SB451: Bill Text

LRB-4912/1

MDK:jld/hmh/cmh/cjs:pg

2001 - 2002 LEGISLATURE

2001 Senate BILL 451

February 20, 2002 - Introduced by Senator Jauch. Referred to Committee on Health, Utilities, Veterans and Military Affairs.

SB451,2,5 An Act to renumber 196.195 (1) and 196.204 (3); to renumber and amend 196.204 (1); to amend 100.207 (3) (a), 100.207 (5), 100.207 (6) (b) 1., 100.207 (6) (c), 100.207 (6) (em) 1., 196.01 (8), 196.196 (1) (c) 1., 196.196 (1) (g) 1. (intro.), 196.196 (3) (a) and 196.37 (2); and to create 20.155 (1) (Ls), 100.207 (3) (d), 100.207 (3m), 100.207 (6) (g), 100.207 (7), 196.025 (6), 196.195 (1g), 196.196 (1) (em), 196.196 (6) (title), 196.196 (6) (a), 196.196 (6) (b), 196.196 (6) (c), 196.196 (6) (d), 196.196 (6) (e), 196.196 (6) (f), 196.196 (6) (g), 196.196 (6) (h), 196.1995, 196.204 (1r), 196.204 (3) (b), 196.219 (1) (c), 196.219 (3) (p), 196.219 (3m) and 227.01 (13) (cm) of the statutes; relating to: regulating large price-regulated telecommunications utilities, wholesale telecommunications service, small business telecommunications rates, telecommunications sales practices, and cross subsidization by small telecommunications providers; requiring mandatory credits for certain telecommunications customers; allowing the public service commission to order payments by certain telecommunications providers; requiring the public service commission to report on telecommunications competition; extending the time limit for emergency rule procedures; providing an exemption from emergency rule procedures; providing an exemption from rule-making procedures; granting rule-making authority; and making an appropriation.

Analysis by the Legislative Reference Bureau

This bill makes certain changes to the regulation of telecommunications providers, including "large price-regulated telecommunications utilities." The bill defines a "large price-regulated telecommunications utility" as a telecommunications utility that had more than 500,000 access lines in use in this state at the time that the utility elected to become price regulated. Under current law, "price regulation" is a form of regulation that is based on the prices of services offered by a telecommunications utility, instead of the utility's rate-of-return, which is the traditional basis for regulating public utilities.

The bill does all of the following, which are described below: 1) creates interconnection, collocation, and network elements requirements for large price-regulated telecommunications providers; 2) changes the formula for determining the price increases that a large price-regulated telecommunications utility is allowed to make; 3) allows the public service commission (PSC) to approve price increases by price-regulated telecommunications utilities for small business rates; 4) requires certain telecommunications utilities to issue mandatory credits to customers; 5) requires telecommunications providers to comply with wholesale service standards; 6) allows the PSC to order certain telecommunications providers to make payments to the PSC or other telecommunications providers; 7) regulates certain sales practices by telecommunications providers; 8) creates exceptions on cross subsidization for certain small telecommunications utilities; 9) requires the PSC to report to the legislature on telecommunications competition; and 10) requires the PSC to define "effective competition" for purposes of current law regarding deregulation of telecommunications providers.

Interconnection, collocation, and network elements

The bill creates various requirements for large price-regulated telecommunications utilities regarding interconnection, collocation, and network elements. The bill defines a "network element" as a facility or equipment used to provide telecommunications service. These requirements relate to the duty of a telecommunications utility under federal law to interconnect its facilities and equipment to other telecommunications providers. "Collocation" refers to the placement of a telecommunications provider's facilities and equipment at the premises of a telecommunications utility for the purpose of interconnection. Collocation may be physical, in which facilities and equipment are actually placed at the utility's premises, or collocation may be virtual, which is the functional equivalent of physical collocation, but without the actual placement of facilities and equipment at the utility's premises.

The bill requires a large price-regulated telecommunications utility to provide interconnection, collocation, and network elements in a manner that promotes the maximum development of competitive telecommunications service offerings in this state. Also, a large price-regulated telecommunications utility must provide interconnection, collocation, and network elements in a manner specified by a telecommunications provider if that manner is technically feasible. In addition, the rates at, and terms and conditions on, which a large price-regulated telecommunications utility provides physical or virtual collocation of any type of equipment for interconnection with, or access to the network elements of, the utility or any collocated telecommunications provider at the utility's premises, must be just, reasonable, and nondiscriminatory.

The bill also requires a large price-regulated telecommunications utility to provide, upon request, for cross-connects between the facilities or equipment of collocated telecommunications providers that are the most reasonably direct and efficient, as determined by the collocated telecommunications provider. Also upon request, a large price-regulated telecommunications utility must provide for cross-connects between the facilities or equipment of a collocated telecommunications provider and the network elements platform or transport facilities of a noncollocated telecommunications provider. (A "network elements platform" is the sum of the various constituent network elements of the utility.) A large price-regulated telecommunications utility must provide either type of cross-connect in a manner that is consistent with safety and network reliability standards.

Also, a large price-regulated telecommunications utility must, as requested by a telecommunications provider, provide network elements on a bundled or unbundled basis at rates, and on terms and conditions, that are just, reasonable, and nondiscriminatory. Although not defined in the bill, it is understood in the telecommunications industry that "bundled" network elements are those that are not separated from other network elements, and "unbundled" network elements are those that are separated from other network elements. The network elements must be provided at any point that the telecommunications provider determines is technically feasible and provided in a manner that allows the telecommunications provider to combine the network elements to provide new or existing telecommunications service. Unless directed by a telecommunications provider, a large price-regulated telecommunications utility is not allowed to require a wholesale customer to purchase network elements on an unbundled basis if the utility ordinarily combines the elements to provide service to the utility's own end-user customers. The bill defines "end-user customer" as a person who receives local exchange service, but does not resell the service or use the service to provide telecommunications service to another person. Also, as requested by a telecommunications provider, a large price-regulated telecommunications utility must combine any sequence of network elements that the utility ordinarily combines for itself.

In addition, a large price-regulated telecommunications utility may not require that a telecommunications provider purchase other network elements or retail services of the utility if the telecommunications provider uses the network elements platform of the utility that consists solely of combined network elements and the use is for the purpose of providing telecommunications service to an end-user customer. Other requirements apply to the use of a network elements platform, including the requirement that a large price-regulated telecommunications utility must provide the platform without any disruption of services to end-user customers.

Finally, the bill requires the PSC to issue an order establishing a compliance plan for each large price-regulated telecommunications utility that includes standards for the utility to provide nondiscriminatory access to the utility's services and network elements to the utility's wholesale customers. The plan must also include procedures for measuring the utility's compliance with the standards and requirements for the utility to make specified monetary payments to a wholesale customer if the utility fails to comply with a standard. The PSC must issue the order no later than nine months after the effective date of the bill.

Price increase formula

Under current law, a price-regulated telecommunications utility may increase its service rates according to a formula that is based on annual changes in the gross domestic product price index (GDPPI). Under the formula, the change in the revenue weighted price indexes for all services that are subject to price regulation may not exceed the difference between the most recent annual change in GDPPI and an offset percentage. In addition, the offset percentage is subject to the following: 1) a penalty adjustment that increases the offset percentage for inadequate service or insufficient investment by a telecommunications utility; and 2) an incentive adjustment that decreases the offset percentage for encouraging infrastructure investment by a telecommunications utility.

The amount of the offset percentage and the penalty and incentive adjustments depend on the size of a telecommunications utility. For a large price-regulated telecommunications utility, the offset percentage is 3%, which is subject to a penalty adjustment that may not exceed 2% and an incentive adjustment that may not exceed 2%. The PSC is required to promulgate rules that establish the penalty and incentive adjustments.

This bill changes the penalty adjustment to the offset percentage for large price-regulated telecommunications utilities. Under the bill, the penalty adjustment may not exceed 10%.

Small business rates

Under current law, as noted above, a price-regulated telecommunications utility is subject to certain restrictions regarding rate increases. This bill creates an exception to these restrictions for "small business rates," which the bill defines as rates for standard business access lines and usage by small businesses with no more than three access lines.

Under the bill, the PSC must investigate whether to allow price-regulated telecommunications utilities, including large price-regulated telecommunications utilities, to increase small business rates in geographic areas specified by the PSC. The PSC must complete the investigation no later the first day of the 13th month beginning after the bill's effective date. The PSC may allow such increases only if, as a result of the investigation, the PSC determines that effective competition exists in a geographic area. The PSC must promulgate rules defining "effective competition." If the PSC allows such rate increases, a price-regulated telecommunications utility may petition the PSC to increase rates. The PSC must grant the petition if it includes a statement that the price-regulated telecommunications utility agrees to allow customers to terminate contracts, as described below. However, the PSC may not grant a petition until after the PSC's order regarding wholesale service standards (which is described below) goes into effect.

If the PSC grants a petition by a price-regulated telecommunications utility, the bill allows a customer who has a contract for small business rates with the utility to terminate the contract without penalty. However, a customer may terminate such a contract only if the customer enters into a new contract for small business rates with another telecommunications provider. In addition, the right to terminate under the bill expires one year after the effective date of the PSC's order granting the price-regulated telecommunications utility's petition.

Mandatory credits

The bill requires a large price-regulated telecommunications utility to issue credits to end-user customers if the utility fails to satisfy requirements regarding each of the following: 1) disruption of service; 2) failure to install local exchange service; and 3) failure to keep service or repair appointments. The amount of a credit depends on the type of requirement and whether a residential or business telephone line is affected. The bill also allows the PSC, upon complaint or its own motion, to issue an order requiring telecommunications utilities, in addition to large price-regulated telecommunications utilities, to issue credits for failing to satisfy the above requirements. The PSC may issue such an order if it is necessary to protect the public interest.

The above requirements regarding the credits do not apply after the first day of the 60th month after the bill's effective date, unless the PSC, after notice and hearing, issues an order providing the requirements apply after that date. The PSC may issue such an order if it is necessary to protect the public interest.

Wholesale service standards

Under current law, telecommunications providers are subject to certain prohibitions regarding their treatment of consumers and other telecommunications providers. This bill creates an additional prohibition on failing to provide wholesale services to another telecommunications provider on the same terms and conditions that the telecommunications provider provides to itself or to any of its affiliates. "Wholesale services" are defined in the bill to include preordering, ordering and provisioning, maintenance and repair, network and system performance, unbundled elements, operator services and directory assistance, service center availability, and billing. In addition, the bill allows the PSC to issue an order that specifies additional services that are wholesale services.

The bill also requires the PSC to issue an order that establishes nondiscriminatory standards that require a telecommunications provider to provision wholesale services and related facilities, and repair wholesale service outages, in a timely manner. The order must also require a telecommunications provider to minimize the number of reports to the provider regarding problems with its wholesale service. In addition, the order may require a telecommunications provider that fails to comply with the standards to make payments to another telecommunications provider who is affected by the failure, or to the PSC, in amounts and according to schedules specified in the order. The PSC may use any payment that it receives for any purpose determined by the PSC relating to maintaining or improving telecommunications service quality, including compensating persons who are affected by the failure to comply with the PSC's order. The PSC must issue the order no later than the first day of the fourth month beginning after the bill's effective date.

In addition, the bill allows the PSC to issue an order that exempts a telecommunications provider from the order described above or that imposes less stringent requirements. The PSC may issue such an order only upon finding that such an order is in the public interest and that the telecommunications provider that is the subject of the order has not violated any of the following: 1) the order described above; 2) the prohibitions under current law regarding treatment of consumers and other telecommunications providers; 3) any provision of the federal Telecommunications Act of 1996, or an order or regulation issued under that act, relating to wholesale service; or 4) interconnection agreement approved by the PSC.

PSC authority regarding payments by telecommunications providers

Under current law, the PSC may order a person subject to its authority to take appropriate action if the PSC determines that the person acted in a manner that is unjust, unreasonable, insufficient, preferential, unjustly discriminatory, or otherwise unreasonable or unlawful. The PSC may also issue such an order if the PSC finds that service is inadequate or cannot reasonably be obtained.

Under this bill, if the PSC issues an order described above against a telecommunications provider, the PSC may also require the telecommunications provider to make payments specified in the order to persons affected by the telecommunications provider's act or service or to the PSC. The PSC may use any payment that it receives for any purpose determined by the PSC relating to maintaining or improving telecommunications service quality, including compensating persons who are affected by the telecommunications provider's act or service.

Sales practices of telecommunications providers

Current state law prohibits persons who provide telecommunications services from engaging in certain sales practices such as charging a customer for telecommunications services provided after the customer has cancelled those services. The law also prohibits a person who provides telecommunications services from engaging in advertising practices concerning those services that are false, misleading, or deceptive. In addition, the law requires that if a person orders telecommunications services as the result of an oral solicitation, the provider of the telecommunications services must provide independent confirmation of the order.

This bill provides that a person may request a telecommunications service orally, in writing, or by electronic means but specifies that a telecommunications provider may not provide services to a person who orders the service by any electronic means that simultaneously activates the service.

The bill also imposes additional requirements on persons who provide telecommunications services. The bill prohibits a person from enrolling a customer in any telecommunications service in which the customer did not affirmatively request to be enrolled. The bill specifies that a request to be enrolled in a particular telecommunications service is an affirmative request to be enrolled only in that particular service. The bill also prohibits the practice known as "slamming." A person engages in slamming by making a change in a customer's selection of a provider of telecommunications services even though the customer did not affirmatively request that such a change be made.

In addition to the slamming prohibitions created under this bill, federal law also prohibits slamming. This prohibition against slamming under federal law is regulated by the federal communications commission (FCC). Under rules promulgated by the FCC, any state may notify the FCC that it intends to administer the FCC rules prohibiting slamming including the remedies and penalties specified under those rules. This bill directs the department of agriculture, trade and consumer protection (DATCP) to notify the FCC of its intention to administer the FCC rules. It also requires DATCP to promulgate rules that are consistent with the FCC regulations rules.

Cross subsidization

Current law prohibits a telecommunications utility from subsidizing the activities of affiliates that are not subject to the PSC's authority. This prohibition is referred to as the prohibition on "cross subsidization." The prohibition does not apply to the retained earnings of a telecommunications utility.

This bill creates two exceptions to the prohibition on cross subsidization for small telecommunications utilities. The bill defines "small telecommunications utility" as a telecommunications utility that has less than 50,000 access lines in use in the state. For a telecommunications utility that is in a holding company, the access lines of all other telecommunications utilities in the holding company are counted in determining whether the telecommunications utility is a small telecommunications utility. (The access lines of any wireless telecommunications provider in the holding company are not counted.)

The first exception to the prohibition is that a small telecommunications utility is allowed to guarantee a loan for an affiliate if the loan is made before the first day of the 60th month beginning after the bill's effective date. Also, the purpose of the loan must be to partially or completely fund the cost of equipment that the affiliate will use to provide telecommunications service, cable television service, or both. The second exception to the prohibition is that a small telecommunications utility may allow an affiliate free use of the utility's intangible assets, including its name, goodwill, patents, and trademarks. However, the affiliate must use the intangible asset to provide telecommunications service, cable television service, or both. In addition, neither of the bill's two exceptions applies unless the small telecommunications utility waives its right under current law to object to the PSC allowing a competitor to provide telecommunications service in the municipality served by the utility.

A small telecommunications utility that takes advantage of either of the bill's exceptions is subject to additional requirements if certain actions occur under the federal Telecommunications Act of 1996. The federal act allows certain rural telecommunications utilities to petition the PSC to suspend or modify the application of the act's interconnection requirements. Also, certain rural telecommunications utilities are exempt from the interconnection requirements until another telecommunications provider requests interconnection and the PSC determines to terminate the exemption.

Under this bill, if a small telecommunications utility guarantees a loan for an affiliate under the bill's first exception and the utility petitions the PSC to suspend or modify the federal act's interconnection requirements, the affiliate must annually pay the utility an amount equal to one-quarter of 1% of the outstanding balance of the loan. The affiliate must also make such payments if another telecommunications provider requests interconnection and the PSC determines not to terminate the small telecommunications utility's exemption under the federal act. In addition, if a small telecommunications utility allows an affiliate free use of an intangible asset under the bill's second exception and the utility petitions the PSC to suspend or modify the federal act's interconnection requirements, the affiliate must annually pay the utility an amount equal to one-quarter of 1% of the affiliate's gross sales. The affiliate must also make such payments if another telecommunications provider requests interconnection and the PSC determines not to terminate the small telecommunications utility's exemption under the federal act.

Current law also requires the PSC to establish the minimum accounting and reporting requirements that are necessary for the PSC to, among other things, enforce the prohibition on cross subsidization. Under this bill, the accounting and reporting requirements that apply to transactions between small telecommunications utilities and their affiliates must conform with certain federal accounting and reporting requirements. The PSC must promulgate rules regarding such requirements.

PSC report on telecommunications competition

The bill requires the PSC to investigate competition among intrastate telecommunications providers, including those that provide Internet access service, during the five-year period after the bill's effective date and to submit a report to the legislature that assesses the relationship between the regulatory and competitive status of such providers. The report must assess specified aspects of such competition, including: 1) the number of different providers in different product and geographic markets; 2) the prices of telecommunications services offered by the providers; 3) the provider's market power; 4) the different levels of regulation applicable to the providers; 5) the different retail service quality credit plans offered by the providers; 6) the barriers to effective competition; 7) the number and types of complaints by residential customers regarding the providers; and 8) certain information regarding the unbundled network elements, interconnection, and collocation offered by the providers.

The report must also include proposals for legislation recommended by the PSC, including recommendations for remedying anticompetitive behavior of intrastate telecommunications providers. If the proposals do not include requiring providers to structurally separate wholesale and retail operations into independently operated affiliates, the report must indicate the PSC's reasons for not making such a recommendation.

Definition of "effective competition"