Resolution No. T-16374437 September 217, 2000235 - DRAFT -

DecNovember 169, 199 8

Letter Request/MHMSRW

C-1A-27

DRAFT

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Telecommunications Division RESOLUTION T-1643716374235 Public Programs Branch DecemberNovember 169, 19989September 217, 2000

R E S O L U T I O N

RESOLUTION T-1643716374 235. ALL TELECOMMUNICATIONS CARRIERS. ADMINISTRATIVE COMMITTEE REQUESTCOMMITTEE REQUEST FOR APPROVAL OF ITS ITS FISCAL YEAR JULY 1, 199920001, THROUGH JUNE 30, 2002, BUDGET AND SURCHARGE RATE FOR THE CALIFORNIA TELECONNECT FUND PROGRAM.

BY LETTER REQUEST TO THE EXECUTIVE DIRECTOR DATED SEPTEMBEROCTOBER 301, 19998MAY 11, 2000.

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SUMMARY

On September 30October 1, 1999May 11, 20008, the California Teleconnect Fund (CTF) Administrative Committee (AC) filed with the Executive Director of the Public Utilities Commission its fiscal year 2001-200201999 budget and surcharge rate level for the fiscal year 20001-2002. This proposed budget would maintain increase the All End User surcharge rate for the fiscal year 2001-200201999 at the current rate ofto 0.20% from the 0.05185% surcharge approved for the Six-Month budget January 1, 2001, through June 30, 2001.. This resolution approves the fiscal year 2001-200201999 budget of $33.472 35.442 23.8 millionmillion for the CTF program and the fiscal year 2001-200201999 surcharge of 0.185 05%. Further, this resolution approves a budget for the first six-month of year 2001 of $16.932 million and a surcharge rate of 0.185% for the first six-months of 2001.

BACKGROUND

The AC’s September 30,October 1, 19998May 11 request seeks approval of itsa fiscal year 2001-200201999 bBudget of $37.384 million and increases the Six-Month budget from January 1, 2001, through June 30, 2001, surcharge rate of 0.185%. tothe maintenance of the current 0.20% effective July 1, 2001.surcharge at 0.05% for 2000.1999. This budget request was filed in compliancepursuant to Finding No. 9 in Resolution T- with Ordering Paragraph 24 of D.98-06-06516374 dated December 16, 1999. Further, this letter request is consistent with similar requests for other public programs that have submitted year 2000 budgets for Commission consideration. The AC indicated that its year 2000 budget is a forecast that is based upon an estimated/reported outlook for year 1999 and projected fund flows and expenses for the year 2000. As the last phase relating to the establishment of a trust account with Union Bank for CTF was adopted by the Commission in September 1999, the carriers are now depositing CTF surcharges and associated interest income held by the carriers from February 1997 to September 1999. All carriers are required to deposit these funds by November 12, 1999. Further, carriers are required to deposit in December 1999 the ongoing remittance of CTF surcharge revenues beginning with the surcharge revenues billed by the carriers during October 1999.

Even though AC was not required by the Commission to submit its 1999 budget for the CTF program, AC decided to file a budget in order to be consistent with other public programs that were submitting 1999 budgets on October 1, 1998 for Commission consideration. AC indicated that its 1999 budget is an outlook and it is based upon a Pro-Forma outlook for years 1997 & 1998. As of October 1, 1998, the Program is only partially implemented as the establishment of the trustee functions is not yet completed.

1. Decision 96-10-066

Decision (D.) 96-10-066 established the CTF program to provide discounted services to qualifying schools, libraries, hospitals, and community based organizations. The CTF program is funded by an All End User Ssurcharge on intrastate billings. D.96-10-066 established a 0.41% surcharge rate which was intended to raise $50 million per year to fund the CTF discounts.

2. Resolution T-16165

The Commission in Resolution T-16165, dated July 2, 1998, lowered the CTF surcharge rate from 0.41% to 0.05% based upon a letter request by the AC to the Executive Director dated April 27, 1998. The reason cited for the lower surcharge rate of 0.05% was that the amount committed to be reimbursed to carriers on an annual basis was below the amount collected with a 0.41% surcharge rate which corresponds to the $50 million cap established in D.96-10-066. The new surcharge rate level of 0.05% did not reflect the revenue effect of the new federal universal rules for discounted services to schools and libraries.

3.  Resolution T-16374

The Commission in Resolution T-16374 adopted a CTF year 2000 budget of $33.472 million and continued the then current surcharge rate of 0.05%. The Commission in Resolution T-16374 also adopted a CTF January 1, 2001, through June 30, 2001, budget of $16.932 million and increased the year 2000 approved surcharge rate of 0.05% to 0.185% effective January 1, 2001.

4.  Senate Bill 669

Senate Bill (SB) 669 has changed the filing requirements for future budgets and surcharge levels. In order to conform to the State Budget process, we believe that future budgets must be consistent with the State of California fiscal year budget process, rather than the current calendar year budget process. Fiscal year budgets need to be presented for Commission approval at least one year in advance of the beginning of the budget year. The Commission must present a Budget Change Proposal for each program budget to the California Department of Finance (DOF) by September 1. SB 669 allows the Commission only 90 days to approve a program budget after filing of such a budget by the AC and before submission of the adopted budget to the DOF. In order for the Commission to fulfill this obligation on a timely manner in year 2001, the AC must have filed a proposed budget and a proposed surcharge level for fiscal year 2002-2003 for Commission approval on or before June 1, 2001.

In future years under the provisions of SB 669, if the State Budget including spending authority for CTF funds is not adopted by the Legislature and signed by the Governor by the beginning of the fiscal year, then CTF funds will not be paid out even if the associated claims are approved by the AC. Program payments to carriers may be jeopardized if the State Budget approval process is delayed beyond the start of the new budget year.

Besides filing of the transition plan for the transfer of funds to the State Treasury, SB 669 requires the Commission to conduct financial and compliance audits of these public program-related costs and activities at least once every three years, beginning January 1, 2000.

3. Decision 98-06-065

In D. 98-06-065, the Commission established the requirement for the AC to file its proposed budget and adjustment to the surcharge level for the following calendar year for the CTF program by October 1 of each year. However, Ordering Paragraph 24 of D.98-06-065 delayed this requirement until October 1, 1999. Pursuant to Ordering Paragraph 24 of D.98-06-065, on September 30, 1999, the AC filed its proposed CTF program budget and proposed surcharge level for the year 2000.

5.Resolution T-16165

The Commission in Resolution T-16165, dated July 2, 1998, lowered the CTF surcharge from 0.41% to 0.05% based upon a letter request by AC to the Executive Director dated April 27, 1998. The reason cited for the lower surcharge of 0.05% was that the amount committed to be reimbursed to carriers on an annual basis was below the amount collected with a 0.41% surcharge which corresponds to the $50 million cap established in D.96-10-066. The new surcharge level of 0.05% did not reflect the revenue effect of the new federal universal rules for discounted services to schools and libraries.

Decision 98-06-065

D. 98-06-065, dated June 18, 1998, established the requirement for the AC to file its proposed budget and adjustment to the surcharge level for the following calendar year for the CTF program by October 1 of each year. However, Ordering Paragraph 24 of D.98-06-065 delayed this requirement until October 1, 1999. Nevertheless, the CTF AC filed the 1999 proposed budget and surcharge level in order to be consistent with the filing of proposed 1999 budgets for telecommunications utilities by other public programs.

4. CTF Program Current Status

The CTF program was established in D.96-10-066 to provide discounted services to schools, libraries, hospitals, and community based organizations. The utilities have been providing discounted services to those qualified organizations requesting such services since February 1997. Further, utilities have been collecting CTF surcharge revenues from their end-users since the start of the program in February 1997.

The last phase of establishing the trust account with Union Bank for the CTF program and requiring carriers to deposit CTF funds was completed in September 1999. The Commission, in Resolution T-16331, dated September 2, 1999, adopted the agreement between the AC and Union Bank for the trust account with Union Bank for CTF. [1] ALJ Kenney, in consultation with the assigned Commissioner, issued a ruling, dated September 22, 1999, instructing when, where, and how to deposit CTF surcharge revenues and associated interest income into the trust account with Union Bank no later than November 12, 1999.[2] The surcharge revenues represent the amounts collected by carriers since February 1997 and held from February 1997 to September 1999. Further, carriers are required to deposit ongoing remittance of CTF surcharge revenues beginning with the surcharge revenues billed by the carriers during October 1999.

However, the process of remitting the CTF funds by the utilities to a trust account has not yet been established. The Commission required the AC to obtain IRS tax exemption for the funds collected as well interest earnings on those funds. IRS tax exemption has been obtained. The Telecommunications Division staff is working with the AC to issue an Invitation for Bid in order to proceed to establish the trust arrangement for the funds associated with the CTF.

The AC, as indicated on Column D of Attachment A of this resolution, projected a preliminary 1999 estimate of the financial status of CTF. This attachment displays an estimated fund balance of $30.709 million by the end of 1999. Since the CTF fund flow from carriers is now being deposited into the trust account, the fund balance for year end 1999 is estimated based upon the reported surcharge revenues to date, projected associated interest income and program payments filed by carriers to date in 1999. The surcharge revenues for 1999 are projected based upon the surcharge revenues reported to date by a majority of carriers, while the program payments represent the estimated discounts stated on the applications for CTF services filed to date by the carriers. The AC indicated that once the carriers have deposited surcharge revenues and associated interest into the trust account by November 12, 1999, then the financial status for CTF program for year end 1999 fund balance will be more reflective of the actual state of the fund.

A preliminary estimate of the financial status of CTF was projected by the AC as indicated on Attachment A. This attachment displayed an estimated fund balance of $42.1 M by the end of 1999. Since the trust has not yet been established, the AC projected the fund balance based upon the estimated surcharge revenues and program payments including interest per D.98-01-023. These estimated surcharge revenues and program payments are projected based upon the number of remittance forms filed and the number of approved applications for discounted services for various organizations listed in D. 96-10-066, respectively. Once the trust is established, the actual financial status of the CTF program will be known.

5. 5. Senate Bill No. 669

The enactment of Senate Bill No. (SB) 669 requires CTF program funds to be deposited into the State Treasury.[3] The implementation of SB 669 will be detailed in a report that will be submitted to the Governor and the state Legislature on or before July 1, 2000. We envision that this report will address a transition plan for the transfer of the funds to the State Treasury for all telecommunications public programs, and will include the adopted CTF program budget for calendar year 2000 and the first six-months of year 2001 as well as a timeline for submitting budgets for fiscal year 2001-2002 and future fiscal budget years for each program. Further, the bill requires the Commission to conduct a financial and compliance audit of these public programs related costs and activities at least once every three years, beginning on January 1, 2000.

6. Year 20001999 Six-Month January 1, 2001 through June 30, 2001 CTF Budgets and Surcharge Rate Levels

Attachment A of this resolution shows the proposed adopted year 20001999 and the Six-Month January 1, 2001, through June 30, 2001, budgets for the CTF program. The AC projectsThe year 2000 adopted budget provides afor revenues of $11.367 9 million, including associated investment income, for year 2000 , for 1999, administrative expenses of $0.9456007 million for year 2000 , for 1999, and program payments of $29.44223.7 million for year 20001999 for discounted services to schools, libraries, community based organizations, and rural and government-owned hospitals. The proposed adopted year 2000 budget also includes reflects an estimated $3.0700.52 million for interest payment to carriers for year 20001999. Such interest payments will be required for CTF services that are provided by carriers every month since February 1997 and such services are projected to be provided in year 2000. The carriers will be filing claims for CTF services provided for 1997 in year 2000once the CTF. [4] is fully implemented. Further, it is anticipated that claims for 1998 and claims up to September 1999 will be filed by carriers in year 2000. [5] ,[6]