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H.B. 338

             1     

CHANGES TO TELECOMMUNICATIONS LAWS

             2     
2000 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Sponsor: Susan J. Koehn

             5      AN ACT RELATING TO PUBLIC UTILITIES; PROVIDING DEFINITIONS; CLARIFYING
             6      CONDITIONS FOR PRICING FLEXIBILITY FOR INCUMBENT TELEPHONE
             7      CORPORATIONS; LIMITING APPLICATION OF THE PRICE INDEX FOR TARIFFED
             8      PUBLIC TELECOMMUNICATION SERVICE RELATIVE TO THE PRICE FLOOR;
             9      REPEALING OUTDATED UNIVERSAL SERVICE FUND; ENACTING PROVISIONS
             10      RELATING TO QUALITY OF SERVICE; AND MAKING TECHNICAL AMENDMENTS.
             11      This act affects sections of Utah Code Annotated 1953 as follows:
             12      AMENDS:
             13          54-8b-2, as last amended by Chapter 122, Laws of Utah 1997
             14          54-8b-2.3, as last amended by Chapter 88, Laws of Utah 1997
             15          54-8b-2.4, as last amended by Chapter 226, Laws of Utah 1997
             16          54-8b-3.3, as last amended by Chapter 269, Laws of Utah 1995
             17      REPEALS:
             18          54-8b-12, as last amended by Chapter 122, Laws of Utah 1997
             19      Be it enacted by the Legislature of the state of Utah:
             20          Section 1. Section 54-8b-2 is amended to read:
             21           54-8b-2. Definitions.
             22          As used in this chapter:
             23          (1) (a) "Aggregator" means any person or entity that:
             24          (i) is not a telecommunications corporation;
             25          (ii) in the ordinary course of its business makes operator assisted services available to the
             26      public or to customers and transient users of its business or property through an operator service
             27      provider; and


             28          (iii) receives from an operator service provider by contract, tariff, or otherwise,
             29      commissions or compensation for calls delivered from the aggregator's location to the operator
             30      service provider.
             31          (b) "Aggregator" may include any hotel, motel, hospital, educational institution,
             32      government agency, or coin or coinless telephone service provider so long as that entity qualifies
             33      under Subsection (1)(a).
             34          (2) "Certificate" means a certificate of public convenience and necessity issued by the
             35      commission authorizing a telecommunications corporation to provide specified public
             36      telecommunications services within a defined geographic service territory in the state.
             37          (3) "Division" means the Division of Public Utilities established in Section 54-4a-1 .
             38          [(3)] (4) "Essential facility or service" means any portion, component, or function of the
             39      network or service offered by a provider of local exchange services:
             40          (a) that is necessary for a competitor to provide a public telecommunications service;
             41          (b) that cannot be reasonably duplicated; and
             42          (c) for which there is no adequate economic alternative to the competitor in terms of
             43      quality, quantity, and price.
             44          [(4)] (5) "Federal Telecommunications Act" means the Federal Telecommunications Act
             45      of 1996, Pub. L. No. 104-104, 110 Stat. 56.
             46          [(5)] (6) "Incumbent telephone corporation" means a telephone corporation, its successors
             47      or assigns, which, as of May 1, 1995, held a certificate to provide local exchange services in a
             48      defined geographic service territory in the state.
             49          [(6)] (7) "Intrastate telecommunications service" means any public telecommunications
             50      service in which the information transmitted originates and terminates within the boundaries of
             51      this state.
             52          [(7)] (8) "Local exchange service" means the provision of telephone lines to customers
             53      with the associated transmission of two-way interactive, switched voice communication within the
             54      geographic area encompassing one or more local communities as described in maps, tariffs, or rate
             55      schedules filed with and approved by the commission.
             56          [(8)] (9) (a) "New public telecommunications service" means a service offered by a
             57      telecommunications corporation which that corporation has never offered before.
             58          (b) "New public telecommunications service" does not include:


             59          (i) a tariff, price list, or competitive contract that involves a new method of pricing any
             60      existing public telecommunications service;
             61          (ii) a package of public telecommunications services that includes an existing public
             62      telecommunications service; or
             63          (iii) a public telecommunications service that is a direct replacement for:
             64          (A) a fully regulated service;
             65          (B) an existing service offered pursuant to a tariff, price list, or competitive contract; or
             66          (C) an essential facility or an essential service as defined in [Subsection] Section
             67      54-8b-2 [(3)].
             68          [(9)] (10) "Operator assisted services" means services which assist callers in the placement
             69      or charging of a telephone call, either through live intervention or automated intervention.
             70          [(10)] (11) "Operator service provider" means any person or entity that provides, for a fee
             71      to a caller, operator assisted services.
             72          [(11)] (12) "Price-regulated service" means any public telecommunications service
             73      governed by Section 54-8b-2.3 .
             74          [(12)] (13) "Public telecommunications service" means the two-way transmission of signs,
             75      signals, writing, images, sounds, messages, data, or other information of any nature by wire, radio,
             76      lightwaves, or other electromagnetic means offered to the public generally.
             77          (14) "Same or substitutable" with reference to a public telecommunications service means
             78      that the service is comparable to another service in terms of function, price, and quality to an end
             79      user customer.
             80          (15) "Substantial compliance" with reference to a rule or order of the commission means
             81      satisfaction of all material obligations in a manner consistent with the rule or order.
             82          [(13)] (16) "Telecommunications corporation" means any corporation or person, and their
             83      lessees, trustees, receivers, or trustees appointed by any court, owning, controlling, operating,
             84      managing, or reselling a public telecommunications service.
             85          [(14)] (17) "Total service long-run incremental cost" means the forward-looking
             86      incremental cost to a telecommunications corporation caused by providing the entire quantity of
             87      a public telecommunications service, network function, or group of public telecommunications
             88      services or network functions, by using forward-looking technology, reasonably available, without
             89      assuming relocation of existing plant and equipment. The "long-run" means a period of time long


             90      enough so that cost estimates are based on the assumption that all inputs are variable.
             91          Section 2. Section 54-8b-2.3 is amended to read:
             92           54-8b-2.3. Pricing flexibility.
             93          (1) (a) A telecommunications corporation that obtains a certificate to compete with the
             94      incumbent telephone corporation in a defined geographic area pursuant to Section 54-8b-2.1 may
             95      price any public telecommunications services it is authorized to offer, or any new public
             96      telecommunications service, by means of a price list or competitive contract.
             97          (b) Before the telecommunications corporation begins providing any authorized public
             98      telecommunications service, it shall notify the commission of its intent to begin providing the
             99      service and the defined geographic area in which it will provide the service.
             100          (2) (a) Notwithstanding other requirements of this chapter relating to pricing flexibility,
             101      an incumbent telephone corporation may offer retail end user public telecommunications services
             102      by means of a price list or competitive contract as provided in Subsections (2)(b) and (c).
             103          (b) (i) An incumbent telephone corporation may petition the commission for pricing
             104      flexibility in:
             105          (A) any proceeding in which another telecommunications corporation has petitioned the
             106      commission for a certificate to provide specified public telecommunications services in a defined
             107      geographic area that is within the incumbent telephone corporation's service territory[.]; or
             108          (B) an independent proceeding after the other telecommunications corporation has been
             109      certificated to provide specified public telecommunications services in a defined geographic area
             110      that is within the incumbent telephone corporation's service territory.
             111          (ii) In the proceeding, the commission shall, by order, grant pricing flexibility to the
             112      incumbent telephone corporation for the same or substitutable public telecommunications services
             113      in the same defined geographic area.
             114          (iii) Pricing flexibility for any public telecommunications service shall become effective
             115      in accordance with the procedure in Subsection (2)(b)(iv) when the following conditions are met:
             116          (A) the commission has issued a certificate to the competing telecommunications
             117      corporation;
             118          (B) the competing telecommunications corporation has begun providing the authorized
             119      public telecommunications service in the defined geographic area;
             120          (C) the incumbent telephone corporation, by written agreement, stipulation, or pursuant


             121      to an order of the commission, has allowed the competing telecommunications corporation to
             122      interconnect with the essential facilities and to purchase essential services of the incumbent
             123      telephone corporation; and
             124          (D) the incumbent telephone corporation is in substantial compliance with the rules and
             125      orders of the commission adopted or issued under Section 54-8b-2.2 .
             126          (iv) (A) The commission shall enter its final order either granting or denying a petition for
             127      pricing flexibility under Subsection (2)(b) within 90 days of the date the incumbent telephone
             128      corporation files its petition seeking pricing flexibility.
             129          (B) If the commission has not entered an order within 90 days of the date the petition is
             130      filed, the petition shall be considered granted.
             131          (C) Pricing flexibility shall be effective 45 days following the granting of a petition for
             132      pricing flexibility under Subsection (2)(b) unless the commission orders an earlier effective date.
             133          (c) An incumbent telephone corporation may price any new public telecommunications
             134      service by means of a price list or competitive contract.
             135          (3) The commission may review any new public telecommunications service offered by
             136      an incumbent telephone corporation after the applicable tariff, price list, or competitive contract
             137      has taken effect.
             138          (4) Each price list shall:
             139          (a) be filed with the commission;
             140          (b) describe the public telecommunications service;
             141          (c) set forth the basic terms and conditions upon which the public telecommunications
             142      service is offered; and
             143          (d) list the prices to be charged for the public telecommunications service or the basis on
             144      which the services will be priced.
             145          (5) Prices, terms, and conditions offered under price lists or competitive contracts that are
             146      different from tariff prices, terms, and conditions for the same services are not considered
             147      discriminatory under Section 54-3-8 and Subsection 54-8b-3.3 (2).
             148          (6) A price list filed with the commission under this section shall take effect five days after
             149      it is filed with the commission.
             150          (7) The prices, terms, and conditions of a public telecommunications service offered by
             151      a telecommunications corporation pursuant to a competitive contract with a retail customer shall


             152      be filed with the commission.
             153          (8) The commission may, as determined necessary to protect the public interest, set an
             154      upper limit on the price that may be charged by telecommunications corporations for public
             155      telecommunications services that may be priced by means of a price list or competitive contract.
             156          (9) (a) The commission may revoke the authority of a telecommunications corporation to
             157      offer a public telecommunications service pursuant to a price list or competitive contract if the
             158      commission finds:
             159          (i) (A) the telecommunications corporation has violated statutes or rules applicable to the
             160      specific service;
             161          (B) there has been a material and substantial change in the level of competition; or
             162          (C) competition has not developed; and
             163          (ii) revocation is in the public interest.
             164          (b) The party asserting that revocation should occur shall bear the burden of proof.
             165          (10) The commission shall establish rules or procedures to protect confidential,
             166      proprietary, and competitively sensitive information provided to the commission or the division
             167      pursuant to this section.
             168          Section 3. Section 54-8b-2.4 is amended to read:
             169           54-8b-2.4. Price regulation -- Price index -- Maximum prices.
             170          (1) The Legislature finds that:
             171          (a) traditional rate of return regulation cannot guarantee that customers who do not have
             172      the choice of alternative providers will be protected from the economic responsibility for making
             173      up for an incumbent telephone corporation's competitive losses or from providing for the recovery
             174      of past, regulated investments;
             175          (b) the method of regulation set forth in this section will provide better protection to
             176      customers who lack competitive choices than does traditional rate of return regulation; and
             177          (c) before moving from traditional rate of return regulation, it is essential the commission
             178      address issues relating to the movement of prices towards cost and removing subsidies in the
             179      existing price structure of incumbent telephone corporations to encourage competition for all
             180      telecommunications services.
             181          (2) (a) Effective May 1, 1997, any incumbent telephone corporation with more than 30,000
             182      access lines in the state shall be regulated pursuant to this section and may not be regulated on the


             183      basis of rate of return or any similar method of regulation that is based on the earnings of the
             184      incumbent telephone corporation, except as provided in this section.
             185          (b) Any incumbent telephone corporation serving fewer than 30,000 access lines in the
             186      state may petition the commission to be regulated under price regulation rather than traditional rate
             187      of return regulation. In adopting price regulation for incumbent telephone corporations with fewer
             188      than 30,000 access lines, the commission may modify the provisions of this section taking into
             189      consideration the individual circumstances of the incumbent telephone corporation seeking price
             190      regulation.
             191          (3) [(a)] Any general rate proceeding for an incumbent telephone corporation with more
             192      than 30,000 access lines in the state initiated before May 1, 1997, shall be based on a 1996 test
             193      period and shall be conducted under the principles of traditional rate of return regulation, even
             194      though the final order in the case is not issued until May 1, 1997, or thereafter.
             195          [(b) A rate proceeding for an incumbent telephone corporation with more than 30,000
             196      access lines in the state may be initiated after April 30, 1997, and before March 1, 1998.]
             197          [(i) The rate proceeding shall be revenue neutral relative to the last proceeding filed
             198      pursuant to Subsection (3)(a), except that the commission may increase or decrease the revenue
             199      anticipated from all rates to account for changes in the following factors which are known and
             200      measurable at the time of hearings in the case:]
             201          [(A) any removal of subsidies in the existing price structure of the incumbent telephone
             202      corporation required by federal or state law or approval by the commission;]
             203          [(B) changes in rules of the Federal Communications Commission, including rules with
             204      regard to the separation of interstate and intrastate revenues, expenses, or investments;]
             205          [(C) changes in tax rates applied to the incumbent telephone corporation;]
             206          [(D) any other change external to the business operations of the incumbent telephone
             207      corporation resulting from:]
             208          [(I) accounting rules adopted by the Financial Accounting Standards Board and approved
             209      by the commission; or]
             210          [(II) laws or rules enacted or adopted by a governmental entity having jurisdiction; or]
             211          [(E) any other extraordinary events not reasonably foreseeable as of April 30, 1997.]
             212          [(ii) In the rate proceeding, the commission may also rebalance rates of particular services
             213      to move rates of those services toward cost.]


             214          (4) (a) The prices of tariffed telecommunications services offered by an incumbent
             215      telephone corporation with more than 30,000 access lines in the state may not increase during the
             216      three-year period commencing with the date of the final order in the last rate case initiated before
             217      May 1, 1997. The prices of services offered pursuant to a price list or competitive contract shall
             218      be governed by Section 54-8b-2.3 .
             219          (b) Notwithstanding Subsection (4)(a), prices may increase pursuant to any prices
             220      established in a final order of the commission for a rate proceeding initiated before [March 1,
             221      1998,] May 1, 1997, or the adjustment of those prices as a result of an appeal or remand of the final
             222      order.
             223          (5) (a) Effective at the end of the three-year period specified in Subsection (4), the
             224      commission shall [regulate] adjust the maximum prices for the tariffed public telecommunications
             225      services of the incumbent telephone corporation according to an aggregate price index or price
             226      indices associated with groups of services. The aggregate price index or price indices shall be
             227      adjusted annually to reflect the effects of inflation, productivity, and exogenous factors and to
             228      maintain an appropriate level of service quality. The precise manner of annual adjustment of the
             229      aggregate price index or price indices shall be developed by the commission after notice and a
             230      hearing and before the end of the three-year period.
             231          (b) Factors in the price index or price indices may also include the following:
             232          (i) any removal of subsidies in the existing price structure of the incumbent telephone
             233      corporation required by federal or state law or approved by the commission;
             234          (ii) the impact of alteration in asset lives to better reflect changes in the economic lives of
             235      plant and equipment approved by the commission consistent with Section 54-7-12.1 ;
             236          (iii) changes in rules of the Federal Communications Commission, including rules with
             237      regard to the separation of interstate and intrastate revenues, expenses, or investments adopted by
             238      the commission;
             239          (iv) changes in tax rates applied to the incumbent telephone corporation;
             240          (v) any other change external to the business operations of the incumbent telephone
             241      corporation resulting from:
             242          (A) accounting rules adopted by the Financial Accounting Standards Board and approved
             243      by the commission; or
             244          (B) laws or rules enacted or adopted by a governmental entity having jurisdiction; or


             245          (vi) any other extraordinary events not reasonably foreseeable as of April 30, 1997.
             246          (c) If the maximum price of any tariffed public telecommunications service, including
             247      residential telephone service:
             248          (i) is equal to or below the price floor for the service as determined under Subsection
             249      54-8b-3.3 (3), the maximum price may not be lowered through application of any price index
             250      determined under this Subsection (5); or
             251          (ii) is above the price floor for the service as determined under Subsection 54-8b-3.3 (3),
             252      the maximum price may not be lowered below the price floor through application of any price
             253      index determined under this Subsection (5).
             254          (d) The price floor for a service shall be determined in the same manner for purposes of
             255      Subsection (5)(c) as it is for other purposes under Subsection 54-8b-3.3 (3).
             256          (6) (a) The incumbent telephone corporation may decrease the price of a tariffed
             257      telecommunications service subject to the limitation in Section 54-8b-3.3 .
             258          (b) Any decrease in price shall be made by filing a tariff with the commission. The
             259      decrease shall become effective 30 days after filing.
             260          Section 4. Section 54-8b-3.3 is amended to read:
             261           54-8b-3.3. Services which must be offered on a nondiscriminatory basis -- Tariffed
             262      public telecommunications services and price-regulated services to be cost-based -- Packaged
             263      services -- Price floor for all services -- Quality of service standards.
             264          (1) As used in this section, "cost-based" means that the prices for the telecommunications
             265      services shall be established after taking into consideration the total service long-run incremental
             266      cost of providing the service. The term "cost-based" does not prevent the establishment of prices
             267      that promote the universal availability of service in the state.
             268          (2) Notwithstanding any other provision of this chapter:
             269          (a) no telecommunications corporation with more than 30,000 access lines in the state and
             270      which provides a tariffed public telecommunications service or a price-regulated service shall:
             271          (i) as to the pricing and provisioning of the tariffed public telecommunications service or
             272      price-regulated service, make or grant any undue or unreasonable preference or advantage to any
             273      person, corporation, or locality; or
             274          (ii) in providing services which utilize the local exchange network:
             275          (A) make or give any undue or unreasonable preference or advantage to any person,


             276      corporation, or locality; or
             277          (B) subject any person, corporation, or locality to any undue or unreasonable prejudice or
             278      disadvantage;
             279          (b) tariffed public telecommunications services and price-regulated services provided by
             280      a telecommunications corporation with more than 30,000 access lines in the state shall be
             281      nondiscriminatory, cost-based, and subject to resale as determined by the commission; and
             282          (c) tariffed public telecommunications services and price-regulated services may be
             283      packaged with other services, so long as they are also offered on a separate, unbundled basis.
             284          (3) An incumbent telephone corporation may not price any public telecommunications
             285      service at a level which is less than the sum of:
             286          (a) the total service long-run incremental cost of nonessential facilities used to provide the
             287      public telecommunications service in a particular geographic area; and
             288          (b) the price of essential facilities used to provide the public telecommunications service
             289      in a particular defined geographic area.
             290          (4) Subsection (3) does not [apply to] require that the price of residential telephone service
             291      which is priced below its total service long-run incremental cost on May 1, 1995, be increased.
             292      [The] However, the price of any service that is below its total service long-run incremental cost
             293      may be increased annually as provided in Section 54-8b-2.4 .
             294          (5) The commission shall examine the total service long-run incremental cost studies of
             295      an incumbent telephone corporation's public telecommunications services as needed to insure
             296      compliance with this section.
             297          (6) (a) In order to promote continued investment in the public telecommunications network
             298      by incumbent telephone corporations and to improve the quality of service for end users in areas
             299      where competition has not developed, by September 30, 2000, the commission shall adopt rules
             300      governing service quality standards to end users for all tariffed public telecommunications
             301      services.
             302          (b) The commission shall have the authority to enforce the rules adopted under this
             303      Subsection (6) by granting billing credits to the affected end user where the noncompliance is for
             304      reasons within the incumbent telephone corporation's control.
             305          (c) The commission shall report annually to the Legislature concerning investment by
             306      incumbent telephone corporations in the public telecommunications network in their service areas


             307      and the quality of service to end users of tariffed public telecommunications services.
             308          Section 5. Repealer.
             309          This act repeals:
             310          Section 54-8b-12, Trust fund established -- Requirements -- Expiration -- Transfer of
             311      balance.




Legislative Review Note
    as of 2-15-00 9:48 AM


This legislation raises the following constitutional or statutory concerns:

As the state moves toward a deregulated utility market, it is unclear how a court would apply any
previous caselaw decided in a rate regulated monopoly utility market to situations that will occur
under the price index regulation to take effect December 2000. For example, one issue for which
the answer is unknown, is whether, through this bill, elimination of imputation of directory
publishing operations (yellow page assets) to ratepayers or customers of US West would be an
unconstitutional taking of a property interest without just compensation.

The Utah Supreme Court in US West Communications, Inc., v. Public Service Commission of
Utah
, 386 Utah Adv. Rep. 4 decided January 7, 2000, found that US West ratepayers had an
"investment or proprietary interest in the yellow pages asset and specifically rejected US West's
"argument that directory imputation may not continue indefinitely" to ratepayers' rates. The
problem becomes that in December 2000, US West will no longer be under rate of return
regulation and US West customers will no longer be called "ratepayers." In US West, the court
was not asked to address whether the interest would continue when "ratepayers" become just
"customers" of the company. The court did say that imputation could continue indefinitely and
it is conceivable that the court intended the imputation to continue to "customers" after December
2000 under price regulation. However, another interpretation of the court's findings could be that
only "ratepayers" are entitled to the imputation and since no ratepayers will exist after December
2000, the asset could accrue only to the company and not to customers.

Office of Legislative Research and General Counsel


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