16 TAC §26.467
The Public Utility Commission of Texas adopts new §26.467
relating to Rates, Allocation, Compensation, Adjustments, and Reporting. This
section is adopted with changes to the proposed text as published in the December
31, 1999
Texas Register
(24 TexReg 11846).
This section is adopted under Project Number 20935.
New §26.467 implements the provisions of House Bill 1777 (HB 1777),
Act of May 25, 1999, 76th Legislature, Regular Session, Chapter 840, 1999
Texas Session Law Service 3499 (Vernon) (to be codified as an amendment to
Local Government Code §283.001,
et. seq.
).
The new rule is responsive to state policy articulated in HB 1777 to: (1)
encourage competition in the provision of telecommunications services; (2)
reduce the barriers to entry for providers of services so that the number
and types of services offered by providers continue to increase through competition;
(3) ensure that providers of telecommunications services do not obtain a competitive
advantage or disadvantage in their ability to obtain use of a public right-of-way
within a municipality; and (4) fairly reduce the uncertainty and litigation
concerning franchise fees. In addition, this section is designed to ensure
that municipalities: (1) retain the authority to manage a public right-of-way
within the municipality to ensure the health, safety, and welfare of the public;
and (2) receive from certificated telecommunications providers fair and reasonable
compensation for the use of a public right-of-way within the municipality.
This section, relating to rates, allocation, compensation, and reporting,
is adopted in accordance with the directive of HB 1777 that, not later than
March 1, 2000, the commission shall establish for each municipality, rates
per access line by category for the use of the rights-of-way in that municipality,
and the statewide average of those rates per access line by category for each
certificated telecommunications provider, if necessary.
Prior to publication of the proposed rule, the commission staff held a
workshop on December 18, 1999, at the commission's offices. Input received
from the commenters was used to develop the proposed rule. In addition, a
workshop was held on January 7, 2000, at the commission's offices. A public
hearing on the proposed rule was held at the commission's offices on January
21, 2000. Representatives from municipalities and industry, and other affected
persons, attended the hearing and provided comments. To the extent comments
differ from the submitted written comments, such comments are summarized herein.
In the preamble to the proposed rule, the commission requested specific
comments regarding the costs associated with, and benefits that will be gained
by, implementation of the proposed 26.467. The commission stated that it would
consider the costs and benefits in deciding whether to adopt the rule. Additionally,
the commission sought comments on whether municipalities whose agreements
or ordinances include fee rate escalation provisions are entitled to receive
such additional compensation until the natural expiration date of their franchise
agreement or ordinance, even though those agreements or ordinances may have
been terminated by CTPs by December 1, 1999. The commission asked parties
that believe that municipalities are entitled to this additional compensation
to provide specific implementation details for including this compensation
as part of the base amount. In particular, the commission asked for explanation
on how the commission should establish new rates for those municipalities
with fee rate escalation provisions. The commission requested that parties
provide specific statutory citation for their rationale.
Where parties responded to the above questions, those comments have also
been summarized herein. As a result of the comments received during the comment
period and at the public hearing, the rule has been extensively revised and
rewritten. Discussion of the comments will refer to the sections of the rule
as published in the
Texas Register
and will
note the new location of any affected provision.
Hearing and Commenters
The following parties filed written comments: Austin, El Paso, Everman,
Irving, Laredo, Missouri City, Plano, and Rosenberg (Cities); Addison, Baytown,
Bedford, Colleyville, Euless, Farmers Branch, Grapevine, Hurst, Keller, Killeen,
North Richland Hills, Pasadena, Texas City, Tyler, West University Place,
and Wharton (Coalition) (Cities and Coalition filed jointly as "City Coalition");
Cities of Garland and San Angelo (Garland/San Angelo); City of Houston (Houston);
City of San Antonio (San Antonio); Texas Coalition of Cities For Utility Issues
(TCCFUI), a coalition of 101 Texas cities; and the Texas Municipal League
(TML). The comments of these parties are summarized generally as comments
from municipalities.
AT&T Communications of the Southwest, Inc. (AT&T); GTE Southwest
Incorporated (GTESW); Metropolitan Fiber Systems of Dallas, Inc., Metropolitan
Fiber Systems of Houston, Inc., Brooks Fiber Communications of Texas, Inc.,
MCIMetro Access Transmission Services, LLC, and Worldcom Technologies, Inc.
(jointly referred to as MCIWorldCom); and Southwestern Bell Telephone Company
(SWBT). The comments of these parties are summarized generally as comments
from industry.
Consumers Union and Office of Public Utility Counsel (OPC) also filed written
comments.
The following parties did not file written comments but provided oral comments
at the public hearing: City of Dallas (Dallas); City of El Paso (El Paso);
City of Irving (Irving); Allegiance Telecom, Inc., e.spire Communications,
Inc., GST Telecom, ICG Communications, Inc., Intermedia Communications, Inc.,
Nextlink Texas, Inc., and Time Warner Telecom of Texas (CLEC Coalition); TEXALTEL;
and the Office of the Attorney General (OAG), representing state agencies
as consumers.
Summary of comments and commission responses
Preamble question regarding fee rate escalation
Municipalities unanimously responded that municipalities whose agreements
or ordinances include fee rate escalation provisions are entitled to receive
such additional compensation until the natural expiration date of their franchise
agreement or ordinance, even though such agreements or ordinances may have
been terminated by CTPs on or before December 1, 1999. TML commented that
the rule must, therefore, be amended to address escalation provisions contained
in franchise agreements and ordinances extending beyond the year 1999. TML,
endorsed by TCCFUI, asserted that agreement on this compromise bill (HB 1777)
was only reached when municipalities agreed to allow a CTP to terminate a
franchise agreement or its obligations under a franchise ordinance under the
condition that CTPs continue to pay the compensation due under the agreement
or ordinance, including any escalation of compensation, at the time such compensation
would be due under the agreement or ordinance. At the public hearing, TML
asserted that the fee rate escalation under the franchise ordinance would
live on beyond the providers' termination of an agreement. TML highlighted
the importance of including both terms in the bill, agreement and ordinance,
for the reason that a telephone company would be unable to repeal a city ordinance.
But, TML added that there is no distinction between whether a fee rate escalation
provision is in an agreement or in an ordinance because the language of HB
1777 preserved the escalator itself.
TML argued that the key language supporting its analysis is the last sentence
of Local Government Code §283.053(b), which describes what comprises
the base amount, and specifically includes escalation provisions. TCCFUI asserted
that the use of the plural term, "provisions," is inclusive of all escalation
provisions in existing franchise agreements or ordinances, not merely those
that apply to a single year. TML noted that the limitation on fee rate escalation
provisions is that the compensation associated with those provisions cannot
be added into the base amount before the escalation provisions become effective
under the existing franchise agreement or ordinance. Therefore, asserted TML,
in year 2001 the base amount should be amended to include amounts attributable
to fee rate escalation.
TML mentioned that it did not expect the issue of fee rate escalation provisions
to be significant to more than 10% of its member cities, but that for some
cities, particularly Houston, the issue has great significance. TML specifically
cited Houston's participation in the bill negotiations and argued that Houston
would never have agreed to the bill if the city would not be allowed to collect
the escalation amounts due under its franchise ordinance after 1999.
Describing its vocal participation in the negotiations over HB 1777, Houston
stated that the compromise reached in Chapter 283 of the Local Government
Code, to which industry agreed, required only that escalation provisions become
effective no sooner than when they become due under the franchise or ordinance
adopted before January 12, 1999. Houston explained that its escalation provision
was adopted on July 22, 1998, as part of a codified ordinance of universal
application to all telecommunications providers (Ordinance Number 98-593),
regardless of the term of their agreement with Houston, in order to ensure
a non-discriminatory rate structure. Houston asserted that its escalation
provision clearly qualifies under HB 1777 as "specifically prescribed in applicable
agreements or ordinances effective or adopted by January 12, 1999."
In their written comments, several cities described the financial impact
upon revenues of failure to include future fee rate escalation. Houston stated
that failure to amend the proposed substantive rule would result in a potential
loss of municipal fee revenue to Houston in the following amounts: year 2000,
$5 million; year 2001, $10.9 million; year 2002, $16.8 million; year 2003,
at least $16.8 million; and every year thereafter, at least $16.8 million.
Similarly, San Antonio asserted that it would incur a significant financial
loss if fee rate escalation provisions were disallowed, conservatively estimating
a loss of revenue of $430,000 for the period April 1, 2000 through December
31, 2000, with future loss of revenue compounded by the removal of escalation
revenues from the revenue base. San Antonio's fee rate escalation provisions
of their existing franchise agreements are based upon the annualized change
in the Consumer Price Index (CPI) and financial projections have been made
based on stable revenue growth that is founded on the escalation provisions
of the existing agreements. San Antonio echoed the sentiments of TML and Houston,
explaining that their support of the legislation was premised on the understanding
that the implementation of such legislation would not negatively impact municipalities.
Similarly, Garland/San Angelo asserted that it is commonly understood that
all parties involved in the negotiation of HB 1777 agree that municipalities
should be made whole and allowed to receive the benefit of the escalation
provisions as they become due. San Antonio contended that the implementation
of this legislation should not become an opportunity for CTPs to reduce their
financial obligations to a municipality as previously mutually agreed upon
in agreements, which were the result of good faith negotiations. San Antonio
observed that "fair and reasonable compensation for the use of a public right-of-way",
pursuant to Local Government Code §283.001(b)(2), has been defined through
the negotiation of existing franchise agreements to include escalation provisions;
accordingly, to not allow these mutually agreed-upon escalation provisions,
alters what has been defined as fair and reasonable compensation by both parties.
Houston explained that its ordinance establishes rates per linear foot
of public right-of-way occupied that are used to compute total compensation
from telecommunications providers for four 12-month periods beginning October
1, 1998, and ending September 30, 2002; thereafter, the rate per linear foot
escalates with the CPI until the expiration of all agreements on December
31, 2003. Houston clarified that its rate per linear foot, which is used to
determine total annual compensation, specifically escalates in stated increments
from 1998-2002, until the escalation is fully phased-in, and that for periods
thereafter, annual escalations pursuant to CPI maintain rates at the full
phase-in amount. Further, Houston stated that there is no statutory authority
for limitation of the operation of an escalation provision such as Houston's
and proposed giving effect to municipal escalation provisions.
At the public hearing, Houston elaborated on the interplay between an agreement
and an ordinance, explaining that, because its fee rate escalation provision
is not in the agreement with the CTP but in its code of ordinances, the understanding
during the negotiations was that termination of the agreement could not override
the ordinance. Responding to the discussion, El Paso added that cities enacted
umbrella ordinances to govern the terms of all franchises in order to be non-discriminatory.
El Paso believed that the deliberate wording of the statute, "franchises or
ordinances," was designed to address this situation.
Arguing that "HB 1777 essentially grandfathers the bargains struck by municipalities
for compensation for use of rights-of-way," City Coalition also supported
the continuation of fee-rate-escalations for years beyond 1999. City Coalition
argued that whether CTPs choose to terminate the underlying agreements is
irrelevant for purposes of determining compensation. Garland/San Angelo echoed
this position, citing Local Government Code §283.054(a), as clear evidence
that a termination of a contract is not intended to prevent municipalities
from obtaining the full benefit of agreements they made with the telecommunications
providers through franchise provisions. As to implementation of revisions
to base amounts, Garland/San Angelo argued that this is clearly contemplated
under HB 1777 and could be easily included in the commission-allowed revisions
during September of each year.
Similarly, City Coalition recommended that these adjustments to the base
amount be made each calendar year pursuant to a municipality's filings prior
to September 30 of each year. City Coalition observed that, because HB 1777
plainly indicates that a municipality's base amount "shall include the municipal
fee rate escalation provisions," the fee rate escalations are not "additional
compensation." Instead, City Coalition contended that fee rate escalations
are a legislatively mandated component of the base amount, with the only restriction
that these escalations be given effect only at the agreed-upon dates of the
original instrument. In its comments, City Coalition recommended the inclusion
of a separate subsection (d)(2) to provide municipalities a yearly opportunity
to increase their base amount by giving effect to fee rate escalations provisions;
TCCFUI endorsed the language proposed by City Coalition.
SWBT, the only industry party that filed written comments on the question
of fee rate escalation provisions, argued that only the fee rate escalation
provisions in fixed-term agreements or ordinances continue until the end of
the fixed term, regardless of whether the CTP elects to terminate. SWBT argued
that the fee rate escalation provisions in renewable or automatically renewing
agreements or ordinances end upon a CTP's election to terminate. SWBT distinguished
"qualified" fee rate escalation provisions as those that are found in fixed-term
agreements or ordinances, and that truly are fee rate escalations wherein
a rate is adjusted by a specified percentage or changes in the CPI. SWBT argued
that fee rate escalations are basically only found in fee-per-line agreements
or ordinances.
El Paso expressed strong disagreement at the public hearing in response
to SWBT's comments regarding limiting the fee rate escalations to franchises
or ordinances that specify a fee per line rate. El Paso stated that there
is no reason for the term "fee rate escalation" to be limited to only agreements
or ordinances that had fee per line rates. Observing that all these payments
to municipalities are fees, El Paso contended that escalation is not tied
to a fee-per-line rate, but is meant to describe increases in the levels of
payment that are required by the ordinance or the franchise. Responding to
staff questions about the effect of termination upon fee rate escalation provisions,
El Paso asserted that the same law that granted the right to terminate the
agreement also preserved certain terms of that agreement, namely, the fee
rate escalation provisions.
Additionally, SWBT requested that rate adjustments be calculated so as
not to multiply their effect and result in a windfall to cities. SWBT suggested
that any escalation be applied only to the access lines of those CTPs that
were bound by that preexisting agreement or ordinance. SWBT did agree that
the increased dollar amount (associated with escalation of the lines of only
certain CTPs) should be divided by the most recent access line counts of all
CTPs with access lines in the municipality to calculate a new rate. SWBT noted
that this calculation would increase the access line rate slightly for all
CTPs but not at the same rate as the percentage increase in fee rate escalation.
SWBT proposed adding a new section to provide a uniform system for calculating
the fee rate escalation. SWBT also proposed language that would subject a
municipality's petition to the applicable requirements of the commission's
procedural rules.
Replying to SWBT's comments regarding application of fee rate escalation
provisions to other providers, Coalition of Cities asserted that the fee rate
escalation should be applied to everyone in a nondiscriminatory manner going
forward. Coalition of Cities opined that, absent HB 1777, a new provider would
have been subject to franchise fees in effect at the time of entry, and thus,
would have paid at the higher rate. SWBT responded that the kinds of various
ordinances that are in effect are unknown and, if applied to all other carriers
in a city, could bump up municipal revenues far beyond what was expected.
SWBT argued that the basis for compensation under HB 1777 is no longer about
the benefit of the bargain struck under a contract; rather compensation is
based on the agreement or ordinance in effect at the time the bill (HB 1777)
was passed. TML responded that the bill was not intended to deny valid and
agreed-to escalation provisions just because of difficult or complicated implementation.
Commission response
The commission does not agree with municipal commenters that HB 1777 provides
for the continuation of fee rate escalations for years beyond the effective
date of the right-of-way fees adopted under HB 1777 and, therefore, declines
to add language providing a mechanism to incorporate fee rate escalations
on an ongoing basis. The commission agrees with City Coalition that fee rate
escalations are a legislatively mandated component of the base amount. Section
283.053(b) of the Local Government Code requires the base amount prescribed
under that subsection to include the municipal fee rate escalation provisions
and the value of in-kind services or facilities received in 1998, but prohibits
that additional compensation from becoming part of the base amount before
it becomes effective under the existing franchise agreement or ordinance.
Municipal commenters rely upon this latter language for the position that
the legislation allows additional compensation, in the form of fee rate escalations,
to be added to the base amount as they become effective under the city's franchise
agreement or ordinance, as if those agreements or ordinances were not terminated
and were still in effect. In other words, municipal commenters assert that
they are entitled to compensation under both HB 1777 and their terminated
contracts. The commission does not support this interpretation of HB 1777.
The commission interprets Local Government Code §283.053(b), ("...additional
compensation may not become part of the base amount before it becomes effective
under the existing franchise agreement or ordinance.") to prohibit municipalities
from depreciating to present value the total value under the fee rate escalation
provision over the life of the contract and including this future revenue
stream as part of the 1998 base amount. Further, the commission interprets
Local Government Code §283.054(a), ("A termination under this subsection
does not affect the calculation of the municipality’s base amount under
Section 283.053.") to require the commission to give effect to provisions
of a terminated contract between December 1, 1999 (the date by which agreements
or obligations under an ordinance had to be terminated) and March 1, 2000
(the date by which the commission must develop rates.)
Local Government Code §283.054(a) goes on to state: "A provider may
elect to terminate a franchise agreement or obligations under an existing
ordinance as of the effective date of the right-of-way fee rates adopted in
accordance with the commission's rules adopted under this chapter." This section
clearly establishes that providers' obligations under their old franchise
agreements or under the ordinances in effect at the time of termination end
because of the providers' election to terminate pursuant to HB 1777. To allow
municipalities to annually adjust their base amounts due to fee rate escalation
would mean that the obligations of the CTPs continue beyond March 1, 2000
and, therefore, would be inconsistent with the statute.
The commission believes that the focus on the inclusion of fee rate escalation
in the base amount inappropriately disregards the fact that the sole function
of the base amount is to develop initial access line rates. Once the base
amount is established, including all revenues for 1998, in-kind services received
in 1998, and fee rate escalation as of the effective date of the commission's
adopted initial right-of-way rates, as appropriate, the role of the base amount
is completed. From then forward, changes are made to access line rates, not
to the base amount. For example, under §283.055(g) of the Local Government
Code, the commission is required to annually adjust the rates per access line
by one-half the annual change in the CPI. The base amount is a means to an
end--it is the means by which a rate is developed to ensure full compensation
to a municipality. There is no language in HB 1777 directing the commission
to revisit the base amount and annually recalculate rates to allow for inclusion
of fee rate escalation. Similarly, HB 1777 does not permit the commission
to lower rates, once these rates have been established to reflect line growth.
Rather, HB 1777 struck a balance to permit a standard increase of municipal
revenues from the levels in effect at enactment due to both line growth and
inflation.
Central to the municipalities' arguments is that the base amount should
be revised annually to include compensation attributable to fee rate escalation
provisions. This analysis requires that, for cities having fee rate escalation
provisions, a new set of rates would have to be established annually on a
staggered basis as each city’s fee rate escalation provision becomes
effective under that municipality's franchise agreement or ordinance. The
commission finds that Local Government Code, Chapter 283 does not direct the
commission to adjust rates annually to reflect fee rate escalation. Pursuant
to Local Government Code §283.055 relating to the commission's determination
of fees, the commission must establish rates on March 1, 2000. Thereafter,
rates can be revised only under certain circumstances.
Section 283.055, Local Government Code explicitly provides only three ways
in which the access line rates, by category, established by the commission
can be adjusted. First, Local Government Code §283.055(d), allows a municipality
to request a modification of the commission's default allocation once every
24 months. Changing the default allocation will result in a change in the
rates. Next, additional changes to the rates will come under Local Government
Code §283.055(g). This section requires the commission to adjust all
cities' access line rates beginning 24 months after the date the commission
establishes access line rates by an amount equal to one-half the annual change,
if any, in the CPI. Finally, rates may change pursuant to Local Government
Code §283.055 (h). This section allows an affected municipality to annually
decline all or any portion of any increase in the access line rates.
Conspicuously missing from Local Government Code §283.055, is language
to direct the commission to adjust rates as a result of fee rate escalation
provisions. Moreover, Local Government Code §283.053 relating to calculation
of the base amount, is silent on any revisions to the base amount itself.
Clearly, adjustments to the base amount or changes to commission-established
rates are very significant issues. Had the legislature intended to annually
revise the base amount and establish new rates, or adjust rates in some other
way, it could easily have added language in either Local Government Code §283.053
or §283.055 to make clear the commission's responsibility to make such
adjustments.
Contrary to Houston's assertion that there is no statutory authority for
limitation of the operation of an escalation provision, HB 1777 very clearly
limits the operation of Houston's escalation provision by allowing CTPs to
terminate franchise agreements and ordinances under Local Government Code §283.054.
Section 283.054 allows a municipality to "collect franchise fees and other
charges under that franchise agreement or ordinance until the date on which
the agreement or ordinance expires by its own terms or is terminated." The
legislature equated contract termination to contract expiration in this section.
There is no indication that the legislature intended certain portions of the
terminated agreement to continue in force, nor does El Paso provide any support
for its contention that certain terms of the agreement, including fee rate
escalation and perhaps other provisions, are preserved.
Municipalities' emphatic reliance upon the benefit of their bargain, the
bargained-for exchange in their individual agreements or ordinances, and other
contract-related principles disregards the stated goal of HB 1777--to establish
a uniform method for compensating municipalities. Individual contracts, by
their very nature, are non-uniform. Fee-per-line rates are a uniform system
that meets all the stated purposes under Local Government Code §283.001(c).
Moreover, municipalities' argument disregards the fact that HB 1777 creates
a completely new framework for compensating municipalities for the use of
public rights-of-way, thereby changing the status quo altogether. The commission
believes that, in light of the forward-looking and progressive intent of HB
1777, it would be inappropriate to maintain a parallel compensation structure
based upon terminated agreements or ordinances.
Furthermore, because fee rate escalation provisions are designed to capture
varying aspects of growth within a municipality, to allow the continued inclusion
of those amounts under the commission's rules implementing HB 1777 will amount
to double compensation to the municipalities while, simultaneously, subjecting
customers to duplicative fees. While it may be true that for some cities the
uniform compensation framework of HB 1777 will slow the rate of increase of
municipal compensation as compared with certain individual contracts, it is
not true that compensation will remain static under HB 1777. As is evident
under the line-counting methodology of HB 1777 and the commission's rules,
for every new line that is added from now into the future, municipal compensation
will increase. Similarly, for every line added when a municipality annexes
an unincorporated area, municipal compensation will increase under HB 1777.
When, in 2002, as required by HB 1777, the commission adjusts the rates per
access line for each municipality by an amount equal to one-half the annual
change in the CPI, municipal compensation will again increase. The commission
concedes that the only type of growth not captured under HB 1777 is growth
in vertical services, previously tracked by gross receipts agreements or ordinances.
However, the deliberate selection of a fee-per-line structure underscores
the legislature's rejection of this old mode of compensation.
Since fee rate escalation provisions are typically tied either to increases
in CPI or increases in revenue attributable to growth in lines, they closely
parallel the identical growth sources captured under HB 1777. Accordingly,
interpreting HB 1777 to permit the continuing applicability of contract fee
rate escalation provisions beyond the effective date of the initial right-of-way
fees adopted by the commission would require CTPs, and, therefore, customers,
to compensate municipalities twice. Even under a value theory this duplicative
approach is excessive. The commission concludes that to permit municipalities
to retain fee rate escalation provisions and to enjoy the benefits under HB
1777 would not serve the public interest and would not comport with the intent
of HB 1777.
General matters
SWBT proposed that a new section be created to add definitions for the
terms "fee rate escalation provision", "unbundled network element (UNE)",
and "commission clearinghouse." (This last term is one SWBT created as part
of SWBT's proposed rule framework.)
During the public hearing, parties discussed whether the statewide average
rate, per category that the commission will develop should be a weighted average
or not. Staff observed that developing statewide rates weighted by access
line count would likely result in higher access line rates, given that rates
in the populous urban municipalities (where there are more access lines) are
higher than municipal fees assessed in rural, less-populated areas (where
there are less access lines). TML stated that an average was used because
Chairman Gary Walker of the House Land and Resources Committee essentially
indicated that he wanted something in the bill to allow small cities in rural
areas to collect more revenue than they had received in the past because he
felt that these small cities in rural areas had been at a negotiating disadvantage
vis-á-vis larger cities. Accordingly, TML expected to see the base
amounts for rural cities that chose the statewide average to increase. TML
observed that, under HB 1777, city councils have the option to decline part
of the increased revenue. Accordingly, TML expressed support for staff's use
of a weighted average (weighted by access line counts) to calculate statewide
average rates, by category.
Commission response
The commission disagrees with SWBT's proposal to create new definitions
for "fee rate escalation provision" and "UNE". The commission does not believe
that these terms require additional elaboration. As to the terms SWBT has
created, such as "commission clearinghouse", the commission will not be using
these terms so no definition is necessary. Accordingly, the commission declines
to add a section containing definitions.
Regarding the discussion over use of a weighted average, the commission
appreciates the clarification on this point and will develop statewide average
rates weighted by access line counts.
Subsection (c)(1)
Proposed subsection (c)(1) required the commission to establish initial
rates for each category of access lines in a municipality no later than March
1, 2000, and allowed for initial rates to be updated before April 1, 2000,
pursuant to proposed subsection (d). The updated rates would be in effect
until a municipality makes revisions to its rates pursuant to proposed subsection
(f).
TCCFUI supported the rate determination provisions of proposed subsection
(c), particularly the use of 1998 access line counts provided under subsection
(c)(2). TCCFUI asserted that to prevent dilution of the per line charge, the
access line count must be consistent with the 1998 base amount period.
AT&T recommended modifying the last sentence of proposed subsection
(c)(1) for clarity because, although the commission requires updated rates
to remain in effect until revised, no similar provision applies to initial
rates that are not updated.
Commission response
The commission agrees with AT&T that the treatment of initial rates
should be clarified. Accordingly, the commission has added wording to proposed
subsection (c)(1) (renumbered as new subsection (f)) to make clear that initial
rates remain in effect unless and until those rates are updated and/or revised.
All references in proposed subsection (c)(1) relating to updated rates have
been moved under new subsection (g).
Subsection (c)(2)
Proposed subsection (c)(2) required the commission to use a 1998 access
line count for establishing rates for access lines.
TCCFUI, Cities and City Coalition agreed with the line count periods established
under proposed subsection (c)(2). Garland/San Angelo agreed with comments
filed by TCCFUI, Cities and the City Coalition regarding the line count period.
Commission response
Proposed subsection (c)(2) has been moved to new subsection (c) and combined
with the language from proposed subsection (c). In an effort to clarify the
relationship between access line counts and the establishment of access line
rates, the commission determines that a formula would be helpful. Accordingly,
the commission has added language to new subsection (c) explaining the commission's
formula for developing access line rates.
Subsection (c)(3)
Proposed subsection (c)(3) (renumbered as subsection (d)) outlined procedures
for estimating 1998 access line counts from 1999 data. Proposed subsection
(c)(3)(A) and (c)(3)(B) outlined methods to deriving a 1998 access line count
from a 1999 line count by developing statewide access line growth rates for
1999. Proposed subsection (c)(3)(C) outlined procedures for a municipality
to petition the commission to use a municipality specific growth factor rather
than using the statewide growth rate.
SWBT claimed that municipalities' petitions for use of different growth
factors for 1999 should be subject to notice and other applicable requirements
of the commission's procedural rules. SWBT commented that these procedures
would afford affected CTPs the opportunity to participate in, and to offer
evidence relevant to, the commission's decision-making process.
TCCFUI and City Coalition concurred with the proposed mechanisms for determining
access line counts and the specific growth rates set forth in proposed subsection
(c)(3)(A) and (B). TCCFUI also concurred with proposed subsection (c)(3)(C)
(which allowed the use of municipality specific growth rates) because it would
allow a city to correct any gross inequity that might result from application
of the statewide growth rates specified in subsection (c)(3)(A) and (c)(3)(B).
Commission response
The commission generally agrees with SWBT's suggestion that proposed subsection
(c)(3) (renumbered as (d) and revised and reorganized) should be revised to
give CTPs notice of municipalities' requests to use of different growth factors
for 1999. However, the commission finds merit in requiring municipalities
to notify affected CTPs and in allowing CTPs to provide alternative information
for the commission's consideration. Accordingly, the commission has revised
this section to clarify that CTPs may object to municipality-specific growth
rate(s), by category, but must provide actual 1998 line count data for the
commission to consider. The commission notes that the use of growth rates
altogether would be unnecessary if CTPs provide the statutorily mandated 1998
line counts. In the absence of such information, accommodations must be made
to meet the clearly articulated statutory requirements.
Accordingly, the commission has added language in new subsection (d)(3)(B)
to require a municipality requesting to use different growth factors for 1999
to provide a copy of its request to all CTPs that have filed access line counts
for the municipality no later than March 15, 2000. In addition, in renumbered
new subsection (d), the commission has set a deadline of March 31, 2000 on
CTPs' objections to the requests. The commission has also clarified that,
until the request approval process has been resolved, the access line rates
established by the commission using the growth rate(s) pursuant to proposed
subsections (c)(3)(A) and (B) (renumbered as (d)(1) and (2), respectively)
shall be implemented. Further, upon resolution of any objections to the request
approval process, newly renumbered (d)(3)(D) requires the commission to develop
new access line rates incorporating the new growth rate(s), by category, as
appropriate.
Subsection (d)
Proposed subsection (d) (generally renumbered as subsection (g)) provided
municipalities with a one-time opportunity in the year 2000 to update the
base amount and allocation formula that each municipality filed pursuant to §26.463
relating to Calculation and Reporting of a Municipality's Base Amount.
TCCFUI strongly supported allowing updates to municipality filings, saying
that this will enable cities and the commission to make necessary adjustments
to ensure that the municipal fees charged are fair and in accordance with
the stated goals of HB 1777. TCCFUI believed that the adjustment provisions
are reasonable and necessary given the accelerated statutory deadlines mandated
by HB 1777. TCCFUI stated that this would allow cities to avoid unanticipated
customer impacts and will result in a more successful implementation of HB
1777.
City Coalition commented that updates should be annual, not one-time because
cities need to update for a variety of reasons. Municipal parties uniformly
requested including language in subsection (d)(1) (renumbered as subsection
(g)(1)(A)) to address adjustments attributable to fee rate escalation provisions.
City Coalition specifically recommended the inclusion of language providing
a yearly opportunity to give effect to escalation provisions by increasing
the base amount. In addition, City Coalition recommended that cities should
be allowed to petition the commission to increase the base amount when facility
owners that compensated a city independently, and were therefore, excluded
from the base amount, begin to compensate a city under the provisions of HB
1777.
SWBT suggested clarifying proposed subsection (d) (renumbered as subsection
(g)) to state that a municipality may file a petition subject to commission
procedural rules and to update its year 2000 rates only on two bases: calculation
errors or changes attributable to year 2000 fee rate escalation provisions.
SWBT commented that any updates to municipality filings should be subject
to commission approval, therefore recognizing a CTP's right to contest adjustments
claimed by cities.
MCIWorldCom observed that although the proposed rule allowed true-up provisions
for municipalities' base amounts and allocation, respectively, no true-up
was available for CTPs' line counts. At the public hearing, MCIWorldCom identified
problems in timely providing accurate initial access line counts, in part
due to difficulties in allocating access line counts between a core city and
suburbs. MCIWorldCom requested some time to be able to fix any errors in the
count in the initial report. AT&T also pointed out that nothing in the
proposed rule allows CTPs to fix their access line count. Similarly, SWBT
proposed language to afford CTPs a one-time opportunity to correct calculation
errors. MCIWorldCom proposed a true-up period for CTPs to run from January
25, 2000, through February 24, 2000, for CTPs to revise their access line
numbers in extraordinary circumstances such as inadvertent errors and math
mistakes.
Commission response
The commission declines to adopt City Coalition's recommendation to retroactively
increase the base amount when facilities owners that are presently non-CTPs
obtain certification from the commission and begin to compensate a municipality
in the future pursuant to HB 1777. The commission finds that there is no basis
under HB 1777 for such an adjustment. The formula for calculating base amount
under HB 1777 is clearly outlined. HB 1777 defines base amount to include
compensation from providers who were CTPs in 1998. Accordingly, compensation
from non-CTPs is outside HB 1777. Should a non-CTP obtain certification to
provide local exchange service, any access lines of the newly certificated
CTP will be considered new lines and will be compensated at the commission-established
rates as would any new line not previously reported under HB 1777. Therefore,
making retroactive adjustments to the base amount to capture compensation
from non-CTPs who become CTPs at a later date would be inconsistent with the
statute's definition of base amount.
As explained previously, the commission does not agree that HB 1777 allows
the inclusion of fee rate escalation provisions beyond the establishment of
the commission's rates on March 1, 2000. Accordingly, the commission declines
to add language providing an annual opportunity for municipalities to revise
the base amount to include amounts determined under franchise agreement or
ordinance fee rate escalation provisions. The commission has added language
to new subsection (g) to accommodate fee rate escalations for the period between
January 1, 2000 to March 1, 2000. The commission's allowance of the one-time
base amount update in proposed subsection (d) was solely designed to compensate
for errors or omissions attributable to the rapid transition to the HB 1777
process. However, affording municipalities a one-time chance to ensure that
their 1998 figures are accurate should not be seen as the basis for allowing
perpetual revisions. In particular, the commission finds no support in HB
1777 for the proposition that the base amount should be annually adjusted
upward as contracts that were not terminated under HB 1777 begin to expire.
Therefore, the commission declines to amend the rule to allow annual revisions
to the base amount.
In response to SWBT's suggestion that municipal petitions are subject to
notice and other applicable commission procedural rules, the commission generally
agrees that requiring municipalities to provide notice to affected CTPs is
appropriate and has added clarifying language in new subsection (g).
The commission disagrees with SWBT that the base amount should be updated
only due to calculation errors or fee rate escalation provisions. The commission
believes that base amount should also be updated if a municipality receives
delayed payments for 1998 use of rights-of-way from certificated telecommunication
providers. This allowance is consistent with the commission rules for calculating
base amount established under §26.463 of this title (relating to Calculating
and Reporting of a Municipality's Base Amount). The commission will continue
to exercise appropriate oversight in reviewing municipal base amounts and
will crosscheck municipal figures against CTP filings.
The commission agrees with MCIWorldCom and SWBT that CTPs should be afforded
the opportunity to correct errors in reported access line counts. The commission
acknowledges the difficulties inherent in developing a retrospective access
line count that takes into consideration a new definition of access lines,
the creation of three categories of access lines, and the requirement to report
on a city-by-city basis. Nonetheless, access line counts are the cornerstone
of the fee-per-line system established under HB 1777 and must be accurate
to ensure the success of the entire uniform method of compensating municipalities
for the use of a public right-of-way by CTPs. Moreover, as the establishment
of rates is dependent upon precise access line counts, by category, for 1998,
the commission supports allowing CTPs the opportunity to correct errors in
reported access line counts, under certain circumstances. Given the importance
of this baseline information, corrections must be made in a timely and efficient
manner, to ensure that revised access line counts can then be translated into
revised rates. The commission notes that the timely filing of corrected access
line counts is particularly important given that cities will be filing their
base amount and allocation revisions between March 1 and March 31, 2000. Accordingly,
to allow time to process revised access line counts the commission has imposed
a deadline of March 15, 2000 for CTPs to file revised access line counts.
The commission has added language to this effect under new subsection (g)(2).
The commission intends the March 15, 2000 deadline to act as a final time
limit, not a one-time opportunity. After the required filing of the access
line count on January 24, 2000, should a CTP discover errors, that CTP should
immediately update its access line count and file it with the commission.
As the commission works to meet its March 1, 2000 deadline for developing
rates for each municipality in Texas, it will endeavor to incorporate any
updated information received by February 20, 2000. Therefore, in essence,
the commission is allowing an extensive true-up period, as suggested by MCIWorldCom.
Subsection (d)(1)
Proposed subsection (d)(1) (renumbered as subsections (g)(1) and (g)(1)(A))
allowed a municipality, on or before April 1, 2000, to petition the commission
to update its base amount with appropriate justification for the update.
SWBT argued that municipalities should not be permitted to "update" their
year 2000 rates based on 1998 fees they either chose not to collect, or failed
to collect until the year 2000. SWBT contended that there is no sound policy
reason or statutory authorization to support allowing municipalities who did
not collect fees from all CTPs within their boundaries in 1998 now, to adjust
their rates in 2000. SWBT asserted that cities knew or should have known who
was operating within their 1998 jurisdictions by construction permits applied
for or sales tax paid.
Commission response
The commission disagrees with SWBT's contention that there is no sound
policy reason to support allowing municipalities to adjust rates based on
the failure to collect rates in 1998. Because the legislature chose to base
future rates upon the base year of 1998, it is critical that the base year
fully reflects a city's revenues. That is not to say, however, that the commission
has set limitless opportunities for municipalities to begin collecting long
overdue fees. While the commission believes it appropriate public policy to
allow time for legal actions to run their course and to result in judgments
or settlements, the commission does not agree that this process should be
uncontrolled. The commission has allowed this one-time opportunity to cities
that have worked to address issues of outstanding payments in a prompt manner.
As to future recovery of unpaid franchise fees, municipalities will continue
to be able to pursue their legal rights in court. It is essential that issues
from the past achieve closure to allow implementation of the new fee-per-line
system in an administratively feasible manner.
Subsections (d)(2), (d)(3) and (d)(4)
Proposed subsection (d)(2) (renumbered as subsection (g)(1)(B)) allowed
a municipality that has filed its own allocation formula before December 1,
1999, to petition the commission and file an updated allocation formula before
April 1, 2000. Proposed subsection (d)(3) (renumbered as subsection (g)) mandated
that the commission use the new base amount and allocation formula filed pursuant
to proposed subsection (d)(1) and (d)(2) to establish updated access line
rates for a municipality. Proposed subsection (d)(4) (combined into renumbered
subsection (g)(3)) stated that a municipality wishing to choose lower access
line rates than its initial or updated rates must notify the commission and
all CTPs in that municipality of the lower rate(s) it chooses no later than
April 1, 2000.
Garland/San Angelo generally agreed that all municipalities should have
an opportunity under proposed subsection (d)(2) (renumbered as subsection
(g)(1)(B)) to adjust the allocation formula during the first year of application
of the access line fees in order to revise any unintended consequences of
the chosen allocation methodology. Garland/San Angelo pointed out that, after
the commission establishes fees per access line using a city's allocation
methodology, and the rates are not as intended, misunderstandings or errors
may become apparent to municipalities. However, Garland/San Angelo noted that
if the commission notifies municipalities of the rates per access line by
March 1, 2000 the municipalities will need sufficient time to review and assess
whether the fees actually turned out as intended and, if not, will need additional
time to revise the allocation. Accordingly, to allow sufficient time for municipal
governing bodies to act upon re-allocation, Garland/San Angelo proposed changing
the deadline for petitioning the commission for changes to the allocation
formula from April 1, 2000 to at least May 1, 2000. Garland/San Angelo reiterated
the need for more time for municipalities to determine whether to choose lower
access line rates than initial rates under proposed subsection (d)(4) (combined
into renumbered subsection (g)(3)). At the public hearing, Irving emphasized
the constraints upon municipal decision-making imposed under the Open Meeting
Act. Irving asked that the commission not shorten the 30-day period currently
allotted to cities. TML pointed out that getting the word out to cities would
be difficult enough in 30 days.
SWBT recommended amending proposed subsection (d)(2) (renumbered as subsection
(g)(1)(B)) to require municipalities to notify all affected CTPs of their
revised allocation formulas and to not permit cities to change their formula
more than once every 24 months. Also, SWBT suggested amending proposed subsection
(d)(3) (renumbered as subsection (g)) to make clear that any "updates" to
municipality filings are not automatic, but instead are subject to commission
approval, thereby recognizing CTPs' right to contest changes to allocations
and other claimed adjustments. Furthermore, SWBT proposed detailed rule language
for contesting the filings of municipalities or CTPs. GTESW raised the same
issue at the public hearing.
As to contesting municipal allocations, at the public hearing, industry
parties agreed that it would be fair to presume that CTPs will contest allocations
that result in rates greater than the price of the service. However, parties
could not unequivocally state that lower ratios between rates and prices would
be unobjectionable. OAG contended that reasonable municipal fees, as established
in rates, should be less than half the price of the service. Municipal parties
indicated agreement with the bright-line test for contesting allocations,
pointing out that cities have actively sought to avoid creating rates that
approach the value of the service; municipal parties asserted that any such
occurrence in the past was accidental and remedied soon after it occurred.
TML did point out, however, that there could be unique circumstances, particularly
where a point-to-point service has a very low price that should not jeopardize
the entire allocation. TML, City Coalition and City of Houston opined that
it would be rare for an access line rate to be set higher than the price of
the service and would probably be a mistake that could be easily fixed.
At the public hearing, SWBT explained that it could not accommodate conversion
to new rates on a city-by-city basis; if the rates of one city change, it
jeopardizes SWBT's ability to implement those rates for every city in Texas
because SWBT has a single billing system, not a billing system for each city.
AT&T and GTESW shared these concerns. SWBT observed that its implementation
must take place by June 1, 2000 regardless of whether a city changes rates
after March or April. Because SWBT produces releases to its billing systems
every three months, September would be the next window for SWBT to make changes
to its billing systems.
AT&T suggested that the commission consider allowing a CTP to request
a good-cause exemption from the 90-day implementation deadline due to adjustments
to a few cities' rates delaying implementation of the entire billing system.
TML responded that cities would be unlikely to object to such an exemption
so long as the CTP continued paying under the preexisting franchise agreement
or ordinance until the new rates go into effect. When asked by staff whether
cities would forego any right to true-up between expected payments under HB
1777 and continuing payments under a franchise agreement for the period of
time associated with a delay in the CTP's implementation of revised rates,
TML indicated its goal was to be accommodating. To that end, TML observed
that HB 1777 was not intended to create windfalls for cities.
Additionally, GTESW proposed incorporating language to ensure that CTPs
have up to 90 days to implement any rate changes from the commission, as well
as to clarify that CTPs shall continue to compensate a municipality at current
rates until updated rates are implemented by the CTPs. At the public hearing,
GTESW also asked about the commission's turnaround time to develop updated
rates based upon adjustments made by cities.
Commission response
The commission cannot accommodate the time extension requested by Garland/San
Angelo. The commission will endeavor to provide municipalities with commission-established
rates on or before March 1, 2000. To provide municipalities maximum flexibility
to review the results of their allocation choices, the commission has already
afforded cities 30 days. The commission must also afford its staff sufficient
time to implement any adjustments made by cities. Accordingly, the commission
declines to allocate additional time for purposes of municipal decision-making.
The commission acknowledges that Local Government Code §283.055(d)
explicitly affords CTPs the right to complain about a municipality's allocation
on the basis that the allocation is not just and reasonable, is not competitively
neutral, or is discriminatory. The commission agrees with SWBT that updates
to municipal filings are subject to commission approval and that revisions
to allocation formulas must be just and reasonable, non-discriminatory and
competitively neutral. As requested by GTESW and SWBT, the commission has
added language in new subsection (i) to outline the process for resolution
of municipal allocation matters.
Furthermore, although parties could not unequivocally state that lower
ratios between rates and prices would be unobjectionable, all parties agreed
that, where the access line fee, by category, is greater than or equal to
the market price of a service, CTPs would contest allocation decisions. Given
that allocation must be just and reasonable, competitively neutral and non-discriminatory,
the commission found it appropriate to create a presumption to that effect.
The commission has added new subsection (i)(3) to establish that where market
price of a service is equal to or less than the access line rate for that
category, as developed using a municipal allocation formula, that formula
shall be presumed to be discriminatory, not just and reasonable and not competitively
neutral.
In new subsection (k), the commission has significantly clarified the process
by which CTPs must implement rate changes. Under HB 1777, CTPs are allowed,
to the extent required, 90 days after the date the commission establishes
rates on March 1, 2000 to implement the commission-established access line
rates. The commission notes that HB 1777 contemplates that some CTPs will
be able to implement the rates sooner but that, to the extent a CTP requires
the full 90 days, they are afforded the time needed to do so. The commission
strongly urges CTPs that are able to implement commission-established rates
in less than 90 days to begin doing so. To that end, the commission has included
language in new subsection (k)(1) to make this responsibility unambiguous.
However, the commission has taken into consideration the fact that affording
municipalities a 30-day window from March 1, 2000 to March 31, 2000 in which
to update rates and allocation formulas will require the commission to establish
new rates. The institution of updated rates will require additional changes
to billing systems. To minimize the disruption to CTPs' billing systems and
to avoid unnecessarily confusing customers' bills, the commission has allowed
CTPs flexibility to make necessary changes within 90 days of the effective
dates of any updated or revised rates under new subsection (k)(2)(A). The
commission notes, however, that the adjustment to the 90-day statutory deadline
is limited to situations where a CTP must implement updated or revised rates.
In new subsections (k)(2) and (k)(3), the commission has added language
to clarify under which rates a CTP must compensate a municipality in circumstances
where the commission-established rates of March 1, 2000 are in effect, or
those rates are updated and/or revised, respectively. The commission agrees
with TML that HB 1777 was not designed to create windfalls for municipalities.
The commission observes that, once municipalities are afforded an extra opportunity
to adjust their base amount filings and/or allocation formulas, CTPs must
still be assured of the time required to properly implement the resulting
rates. Accordingly, a CTP is to pay a municipality at the rates under the
franchise agreement or ordinance until such time as the CTP timely implements
the commission-established rates and such rates are not subject to true-up.
Subsection (e)
Proposed subsection (e) (remains as subsection (e)) required that the commission
develop a default allocation formula for each municipality such that the rates
for each category of access line in that municipality would be the same, essentially
a 1:1:1 ratio.
TCCFUI, Garland/San Angelo, City Coalition, and OPC requested that the
commission change the proposed default allocation, arguing that a ratio of
1:1:1 will tend to result in shifting the burden of paying municipal fees
to residential customers. Irving argued that a 1:1:1 ratio is punitive upon
cities. Garland/San Angelo noted that, regardless of how franchise fees were
calculated in the past, in most every municipality the residential customers
have paid a smaller amount of the franchise fee than have commercial customers;
compressing all three categories into one will result in imposing a fee increase
on residential customers and a fee decrease on commercial customers, something
that municipalities and CTPs have managed to avoid for many years.
Garland/San Angelo urged the commission to establish a rational, fair and
meaningful default allocation, claiming that a ratio of 1:1:1 is not meaningful.
City Coalition described it as a "non-allocation." Garland/San Angelo contended
that having flat rates for each category of lines would not be a meaningful
substitute for allocation. Garland/San Angelo contended that it is not the
"fault" of the cities that there are various methods to access franchise fees--this
was at the urging of incumbent local exchange companies (ILECs).
TML, as endorsed by City Coalition, argued that the proposed default allocation
provision is inappropriate because: (1) it would punish, rather than assist,
those cities, often smaller cities with few resources, who relied on assistance
from the commission to establish an allocation in which the city could have
confidence; (2) it would unnecessarily create more work for the commission;
and (3) it is inconsistent with HB 1777 and prior law. At the public hearing,
OPC also argued that this was a departure from historical practice, which
has never been 1:1:1. At the public hearing, TML pointed out that the three
categories of access lines are based on the concept of categories with different
values.
OPC suggested using a statewide average default allocation. EL Paso expanded
on this point at the public hearing, suggesting that the default allocation
should be changed annually to reflect any changes in the ratios between statewide
average rates for each category. On a slightly different note, Houston suggested
that a more equitable approach be applied to the default allocation formula
to mirror the most prevalent reported allocation formula for the county in
which the municipality is located.
TCCFUI maintained that the default allocation method should preserve existing
ratios among access line categories. TCCFUI argued that the most practical
method would be to have the default allocation formula reflect the ratio between
the statewide average rates for the three access line categories. TCCFUI proposed
language suggesting that, since the commission will have calculated the statewide
average rate for each category, it would be easy to calculate the ratio between
the three categories. City Coalition asserted that the ratio for the default
allocation would not be arbitrary if the commission looks to historical ratios
between the access line categories.
Generally, the historical ratio between the basic residential rate, the
non-residential rate and the private line rate has been around 1:3:5 or 1:3:6,
according to City Coalition's comments at the public hearing. Garland/San
Angelo suggested a default allocation of 1:2.5 and 1:2.6 respectively for
categories 1 and 2, which they put forth as the existing ratio for SWBT's
and GTESW's tariffed rates for average residential and commercial service.
Garland/San Angelo noted that these ratios reflect the practical application
of the pass-through, at least for these two providers, the largest providers
in the state, and, thus, they believe use of these ratios would result in
an allocation that more closely reflects the status quo in most cities. At
the public hearing, SWBT disagreed that a default allocation of 1:2.5:6 is
the norm. SWBT believed that the norm, as such, is indeterminable and varies
considerably across the state. GTESW also raised questions about how a norm
could be determined. SWBT supported the proposed 1:1:1 default allocation.
TML asserted that an allocation in the range of 1:2.5:6 reflects existing
ratios, but claimed that cities would be satisfied with a default allocation
ratio that set the residential rate as 1, the non-residential rate between
2 and 3, and the point-to-point rate from 3 to 12. Alternatively, TML and
City Coalition suggested that, rather than declaring an actual allocation
in the rule, the rule could provide that the default allocation will be the
average, or norm, of all the allocations selected by the cities, as determined
by the commission.
TML acknowledged that under the proposed rules a city that did not set
its own allocation by December 1, 1999, would be allowed to request a modification
of the commission's default allocation not more than once every 24 months,
thereby allowing a city dissatisfied with the 1:1:1 default allocation to
change it. But TML observed that a 1:1:1 ratio would result in more work for
both commission and municipal staffs, as municipalities would be forced to
return in September to request a reallocation. TML also noted that a few cities
would want a 1:1:1 ratio. Despite the opportunity afforded cities to bypass
the default allocation and develop their own allocation, TML emphatically
urged the commission to replace the current proposal for equal rates with
one that is more representative of the allocations selected by most cities.
Describing the multitude of questions received in workshops and in telephone
inquiries, TML described allocation as the most difficult concept for city
personnel to grasp, particularly in small cities. According to TML, city personnel
gratefully and enthusiastically endorsed allowing the commission staff to
establish the allocation. TML expressed concerns that cities' reliance on
advice from TML and the commission about allocation will make the cities feel
misled, having learned that (1) their rates for future growth are lower than
those of other cities; (2) neither TML nor commission staff provided them
the help they anticipated; and (3) in order to resolve the problem they must
now go through another seemingly complex, possibly expensive procedure before
the commission.
TML asserted that there is no rational basis for the proposed default allocation
of equal rates for each category. At the public hearing, TML and City Coalition
added that no distinction between urban and rural ratios should be made, as
issues in both communities are similar. Garland/San Angelo recommended that
a default rate be used only in a municipality that has used a percentage allocation,
instead of a ratio. TML stressed that the default allocation must be expressed
as a ratio, instead of a percentage to avoid cities' losing revenue by inadvertently
allocating to a category that had no lines in 1998.
At the public hearing, TML, TEXALTEL, and AT&T argued against staff's
proposal to leave the 1:1:1 ratio in place for now and revisit it at a later
date. These parties did not believe revisiting the 1:1:1 default allocation
later would solve the current problem.
TML also asserted that an equal line rate default is inappropriate because
the purpose behind allowing different categories of lines in HB 1777 was to
maintain and carry forward the longstanding statewide tradition of basing
franchise compensation on value. Citing numerous examples, TML asserted that
collection of the value of the use of public property is the normal rule in
Texas. TML explained that the overall policy is that public land or property
is not to be used, leased, rented, sold or otherwise disposed of for less
than its value. TML continued that, if a default allocation were adopted that
does not recognize different values according to the type of line and is equal
for all categories, it would represent a significant departure from legal
precedent and municipal practice.
At the public hearing, AT&T expressed support for a 1:1:1 ratio based
on the fact that an allocation is a political decision, not a decision that
reflects any incremental burden on the right-of-way of one class of access
lines versus another one. GTESW echoed AT&T's sentiment that allocation
is a political decision best left up to the cities.
At the public hearing, El Paso expressed the view that it expected the
default allocation to be revised annually, just as the statewide average rate
would change.
Commission response
After considering municipalities' unanimous requests for the commission
to change its default allocation, the commission has revised proposed subsection
(e) to set a default allocation of 1:2.3:3.5. The commission has also added
language to clarify how the commission established the default allocation
and that the commission will establish access line rates for municipalities
using the default allocation unless a municipality has filed its own allocation
or updates its own allocation pursuant to new subsection (g)(1)(B).
The commission believes that municipal representatives' suggestions to
generally preserve existing ratios in the default allocation ratio by using
municipal filings has merit. At the time the commission developed its proposed
default allocation, municipal filings had not been processed. Therefore, no
information was available as to a statewide average allocation. However, at
this time, the commission has processed and applied municipal filings under
HB 1777, thereby allowing the commission to calculate an average allocation.
The commission notes that the commission's new default allocation is an average
of filed allocation ratios, not a ratio of the statewide average rates for
each category. Also, rather than merely propose a methodology by rule, as
was suggested by some commenters, the commission believes it more appropriate
and timely to put all affected parties on notice of the specific default allocation.
Moreover, when the commission averaged municipalities' allocations, the ratio
of 1:2.3:3.5 fell squarely within the range of existing ratios preferred by
municipal representatives. Therefore, the commission believes that this revised
default allocation preserves existing ratios in a fair manner.
The commission recognizes the importance of the default allocation to the
HB 1777 process. Many of the municipalities that have chosen the default allocation
are rural, or may lack resources to expend researching allocation issues.
Should the proposed 1:1:1 default allocation result in a redistribution of
franchise fees, with residential customers experiencing an increase and business
customers enjoying a decrease, as argued by TML, TCCFUI and City Coalition,
municipalities would be forced to seek a reallocation. As noted by TML, the
very cities that most often chose the default allocation are the cities with,
arguably, the least resources. Therefore, the commission finds it probable
that these municipalities would also be the least likely to pursue reallocation.
Thus, customers in rural or small municipalities could be disproportionately
affected by a flawed default allocation, because it would remain in effect
longer, given municipalities' limited resources to seek reallocation. The
commission believes that a revised default allocation of 1:2.3:3.5 is more
likely to provide a long-term solution, thereby preserving resources for all
parties to HB 1777--CTPs, municipalities and the commission.
Subsection (f)
Proposed subsection (f)(1) (renumbered as subsection (h)(1)) allowed a
municipality wishing to change its rates within the maximum established rates
to do so by notifying the commission and all CTPs with access lines in that
municipality during September of the year of their desire to revise the access
line rate. Proposed subsection (f)(2) (renumbered as subsection (h)(2)) provided
two options for revising allocation formulas--once every 12 months for municipalities
that filed their own allocation formulas on December 1, 1999, and once every
24 months for municipalities that used the commission default allocation rather
than developing their own.
TCCFUI supported the provisions allowing cities to revise access line rates.
Houston proposed adding language to proposed subsection (f) (renumbered as
subsection (h)) to make clear that allowable municipal adjustments include
the addition of compensation under fee rate escalation provisions. Garland/San
Angelo asserted that this subsection seemed fair but that there should not
be any onerous conditions placed upon any filing of a reallocation. Garland/San
Angelo suggested clarifying improvements to proposed subsection (f) (renumbered
as subsection (h)).
MCIWorldCom observed that proposed subsection (f)(2)(A) (deleted) would
allow a municipality to revise its allocation formula every 12 months in September
but set no parameters on the allocation formula itself. MCIWorldCom queried
whether an allocation of 100% to the non-residential class of customers would
be acceptable to the commission. City Coalition complemented the commission
for the flexibility afforded to cities for annual revisions, stating that
the process outlined by the commission would lower consumer rates, and would
allow municipalities to modify allocation formulas. City Coalition urged the
commission to make minor changes to the subsection by allowing cities to revise
their allocations "before" September 30 of each year as opposed to "during"
September of each year.
GTESW recommended that the provision that would allow revision of municipalities
allocation formula once every 12 months be deleted, arguing that the legislature
did not intend to allow municipalities to make frequent adjustments to their
allocation factors. GTESW emphasized that one of the stated purposes of HB
1777 was to provide an administratively simple method of compensation for
municipalities and CTPs. GTESW argued that the language in Local Government
Code §283.055(d), mandates that allocations be changed no more than once
every 24 months. Echoing GTESW's comments, SWBT proposed deleting the word
"annual" to be consistent with SWBT's other suggestion for proposed subsection
(d) (renumbered as subsection (g)) that a municipality be allowed to revise
its allocation formula no more often than once every 24 months. Again, for
consistency with its suggestion in proposed subsection (d) (renumbered as
subsection (g)), SWBT recommended amending proposed subsections (f)(1) and
(f)(2) (renumbered as subsections (h)(1) and (h)(2), respectively) to require
notice of the revisions so that CTPs may be afforded the opportunity to contest
allocations. GTESW also observed that, although the statute allows CTPs the
right to question allocation factors, the commission has not built any time
into the proposed rules for CTPs to do so.
Commission response
The commission declines Houston's suggestion that fee rate escalation language
be added to this subsection, as discussed previously. The commission agrees
with Garland/San Angelo that a municipality that petitions for a change to
its allocation must also provide the commission with the appropriate allocation
formula. Proposed subsection (f)(2) (renumbered as subsection (h)(2)) has
been revised accordingly. The commission also agrees with City Coalition's
observations about the timing of city's filings, and will make minor revisions
to proposed subsection (f) (renumbered as subsection (h)). Further, the commission
concurs with the concerns raised by MCIWorldCom on questionable allocations.
However, the commission does not believe that it should set any parameters
on allocation, as none are present in the Local Government Code. In response
to GTE and SWBT's comments, the commission notes that the Local Government
Code §283.055(d) gives CTPs the option to question a municipality's allocation.
On complaint from an affected CTP, the commission will evaluate whether the
municipality's allocation results in access line rates that are competitively
neutral and nondiscriminatory. In its evaluation, the commission will take
into consideration factors including, but not limited to, the difference between
the price of the service and the access line rate, and the number of lines
in particular category. Further, the commission has added new subsection (i)
to allow for complaints by CTPs regarding a municipality's initial or revised
allocation.
Although the commission initially proposed allowing municipalities the
opportunity to revise their own allocation formula annually, the commission
has reconsidered this position. The commission agrees with GTESW and SWBT
regarding the myriad difficulties associated with allowing annual revisions
of allocation formulas. Local Government Code, Chapter 283, gives municipalities
the option to change their allocation from the default allocation formula
once every 24 months. However, HB 1777 is silent regarding whether a municipality
can change its own allocation formula and if so, how often. The commission
still supports allowing municipalities an additional 30 days to reevaluate
their allocation and base amount choices in order to minimize unintended consequences
to customers, particularly because industry supported the long-term benefits
of such a choice. The commission believes that the 30-day period between March
1, 2000 and March 31, 2000 will afford municipalities sufficient flexibility
to address inequities in rates resulting from flawed allocation decisions.
However, after evaluating the administrative difficulties associated with
an annual revision of allocation formulas and the accompanying revisions to
rates and billing systems, the commission believes that the most reasonable
and administratively simple approach is to limit revisions to allocation formulas
and therefore, to access line rates. More importantly, consideration must
be given to the effect upon customers in this entire process. Constant changes
to municipal fees on customers' bills will add unnecessary confusion to the
already complicated customer bill. Therefore, the commission has deleted proposed
subsection (f)(2)(A), and revises its original language in proposed subsection
(f)(2)(B) (renumbered as subsection (h)(2)) to allow all municipalities to
make changes to their allocation formula only once every 24 months. The commission
clarifies that this does not include the changes a municipality can make to
its allocation formula before March 31, 2000.
Subsection (g)
Proposed subsection (g) (renumbered as subsection (k)), paragraph (1) stated
that a CTP should report access line counts, by category, for each municipality,
to the commission on a quarterly basis.
AT&T observed that the proposed rule is silent as to the ability of
affiliated CTPs to provide a single access line report rather than multiple
reports. In order to promote administrative efficiency, AT&T recommended
that this subsection be clarified to explicitly allow a CTP to report its
own access lines and its affiliates' access lines in an aggregated filing.
AT&T anticipated such an arrangement would lead to consolidated payments
to municipalities, as well. AT&T suggested adding language to the proposed
subsection to expressly allow such filings. AT&T's language also established
that a disaggregated line count for each CTP must be made available on request
of the commission or a municipality.
SWBT proposed deleting proposed subsection (g) (renumbered as subsection
(k)) altogether as duplicative of already adopted §26.465(g)(2)(B). At
the public hearing, AT&T stated their understanding that, 45 days after
the end of the quarter, the access line count filing would be due simultaneously
with the payment to the municipalities. AT&T saw no physical way to report
access line counts on the very data that they are supposed to be capturing
in the last month of reported data. SWBT responded that because the reporting
period covers April, May and June, with the quarterly report due to the commission
on June 30, the proposed timeframe would be impossible. SWBT observed that
it will not even have those access line counts on June 30 to report, so it
has no way to accommodate the commission's proposed schedule.
Garland/San Angelo commented that proposed subsection (g)(1) (renumbered
as subsection (k)) was not sufficiently detailed and would not require the
type of quarterly report mandated under Local Government Code §283.055(j).
Garland/San Angelo recommended that proposed subsection (g)(1) (renumbered
as subsection (k)) be revised to include these statutory requirements.
Commission response
The commission agrees with AT&T that a CTP should be able to file aggregated
reports on behalf of its affiliates and has added new subsections (l)(5) and
(l)(6). The commission has no objection to a CTP's filing reports on behalf
of its affiliates so long as, upon request by either the commission or an
affected municipality, those reports can clearly identify the lines belonging
to each affiliate, by category, by municipality. This would be consistent
with the "arm's length" requirements of Federal Communications Commission
(FCC) rules on affiliate transactions. The purpose of the quarterly reporting
is to ensure that a municipality in which a CTP is operating is adequately
compensated under the Local Government Code, Chapter 283. If an affiliate
operates in a municipality, the burden of paying franchise fees pursuant to
the Local Government Code, Chapter 283, rests on the affiliate and not the
parent company. By separately identifying the access lines belonging to the
affiliate, by category, each municipality can discern the financial obligations
of the affiliate vis-á-vis the underlying parent company.
The commission disagrees with SWBT that proposed subsection (g) (renumbered
as subsection (k)) duplicates adopted §26.465(g)(2)(B) relating to Methodology
for Counting Access Lines and Reporting Requirements for Certificated Telecommunications
Providers. Moreover, the commission has made significant revisions to the
language regarding subsequent reporting under new subsection (k). The commission
believes its revised language addresses the timing concerns raised by AT&T
and SWBT, and the need for more specificity brought up by Garland/San Angelo.
Subsection (g)(2)
Proposed subsection (g)(2) (renumbered as subsection (m)(3)) stated that
beginning in the year 2001, CTPs must report annually to the commission the
amounts collected in municipal franchise fees from ratepayers and the total
franchise fees paid to municipalities. This report shall be filed with the
commission no later than January 31 for municipal franchise fees remitted
and collected for the preceding year.
AT&T suggested that this proposed subsection be stricken. AT&T
commented that the proposed subsection would require CTPs to implement entirely
new billing and collection protocols to track the customers billed a municipal
fee and allocate bill payments in order to determine when the fee has been
paid. AT&T observed that there are presently a number of fees and assessments
that CTPs must pay which are not subject to this type of requirement, such
as the Universal Service Fund (USF) assessment, the Telecommunications Infrastructure
Fund (TIF) assessment and the 911 service fee. Moreover, AT&T argued that
it is unclear how a CTP would comply with this requirement if the CTP does
not bill these fees as a line item on customers' bills or in instances where
the CTP does not bill this fee to a customer but is required to pay the fee
to the municipality. AT&T claimed that the reporting period fails to recognize
that the collection and payment period may not yet have concluded prior to
the due date of the proposed report. AT&T asserted that this requirement
would be inconsistent with the goal of administrative simplicity.
SWBT and GTESW explained that reporting payments to municipalities and
amounts collected from ratepayers on a company basis would be very easy, but
to break that information down to a city-by-city basis would take much longer.
SWBT suggested that extending the deadline to March 1, 2000 (two weeks after
payment is made) would accommodate the time needed to break down information
on a municipality-by-municipality basis. SWBT and GTESW explained that the
administrative resources necessary to generate a summary spreadsheet report
would take some time.
GTESW also stated that it sees as a potential difficulty the fact that
GTESW captures how much they have collected by city and by category, in a
given month, but it cannot capture those lines where no payment has been made.
GTESW explained that although GTESW tracks uncollectibles on a city-by-city
basis, it could not match up uncollectible accounts with the access line categories.
AT&T shared these concerns and observed that simplified billing demands
create additional difficulties. AT&T added that allocating amounts recovered
to specific categories is complicated by competitive market issues, such as
bundling of services.
SWBT recommended amending proposed subsection (g)(2) (renumbered as subsection
(m)(3)) to require CTPs to file annual reports, by March 1, of all fees collected
and paid for the preceding year, instead of requiring filing on the proposed
January 31 filing date. SWBT asserted that the annual report should not be
due prior to the date quarterly payments are due.
Commission response
The commission has modified proposed subsection (g)(2) (renumbered as subsection
(m)(3)) to require CTPs to report only upon commission request the amounts
collected in municipal fees from ratepayers and the municipal fees paid to
municipalities.
Subsection (h)
Proposed subsection (h) (renumbered as subsection (l)) addressed franchise
fee compensation to a municipality pursuant to the Local Government Code,
Chapter 283. It explained that CTPs are to compensate municipalities based
upon a monthly access line count and attempted to track the language of HB
1777 regarding how resellers are not required to pay municipalities directly.
To that end, the proposed rule addressed issues of proof of payment to be
provided by reselling CTPs to underlying CTPs.
Garland/San Angelo and TML found the proposed language of subsection (h)(1)
(renumbered as subsection (l)(2)) ambiguous as to the relationship between
the quarterly payment and the monthly line count, and requested that this
rule be clarified to require CTPs to pay a quarterly amount calculated on
monthly access line counts. GTESW recommended that the last sentence of proposed
paragraph (1) (renumbered as subsection (l)(2)) be clarified to require the
CTP to multiply the rate by the number of access lines reported each month
to determine the total compensation to the municipality.
TML and City Coalition contended that the proposed rule fails to carry
out the legislative mandate of §283.006(c) of HB 1777 because nothing
in these sections affirmatively states that a reseller or rebundler CTP is
required to pay, either directly or through the underlying CTP, for those
resold or rebundled lines, and nothing clearly resolves the problem of a CTP
that provides more access lines than they purchase from the underlying provider.
To dispel any ambiguity, TML, City Coalition, El Paso, Houston and Garland/San
Angelo recommended that an affirmative statement be added that all CTPs, not
merely those that own facilities in the rights-of-way, are required to pay
fair and reasonable compensation on the basis of the number of access lines
over which they provide service. City Coalition suggested tracking the language
of Local Government Code §283.055(f), which requires all CTPs to report
their access lines and to pay on the access lines they report. TML and SWBT
proposed that the intent of HB 1777 would be accomplished by reflecting that
a CTP that leases or otherwise acquires lines from an underlying CTP has the
option of paying the city directly or through the underlying CTP. At the public
hearing, TEXALTEL reiterated its request that payment should be made as simple
as possible for resellers.
TML asserted that the proposed rule is ambiguous enough to allow a reseller
to argue that so long as it reports, it has fully complied, and then to attempt
to shift liability for further compliance to the underlying facility-owning
CTP. AT&T asserted that the proposed rule fails to address the situation
of a retail CTP that provides inadequate proof to the wholesale CTP, arguing
that a wholesale CTP should not be held liable for the action or inaction
of a retail CTP. SWBT proposed to make explicit the obligation of all CTPs
to pay, directly or indirectly and to clarify that the underlying CTP is not
liable for fees associated with access lines provided to another CTP's end-use
customers. SWBT contended that this would prevent the underlying CTP's customers
from bearing the burden of a defaulting reseller CTP, with the municipalities'
remedy being to pursue the defaulting CTP. GTESW observed that a notification
from the reselling CTP to the underlying CTP of direct payments to the municipality
would serve as a release of liability for the underlying CTP for future reporting
and remitting. City Coalition added that the liability for payment would rest
with the CTP serving the end use customers.
Addressing issues of proof under proposed subsection (h)(3) and (4) (renumbered
as (l)(4)), MCIWorldCom proposed that a written agreement between the reseller
and wholesaler specifying that the reseller will be remitting municipal fees
should be sufficient proof and should be sent with the first municipal payment,
thereby placing the burden to remit fees appropriately upon the reseller.
GTESW suggested that notification should be required no later than April 1,
2000 or within 60 days prior to the start of any subsequent calendar quarter.
GTESW added that such an agreement should be a notarized letter signed by
an officer of the reseller. Similarly, San Antonio suggested that the examples
of adequate proof under proposed subsection (h)(4) (deleted) should, at a
minimum, be defined as an agreement between the provider of the services and
the municipality, which will legally bind the provider to pay the fees to
the municipality.
MCIWorldCom observed that allowing only copies of municipal receipts or
copies of payments made is too limiting because of time delays in payments,
concerns about supplying detailed proprietary customer information to the
wholesaler CTP, and the need to match the reporting burden to the CTP with
the relationship to the end-use customer. Requiring copies of receipts and/or
payments made to cities "after the fact", or after billing is unfair and puts
the underlying CTP at a competitive disadvantage, claimed GTESW.
SWBT suggested that proposed subsection (h) (renumbered as subsection (l))
specify that the first payments are due by August 15, 2000, consistent with
the due date for the first reports for year 2000 access lines. SWBT also suggested
language to clarify that payments are to include fees for access lines as
of the date upon which the CTP implements commission-established rates, which
would also make clear that CTPs are afforded the full statutory 90-day period
within which to implement the rates.
SWBT recommended adding language to proposed subsection (h) (renumbered
as subsection (l)) to specify that one-tenth of the applicable category 2
fee should be paid for each station served in the case of central office-based
PBX-type services, as agreed to by the commission in the preamble to §26.465.
Additionally, SWBT suggested adding language requiring a municipality to designate
the name and address of the person to whom reports and payments are to be
sent. Further, SWBT provided a series of options for CTPs who elect to pay
indirectly, to take into account the difficulties of one CTP's administration
of another CTP's payments. To that end, SWBT suggested language permitting
the underlying CTP to charge an appropriate administrative fee for paying
on behalf of another CTP. SWBT argued that such recovery should include costs
and expenses, including loaded labor rates, for being required to participate
in a commission or municipality request, audit, or review of another CTP.
As part of its options, SWBT proposed using the commission as a clearinghouse
for payments to municipalities paid indirectly by UNE purchasers and non-CTP-facilities
lessees.
Garland/San Angelo proposed removing the terms "franchise" or "franchise
fees" since CTPs will no longer be collecting or remitting franchise fees
unless they have chosen not to terminate existing franchise agreements.
AT&T contended that the rule, as proposed, would be difficult to implement
because a wholesale CTP needs to know
before
the beginning of a reporting quarter whether the retail CTP will count its
access lines and pay the municipality directly in order to determine whether
the wholesale CTP must count and pay for the retail CTP. AT&T suggested
that the commission should allow a wholesale CTP to obtain this information
before a reporting period and rely on notification ("adequate proof") from
the retail CTP that the retail CTP will be responsible for submitting access
line counts and paying to municipalities the associated fees. AT&T suggested
language amending proposed subsection (h) (renumbered as subsection (l)).
In addition, AT&T believed that paragraphs (2) and (3) of proposed subsection
(h) (renumbered as subsections (l)(3) and (l)(4), respectively) should be
consolidated and revised to track the provisions of Local Government Code §283.055(i).
SWBT observed that nothing is in proposed subsection (h) (renumbered as
subsection (l)) that deals with a company who is leasing the facilities of
a cable company. TEXALTEL raised concerns that, if the wording of proposed
subsection (h) (renumbered as subsection (l)) resulted in a lower fee per
line paid by a CTP using the lines of a cable affiliate than the fee a CTP
would pay through its underlying provider, such a result would be untenable
and anticompetitive. AT&T reminded these speakers that any company providing
telephony service using capacity leased from a cable company would be a CTP
subject to the commission's jurisdiction.
At the public hearing, AT&T stated that the issue of payment by an
underlying carrier on behalf of a reseller is not just an ILEC situation;
an ILEC or a competitive local exchange company (CLEC) could be on the hook
for the reselling CTP's failure to pay the municipality. Also, AT&T and
CLEC Coalition emphasized that federal court decisions have been very clear
that resellers do not have to execute a franchise with a municipality or make
direct payments to the municipality. CLEC Coalition argued that a CTP that
resells lines, purchases UNEs from an ILEC, or leases capacity from a cable
company is not using the rights of way. Accordingly, CLEC Coalition described
this as an intercarrier compensation issue under private contracts, over which
the commission has no jurisdiction. El Paso disagreed, asserting that because
HB 1777 requires fees to be paid on all access lines, and all access lines
are used to establish rates, it would not make sense to carve out any access
lines from the HB 1777 framework. To do so would be unfair, not competitively
neutral and discriminatory, clearly against the intent of the law, asserted
El Paso.
At the public hearing, Dallas suggested adding rule language to allow cities
to distinguish between CTPs that have chosen to pay directly and those that
have chosen to pay indirectly through the underlying carrier. TEXALTEL asserted
that the affidavit provided by the reseller already addresses this problem.
Thus, if the reseller has not provided the affidavit to the underlying carrier
and the cities that it is going to pay its own fees, then the reseller has
chosen to pay through the underlying carrier. GTESW and SWBT responded that,
although they will be able to identify which resellers are paying municipalities
directly, they are unsure whether they can develop a listing of all the carriers
that have paid in a given month, particularly given the deadlines under HB
1777. SWBT added that it does not report fee collection on a reseller-by-reseller
basis, since resellers are treated as normal business customers. However,
SWBT clarified that UNE providers are handled under an entirely different
billing system than is a one-to-one reseller. Because UNEs are sold on a central
office/exchange basis and an exchange covers more than one city, SWBT stated
that its records cannot identify the city in which the UNE actually terminates.
Furthermore, SWBT indicated that it does not know either the category or the
numbers of access lines being provided under that UNE.
Garland/San Angelo pointed out at the public hearing that the commission
has the authority under Local Government Code §283.055(k), to ask for
additional information in the quarterly reports. Garland/San Angelo argued
that the city should be able to use the quarterly reports to determine whether
the city is receiving payment from a reseller by cross-checking direct payments
with payments from an ILEC like SWBT. Similarly, TEXALTEL added that because
HB 1777 applies to all CTPs, which are listed with the commission and which
must all file quarterly reports, a cross-check between these sources will
identify whether a non-filing or non-paying CTP is slipping through the cracks.
City Coalition mentioned that the commission would be in a position to identify
CTPs that fail to file. But SWBT argued that the identity of paying and non-paying
CTPs, as referenced in HB 1777, is not available, given the structure of SWBT's
billing system; SWBT added that the bill only requires this information "to
the extent possible." At the public hearing, AT&T observed that, if lines
are not reported in the first place, then they would not be identified in
the quarterly access line reports.
Commission response
The commission agrees with the majority of municipal commenters that proposed
subsection (h) (renumbered as subsection (l)) did not establish a clear relationship
between the quarterly payment and the quarterly access line count report.
As highlighted by the industry, the proposed subsection also failed to clearly
establish the responsibilities of an underlying CTP and a reselling CTP regarding
compensating municipalities pursuant to the Local Government Code, Chapter
283. Accordingly, proposed subsection (h) (renumbered as subsection (l)) has
been revised to require all CTPs to report access line counts to the commission
quarterly and to compensate municipalities consistent with the reports. As
to SWBT's suggestions that the rule require a municipality to designate the
name and address of the person to whom reports and payments are to be sent,
the commission notes that such designations are contained in the municipal
base amount filings. The commission will make such information available to
CTPs. Accordingly, the commission declines to add language to the rule.
The commission believes that this approach is consistent with the intent
of HB 1777. In particular, Local Government Code §283.055(f), mandates
that CTPs pay a quarterly amount calculated monthly based on the commission-established
access line rates and the reported access line counts. The language of HB
1777 in no way differentiates between types of CTPs in terms of their obligation
to report access line counts and to pay municipal compensation pursuant to
reported access line counts. Further, Local Government Code §283.006
(c), requires the commission to ensure that access lines fees are paid on
a competitively neutral and non-discriminatory basis by CTPs that provide
more access lines than they purchase from an underlying provider of resold
services or UNEs. During the public hearing, and throughout the numerous workshops
held in this project, ILECs have emphasized their inability to report on behalf
of a provider of UNEs. In order for a wholesale provider to report on behalf
of the reselling CTP, the wholesale, or underlying, provider would need to
have access to detailed customer information from the reselling CTP to be
able to report and compensate on behalf of a reselling CTP. In addition to
end-use customer information being critical to the HB 1777 framework, this
detailed customer information is also sensitive and proprietary business information.
The commission concludes that it is not feasible to require the underlying
CTP to have the sole responsibility for delivering this essential data. Given
the frequency of the access line count reporting, each CTP must bear the responsibility
to report and pay a municipality based on those quarterly reports. To this
end, the commission determines that CTPs shall exclude lines that are resold
or leased to another CTP from their reporting and compensation.
The commission recognizes that certain CTPs may be able to establish a
business relationship to sufficiently address any concerns regarding the sharing
of proprietary information such that reporting and compensation responsibilities
may be undertaken, by agreement, by the underlying CTP. Accordingly, the commission
revises proposed subsection (h) (renumbered as subsection (l)) to allow the
flexibility for a reselling CTP to report and compensate municipalities through
an underlying carrier so long as the reselling CTP and the underlying CTP
have reached an intercarrier agreement. This provision should address several
timing and notice concerns raised by AT&T, GTE, MCIWorldCom and SWBT.
It will be up to the two CTPs to develop a framework for reporting and compensating
municipalities. The commission refrains from including definitive language
on when and how a reselling CTP should report and compensate through the underlying
CTP as this issue would be best left to the parties to address. The commission
also notes that it has addressed SWBT's request to permit the underlying CTP
to charge an administrative fee in subsection (l)(8). The commission declines
to add the level of specificity requested by SWBT because these matters are
more appropriately addressed in agreements between CTPs.
The commission disagrees somewhat with the CLEC Coalition's position regarding
resellers' responsibilities under HB 1777. Local Government Code, §283.006(a),
states that a CTP that does not use a public right-of-way may not be required
to compensate a municipality directly. The commission notes, however, that
they must still compensate a municipality, and can, if they so choose, do
so directly. Clearly, HB 1777 does not exempt resellers from compensating
municipalities. While a reseller may not be required to enter into a franchise
agreement with a municipality as a result of federal court decisions, resellers
still have to compensate municipalities access line rates pursuant to the
Local Government Code, Chapter 283. To that end, the commission revises proposed
subsection (h) (renumbered as subsection (l)) to explain that certain CTPs
have the option of compensating municipalities indirectly.
The commission addresses SWBT's concerns regarding the first payment of
municipal fees pursuant to HB 1777 by articulating specific dates for reporting
and compensating municipalities, and allowing the full statutory period of
90 days for implementing initial rates under new subsection (k). Further,
the commission agrees with Garland/San Angelo that the terms "franchise" and
"franchise fees" are not appropriately used in the proposed rule and deletes
these terms.
The commission addresses Dallas's request in renumbered subsection (l)(6)
by requiring CTPs to identify to the commission those resellers with whom
they have intercarrier agreements to compensate municipalities and file quarterly
reports to the commission. The commission believes that requiring the underlying
provider to identify in the quarterly report which access lines belong to
a reselling CTP would be unduly burdensome. However, the commission has required
CTPs to provide line count information on a disaggregated basis, if requested
by the commission or an affected municipality, in renumbered subsection (l)(6).
The commission declines to add SWBT's language to specify that one-tenth
of the applicable category 2 fee should be paid on central-office based PBX-type
services. Because CTPs have exercised different options in the counting and
reporting of central office-based PBX-type services (pursuant to §26.465),
the commission believes that adding SWBT's proposed language could have unintended
consequences that contravene the requirements of HB 1777. The counting of
and compensation of central office-based PBX-type services must be consistent
and if the commission determines that the issue is unclear, the commission
may clarify this matter by amending §26.465.
The commission agrees with AT&T that any company providing telephony
service using capacity leased from a cable company would be a CTP subject
to the commission's jurisdiction. Subsections (k)(2)(C), (k)(3)(B) and (l)(1)
of this section reiterate the general obligation of all CTPs under Local Government
Code §283.055(f) to pay fees on all reported access lines. Therefore,
the commission declines to amend the rule to explicitly address the leasing
of cable facilities.
Subsection (i)
Proposed subsection (i) (renumbered as subsection (m)), relating to pass-through,
placed limits on how a CTP can recover its municipal franchise compensation
from its customers within the boundaries of a municipality. Specifically,
proposed subsection (i) (renumbered as subsection (m)) stated that a CTP shall
not recover a total amount greater than the sum of the amounts derived from
the multiplication of access line rates by the number of lines, per category,
for that municipality. This proposed subsection also established that, consistent
with Public Utility Regulatory Act (PURA) §54.206, pass-through of the
commission's rates established under the Local Government Code, Chapter 283,
shall be considered to be a pro rata charge to customers. Finally, proposed
subsection (i) (renumbered as subsection (m)) outlined procedures for recovering
uncollectible municipal franchise amounts.
TCCFUI, Garland/San Angelo and TML opposed proposed subsections (i)(1)-(3)
(renumbered as subsection (m)) that authorized CTPs to collect from all customers
within a municipality the amount of uncollected municipal fees within the
municipality. San Antonio, on the other hand, had no objection to an adjustment
of municipal fees for uncollected municipal fees. However, San Antonio pointed
out that such adjustments would be simpler if they were made in a manner consistent
with calendar year reporting. San Antonio suggested that such an adjustment
should be made in April of each year beginning in 2001 to be less disruptive
to customers.
TCCFUI argued that providing a mechanism for a CTP to recover uncollectible
municipal fees exceeds the commission's statutory authority under HB 1777;
the statute does not authorize recovery of uncollectible municipal fees. City
Coalition generally endorsed TCCFUI's arguments regarding recovery of uncollectible
fees. Similarly, TML pointed out that HB 1777 contains no language about uncollected
fees. TCCFUI explained that there is no definition of the term "uncollectible
fees" in the Local Government Code §283.002, and no allowance is made
for uncollectibles under the Local Government Code §283.055. TCCFUI contended
that the Local Government Code §283.055 specifically prescribes how municipal
fees are to be calculated and it includes no provision for recovery of uncollectible
fees. TCCFUI pointed out that HB 1777 states that access lines are the basis
on which fees to municipalities are to be paid; "access line fees" are the
rates set per line per category. TCCFUI asserted that additions to or modifications
of rates are governed by the statute and are set with regard to actual line
counts and escalator provisions; adjustments to those rates are also established
by statute but only for limited reasons. TCCFUI and TML asserted that the
mechanism to allow a CTP to recover uncollectible municipal fees, which are
an element of its cost of service, is, in reality, a ratemaking mechanism
beyond the scope of HB 1777 specifically, and beyond the Local Government
Code in general. TCCFUI and TML observed that HB 1777 did not confer any additional
general ratemaking jurisdiction on the commission. To the extent that a mechanism
allowing recovery of uncollectible fees does constitute general ratemaking,
TCCFUI observed that it violates the rate freeze under PURA §58.054 and §59.024.
TCCFUI asserted that recovery of uncollectible municipal fees is, in effect,
a prohibited increase in basic local service rates and would require a ratepayer
to pay more than his or her pro rata share of municipal fees.
TCCFUI noted that HB 1777 guarantees municipalities the opportunity to
recover in the initial year no less than was received in 1998. But money received
by cities in 1998 did not include revenue from uncollectible accounts; therefore,
to surcharge for uncollectibles would result in the CTP's collecting a greater
per line fee from paying customers. TML added that the pass-through is not
a part of the Local Government Code, Chapter 283; instead, it is authorized
in PURA and should not be included in this rule. TML and Garland/San Angelo
observed that CTPs' remedy for failure of a customer to pay a bill is well
established--termination of service for non-payment. To allow CTPs to adjust
access line rates instead of terminating service for non-payment would give
the industry an unfair advantage, claimed TML.
Garland/San Angelo argued that, because payments of access line fees to
municipalities under Chapter 283 are not based upon gross revenues or receipts,
the issue of bad debt should never arise. Garland/San Angelo opined that,
just as no customer should have the option of not paying only a portion of
its bill, such as the municipal fee, a CTP should never have the option of
not collecting that particular access line fee from the customer. With all
of the large number of itemized fees and taxes on telephone bills, Garland/San
Angelo observed that customers do not have the option of not paying certain
of those many fees. Garland/San Angelo asserted that there is no statutory
or rational basis, therefore, for singling out access line fees for different
treatment. Garland/San Angelo raised multiple concerns with the confusing
language in proposed subsections (i)(1)-(3) (renumbered as subsection (m)),
and suggested that the language could lead to unacceptable results. In particular,
Garland/San Angelo objected to shifting the burden of payment of the access
line fees from the CTP to the CTP's customers.
City Coalition recommended that proposed subsection (i) (renumbered as
subsection (m)) be struck, arguing that it does not implement HB 1777, but
that instead, PURA §54.206 does. SWBT proposed substantial revisions
to proposed subsection (i) (renumbered as subsection (m)) in order to prevent
a CTP from passing through amounts in excess of amounts paid to municipalities
without infringing on the right of pass-through.
OPC agreed with the provisions of proposed subsection (i) (renumbered as
subsection (m)). OPC's principal concern was ensuring that the proposed rule
complies with state law, results in recovery of municipal fee payments from
end-use customers that is consistent with municipal payments, and is competitively
neutral. OPC noted that the Local Government Code §283.051, closely linked
the commission-established per-line rate to be paid to a municipality with
the pass-through amount to be collected from each customer under PURA §54.206.
OPC contended, in fact, that the legislature decided to fix the amount of
the municipal fee authorized to be recovered as a line item pass-through under
PURA §54.206.
OPC noted that, more importantly, PURA §54.206 requires CTPs to collect
the pass-through only by means of a "pro rata charge to the customers." Therefore,
OPC summarized, under the commission's proposed rule the amount recovered
from each customer will be proportionately equivalent to the amount the CTP
pays the municipality through the per-line fee for that customer's access
line. OPC contended that the language in proposed subsection (i) (renumbered
as subsection (m)) is the only way to assure that the burdens placed on the
end-use customer are consistent with the burdens on municipalities created
by the CTPs' incursions into public rights-of-way. OPC argued allowing CTPs
to set the pass-through at a different level than the per-line fee introduces
an element of inefficiency into the cost recovery mechanism. OPC explained
that such a result threatens competitive neutrality because it enables CTPs
with large, well-established residential customer bases to subsidize other
customer classes through pass-through averaging, an option not available to
new entrants that have not established a sizeable residential customer base.
Consumers' Union supported proposed subsection (i) (renumbered as subsection
(m)), contending that the intent of HB 1777 is for end-use customers to pay
the charge assessed to their customer group, no more and no less, thereby
avoiding cost-shifting. Consumer's Union expressed a general preference that
charges, such as the municipal charge, be assessed on a percent of revenue
basis, as flat fees result in relatively higher increases in monthly bills
for low volume customers.
GTESW recommended that instead of a one-time adjustment to customer bills,
the CTP should be allowed to reduce its remittance to a city for uncollectibles
incurred during the reporting period. This would prevent customers who pay
from having a one-time charge for customers who do not pay their bills and
would also maintain stability in rates for customers, argued GTESW.
Houston proposed amending proposed subsection (i) (renumbered as subsection
(m)(2)) by deleting the last four words before the numbered paragraphs, as
well as the numbered paragraph that follow. Houston believed that the language,
as proposed, allows CTPs to make their own rates for which there is no authority.
At the public hearing, TML amended its position and asked that proposed
subsection (i) (renumbered as subsection (m)) be deleted entirely because,
after reading PURA §54.206, TML was no longer certain that the pass-through
is applicable to HB 1777. OPC disagreed with TML's suggestion that this subsection
be deleted altogether, arguing that this subsection operates to ensure that
the development of three access line categories, and the allocation between
those categories would not be in vain. OPC observed that there must be some
sort of linkage between the rate established by the commission and the amount
that is passed through to end use customers. TML and City Coalition advocated
deletion of paragraphs (1), (2) and (3) and deletion of the references to
PURA §54.206. TML and City Coalition noted that there is no mention of
uncollectibles in HB 1777 and that the language as proposed would lead to
a ridiculous outcome. Moreover, TML and City Coalition argued that the proposed
language would create a new remedy for collecting uncollectible bills, allowing
CTPs to raise their access line rates. City Coalition observed that the remedy
for non-payment is termination of service, which is part of a CTP's cost of
doing business.
Dallas stated that uncollectibles had been verified in the past. Under
proposed subsection (i) (renumbered as subsection (m)), Dallas asserted that
a CTP could now indiscriminately list items as uncollectible and that the
cities would be unable to verify the information. Dallas believed that the
issue of allowing a surcharge for uncollectible municipal franchise fees would
need to be addressed in another proceeding, as part of a ratemaking case.
Alternatively, GTESW mentioned that in the past, CTPs had the burden of proof
to prove uncollectibles, which is an option here. However, to do so, the proposed
rule language would need to be revised, observed GTESW, to establish how CTPs
could prove uncollectibles. GTESW also preferred that paragraphs (1), (2)
and (3) be deleted because they do not reflect GTESW's approach to resolving
the issue of recovery of uncollectibles.
SWBT put forth that the simplest way to not burden the good customers is
to deduct the payments from the city as they do under the gross receipts types
of ordinances. Also, SWBT stated that pass-through is not the proper subject
for HB 1777, as it is addressed under PURA. SWBT emphasized that uncollectibles
are not simply a cost of doing business that CTPs will bear. SWBT and GTESW
also preferred that paragraphs (1), (2) and (3) state that the CTP may reduce
the amount paid to the city for that relevant quarter, by the amount of the
uncollectibles, to clarify that no other method, such as factorization, is
allowed. SWBT responded that direct write-offs is a term of art and is a very
defined accounting term. AT&T commented that the language should be "may"
instead of "shall" to cover situations where CTPs do not pass-through municipal
fees.
Commission response
In response to the numerous commenters concerned about the commission's
approach to the issue of uncollectible municipal fees, the commission deletes
paragraphs (1)-(3) of proposed subsection (i) (renumbered as subsection (m))
and adds revised language. The commission finds that HB 1777 does not, as
such, provide guidance on this issue. However, parties generally agreed that
municipalities and CTPs have developed practices for addressing uncollectible
fees pursuant to past agreements or ordinances. At the public hearing, parties
reached an agreement, in principle, to this effect. Although the parties were
thereafter unable to reach consensus on specific language, the commission
believes it important to clarify this matter. The commission includes language
to new subsection (m)(2), which would allow a CTP to deduct uncollectible
amounts from its compensation to a municipality, and later pay that amount
to the municipality if recovered through its collection process. The new language
represents a position that parties agreed to in principle during the public
hearing. Further, based upon comments from TML and City Coalition at the public
hearing, the commission has also removed references to PURA §54.206 to
avoid unnecessary confusion.
As pointed out by Consumers' Union, the intent of HB 1777 is for end-use
customers to pay the charge assessed to their customer group--no more and
no less. The commission agrees with OPC's observation that proposed subsection
(i) (renumbered as subsection (m)) operates to ensure that the development
of categories and allocations within those categories is not in vain, and
that there will be linkage with the ultimate rate or pass-through. The commission,
therefore, retains the proposed language on pass-through with the modifications
discussed above.
Subsection (j)
Proposed subsection (j) (renumbered as subsection (n)), relating to compensation
from customers of Lifeline or other low-income assistance programs, stated
that a municipality may choose to forgo municipal franchise compensation from
access lines serving such customers by timely notifying its CTPs of this decision.
Proposed subsection (j) (renumbered as subsection (n)) further stated that
upon receipt of such notification, CTPs shall not pass through a municipal
franchise fee to those end-use customers.
MCIWorldCom proposed adding language at the end of the section that would
allow a CTP to exclude access lines that belong to customers of Lifeline or
other low income assistance programs from its access line count report, if
a municipality has chosen to forge compensation from those lines. San Antonio
supported the option to exempt such customers from municipal franchise compensation,
but recommended that cities be allowed to recover such revenue losses by adjustments
to the municipal fees for other residential customers. OPC supported the adoption
of this subsection as proposed because this restriction on pass-through to
low-income customers ensures that the municipal franchise fee pass-through
does not undercut other commission policies aimed at encouraging the use of
the network by these customers.
SWBT proposed amendments to this subsection to make clear that CTPs in
municipalities that choose to forgo access line fee compensation from Lifeline
customers are relieved of any obligation to pay fees on such access lines.
SWBT contended that this would ensure that other end use customers do not
bear the burden of the municipality's decision.
At the public hearing, SWBT suggested splitting out the Lifeline customers
on the line count report in order to provide municipalities with information
with which to make a decision about including or excluding compensation from
those access lines. Dallas commented on the one-time opportunity for municipalities
to decide whether to forego compensation associated with Lifeline access lines.
Dallas stated that numerous city representatives would like the opportunity
to change their minds regarding compensation from the access lines of Lifeline
customers, as they see how it plays out. Dallas suggested an annual revision
opportunity, just as has been allowed for allocation and base amount adjustments.
In response, GTESW requested ample notification, at least 60 days, to allow
CTPs time to incorporate this information into billing systems.
Commission response
The commission agrees with MCIWorldCom's proposal and has added language
to new subsection (n) that would allow a CTP to exclude from reporting access
lines that belong to customers of Lifeline or other low income assistance
programs, should a municipality decide to forge compensation from those lines.
The commission agrees with SWBT that CTPs in municipalities that choose
to forego access line fee compensation from customers of Lifeline or other
low-income assistance programs are relieved of any obligation to pay fees
on such access lines. The entire purpose behind allowing municipalities to
forego compensation from these lines was to ensure that, at the city's discretion,
these customers that are least able to pay are not burdened with municipal
fees. Accordingly, the commission modifies proposed subsection (j) (renumbered
as subsection (n)) to clarify this issue.
The commission also concurs with the public hearing comments from Dallas
that cities should have the option to change their mind about whether to forego
compensation associated with the access lines of customers on the Lifeline
or other low-income assistance programs. The commission has held a constant
position that many of these issues are local issues and should be dealt with
locally. Therefore, in recognition of changing municipal needs, the commission
amends proposed subsection (j) (renumbered as subsection (n)) to allow municipalities
to revisit the issue of foregoing compensation from Lifeline customers' access
lines on an annual basis. The commission also finds GTESW's request for prior
notification compelling. Adjustments relating to pass-through of fees to certain
customers is a billing change. As such, CTPs need time to make adjustments
to their billing systems to accommodate municipal decisions. Recognizing the
logistics of billing, the commission is satisfied with GTESW's proposal and
has generally incorporated it into renumbered subsection (h).
The commission does not agree with San Antonio's proposal to allow municipal
fees associated with customers of Lifeline or other low-income assistance
programs to be spread out among all other customers. The commission has established
three categories at the specific request of cities; there is no authority
to create another category for Lifeline or low-income assistance program access
lines. The commission concludes that, to exempt these access lines from payment
would essentially create a separate category of lines that do not pay access
fees. The commission finds no justification for requiring other customers
to bear the additional financial burden, particularly given the commission's
interest in ensuring that pass-through amounts closely reflect commission
rates. As an exercise of municipal authority, municipalities can choose to
forego a certain amount of compensation in the interests of municipal public
policy.
Penalty/Enforcement
TCCFUI recommended that a section be added specifying penalties for non-compliance
with requirements of the rule. TCCFUI proposed that penalties include fines
for under-reporting or misreporting of access lines, and certificate revocation
for repeated violations for failure to report at all. TCCFUI supported the
penalty provision language recommended by City Coalition. TCCFUI suggested
that notification to all other CTPs and municipalities is essential once a
certificate is revoked; notification should come with recommendation that
all contracts, permits and licenses based on a telecommunications provider
having a certificate should be void.
Emphasizing how the accuracy of CTPs' access line reports is vital to the
effectiveness of HB 1777 and the fair and reasonable compensation of cities
for the use of their public property, TML advocated a penalty to put muscle
behind these requirements. TML did not propose a penalty for inadvertent or
unintentional errors; instead, TML suggested that intentional misreporting
should be subject to a significant fine, with penalties for repeated offenses
escalating to ultimate revocation of certification.
City Coalition advocated the imposition of penalties for failure to comply
with the commission's rules, arguing that a CTP that fails to report its access
lines to the commission should face revocation of its certificate. City Coalition
further stated that, for a CTP that files incorrect reports, an appropriate
penalty would range from substantial fines to cancellation of certificate
for repeat offenders. City Coalition and Garland/San Angelo suggested a provision
be added regarding penalties in these circumstances. TML emphasized how the
accuracy of CTPs' access line reports is vital to the effectiveness of HB
1777 and the fair and reasonable compensation of cities for the use of their
public property.
AT&T responded that the bill already allows a municipality to seek
enforcement through a judicial proceeding. AT&T also believed that the
commission has general authority under PURA to enforce its rules. AT&T
saw no benefit to adding additional language providing for a different penalty
process.
Commission response
The commission agrees with AT&T that the commission's general authority
under PURA and existing commission rules is sufficient to address any enforcement
matters arising out of implementation of HB 1777 and, therefore, declines
to add language relating to penalties or enforcement.
Compensation for lines in a city's right-of-way
where no end-user is in that city
TML and CLEC Coalition raised the issue of compensation for lines placed
in public right-of-ways in municipalities where no end-users are located,
and suggested that this issue should be addressed in §26.467. TML and
CLEC Coalition identified three cities outside Houston--Bellaire, Southside
Place, and West University Place--where a CTP intends to install lines in
those cities' rights-of-way in order to connect to a central office or switching
station, but where the lines will be used to provide local exchange service
to end-use customers in another municipality. TML argued that HB 1777 does
not support an interpretation that would deny compensation to these cities.
Citing Local Government Code §283.002(1)(A)(i), TML asserted that in
a situation where access lines cross a right-of-way in a municipality, but
do not extend to end-use customers in that same municipality, HB 1777 does
not apply because the line(s) in question are not access lines. Accordingly,
TML asserted that no compensation would be paid under HB 1777 because this
type of line is outside the scope of the bill, just like the line(s) of an
interexchange carrier (IXC) that passes through a city. Therefore, argued
TML, the compensation due the city in this fact situation is controlled by
law outside HB 1777--the city would be entitled to collect franchise compensation,
and the most common method for doing so is through a linear foot charge, although
the parties may agree on a different methodology. TML added that Local Government
Code §283.057(f) is inapplicable to this type of situation. At the public
hearing, Irving observed that costs incurred in a municipality for work performed
in a right-of-way must be recovered.
Commission response
After both municipal and industry representatives expressed a desire at
the public hearing to work jointly on addressing this issue, the staff suggested
that this matter be handled comprehensively by affected parties in a separate
rulemaking. At the public hearing, the staff suggested that the parties combine
efforts and provide a joint proposal to the commission. Parties agreed to
do so. Accordingly, the issue of compensation for lines in a city's rights-of-way
where no end-use customers are in that right-of-way will not be addressed
in this rule and will be taken up in a later rulemaking.
Calculation of CPI
SWBT proposed adding new language to make explicit reference to the CPI
adjustment provided for in Local Government Code §283.055(g).
Commission response
The commission agrees with SWBT's suggestion and has added language in
new subsection (j) to explain that, beginning 24 months after the commission
establishes access line rates, the rates per access line category shall be
annually adjusted in September for each municipality by one-half the annual
change, if any, in the most recent CPI.
Communication of Rates.
GTESW proposed that the commission publish rates by municipality, by category
of service on the commission website and include the effective date of any
rates resulting from escalation provisions of current agreements. This information
will simplify the process for new CTP entrants, contended GTESW. AT&T
echoed these concerns, stating that in order to charge the appropriate fee
to customers in a municipality, a CTP must have adequate notice of the revised
fee to update its billing system prior to issuing bills for the month in which
the new rates are proposed to be effective. In order to avoid problems, it
is important that the commission establish a systematic method by which any
changes to access line fees are distributed to CTPs as least 90 days prior
to the first month in which the revised fees are to be effective, suggested
AT&T. Establishing a set date would allow a more orderly implementation
of these rates. In the absence of an established schedule, AT&T asserted
that the new compensation scheme will be overwhelming and not administratively
simple.
Commission response
The commission recognizes the need to timely provide notice to CTPs of
revised fees. The commission has set deadlines throughout these rules for
commission action. At this time, however, details regarding posting municipal
access line rates on the website have not been finalized. Further, because
the commission intends to use a variety of methods to disseminate this critical
information, the commission does not find it appropriate to specify, by rule,
which method the commission shall use. Accordingly, the commission declines
to add language to address this matter.
In adopting this section, the commission makes other minor modifications
for the purposes of clarifying its intent. All comments, including those not
specifically referenced herein, were fully considered by the commission.
The new section is adopted under the Public Utility Regulatory
Act, Texas Utilities Code Annotated §14.002 (Vernon 1998) (PURA), which
provides the Public Utility Commission with the authority to make and enforce
rules reasonably required in the exercise of its powers and jurisdiction.
This section is also authorized by House Bill 1777 (HB 1777), Act of May 25,
1999, 76th Legislature, Regular Session, chapter 840, 1999 Texas Session Law
Service 3499 (Vernon) (to be codified as an amendment to the Local Government
Code §283.055), which provides that not later than March 1, 2000, the
commission shall establish rates per access line by category for the use of
a public right-of-way by certificated telecommunications providers in each
municipality and the statewide average of those rates. The rates shall be
applied to the total number of access lines by category in the municipality.
The commission shall establish an allocation of the base amount over the categories
of access lines if a municipality does not file its proposed allocation by
December 1, 1999. On a quarterly basis, certificated telecommunication utilities
are required to file a report with the commission that shows the number of
access lines the provider has within each municipality at the end of each
month of the quarter, and are required to pay the municipality a quarterly
amount calculated monthly based on the reported access line counts and the
commission's access line rates.
Cross Reference to Statutes: Public Utility Regulatory Act §14.002
and Local Government Code §283.055.
§26.467.Rates, Allocation, Compensation, Adjustments and Reporting.
(a)
Purpose. This section establishes the following:
(1)
rates for categories of access lines;
(2)
default allocation for municipalities;
(3)
adjustments to the base amount and allocation;
(4)
municipal compensation; and
(5)
associated reporting requirements.
(b)
Application. The provisions of this section apply to certificated
telecommunication providers (CTPs) and municipalities in the State of Texas.
(c)
Rate determination. The sum of the amounts derived from
multiplying the rate for each category of access line by the total number
of access lines in that category in a municipality shall be equal to the base
amount. The rate for each of the access line categories established pursuant
to §26.461 of this title (relating to Access Line Categories) shall be
calculated using a 1998 access line count in general accordance with the following
formula:
Figure: 16 TAC §26.467(c)
(d)
Estimating a 1998 access line count. If a CTP does not
provide an actual 1998 access line count, the commission shall use the CTP's
1999 access line count, reported pursuant to §26.465 of this title (relating
to Methodology for Counting Access Lines and Reporting Requirements for Certificated
Telecommunications Providers), to derive an estimated 1998 access line count.
(1)
Estimating access line count for category 1 (residential)
access lines. The estimated statewide growth rate for category 1 access lines
in 1999 is 4.5%. This percentage is determined using the statewide growth
rate for residential access lines as reported to the Texas Legislature in
the 1997 and 1999 reports entitled "Scope of Competition in Telecommunications
Markets." The commission shall estimate a municipality's 1998 access line
count for category 1 by discounting 4.5% from the 1999 line count for category
1 lines reported by a CTP.
(2)
Estimating access line count for category 2 (non-residential)
and category 3 (point-to-point) access lines. The estimated statewide growth
rate for category 2 and category 3 access lines in 1999 is 7.0%. This percentage
is determined using the statewide growth rate for business access lines as
reported to the Texas Legislature in the 1997 and 1999 reports entitled "Scope
of Competition in Telecommunications Markets." The commission shall estimate
a municipality's 1998 access line count for category 2 and category 3 by discounting
7.0% from the 1999 line count for category 2 and category 3 lines reported
by a CTP.
(3)
Municipal request for exception.
(A)
No later than March 15, 2000, a municipality may request
the use of a municipality-specific growth rate(s), by category, for estimating
its 1998 access line count, instead of using the estimated statewide growth
rates determined under paragraphs (1) and (2) of this subsection. The municipality's
request shall include its proposed growth rates(s), along with proof and methodology
for deriving the growth rate(s), from public and verifiable sources.
(B)
No later than March 15, 2000, a municipality that requests
to use a municipality-specific growth rate(s) shall provide a copy of its
filing to all CTPs that have filed access line counts for the municipality.
(C)
No later than March 31, 2000, any CTP that has filed access
line counts for that municipality may file objections to the municipality's
proposed growth rate(s), if any. In order to be considered, an objection must
include actual 1998 line count data for that municipality.
(D)
Until resolution of the request approval process, the estimated
statewide growth rate(s) determined under paragraphs (1) and (2) of this subsection
shall be used to determine the municipality's 1998 access line count. Upon
resolution of any objections to the request approval process, the commission
shall develop a new access line count for 1998 incorporating the new growth
rate(s), by category, as appropriate.
(e)
Default allocation. The commission's default allocation
shall be a ratio of 1:2.3:3.5 for access line categories 1, 2, and 3 respectively.
This default allocation represents an average of all allocation ratios filed
by municipalities with the commission pursuant to §26.463 of this title
(relating to Calculation and Reporting of a Municipality's Base Amount).
(1)
The commission shall establish access line rates for municipalities
using the default allocation unless a municipality has filed its own allocation
pursuant to §26.463 of this title.
(2)
The access line rates established by the commission
for municipalities using the default allocation shall remain in effect until
a municipality updates its initial allocation pursuant to subsection (g) of
this section or revises its allocation pursuant to subsection (h) of this
section.
(f)
Initial rates. No later than March 1, 2000, the commission
shall establish rates for each category of access line in a municipality.
These rates shall be considered to be initial rates. The initial rates shall
be implemented no later than 90 days from the date the commission establishes
the rates. These initial rates shall remain in effect until the rates are
updated pursuant to subsection (g) of this section or revised pursuant to
subsection (h) of this section.
(g)
Updated rates. No later than April 14, 2000, the commission
shall establish updated rates for each category of access line in a requesting
municipality. The initial rates established under subsection (f) of this section
shall be updated to incorporate municipal filings pursuant to paragraph (1)
of this subsection and/or CTP filings pursuant to paragraph (2) of this subsection,
as appropriate. Subject to approval by the commission, the updated municipal
and CTP information shall be used to establish updated access line rates.
The updated rates shall be in effect until revised pursuant to subsection
(h) of this subsection.
(1)
Updates to municipal base amount filings. No later than
March 31, 2000, a municipality may update its base amount and allocation filed
with the commission pursuant to §26.463 of this title. No later than
March 31, 2000, a municipality that filed a request to update its base amount
and/or allocation shall forward a copy of its filing to all CTPs who have
filed access line counts for the municipality.
(A)
Updates to base amount. A municipal filing for updates
to base amount shall use a methodology for calculating the base amount that
is consistent with §26.463 of this title, and shall include appropriate
justification for the update. Appropriate justification may include:
(i)
receipt of late payments from CTPs attributable to 1998
usage of rights-of-way;
(ii)
reduction to judgment of disputed payments attributable
to 1998 usage of rights-of-way;
(iii)
settlement of disputed payments attributable to 1998
usage of rights-of-way;
(iv)
eligibility under effective agreements or ordinances to
receive a known and measurable amount due to specifically prescribed fee rate
escalations provisions for the period between January 1, 2000 and March 1,
2000; and
(v)
an inadvertent base amount computational error.
(B)
Updates to allocation. A municipality that has filed with
the commission its own allocation pursuant to §26.463 of this title may
file an updated allocation no later than March 31, 2000.
(2)
Updates to CTP access line counts. No later than
March 15, 2000, a CTP may request to update its access line count filed with
the commission pursuant to §26.465 of this title. A CTP's request for
updates to access line count shall use a methodology for counting access lines
that is consistent with §26.465 of this title, and shall include appropriate
justification for the update. Appropriate justification may include, but is
not limited to:
(A)
an inadvertent access line count computational error;
(B)
reconciliation of reported retail and resold access line
lines; and
(C)
access line counting issues associated with merger, sale,
or transfer of CTPs.
(3)
Choosing lower than maximum rate(s). The rates
obtained by applying the allocation to the base amount and dividing the amounts
allocated to each category by the appropriate number of access lines in that
category in a municipality shall be considered to be maximum rates for a municipality.
No later than March 31, 2000, a municipality that wishes to choose lower access
line rate(s) than the maximum initial rates established under subsection (f)
of this section, shall notify the commission and all CTPs that filed access
line counts for that municipality of the lower access line rate(s) it chooses.
If a municipality's request to choose lower initial rate(s) is higher than
its updated rates, the updated rates shall remain in effect until revised
pursuant to subsection (h) of this section.
(h)
Revised rates. No later than October 15 of each calendar
year, upon request from a municipality pursuant to paragraphs (l) and (2)
of this subsection, the commission shall establish revised access line rates
for each category of access line in a municipality, as applicable. A CTP shall
apply the revised rates to access lines in a municipality in January of the
next calendar year and compensate a municipality pursuant to the revised rates.
(1)
Adjustments within established rates. No later than September
1 of each calendar year, a municipality may change its rates within the maximum
rates by notifying the commission and all CTPs in that municipality that its
wishes to revise its access line rate for the next calendar year. In its notification
to the commission and the CTPs, the municipality shall indicate the rates
that it wishes to have the commission apply in the next calendar year. Upon
such notification, the commission shall revise the rates accordingly.
(2)
Revising allocation formula. No later than September
1 of each calendar year, and not more than once every 24 months, a municipality
may petition a modification of the default allocation or its own allocation
by notifying the commission and all affected CTPs in the municipality. In
its notification to the commission and the CTPs, the municipality shall designate
the allocation that it wishes to have the commission apply in the next calendar
year.
(i)
Resolution of municipal allocations.
(1)
The commission shall implement a municipality's allocation
unless, the commission determines that the allocation is not just and reasonable,
is not competitively neutral, or is discriminatory.
(2)
No later than March 15, 2000 any affected CTP may
complain regarding a municipality's initial allocation filed pursuant to §26.463
of this title. No later than April 7, 2000 any affected CTP may complain regarding
a municipality's updated allocation filed pursuant to subsection (g)(1)(B)
of this section. No later than September 15 of any calendar year any affected
CTP may complain regarding a municipality's revised allocation filed pursuant
to subsection (h)(2) of this section.
(3)
Where the market price of a telecommunications service
is less than or equal to the amount derived from multiplying the access line
rates with the number of access lines used to provide that service, the allocation
used to develop the access line rate shall be presumed to be discriminatory,
not just and reasonable and not competitively neutral.
(j)
Consumer price index (CPI) adjustment to commission-established
rates. Beginning 24 months after the commission establishes access line rates,
the commission shall annually adjust the rates per access line by category
for each municipality by an amount equal to one-half the annual change, if
any, in the most recent consumer price index (CPI), as determined by the Federal
Bureau of Labor Statistics. Such adjustments shall be made in September preceding
the calendar year in which the CPI adjusted access line rates are to take
effect.
(k)
CTP implementation of commission-established rates. CTPs
shall continue to compensate municipalities at the rates required under the
terms of the expired or terminated agreements or ordinances until the CTP
implements the commission established initial and/or updated rates. A CTP
not subject to an existing franchise agreement or ordinance that wants to
construct facilities to offer telecommunications services in the municipality
shall pay fees that are competitively neutral and non-discriminatory, consistent
with the charges of the most recent agreement or ordinance between the municipality
and the CTP serving the largest number of access lines within the municipality
until the right-of-way fees established by the commission take effect.
(1)
Development of billing systems. No later June 1, 2000,
CTPs shall complete the development of billing systems necessary to implement
access line rates, by category, as established by the commission.
(2)
Initial quarterly compensation and reporting.
(A)
Implementation. CTPs may apply the commission-established
initial and updated rates (as applicable) to access lines in a municipality
for the second calendar quarter of 2000 (the months of April, May and June).
(B)
Quarterly access line count report. No later than August
15, 2000, CTPs that implemented commission-established rates pursuant to subparagraph
(A) of this paragraph shall file the first quarterly access line count report
with the commission. The report shall include a count of the number of access
lines, by category, by municipality, at the end of each month of the preceding
quarter (April, May and June) that the CTP implemented commission-established
rates. The quarterly report shall exclude lines that are leased or resold
to other CTPs unless an intercarrier agreement has been reached pursuant to
subsection (l) of this section. The CTP shall include with the report a certified
statement from an authorized officer or duly authorized representative of
the CTP certifying that the information contained in the report is true and
correct to the best of the officer's or representative's knowledge and belief
after inquiry. On request and subject to the confidentiality protections of
the Local Government Code, §283.005, each CTP shall provide each affected
municipality with a copy of the report required by this subsection.
(C)
Compensation. No later than August 15, 2000, CTPs that
applied commission established rates pursuant to subparagraph (A) of this
paragraph shall pay municipalities, compensation for the preceding quarter
at that rate. The municipal compensation shall be the amount equal to the
rate per category of access line multiplied by the monthly access line count
reported pursuant to subparagraph (B) of this paragraph.
(D)
True-up. Where a municipality is compensated under the
terms of an expired franchise contract, agreement or ordinance for the period
between March 1, 2000 and June 30, 2000, no true-up to the commission established
rates will be allowed for that period.
(3)
Subsequent quarterly compensation and reporting.
All CTPs shall implement commission-established initial and updated rates
(as applicable) no later than July 1, 2000, and revised rates (as applicable)
for the subsequent quarters.
(A)
Quarterly access line count report. No later than October
15, 2000, a CTP shall file a quarterly access line count report for the preceding
calendar quarter with the commission. All subsequent quarterly access line
count reports shall be due no later than 45 days from the end of the preceding
calendar quarter. The quarterly access line count report shall include a count
of the number of access lines, by category, by municipality, for the end of
each month of the preceding quarter. The report shall exclude lines that are
resold or leased to other CTPs unless an intercarrier agreement has been reached
pursuant to subsection (l) of this section. The CTP shall include with the
report a certified statement from an authorized officer or duly authorized
representative of the CTP certifying that the information contained in the
report is true and correct to the best of the officer's or representative's
knowledge and belief after inquiry. On request and subject to the confidentiality
protections of the Local Government Code, §283.005, each CTP shall provide
each affected municipality with a copy of the report required by this subsection.
(B)
Compensation. Beginning July 1, 2000, CTPs shall apply
the most recent commission-established rates to access line in a municipality.
The municipal compensation shall be an amount equal to the rate per category
of access line multiplied by the number of access lines in that category in
that municipality at the end of each month in a quarter as reflected in reports
filed pursuant to subparagraph (A) of this paragraph. All CTPs shall pay to
municipalities the compensation for the third calendar quarter of 2000, no
later than October 15, 2000. All payments for subsequent quarters shall be
made no later than 45 days from the end of that quarter.
(4)
Waiver of reporting requirements. A CTP that
has reached an intercarrier agreement pursuant to subsection (l) of this section
shall be relieved of the quarterly access line count reporting requirements
until the expiration of that agreement.
(l)
Reporting and compensation on behalf of another CTP. Notwithstanding
any other subsection, a CTP may report and compensate a municipality on behalf
of another CTP subject to the following terms.
(1)
All CTPs are responsible for reporting to the commission
their own quarterly access line count report and compensating each municipality
pursuant to subsection (k) of this section.
(2)
CTPs that own facilities in the rights-of-way of municipalities
shall directly compensate each municipality quarterly, based upon a monthly
access line count. The compensation shall be the amount equal to the rate
per category of access line multiplied by the number of access lines in that
category in that municipality, at the end of each month, for the preceding
quarter.
(3)
CTPs that do not own facilities in the rights-of-way
of municipalities have the option of compensating the municipality through
the underlying CTP, so long as the reselling CTP and the underlying CTP have
reached a written agreement.
(4)
An underlying CTP and a reselling CTP may reach an
agreement that the underlying CTP shall file the quarterly access line count
report in each municipality, by category, on behalf of the reselling CTP,
and also compensate the municipality for those lines. The quarterly access
line count report may be filed with the commission on an aggregated basis.
(5)
A CTP may file access line counts in each municipality
for itself and its affiliates that are CTPs on an aggregated basis.
(6)
A CTP that reports on behalf of another CTP shall,
on request from the commission or a municipality, provide a disaggregated
line count for each CTP included in the report filed pursuant to subsection
(k) of this section.
(7)
No later than 45 days after entering into an agreement
to provide joint access line counts and municipal compensation pursuant to
paragraphs (4) and (5) of this subsection, a CTP that reports and compensates
municipalities on behalf of another CTP shall identify in a report filed with
the commission, the CTPs on whose behalf access line counts will be reported
to the commission.
(8)
Nothing in this section shall prevent a CTP from charging
to another CTP a reasonable administrative fee for reporting and compensating
a municipality on behalf of another CTP to which it has resold, leased, or
otherwise provided access lines.
(9)
Nothing in this section shifts the liability from
a reselling CTP for non-payment of municipal compensation and failure to report
pursuant to this section.
(m)
Pass-through. A CTP recovering its municipal compensation
from its customers within the boundaries of a municipality shall not recover
a total amount greater than the sum of the amounts derived from the multiplication
of access line rates by the number of lines, per category, for that municipality.
Pass-through of the commission's rates established under this chapter shall
be considered to be a pro rata charge to customers.
(1)
Where a CTP chooses to pass through the municipal fee to
its customers such CTP shall not pass through any costs associated with its
administration of municipal fees. The pass-through amount shall not exceed
the access line rate, by category, established by the commission for that
municipality.
(2)
A CTP shall be allowed to deduct from its current
payment any amounts that are direct write-offs as a result of its collection
efforts. Any amounts subsequently recovered from the customer after the direct
write-offs shall be included in the amounts payable to the cities in the month(s)
received. There shall be no reduction in payment for any estimated uncollectible
allowances reported for financial purposes by the CTP.
(3)
Beginning January 1, 2001, on request from the commission,
a CTP shall report the amounts collected in municipal fees from customers
and the municipal fees paid to municipalities for a period determined by the
commission. This report shall be filed with the commission by the CTP no later
than 60 days from the date the CTP receives this request.
(n)
Compensation from customers of lifeline or other low-income
assistance programs. A municipality may choose to forgo municipal compensation
from access lines serving Lifeline customers or customers of other similar
low-income assistance programs. A municipality electing this option shall
notify all CTPs in the municipality of this decision before September 1 on
any given year. Upon receipt of such notification, CTPs shall exclude such
end-use customers from their quarterly access line count, not pass through
a municipal fee to such end-use customers for the next calendar year, and
shall be relieved of any obligation to pay fees on such access lines to the
municipality.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 10, 2000.
TRD-200001050
Rhonda Dempsey
Rules Coordinator
Public Utility Commission of Texas
Effective date: March 1, 2000
Proposal publication date: December 31, 1999
For further information, please call: (512) 936-7308