final decision in March†2006.

Budget Request. The budget proposes $9.9†million and 28 positions for CPUC to implement a new bill of rights, of which about $7†million is for public outreach and $2.9†million is for enforcement. However, proposed expenditures do not assume the adoption of any specific version of a bill of rights, but rather are based on the estimated cost to generally improve consumer education and increase enforcement.

Proposed Augmentation Premature. The costs required to implement a bill of rights will depend on its specific requirements and provisions. For example, CPUC anticipates that it will undertake an education campaign to inform consumers of their rights under a newly adopted bill of rights. However, the scope of such an educational campaign-and hence its cost-will be determined based on the specific consumer protections and industry requirements included in an adopted bill of rights. Given that CPUC has not yet adopted a bill of rights, it is premature to provide new funding. The ultimate decision adopted by CPUC may be substantially different from the assumptions that were used to draft the budget proposal. We therefore recommend that the Legislature deny the request for increased funding and position authority. We recommend that CPUC resubmit its budget request for legislative evaluation after CPUC has made its final decision on the bill of rights.

Increasing Participation in California Teleconnect Fund Program

The budget proposes approximately $22†million for implementation of the California Teleconnect Fund program to provide discounts to selected telecommunications customers in the state. We recommend that California Public Utilities Commission report at budget hearings on the feasibility of specified options that we provide to increase participation in the program by eligible entities, particularly community-based organizations and public hospitals and clinics.

The CPUC administers several programs designed to subsidize telecommunications service in order to ensure universal access to these services. These programs are funded through surcharges applied to telephone customersí bills for in-state service. One of these is the California Teleconnect Fund (CTF) program, which provides discounts to schools and libraries; municipal, county, and hospital district-owned hospitals and clinics; and community-based organizations (CBOs). The CBOs that qualify for the program include nonprofit organizations that provide health care, job training, job placement, and educational instruction.

The CTF program provides discounts for traditional phone service as well as advanced telecommunications services such as high speed internet access. Under existing law, the CTF program provides a 50†percent discount on telecommunications services to qualifying participants. The discount is applied to the qualifying entityís telecommunications bill by the service carrier. The service carrier then submits claims to CPUC to be reimbursed for the discounts provided.

Problems Expanding Program Participation. In the past, the Legislature has expressed a desire to ensure that the CTF program is fully utilized by all eligible participants, particularly those who may not have access to advanced telecommunications services. Based on the experience of CPUC staff, it appears that most of the eligible schools and libraries participate in the program (currently, more than 2,000 participate). According to CPUC staff, the largest potential for new program participation is local publicly owned hospitals and clinics, and CBOs. The number of participating hospitals and clinics has increased from 8 in 2002 to 35 in 2006, while the number of CBOs has increased substantially in recent years, from 38 in 2002 to over 560 in 2006. However, there remain significant hurdles to increasing participation in the program, particularly for CBOs.

With respect to hospitals and clinics, the obstacle to increased program participation appears to be limited knowledge of program benefits by potential participants. The CPUC indicates that, given increased outreach efforts, participation by local publicly owned hospitals and clinics could be substantially increased.

In regards to CBOs, impediments to increased participation are more challenging. First, it can be difficult to inform CBOs about the CTF program. While CPUC does conduct outreach efforts, the large number of potential CBO participants makes it difficult to identify and inform potential participants of the programís benefits.

Second, the services typically offered under the program are not always the services that are most appropriate for CBOs. For example, for many small CBOs, advanced, high speed Internet connections such as T1 lines are too expensive and offer service beyond their needs. On the other hand, DSL (digital subscriber line) service, which provides high-speed Internet access (slower than T1, but at a lower cost) may be a better fit for their needs. Under a ruling by the Federal Communications Commission, DSL service is not under CPUCís jurisdiction. Therefore, CPUC cannot compel carriers to offer it under the program. To date, most carriers have elected not to allow customers to apply a CTF discount to DSL service, which may be a significant barrier to increased program participation by CBOs. It is not clear why these providers do not offer such service under the CTF program, but the administrative costs to carriers of processing applications and claims may be a disincentive to do so.

Finally, CPUC policy limits the use of program discounts to telecommunications carriers licensed by CPUC. There are other providers of Internet service-such as DSL providers, cable Internet providers, and Internet service providers-which are not licensed by CPUC but provide telecommunications services that may be in higher demand from CBOs than existing, licensed services.

Recommend Legislature Consider Expanding Program Activities and Eligibility to Increase Participation. In order to increase participation in the CTF program, particularly from CBOs, we think that there are a number of actions that the Legislature should consider.

First, CPUC could increase outreach efforts to eligible parties not currently participating in the CTF program. Increased outreach efforts towards CBOs and local publicly owned hospitals and clinics could raise awareness of the programís benefits. For example, CPUC could work with telecommunications providers to identify new and existing customers who may be eligible for CTF discounts.

Second, the state could encourage providers of telecommunications services that are not commonly offered under the CTF program to do so. To do this, the Legislature could enact legislation authorizing service providers not regulated by CPUC to offer CTF discounts for telecommunications services. The Legislature could also consider allowing telecommunications providers to be reimbursed for the administrative costs of processing CTF program applications and claims as an incentive to offer additional services under the program.

We therefore recommend that CPUC report at budget hearings on the feasibility of these actions, and any other actions that it might propose to increase participation in the program by eligible entities. We note, however, that any increase in program participation will increase program costs. According to the budget proposal, CTF will have a positive balance of $24.8†million at the end of 2006-07. However, CPUC has indicated that it now projects the fund balance to be considerably less, due to updated information on prior-year claims activity. We therefore recommend that CPUC provide updated fund balance information at budget hearings so that the Legislature can evaluate the feasibility of potential actions to increase program participation in the context of such actionsí impact on the CTF fund balance.

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