NOTE: As provided in LFC policy, this report is
intended only for use by the standing finance committees of the
legislature. The Legislative Finance Committee does not assume
responsibility for the accuracy of the information in this report when used for
other purposes.
The most recent FIR
version (in HTML & Adobe PDF formats) is available on the Legislative
Website. The Adobe PDF version includes
all attachments, whereas the HTML version does not. Previously issued FIRs and attachments may be
obtained from the LFC in
|
SPONSOR: |
Griego |
DATE TYPED: |
|
HB |
|
||
|
SHORT TITLE: |
Amend Rural Telecommunications Access Act |
SB |
629/aSFC |
||||
|
|
ANALYST: |
Padilla |
|||||
APPROPRIATION
|
Appropriation
Contained |
Estimated
Additional Impact |
Recurring or
Non-Rec |
Fund Affected |
||
|
FY03 |
FY04 |
FY03 |
FY04 |
|
|
|
|
Significant
but indeterminate – see narrative |
|
|
Recurring |
General
Fund |
(Parenthesis
( ) Indicate Expenditure Decreases)
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
$34,000.0 |
$34,000.0 |
Recurring |
New
Fund –Rural Access Reform Fund |
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to HB 715 and HB 628
Conflicts with SB 530 and HB 636
LFC Files
Responses
Received From
Attorney
General
Public
Regulation Commission
SUMMARY
Synopsis
of SFC Amendment
The amendment does two main things: First, it changes language throughout the
bill to clarify the level to which all rural carriers should reduce their
access charges. The amendment makes
clear that Qwest’s current access charge rate is the target rate.
Second, the amendment adds Qwest to the list of
companies who could receive support from the Rural Access Charge Reform
Fund. In order to qualify, Qwest must
reduce its access charges by 50 percent on
Significant
Issues
1. By
making Qwest eligible for the fund, it is likely that the maximum surcharge allowed
by the bill of five percent would have to be imposed. The PRC notes that a five percent surcharge
will add $2.00 (two dollars) to the bill of a customer whose monthly bill is
$40. The surcharge will be applied to
all intrastate retail telephone bills of
State and local
government telephone bills will also be assessed the surcharge. State agency budgets will have to absorb an
increase in telecommunications costs.
GSD/ISD, which serves a number of state government agencies, currently
pays Qwest between $8,000.0 and $10,000.0 per year. This does not include all state agencies, nor
does it include institutions of higher education, public schools or local
governments.
2. The amendment increases the likely
subsidization level of the original bill.
At a five percent surcharge, the size of the Rural Access Charge Reform
Fund is likely to increase to $34,000.0.
3. The PRC believes that a reduction in Qwest’s
access charges, as required by the amended bill, is contrary to a provision in
Qwest’s Alternative Form of Regulation (AFOR).
4. By now requiring Qwest to reduce its access
charges and allowing it to seek money from the Rural Access Charge Reform Fund,
the amended bill may not achieve its stated purpose of reducing the disparity
between the long-distance rates of rural customers and those of urban customers. Qwest currently serves the majority of rural
customers in
Synopsis
of Bill
Senate Bill 629 amends the Rural
Telecommunications Act and does two main things:
First, it addresses the issue of high “access
charges” that rural telephone carriers charge to other carriers through a
newly-created subsidization mechanism.
Rural carriers would be required to reduce their intrastate switched
access charges to long-distance providers to rates comparable to those charged
in urban areas. The rural carriers could
then apply to a new fund (the “Rural Access Reform Fund”) in order to make up
for revenue lost due to the lower access charges. The cost of the reform would be borne by
consumers, including wireless consumers, through a surcharge of between 3% and
5%. The bill states that this access
charge reform would encourage competition.
Second, Senate Bill 629 redefines “incumbent
rural telecommunications carrier” so that Valor Telecommunications is
considered a rural carrier, thus significantly changing the way Valor is
regulated by the PRC. Currently, Valor
is subject to price cap regulation under an Alternative Form of Regulation plan
it has with the PRC. As an incumbent
rural telecommunications carrier, as this bill would allow, Valor, like other
rural carriers, would be able to change residential rates after 60 days notice
to all affected subscribers unless 2.5% of the subscribers or PRC staff file a
protest with the PRC. It could change
other rates upon ten days notice to the PRC and publication in a local
newspaper.
Significant
Issues
Valor Becomes a Rural Incumbent
Telecommunications Carrier:
The new definition of “incumbent rural telecommunications
carrier” would affect only one company, Valor Telecommunications. Valor, with more than fifty thousand access
lines in
The PRC believes by changing the regulatory
framework for Valor midstream, the bill may violate Article II, Section 9
(prohibition against retroactive lawmaking or ex post facto lawmaking) and
Article IV, Section 34 (prohibition against changing rights or procedures in
pending cases) of the New Mexico Constitution.
Access charges are charges imposed by local telephone companies on both long distance companies and on subscribers. They are designed to recover the costs of connecting to the local phone network. Both the PRC and the AG’s office believe that the access charges of rural carriers are currently too high, leading to a difference between what a customer served by a rural carrier pays for in-state long distance and what an urban customer pays for the same service. The AG’s office states that this bill provides a positive alternative to the problem, yet it notes that significant issues remain.
The bill requires rural carriers to reduce their access
charges to the rates of incumbent local exchange carriers that were in effect
as of
This bill would add a new surcharge of between 3% and 5% to the intrastate retail telephone bills of landline, long distance and wireless customers. Existing federal and state taxes and surcharges make up about 40 percent of an average total bill for basic service. The surcharge would finance the Rural Access Reform Fund. The AG’s office notes that this surcharge, like the one in Senate Bill 628 is, in effect, a tax.
The PRC is charged with selecting a third-party administrator for the Fund. Compensation for the administrator would come from the Fund. The rate of the surcharge would be established solely by the Fund administrator at a level sufficient to adequately support the fund, but cannot exceed 5 percent.
Rural carriers that have reduced their access charges as described above can apply to the Fund for money to offset the reduction in access charge revenues. The bill also allows the Fund to be used to offset a rural carrier’s “significant increase in costs of providing intrastate switched access services.”
The bill states that distributions from the Fund
are to be applied in a revenue-neutral manner.
The AG’s office recommends amending the bill to require carriers
receiving distributions to certify that the distributions were in fact applied
in a revenue-neutral manner.
Long Distance Carriers to Reduce Their Rates:
The bill requires that each provider of in-state long distance in New Mexico (such as Qwest, Sprint, MCI Worldcom) pass on to end users the savings the long distance provider realizes as a result of the reduction in rural carriers’ access charges. The PRC considers this goal “speculative”, however, because long distance carriers have both tariffed (usually higher) rates as well as special calling plans. The PRC believes it would be difficult to review and enforce the pass-through of savings the bill requires.
FISCAL IMPLICATIONS
Through means of the surcharge described above,
a fund of approximately $21,000.0 would be raised from consumers of
telecommunications services. This
estimate is based on the PRC’s Utility Case No. 3223,
in which members of the New Mexico Exchange Carriers Group estimated that over
$12,000.0 would be needed to reduce their access charges to the level of
Qwest. This estimate did not include all
rural carriers and did not include Valor, hence the estimate here of a fund
size of $21,000.0.
The fund is in effect a subsidization mechanism
whereby consumers throughout the state will pay for rural carriers to lower
their access charges.
ADMINISTRATIVE IMPLICATIONS
The bill requires the PRC to hire an
administrator for the Fund, to apply the surcharge to all bills, and to
determine fund size. The PRC did not
comment on whether it has sufficient resources to carry out these tasks.
The bill does not set a limit on what the Fund
administrator can be compensated.
RELATIONSHIP
Several other telecommunications bills this
session create various funds financed by telecommunications customers:
SB 628 adds a surcharge of
1.5% to most customer telephone bills, including wireless, in order to create
the “Universal Service Fund” from which telecommunications carriers can seek
funding for upgrades and additions to their networks.
SB 530 and HB 636
allow Qwest, in effect, to use a fund currently intended to help customers in
hard-to-reach areas for telecommunications development projects in rural areas
of the state.
HB
715
would amend the definition of “incumbent rural exchange carrier” to what is
proposed in this bill.
This bill potentially conflicts with SB 530
and HB 636, which, in addition to creating two telecommunications
development funds, propose significant regulatory changes that would affect
Valor.
OTHER SUBSTANTIVE ISSUES
Although the bill states that the policy of the
state “is to encourage competition through access charge reform,” in practice
competition may not be fostered through the mechanisms laid out in the bill.
The AG’s office points out that to the extent that rural carriers
institutionalize the Rural Access Reform Fund, competition may not ensue
because the cost to the rural carriers will be less than to any potential
competitor.
There are several efforts at the federal level
to reduce access charges, including those of rural carriers. For example, the Federal Communications
Commission’s “Rural Access Charge Plan” creates a new mechanism to help
reimburse small, local rural companies for the cost of serving rural customers. According to the FCC, the new support mechanism
helps to ensure that consumers in high-cost rural areas have access to
telephone service at affordable and reasonably comparative rates.
The Attorney General’s office suggests the
following amendment to address concerns about the change in Valor’s regulatory
status:
Section 8. "63-9H-7. REGULATION OF RETAIL RATES OF INCUMBENT RURAL TELECOMMUNICATIONS CARRIER.--
E. Residential local
exchange service rates increased by [a] an incumbent rural telecommunications
carrier pursuant to Subsection D of this section shall be reviewed by the
commission only upon written protest signed by two and one-half percent of all
affected subscribers, the Attorney General, or upon the commission
staff's own motion for good cause…
To ensure that carriers receiving distributions
from the Rural Access Reform Fund apply the distributions in a revenue-neutral
manner, the AG’s office proposes the following changes to Section 7 (possibly a
new “I”):
Any telecommunications
carrier and wireless carriers receiving support from the fund shall
self-certify annually to the administrator and commission by filing a sworn
affidavit of an authorized officer stating that it is qualified to participate
in the fund and that all support received from the fund was used for the intended
purpose of the fund.
POSSIBLE QUESTIONS
1. Why are the access charges of rural telecommunications carrier higher than those of the other carriers?
2. There are also federal efforts to reduce rural access charges. Why aren’t the federal efforts sufficient?
3. Should customers throughout the state, including cellular phone customers, be required to further subsidize the costs of service in rural areas?
4. What will be the impact on customers of considering Valor a rural carrier?
LP/prr